United States District Court, N.D. Illinois, Eastern Division
July 15, 2004.
AERO PRODUCTS INTERNATIONAL, INC., a Florida corporation, and ROBERT B. CHAFFEE, an individual, Plaintiffs,
INTEX RECREATION CORPORATION., a California corporation; QUALITY TRADING, INC., a California corporation; and WAL-MART STORES, INC., a Delaware corporation, Defendants.
The opinion of the court was delivered by: JOHN W. DARRAH, District Judge
MEMORANDUM OPINION AND ORDER
The Plaintiffs, Aero Products International, Inc. ("Aero") and
Robert B. Chaffee, filed suit against the Defendants, Intex
Recreation Corporation ("Intex"); Quality Trading, Inc.; and
Wal-Mart Stores, Inc. A trial by jury was held, where Defendants
were found liable for willfully infringing Plaintiffs' patent,
United States Patent No. 5,367,726 ("the '726 patent"). The jury
awarded Plaintiffs $2,950,000.00 in damages for Defendants'
patent infringement. Presently before the Court is Plaintiffs'
Motion for Enhanced Patent Damages and Attorney's Fees.
Section 284 of Title 35 of the United States Code provides that
"[t]he court may increase the damages up to three times the
amount found or assessed." Section 285 of Title 35 states that a
court may award attorney's fees to prevailing parties in
"exceptional cases." Determining whether an award of enhanced damages is merited is
a two-step process:
(1) the jury must determine whether an infringer is guilty of
conduct warranting increased damages; and (2) the court
determines, in its discretion, whether, and to what extent, to
increase the damages award based upon the totality of the
circumstances. Jurgens v. CBK, Ltd., 80 F.3d 1566, 1570 (Fed.
Cir. 1996) (Jurgens).
A finding of willful infringement satisfies the first step; and
"[u]pon a finding of willful infringement, a trial court should
provide reasons for not increasing a damages award or not finding
a case exceptional for the purpose of awarding attorneys [sic]
fees." Jurgens, 80 F.3d at 1570, 1572. However, a finding of
willful infringement does not require that enhanced damages be
awarded. Jurgens, 80 F.3d at 1573.
In analyzing the second requirement, a court must consider all
the facts and circumstances, including those that make a
"defendant's conduct more culpable, as well as factors that are
mitigating or ameliorating." Read Corp. v. Portec, Inc.,
970 F.2d 816, 826 (Fed. Cir. 1992) (Read Corp.), abrogated on
other grounds, Markman v. Westview Instruments, Inc.,
52 F.3d 967 (Fed. Cir. 1995). These factors include: (1) whether the
infringer deliberately copied the idea or design of the patentee;
(2) whether the infringer, when he knew of the patent,
investigated the scope of the patent and formed a good-faith
belief that the accused device was non-infringing; (3) the
infringer's behavior as a party to the litigation; (4) the
infringer's size and financial condition; (5) the closeness of
the case; (6) the duration of the infringer's misconduct; (7) the
infringer's remedial actions; (8) the infringer's motivation for
harm; and (9) whether the infringer attempted to conceal its
misconduct. Read Corp., 970 F.2d at 827. Similarly, determining whether attorney's fees are warranted is
also a two-step process:
(1) it must first be determined whether the case is exceptional
and (2) whether an award of attorney's fees is warranted.
Interspiro USA, Inc. v. Figgie, Int'l, Inc., 18 F.3d 927,
933-34 (Fed. Cir. 1994). A "district court must normally explain
why a case is not exceptional when a factual finding of willful
infringement has been established and, if exceptional, why it
decides not to award attorney fees." Transclean Corp. v.
Bridgewood Servs., Inc., 290 F.3d 1364, 1379 (Fed. Cir. 2002)
The factors used to determine whether attorney's fees should be
awarded are similar to the factors used in determining whether
enhanced damages should be awarded. See Transclean Corp., 290
F.3d at 1379; Jurgens, 80 F.3d at 1573 n. 4. However, the
conduct used that supports an award under one statute does not
necessarily mandate an award under the other statute. Jurgens,
80 F.3d at 1573 n. 4.
Plaintiffs, the prevailing parties, seek enhanced damages under
35 U.S.C. § 284 and attorney's fees under 35 U.S.C. § 285.
Because the jury has found Defendants' infringement was willful,
Plaintiffs have satisfied the first requirement for an award
under each statute.
