Centricut v. Esab Group

Centricut v . Esab Group              CV-99-039-M       07/09/03
                   UNITED STATES DISTRICT COURT

                     DISTRICT OF NEW HAMPSHIRE


Centricut, LLC,
     Plaintiff

     v.                                    Civil N o . 99-039-M
                                           Opinion N o . 

Esab Group, Inc.,
     Defendant

     v.
Centricut, LLC (New Hampshire)
and Centricut, LLC (Delaware),
     Counterclaim Defendants


                              O R D E R


     Centricut, LLC has preemptively sued Esab Group, Inc.

(“Esab”), holder of United States patent 5,023,425 (“the ’425

patent”), seeking a declaratory judgment that: (1) it has not

infringed the ’425 patent; (2) the ’425 patent is invalid on a

variety of statutory grounds;1 and (3) the ’425 patent is

unenforceable under the doctrine of laches and estoppel.       Esab



     1
       Specifically, Centricut asserts that the ’425 patent
should be declared invalid, void, and/or unenforceable under 

 1 2 , ¶ 2 (for indefiniteness), under §§ 102(a) and ( b ) ,
under § 103 (for obviousness), and under § 1 1 2 , ¶ 1 (for failure
to meet the enablement requirement and to set forth the best
mode
counterclaims against Centricut, LLC (New Hampshire) and

Centricut, LLC (Delaware) (collectively “Centricut”), asserting

infringement of the ’425 patent and infringement of United States

patent Des. 384,682. By order dated February 7 , 2002 (document

n o . 5 2 ) , the court denied Centricut’s motion for partial summary

judgment and also ruled against Centricut on its indefiniteness

defense.   See 

 1 2 , ¶ 2 .   The case was tried to the

bench, beginning on October 2 1 , 2002.



                             Infringement

     Under the United States Patent Act, “[e]xcept as otherwise

provided . . . whoever without authority makes, uses, offers to

sell, or sells any patented invention, within the United States

or imports into the United States any patented invention during

the term of the patent therefor, infringes the patent.”        

(a).


          An infringement analysis requires two steps:
     construction of the claims, to determine their scope
     and meaning, and comparison of the properly construed
     claims to the allegedly infringing device or method.
     Cybor Corp. v . FAS Techs., Inc., 

     (Fed. Cir. 1998) (en banc). Claim construction . . .
     is a matter of law . . . . Lockheed Martin Corp. v .
     Space Sys./Loral, Inc., 

 (Fed. Cir.
     2001). The comparison of claims to the accused device


                                    2
     or method, and the corresponding determination of
     infringement, whether literal or under the doctrine of
     equivalents, is a question of fact. Tanabe Seiyaku Co
     v . United States Int’l Trade Comm’n, 

, 731
     (Fed. Cir. 1997).

J & M Corp. v . Harley-Davidson, Inc., 

 (Fed.

Cir. 2001) (parallel citations omitted).



     “A claim is literally infringed when the accused device

literally embodies each limitation of the claim.”    Kraft Foods,

Inc. v . Int’l Trading Co., 

 (Fed. Cir. 2000)

(citing Pall Corp. v . Micron Separations, Inc., 

 (Fed. Cir. 1995)).   Infringement under the doctrine of

equivalents occurs when “the accused product or process

contain[s] elements identical or equivalent to each claimed

element of the patented invention.”   Warner-Jenkinson C o . v .

Hilton Davis Chem. Co., 

 7 , 40 (1997).   “The

determination of equivalence should be applied as an objective

inquiry on an element-by-element basis.”   

     Equivalence is shown by evidence that the accused
     device contains an element that is not “substantially
     different” from any claim element that is literally
     lacking [in the accused device], see [Warner-Jenkinson,
     

 0 ] , or that the claimed limitation and the
     accused component “perform[] substantially the same


                                 3
     function in substantially the same way to achieve
     substantially the same result,” see Ethicon Endo-Surgery, Inc. v . United States Surgical Corp., 

 (Fed. Cir. 1998).


Kraft Foods, 

 (parallel citations omitted).



     At issue here are independent Claims 1 and 8 of the ’425

patent.   The parties stipulated at trial that the only remaining

issue is whether the accused Centricut electrodes meet the “work

function” limitations of Claims 1 and 8 .   With respect to work

function, Claim 1 discloses


     an insert assembly . . . comprising an emissive insert
       composed of a metallic material having a relatively
       low work function, and a sleeve surrounding said
       emissive insert so as to separate said emissive
       insert from contact with said holder, said sleeve
       having a radial thickness of at least about 0.01
       inches at said front end and being composed of a
       metallic material having a work function which is
       greater than that of the material of said emissive
       insert, and said sleeve being composed of a metal
       which is selected from group consisting of silver,
       gold, platinum, rhodium, iridium, palladium, nickel,
       and alloys wherein at least 50% of the composition
       of the alloy consists of one or more of said metals



