Appeal from the District Court of the United States for the Western District of Pennsylvania; Frederic P. Schoonmaker, Judge.
Before BUFFINGTON, WOOLLEY, and THOMPSON, Circuit Judges.
These are cross-appeals from a decree of the District Court for the Western District of Pennsylvania affirming the report of a master in a reference for an accounting. The cause has been before this court on a prior appeal in Duplate Corporation v. Triplex Safety Glass Co., 42 F.2d 739. We there affirmed an interlocutory decree holding the plaintiff's patent for the manufacture of laminated glass valid and infringed by the defendant, the Duplate Corporation, hereinafter referred to as Duplate. Thereupon an accounting was ordered by the District Court and referred to a special master. The Pittsburgh Plate Glass Company, hereinafter referred to as Pittsburgh, which owned one-half of the stock of Duplate and supplied Duplate with the plate glass used in the manufacture of laminated glass, was added as a defendant by a supplemental interlocutory decree. The master found that the defendants were innocent infringers and that they had made no profits from their manufacture and sale of laminated glass. He recommended an award as special damages due to price reductions forced on the plaintiff. Triplex Safety Glass Company of North America, hereinafter referred to as Triplex, by the competitive methods of the defendants. He also recommended an award of $414,120.70 as general damages for the losses sustained by the plaintiff, measured by a so-called reasonable royalty. Both the plaintiff and the defendants filed exceptions to the master's report. The District Court dismissed the exceptions and affirmed the report in all respects. In a supplemental opinion it sustained the exceptions to the award to Triplex of the special damage item, having concluded that the adoption of a reasonable royalty as a basis of recovery precluded any further award. No error is assigned by the plaintiff to that ruling. By final decree, the District Court ordered that Pittsburgh pay to Triplex $414,120.70, together with interest from the end of the accounting period and also the costs of suit. Both the plaintiff and the defendants have appealed from that decree.
The plaintiff assigns error to the rulings by the District Court that the infringement was in good faith; that the defendants' method of stating the account was justifiable; that Duplate was entitled to take credit for rejects and returns of laminated glass and for pyralin losses; and that Pittsburgh was entitled to take credit, as to plate glass, for the use of patents owned by it, for federal income taxes, for interest on its investment, and for cutting losses. The defendants appeal from the award, which, they contend, is excessive, and from the rulings of the District Court that it had power to award general damages and that the defendants were not entitled to examine the plaintiff's books. They also appeal from the award of interest and from the imposition of costs.
We shall first discuss and dispose of the issues raised by the plaintiff's appeal.
The master found, and the District Court adopted the finding, that the defendants were not willful and deliberate infringers. The plaintiff assigns this conclusion of law as error. The District Court in its opinion stated that the defendants "took the advice of legal counsel who not only examined the plaintiff's patent, but the plaintiff's process in the manufacture of laminated glass, after which defendants' counsel gave to the defendants his legal opinion that their method of manufacturing strengthened glass did not infringe the plaintiff's patent." We do not accept as a general principle of law that the advice of counsel, prior to an infringement, precludes further inquiry into the good faith of an alleged infringer. It is not necessary, however, to place reliance upon such a principle in order to find that the defendants in the instant case did act in good faith. Although there is sufficient evidence on both sides of this controversy to raise a valid issue, we are constrained to the conclusion that there is ample evidence to support the findings of the master and the District Court. The error assigned on this issue is not sustained.
Method of Stating Account.
