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Miutoyo Corp. v. Central Purchasing

March 9, 2006

MITUTOYO CORPORATION, MITUTOYO AMERICA CORP. AND HEXAGON METROLOGY NORDIC AB, PLAINTIFFS,
v.
CENTRAL PURCHASING, LLC., DEFENDANT.



The opinion of the court was delivered by: Samuel Der-yeghiayan, District Judge

MEMORANDUM OPINION

This matter is before the court on Plaintiff Mitutoyo Corporation's ("Mitutoyo") and Plaintiff Mitutoyo America Corporation's ("MAC") motion for damages. For the reasons stated below, we grant in part and deny in part Mitutoyo's request for damages and deny MAC's request for damages.

BACKGROUND

Plaintiffs Mitutoyo, MAC, and Hexagon Metrology Nordic AB's ("Hexagon") (collectively "Plaintiffs") brought the instant patent infringement suit against Defendant Central Purchasing, LLC. ("Central") over U.S. Patent No. 4,743,902 ("'902 Patent"). The '902 Patent covers "[a] system for measuring the relative movement of one object with respect to another, such as the movement of a slide with respect to a scale of a measuring instrument utilizes the capacitative effect of a series of electrodes associated with a slide and another series of electrodes associated with the cooperating scale, the changes in capacity caused by relative movement between the two members being analyzed by an electronic circuit." U.S. Patent No. 4,743,902 (issued May 10, 1988).

The controversy between the parties began in 1992, when Mitutoyo placed Central on notice that Central had allegedly infringed the '902 Patent through Central's sale of digital calipers that were manufactured by a company called Norwood ("Norwood Calipers"). After negotiations in 1994, Central agreed by contract that it would cease its sales of the Norwood Calipers. In 1995, however, Central brought an action seeking a declaratory judgment that the '902 Patent was invalid and thus unenforceable. Mitutoyo prevailed, and the '902 patent remains valid.

In May 2002, Central began selling digital calipers manufactured by a different company, Guanglu Measuring Instrument Co., Ltd ("Accused Calipers").

Plaintiffs brought the instant action, alleging that the sale of the Accused Calipers infringes the '902 Patent and that Central breached its 1994 contract with Mitutoyo. On March 30, 2004, we granted Plaintiffs' motion for summary judgment on the issue of patent validity. On October 27, 2004, the parties participated in a Markman hearing in this court in accordance with Markman v. Westview Instrs., Inc., 52 F.3d 967, 979 (Fed. Cir. 1995). On March 3, 2005, we entered claim constructions based on that Markman hearing and on Markman memoranda filed by each party. Each party subsequently submitted motions for summary judgment, based on our constructions of the claim.

On April 20, 2005, we granted Plaintiffs' motion for summary judgment on the issues of patent infringement and breach of contract. Mitutoyo and MAC now seek lost profits of $11,260,103 and a reasonable royalty of 29.2% from Central, stemming from Central's infringement of the '902 patent. Hexagon is not seeking damages.

LEGAL STANDARD

Damages for patent infringement are governed by 35 U.S.C. § 284 ("Section 284"), which, according to the Federal Circuit, is intended to "ensure that the patent owner would in fact receive full compensation for 'any damages' he suffered as a result of the infringement." SmithKline Diagnostics, Inc. v. Helena Laboratories Corp., 926 F.2d 1161, 1164 (Fed. Cir. 1991)(quoting General Motors Corp. v. Devex Corp., 461 U.S. 648, 654-55 (1983)). The appropriate amount of damages is a factual determination, for which "the plaintiff bears the burden of proof by a preponderance of the evidence." Smithkline Diagnostics, Inc., 926 F.2d at 1164; Transclean Corp. v. Bridgewood Servs., Inc., 290 F.3d 1364, 1370 (Fed. Cir. 2002).

A court may divide damages between lost profits, "to the extent they are proven" by the plaintiff, "and a reasonable royalty for the remainder." State Indus., Inc. v. Mor-Flo Industries, Inc., 883 F.2d 1573, 1577 (Fed. Cir. 1989). Lost profits are the profits that a patentee would have enjoyed "but-for" the infringement by the defendant. Micro Chemical, Inc. v. Lextron, Inc., 318 F.3d 1119, 1122 (Fed. Cir. 2003).Once the patentee has shown that an inference of "but for" causation is reasonable, "the burden shifts to the infringer to show that the inference is unreasonable for some or all of the lost profits." Id. While there are multiple ways to satisfy this "but-for" test for causation, the most common method, and the method utilized by Mitutoyo and MAC in the instant action, is to prove the four factors provided in Panduit Corp. v. Stahlin Bros. Fibre Works, 575 F.2d 1152 (6th Cir. 1978) ("Panduit Test"). See Micro Chemical, Inc. v. Lextron, Inc., 318 F.3d 1119, 1122 (Fed. Cir. 2003)(stating that "[t]he Panduit [Test is a] recognized method[] of showing 'but for' causation" in regard to damages).

If lost profits cannot be proved to a reasonable probability, the patentee may instead pursue reasonable royalties. Rite-Hite Corp. v. Kelley Co., Inc., 56 F.3d 1538, 1554 (Fed. Cir. 1995)(citing Hanson v. Alpine Valley Ski Area, Inc., 718 F.2d 1075, 1078 (Fed. Cir. 1983). Reasonable royalties provide the minimum guaranteed damages a patentee may be awarded for infringement. 35 U.S.C. § 284. A reasonable royalty is commonly defined as the amount that would have been agreed upon had there been a hypothetical negotiation, often called a "'willing licensor/willing licensee' negotiation," between a willing patentee and willing potential user "at the time the infringement began." Rite-Hite Corp., 56 F.3d at 1554; Minco, Inc. v. Combustion Engineering, Inc., 95 F.3d 1109, 1119 (Fed. Cir. 1996) (stating that "[t]his hypothetical construct seeks the percentage of sales or profit likely to have induced the hypothetical negotiators to license use of the invention"). Such a determination should not be made in hindsight, but rather courts should only look at what the parties would have considered at the time of the hypothetical negotiation. Hanson, 718 F.2d at 1081. To determine the amount of royalties that would have induced the parties to buy or sell a license at the time the infringement began, the Federal Circuit endorses, among other methods, the fifteen factor-approach first set out in Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116 (S.D. N.Y. 1970) ("Georgia-Pacific Test"), which is discussed below. See Micro Chemical, Inc. v. Lextron, Inc., 317 F.3d 1387, 1393 (Fed. Cir. 2003)(stating that "[f]actors relevant in a reasonable royalty determination using [the hypothetical negotiation] method include those set out in Georgia--Pacific").

ANALYSIS

In their briefs for damages, Mitutoyo and MAC argue that they are entitled to $6,768,302 in Mitutoyo's lost profits through June 30, 2005, and $4,491,801 for MAC's lost profits through June 30, 2005. Mitutoyo and MAC are also seeking $1,021,412 in lost royalties on Central's calipers that are not included in the lost profits amount, calculated at a royalty rate of 29.2 percent. First, Central argues that MAC does not have standing to receive damages in this action because MAC does not have the right to sue for patent infringement. Second, Central argues that lost profits are not appropriate in this case because the Mitutoyo's and MAC's products ...


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