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AERO PRODUCTS INTERNATIONAL, INC. v. INTEX RECREATION CORP.

June 9, 2005.

AERO PRODUCTS INTERNATIONAL, INC., a Florida corporation, and ROBERT B. CHAFFEE, an individual, Plaintiffs,
v.
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. Presently before the Court is Plaintiffs' Motion to Enter Supplemental Damages Calculation.

History

  On February 25, 2004, a jury found Intex liable for Plaintiffs' patent, United States Patent No. 5,367,726 ("the '726 patent"). In a general verdict, the jury awarded $2,950,000.00 in damages for the patent infringement. The jury also found that Intex's infringement was willful. After the infringement and willfulness verdicts, Intex was ordered to pay double the patent damages awarded by the jury, pursuant to 35 U.S.C. § 284. Aero Prods. Int'l v. Intex Recreation Corp., No. 02 C 2590, 2004 WL 1696749 (N.D. Ill. July 15, 2004)

  On September 15, 2004, Intex was enjoined from: (1) manufacturing new mattresses which incorporate a valve that infringes the '726 patent and (2) selling products bearing product numbers prohibited by the injunction. Aero Prods. Int'l v. Intex Recreation Corp., No. 02 C 2590, 2004 WL 2091996 (N.D. Ill. Sept. 16, 2004); Aero Prods. Int'l v. Intex Recreation Corp., No. 02 C 2590, 2004 WL 2255984 (N.D. Ill. Sept. 16, 2004). Thereafter, Plaintiffs filed a motion for contempt, contending that Intex violated the injunction by: (1) selling products with product numbers prohibited by the injunction; and (2) selling another product that infringes the '726 patent, the "G1" mattress, which was not part of the jury trial.

  On December 15, 2004, Intex was ordered to immediately cease and desist selling products bearing prohibited product numbers; and a hearing was set to determine whether Intex violated the injunction. Aero Prods. Int'l v. Intex Recreation Corp., No. 02 C 2590, 2004 WL 2958688 (N.D. Ill. Dec. 16, 2004). On May 11, 2005, Intex was found in contempt for selling products bearing the product numbers prohibited by the injunction and for selling the G1 mattress. The contempt order required Intex to account for all products sold in violation of the injunction. Ruling was reserved on the issue of damages for the sale of these products. Plaintiffs' Motion to Enter Supplemental Damages Calculation

  Plaintiffs seek royalties and prejudgment interest for: (1) sales of the infringing mattress made between January 1, 2004 through September 15, 2004; and (2) sales of the G1 mattress, which was found to violate the injunction. The proper damage measure for sales of products bearing the prohibited product numbers must also be determined.

  ANALYSIS

  Plaintiffs seek both a 13.5 percent royalty rate, double damages, and prejudgment interest on sales of infringing mattresses made between January 1, 2004 through September 15, 2004. Under 35 U.S.C. § 284, "[u]pon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for use made of the invention by the infringer, together with interest and costs as fixed by the court." "A reasonable royalty calculation envisions and ascertains the results of a hypothetical negotiation between the patentee and the infringer at a time before the infringing activity began." Integra Lifesciences I, Ltd. v. Merck KgaA, 331 F.3d 860, 870-71 (Fed. Cir. 2003) (citations omitted). The determination of a reasonable royalty is committed to the discretion of the district court. Golight, Inc. v. Wal-Mart Stores, Inc., 335 F.3d 1327, 1338 (Fed. Cir. 2004).

  Intex argues that no evidence exists to support an a 13.5 percent royalty rate sought by Plaintiffs, as the evidence relied upon at trial was only directed to sales occurring before 2004. However, as discussed above, the computation of a reasonable royalty contemplates a negotiation at a "time before the infringement began." Riles v. Shell Exploration & Prod. Co., 298 F.3d 1302, 1311 (Fed. Cir. 2002). Therefore, the evidence adduced at trial is sufficient to support a 13.5 percent reasonable royalty on sales made between January 1, 2004 through September 15, 2004.

  It is proper to use the royalty rate determined by the jury to assess damages for the sales at issue in this motion. Stryker Corp. v. Davol, Inc., 75 F. Supp. 2d 746, 747 (W.D. Mich. 1999); Oscar Mayer Foods Corp. v. Conagra, Inc., 869 F. Supp. 656, 668 (W.D. Wis. 1994) (Oscar Mayer). Plaintiffs contend that when a jury renders a general verdict, it is appropriate to extrapolate a royalty rate from the general verdict. Oscar Mayer, 869 F. Supp. at 668.

  Here, the jury awarded Plaintiffs a $2,950,000.00 general verdict on $21,817,103.00 in sales. Dividing $2,950,000.00 by $21,817,103.00 results in 13.5 percent ratio of royalty for the use of the product to total sales. Accordingly, Plaintiffs are awarded a reasonable royalty for the sales of all products bearing the prohibited product numbers at the rate of 13.5 percent. Based on all the relevant evidence, the totality of the circumstances, and considering all possible alternative sanctions, the Court finds that a 13.5 percent royalty is reasonable amount based on the reasonable probable harm to Plaintiffs.

  Plaintiffs were awarded double the patent damages assessed by the jury by the Court on the jury's finding of willfulness. Aero Prods. Int'l v. Intex Recreation Corp., No. 02 C 2590, 2004 WL 1696749 (N.D. Ill. July 15, 2004). Intex does not dispute that Plaintiffs should receive double damages for the sales made between January 1, 2004 and September 15, 2004. Intex also does not dispute that Plaintiffs should receive prejudgment interest for these sales. Finally, Intex does not dispute the calculations made by Plaintiffs regarding the royalty rate. Accordingly, Plaintiffs are awarded $469,018.00 as a reasonable royalty, enhanced damages of $469,018.00, and prejudgment interest of $6,733.00 for the sales of infringing mattresses made between January 1, 2004 and September 15, 2004.

  The remaining damage issues arising out of the contempt order concern: (1) the proper damage measure for sales made between September 15, 2004 and December 15, 2004, of mattresses bearing product numbers prohibited by the injunction; and (2) royalties and prejudgment interest on sales of the G1 ...


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