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Rosco, Inc. v. Mirror Lite Co.

June 17, 2009

ROSCO, INC., PLAINTIFF,
v.
MIRROR LITE COMPANY, DEFENDANT.



The opinion of the court was delivered by: Charles P. Sifton (electronically signed) United States District Judge

SIFTON, Senior Judge.

MEMORANDUM OPINION AND ORDER

Plaintiff, Rosco, Inc., commenced this action, in 1996, against defendant, Mirror Lite Company, asserting claims of design patent infringement, trade dress infringement, false designation of origin, tortious interference with business relationships, misrepresentation in violation of 15 U.S.C. § 1125(a), and common law trademark infringement. In addition to damages, the complaint sought declaratory and injunctive relief pursuant to 29 U.S.C. §§ 2201 and 2202. Mirror Lite asserted a counterclaim of patent infringement in violation of 15 U.S.C. § 1125(a).

The matter was tried before the undersigned sitting without a jury between March 6 and March 10, 2000. After appeal to the Federal Circuit and remand for determination of infringement, I found that Rosco had infringed Mirror Lite's '984 patent. The parties then filed cross motions for summary judgment on the issue of whether Rosco's post trial mirrors continued to infringe Mirror Lite's patent. I granted Mirror Lite's motion for summary judgment in part, determining that two of Rosco's post trial mirrors continued to infringe, and denied Rosco's motion for summary judgment. I found there was a genuine issue of fact as to whether three other Rosco post trial mirrors continued to infringe Mirror Lite's patent. I then scheduled a trial date to hear damage issues.

What remains for determination are (1) the damages resulting from Rosco's infringement of Mirror Lite's '984 patent*fn1 ; and (2) whether Rosco's mirrors #1, #2 and/or #5 infringe the '984 patent.*fn2

For the reasons set forth below, Mirror Lite is entitled to a reasonable royalty damages award in the amount of $397,843.25. Mirrors 1, 2, and 5 do not infringe on Mirror Lite's '984 patent, and Mirror Lite is not entitled to future damages or enhanced damages. Mirror Lite's motions to strike evidence relating to the bisecting test and template test, strike Folan's testimony on patent matters and introduce evidence from pre-2000 that allegedly relates to damages post-2000 are all denied. Mirror Lite's request for an amended proposed permanent injunction, with the exception of paragraph 2(b), is granted.

What follows sets forth the findings of fact and conclusions of law on which these determinations are based as required in Rule 52 of the Federal Rules of Civil Procedure. Fed. R. Civ. P. 52(a)(1).

BACKGROUND

Procedural History

The facts of this case have already been stated several times in the prior opinions in this case. See, e.g., Rosco Inc. v. Mirror Lite Co., 506 F.Supp.2d 137 (E.D.N.Y. 2007). It is unnecessary to repeat them here. A procedural history is set forth below.

Rosco's '357 design patent relates to an oval, highly convex cross-view mirror with a black, flat metal backing. Rosco applied for this patent in April of 1992, and the patent issued in April of 1994. Mirror Lite's '984 utility patent relates to an oval cross-view mirror with a varying radius of curvature along the major axis of the convex ellipsoid mirror lens. Mirror Lite applied for this patent in September of 1992, and the patent issued in December of 1996.

In its complaint, Rosco sought a declaratory judgment that all claims of Mirror Lite's '984 patent were invalid and unenforceable due to Mirror Lite's inequitable conduct in procuring the patent and a finding that Mirror Lite infringed its '357 patent. Mirror Lite asserted a counterclaim alleging that Rosco infringed the '984 patent. At trial, Mirror Lite contended that Rosco's patent was invalid as functional and therefore not infringed.

After a bench trial, I held in relevant part that Rosco's '357 patent was invalid as functional and obvious pursuant to 35 U.S.C. § 103.*fn3 I also found Mirror Lite's patent invalid under 35 U.S.C. § 102 (e)*fn4 and (g)*fn5 . Accordingly, I did not reach the merits of Mirror Lite's patent infringement claim.

The Federal Circuit reversed my conclusions that Rosco and Mirror Lite's patents were invalid. The Court remanded in relevant part for consideration of: 1) whether Mirror Lite had proven by clear and convincing evidence that Rosco's patent was invalid under 35 U.S.C. § 103; 2) whether Mirror Lite had infringed Rosco's patent; 3) whether Mirror Lite's patent was invalid under 35 U.S.C. §§ 102(a),*fn6 (f), and 103; 4) whether Mirror Lite's patent was unenforceable due to inequitable conduct; and 5) whether Rosco had infringed on Mirror Lite's patent.

