NORTHLAKE MARKETING & SUPPLY

72 F. Supp.2d 893 (1999) | Cited 0 times | N.D. Illinois | June 10, 1999

FINDINGS OF FACT AND CONCLUSIONS OF LAW

Over the protracted length of this litigation1 this Courthas found every claim advanced and every defense asserted byNorthlake Marketing & Supply, Inc. ("Northlake") and itsprincipals James Hamilton ("Hamilton") and Samuel May ("May") tobe devoid of merit. They have taken an unsuccessful appeal to theCourt of Appeals for the Federal Circuit from a host of thisCourt's orders (the memorandum opinion and order and permanentinjunction order each dated November 13, 1997; the memorandumopinion and order and supplement, both dated March 11, 1997; thememorandum opinion and order dated December 16, 1996; thememorandum opinion and order dated August 29, 1995; and thememorandum opinion and order dated August 4, 1994), with thatCourt having rejected all of those claims in a per curiamone-sentence judgment order entered November 13, 1998(unpublished, but available as 1998 WL 796051).

With Glaverbel S.A. ("Glaverbel") and Fosbel, Inc. ("Fosbel")having prevailed on the merits of their patent infringementcounterclaim, the only issue remaining before the litigation atlong last terminates is the quantification of the damagesrecoverable for that infringement. This Court has conducted thetrial on that subject, only to find the issuance of its ultimateruling delayed substantially by the lapse of many months beforethe litigants tendered their respective proposed findings of factand conclusions of law.

Those submissions have now been made, and what follows are thisCourt's Findings of Fact ("Findings") and Conclusions of Law("Conclusions") in accordance with Fed.R.Civ.P. ("Rule") 52(a).To the extent (if any) that the Findings as stated may be deemedconclusions of law, they shall also be considered Conclusions. Inthe same way, to the extent (if any) that matters later expressedas Conclusions may be deemed findings of fact, they shall also beconsidered Findings. In both of those respects, see Miller v.Fenton, 474 U.S. 104, 113-14, 106 S.Ct. 445, 88 L.Ed.2d 405(1985).

Findings of Fact

Parties and Background

1. Northlake Marketing was formed as a partnership in 1984 andincorporated as Northlake Marketing & Supply, Inc. in 1985. In1995 Hamilton, one of the founders and a current owner ofNorthlake, formed Northlake Industries, Inc. as a separatecompany, and he is the sole owner of that company. In 1988 May,also one of the founders and a current owner of Northlake, formedN & E Refractories as a separate company, and he is the soleowner of that company. May left Northlake at the end of 1994 butdid not relinquish his ownership position or his position as anofficer-director. For convenience these Findings and Conclusionswill also use "Northlake" as a singular collective noun to referto the corporation and the two individual counterdefendants.

2. Glaverbel S.A. ("Glaverbel") is a Belgian corporation thatwas the successor by merger of two firms, each of which datedback to the 1930s. Glaverbel is the owner of the United Statespatents involved in this action. Fosbel, Inc. ("Fosbel") is ajoint venture based in Cleveland, Ohio, 49% of which jointventure is owned by Glaverbel and the other 51% of which is ownedby the other joint venturer. Fosbel is the exclusive licensee ofthe Glaverbel-Fosbel patents in the United States.

3. This Court has previously determined that the two GlaverbelUnited States patents involved in this action — Nos. 4,792,468("'468 Patent") and 4,920,084 ("'084 Patent") — are "notinvalid," were not procured by inequitable conduct and wereinfringed by Northlake. This Court has accordingly issued apermanent injunction that terminates on expiration of the twoGlaverbel patents. What remains is a determination of themonetary relief to which Glaverbel and Fosbel are entitled. Theyseek (1) an award of "lost profits" for some of the Northlakeactivity and (2) a "reasonable royalty" for the remainder of theNorthlake activity, together with (3) prejudgment interest, (4)enhanced damages under 35 U.S.C. § 2842 and (5) adetermination that this is an "exceptional case" such as to callfor an award of attorneys' fees under Section 285.

4. Glaverbel-Fosbel's '468 and '084 Patents are two of theirfour United States Patents involved in their litigation withNorthlake and relating to the repair of industrial furnaces, aprocess referred to as "ceramic welding." In non-legal terms thatprocess involves forming a coherent refractory mass on a "target"(e.g., a furnace wall) by projecting a mixture of particles of anoxidizable substance and particles of a refractory substanceagainst the target. When the oxidizable substance burnsexothermically (i.e., gives off heat) at the wall, it welds therefractory particles to the wall, thus repairing the furnacewall. Finding 5 describes the four patents in non-legal terms.

5. Glaverbel's now-expired United States Patent No. 3,684,560("'560 Patent") refers to ceramic welding where the average sizeof the oxidizable particles is less than 50 microns (a micron isone onemillionth of a meter). Glaverbel's United States PatentNo. 4,489,022 ("'022 Patent") refers to an improvement in ceramicwelding where both silicon particles and aluminum particles arepresent, as the oxidizable materials, in certain amounts andproportions. Glaverbel's '468 and '084 Patents refer to animprovement in the granulometry of the refractory particles.Granulometry refers to the quantity of particles at variousdifferent sizes, and also may be referred to as the particle sizedistribution. According to the two patents in suit, the "sizerange spread factor" (a coined term that can be used as arepresentation of the granulometry) must be at least 1.2.

6. One use of the process of the '468 and '084 Patents is inrepairing the silica brick walls of a coke oven. In a coke oventhe process of converting coal into coke may take from 12 to 20hours, during which time the oven operates at a range of 1200~to2000?. During the trial this Court observed a videotape (DX104)3 and heard an explanation of the ceramic weldingprocess.

Lost Profits Analysis

7. Four factors (known as the Panduit factors, see Conclusion5) are considered (if and when present) in a lost profitsanalysis. Those factors are (a) a demand for the patented productor method, (b) the absence of acceptable noninfringingsubstitutes, (c) the manufacturing andmarketing capability of the patent owner (or its licensee) toexploit the demand and (d) the amount of profit that the patentowner would have made on the infringing sales.

1. Demand for the Patented Product

8. Northlake explained that the annual rate of growth in theceramic welding industry from 1986 to 1996 was probably 35% or40%, while in some years the market was actually doubling (DX 140at 223-24 to 224-9).4 Northlake further explained that theenvironmental trend has been to shut down coke plants becausethey give off large quantities of environmentally damagingemissions, so that many plants have closed down and more areclosing down. That trend has created a drastic need to repair theremaining coke plants. Because the alternative of rebricking isso expensive, Northlake described the resulting demand forceramic welding as a "gold mine" (DX 140 at 246-9 to 246-24).Because coke plants are no longer being built in the UnitedStates, that has contributed to the creation of the "gold mine"(DX 140 at 527-3 to 527-22).

9. Northlake's discovery answers in this case indicated that ithad documents concerning its own sales projections, market shareand the size of the ceramic welding market, but those documentswere not produced in response to the Glaverbel-Fosbel discoveryrequests (DX 149).

10. Based on Northlake's own testimony, its failure to produceits documents referred to in Finding 9, its infringing sales andthe Fosbel sales, this Court finds that there was a substantialdemand for coke oven repair using the patented ceramic weldingtechnology.

2. Absence of Acceptable Noninfringing Substitutes

11. Alternative techniques for coke oven repair includegunning, rebricking, lava flame and harsh press silica dusting.Findings 12 to 18 describe them and compare them with ceramicwelding.

12. Gunning is the application of a water-based cement bondedrefractory material through a gunning machine, which mixes thewater and the cement based powder, spreading it onto the hotsilica refractory. As Glaverbel-Fosbel witness John Bacon("Bacon") testified (Tr. 293) and this Court finds:

Q. What is the expected life of a gunning repair?

A. Very short. It can be as short as a week or two. Sometimes it last [sic] as long as six months.

Q. What is the purpose of a short term repair such as gunning?

A. It's a quick fix. We can get it up and back into service quickly. Then we can get around to doing a proper ceramic welding repair a little later.

13. Rebricking is a major repair to a coke oven wall, involvingthe replacement of bricks that make up the oven wall. In an evenmore major rebricking job, an entire oven wall can be replaced.To accomplish rebricking the oven has to be taken out of service,the burners must be turned off and the area being repaired has tobe cooled down so that the workers can lay bricks physically.Then after the repair is made and the oven reheated, the silicabrick goes through various silica transformations that can crackthe new brick. As Northlake explained, cooling down the ovenssometimes takes two to three weeks, and reheating the ovens cantake three months (DX 141 at 99).

