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Aerosol v. Limited Brands

September 4, 2007

BALL AEROSOL AND SPECIALTY CONTAINER, INC. PLAINTIFF,
v.
LIMITED BRANDS, INC., ET AL., DEFENDANTS.



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

MEMORANDUM OPINION

This matter is before the court on Plaintiff Ball Aerosol and Specialty Container, Inc.'s ("BASC") motion for summary judgment on the issue of patent damages. This matter is also before the court on Defendant Limited Brands, Inc.'s ("Limited"), Defendant Bath & Body Works, Inc.'s ("BBW"), Defendant Henri Bendel, Inc.'s ("Bendel"), and Defendant Bath & Body Works, Inc. D/B/A/ The White Barn Candle Co.'s (collectively referred to as "Limited Defendants") motion for summary judgment on the issue of patent damages. For the reasons stated below, we grant BASC's motion for summary judgment and deny Limited Defendants' motion for summary judgment.

BACKGROUND

BASC alleges that U.S. Can Company, Inc., BASC's predecessor, is the assignee of U.S. Patent No. 6,457,969 ("'969 Patent"). Claims 1 and 5 of the '969 Patent generally cover a candle tin comprised of a hollow candle holder in which a candle is placed and a cover that, when the candle is lit, is to be used as a base upon which to place the candle so that heat transferred through the bottom of the candle tin does not scorch the surface that the candle tin would otherwise be placed upon. BBW and Bendel began selling the Henri Bendel Home Scented Travel Candle ("Accused Candle Tin") in March and April of 2004, respectively. Bendel purchased the Accused Candle Tin from BBW up to the Fall of 2005, and BBW has stopped manufacturing the Accused Candle Tin.

BASC brought the instant patent infringement action against Limited Defendants, alleging that the Accused Candle Tin infringes claims 1 and 5 of the '969 Patent. On April 19, 2006, we construed the terms "Protrusions Formed," "Seat," and "Cup Shaped." On June 28, 2006, this court granted summary judgment to BASC, finding the '969 Patent valid and Limited Defendants to be infringing the '969 Patent. BASC and Limited Defendants move for summary judgment on the issue of patent damages.

LEGAL STANDARD

Summary judgment is appropriate when the record, viewed in the light most favorable to the non-moving party, reveals that there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). In seeking a grant of summary judgment the moving party must identify "those portions of 'the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)(quoting Fed. R. Civ. P. 56(c)). This initial burden may be satisfied by presenting specific evidence on a particular issue or by pointing out "an absence of evidence to support the non-moving party's case." Id. at 325. Once the movant has met this burden, the non-moving party cannot simply rest on the allegations in the pleadings, but, "by affidavits or as otherwise provided for in [Rule 56], must set forth specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P. 56(e). A "genuine issue" in the context of a motion for summary judgment is not simply a "metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). Rather, a genuine issue of material fact exists when "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986. The court must consider the record as a whole, in a light most favorable to the non-moving party, and draw all reasonable inferences that favor the non-moving party. Anderson, 477 U.S. at 255.

DISCUSSION

BASC argues that it is entitled to $1,425,523 in lost royalties trebled to $4,276,569 from BBW for sales on the Accused Candle Tin from March 2004 through June 24, 2007. BASC also contends that it is entitled to $49,697 in lost royalties from Bendel, which should be trebled to $149,091. BASC also claims that it is entitled to prejudgment interest. Limited Defendants argue that an award of damages is inappropriate. Limited Defendants also argue alternatively that, if the court awards damages to BASC, damages should be measured by BASC's lost profits on the tin component and subsequently limited to one-seventh of the total, which equals an approximate royalty rate of 1%.

Damages for patent infringement are governed by Title 35, United States Code, Section 284 ("Section 284"), which 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., 461 U.S. at 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 Indus., 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 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 "the 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 a 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 "this 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 Factors"), which is discussed below. See Micro Chemical, Inc. v. Lextron, Inc., 317 F.3d 1387, 1393 (Fed. Cir. 2003)(stating that "factors relevant in a reasonable royalty determination using [the hypothetical negotiation] method include those set out in Georgia-Pacific").