On remand, Mirror Lite conceded that Rosco's patent was valid, while Rosco argued that Mirror Lite's '984 patent was invalid. Rosco contended that prior to the date of Mirror Lite's invention, Rosco had conceived, reduced to practice, and sold mirrors containing all the elements of claims 1, 2, 3, 6, 7, and 8 of the '984 patent, thus rendering it invalid under 35 U.S.C. § 102(a). Benjamin Englander, one of Rosco's owners, testified to that effect. Rosco introduced this mirror as Exhibit 110, called a "Hawk Eye Mirror" based on the '357 patent. Mirror Lite responded that: 1) Rosco failed to show that its previous mirror had decreasing radii of curvature along its major and minor axes and did not contain a reflective outer surface and a non-reflective inner surface; or in the alternative, 2) that Rosco could not show that it appreciated these aspects of its mirror; and 3) that Rosco could not prove that it had used this mirror publicly before the priority date of the '984 patent.

I found that Exhibit 110 did have these qualities, that Rosco had used the mirror publicly, and that Rosco had anticipated Mirror Lite's patent under 35 U.S.C. § 102. I also held that Mirror Lite's '984 patent was unenforceable due to Mirror Lite's inequitable conduct in procuring the patent. Specifically, I held that Mirror Lite had intended to mislead the examiner by failing to disclose prior art.

I also held that Rosco failed to prove its claim of infringement. In particular, Rosco sought to prove that four of Mirror Lite's mirrors infringed on Rosco's '357 patent, but Rosco had not proven that the four allegedly infringing mirrors appropriated the novelties that distinguished Rosco's '357 patent from prior art.

On appeal for the second time, the Federal Circuit again reversed this Court's conclusion that Exhibit 110 anticipated Mirror Lite's '984 patent. Specifically, the Circuit Court held that Rosco failed to prove by clear and convincing evidence that Exhibit 110 disclosed every claim limitation of the '984 patent because "[t]estimonial evidence of invalidity must be corroborated." Rosco, Inc. v. Mirror Lite, Co., 03-1562, 120 Fed.Appx. 832 (Fed. Cir. Jan. 19, 2005) (unpublished). Rosco presented the testimonial evidence of Benjamin Englander to the effect that he had designed Exhibit 110 and that it contained every element of claims 1, 2, 3, 6, 7, and 8 of Mirror Lite's '984 patent. Exhibit 110 itself, the Federal Circuit held, was insufficient to corroborate this testimony. Nor did the testimony of Rosco's expert witness, Harvey Manbeck, suffice because he based his testimony on Benjamin Englander's representations. With regard to my finding of inequitable conduct by Mirror Lite for failing to disclose prior art, the Federal Circuit held that there was insufficient evidence of Mirror Lite's intent to deceive. The Federal Circuit remanded "for further proceedings solely on the issue of infringement, the determination of which should be made on the existing trial record."

I thereafter determined that Mirror Lite had proven that Rosco infringed Mirror Lite's '984 patent. I also ordered limited additional discovery on two issues: (1) whether and to what extent Rosco continued to sell Hawk Eye and Mini Hawk Eye mirrors post-trial; and (2) post-trial revenue, costs, and profits Rosco has earned or incurred through sale or manufacture of Hawk Eye and Mini Hawk Eye mirrors.

Mirror Lite made a motion for a permanent injunction pursuant to 35 U.S.C. §283 which I granted with the exception of ¶2(b), to be entered upon resolution of the remaining damages issues. I precluded discovery as to inquiries concerning the period from December 31, 1996 to March 6, 2000 and to the extent it sought information on "all mirrors" or on "mirrors" generally. I also corrected factual finding #16 of my August 26, 2005 opinion, and adopted the pre-trial sale figure of 90,000 infringing mirrors. In addition, Rosco raised the new argument that some of its post-trial Hawk Eye and Mini Hawk Eye mirrors did not infringe because they have a constant radius of curvature, and thus that Mirror Lite should not be allowed discovery as to these non-infringing mirrors. I stated in the decision that Mirror Lite should be entitled to determine for itself whether some Hawk Eye and Mini Hawk Eye mirrors have a constant radius of curvature but that Mirror Lite would only be permitted to take discovery of revenues and costs on mirrors that are prima facie infringing.