14. Lava flame is a flame spraying process.

15. Harsh press silica dusting is a method by which silicapowder is sprayed into the oven to fill cracks and holes andseal the oven (DX 141 at 141). It is not a long-term fix at all.

16. By contrast, ceramic welding can extend the life of theoven lining for years. Fosbel advertises that the life of itsoven repair is in excess of two years. In fact the repairstypically last two to four years, with some oven repairs havingbeen in place for 10 years. As an additional advantage, inceramic welding the repairs are performed from outside the oven,so that all ovens can remain in service except the oven underrepair, and all ovens (including the oven under repair) remain atoperating temperatures. As Northlake agreed, not having to cooldown the ovens is one of the things that make ceramic weldingunique (DX 141 at 97). Importantly, among the various furnacerepair techniques only ceramic welding and rebricking have a bonafide life expectancy of two to four years. Finally, theGlaverbel-Fosbel ceramic welding process is certified under ISO9000, which is an international quality certification.

17. Fosbel never lost a ceramic welding bid to any of the otherfurnace repair techniques. No Fosbel customer ever indicated thatany of the other repair techniques would be an acceptablesubstitute for ceramic welding. Northlake agreed that it did notcompete with companies that rebrick ovens (DX 141 at 98), and itnever lost any work to companies that do silica dusting (DX 141at 158).

18. Based on the differences in the methods of making therepairs, the times that the furnaces must be taken out of serviceand the expected longevity of the repairs, this Court concludesthat none of the non-ceramic welding repair methods has benefitscomparable to those of the patented ceramic welding technique.Hence none of them is an acceptable noninfringing substitute.

19. Glaverbel-Fosbel's ceramic welding competitors for cokeoven repair in the United States have included Northlake (a/k/aExo-Ram), United Refractories, Fuse Tech and Certek. Certekcompeted during the period 1989 through 1991, havingapproximately 13% of the total market, and was thereafteracquired by Fosbel. Collectively the competitors (includingNorthlake but excluding Certek) accounted for less than 10% ofthe ceramic welding business. While Northlake's share was about2% of the ceramic welding market, Fosbel's share was about 80%before the Certek acquisition and about 92% thereafter.

20. No direct evidence was presented during the trial as to thedetails of the ceramic welding powder used by the competitors(other than Northlake) listed in Finding 19. Conclusions 7 to 9set out the reasons why on the evidence of record thosecompetitors also did not provide "acceptable" alternatives. Asthe predicate for those Conclusions, this Court finds that thehistory of ceramic welding started with the invention of the '560Patent, progressing to the invention of the '022 Patent and thento the inventions of the '468 and '084 Patents. Northlake soughtto invalidate the two later patents (those now in suit) on thetheory that the invention was "on sale" for more than one yearbefore the filing dates of their applications, in allegedcontravention of Section 102(b). In response to Northlake'ssummary judgment motion, Glaverbel-Fosbel submitted substantialevidence from the inventors explaining the history of theirresearch to discover the improvement that became the basis of the'468 and '084 Patents. This Court's August 29, 1995 memorandumopinion and order provides a summary and timetable of theGlaverbel experimentation leading up to the invention of the '468and '084 Patents (1995 WL 534290, at *4-*6). Because all ofNorthlake's invalidity challenges failed, on the present recordthe formulation of the '468 and '084 Patents is a novel andnon-obvious improvement that provided material benefits over theprior ceramic welding powders.

21. There is circumstantial evidence of the absence of anyacceptable alternative that the ceramic welding techniques of thecompetitors (other than Northlake) werenot acceptable noninfringing alternatives because they did nothave the advantages that formed the basis of the invention of the'468 and '084 Patents. If on the other hand they had the noveland non-obvious attributes of the invention of the '468 and '084Patents, then those competitors (like Northlake) would haveinfringed. That circumstantial evidence of the absence of anyacceptable alternative is corroborated by Northlake's failure tochange to a noninfringing formulation during the nine years ofits dispute with Glaverbel-Fosbel. Such a change to a size rangespread factor of less than 1.2 would have been relativelystraightforward (even some of the samples tested by Zvosec had asize range spread factor of less than 1.2), so that the absenceof change supports the inference (and hence the finding) thatthere was a meaningful benefit or advantage to using powder withthe size range spread factor of at least 1.2.

22. In addition, Northlake's antitrust claim (statements inwhich may be used against Northlake under Fed.R.Evid.801(d)(2)(A) even though disputed by Glaverbel-Fosbel) includesthe allegation of Glaverbel-Fosbel's ceramic welding monopolypower — an assertion that means the absence of acceptable ceramicwelding substitutes.

23. Based on Findings 11 to 22, this Court finds that therewere no acceptable noninfringing substitutes of any kind — eithernon-ceramic methods or noninfringing ceramic welding — for theGlaverbel-Fosbel patented ceramic welding.

3. Manufacturing and Marketing Capability To Exploit the Demand

24. According to Northlake, there are between 30 and 33 cokeplants in the United States (DX 141 at 134). Northlake's evidenceat the time of the March 1992 trial in the Indiana case betweenGlaverbel-Fosbel and Northlake showed that Glaverbel-Fosbel wasservicing at least 23 or 24 accounts, United Refractories wasservicing one or two, Lava Flame was not servicing any accountsand Northlake was servicing one account (DX 149 at 102 and 105).

25. Glaverbel-Fosbel knew the customers for ceramic weldingrepair at least as early as 1988, the issue date of the first ofthe two patents now in suit (DX 117 at 6 to 7 and Tab 5). Becauseyou can't hide a coke oven, everybody having any relationship tothe industry knew where all of the coke ovens were, andGlaverbel-Fosbel had understandably identified those customers.As for Northlake, even though it had only one customer as of1992, during the 1989-96 period it had provided ceramic weldingmaterials and services to 10 customers (DX 117 at 7).

26. As Finding 19 reflects, less than 10% of the ceramicwelding furnace repair business went to Glaverbel-Fosbelcompetitors (other than Certek, which was acquired by Fosbel in1991). Glaverbel-Fosbel had a procedure in place to handle anincrease in market share of 10 to 20%, including hiring andtraining additional crews, transferring people among crews,scheduling the rotation and maintenance of equipment andproviding for the necessary lead time to purchase additionalequipment. In addition, Glaverbel-Fosbel's expert took intoconsideration the capital cost of additional equipment.

27. This Court finds that Glaverbel-Fosbel did have themanufacturing and marketing capacity both to make the ceramicwelding sales that were made by Northlake and to provide theceramic welding services that were provided by Northlake.

4. Profits the Patent Owner Would Have Made

28. Glaverbel-Fosbel is claiming lost profits on Northlake'ssales to four customers. Fosbel had called on those customersbefore Northlake entered the ceramic welding market, and in somecases it had actually provided them with ceramic welding servicesbefore Northlake's entry into that market (DX 117 at 10).

29. Glaverbel-Fosbel's expert Dr. Lewis Koppel explained hislost profits calculations. Among the variables in thosecalculations was the size of the crew on a particular job. Forexample, Northlake frequently used only a single person ceramicwelding crew (where the customer provided the additional crewmembers), while Glaverbel-Fosbel recommended a three person crew.Dr. Koppel's initial calculations proceeded on the assumptionthat Glaverbel-Fosbel would have been able to provide a threeperson crew at the Glaverbel-Fosbel price even in those instanceswhere Northlake provided a single person crew at a lower price,or even where Northlake provided a three person crew at a lowerper-crewmember price. To assist in evaluating the financialimpact of alternatives to that assumption, Dr. Koppel prepared asupplemental report (DX 148): a grid summarizing the lost profits(and reasonable royalty) calculations under differentassumptions. Those different assumptions include things such asGlaverbel-Fosbel price vis-a-vis Northlake price, a three-personcrew vis-a-vis a one-person crew and whether or not there wereacceptable noninfringing alternatives. In addition, the fourthcolumn of DX 148 is based upon Glaverbel-Fosbel's ratable orrelative market share.