I. Measure of Damages

Limited Defendants argue that the calculation of BASC's lost profits on sales of the tin component of the Accused Candle Tin is the most accurate method of determining damages to compensate BASC for Limited Defendants' infringement of the '969 Patent. BASC contends that the best calculation of damages should be determined based on a reasonable royalty rate. Section 284 states, in part:

Upon 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 the use made of the invention by the infringer, together with interest and costs as fixed by the court.

35 U.S.C. § 284. A district court has discretion "both in selecting the methodology for and in calculating a damage award." Mahurkar v. C.R. Bard, Inc., 79 F.3d 1572, 1579 (Fed. Cir. 1996); see also Fromson v. Western Litho Plate & Supply Co., 853 F.2d 1568, 1576 (Fed. Cir. 1988)(overruled on other grounds)(noting that "[a]ssessing and computing damages under 35 U.S.C. § 284 is a matter within the sound discretion of the district court"). As noted above, the two typical measures of monetary damages in patent cases are lost profits and reasonable royalties. Riles v. Shell Exploration & Prod. Co., 298 F.3d 1302, 1311 (Fed. Cir. 2002). A reasonable royalty calculation is appropriate when the patent owner has not sold the patented invention in the United States, thereby making lost profits undeterminable. See Trell v. Marlee Elecs. Corp., 912 F.2d 1443, 1445 (Fed. Cir. 1990)(stating that "[b]ecause [the patent owner] did not sell its invention in the United States, he could not seek damages on the basis of lost profits"). In the instant action, the undisputed evidence shows, and both parties agree, that BASC does not make or sell the patented invention. Therefore, a reasonable royalty, rather than lost profits, is the correct measure of damages.

II. Damages Apportionment

Limited Defendants argue that the amount of damages awarded to BASC should be reduced to one-seventh of the total damages award available since the Accused Candle Tin infringes in only one out of its seven possible configurations. Section 284 compensates a patent owner with "a reasonable royalty for the use of the invention by the infringer." 35 U.S.C. § 284. The Federal Circuit has clarified that Section 284 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., 926 F.2d at 1164 (quoting General Motors Corp., 461 U.S. at 654-55). In order to determine the scope of the infringer's "use" of the invention that requires compensation, the district court will look at the claim construction used during the infringement proceedings. See Metabolite Labs., Inc. v. Lab. Corp. of Am. Holdings, 370 F.3d 1354, 1364 (Fed. Cir. 2004)(declining "the invitation to apply a different claim construction for computation of damages than for infringement liability").

Limited Defendants attempt to reassert their non-infringement theory that their product is capable of infringing only one out of the seven possible configurations in the '969 Patent. In Metabolite, the infringer argued during the damages stage of litigation that damages should only be assessed for the patented tests that resulted in an assay with an elevated parameter level, even though the infringement was found regardless of the assay result, which was defined in the claim construction during the infringement proceedings. Id. The Federal Circuit rejected the infringer's limited damages argument and held that the base damages included all tests that infringed. Id. In the instant action, this court expressly declined to adopt the one-in-seven configuration infringement theory put forward by Limited Defendants and found that the Accused Candle Tin was capable of infringing regardless of its configuration during use. As such, we decline to revisit the claim construction used in this court's infringement decision, and this court does not adopt Limited Defendants' damages theory. See id. (declining "the invitation to apply a different claim construction for computation of damages than for infringement liability").