The defendants stated the account by deducting the total of the costs and expenses incurred in the manufacture of laminated glass during the entire accounting period from the total receipts from the sale of laminated glass for the same period. They thus treated the infringement as one continuing course of conduct and offset the profits derived from some sales by losses sustained from others. The master adopted this method and was sustained by the District Court. The plaintiff assigns this as error. It contends that proper patent accounting procedure requires that, where the infringement of a product claim is being accounted for, each sale constitutes a separate infringement; that the profit derived from each sale must be accounted for and turned over to the owner of the patent; and that if some sales result in losses, the infringer must bear those losses and may not offset the loss-incurring sales against the profitable sales. The plaintiff submitted an independent account in which it enumerated the individual sales made by Duplate, giving the name of the customer, the number of square feet of glass sold, and the net sales price. It set out the cost of material and labor of each sales unit on a monthly average basis computed by the same method as that used by the defendants in keeping their books, and allocated a proportion of the factory and general overhead to each sales unit. It offset the monthly average cost per square foot of laminated glass against the specific price per square foot for which the laminated glass was sold. It thus determined which sales were made at a profit and which at a loss. The master refused to adopt this method because of his conclusion that average costs do not reflect specific costs.
The plaintiff's method of separating the sales into profitable and unprofitable sales has been approved by us in McKee Glass Co. v. H.C. Fry Glass Co., 248 F. 125, 128, wherein Judge Woolley, speaking for this court, said: "The subject-matter of the reference to the master was injuries sustained by the complainant arising directly from infringing sales. These were measured by profits earned and damages inflicted. As the infringing sales were of two classes, those creating profits and those carrying losses, the master's inquiry was directed to the amount of profits on the former, and the measure of damages on the latter, or on both. Against the defendants' contention that the complainant was entitled only to net profits on all sales after deducting losses on some from profits on others, the master held, we think correctly, that, as the complainant was not a quasipartner of the infringers, losses incurred by the defendants through their wrongful invasion of the complainant's patent were not chargeable to the complainant (Crosby Steam Gage & Valve Co. v. Consolidated Safety Valve Co., 141 U.S. 441, 12 S. Ct. 49, 35 L. Ed. 809), and, therefore, the complainant was entitled to all profits realized by the defendants without deduction of any losses they had sustained. We find no error in either the theory or amount of this finding." See, also, Electrical Engineers Equipment Co. v. Champion Switch Co. (D.C.) 49 F.2d 359. The reason assigned by the master for refusing to follow this method is that in the instant case average costs do not reflect specific costs. We do not find any substantial factors in the instant case on this issue which differentiate it from the cited cases. The account must be restated in accordance with the plaintiff's method.
The contentions upon this issue are somewhat allied to the one just discussed. The defendants were allowed to take credit in the amount of $1,477,364.84 for rejects and returns of defective laminated glass and $219,036.93 for pyralin losses. The plaintiff objects to these allowances, contending that the accounting infringer may not offset against the profit which it made on the sale of the infringing product the loss which it sustained in the manufacture of such of the product as had not been sold, because defective, or, if sold, had been returned for the same reason. We think that this issue was decided adversely to the defendants here, in Crosby Steam Gage & Valve Co. v. Consolidated Safety Valve Co., 141 U.S. 441, 457, 12 S. Ct. 49, 55, 35 L. Ed. 809, where the Supreme Court said: "As for the contention that the destroyed valves ought to form a credit against the profits actually realized by the defendant on other valves, it is sufficient to say that the only subject of inquiry is the profit made by the defendant on the articles which it sold at a profit, and for which it received payment, and that losses incurred by the defendant through its wrongful invasion of the patent are not chargeable to the plaintiff, nor can their amount be deducted from the compensation which the plaintiff is entitled to receive. Cawood Patent, 94 U.S. 695 [24 L. Ed. 238]; Elizabeth v. American Nicholson Pavement Co., 97 U.S. 126, 138 [24 L. Ed. 1000]; Tilghman v. Proctor, 125 U.S. 136, 8 S. Ct. 894 [31 L. Ed. 664]." We are of the opinion that the account must be restated so as to omit credits for rejects and returns and for pyralin losses.
Pittsburgh supplied Duplate with all of the plate glass used by the latter for laminated glass. In the manufacture of plate glass Pittsburgh used a so-called "continuous process" which embodied the teachings of twenty-six patents which Pittsburgh owned and which greatly reduced the cost of manufacture of plate glass. However, in billing Duplate, Pittsburgh calculated the cost of the plate glass as though it had been manufactured without the patented ...