
    WITOLD A. BADOWSKI v. THE UNITED STATES
    [No. 497-53.
    Decided June 8, 1960]
    
      Mr. Albert B. Teare for the plaintiff.
    
      Mr. G. M. PaddaeJc, with whom was Mr. Assistant Attorney General George Goehran Doub, for the defendant.
   Whitaker, Judge,

delivered the opinion of the court:

Plaintiff sues for damages caused by the defendant’s infringement of Letters Patent No. 2,365,445. We have previously determined that plaintiff’s patent was valid and that it was infringed. Badowski v. United States, 135 Ct. Cl. 93. The sole question now presented is the amount of “reasonable and entire” compensation to which plaintiff is entitled because of defendant’s unauthorized use of the patented device.

The facts show that on two occasions plaintiff granted licenses to manufacturers to “make, use and sell” his patented device for commercial use. In 1946, plaintiff granted an exclusive license to Minnesota Tool & Manufacturing Corporation. The agreement provided for two payments of $1,000 each plus a royalty at the rate of five percent of the total gross receipts from sales. The agreement also specified certain minimum royalty payments. Some ten years after the cancellation of his agreement with Minnesota Tool & Manufacturing Corporation, plaintiff, in 1951, entered into a nonexclusive commercial licensing agreement with American Machine & Metal, Inc., which provided for a royalty payment of five percent of the selling price of the parachute release devices. This agreement was made after this court had held plaintiff’s patent valid, but the agreement was also a release for prior infringement since it provided that the royalty would be paid for devices previously sold as well as those to be sold in the future. The parties contemplated tmder these agreements that the sales would be for commercial purposes only and the royalty agreed to did not include sales to the defendant. The number of commercial sales which were made were very small in number. The first licensing agreement was canceled because the minimum royalties prescribed were not paid; and, under the later agreement, the number of devices actually sold was below 2,000.

As a general rule, the best method of assessing damages for an infringement of a patent is to use the claimant’s established royalties as a basis. Eg. Clark v. Wooster, 119 U.S. 322; Breese Burners, Inc. v. United States, 140 Ct. Cl. 9; United States National Bank v. Fabri-Valve Co., 235 F. 2d 565. However, this rule is only useful where the royalty has in fact become established. Here, the licensing agreements limited sales to nongovernmental users and it must have been contemplated by the parties that the civilian demand would be relatively small. A five percent royalty under those circumstances may well have been fair, but we do not believe it follows from that, that where the sales volume greatly exceeded the volume under the licensing agreements, the same royalty would be fair.

Defendant’s accounting expert, Captain Bobert A. Lavender, U.S.N. (Bet.), testified that in his opinion plaintiff’s compensation should be computed at a royalty rate of two percent on the first quarter million dollars, one and one-half percent on the second quarter million, one percent on the amount between a half and one million, and one-half of one percent on the amount over one million. Captain Lavender’s opinion was based on his belief “that little was given to the Government by the plaintiff either in the form of a basic invention or in drawings, because the Government had to design and build its own equipment and did not use any of the structure of the plaintiff.” We believe this compensation is insufficient.

Between 1947 and 1958, defendant purchased 191,274 devices which infringed plaintiff’s patent claim and this great use of plaintiff’s invention seems to us completely contrary to its claim that the invention was of such little value. Defendant’s further argument based on the fact that it did not make use of plaintiff’s specifications is equally without merit. It is well settled that the invention covered by a patent is defined by the language of the patent claims and not by the drawings shown in the specifications. Kuhne identification Systems, Inc. v. United States, 82 Ct. Cl. 237; S. H. Kress & Company v. Aghnides, 246 F. 2d 718. The specifications merely teach others one or more ways of practicing the invention. The fact that the defendant practiced the invention in a manner different from that set out in the specifications seems to us to have little bearing on the value of the invention. The fact still remains that defendant used plaintiff’s invention in order to accomplish its purpose.

Plaintiff’s argument that he is entitled to a 11.6 percent payment is also untenable. This percentage is computed by taking the average dollar royalty payment per unit which plaintiff received under his five percent commercial licensing agreement and using that amount as the royalty which defendant must pay for each device that it purchased. Under the commercial license, the average unit price per device was approximately $101.34 and the five percent royalty payment was in excess of $5 per unit. The average unit price which defendant paid for the device was only $45.18, yet plaintiff contends that he should still receive the same dollar amount per unit. We cannot agree. The percentage royalty is designed to fluctuate. As production increases and manufacturing costs are reduced, the royalty per unit is, of course, reduced but this reduction is more than compensated by the higher sales volume which in fact increases the overall royalty payment. The fact that the defendant was able to reduce the unit cost was a benefit to the plaintiff as well as the defendant. Plaintiff’s patent is only valid for a limited period, and it is to his advantage to sell as many of his devices as possible. Plaintiff’s argument in effect penalizes the defendant for purchasing the device in volume.

