Westinghouse v. New York Air Brake Co.

WALLACE, Circuit Judge. Both parties have appealed from the decree in this cause, and their appeals present the single question of the amount of the recovery to which the complainants are entitled in consequence of the infringement by the defendant of the complainants’ patent No. 376,837 for an improvement in automatic air-brake mechanism, known as the “quick-action” triple valve. The patent contains six claims, and the interlocutory decree adjudged that three of these claims were valid and had been infringed by the defendant, and ordered a perpetual injunction, together with an accounting of profits and damages. Upon the accounting before the master he found that during the period of infringement — from November, 1890, to December, 1893 — the defendant had sold 18,107 infringing “quick-action triple valves in connection with car equipments.” He also found, in substance, that the invention covered by the infringed claims was one of dominating importance in the trade in air-brake equipments for railroad trains, and practically controlled the market for such equipments during the period of infringement, superseding all older kinds of equipments, and rendering it impossible for the defendant to have made any sales, or any profit from the sales of such equipments, if it had not made and sold the patented apparatus. He found that the profits derived by the defendant from the sale of train equipments in connection with the patented quick-action valve were the sum of $49,533. He also found that the sales of the defendant diverted an equal number of sales of train equip — 547 — ments from the complainants, upon which the complainants would have realized a profit of $193,978, and that the complainants were entitled to that amount as damages caused by the infringement. Exceptions to the master’s report were filed by the defendant and were heard before Judge Wheeler. He sustained the exceptions, and recommitted the report to the master “for the purpose of making a computation of profits and damages based upon the sales by the defendant of the quick-action valves of the patent only, separated from those upon the complete equipments.” The master interpreted Judge Wheeler’s decision as meaning only that the accounting was to be confined to the complainants’ profits and damages based upon the sales of the “triple-valve structure, disassociated from the accessories necessary t'o constitute a train equipment.” Upon this theory the master in his supplementary report found that the profits made by the defendant upon these sales were $36,945, and that the damages sustained by the complainants by loss of profits on diverted sales were $128,737. Exceptions were filed to the supplementary report, but these were not heard by Judge Wheeler, and, being overruled by the court below, the complainants were by the final decree in the cause awarded the recovery thus reported.. We fully agree with the conclusions of Judge Wheeler, and his concise opinion, rendered in deciding the exceptions to the master’s original report, so clearly expresses the reasons why the complainants should be confined to a recovery of profits made by the defendant and profits diverted from the complainants upon the quick-action, triple valve only that we should not attempt to add to his opinion, were it not that it seems desirable to repeat some of the rules measuring the recovery in patent causes for infringement, which, though perfectly well settled, seem to be frequently ignored upon accountings in such causes. The voluminous record upon the accounting in this cause, with its mass of opinion evidence and other testimony having no bearing upon the real issue, illustrates the needless expense and waste of time often incurred from disregarding the plain and simple rule that: “Where the infringement is confined to a part of the thing sold, the recovery must be limited accordingly.” Philp v. Nock, 17 Wall. 460, 462, 21 L. Ed. 679. The complete automatic air-brake equipment, which was manufactured and sold by the competing parties, comprises 17 distinct parts and includes, among others, the triple valve, the quick-action auxiliary of the triple valve, the brake cylinder, the auxiliary reservoir, pressure-retaining valves, hose couplings, etc. The quick-action triple valve of the patent is a triple valve with an auxiliary device, which may be either structurally incorporated into it or attached to it. The triple valve is an independent device, and operates to perform its assigned functions in the air-brake system, whether the quick-action attachment is present or not, and whether the attachment, when it is present, operates or does not. The plain triple valve was used satisfactorily for many years before the quick-action attachment was devised, and is still used satisfactorily without such attachment. Every modern air-brake equipment contains the plain triple valve whether — 548 — or not it contains in addition some form of quick-action attachment. It provides for a partial or graduated application and removal of the brakes to stop the train or release it in the ordinary movements of slowing, stopping, and starting, and for an emergency application when it seems necessary to stop the train suddenly. An air-brake system which does not provide for the graduated application would be so seriously disadvantageous that it would not be used. The quick-action attachment is for emergency applications. It is seldom brought into action. A very capable engineer while with the New York Central Railroad Company used it only three or four times during two years, and during two years when he was driving trains on the New England Railroad used it only once. It is not needed upon short trains, like ordinary passenger trains, but upon long freight trains it is an important auxiliary to the triple valve, as' without it the time consumed by the progressive operation of the brakes upon the first car and the last car, and the consequent slack motion, subjects the cars at the further end to violent shock and liability of breakage. Mr. Westinghouse testified for the complainants as follows: “Oar equipments fitted for passenger train service could probably bave been sold without the quick-action triple valve, as such brakes were in successful use at the time of the invention of the quick-action valve. New freight-car brakes, however, could have been sold after the exhibition of the train fitted with the quick-action brakes made in accordance with the patent in suit. Since