B. F. Goodrich Co. v. Consolidated Rubber Tire Co.

EVAN A. EVANS, Circuit Judge (after stating the facts as above). The two important questions that must first be determined are: (a) Is there sufficient evidence in the record to justify the adoption of a reasonable royalty as the basis for recovery? (b) If this question be answered in the affirmative, is 5 cents per pound a reasonable royalty ? [1-3] While the learned counsel for appellant does not dispute the court’s right to apply the doctrine of reasonable royalty, where there is sufficient evidence to justify it (Dowagiac Mfg. Co. v. Minnesota Plow Co., 235 U. S. 641, 35 Sup. Ct. 221, 59 L. Ed. 398), contention is made that in this case there is an utter absence of competent evidence to make it possible to reach an intelligent conclusion as to what would be a reasonable royalty. We are convinced that there is evidence in this" case that justified the court in its determination to meas — 621 — ure appellees’ damages on the basis of a reasonable royalty. This evidence will be but briefly alluded to. (a) There was evidence of established royalty for six years prior to appellant’s infringement.. These license contracts contained many added agreements, some of which detracted from, while others added to, the rights of the licensees as such. None of these agreements, excepting one, hereinafter discussed and made shortly after the Durlon decision, fixed a royalty lower than 5 cents per pound. Some were as high as 20 cents per pound. The exception, the so-called pooling agreement, which was obviously made in view of the then existing uncertainty as to the validity of the patent, may also- well be considered, although it is no more conclusive than the licenses fixed prior to the Turton decision. (b) The extent of the business and the success of the patent, and its widespread and well-nigh universal use, clearly appears and has a bearing on the question. There is no doubt hut that this Grant tire dominated the trade. Immediately after the patent was issued it went into widespread use, and has continued even to the present day as a most satisfactory response to the solid rubber tire demand. (c) Appellees’ business, though conducted in competition with the large and successful rubber manufacturing companies, and at a time when it was unprepared to meet this competition, showed a profit of 6.7 cents per pound. (d) On account of appellant’s failure to so keep its books as to enable the court to ascertain what its profits were, notwithstanding this suit for damages was pending, it becomes necessary, if a reasonable basis may be found, to adopt another basis for computation that will adequately and fairly compensate the patentee. (e) The Circuit Court of Appeals for the Second Circuit, in the case, of Appellees v. Diamond Rubber Co., 232 Fed. 475, 146 C. C. A. 469 (affirming 226 Fed. 455), after reviewing evidence very similar to the proof in this case, affirmed a finding that 5 cents per pound is a fair sum that the infringer should pav for manufacturing and selling this solid rubber tire in violation of the rights of the patentee. Is there evidence to support the master’s findings? The master saw and heard the witnesses, and m some repects was in far better position to determine this question of fact than the reck'ring court. Numerous witnesses testified as expert accountants for the appellant. Three different reports are furnished by it, which differ material]} and radically, and the existence of these differing and conflicting reports might well make the credibility of appellant’s witnesses a material factor in determining the basis of computation. It is well-nigh inconceivable that this large and successful business concern should engage in this unlawful business, year after year, in defiance of the patentee’s rights, with a suit for damages pending, if the business was conducted at a loss. It is highly improbable that this concern, with its record of success and its stupendous figures of net profits for ten years, would have conducted, as a part of that most successful business, a branch of no inconsiderable size that was run at a loss. Nor should appellees be compelled to go forth without relief, if there be any — 622 — other reasonable basis for measuring damages, simply because appellant has so kept its books that the court, as the master found, is unable to accept its figures, and unable to determine from these books the profit actually enjoyed. Likewise in this case appellees should not be compelled to accept their own profits as the basis for determining a reasonable royalty. Originally the owner of the patent did not contemplate manufacturing all its solid rubber tires. To obtain its output it made an exclusive contract with appellant. When the latter company turned infringer, appellees were in no position to engage in the manufacturing business and conduct it at a profit. They did not, like the appellant and other infringers, have unlimited capital and an established business, extending to every corner of the United States, to support their venture. It is worthy of notice that appellees’ profit of 6.7 cents per pound was based on its business during the first half of this period. During the last four or five years there is evidence tending to show appellees’ profits from the manufacture of this solid rubber tire exceeded 10 cents per