The first factor, whether Intex deliberately copied the patent,
weighs heavily in favor of Plaintiffs. As evidenced by Intex's
e-mails, Intex employees obtained an Aero mattress and sent it to
China; Intex marketed the similar mattress less than a year
later. Dr. Albert Karvelis testified that Intex's valve was a
copy of Plaintiffs' valve, and the valves themselves appear
substantially the same in all material respects. The second factor, whether Intex, when it knew of the patent,
investigated the scope of the patent and formed a good-faith
belief that the accused device was non-infringing, does not weigh
in favor of Intex. Intex learned of the '726 patent in April
2002, when Plaintiffs filed suit, and thereafter hired an
attorney to render an opinion regarding any possible infringement
by Intex. This opinion contains a detailed analysis of the '726
patent, its prosecution history, and the accused product. The
opinion also contains a number of defenses that Intex could
assert to defend itself. However, the attorney did not
independently investigate the two devices.
Thus, while an independent attorney may have rendered an
opinion, the attorney's basis for knowledge here was not
independent; and the opinion letter was not, therefore, reliable.
Moreover, the opinion does not rely upon independent technical
experts to determine the meaning of key terms. Instead, the
opinion relied on Richard Saputo, Intex's Product Quality
Manager, to provide information regarding the patented product
and the Intex products. For instance, the opinion assumed that
the Intex product did not contain a hermetic seal, but Saputo
failed to perform any test to confirm this fact.
The third factor, Intex's behavior as a party to the
litigation, clearly favors the Plaintiffs. First, Intex destroyed
e-mails for the first ten months of this litigation every thirty
days. While Intex argues that it retrieved e-mails from before
the filing of Plaintiffs' Complaint once it realized e-mails were
being deleted pursuant to an established company policy,
Plaintiffs were still forced to spend time to uncover the
e-mails, spend money to help recover the documents, and incur
prejudice from not obtaining e-mails that could not be recovered.
Secondly, Intex's behavior at trial also prejudiced Plaintiffs.
Intex, at the pre-trial conference, stated that it expected the
trial to last twelve to fifteen days; and that Intex intended to raise a number of defenses, including an invalidity defense.
During opening statements, Intex also stated that it would
present an invalidity defense. However, at trial, Intex abruptly
dropped these defenses during what was effectively the third full
day of testimony. Plaintiffs were not aware of this change until
the examination of Dr. Martin Siegel, Intex's expert witness, was
ended without addressing validity. Although Intex is entitled to
make tactical decisions during the course of a trial, Intex
failed to make any attempt to notify Plaintiffs or the Court that
they had made this decision, thus forcing Plaintiffs to
unnecessarily expend maximum effort preparing its case on the
issues in reliance on Intex's initial representations.
The fourth factor, Intex's size and financial condition, weighs
in favor of Plaintiffs. According to Intex's 2001 and 2002
financial reports, Intex sold over $200,000,000.00 worth of goods
each year and earned a gross profit of approximately
$20,000,000.00 per year. Intex is effectively owned by Tien Zee.
Zee also runs other Intex entities. These entities typically work
together, have over 10,000 employees, and sell the same product
The fifth factor, the closeness of the case, also weighs in
favor of Plaintiffs. "A case is close if it was `hard-fought' or
the jury could have found for the defendant on the issues of
infringement, validity, and willfulness." NTP, Inc. v. Research
in Motion, Ltd., 270 F. Supp.2d 751, (E.D. Va. 2003) (citing
Riles v. Shell Exploration & Prod. Co., 298 F.3d 1302, 1314
(Fed. Cir. 2002). In this case, the jury could not have found for
Intex on the issue of validity because Intex elected not to
present evidence of these defenses to the jury.
As to the issues of infringement and willfulness, a substantial
amount of the evidence presented by Plaintiffs showed that Intex
not only infringed the '726 patent, but it willfully infringed
the patent. As discussed above, Intex's e-mails, Dr. Karvelis's
testimony, and the direct comparison of the valves was highly persuasive evidence of
deliberate copying. Conversely, Dr. Siegel's contrary testimony
presented by Intex was not as convincing as Plaintiffs' evidence.
Thus, it would have been highly unlikely for the jury to find for
Intex on these issues. Moreover, this case could not be described
as hard-fought; as discussed earlier, Intex elected to cut short
its case-in-chief and presented little in the way of a defense.