30. These Findings are based on the assumptions (less favorableto Glaverbel-Fosbel than those in Dr. Koppel's initialcalculations) that Glaverbel-Fosbel would have made the sales atthe Northlake price and with the Northlake crew-member size. Itwas agreed during the trial that Glaverbel-Fosbel's proposedfindings and conclusions would be based on the right-hand column4 of DX 148, with Glaverbel-Fosbel reserving the right to file amemorandum supporting the use of any other sets of assumptions.They have done so, and these Findings have already accepted onesuch set by confirming that there were no acceptablenoninfringing alternatives to Glaverbel-Fosbel's patented ceramicwelding. Although Glaverbel-Fosbel have also made a strong legalcase for the added acceptance of Dr. Koppel's initial assumptionsreferred to in Finding 29, these Findings reflect a moreconservative (that is, lower) damages award predicated on therevised calculations in DX 148. In the interest of providing acomplete record in the event that Glaverbel-Fosbel were to takean appeal or cross-appeal, footnotes to appropriate Findings willbe included to set out what the damages figures would be if Dr.Koppel's initial assumptions had been fully accepted instead.

31. Northlake has not challenged any of Glaverbel-Fosbel'sspecific calculations as such (thus Northlake did not argue thatits actual sales records reflected a number different from thatused by Glaverbel-Fosbel's expert). Instead Northlake disputesthe underlying factual assumptions. It is therefore unnecessaryto make specific findings on the unchallenged items such as thetotal amount of ceramic welding material that Northlake actuallysold or the total number of crew days for which Northlakeactually charged its customers.

32. This Court fully credits the report and testimony ofGlaverbel-Fosbel's expert Dr. Koppel, whose analysis included anumber of conservative (and valid) components — for example, thatFosbel would have to purchase additional machines in order tomake the sales for which lost profits are sought, even though itswitness Bacon testified that additional machines were in factavailable. In addition, Dr. Koppel made a relative market sharereduction by reducing the Northlake sales numbers ratably to takeinto account the sales during the three year period (1989-91)that Certek was in the market before it was acquired byGlaverbel-Fosbel. Dr. Koppel also determined the incrementalcosts (those that would have increased if Glaverbel-Fosbel hadmade the additional sales) associated with the lost profitsanalysis. Examples are the cost of additional ceramic weldingpowder and the cost of additional direct labor involved inproviding the ceramic welding repair service, as contrasted withgeneral overhead costs (items that do not increase because ofincreased sales, such as rent and the cost of new productdevelopment). Finally, Dr. Koppel has properly accounted for somecosts that are partially incremental.

33. As for the time period for which Glaverbel-Fosbel areentitled to recover damages, see Conclusion 2. Based on theforegoing Findings, this Court finds that Glaverbel-Fosbel's lostprofits amount to $694,231.5

Reasonable Royalty Analysis

34. Glaverbel-Fosbel also seek a reasonable royalty onNorthlake's sales to its remaining customers. Such a reasonableroyalty is determined based upon a hypothetical negotiationbetween the patent owner and the infringer, at the time theinfringement began, with both parties to the negotiation assumingthat the patent is valid and would be infringed but for thelicense. Courts consider a variety of factors (known as theGeorgia-Pacific factors, see Conclusion 15) as part of thereasonable royalty analysis.

35. There is an existing license between Glaverbel and Fosbelthat initially called for a 10% royalty, a figure later reducedto 9%. In a 1995-96 independent audit that license was found torepresent an "arms' length transaction" (DX 117 at 15). ThisCourt rejects both 9% and 10% as a reasonable royalty as of thetime that Northlake's infringement began on December 20, 1988,the issue date of the '468 Patent — not only because of the timedifferential involved between the negotiation date of the actuallicense and the theoretical negotiation date of the hypotheticalNorthlake license, but also (and importantly) because in additionto receiving a royalty, Glaverbel received a share of profits byreason of its approximately ½ ownership position in Fosbel (afinancial benefit that Glaverbel would not of course have derivedfrom Northlake sales under the hypothetical Northlake license).

36. According to Northlake's testimony in its unsuccessfulantitrust claim against Glaverbel-Fosbel in the Indiana case,Northlake had a projected gross profit of 40%, a figure that mayhave dropped to the 30%-plus range in the mid-1990s (DX 140 at221 22). Northlake's net profit would have been at least in themid-teen percentage range if Northlake had not sustained itslegal expenses in its dispute with Glaverbel-Fosbel (id. at222-23).

37. If Northlake had taken a license at the beginning of 1989,it would not have sustained the legal expenses from its disputewith Glaverbel-Fosbel and also would not have had thedistractions resulting from such litigation. Instead it wouldhave had the opportunity to develop its business further, whichwould have increased its revenue without increasing its fixedoverhead costs. Moreover, at least as early as 1987 each ofNorthlake's three principals at the time (Hamilton, May and FrankZlamal ("Zlamal")) was earning in excess of $100,000 (DX 140 at537-23 through 538-11). This Court concludes that if Northlakehad taken a license its net profit would have exceeded themid-teen percentages without any need to make any change in itsmanner of operation.

38. This Court credits the Koppel report and explanation andfinds that a reasonable royalty under all the circumstances wasDr. Koppel's original 14% figure, as adjusted to 13.1% to correcta fractional error (see Finding 39). Other than purportedlychallenging Dr. Koppel's report on cross-examination (a challengethat this Court finds to have been unpersuasive), Northlakepresented no evidence as to the numerical amount of a reasonableroyalty.

39. According to the alternative calculation in DX 148, at a14% royalty rate and using the actual Northlake revenue figuresthe reasonable royalty payable to Glaverbel-Fosbel for theNorthlake use of the patented inventions would have been$105,552. Because Dr. Koppel's testimony revealed a fractionalerror in that figure, this Court finds the reasonable royaltyrate would have been 13.1% rather than 14% (Tr. 485), for areasonable royalty calculation of $98,767.6

Prejudgment Interest

40. Although Northlake disputes the appropriateness of anyprejudgment interest award, the parties have agreed that ifprejudgment interest is in fact awarded, the rate should be primeplus 1%. Prejudgment interest should ordinarily be awarded inpatent cases under Section 284, absent some justification — suchas where the patent owner is responsible for undue delay inprosecuting a lawsuit — for withholding such an award (GeneralMotors Corp. v. Devex Corp., 461 U.S. 648, 654-57, 103 S.Ct.2058, 76 L.Ed.2d 211 (1983)).

41. Northlake has offered no evidence upon which a denial ofprejudgment interest could be predicated, arguing instead that ithad a good faith belief of patent invalidity. And Northlake'sfurther position in its June 7, 1999 Response to theGlaverbel-Fosbel submission — that prejudgment interest shouldnot be awarded because "Glaverbel delayed filing thisinfringement action for about 8 years" — is totally unpersuasive.It was after all Northlake's ultimately rejected contention thatthe enforcement of the patents at issue violated the antitrustlaws that effectively forced any further efforts along thoselines (hence forcing the delay) until that groundless antitrustclaim was dispatched. Northlake cannot complain of such aself-inflicted wound. Because the purpose of awarding prejudgmentinterest is to compensate the patent owner, not to punish theinfringer, factors such as asserted good faith on the part of theinfringer and such as the untenable argument regarding delay areirrelevant to a prejudgment interest analysis.

42. Here the record reflects no reason not to award prejudgmentinterest. Prejudgment interest was calculated by Dr. Koppel atthe prime rate, then recalculated at prime plus 1% compoundedquarterly. Because the total damage award under the precedingFindings is the sum of lost profits plus a reasonable royalty($694,231 plus $98,767 or a total of $792,998), prejudgmentinterest on that amount through August 1, 1998 was $489,866.According to the reported figures in the Wall Street Journal,of which this Court takes judicial notice, the prime rate since1998 has been 7.75%. Additional prejudgment interest at 8.75% isawarded on the base of $792,998, compounded quarterly from August1, 1998 to the date of entry of judgment in accordance with theseFindings and Conclusions.

Allocation Among Northlake Parties

43. Northlake suggests that May should not share liability forthe period beginning January 1, 1995, when he ceased to workthrough Northlake marketing. As Finding 1 reflects, NorthlakeIndustries, Inc. was formed by Hamilton in 1995. But all billingwas still made by Northlake Marketing, and all checks weredeposited into the Northlake Marketing bank account and werereflected in the Northlake Marketing tax returns. There is noquestion that Northlake Marketing and Hamilton are jointly andseverally liable on the entire judgment, while May is jointly andseverally liable on all aspects of liability through December1994. Hence the only issue as to possible allocation of liabilityis whether May is also liable for the infringement that occurredafter January 1, 1995.