’425 patent, col. 7 , l l . 30-43 (emphasis added).   Claim 8 , by

contrast, discloses



                                  4
     an insert assembly . . . comprising
     (a) a generally cylindrical emissive insert . . . said
       emissive insert being composed of a metallic
       material having a relatively low work function so as
       to be adapted to readily emit electrons upon an
       electrical potential being applied thereto, and
     (b) a sleeve positioned . . . about said emissive
       insert, said sleeve having a radial thickness of at
       least about 0.01 inches at said front end and being
       composed of a metallic material having a work
       function which is greater than that of the material
       of said holder and greater than that of the material
       of said emissive insert, said metallic sleeve being
       selected from the group consisting of silver, gold,
       platinum, rhodium, iridium, palladium, nickel, and
       alloys wherein at least 50% of the composition of
       the alloy consists of one or more of said metals . .



’425 patent, col. 8 , l l . 37-58 (emphasis added).



     Given the parties’ stipulations, two questions arise: (1)

whether the accused electrodes have sleeves made from a metallic

material having a work function greater than that of their

emissive inserts (which would establish infringement of Claim 1 ) ;

and (2) whether the accused electrodes have sleeves made from a

metallic material having a work function greater than those of




                                 5
both their emissive inserts and their holders (which would

establish infringement of Claim 8 ) . 2



I.   Claim 1

     Esab did not offer evidence of work-function testing, but

instead sought to prove infringement by demonstrating that the

accused electrodes have a relatively long work life, and,

therefore, must necessarily have sleeves made of a metallic

material having a work function greater than that of their

emissive inserts. (Generally speaking, the sleeves at issue are

composed of silver and silver alloys, while the emissive inserts

are composed of halfnium, and the holders are composed of

copper.) Rather than testing the metallic materials from which

Centricut made its electrodes, Esab tested the electrodes

themselves, by putting them into plasma arc torches and operating

the torches until the electrodes failed.



     Centricut countered that: (1) work function is a complex

phenomenon, dependent upon many variables, such that a single

     2
       While claim construction is the first step in an
infringement analysis, see J & M Corp., 

, the
parties do not contest the construction of the claim limitations
at issue here.

                                   6
metallic material, like silver, may have multiple work functions,

based upon differences in the temperature, cleanliness, and

surface characteristics (including oxidation) of a given sample;

(2) due to the number of variables affecting work function,

general work-function tables commonly used by engineers and

metallurgists are virtually useless in determining the work

function of a discrete sample of metallic material; (3) it is

theoretically possible for a particular sample of silver, with

the right set of physical characteristics, to have a work

function lower than the work function of a particular sample of

halfnium; and (4) Esab misunderstands precisely why its

electrodes last longer than those previously available in the

marketplace. (Centricut suggested that the arc attaches to the

electrode along its centerline, regardless of the metallic

material located there, due to the swirling vortex of gasses

directing the arc to that particular point. A silver sleeve

extends the life of an electrode, Centricut says, not because its

comparatively high work function prevents the arc from drifting

over to the relatively fragile copper holder, but because silver

is a superior heat conductor and forms better bonds with halfnium

and copper than halfnium and copper form with each other.)



                                7
     Centricut established that physical circumstances could be

manipulated in such a way that some silver could indeed have a

work function lower than that of some halfnium.3   At the same

time, however, it is clear from the scientific references

excerpted in Esab’s Exhibit 25 that silver commonly has a higher

work function than halfnium.   Nothing in the record suggests that

Centricut made its silver sleeves from one of the relatively few

low-work-function forms of silver. It is more likely than not

that the accused electrodes’ sleeves were made from common forms

of silver having a higher work function than halfnium.4   The


     3
       Standard references report many more work function values
for silver than for halfnium. One source lists a single work
function for halfnium but sixteen for silver, based upon three
different testing methods.
     4
       Centricut i s , of course, correct in asserting that one
cannot look to a reference-book table to conclusively ascertain
the work function of a specific sample of metallic material.
But, while such evidence might not establish to a physical
certainty that the silver used by Centricut has a higher work
function than the halfnium in its inserts, those standard
references are sufficiently persuasive to support that finding by
a preponderance of the evidence. At the appropriate level of
understanding, i.e., the perspective of one skilled in the
pertinent art, and for the purpose of proving infringement by a
preponderance of the evidence, the work-function tables offered
by Esab do provide an adequate basis for decision in this case,
particularly in the absence of any contradictory evidence on the
point. This issue is not, of course, what might be possible, but
what is probable with regard to the relative work functions of
the silver and halfnium used in the accused electrodes.