Since neither the plaintiff’s nor the defendant’s arguments have convinced us, we must use our own judgment in this matter. Since the Government was almost the sole market for plaintiff’s device and since its volume of purchases greatly exceeded civilian sales, we believe that common sense would have made plaintiff allow the Government a lower royalty than that which he charged his other customers. Under the circumstances, we believe a royalty of three percent on the first million dollars worth of sales and two percent on the remainder would be reasonable compensation.

We hold, therefore, that reasonable and entire compensation for defendant’s unauthorized use of plaintiff’s patent should be computed at a rate of three percent of defendant’s costs on the first one million dollars for parachute release devices which infringed plaintiff’s invention and two percent of its costs in excess of that amount with four percent per annum to date of payment to compensate plaintiff for the delay in payment. The amount will be determined pursuant to Rule 38 (c).

It is so ordered.

DttRfee, Judge; Laeamoke, Judge, Madden, Judge; and Jokes, Chief Judge, concur.

FINDINGS OF FACT

The court, having considered the evidence, the report of Trial Commissioner Donald E. Lane, and the briefs and argument of counsel, makes findings of fact as follows:

1. On May 1, 1956, the court held that plaintiff’s patent No. 2,365,445 is valid, that defendant’s F-l parachute release device infringes said patent, and that plaintiff is entitled to recover reasonable and entire compensation therefor. 135 C. Cls. 93, 140 F. Supp. 544, 109 USPQ 293. Defendant’s first motion for new trial was overruled October 9,1957, its second motion for new trial was overruled December 4,1957, and its third motion for new trial was overruled July 16, 1958, the opinion of the court being delivered by Judge Whitaker. 164 F. Supp. 252, 118 USPQ 358.

2.The accounting period in this suit extends from August 7,1947, to January 31, 1958. In a stipulation filed October 2,1959, the parties agreed—

That 191,274 devices held to infringe were delivered to the defendant during the period extending from August 7, 1947 to January 31, 1958, for which the defendant paid Eight Million, Six Plundred Forty-One Thousand, Nine Hundred Twenty-One Dollars and Forty-Three Cents ($8,641,921.43).
*****
That deliveries by years of devices held to infringe were made to defendant during the accounting period, as follows:
Year Amount Units
1947_ $0.00 0
1948_ 0.00 0
1949_ 0.00 0
1950_ 416, 823. 68 14, 560
1951_ 0.00 0
1952_ 30, 614. 87 1, 027
1953_ 850, 504.23 29,120
1954_ 241, 063.70 8,170
1955_ 215, 363.00 3, 805
1956_ 2,275, 339. 38 42, 839
1957_ 4,323,434.82 85,748
1958_ 288, 777. 75 6, 005
Totals_$8,641,921.43 191,274
*****

3. The average price paid by defendant for said 191,274 devices was approximately $45.18 per device. Total procurement of these devices by defendant during the two years subsequent to the court’s holding May 1,1956, that plaintiff’s patent was valid and infringed by defendant, substantially exceeds the total procurement by defendant during prior years of the accounting period.

4. The parties have not been able to agree on what percent of the price of these devices would constitute reasonable and entire compensation for plaintiff. Defendant contends that compensation should be computed upon a sliding scale varying from 2 percent on the first quarter million dollars down to one-half of one percent on amounts over one million dollars. Plaintiff contends that compensation should include an 11.6 percent royalty plus interest thereon at the rate of 6 percent.

5. On January 2,1946, plaintiff granted Minnesota Tool & Manufacturing Corporation an exclusive license under plaintiff’s patent No. 2,365,445 and any improvement thereto, to use the same in the manufacture of mechanisms and devices for commercial sale. This agreement provided for two payments of $1,000 each plus a royalty at the rate of 5 percent of the total gross receipts from sales. The agreement-specified minimum royalty payments of $1,000 yearly for 1946 and 1947, and $1,500 yearly thereafter. Plaintiff canceled this commercial license agreement by a letter dated March 5, 1947, for nonpayment of minimum royalties monthly. During the approximately 14 months this agreement was effective, plaintiff received payments totalling $2,833.30 from the licensee.

