Measure Of Damages

Submitted by patentadmin on Thu, 12/30/2010 - 14:17

For some time we have been writing about lawsuits alleging that a manufacturer has “mismarked” its products. Generally, these cases involve venerable products formerly covered by patents which are now expired. If the manufacturer neglects to remove the expired patent numbers from the product, ZAP, they get sued by some “marking troll.” As the reader may have discerned, we disapprove of such lawsuits. Now, however, we have come across a claim of mismarking of which we most heartily approve. (Polytree (Hong Kong) Co., Ltd., et al. v. Forests Manufacturing, Ltd.)

Polytree (yes, Polytree) is the owner of three U.S. patents directed to stands for Christmas trees (yes, stands for Christmas trees) which, it complained, were being infringed by Forests Manufacturing. To add insult to injury, the allegedly infringing tree stands were marked with the numbers of the Polytree patents.

After repeated letters to Forests Manufacturing proved fruitless, Polytree filed suit. Forests Manufacturing ignored the suit, whereupon the Court entered a judgment by default and held a hearing on damages. At the hearing, the Court considered the various elements of the relief requested by Polytree. These considerations were, of course, greatly simplified by the fact that Forests Manufacturing was absent.

At any rate, the first issue was to determine a reasonable royalty. Polytree was somehow able to establish, to the satisfaction of the Court, that Forests Manufacturing had sold 24,000 infringing tree stands. Unfortunately, Polytree had never licensed the patents-in-suit and so had no established royalty rate. Polytree was able to establish that use of the patents-in-suit afforded a cost savings of $3.00 per unit in manufacturing costs. Because Polytree, a small company, “was forced to pursue the defendant to and through time-consuming and costly litigation,” the Court granted Polytree an increase of $.30 per unit – an increase known as the “Panduit factor” or “Panduit kicker.” Thus, damages for the infringement of the three patents-in-suit were fixed at $3.30 per tree stand, or $79,200.

Polytree had alleged that the infringement was “willful” and sought a trebling of the damages. Despite the fact that Forests Manufacturing had not appeared to defend itself, Polytree had limited success on this point. “The paramount determination in deciding to grant enhancement and the amount thereof is the egregiousness of the defendant’s conduct … the evidence is sufficient to justify some enhancement of damages but is not so clear-cut and overwhelming to justify the maximum enhancement. The Court determines that an award of two times the damages award … is appropriate.”

Polytree had also alleged that the case was “exceptional” and sought an award of its attorney’s fees and costs. In this, it was not successful. “Because Defendant has not appeared in this case, it cannot be held to have engaged in litigation misconduct … [m]oreover, Defendant’s failure to defend in this action likely reduced Plaintiff’s litigation expenses, and an additional award of attorney’s fees is not justified here.”

The Court granted the requested prejudgment interest, but held that it “should only be applied to the actual damages award, not to any punitive or enhanced damages.”

Applying the de rigueur four-factor test made famous by the eBay decision, the Court granted a permanent injunction enjoining Forests Manufacturing from the Polytree patents in the future.

This brings us to the question of “mismarking” or, in this case, more accurately, “false marking.” As previously stated, Forests Manufacturing had been marking its tree stands with the numbers of the Polytree patents. This egregious behavior may have influenced the Court’s decision. At any rate, the Court noted that Forests Manufacturing had falsely marked 24,000 articles. Of those, 20,400 units sold at prices of $30.27 or $67.70. The remaining 3,600 units sold for $169.70. “Because of this price variation, the Court determines that the $169.70 per unit price should be reduced by fifty percent (50%) and this price ($84.75) will be applied to the 20,400 units sold at prices of $30.27 or $67.70. The Court determines that applying the highest unit price of $84.75 for these substantially lower price units achieves the deterrent goal of [the statute’s] fine provisions.”

Yes indeed folks, the fine FAR EXCEEDED the sale price of the subject items. As to the more expensive units, the Court entered a fine of $169.70 – equal to the sale price. For the sake of the truly neurotic, we report that the total fine – half of which goes to the government – was $2,339,100. Given that Forests Manufacturing is a Hong Kong company with no apparent assets in this country, it will be interesting to see if Polytree actually collects any portion of the judgment.

THE LESSONS TO BE LEARNED: (1) Even when the defendant defaults, you don’t always get all that you asked for; and (2) when you act egregiously, the penalty for false marking can be severe.

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