ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA - No. 38,166.
Van Dusen, Adams and Rosenn, Circuit Judges.
In May 1972, this Court determined that United States Patent No. 3,076,421, owned by Trio Process Corporation (Trio), is a valid patent, that it had been willfully infringed by L. Goldstein's Sons, Incorporated (Goldstein),*fn1 and that the case should be remanded to the district court for a determination of damages.*fn2 The question posed by the present appeal is whether the district court on the remand erred in assessing the damages.
The patented process which undergirds this controversy is a technique for salvaging copper from scrap wire by the use of a special furnace in which the heat removes the insulation from the wire.*fn3
Although a patent was not issued until 1963, the owner, Trio, had instituted a program of licensing almost immediately after completion of the development of the removal method in the late 1950's. In fact, licensure was the only use Trio made of the patent; it never utilized the process itself.
The licenses sold by Trio were for five-year periods. Minkin Metal Company bought the first license. The purchase price of $20,000 covered both the license itself and the furnace needed to use the process; $13,000, or $2,600 per furnace year, was allocated for the license, and $7,000 for the furnace. Goldstein was the next purchaser, buying two sets of licenses and furnaces in 1960, one set for $20,000 and the other for $15,000. Agreements were subsequently entered into by Trio with four other buyers between 1962 and 1969 at the $20,000 rate.*fn4 One company bought the package in 1967, with a modified but more expensive furnace, for $25,000. Another purchased the package later in the same year for $19,500. After a decision by Trio to raise the price, two more packages were sold in 1972 for $25,000. No licenses have been granted since this Court's decision holding that the patent is valid.*fn5
Despite our determination in 1972 that the patented method had been willfully infringed by Goldstein, the infringement continued through 1973. In January of that year, Trio sought, and was granted, an injunction against Goldstein's continuing use of the technique. Following the ensuing violation of the strictures of the injunction, the district court entered an order holding Goldstein in contempt. This Court affirmed that order in March 1974.*fn6
While the contempt motion was being adjudicated, proceedings were taking place before a master in order to determine damages due Trio for Goldstein's infringement of the patent.*fn7 The district court appointed the master in January 1973 and his report was filed, after the taking of extensive testimony, in June 1974. The master approached the damage issue by comparing Goldstein's costs of operating the patented process with the costs of a similar, unpatented process. He found that use of the Trio process saved Goldstein $52,791 per furnace year in labor costs alone, and that other, smaller, savings accrued to Goldstein from use of the patented method as well.
In order to reach a "reasonable royalty" for use of the patent by the infringer,*fn8 the master halved Goldstein's savings in labor costs, and concluded that $26,390 was a reasonable royalty for each furnace year. Multiplying this figure by the number of furnace years of infringement and making slight modifications, the master found damages of $1,564,804. The master recommended trebling this amount, as allowed by 35 U.S.C. § 284 (1970).*fn9 After trebling and the addition of interest, the total damage figure proposed by the master was $5,062,954.
The district court viewed the damage computation not with regard to the money saved by the defendant as a result of its infringement, as the master had, but in terms of what Trio had lost. It looked first to the initial sum of $2,600 per furnace year -- the amount actually charged by Trio for licenses in the 1960-1970 era. The district court then increased the $2,600 figure on the assumption that the open infringement had reduced the market price of the license, and proceeded to set damages at $7,800 per furnace year for the years prior to the decision by this Court on validity, a figure three times the rate charged by Trio during the 1960's. Damages were set at $15,000 per furnace year for the period following the 1972 adjudication. The employment of these figures resulted in total primary damages of $653,839. The trial judge then proceeded to use a double multiplier -- in contrast to the master's trebling figure -- and denied attorneys' fees. With interest, the total damages computed by the district court were $1,726,525.*fn10
Both parties appealed the award of damages. Trio contends that the master's determination was correct and should not have been disturbed by the district court. It argues that the reduction was contrary to economic fact and that the trial judge should have based its calculations upon the reasonable royalty set by the master. Trio further asserts that the damage multiplier should not have been reduced from three to two by the district judge since Goldstein allegedly exhibited a substantial degree of bad faith in its ...