The duration of Intex's conduct, the sixth factor, weighs in
favor of the Plaintiffs. Intex claims that enhancement damages
should be limited to the period after April 12, 2002, when
Plaintiffs filed this action, because there is no evidence
showing Intex knew of the '726 patent earlier. However, the
evidence showed as early as June 6, 2001, Intex sought to acquire
one of Aero's mattresses for examination. An Aero employee also
testified that Intex was "knock[ing] off" Aero's mattress
sometime around 2000. Furthermore, Intex admits, in footnote 11
of its response, that it introduced the accused products in
January 2000. Even after Plaintiffs filed suit, Intex continued
selling their infringing products. Thus, Intex has infringed
Plaintiffs' rights for at least three years and has probably
infringed Plaintiffs' rights for over four years.
The seventh factor, the remedial action taken by Intex, weighs
in favor of Plaintiffs, as well. Intex failed to present any
evidence demonstrating that it took steps to correct their
infringing activities. In fact, Intex continued selling its
products even after Plaintiffs filed suit. Intex, in its
response, does not argue to the contrary.
The eighth factor, Intex's motivation for harm, favors neither
party. Intex internally circulated e-mails stating they wanted to
"Knock Out Aero," "battle Aero," and "Beat Aero." Also, Intex
sought to sell their mattresses at a substantially lower price
than Aero's mattresses and that Intex was focused on directly
comparing its mattresses to Aero's mattresses. However, these e-mails were intended only to motivate staff to obtain
market share against multiple competitors' manufacturing similar
The final factor, Intex's concealment of its misconduct,
supports Plaintiffs' claim. Intex employees and Tien Zee gave
inconsistent answers regarding the research and development done
by Intex. Moreover, as discussed earlier, Intex destroyed e-mails
for ten months at the beginning of the case.
Intex also contends other circumstances exist which prohibit or
mitigate against the imposition of enhanced damages.
First, Intex argues that it was under no duty to investigate
whether the '726 patent existed and that it did not realize the
'726 patent existed until the suit was filed in April 2002.
Furthermore, Intex claims it could not have discovered whether
the relevant Aero products were patented because the products
themselves were not marked.
However, Intex could have reasonably discovered Plaintiffs'
patents as early as June 6, 2001, when it acquired one of Aero's
mattresses. According to a January 21, 2002 e-mail, Intex also
learned some customers inquired of Intex if it was infringing on
Aero's patent rights. Intex further filed a declaratory action
against Aero concerning another patent, U.S. Patent No.
4,977,633, in December 2000. It is highly probable that the file
history for this patent would have revealed the existence of the
'726 patent. Additionally, Aero marked the packaging of patented
products, the accompanying instruction materials, and sell sheets
for products since as early as 1999. Accordingly, these purported
defenses do not mitigate the imposition of enhanced damages. Secondly, Intex claims granting Plaintiffs enhanced damages
would constitute an unjust enrichment because the reasonable
royalty damage award of $2,950,000.00 granted by the jury already
exceeds the gross profit of the accused sales that Intex has
recovered, $2,200,000. However, reasonable royalty damages are
not based on an infringer's profits but, rather, on the amount
the patentee would have made if they licensed the patent to
another party at the time the infringement began. Radio Steel &
Mfg. Co. v. MTD Prods., Inc., 788 F.2d 1554, 1557 (Fed. Cir.
1986) (citation omitted). Therefore, this claim does not mitigate
against the imposition of enhanced damages.
Based on the foregoing, Plaintiffs are entitled to double
patent damages, for a total of $5,900,000.00. Most of the
relevant factors Intex's copying; its litigation conduct, size
and financial condition; the lack of closeness of the case; the
duration of Intex's conduct; Intex's failure to take remedial
actions; and Intex's attempted concealment of its conduct
support the award of these additional damages. However,
considering all of the relevant factors vis-a-vis the totality of
Intex's conduct, an award of the maximum amount of treble damages
permitted under 35 U.S.C. § 284 is not appropriate.
Plaintiffs are also entitled to attorney's fees under
35 U.S.C. § 285. Specifically, as discussed above, Intex's copying,
litigation conduct, lack of remedial actions, the lack of
closeness of this case, and concealment, mandate an award of
attorney's fees. The parties are directed, pursuant to Local
Rule 54.3, to submit petitions for the proper amount of attorney's
For the foregoing reasons, Plaintiffs are entitled to double
patent damages, for a total of $5,900,000.00, and attorney's
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