                                 8
court finds that Centricut’s electrodes do literally infringe

Claim 1 of the ’425 patent.



II.   Claim 8

      A.   Literal Infringement

      Given the infringement of Claim 1 , Centricut has also

infringed Claim 8’s similar limitation regarding electrodes with

sleeves that have a higher work function than their emissive

inserts.   However, Claim 8 includes an additional limitation: the

sleeve material must also have a work function higher than that

of the material from which the holder is made. In both

electrodes, the relevant metallic materials are silver (the

sleeve) and copper (the holder).



      Unlike silver and halfnium, which have relatively little

overlap in terms of the work-function values disclosed in

commonly used reference books, the work-function values ascribed

to silver and copper do substantially overlap. Many forms of

copper have work functions higher than many forms of silver.

Thus, the court cannot conclude that it is more likely than not

that Centricut manufactured electrodes with silver sleeves having



                                  9
higher work functions than their surrounding copper holders.

While Esab did explain the benefits of using a sleeve made from a

material with a higher work function than the emissive insert,

the record does not identify any useful benefit associated with a

sleeve material having a higher work function than that of the

surrounding holder. Because Esab has not proven, by a

preponderance of the evidence, that the accused electrode

embodies the limitation of a sleeve with a work function higher

than that of its holder, Esab has not proven that Centricut

literally infringed Claim 8 of the ’425 patent. In short, the

readily available work-function tables disclose too great an

overlap in relative work-function values for silver and copper to

give rise to a reliable inference one way or the other.   As

noted, the accused devices were not tested to determine the

actual work functions of the metallic materials from which they

were made.



    B.   Infringement under the Doctrine of Equivalents

    In its request for findings of fact and rulings of law, Esab

describes the legal standard applicable in proving infringement

under the doctrine of equivalents. But, it does not develop an



                               10
argument based on the doctrine of equivalents in its post-trial

memorandum of law.    Given the evidence of record in this case, it

is not possible to engage in a meaningful equivalence analysis.



     Because Esab did not prove the work function of the copper

in Centricut’s holders, the court cannot reliably determine

whether the accused electrode embodies the limitation disclosed

in the patent. Further difficulties arise from Esab’s failure to

establish: (1) the function to be served by the claimed

difference in work function; (2) the way in which that function

is performed; and (3) the specific result achieved by the work-

function differential. See Kraft Foods, 

(citation omitted).   In other words, Esab’s admittedly imprecise

description of the physics of plasma arc torch operation is fatal

to its claim of infringement under the doctrine of equivalents.



     To summarize, Esab has proven by a preponderance of the

evidence that Centricut infringed Claim 1 , but not Claim 8 , of

the ’425 patent. Because Centricut has not infringed Claim 8 ,

the following discussion of invalidity pertains only to Claim 1 .




                                 11
                            Invalidity

     Centricut argues that even it did infringe the ’425 patent,

it is not liable to Esab because the ’425 patent is invalid on

grounds of anticipation and obviousness.



     Patents are presumed valid.     

. Nevertheless,

a party may defend against a claim of infringement by attacking

the validity of the patent sued upon. See 

(2).

Of course, “[t]he burden of establishing invalidity of a patent

or any claim thereof shall rest on the party asserting such

invalidity.”   

. “To overcome [the] presumption of

validity, the party challenging a patent must prove facts

supporting a determination of invalidity by clear and convincing

evidence.”   Schumer v . Lab. Computer Sys., Inc., 

 (Fed. Cir. 2002) (citing Apotex USA, Inc. v . Merck & Co.,

 (Fed. Cir. 2001), cert. denied 

(2002)).   Finally, “[i]n analyzing validity, ‘[t]he first step

involves the proper interpretation of the claims [while] [t]he

second step involves determining whether the limitations of the

claims as properly interpreted are met by the prior art.’”

Teleflex, Inc. v . Ficosa N . Am. Corp., 

 (Fed.



                                12
Cir. 2002) (quoting Beachcombers, Int’l, Inc. v . WildeWood

Creative Prods., Inc., 

 (Fed. Cir. 1994)). 5



I.   Lack of Novelty/Anticipation

     Centricut argues that Claim 1 of the ’425 patent is invalid

for lack of novelty because it was anticipated by Japanese Laid-

Open Patent Application N o . Sho 60-247491 (“the Kojo patent”),

filed on May 2 4 , 1984. Esab counters that the electrode claimed

in the ’425 patent was not anticipated by the Kojo patent,

because the ’425 patent claims a “sleeve having a radial

thickness of at least about 0.01 inches” while the Kojo patent

discloses “a boundary layer . . . formed by plating treatment

such as electroplating, chemical plating, etc. or . . . welding

or . . . deposition.”   The court agrees that Claim 1 of the ’425

patent was not anticipated by the Kojo patent.