then the Westinghouse Brake Company have sold but very-few automatic brakes for use upon passenger or freight trains, and they have not sold or offered for sale automatic brakes for use upon freight or passenger cars since defendants were enjoined in this suit. * * * If, however, it should be contended that the automatic valve in the quick-action brake possesses some commercial value, I can think of no better measure of this value than the relative number of sets of brakes of each kind that have been sold [by the Westinghouse Air Brake Company] since January 1, 1888, up to November, 1893, the date of the injunction in the present suit.” He testified to sales of 18,450 of ordinary triple valves and 239,500 of the quick-action triple valves. The quick-action triple valve of the patent in suit was not the only quick-action valve which was in commercial use during the period of infringement. The quick-action valve devised by Geo. A. Boyden, and the quick-action valve of the prior patent to Westinghouse, No. 360,070, were also in use, about 10,000 having been sold. The Boy-den Brake Company and the Lansberg Brake Company were competitors of the complainants and the defendant. The quick-action valve of the patent is an improvement upon the quick-action triple valve of patent No. 360,070, and embodies the invention of that patent. In the present suitthe complainants sought for an injunction and an accounting because of the infringement of that patent by the defendant; but, as to that patent, it was decided that the defendant had not infringed, and the bill, so far as it was founded upon that patent, was dismissed. The decree appealed from, in sanctioning the findings of the master, allows the complainants a recovery, not only for the profits realized by the defendant in making and selling quick-action triple valves upon which the device of the patent in suit is only an improvement, but also those realized from making and selling the ordinary triple valve, without which the quick-action attachment would be compar — 549 — atively valueless, and which the defendant and the public generally were free to make and sell; and it allows the complainants damages for lost profits which the complainants could have made upon similar sales if the defendant had not been a competitor. And the complainants, not content with this, now insist by their appeal that the defendant is accountable for the profits realized by the defendant and those lost by the complainants on the entire equipment employed in the automatic air-brake system and sold together with the patented attachment by the defendant, upon the theory that the defendant could not have sold any automatic air-brake equipments except with the patented attachment. The proofs show that there was comparatively little demand by railroad companies for complete automatic air-brake equipments that were not provided with quick-action triple valves during the period of the infringement. But it-is clear that the quick-action attachment was one of secondary importance in automatic brake equipments. It is apparent that the complainants could not have sold any of the patented valves if there had not been embodied in them the devices of the quick-action triple valve of the earlier Westinghouse patent, or equivalent devices such as the defendant and the Boyden Brake Company employed in their quick-action valves, and which did not infringe the earlier patent. The general rule governing recoveries in infringement cases is stated, quoting Judge Blatchford (15 Blatch. 70, Fed. Cas. No. 5,248), in Garretson v. Clark, 111 U. S. 120, 4 Sup. Ct. 291, 28 L. Ed. 371, in the following language: “The patentee must in every case give evidence tending to separate or apportion the defendant’s profits and the patentee’s damages between the patented features and the unpatented features, and such evidence must be reliable and tangible, and not conjectural and speculative; or he must show by equally reliable and satisfactory evidence that the profits and damages are to be calculated on the whole machine, for the reason that the entire value of the whole machine as a marketable article is properly and legally attributable to the patented feature.” Referring to the first branch of this rule, this court said in Wales v. Waterbury Manufacturing Co., 101 Fed. 126, 41 C. C. A. 250: “This has always been the rule, and it is manifestly a just one upon principle; but it is often difficult of practical application, and the courts have sometimes applied it so that it has not produced an equitable result. In many cases, where it is obvious that the patented invention has contributed a great part of the profits realized from selling the infringing article or apparatus embodying unpatented features, it is practically impossible for the complainant to establish affirmatively the proportionate part.” Referring to the theory that an infringer is a trustee ex maleficio, and the rule that a trustee who has confused the profits made by the use of a trust property with those made from his own property, and commingled them so that they cannot be segregated, must account for the whole, this court in that case also said: “Such a rule would work unjustly in many cases, as where the patented feature is of an insignificant part of a machine or article; and it is probably because of its manifest inequity in such cases that the courts have placed upon the complainant the burden of proof.” — 550 — The adjudications in which the latter branch of the rule in Garretson v. Clark has been applied are cited in Wales v. Waterbury Manufacturing Co., and any further reference to them is unnecessary. In all of them, in which the question was as to the basis of profits upon sales, the rule applied was that the profits upon the whole machine or article were allowable only when, but for the patented feature, the machine, or article sold by the infringer would not have commanded a market. The question whether a machine would or would not have been marketable without the patented part is of course a question of fact, but it is one which depends largely upon opinion evidence. The most satisfactory evidence upon the question is that which is afforded by the nature and intrinsic value of the improvement which it introduces into the art or industry in which the machine is employed. In Wales v. Waterbury Manufacturing Co. the unpatented part “was useless, and derived its whole value from the patented part.” In Manufacturing Co. v. Cowing, 105 U. S. 256, 26 L. Ed. 