Recent Procedural History

Rosco and Mirror Lite thereafter filed cross motions for summary judgment relating to the Hawk Eye and Mini Hawk Eye mirrors sold by Rosco post-trial. Rosco asserted that its post-trial Hawk Eye and Mini Hawk Eye mirrors have constant radii of curvature or substantially constant radii of curvature and therefore do not infringe Mirror Lite's '984 patent. Mirror Lite argued that all of the post-trial Hawk Eye and Mini Hawk Eye mirrors have varying radii of curvature and all infringe. In addition both sides filed various evidentiary motions relating to Rosco's summary judgment submissions. I denied Rosco's Motion for Summary Judgment, and granted in part and denied in part Mirror Lite's Motion for Summary Judgment*fn7. Mirror Lite's Motions to Strike Rosco's Memorandum on Claim Construction and Rosco's New Evidence and Reliance on a Lomar Mirror were denied as moot. I denied Mirror Lite's Motion to Strike the Declaration of Peter Sinclair. Mirror Lite's Motion to Strike Rosco's Newly Offered CMM Tests and Accompanying Supporting Declaration of Professor Folan was denied in part and granted in part. Rosco's Motion to Strike the Declaration of Prof. Howell was granted only with respect to paragraph 10.

On July 13, 2007, Rosco filed a Request for Reexamination of the '984 patent with the United States Patent and Trademark Office. Rosco requested a pre-motion conference with this Court for permission to file a Motion to Stay the pending litigation in this case based on: (1) the PTO's high frequency of granting such requests and subsequently either limiting the scope of or invalidating the reexamined patent; (2) judicial economy; and (3) that there will be no undue burden on Mirror Lite, while not staying the case would prejudice Rosco. In response, Mirror Lite argued that it would be prejudiced if the court stayed litigation. I denied the request for a stay because a stay would prejudice Mirror Lite in the advanced stage of the litigation.*fn8

Discussion

Damages

Mirror Lite seeks damages it incurred due to Rosco's infringement of its '984 patent. The purpose of a patentee's monetary award is to adequately compensate the patentee for the infringement and to restore the patentee to the position he would have occupied had the infringement not occurred. Albemarle Paper Co. v. Moody, 422 U.S. 405, 418-19, 95 S.Ct. 2362, 45 L.Ed. 2d 280 (1975); Armco Inc. v. Republic Steel Corp., 707 F.2d 886, 891 (6th Cir. 1983). The measure of damages in an infringement case is "the difference between [the patent owner's] pecuniary condition after the infringement, and what his condition would have been if the infringement had not occurred." Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U.S. 476, 507 (1964). There are two approaches to the determination of a patentee's monetary award, lost profit calculations and reasonable royalty calculations. To recover lost profits a patentee must produce evidence of "a causal relation between the infringement and its loss of profits." BIC Leisure Prods., Inc. v. Windsurfing Int'l, Inc., 1 F.3d 1214, 1218 (Fed.Cir. 2001). Where the evidence is inadequate to establish lost profits, i.e. a patent owner cannot establish causation for a segment of the infringer's sales, a Court must determine a "reasonable royalty rate."*fn9

35 U.S.C. § 284; Lindemann Mashinenfabrik GmbH v. American Hoist & Derrick Co., 895 F.2d 1403 (Fed. Cir. 1990). Under either a lost profit or reasonable royalty measure, the patent holder must "reconstruct the market to project economic results" of what would have occurred had the market developed absent the infringing product or what agreement would have resulted had a hypothetical negotiation over royalty rates occurred. Ericsson, Inc. v. Harris Corp., 352 F.3d 1369, 1377 (Fed. Cir. 2003); Riles v. Shell Exploration & Prod. Co., 298 F.3d 1302, 1311 (Fed.Cir. 2002).

Mirror Lite's Motion to Introduce Evidence from Pre-2000 that Relates to Damages Post-2000

Mirror Lite, at the Court's invitation, made a motion*fn10 to introduce additional damages evidence for the period prior to the trial in March, 2000. Mirror Lite's motion did not seek to offer evidence to supplement damages resulting from the 90,000 mirrors found to infringe as a result of the first trial ("Tr. I"). Rather, Mirror Lite sought to introduce the evidence to supplement the damages record from the second trial ("Tr. II") (i.e. damages incurred from March 7, 2000, to the present).

Rosco argued that this issue has twice before been addressed by this Court in previous decisions and both times been denied. Rosco further argues that Mirror Lite already had the opportunity to seek discovery of any information pre-2000 (specifically Rosco argues that this information should have been sought during discovery prior to the trial in 2000), and that Rosco would be prejudiced should Mirror Lite be allowed to supplement the record now.