44. During the relevant time period through and including thegrant of the permanent injunction in this case in 1997, both Mayand Hamilton were officers and directors, and each was a 44%shareholder, of Northlake Marketing. Northlake Marketing'spractice was that every owner was an officer and board member —there were no officers or board members who were not owners.Northlake Marketing's 1989 federal income tax return showed thatits liabilities exceeded its assets, and the liabilitiescontinued to exceed the assets thereafter.

45. Northlake failed to establish the legal effect of May'sclaimed resignation on his status with the corporation, for therewas no amendment to Northlake's by-laws eliminating therequirement that all shareholders were officers and directors.Nor did Northlake's corporate record book (DX 109) even reflectMay's claimed resignation or any acceptance of such claimedresignation by Northlake.

46. If Northlake had prevailed on its antitrust claims, eitherin this Court or on appeal from the adverse decision in theIndiana case, May as a 44% owner stood to reap a substantialgain. Furthermore, May's activities on behalf of Northlake atleast through 1994, including his initial work from 1984 through1988, were part and parcel of putting Northlake into theinfringing position in which it found itself.

47. All of Northlake, May and Hamilton have been found liablefor infringement. None of them has provided this Court with asufficient factual and legal basis for allocation ofresponsibility. Accordingly all three of those parties arejointly and severally liable for the entire award in thiscase.7

Enhanced Damages Pursuant to Section 284

48. Glaverbel-Fosbel seek an award of enhanced damages. Forthat purpose this Court considers the issues of (a) willfulinfringement and (b) bad faith conduct during litigation.

1. Willful Infringement

49. Northlake seeks to defend against enhanced damages on thetheory that there was no willful infringement because it hadsubjective good faith beliefs (a) that its ceramic welding powdercame first, so that the patents were invalid, and (b) that theinvention had been on sale by Glaverbel-Fosbel itself more thanone year prior to the filing date of the patent applications,thereby invalidating the patents on an alternate basis. Becausethe acceptance of a subjective belief, however unfounded orunreasonable, as the basis for defeating a claim for willfulinfringement could entirely eviscerate the concept ofwillfulness, an objective standard must be used instead. And thatfinding is not changed by Northlake's June 7, 1999 Response thatseeks to recast its defense in a manner that makes no differenceon the issue of its willfulness.

50. On the subject of Northlake's willfulness vel non, the oralopinion of its counsel John Brezina ("Brezina") was provided in adiscovery answer and was read into the record. But there is noevidence (a) that Brezina ever made an independent investigationinto the facts or (b) that Brezina ever attempted to verify thefacts or (c) importantly in terms of whether Northlake couldreasonably rely on such an opinion of counsel, that Northlakeever provided Brezina with any documents (as opposed to oralinformation) about its alleged prior powder.

51. Northlake's previously rejected contention that its initialrefractory powder had a size range spread factor of more than1.2, thus invalidating the patent claims, must be examined forthe purpose of considering enhanced damages. In that regardNorthlake received its technical information from Zlamal andformer Fosbel employee Mickey Whisman ("Whisman"), but from noother source (DX 141 at 7-8, 128). During the 1986-87 time frameNorthlake received a sample of Fosbel ceramic welding powder andhad that analyzed (DX 140 at 107-09).8 During theperiod from 1984 through 1988 Northlake performed literallyhundreds of experiments varying the components and percentages ofingredients used in its ceramic welding process. But with all ofthat trialand-error activity, Northlake had no knowledge whateverof the size range spread factor of its powders at the time of itsuse (DX 141 at 13-14). There is no evidence that anyone acting onNorthlake's behalf attempted at any time before trial to obtainverification from its supplier Harbison-Walker as to the sizerange spread factor of the two different products used byNorthlake, the originally employed Flintgrain 1604 or the smallerCalcined Quartz (the other product to which it shifted by early1988). To the contrary, in response to Requests for AdmissionsNorthlake agreed that it had no documents that specificallyidentified the size range spread factor of any refractoryparticles sold by Harbison-Walker (DX 123 at 1, 2). Northlakeadmittedly had "no concern about particle size" (DX 140 at 411).

52. As Finding 51 reflects, the proofs adduced by Northlakeduring the liability (validity) phase of the trial also did notindicate any effort to obtain size range spread factorinformation from Harbison-Walker. Indeed, when theHarbison-Walker witness Nale appeared at trial and produced adocument, and when Glaverbel-Fosbel then objected to its usebecause it had not been previously produced in discovery,Northlake argued that it had just received the document. Nor isthere any evidence that Northlake sought to deposeHarbison-Walker or to subpoena documents or to take any steps,other than to rely on oral testimony and purported recollection,to support its contention as to the details of its prior ceramicwelding material.

53. This Court finds, based upon the foregoing, that therecould not be a competent opinion of counsel, and certainly not anopinion on which Northlake (knowing its counsel's total lack ofknowledge of the critical relevant facts) could reasonably rely,that the prior Northlake powder had a size range spread factor ofat least 1.2. This Court further finds that, given the Northlakechanges in its formulation percentages and the vagaries of theamounts of ingredients it used, coupled with its knowledge thatits counsel was unaware of all such matters, there could not havebeen an objective good faith reliance on its part on any opinionof counsel.

54. Northlake's second branch of its attempted advice ofcounsel defense is the alleged prior commercial (i.e., public)use of the powder by Glaverbel-Fosbel, which allegedly triggeredthe on-sale bar of Section 102(b) to invalidate the Glaverbelpatents. Brezina's asserted opinion in that regard was based ondocuments produced by Glaverbel-Fosbel during the Indiana caseunder a protective order (DX 119) that restricted its use to thatlawsuit. That being the case, reliance on that document wouldappear to be improper as a matter of public policy. But even ifthat were not so, Brezina's oral opinion was no better thancursory and conclusory, and was not worthy of reliance, for itclearly did not include any investigation into the issue ofexperimental use, which is a universally understood and criticalexception to the on-sale defense to patent validity. Brezina, anexperienced patent lawyer, had to be well aware that a competentopinion of counsel would at a minimum have addressed thatexception to the on-sale defense and would have advised thatfurther investigation was necessary.

55. Moreover, Northlake's advice of counsel defense must beconsidered in the context of the Indiana case and the priorBelgian litigation among the parties. Glaverbel and Fosbel suedNorthlake and its principals for infringement of the '560 and'022 Patents in August 1988 in the Indiana Court in Civil ActionNo. H88 383. Northlake counterclaimed, asserting patentinvalidity, patent noninfringement, patent misuse, unfaircompetition and antitrust violations by Glaverbel and Fosbel andinequitable conduct by Glaverbel. Then in November 1989 Northlakesought reexamination of the '560 and '022 Patentspursuant to Section 302, a statutory provision that permits newprior art to be brought to the attention of the Examiner. OnSeptember 3, 1991 the United States Patent and Trademark Office("PTO") confirmed the patentability of three claims of the '560Patent (which originally had 22 claims), and on April 16, 1991the PTO confirmed the patentability of all original 14 claims ofthe '022 Patent plus 14 new claims.

56. Before trial on the '560 and '022 Patents, the IndianaCourt granted Northlake's motion for summary judgment ofnoninfringement. Trial in the Indiana Court then proceeded onNorthlake's counterclaims. At the conclusion of Northlake'sproofs in March 1992, the Indiana Court ruled in response to aGlaverbel-Fosbel Rule 52(c) motion that Northlake had notestablished (1) invalidity of the '560 and '022 Patents or (2)inequitable conduct by Glaverbel or (3) antitrust violations orunfair competition by Glaverbel or Fosbel. On January 23, 1995the United States Court of Appeals for the Federal Circuit (a)affirmed the decision of the Indiana Court as it related tovalidity, lack of inequitable conduct, lack of antitrustviolation and lack of unfair competition, (b) vacated in part thesummary judgment decision as it related to infringement and (c)remanded the matter to the Indiana Court. Thus Northlake was notable to make out a prima facie case on any of its allegationsduring the Indiana Court trial.

57. In January 1989 Glaverbel sued Northlake in Belgium onthree Belgian patents, the first two of which corresponded to the'560 and '022 Patents and the third of which corresponded to boththe '468 and '084 Patents. In February 1995 the Belgian courtfound in favor of Glaverbel and against Northlake on the validityand infringement of the three Belgian patents and made a partialaward of 2 million Belgian francs against Northlake. Northlakehas not paid any part of the Belgian judgment.

