Mitutoyo v. Central Purchasing (CAFC 2006-1312, -1343)

Because of Central's declaratory judgment loss, under principles of res judicata, the trail court granted summary judgment on the validity and enforceability of '902; Central did not challenge this.

Central, while stipulating to claim construction, did appeal infringement, based upon implicitness district court decision.

In light of the infringement finding, the trial court also found Central liable for breach of contract. To the extent that it is liable for infringement, Central does not dispute breach of contract liability.

However, the trial court found that Mitutoyo had insufficiently pled, and failed to properly prosecute, its claim for willful infringement. Accordingly, but without citing any authority as a basis for its action, it dismissed the willfulness claim and denied a jury trial on the issue.

With respect to damages, the trial court found that Mitutoyo was not entitled to a lost profit award, either for infringement or breach of contract, because it failed to establish any market overlap between its goods and Central’s. Whereas Mitutoyo’s calipers retailed from $40.00 to $397.00 and have advanced functionality, Central’s calipers sold from $19.12 to $48.98 and have more basic features. Given these facts and Mitutoyo’s failure to introduce any direct evidence of market overlap, the trial court accepted Central’s argument that its calipers were directed exclusively at “do-it-yourselfers” who, in the absence of its products, would have either purchased another low-end caliper or not purchased one at all. The trial court did, however, award Mitutoyo damages based on a reasonable royalty. It determined that 29.2% was an appropriate rate based on its conclusion that Mitutoyo would not have accepted less than its profit margin of 29.2% and Central’s anticipated profit margin was 70%. But, without offering any explanation for its decision, it used both Central’s and HFTUSA’s sales of the accused calipers in calculating the royalty base. While the two companies have a strong business relationship, they are independent corporate entities, with different owners, and Mitutoyo introduced no evidence that Central would have otherwise agreed to pay royalties based on HFTUSA’s sales.

So, Central appealed infringement and the royalty; Mitutoyo cross-appealed not getting a crack at willfulness or lost profits.

Central couldn't get a grip on a narrowed interpretation of an agreed-upon claim construction, so the CAFC concurred with the district court on infringement.

On the cross-appeal of willful infringement -

We construe the trial court’s dismissal of Mitutoyo’s willful infringement claim as a dismissal for failure to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure and, alternatively, as a dismissal for failure to prosecute under Rule 41(b). Both grounds for dismissal are procedural issues, not pertaining to patent law, that we review under regional circuit law.

Mitutoyo had alleged willful infringement in its complaint, in the CAFC view, meeting requisite Rule 8(a)(2), which "requires only the “bare minimum [of] facts necessary to put the defendant on notice of the claim so that he can file an answer”."

The trial court also abused its discretion by dismissing the willfulness claim for failure to prosecute under Rule 41(b). Indeed, nothing in Mitutoyo’s litigation conduct evidenced an intent not to pursue its willful infringement claim. The trial court relied heavily on the fact that Mitutoyo did not move for summary judgment of willful infringement. However, because summary judgment is only appropriate where there are no genuine issues of material fact, Fed. R. Civ. Pro. 56(c), its failure to so move likely indicates its sense that issues of material fact exist, not an intent to abandon its willfulness claim. See Flynn v. Sandahl, 58 F.3d 283, 288 (7th Cir. 1995) (“[W]e know of no cases, nor has Sandahl directed us to any, stating that a plaintiff must raise every legal issue in his motion for summary judgment.”). Moreover, throughout the entire course of the litigation, including the parties’ Joint Pretrial Order filed on April 14, 2005, Mitutoyo appraised the court of its willful infringement claim and its request for a trial on the issue. We therefore reverse the trial court’s dismissal, reinstate the willful infringement claim, and remand in order for the trial court to conduct a trial on it.

On the issue of lost profits, the trial court was on the money in not giving any.

Mitutoyo failed to meet its burden of establishing any market overlap, so as to entitle it to a jury trial on lost profit damages. See BIC Leisure Prods. v. Windsurfing Int’l, 1 F.3d 1214, 1218 (Fed. Cir. 1993) (“To recover lost profits as opposed to royalties, a patent owner must prove a causal relation between the infringement and its loss of profits. The patent owner must show that ‘but for’ the infringement, it would have made the infringer’s sales.”). As discussed above, Mitutoyo’s calipers are a more complex product than that marketed by Central, and very little price overlap exists. This alone may have been insufficient to support the trial court’s conclusion that Mitutoyo’s and Central’s products compete for entirely different market segments. However, Mitutoyo also did not put any direct evidence into the record to suggest overlap among the consumers buying the companies’ respective goods. And Central demonstrated that the demand for its products was highly elastic, with $21 being its customers’ preferred price point—meaning that Mitutoyo’s products are sold almost entirely outside the price range in which Central customers are likely to buy. Taken together, there was no basis from which a jury could have found lost profit damages.

Ditto the royalty rate -

In determining the royalty rate, the trial court applied the correct law. Indeed, it was calculated based on a hypothetical negotiation between a willing patentee and a willing licensee at the time the infringement began. Rite-Hite Corp., 56 F.3d at 1554. Moreover, it was determined based on the entirety of evidence in the record. Smithkline Diagnostics, Inc. v. Helena Labs. Corp., 926 F.2d 1161, 1168 (Fed. Cir. 1991).

But the trial court should not have included HFTUSA's sales as a base for damages calculation.

Remanded for the district court to sort out where it went astray.