United States District Court, N.D. Illinois, Eastern Division
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. Plaintiffs alleged Defendants infringed
U.S. Patent Nos. 5,367,726 ("the '726 patent") and 4,977,633
("the '633 patent"). At trial, a jury found in favor of
Plaintiffs and against Defendants. Presently before the Court are
two motions: (1) Plaintiffs' Motion for an Accounting and
Prejudgment Interest; and (2) Plaintiffs' Motion for Entry of a
Permanent Injunction. ANALYSIS
With regard to Plaintiffs' Motion for an Accounting and
Prejudgment Interest, Intex does not dispute that Plaintiffs are
entitled to: (1) damages calculated by an accounting of
infringing sales made from January 1, 2004, through the entry of
an injunction; and (2) to an award of prejudgment interest that
is compounded at an annual rate. However, the parties dispute:
(1) whether Plaintiffs can obtain an accounting for sales of
infringing Intex products, while also seeking to enjoin resales
of those products; (2) what products are subject to an
accounting; and (3) what interest rate should be used in
determining the prejudgment interest.
The first issue, whether Plaintiffs can obtain an accounting
for sales of infringing Intex products, while also seeking to
enjoin resales of those products, relates to both motions
presented by Plaintiffs. Plaintiffs concede that the injunction
cannot "preclude the resale of infringing products for which
Intex has already paid damages" and suggest this statement can be
added to the injunction. (Pls.' Reply for an Accounting, at 1).
However, Plaintiffs' proposed language could also be interpreted
as enjoining the resale of infringing products which are also
subject to the accounting, as Intex has not "already paid
damages" for these products. Thus, Plaintiffs could still obtain
a double recovery of damages, through an accounting, and an
injunction of the products subject to the accounting. See Amstar
Corp. v. Envirotech Corp., 823 F.2d 1538, 1549 (Fed. Cir. 1987).
Accordingly, any injunction entered will not preclude the resale
of infringing products for which Intex has already paid damages,
as well as infringing products which are disclosed in an
accounting to determine additional damages.
Next, the parties dispute what products are subject to an
accounting. Intex, in a footnote, claims that the design of the
products at issue changed beginning in January, 2004; thus, these newly-designed products are not subject to an accounting.
Plaintiffs, though, argue that all products which include the
infringing component are subject to the accounting, regardless of
whether or not a product used a new design. However, it is not
proper to determine in the instant motion whether Intex is liable
for damages relating to sales of newly-designed products made
from January 1, 2004, through the entry of an injunction.
Therefore, Intex should provide an accounting of all products
using the infringing component; when Intex provides the
accounting, it should specifically distinguish between sales of
products using the older design and sales of products using the
The parties also dispute what interest rate should be used in
the accounting. Plaintiff seeks to use its Weighted Average Cost
of Capital ("WACC"), or, in the alternative, the prime interest
rate. Intex seeks to use the five-year United States Treasury
Bill rate or, at the very least, the prime rate. Plaintiffs' WACC
is 13.00%; the prime rate varies between 9.50% and 4.12% during
the relevant time period; and the Treasury Bill rate varies
between 5.55% and 2.97% during the relevant time period. Both
parties agree that regardless of the rate chosen, that rate
should be compounded annually.
Prejudgment interest is generally used to adequately compensate
a plaintiff for the lost use of its royalties. See
35 U.S.C. § 284; Laitram Corp. v. NEC Corp., 115 F.3d 947, 955 (Fed. Cir.
1997). Plaintiffs' WACC represents the cost of obtaining both
debt and equity financing for projects it undertook in the
absence of compensation from Intex. Plaintiffs thus contend this
rate should be used because, absent the infringement, Plaintiffs
would have been able to use the money it received as a royalty to
finance projects instead of obtaining financing. However, as Intex argues, Plaintiffs' WACC includes a return
that compensates Plaintiffs for a risk Plaintiffs beared.
Plaintiffs, though, did not undertake a risk in this regard.