58. Any prudent business person, in deciding objectivelywhether to rely on any advice of counsel (importantly indetermining if such advice were indeed competent), should takeinto account the consistent inability to make out a prima faciecase on the various theories that had been advanced in theIndiana case. Moreover, a series of adverse summary judgmentdecisions in this Court, where Northlake (despite the benefit ofaffidavits submitted in opposition to summary judgment) was notable to make out a prima facie case on any of its theories, wouldhave confirmed to the prudent business person that it was engagedin nothing more than blind reliance on its counsel's unsupportedspeculation.

59. Northlake's second patent invalidity theory in this Court(see Finding 48(b)) was that the published prior art,particularly the powder of Example VII of Glaverbel-Fosbel's own'022 Patent, had a size range spread factor of at least 1.2 andthus invalidated the claims of the two patents now in suit. Forone thing, when Northlake lost that issue in early 1995 in theBelgian litigation, a prudent business person would not havecontinued its infringement, or at a minimum would have sought asupplementary opinion of counsel as to the impact of the adverseBelgian decision. But independently of Northlake's lack ofsuccess on that issue in Belgium, the proofs presented to thisCourt also did not amount to a prima facie case of invalidity. Asnoted in this Court's November 13, 1997 opinion (986 F. Supp. 471,476), Northlake did not explain which claims of the patents wereactually alleged to be invalid on this basis. In fact Northlake'sexpert Dr. Nash testified that his theory did not apply to everyclaim of the '468 Patent or the '084 Patent. Furthermore, the'022 Patent had been considered by the PTO in evaluating, and innot finding invalid, the '468 and '084 Patents (DX 101 and DX 102at 1 of each exhibit under "References Cited").

60. Based on the total absence of proof on the details ofNorthlake's own priorpowders, an equally total absence of proof that the priorGlaverbel-Fosbel powder was anything but experimental, and thefundamental shortcomings of Northlake's purported remainingproofs on patent invalidity, the Court finds that this has notbeen a close case and that Northlake cannot claim good faithreliance on any assertedly competent advice of counsel.

2. Conduct During Litigation

61. It is undisputed that even after being sued in Belgium in1989, and with knowledge at least since 1990 of the corresponding'468 and '084 Patents — indeed, even after an adverse judgment inthe Belgian litigation in February 1995 — Northlake made noeffort simply to change the size range spread factor of itsrefractory powder to avoid further infringement, untilNorthlake's activities were enjoined by this Court in late 1997.

62. Moreover, Northlake's litigation conduct here, as noted inthe docket entries (cited "Dkt. — ") of which this Court takesjudicial notice, reflects a continued pattern of arbitrary andintransigent conduct. For one thing, there was no basis toinclude additional defendant Foseco in the suit to begin with —in response to the Foseco motion to dismiss (Dkt.36, 37)Northlake proceeded with the deposition of Anthony Money ofFoseco and thereafter, rather than submitting a dismissal withprejudice, required this Court to rule on the Foseco motion(Dkt.56). In addition, Northlake sued Glaverbel in this actionfor a declaration of invalidity of the '022 Patent even whileNorthlake's challenge to that patent was on appeal from theIndiana Court — thus engaging in the improper splitting of aclaim. In response to a motion to dismiss as to the '022 Patent(Dkt.26, 27), Northlake filed its opposition (Dkt.57) butpresented no valid legal grounds for maintaining a challenge tothe '022 Patent in this action, triggering this Court's opiniongranting the motion and dismissing as to the '022 Patent(Dkt.59).

63. Another unreasonably proffered aspect of the present actionwas Northlake's allegation of Glaverbel-Fosbel antitrustviolations and unfair competition. Having lost its antitrustclaims at trial in Indiana in March 1992, Northlake had no basisfor Northlake to reassert those claims in this Court in April1992.9 Thus Northlake had no proper basis to oppose as it did(Dkt.61) Fosbel's motion in this Court to dismiss as to allevents occurring before the end of the March 1992 Indiana trial(Dkt.42, 43). And because the conduct alleged to violate theantitrust laws was no different before that 1992 date than afterthat date, there was equally no basis for Northlake to oppose themotion to dismiss all of its antitrust claims. Then after thisCourt dismissed the remainder of the Northlake antitrust andunfair competition claim (Dkt.82), there was no basis forNorthlake to argue that it did not understand the ruling and seekreconsideration, resulting in further briefing and a furtheropinion by this Court (Dkt.126).

64. As to Northlake's inequitable conduct allegations (CountIII), which this Court dismissed on summary judgment on March 11,1997 (958 F. Supp. 373), they were based on an impermissiblystretched reading of Ninth Circuit law — a reading that wascontrary to the express and controlling ruling of the UnitedStates Court of Appeals for the Federal Circuit. This Courtsimilarly found Northlake's noninfringement claim (Count I) to bebased on an improper argument, for Northlake was simultaneouslycontending that its powder had come first and thus met thelanguage of the patent claims. Finally, Northlake's lachesargument was equally improper, for Northlake conceded the absenceof harm,one of the two requirements for a laches defense.

65. In addition to all of that substantive misconduct,Northlake repeatedly failed to cooperate in discovery in thisaction, forcing the filing of several discovery motions byGlaverbel-Fosbel. It appears that some documents were neverproduced. Further, there was no justification for Northlake'sposition that a new entity, Northlake Industries, was involvedafter May had left Northlake Marketing, because as found earlierall business continued to be carried out in the name of theoriginal Northlake Marketing. Those aspects of Northlake'sconduct ultimately compelled this Court to enter an orderexcluding any documents that Northlake had not produced duringdiscovery. As stated earlier, despite that order Northlakeattempted to use a nonproduced Harbison-Walker document at trial.

66. Northlake used certain Fosbel documents,10 producedunder a protective order in the Indiana case, to support itssummary judgment motion charging that the Glaverbel patents wereinvalid for allegedly violating the on-sale bar. Even though thatprotective order prohibited use of the documents other than inthe Indiana litigation (DX 119), Glaverbel-Fosbel did not raisethe issue initially because the documents were part of aNorthlake claim of fraud and Glaverbel-Fosbel did not want to beaccused of attempting to cover up the purported fraud. With noon-sale bar having been found, Glaverbel-Fosbel may nowappropriately object to Northlake's tactics in that respect.Similar tactics were repeated during the damages phase of thetrial, with Northlake attempting to rely on another exhibit (PX66) that had been produced in the Indiana case under the samerestrictions.

67. After this Court had denied Northlake's summary judgmentmotion urging the invalidity of the '468 and '084 Patents forviolation of the on-sale bar, Northlake took no discovery fromthe inventors and no further discovery from either Glaverbel orFosbel, notwithstanding this Court's ruling in the summaryjudgment opinion that there were defects or gaps in the Northlakeproofs. Accordingly, after the close of discovery this Courtgranted the Glaverbel-Fosbel motion asserting that the patentswere not invalid on the basis of the on-sale bar.

68. This Court does not have to address the applicability orinapplicability of Rule 11 or 28 U.S.C. § 1927 as such todetermine that the Northlake litigation conduct was not in goodfaith for purposes of Section 284. It is significant in thecontext of the overall litigation that Northlake took almost nodiscovery. It appears that only Anthony Money of Foseco wasdeposed on the question of the propriety of Foseco being a party,while only Charles Zvosec of Fosbel was deposed on the questionof the 20 samples — no other testimony of Glaverbel-Fosbelpersonnel, nor any Glaverbel-Fosbel responses to interrogatories,nor any Glaverbel-Fosbel responses to requests for admissionswere used at either trial in this Court. Northlake consistentlycould not make out a prima facie case either on summary judgmentissues or at trial: It offered an expert witness who apparentlyhad not studied all the patent claims, it had no witness toexplain its patent invalidity theories as to all patent claims,and it had no witness to explain the specific patent claims forwhich its anticipation (Section 102) or obviousness (Section 103)defenses purportedly applied.

69. Based on the totality of Findings 49 through 68 andcomparable subsidiary findings in the earlier Findings, thisCourt finds that the Northlake infringement has been willful,that this litigation was conducted in bad faith and thatNorthlake's extrajudicial conduct in not changing its ceramicwelding powder after repeated adverse decisions amounts to badfaith conduct as that term has been interpreted under Section284.