pound. While it should be added that the reliability of these figures is'vigorously assailed by appellant, we are convinced that the reasonable royalty varied somewhat during this period due to the holdings of the courts. The royalty fixed in the first licenses was likewise not controlling, because after the Lurton decision the patent was not as valuable as before. The same royalties were no longer obtainable. In fact, after this decision the 2 per cent, royalty found in the pooling agreement is fully as fair as'the price that had been fixed before there was any successful attack upon the patent. But the master was covering, not the period beginning with 1902 and ending in 1903, but the entire period of ten years, from 1902 to 1912. If the 2 per cent, royalty represented the fair, royalty in 1903, well might the appellees argue that after 5 other judges, representing different courts, had held the patent valid, the original price of 20 cents per pound was more nearly the sum a licensee should pay for the right to manufacture and sell this product. By 1907 this patent had been sustained in at least 8 different courts. After that date could it be said that doubt as to its validity existed ? Again, the decree’ in the case of Appellees v. Diamond Rubber Co., supra, is entitled to much weight. In that case it was the identical issue as here presented that was up for determination. It may be that the facts were not exactly similar to those here presented, but an examination of the opinion confirms the impression that there was but little or no difference in the proof. We do not hesitate to say that the findings of the District Court, affirmed by the Circuit Court of Appeals for the Second Circuit, as to a reasonable royalty in a suit involving the same identical patent, covering practically the same period of time, is entitled to much weight and consideration by this court. Difficulty in determining the reasonable royalty does not alone bar the court from adopting this rule. Dowagiac Mfg. Co. v. Minnesota Plow Co., supra. Such a method of measuring damages doubtless widens the field of investigation, and makes possible a longer hearing; but if the fact determinative of the question here in issue is thereby more certainly established, and more satisfactorily reached, good reason exists for applying the rule. — 623 — [4] Amount. — Nor can we say that the evidence does not support the finding' that 5 cents per pound is a reasonable royalty. The most serious objections to the allowance of the 5 cents per pound as the measure of damages in this case are: (a) The effect of the Lurton decision upon the value of the patent, together with the right acquired under that decision by the Goodyear Rubber Company, a large and formidable competitor in the rubber business during the period under consideration, (b) The infringement was merely for one of the elements that went to make up the patent. Both of these objections present serious questions. There can be no doubt but what the reasonable royalty was affected by the fact that a large competitor, the business of which extended to every corner of the United States, was free to manufacture and sell the patented article. Likewise, if it weré commonly understood among the trade (both manufacturers and retailers) that the patent was invalid, or even that there was grave doubt as to its validity, tlie royalty would be reduced. Such a reputation would invite infringement, with a resulting demoralization in the price. These facts we have carefully considered in determining whether the sum fixed by the master is reasonably well supported by the evidence. Certainly, if there was not present conclusive proof of other facts, this argument would doubtless lead us to a modification of the decree. But this was no ordinary patent, if we judge its success by the extent to which it. shortly occupied the field for which it was conceived. Most unusual is the indorsement that it received. The following quotations are but a few of the tributes: “I<’ew patents La.ve received sucL immediate and. weJl-nJgh unanimous recognition. It is the standard rubber tire of today.” ‘‘It is improbable that Grant’s construction will be improved upon ,in our day.” “It has been accepted as (lie termination of the struggle for a completely successful tire.” “The Grant tire immediately established, and Las ever since maintained, its supremacy over all other rubber tires, and Las been commercially successful, while they Lave been failures.” Surely much of the real doubt and uncertainty disappeared by 1907. For the last five years of the period in question, nothing but the great strength and tenacity of a few large manufacturing companies marred appellees’ control of a great industry that was the product of the genius of the patentee. Nor does appellant occupy an enviable position in first helping to demoralize the trade, and then asserting that by reason, of such demoralization, appellees’ damages should be merely nominal. As to the other objection, that the infringement was of a single element of a combination patent, and therefore the master erred in holding appellant liable for the reasonable royalty of the entire patent, we conclude the contention fails for want of support in fact. The master’s finding on this subject is: “I Ibid as a conclusion of fact that * * * 5 cents per pound, on tho rubber tires