6. On April 30,1957, a date subsequent to the court’s holding plaintiff’s patent valid and infringed, plaintiff granted American Machine & Metals, Inc., a non-exclusive license under patent No. 2,365,445 to make, use and sell for commercial use only. This agreement released licensee for past infringement by devices made and sold for commercial use, but the release did not extend to devices made and sold by licensee for use by the United States Government. This agreement provided for royalty payments at the rate of 5 percent of the selling price of parachute release devices sold by American Machine & Metals, Inc., both before and after its April 30, 1957, date. About December 26, 1957, plaintiff received $2,480.86 from this licensee, this sum being 5 percent on commercial sales of 469 devices during 1954-1957, these sales totalling $49,617.20. The average sale price for these devices was approximately $105.79 per device and the royalty paid at the 5 percent rate was about $5.29 per device. About January 31,1958, plaintiff received $7,016.38 from this licensee, this sum being 5 percent royalty on commercial sales of some 858 devices plus adjustments on some prior sales. The average sale price for these 853 devices was approximately $101.34 per device, and the royalty paid at the 5 percent rate was about $5.07 per device. These two royalty payments at the 5 percent rate received by the plaintiff-licensor average about $5.15 per device on an average sale price of about $102.92 each. A royalty of $5.15 per device on the average purchase price of $45.18 each paid by defendant would be a royalty at the rate of about 11.4 percent.

7. Defendant’s accounting expert, Capt. Robert A. Lavender, U.S.N. (Net.), testified that in his opinion the plaintiff’s compensation herein should be computed at royalty rates of 2 percent on the first quarter million dollars, 1 y2 percent on the second quarter million, 1 percent on the amount between half and one million, and one-half of 1 percent on the amount over one million.

8. Captain Lavender has rendered outstanding service to defendant during his naval career and as patent adviser to defendant’s Office of Scientific Research and Development and the United States Atomic Energy Commission. Captain Lavender’s opinion is based on his conclusions resulting from his consideration of numerous factors including the Badowski patent, its prosecution in the United States Patent Office, its litigation record, the benefits derived by the defendant from the Badowski disclosure, and other factors. Much of his opinion testimony concerned his consideration of the constructional details of prior patents, the particular release illustrated in the Badowski patent drawings, the Weather Bureau device, and other matters heretofore considered during the prior trial of the validity and infringement issues herein. Captain Lavender testified:

I have come to the conclusion that little was given to the Government by the Plaintiff either in the form of a basic invention or in drawings because the Government had to design and build its own equipment and did not use any of the structure of the Plaintiff. And, therefore, I would start out with a royalty of two per cent which I consider in this case to be reasonable.
Now, in making these agreements I was always interested in seeing that the patentee was able to recover at least what he spent in developing an invention, because the patent system is designed to encourage people to make inventions and to receive his benefit within a reasonable number of years rather than over the whole scope of time of his patent, especially where it is in a crowded art, and in a short time he is liable to lose all of his rights, in their effect, by the fact that it is no longer used.

9. Captain Lavender further testified that he had in the past negotiated and concluded license agreements wherein the royalty rate was 5 percent, and that he had recommended a royalty rate of 75 percent in one case. Captain Lavender did not recall the names of the parties involved in any cases where he had negotiated license agreements after the patent involved had been held valid and infringed by a court.

10. There is no evidence of the defendant’s actual saving, if any, resulting from its use of the Badowski invention either before or after the court’s holding that certain Badowski patent claims were valid and infringed. There is no evidence herein of the amounts spent by plaintiff in developing this invention. If defendant had purchased its F-l automatic parachute release devices as a non-governmental user from plaintiff’s licensee, American Machine & Metals, Inc., after April 30,1957, plaintiff would have been entitled to receive the specified 5 percent royalty on commercial sales.

CONCLUSION OK LAW

Upon the foregoing findings of fact, which are made a part of the judgment herein, the court, having previously concluded that plaintiff is entitled to recover, now concludes that plaintiff is entitled to an amount equal to three (3) percent of defendant’s costs on the first one million dollars ($1,000,000) for parachute release devices which infringed plaintiff’s invention, and two (2) percent of defendant’s costs in excess of one million dollars ($1,000,000), with interest at four (4) percent per annum to date of payment as reasonable and entire compensation for defendant’s use prior to January 31,1958, of the invention defined in plaintiff’s United States Patent No. 2,365,445. The amount of recovery will be determined pursuant to Buie 38(c).

In accordance with the opinion of the court and on a memorandum report of the commissioner as to the amount due thereunder, it was ordered on July 22, 1960, that judgment for the plaintiff be entered for $182,838.44 with interest on said sum at the rate of four percent per annum to date of payment computed on the following basis:

Year Amount Interest period
1950-$12, 504.71 from Dec. 31,1950
1952- 918.45 from Dee. 31,1952
1953- 22,535. 70 from Dec. 31,1953
1954- 4, 821.27 from Dec. 31,1954
1955- 4,307.26 from Dec. 31,1955
1956- 45, 506.79 from Dec. 31, 1956
1957- 86,468. 70 from Dec. 31,1957
1958- 5,775.56 from Jan. 31,1958 
      
       Plaintiff’s accounting exhibit 1.
     
      
       Plaintiff’s accounting exhibit 15,
     