Attorneys' Fees Under Section 285

70. Glaverbel-Fosbel also seek an award of attorneys' feesunder Section 285. As Conclusions 30 and 31 reflect, the case-lawteaches that an attorneys' fees award requires a finding of an"exceptional case" and that such a finding can properly be basedon either willful infringement or bad faith conduct. Where bothof those factors are present (as is true here), the basis for an"exceptional case" finding becomes even stronger.

71. In light of the prior Findings of willful infringement andbad faith conduct, further aggravated by the fact that Northlakeconsistently could not make a prima facie case either at thesummary judgment stages or at trial, this Court exercises itsdiscretion and finds this to be a truly exceptional casejustifying an award of attorneys' fees.

Conclusions of Law

Jurisdiction

1. This Court's prior conclusions as to jurisdiction continueto apply during the proceedings leading to these Findings andConclusions.

Damages — General

2. Under Section 284 a patent owner is entitled to damages"adequate to compensate for infringement but in no event lessthan a reasonable royalty, for the use made of the invention bythe infringer, together with interest and costs as fixed by theCourt." Among the different elements of damages for which thepatent owner may recover such compensation are (1) lost profitson sales that the patent owner lost as a result of theinfringement (State Indus., Inc. v. Mor-Flo Indus., Inc.,883 F.2d 1573, 1577 (Fed.Cir. 1989)) and (2) a reasonable royalty oninfringing sales even if the patent owner would not have obtainedthose sales (see Bio-Rad Labs., Inc. v. Nicolet InstrumentCorp., 739 F.2d 604, 616-17 (Fed.Cir. 1984)). As for the timeperiod for which Glaverbel-Fosbel are entitled to recoverdamages, this Court has already held that their counterclaim(because it is a compulsory counterclaim under Rule 13(a)) datesback to the filing of their Answer by virtue of Rule 15(c)(2)(958F. Supp. at 376 (1997); accord, 6 Charles A. Wright, Arthur R.Miller & Mary Kay Kane, Federal Practice and Procedure: Civil2d § 1430, at 228 (2d ed. 1990)). Despite this Court'sinvitation in its 1997 opinion, Northlake has offered nothing tosupport the notion that the Section 286 reference to "the filingof the . . . counterclaim" should be read in terms of the filestamp date rather than the effective date mandated by Rule15(c)(2), while Glaverbel-Fosbel have cited one early case whoseholding conforms to the more normal (and more sensible) readingthat gives full effect to Rule 15(c)(2) — indeed, if Northlake'sposition were accepted, a situation could arise in which alater-tendered compulsory counterclaim could be filed but couldconfer no relief at all on the injured patentee. All of thatbeing so, the six-year limitations period specified in Section286 does encompass the entire period of the Northlakeinfringement addressed in these Findings and Conclusions.11

3. Damages need to be proved only by a preponderance of theevidence, and the patent owner's burden of proof is not absolutebut rather one of reasonable probability. This Court is free touse its discretion in choosing a method for calculating damagesas long as the measure of damages is just and reasonable (KoriCorp. v. Wilco Marsh Buggies & Draglines, Inc., 761 F.2d 649,653-54 (Fed.Cir. 1985).) Because the computation of damages isnot always amenable to precise determination, it is acceptable ifthe evidence shows the extent of damages as amatter of just and reasonable inferences, even though the resultis only approximate (Paper Converting Mach. Co. v.Magna-Graphics Corp., 745 F.2d 11, 22 (Fed.Cir. 1984)). Anydoubt as to the correctness of a damages award is to be resolvedagainst the infringer (State Indus., 883 F.2d at 1577). If thepatent owner is able to establish a reasonable probability thatit would have made only some of the infringer's sales but for theinfringement, the damages award may be in the amount of lostprofits to the extent so established plus a reasonable royaltyfor the remainder of the sales (id.).

Damages — Lost Profits

4. It is unnecessary to prove lost profits with absolutecertainty. It suffices to prove a reasonable probability thatGlaverbel-Fosbel would have made the sales of the ceramic weldingpowder and would have provided the ceramic welding services (oneof the two patents is for the powder and the other for the methodof repair). There is no need to negate all possibilities that apurchaser might have bought a different product or might haveforgone the purchase altogether (State Indus., id.).

5. Panduit Corp. v. Stahlin Bros. Fibre Works, Inc.,575 F.2d 1152 (6th Cir. 1978), cited with approval in various FederalCircuit cases (see, e.g., Rite-Hite Corp. v. Kelley Co.,56 F.3d 1538, 1545 (Fed.Cir. 1995) (en banc)), identifies fourfactors to be considered (if and when present) in a lost profitsanalysis. Those four factors are (a) a demand for the patentedproduct or method, (b) the absence of acceptable noninfringingsubstitutes, (c) the manufacturing and marketing capability ofthe patent owner to exploit the demand and (d) the amount ofprofit the patent owner would have made on the infringing sales.Under the Panduit-taught analysis, evidence of those fourfactors permits a court to draw the reasonable inference that thelost profits claimed were in fact caused by infringing sales,thus establishing the patentee's prima facie case of "but for"causation.

6. Here the demand for the patented invention was established,among other things, by the infringers' sales and the infringers'sales projections that were presented in the Indiana case andwere part of DX 140 and DX 141. This Court concludes that therewas a demand for the patented invention.

7. There are no acceptable non-infringing substitute methodsfor ceramic welding. None of the other techniques or methods hasthe considerable advantages of the patented invention. Inaddition, even ceramic welding as practiced by other competitorswas not a substitute for the patented process and powder. In thatrespect, because the other competitors' ceramic welding powderslack the attributes of the patented invention, they are notacceptable alternatives (TWM Mfg. Co. v. Dura Corp.,789 F.2d 895, 901 (Fed.Cir. 1986)). Mere existence of such a competingalternative does not make it an acceptable substitute (id.).Hence a court should apply a two-supplier market approach whenproducts other than those of the infringer lack the advantages ofthe patented invention (Kalman v. Berlyn Corp., 914 F.2d 1473,1484 (Fed.Cir. 1990); Uniroyal, Inc. v. Rudkin-Wiley Corp.,939 F.2d 1540, 1545-46 (Fed.Cir. 1991)). Under that approach thedamage calculation should be based on the premise thatGlaverbel-Fosbel would have made all of the Northlake sales, notjust a ratable or relative market share portion of those sales.

8. If the ceramic welding powders of the competitors other thanNorthlake did not in fact infringe on the patents in suit, theydid not provide the benefits or advantages of the patentedinvention. For damage calculation purposes the question is notwhether those powders were competing products, but rather whetherthere were acceptable substitutes (see, e.g., Minco, Inc. v.Combustion Eng'g, Inc., 95 F.3d 1109, 1119 (Fed.Cir. 1996) (percuriam)). Moreover, Panduit, 575 F.2d at 1160-62 teaches thatthe argument of "acceptable substitutes" must be viewed as oflimitedinfluence where the infringer knowingly made and sold thepatented product for years while ignoring the claimed"substitute" (Stryker Corp. v. Intermedics Orthopedics, Inc.,96 F.3d 1409, 1418 (Fed.Cir. 1996)). Here Northlake continuedwith its infringing powder for nine years (December 1988 through1997), rather than making the purportedly simple change to arefractory powder having a size range spread factor of lessthan 1.2.

9. Finally, the issue of assertedly acceptable noninfringingceramic welding alternatives may be considered in the context ofthe Northlake antitrust claims that Glaverbel-Fosbel haveassertedly monopolized the ceramic welding repair market. Butthat would mean that Glaverbel-Fosbel must have monopoly power(which is not presumed in the patent-antitrust interface). Tolook at the converse of that possibility, Abbott Labs. v.Brennan, 952 F.2d 1346, 1355 (Fed.Cir. 1991) has quoted JusticeO'Connor's concurrence in Jefferson Parish Hosp. Dist. No. 2 v.Hyde, 466 U.S. 2, 37 n. 7, 104 S.Ct. 1551, 80 L.Ed.2d 2 (1984)(emphasis added):12

A common misconception has been that a patent or copyright, a high market share, or a unique product that competitors are not able to offer suffices to demonstrate market power. While each of these three factors might help to give market power to a seller, it is also possible that a seller in these situations will have no market power: for example, a patent holder has no market power in any relevant sense if there are close substitutes for the patented product.

It follows as a logical matter that if a patentee does possessmarket power (monopoly power), there cannot be close substitutesfor the patented product. And Northlake has indeed stated (it hasactually conceded in its pleading, albeit while looking in adifferent direction) that there is monopoly power, a concessionthat can be used against Northlake under Fed. R.Evid.801(d)(2)(A).