987, “for the new and special purpose in view the old pump was useless without the improvement.” In Hurlbut v. Schillinger, 130 U. S. 456, 9 Sup. Ct. 584, 32 L. Ed. 1011, where the patent was for an improvement in a concrete pavement, “the invention of Schillinger was a very valuable one,” and “the defendant’s concrete flagging derived its entire value from the use of the plaintiff’s invention.” In Crosby Valve Co. v. Safety Valve Co., 141 U. S. 441, 12 Sup. Ct. 49, 35 L. Ed. 809, where the invention of Richardson’s patent was held to have given the entire value as a marketable article to the infringing valves, the patent vyas for a safety valve compared with which the prior art presented likenesses “only as the anatomy of a corpse resembles that of a living being.” When the patented improvement is one of subordinate importance, or the value of the machine as a whole depends more upon the presence of the unpatented parts, a finding that the marketable value of the whole has been created by the patented part can seldom be correct. Whether in the present case the whole equipment, or only the triple valve, is to be regarded as the marketable article within the meaning of the last branch of the rule, is, in the view which we take, a question which need not be considered. Inasmuch as the complainants did not attempt to separate or apportion the defendant’s profits and their own damages between the patented and the unpatented features of the quick-action triple valve, it was incumbent tipon them to prove that the entire value of the, defendant’s quick-action valve as a marketable article Avas properly and legally attributable to the patented features. What they did prove, and all they proved, was that purchasers of triple valves generally demanded some form of quick-action valves, and that, except to a very limited extent, purchasers could, not be found for valves without, these features. ’ This falls short of proof that only the patented form coufd supply the demand, and does not meet the requirements of the second branch of' .the rule. As has been already suggested, the cases are exceedingly rare in which the whole marketable value of a machine, or of a collection .of — 551 — devices, can in reason be attributable to a patented feature which embraces merely an improvement in one of its parts. Marketable value is ordinarily the result of various conditions independent of the normal value of the machine itself, and the contribution which the patented part gives to marketable value is necessarily dependent more or less upon these conditions. Enterprise, exploitation, and business methods in introducing and marketing the thing are generally as important a factor in its intrinsic value. The effect of the control of the market, whether by lawful or illegal endeavors, in fixing the marketable value of many products, is shown by what has been accomplished by some of the so-called “trusts” of the day. Where that part of the thing is of such paramount importance that it really creates the value of the whole, the doctrine that the value of the monopoly of the part is measured by the marketable value of the whole may reasonably be applied, notwithstanding the marketable value of the whole may from extraneous causes be out of all proportion to its normal value. But, where that part of the thing is relatively an unimportant factor in the normal value of the whole, the application of the doctrine is likely to lead to inequitable results. The present case is an illustration. The defendant, and other competitors of the complainant’s saw there was an opportunity to create a demand for new air-brake apparatus which should have the quick-action feature, and they undertook to produce such apparatus and stimulate the demand. Such apparatus embodied many inventions, some of which were' and some of which were not open to public use. The defendant, supposing it had produced apparatus which would not infringe any outstanding patents, bent its efforts to exploit that kind of apparatus and. discourage the sale of all others, and thus the defendant largely contributed to the marketable value of that kind of apparatus. It now appears that its apparatus did infringe one of the outstanding patents. It may turn out that it infringes some of the others, as the complainants claimed when they sued the defendant for infringing their earlier patent.. It does not seem equitable that, because the defendant appropriated certain parts in that apparatus which belonged to the complainants, it should be charged with appropriating the whole marketable value of the apparatus. The theory that it did appropriate the whole value is inconsistent and quite irreconcilable with the original theory of the action and the claim of the complainants that they were entitled to profits and damages because the defendant had appropriated certain other parts that belonged to them. The case is not one where the patented quick-action valve created the market which defendant supplied. We have no wish to belittle the contribution made by the patented invention to the automatic air-brake art, but we cannot ignore the fact that before the invention of the patent in suit Mr. Boyden had supplied the devices which met the needs of railroads and which were in all respects satisfactory. Referring to this device, the Supreme Court said in Westinghouse v. Boyden Power Brake Co., 170 U. S. 572, 18 Sup. Ct. 724, 42 L. Ed. 1136: “It solved at once, and in the simplest manner, the problem of quick-action, whereas the Westinghouse patent [his earlier pa — 552 — tent, No. 360,070] did not prove to be a success until certain additions had been incorporated into it.” And that the patented invention was not of dominating importance in controlling the market for automatic air-brake apparatus is apparent from the fact that the defendant, when it was enjoined in the present action from using the invention, introduced a substitute which enabled it to retain the market for its own apparatus which complainants have never asserted to infringe the patent. We are constrained to the conclusion that because there was no satisfactory proof apportioning the profits of the patented attachment as distinguished from those of the entire equipment, or as distinguished from those of the triple valve itself, the decree below was erroneous' and should be reduced to merely a nominal recovery. - The decree is reversed, with costs of this court, and with instructions to the court below to modify the decree conformably with this opinion.