In my Memorandum Opinion and Order of August 26, 2005, I ordered additional, albeit limited, damages discovery in this matter upon remand from the Federal Circuit. Specifically, I allowed Mirror Lite to take additional discovery as to, "1) whether and to what extent Rosco continued to sell Hawk Eye and Mini Hawk Eye mirrors after the trial [in March of 2000]; and 2) post-trial revenue, costs and profits Rosco has earned or incurred through sale or manufacture [subsequent to the trial in March of 2000] of Hawk Eye and Mini Hawk Eye mirrors." The purpose of this additional discovery was to allow Mirror Lite to gather evidence of post-trial (after the March, 2000 trial) damages. I explicitly stated that this additional discovery was not akin to pre-trial discovery (prior to the March, 2000 trial), nor would I allow Mirror Lite to use this opportunity to supplement the record with regard to damages from the period prior to the March, 2000 trial. However, at the damages trial in 2008, both Rosco and Mirror Lite sought to introduce evidence relating to the period prior to the first trial.*fn11 In light of this, I invited each side to brief the issue whether I should reopen damages discovery for the period prior to March 7, 2000.

In a motion to introduce additional evidence, Mirror Lite proposed to submit declarations containing pre-2000 evidence of damages to supplement its post-2000 damages evidence. According to Mirror Lite, the purpose of the additional pre-2000 evidence submissions would be to establish its price erosion claims and "other damages related information." (Mirror Lite's Mot. to Introduce Evidence Pre-2000 that Relates to Damages Post-2000, 3.) Mirror Lite contended that prior to 2000 it raised its prices on mirrors each year, but, that by 2000, "after Rosco had successfully minimized any competition from Mirror Lite, Rosco's refusal to raise prices precluded Mirror Lite from raising its prices." Id., at 2. Mirror Lite argued that it would be entitled to at least one million dollars in damages as a result of Rosco's alleged price erosion should I allow this additional evidence to be entered into the record.

At trial, all the additional information Mirror Lite sought to enter, with the exception of information relating to price erosion, was based on the supposition that it would be awarded lost damages in the measure of lost profits. However, as explained below, I conclude that Mirror Lite is not entitled to lost profits, but rather to damages in the amount of a reasonable royalty. It is accordingly unnecessary to decide this issue.

With regard to the information relating to price erosion, Mirror Lite stated that it wished to offer a declaration and supporting documentation on the amount it was able to raise its prices on cross view mirror assemblies each year prior to March, 2000. I decline to award Mirror Lite any price erosion damages, but not for lack of Mirror Lite's ability to prove what price increases it regularly took prior to 2000. The information Mirror Lite is seeking to offer would not cure the faults in its lost profits claim. Upon consideration of both sides arguments and a review of the record, I will not allow either party to present additional evidence concerning the pre-2000 damages.*fn12

Lost Profits as a Measure of Damages

As noted already, to recover damages in the amount of lost profits, the patentee has to show "but for" causation, that the patent owner would have made the sales of the product but for the infringement. Wechsler v. Macke Intern. Trade, Inc., 486 F.3d 1286, 1293 (Fed.Cir. 2007); Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538 (Fed.Cir. 1995); BIC Leisure, 1 F.3d at 1218. Causation may be established by proof of: (1) demand for the patented product in the market; (2) the patent owner's ability to meet the market demand; (3) the absence of acceptable substitutes; and (4) the amount of profit the patentee would have made absent the infringement. See, e.g., Ericsson, 352 F.3d 1369; Yarway Corp. v. Eur-Control USA, Inc., 775 F.2d 268, 275-76 (Fed. Cir. 1895); Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152, 1156 (6th Cir. 1978). In a two supplier market, the factors of demand and acceptable substitutes are collapsed, leaving the patentee to show: (1) the relevant market only contains two suppliers; (2) the patent owner's ability to meet market demand; and (3) the amount of profit the patentee would have made absent the infringement. Grain Processing Corp. v. American Maize-Products Co., 185 F.3d 1341 (Fed.Cir. 1999).

Lost Profit Damages for Pre-Trial Infringement

Both the Panduit four factor test and the three factors for the two supplier market test require a patentee to prove the amount of profit it would have made absent the infringement. Mirror Lite did not present any such evidence at either trial.*fn13

Mr. Chase, Mirror Lite's damages expert, did not offer any opinion on the amount of profits Mirror Lite would have made absent infringement and only gave an amount for a reasonable royalty award for the pre-trial infringing mirrors. Since there is no evidence of the amount of pre-trial profits Mirror Lite would have made, damages in the amount of lost profits are not available for Rosco's pre-trial sales of infringing mirrors.

Lost Profit Damages for Post-Trial Infringement

As explained below, Rosco had acceptable, available non-infringing alternatives to the varying radius mirrors, negating one of the components of but for causation. Wechsler v. Macke Intern. Trade, Inc., 486 F.3d at 1293; Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538. So, ...


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