10. Accordingly the lost profits analysis applies to all of thesales made by Northlake to its customers with whom Fosbel had anycontact before the Northlake infringement. That analysis applieswithout any ratable reduction to take into account anynoninfringing ceramic welding.

11. Based upon the undisputed testimony, Glaverbel-Fosbel hadthe marketing and manufacturing capability for a 10% to 20%increase in sales, and Glaverbel-Fosbel's expert Dr. Koppel tookthe cost of new machinery into consideration in his calculations.Glaverbel-Fosbel had the full marketing capability to have madeall of the sales that Northlake made, if Northlake had in factnot made them.

12. Panduit's fourth factor calls for a calculation of theamount of the additional, or incremental, profit thatGlaverbel-Fosbel would have made if Northlake had not infringed.That calculation is made by (1) determining the amount ofadditional sales Glaverbel-Fosbel would have made and (2)subtracting from it the additional costs Glaverbel-Fosbel wouldhave incurred in order to make the additional sales. Thatincremental profit approach is well established in patent damagescases (Paper Converting, 745 F.2d at 22).

13. This Court has approved Dr. Koppel's expert report with themodifications reflected in the Findings. It concludes that thelost profits award for Glaverbel-Fosbel is $694,231 (see Finding33).13

Damages — Reasonable Royalty

14. "Reasonable royalty" is the amount that a willing licenseewould pay, and a willing licensor would accept, before thecommencement of the infringement (Section 284; Hanson v. AlpineValley SkiArea, Inc., 718 F.2d 1075, 1079 (Fed.Cir. 1983)).

15. Georgia-Pacific Corp. v. United States Plywood Corp.,318 F. Supp. 1116 (S.D.N.Y. 1970), cited in such cases as Rite-Hite,sets forth the factors generally to be considered (if and whenpresent) in a reasonable royalty analysis. Dr. Koppel's reportcorrectly analyzes the first fourteen factors, and that analysisis accepted by this Court. And the fifteenth factor, about whichDr. Koppel testified, is the amount upon which a licensor (suchas the patentee) and a licensee (such as the infringer) wouldhave agreed if both had been reasonable in trying to reach avoluntary agreement — that is, the amount that a prudent licenseewho desired, as a business proposition, to obtain a license tomanufacture and sell a particular article embodying the patentedinvention would have been willing to pay as a royalty and yet beable to make a reasonable profit, and that would have beenacceptable by a prudent patentee who was willing to grant alicense (Georgia-Pacific, 318 F. Supp. at 1120).

16. Any reasonable royalty adequate to compensateGlaverbel-Fosbel for any infringing sales made by Northlake forwhich Glaverbel-Fosbel is not awarded lost profits should takeinto account the incremental profit margin for Glaverbel-Fosbelat the time infringement began (Rite-Hite, 56 F.3d at 1554).Here Northlake's infringement began when the '468 Patent issuedon December 20, 1988. Hence the period of time closest to thatdate for which a statistically valid royalty rate can be computedis 1989, when the Glaverbel-Fosbel incremental profit margin was16.2%. Next that incremental profit margin is adjusted forrelative market share, and Glaverbel-Fosbel had 85.69% of thecoke oven repair business in 1989. On that basis a reasonableroyalty rate would be in the range of 16.2% x 85.69% or 13.9%, afigure reduced to 13.1% to adjust for a fractional error (seeFinding 39).

17. Northlake's net profit was in the mid-teen percentage range(without taking legal fees in its dispute with Glaverbel-Fosbelinto account). But in addition to the substantial salaries paidto Northlake's three principals, once Zlamal left Northlake inJuly 1989 he received continued compensation calculated at $2,200per month plus six additional installments of $10,000 each (DX140 at 227-4 to 227-15).

18. This Court concludes that taking into account Northlake'sgross profit in the 30% to 40% range and its net profit in themid-teen percentage range, plus the substantial compensation paidto its principals, 13.1% is indeed a reasonable royalty rate.This Court concludes that the reasonable royalty payable for theinfringement is $98,767 (see Finding 39).14

Prejudgment Interest

19. Awards of prejudgment interest are the rule, not theexception (Sensonics, Inc. v. Aerosonic Corp., 81 F.3d 1566,1574 (Fed.Cir. 1996), citing General Motors Corp. v. DevexCorp.). As Finding 41 states, the purpose of prejudgmentinterest is not to punish the infringer but to compensate thepatent owner for its losses. Because an award of prejudgmentinterest is the rule, and because Northlake has proffered noevidence to justify an exception, this Court concludes that anaward of prejudgment interest is proper.

20. Based on Findings 33 and 39, the total damages award (thelost profits portion plus the reasonable royalty portion) is$694,231 plus $98,767 or $792,998.

21. Northlake does not dispute that the prejudgment interestrate should be the prime rate plus 1%. Dr. Koppel calculated thedamages (lost profits and reasonable royalty) by using that rate,compounded on a quarterly basis. With the adjustments reflectedin Finding 42, the prejudgment interest calculated through August1, 1998 was $489,866. This Court awards thatamount of prejudgment interest through August 1, 1998. It alsoawards additional prejudgment interest at 8.75% compoundedquarterly from August 1, 1998 to the date of entry of an order ofjudgment pursuant to these Findings and Conclusions.

Allocation of Liability

22. There is no justification for an allocation of liabilityamong the Northlake parties. Despite the fact that May resignedfrom Northlake as of the beginning of 1995, it would beinequitable for him to abdicate his responsibilities as anofficer-director, and thus to create a potential for avoidingfurther liability, after his years of contributing to theposition in which Northlake found itself and his years of takinga substantial salary, yet to remain in a position in which hesought to reap benefits from any potential success of Northlake(in its antitrust claims). At a minimum, to avoid furtherliability for continued infringement May should have tendered hisstock (or had the corporation cancel his stock) at the same timethat he purportedly resigned his position as a Northlake officerand director.

23. As Northlake acknowledged, its liabilities exceeded itsassets from 1989 to the present. Even though the technicalknowhow of the company was considered a valuable trade secret byNorthlake, May used some of that technical knowhow in his newbusiness without any payment to Northlake. Northlake has not paidany part of the Belgian judgment, or even the taxable costsawarded by the Federal Circuit in Northlake's unsuccessfulappeal. It thus appears to this Court that Northlake hascontinued its infringing activities merely on the chance that itmight recoup on its antitrust claims, but with neither theability nor the intent to meet its legitimate financialobligations.

24. On balance, it would be inequitable to allow May to escapeeven partial liability for the damages award here, even though itis true that about 15% of the award, based on the proportion ofNorthlake sales in the years 1995 through 1997 to the totalNorthlake sales for 1998 through 1997, is attributable to thosepost-1994 years. For the reasons already stated, no allocation isappropriate.

Enhanced Damages

25. Under Section 284 a court may increase the damages up tothree times the amount found or assessed by the factfinder. Anyaward of enhanced damages requires a showing of either willfulinfringement or bad faith (Cybor Corp. v. FAS Techs., Inc.,138 F.3d 1448, 1460-61 (Fed.Cir. 1998) (en banc)). As with Section285 awards of attorneys' fees in "exceptional cases," where ashere both of those factors are present the case for enhanceddamages becomes even stronger.

26. Any infringer has the obligation to avoid infringement onceit has knowledge of the patent. Several factors to be consideredon the issue of willfulness are explained in Read Corp. v.Portec, Inc., 970 F.2d 816, 827 (Fed.Cir. 1992),15 and thesingle most important factor is whether or not there was relianceon a competent opinion of counsel. Other factors include (but arenot limited to) whether evidence of infringement (or themagnitude of infringement) was concealed, evidence of copying,closeness of the case, duration of the infringement, remedialaction by the infringer (if any) and the infringer's motivationfor harm.

27. There is an affirmative duty to obtain validity andinfringement opinions (Great Northern Corp. v. Davis Core & PadCo., 782 F.2d 159, 166-67 (Fed.Cir. 1986)). Any such opinionmust be sufficiently thorough to support the reasonableness of aclient's reliance on the opinion (Ortho Pharm. Corp. v. Smith,959 F.2d 936, 944 (Fed.Cir. 1992)), because the required showingis one of justifiable reliance on the opinion (see Datascopev. SMEC, Inc., 879 F.2d 820, 828 (Fed.Cir.1989)). Hence a cursory or conclusory opinion does not suffice(Underwater Devices Inc. v. Morrison-Knudsen Co.,717 F.2d 1380, 1390 (Fed.Cir. 1983); Kori Corp., 761 F.2d at 656), andoral opinions are not favored (Minnesota Mining & Mfg. Co. v.Johnson & Johnson Orthopaedics, Inc., 976 F.2d 1559, 1580(Fed.Cir. 1992)). When the situation here is judged against thoselegal requirements, this Court concludes that Northlake did notreceive a competent opinion of counsel upon which a prudentbusiness person could reasonably rely.