Limited Defendants also rely on a damages apportionment theory to rationalize limiting the damage calculation to one-seventh of the total amount of damages. Limited Defendants cite Oak Industries, Inc. v. Zenith Electronics Corp., 726 F. Supp. 1525 (D. Ill. 1989), in support of their proposition that this court should limit the amount of damages. In Oak, the court assessed damages based only on those devices that actually infringed by using a patented method. Id. at 1543. However, the damages apportionment theory in Oak applies to devices that are not capable of being used only to infringe a patented method, but are also capable of being used in a non-infringing manner. Id. Unlike in Oak, where a method patent was the basis for the litigation, the patent on the apparatus itself was the basis for the action taken against Limited Defendants, and the '969 Patent covers the entire candle holder apparatus and protects the entire value of the product. Therefore, a damages apportionment theory is inappropriate and this court will base the calculation of damages on all Accused Candle Tins sold by Limited Defendants.

III. Notice Requirement

BASC and Limited Defendants disagree as to whether BASC gave Limited

Defendants notice of their infringement. To recover damages for infringement that occurred prior to the filing of a lawsuit, a patent owner must comply with the marking or actual notice requirements of Title 35, United States Code, Section 287(a) ("Section 287(a)"). If a patent owner does not make or sell the patented invention and, as such, is unable to physically mark the product, then the patent owner must give an infringer actual notice. Texas Digital Sys., Inc. v. Telegenix Inc., 308 F.3d 1193, 1219-20 (Fed. Cir. 2002). This notice requirement goes beyond simply informing a potential infringer of the existence of a patent, but instead "requires the affirmative communication [by the patent owner] of a specific charge of infringement by a specific accused product or device." Amsted Indus. v. Buckeye Steel Castings Co., 24 F.3d 178, 187 (Fed. Cir. 1994). The issue of notice is proper for summary judgment when no reasonable trier of fact could find that the patentee either has or has not provided actual notice to the "'particular defendants by informing them of his patent and of their infringement of it.'" Gart v. Logitech, Inc., 254 F.3d 1334, 1339 (Fed. Cir. 2001)(quoting Amsted Indus., 24 F.3d at 187).

BASC argues that it provided Limited Defendants with actual notice in October 2003 when Mallory Bonpua ("Bonpua"), BBW's Senior Sourcing Manager, received an email from BASC indicating that the footed square candle tin that Limited Defendants intended to include in their Accused Candle Tin product was covered by the '969 Patent. Limited Defendants contend that the email did not constitute actual notice of infringement since Bonpua was not a corporate representative. However, we agree with BASC. In addition to the email, a copy of the patent was faxed to Bonpua. BASC informed Limited Defendants of the '969 Patent by the email and fax to Bonpua, which informed Limited Defendants that only BASC could make the footed candle tin due to the '969 Patent. Such communication was sufficient to put Limited Defendants on actual notice of patent infringement. Therefore, the period of infringement that requires compensation begins in March 2004, when Limited Defendants began selling the Accused Candle Tin, through June 24, 2007, the last date of sales figures provided by Limited Defendants.