manufactured and sold by the defendant would have been reasonable royalty * * * for the company to Lave paid.” We have considered the character of the other elements, the state of the proof as to' the possible division of the royalty on the' entire patent • ed article, as well as the other facts bearing upon this question, and — 624 — conclude that the master was fully apprised of the need of considering this argument, and gave it due weight, and that his ultimate finding of 5 cents per pound, not on the patented article, but on the rubber tires, finds ample support in the evidence. [5, 6] Interest. — No interest was allowed, excepting from the date of the report of the master. Appellant contends that the court properly refused to allow interest beyond the date of such report, while appellee seeks to recover interest from the time the royalty should have been paid, -had appellant been operating under a license. It is now recognized that, where profits are awarded, interest is not allowed until the amount has been judicially determined. On the other hand, interest is allowed from the date when infringer would have paid royalty, if licensed, where the damages are measured by established royalty. It is asserted, however, that the rule respecting interest is not well established in that class of cases where, damages are based upon “reasonable royalty.” We see no valid reason for withholding interest where the damages are based upon a reasonable royalty. In fact, precedent, and not the logic of the situation (Tilghman v. Proctor, 125 U. S. 136, 8 Sup. Ct. 894, 31 L. Ed. 664), is all that prevents the allowance of interest in case of damages based on.the infringer’s profits. The allowance of interest, and the reasons for such allowance or rejection, have been announced in innumerable decisioná where questions analogous in character to patent infringement suits have been under consideration. Such decisions are instructive and in the absence of other authorities may well be accepted as conclusive on the question. In this case the reasonable royalty is fixed, not for a single year, but for a period of ten years, and represents the average royalty for that entire period. It is therefore impossible to determine upon what sum appellant should have paid interest'on this basis during any one year. We conclude, however, that interest should run on the amount thus found due from the end of the period, to wit, March 30, 1912. [7] Treble or Increased Damages. — The trial judge who had this matter under consideration, notwithstanding all the aggravating circumstances under which the infringement occurred, refused to increase the compensatory damages found by him. For refusing to allow increased damages, appellees assign error. Unfortunately, the argument of the appellant to the effect that the trial judge saw and heard the witnesses, and is therefore in closer touch with the facts than the appellate court, fails, because of the reference, which resulted in the oral testimony being presented to the master. The trial judge neither saw nor heard the witnesses. There were many circumstances in connection with appellant’s infringement that indicated willfulness, malice, and a wanton disregard of the rights of the patentee. We believe that there is ample justification for the allowance of increased damages in this suit. We are also, however, impressed with the fact that at an early day in the history of this, patent, the Circuit Court of Appeals for the Sixth Circuit declared it invalid, and this adjudication was naturally accepted by the manufacturers in that circuit as final. — 625 — It is, of course, the rule that, if the manufacturer honestly believed that he had a right to manufacture this rubber tire, he should not be mulcted in punitive damages. We are not willing to announce any hard and fast rule that good faith exists because a favorable decision in some court is obtained, yet we are not so clearly convinced that this same good faith is absent in this case as to warrant the imposition of additional damages. In the Diamond Rubber Co. Case, supra, additional damages in the sum of $50,000 were inserted and the Court of Appeals sustained the decree. In this case we have the benefit of the conclusion of the learned District Judge, who gave the matter careful consideration and his opinion is entitled to much weight. We are unwilling to disturb his decision on this phase of the case. [8] Foreign Sales. — Appellees contend that they should receive royalties upon the foreign sales made by appellant. We can dispose of this contention without considering the legal propositions advanced in support of it. Appellant did not sell any patented product abroad. It sold merely one element in appellee’s patent. No infringement is shown by reason of the fact that, appellant manufactured one of the infringing elements and shipped it abroad. It is contended that appellee secured a patent in England; but there is no proof in the record to show what patent was there obtained, nor when it was granted. We conclude, therefore, that the court properly refused to allow royalties on these foreign sales. The decree is modified, by adding interest at the rate of 5 pey cent, from the 30th day of March, 1912, to the amount fixed by the District Court as damages, and, as so modified, is affirmed. Appellees shall recover their costs in this court.