Plaintiffs will be compensated for the loss of its money through
damages, and the interest rate will further compensate Plaintiffs
for the time value of those damages. Accordingly, using
Plaintiffs' WACC as the prejudgment interest rate is not
Intex asserts that the five-year Treasury Bill rate is the
appropriate rate. Intex cites a number of cases in support of
using this rate, but those cases are all distinguishable.
Moreover, the Treasury Bill rate has been criticized as being
"too low, because there is no default risk with Treasury bills."
Gorenstein Enters., Inc. v. Quality Care-USA, 874 F.2d 431, 437
(7th Cir. 1989). As Plaintiffs note, they did not make a
risk-free loan to Intex; but, rather, Plaintiffs had to engage in
litigation to recover damages. Therefore, the Treasury Bill rate
would not adequately compensate Plaintiffs.
The remaining proposed rate, the prime interest rate, is
acceptable to both parties as an alternative rate to calculate
prejudgment interest. Using this rate, compounded annually,
Plaintiffs are entitled to $381,786.00 in prejudgment interest
through July 31, 2004, and $504.39 until the entry of a final
With regard to Plaintiffs' Motion for Entry of a Permanent
Injunction, Intex does not dispute that the entry of an
injunction is proper. However, Intex disputes whether: (1) a
party that was not involved in this action may be enjoined; (2)
product numbers should be used to identify which products are
subject to the injunction; and (3) the phrase "merely colorably
different" is properly included in the injunction. As to the first issue, whether a party that was not involved in
this action may be enjoined, Intex argues the proposed injunction
is overly broad because it enjoins persons, firms, and
corporations in privity with Intex, Wal-Mart, and Quality
Trading. According to Intex, this language could mean that
customers would also be enjoined. Plaintiffs argue that the
language at issue closely tracks Federal Rule of Civil Procedure
65(d) and is thus proper.
Federal Rule of Civil Procedure 65(d) provides, in relevant
part, that "those persons in active concert or participation with
[those enjoined] who receive actual notice of the [injunction]
order by personal service or otherwise" may be enjoined from
taking certain actions. Plaintiffs proposed language states that
"all persons, firms, and corporations in active concert,
participation, or in privity with Intex Recreation Corp., Quality
Trading, Inc., or Wal-Mart Stores, Inc." are enjoined from taking
certain actions. Plaintiffs' proposed language does not
impermissibly broaden the scope of the injunction to non-parties
as long as those persons, firms, and corporations receive actual
notice of the injunction by personal service or otherwise.
Therefore, Plaintiffs' proposed language indicating actual notice
must be provided is within the requirements of Rule 65(d).
The parties further dispute whether product numbers which were
admitted during trial should be used to identify which products
are subject to the injunction. Intex claims that they have
redesigned products to prevent infringement of Plaintiffs'
patents, but they retained old product number designations
because those numbers relate to a particular style instead of the
product's configuration. Thus, according to Intex, the injunction
would effect non-infringing products carrying the same product
number. However, Plaintiffs correctly argue that using product numbers
would enable efficient policing of the marketplace to ensure
Intex complies with the injunction. Moreover, the parties used
product numbers throughout the litigation to identify the
infringing products. Intex, with full knowledge of these facts,
did not change the product numbers when it purportedly redesigned
the infringing product to prevent this situation. Accordingly,
product numbers are appropriate to identify the products subject
to the injunction and will be included in the injunction order.
It is noted that the injunction order will also identify the
product subject to the injunction by patent and claim number.
Finally, the parties dispute whether the phrase "merely
colorably different" is properly included in the injunction.
Intex argues that this phrase is overly vague and could include
designs not adjudicated by the Court. Intex also asserts that the
phrase will ensure Plaintiffs may use summary contempt
proceedings to enforce the injunction, without any findings of
whether substantial infringement issues exist. However, these
concerns are more properly raised during enforcement proceedings
regarding the injunction. Therefore, the use of the phrase
"merely colorably different" is properly included in the
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