IV. Georgia-Pacific Factors

When an established royalty rate does not exist, a court will determine a reasonable royalty based on "hypothetical negotiations between the plaintiff and defendant . . . at the time the infringement began." Rite-Hite Corp., 56 F.3d at 1554 (Fed. Cir. 1995). In addition, "reasonable royalty damages are not calculated in a vacuum without consideration of the infringement being redressed." Applied Med. Res. Corp. v. United States Surgical Corp., 435 F.3d 1356, 1361 (Fed. Cir. 2006). The Federal Circuit endorses the Georgia-Pacific Factors for determining the amount of royalties that would have induced the parties to buy or sell a license at the time the infringement began. See Micro Chem., Inc. v. Lextron, Inc., 317 F.3d 1387, 1393 (Fed. Cir. 2003)(stating that "[f]actors relevant in a reasonable royalty . . . include those set out in Georgia-Pacific"). The Georgia-Pacific Factors are: (1) "The royalties received by the patentee for the licensing of the patent in suit, proving or tending to prove an established royalty" ("Georgia-Pacific Factor 1"); (2) "The rates paid by the licensee for the use of other patents comparable to the patent in suit" ("Georgia-Pacific Factor 2"); (3) "The nature and scope of the license, as exclusive or non-exclusive; or as restricted or non-restricted in terms of territory or with respect to whom the manufactured product may be sold" ("Georgia-Pacific Factor 3"); (4) "The licensor's established policy and marketing program to maintain his patent monopoly by not licensing others to use the invention or by granting licenses under special conditions designed to preserve that monopoly" ("Georgia-Pacific Factor 4"); (5) "The commercial relationship between the licensor and licensee, such as, whether they are competitors in the same territory in the same line of business; or whether they are inventor and promoter" ("Georgia-Pacific Factor 5"); (6) "The effect of selling the patented specialty in promoting sales of other products of the licensee; the existing value of the invention to the licensor as a generator of sales of his non-patented items; and the extent of such derivative or convoyed sales" ("Georgia-Pacific Factor 6"); (7) "The duration of the patent and the term of the license" ("Georgia-Pacific Factor 7"); (8) "The established profitability of the product made under the patent; its commercial success; and its current popularity" ("Georgia-Pacific Factor 8"); (9) "The utility and advantages of the patent property over the old modes or devices, if any, that had been used for working out similar results" ("Georgia-Pacific Factor 9"); (10) "The nature of the patented invention; the character of the commercial embodiment of it as owned and produced by the licensor; and the benefits to those who have used the invention" ("Georgia-Pacific Factor 10"); (11) "The extent to which the infringer has made use of the invention; and any evidence probative of the value of that use" ("Georgia-Pacific Factor 11"); (12) "The portion of the profit or of the selling price that may be customary in the particular business or in comparable businesses to allow for the use of the invention or analogous inventions" ("Georgia-Pacific Factor 12"); (13) "The portion of the realizable profit that should be credited to the invention as distinguished from non- patented elements, the manufacturing process, business risks, or significant features or improvements added by the infringer" ("Georgia-Pacific Factor 13"); (14) "The opinion testimony of qualified experts" ("Georgia-Pacific Factor 14"); and (15) "The amount that a licensor (such as the patentee) and a licensee (such as the infringer) would have agreed upon (at the time the infringement began) if both had been reasonably and voluntarily trying to reach an agreement; that is, the amount which a prudent licensee -- who desired, as a business proposition, to obtain a license to manufacture and sell a particular article embodying the patented invention -- would have been willing to pay as a royalty and yet be able to make a reasonable profit and which amount would have been acceptable by a prudent patentee who was willing to grant a license" ("Georgia-Pacific Factor 15"). Georgia-Pacific Corp., 318 F. Supp. at 1120.

A. Georgia-Pacific Factor

BASC contends that it has never licensed the '969 Patent, but that it has granted an implied license to make the patented invention when the candle tin component is purchased from BASC. (Hoffman Dec. Par. 34). Limited Defendants argue that BASC's approximate profit of eleven cents from selling the tin component equals the implied license royalty rate that BASC has accepted and, as such, represents an established royalty for licensing the '969 Patent. (Fern Decl. Par. 18-20). An established royalty is one that the industry generally accepts for the type of patent in litigation proceedings. Hanson v. Alpine Valley Ski Area, Inc., 718 F.2d 1075, 1078 (Fed. Cir. 1983)(noting that "[f]or a royalty to be 'established,' it 'must be paid by such a number of persons as to indicate a general acquiescence in its reasonableness by those who have occasion to use the invention'")(quoting Rude v. Westcott, 130 U.S. 152, 165 (1889)). Limited Defendants have not provided evidence to support their proposition that the candle industry would accept an eleven cent royalty as reasonable for the '969 Patent that includes the complete candleholder with a candle. However, the undisputed evidence shows that, at most, the eleven cent rate proposed by Limited Defendants has been established for the candle tin component only. In addition, Limited Defendants admit that they did not have knowledge of ...


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