28. This Conclusion addresses the remaining factors forenhanced damages separately. There was a failure by Northlake tocooperate appropriately in discovery (cf. Russell Box Co. v.Grant Paper Box Co., 203 F.2d 177, 183 (1st Cir. 1953)), itschallenge to validity was not of substantial quality (cf.Delta-X Corp. v. Baker Hughes Prod. Tools, Inc., 984 F.2d 410,413 (Fed.Cir. 1993) (same requirement as to a challenge toinfringement)), it did not discontinue its infringing activitiesor find a noninfringing alternative during the pendency of thissuit, even after a series of adverse rulings (Read, 970 F.2d at827), and it demonstrated a motivation to harm Glaverbel-Fosbel.For example, Northlake received technical information from formerFosbel employee Whisman (DX 141 at 8-1 to 8-6 and at 128-2 to128-14) and had access to Fosbel pricing to the same customerswhere Northlake was bidding for work (id. at 11-17 to 11-19,13-12 to 13-20; 14-18 to 14-23; 24-18 to 24-22 and 26-18 to26-25). Northlake's corporate minute book (DX 109) contains noreferences, at any time from 1988 to the present, to theGlaverbel-Fosbel claims, to Northlake's alleged defense, to thepresent litigation or to the claimed opinion of counsel.

29. Based on all of the foregoing, this Court concludes boththat the infringement was willful and that Northlake acted in badfaith. It therefore awards additional enhanced damages of twicethe amount of the actual damages award. Prejudgment interest willnot be applied to the enhanced damages portion of the judgment.

Attorneys' Fees and Costs

30. Any determination of whether a case is "exceptional" so asto be eligible for an award of attorneys' fees under Section 285is a two-step process. First the court must determine if the caseis exceptional and then, if the answer is affirmative, it mustdecide whether an award of such fees is appropriate (CyborCorp., 138 F.3d at 1460).

31. Exceptional circumstances (the first step) may be found ifthere was misconduct during litigation, vexatious or unjustifiedlitigation or a frivolous suit (Bayer Aktiengesellschaft v.Duphar Int'l Research B.V., 738 F.2d 1237, 1242 (Fed. Cir.1984)). Willful infringement alone will suffice to support afinding of an "exceptional case" for an award of attorneys' fees,though it does not mandate such relief (Cybor Corp., 138 F.3dat 1461).

32. As already found and concluded, here there was both willfulinfringement and bad faith conduct. There was no basis forNorthlake to commence the present suit encompassing all of theissues it sought to advance, and there was no basis for it tocontinue infringement (or continue with the suit) in the face ofsuccessive adverse summary judgment or exclusionary rulings. ThisCourt concludes that Glaverbel-Fosbel have demonstrated by clearand convincing evidence that this is indeed an exceptional casewithin the meaning of the statute.

3. Having made that "exceptional case" determination, thisCourt exercises its discretion in favor of awarding attorney feesto Glaverbel-Fosbel. In that respect counsel for the parties areordered to proceed in accordance with this District Court'sGeneral Rules ("GR") 46 and 47. Under Budinich v. BectonDickinson & Co., 486 U.S. 196, 108 S.Ct. 1717, 100 L.Ed.2d 178(1988) the pendency of proceedings looking to such an award doesnotaffect the finality of the substantive judgment to be entered atan early date.

34. Finally, this Court awards taxable costs in favor ofGlaverbel-Fosbel and against Northlake.

It is hereby ordered that judgment shall be entered on June 25,1999 in favor of Glaverbel S.A. and Fosbel, Inc. and againstNorthlake Marketing & Supply, Inc., James Hamilton and SamuelMay, jointly and severally, in the following amount:

1. $792,998, representing the sum of lost profits and a reasonable royalty; plus

2. prejudgment interest on that sum to and including that date of judgment;16 plus

3. enhanced damages in the sum of $1,585,996 (2 x $792,998), without prejudgment interest.

In accordance with the Findings and Conclusions, Glaverbel, S.A.and Fosbel, Inc. shall also be awarded their reasonableattorneys' fees (to be determined in accordance with GR 46 and47) and are hereby awarded their taxable costs.

JUDGMENT ORDER

This Court's lengthy June 10, 1999 Findings of Fact andConclusions of Law ended by anticipating the entry of a judgmentorder on June 25, 1999, with counsel for the parties beingdirected to have previously submitted a statement as to theagreed amount of that judgment (if agreement were possible).Counsel have indeed since succeeded in reaching an "Agree[ment]as to arithmetic only," with "All other objections reserved" (acopy of their calculations is attached to this judgment order).In accordance with that agreement, it is ordered that judgment beentered in favor of Glaverbel S.A. and Fosbel, Inc. and againstNorthlake Marketing & Supply, Inc., James Hamilton and SamuelMay, jointly and severally, in the sum of $2,992,918.

1. This is by a substantial margin the oldest pending case onthis Court's calendar — only one other multifaceted patent casecomes within hailing distance.

2. All further citations to Title 35 provisions will simplytake the form "Section ___," employing the numbering within Title35.

3. "DX" refers to the Glaverbel-Fosbel exhibits and "PX"refers to Northlake's exhibits. Where numbers such as "223-24" or"224-9" appear in reference to a DX (see, e.g., the Finding 8text at n. 4), they refer to the page and line citations in adocumentary exhibit.

4. DX 140 and DX 141 are excerpts from testimony by May andHamilton, respectively, primarily from depositions and from trialtestimony in the case between the parties ("Indiana case") in theUnited States District Court for the Northern District of Indiana("Indiana Court").

5. On the added assumption referred to in the last sentence ofFinding 30, that figure would have been $863,219.

6. On the added assumption referred to in the last sentence ofFinding 30, that figure would have been $88,611 (reduced from theDX 148 figure of $94,699).

7. According to the portion of Dr. Koppel's report (DX 117)that allocates liability over the several years involved, onlyabout 15% of the total liability was incurred after January 1,1995 in any event.

8. This evidence comes from DX 140 and 141, testimony duringthe period when Northlake was pursuing its antitrust claimsagainst Glaverbel-Fosbel. To some extent Northlake sought toretreat from that position during the damages trial, suggestingthat it did not receive technical information from Whisman andthat the test of the Fosbel powder occurred later. But this Courtdiscredits that attempted disavowal in favor of accepting theearlier testimony.

9. If Northlake's appeal from the Indiana decision had beensuccessful, the antitrust claims would have been remanded andcomplete relief would have been available in Indiana. If on theother hand the Northlake appeal proved unsuccessful, that wouldhave completely disposed of the Northlake claim. In either eventthe matter plainly did not belong in this District Court.

10. This was the "grid" or data of 20 "samples."

11. Glaverbel-Fosbel's Objections to Northlake's ProposedConclusion 12 sets out additional grounds for reaching the sameconclusion. This Conclusion's silence as to the express adoptionof those additional grounds should not be mistaken as any adversereflection on (let alone a rejection of) those grounds, which mayindeed provide sound and independent bases for the result reachedhere.

12. This Court's memorandum opinion and order dismissingNorthlake's antitrust claims quoted from the same case (see861 F. Supp. 653, 663 (N.D.Ill. 1994)).

13. See Finding 33 n. 5 for a potential alternative figure forthat element of the damages award.

14. See Finding 39 n. 6 for a potential alternative figure forthat element of the damages award.

15. Read has been overtaken by Markman as to the handlingof claim interpretation, but that of course has no impact on theprinciple stated in the text.

16. In that respect counsel for Glaverbel-Fosbel are orderedpromptly to calculate, and to submit to Northlake's counsel forprompt review, the amount of prejudgment interest from August 1,1998 to the contemplated June 25 judgment date (and hence thetotal amount of prejudgment interest), and then counsel for theparties are ordered to submit a statement as to the agreed amount(or if not agreed, statements as to the parties' respectivecalculations and the basis therefor) to this Court's chambers onor before June 21, 1999.

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