     Under the Patent Act, one necessary condition of

patentability is novelty.   The novelty provision of the Patent

Act provides, in pertinent part:



     5
       As with Esab’s infringement claim, Centricut’s invalidity
defenses involve no contested issues of claim construction.

                                13
          A person shall be entitled to a patent unless–

          (a) the invention was known or used by others in
     this country, or patented or described in a printed
     publication in this or a foreign country, before the
     invention thereof by the applicant for patent, or

          (b) the invention was patented or described in a
     printed publication in this or a foreign country or in
     public use or on sale in this country, more than one
     year prior to the date of the application for patent in
     the United States . . .

. “Anticipation under 

 means lack

of novelty, and is a question of fact. To anticipate, every . .

. limitation of the claimed invention must be found in a single

prior art reference.”   Beckson Marine, Inc. v . NFM, Inc., 

 1 8 , 725 (Fed. Cir. 2002) (quoting Brown v . 3M, 

 (Fed. Cir. 2001)).



     Here, Centricut has failed to produce clear and convincing

evidence that Claim 1 of the ’425 patent was anticipated by the

Kojo patent. Specifically, the limitation of a “sleeve having a

radial thickness of at least about 0.01 inches” is not present in

the Kojo patent. The Kojo patent discloses a “boundary layer”

between the emissive insert and the holder, but indicates no

minimum thickness requirement. Given the precision with which



                                 14
sleeve thickness was claimed in the ’425 patent, the absence of

any indication of thickness in the Kojo patent, and the specific

methods of fabrication disclosed in the Kojo patent, which

include techniques such as electroplating and chemical plating,

Centricut’s evidence does not rise to the level of clear and

convincing proof that the Kojo patent disclosed a sleeve with a

radial thickness of at least about 0.01 inches.



    The court is also not persuaded by Landry’s testimony

regarding his general inspection, at an unspecified time and

place, of an electrode similar to those disclosed in the Kojo

patent, or conjecture by O’Hara as to the significance of cross-

hatching rather than a single line in one of the Kojo patent

drawings.   While such evidence may be suggestive of a boundary

layer of some thickness, it does not clearly and convincingly

establish that the boundary layer disclosed in the Kojo patent

was, necessarily, at least about 0.01 inches thick.



    Accordingly, Claim 1 of the ’425 patent is not invalid on

grounds of anticipation (or lack of novelty).




                                15
II.   Obviousness

      Centricut argues that even if the ’425 patent is not invalid

for lack of novelty, it is invalid for obviousness, in light of

the Kojo patent. Esab counters that the electrode claimed in the

’425 patent is not rendered obvious by the electrode claimed in

the Kojo patent because: (1) the Kojo patent teaches the use of a

boundary layer made of “nickel, chrome, etc.” rather than silver,

while silver is disclosed in the ’425 patent as “a preferred

material;” (2) prior to the invention of the electrode disclosed

in the ’425 patent, there was a well-recognized need in the

plasma arc cutting industry for longer-lasting oxygen electrodes;

(3) the Esab electrode was commercially successful; (4) Centricut

emulated the Esab electrode; and (5) a six-person team at Thermal

Dynamics, seeking to develop longer-lasting oxygen electrodes,

experimented with silver, but never developed a silver sleeve

like the one disclosed in the ’425 patent. The court agrees that

Claim 1 of the ’425 patent is not invalid for obviousness.



      The non-obviousness provision of the Patent Act provides, in

pertinent part:




                                16
          A patent may not be obtained though the invention
     is not identically disclosed or described as set forth
     in section 102 of this title, if the differences
     between the subject matter sought to be patented and
     the prior art are such that the subject matter as a
     whole would have been obvious at the time the invention
     was made to a person having ordinary skill in the art
     to which subject matter pertains. . . .

(a).


     Obviousness is a legal conclusion based on underlying
     findings of fact. In re Dembiczak, 

 9 4 , 998
     (Fed. Cir. 1999). The underlying factual inquiries
     are: “(1) the scope and content of the prior art; (2)
     the level of ordinary skill in the prior art; (3) the
     differences between the claimed invention and the prior
     art; and (4) objective evidence of nonobviousness.”
     

Beckson Marine, 

 (parallel citations omitted).

In turn, objective evidence of nonobviousness


     includes the commercial success of the patented
     invention, whether the invention addresses “long felt
     but unsolved needs,” and the failure of others to
     produce alternatives to the patented invention.


In re GPAC Inc., 

 (Fed. Cir. 1995) (quoting

Graham v . John Deere Co., 

 , 17-18 (1966)).




                                17
     As noted earlier, the Kojo patent discloses a boundary

layer, but not a sleeve that is at least 0.01 inches thick.

Moreover, Centricut has identified no other prior art that

discloses the sleeve element claimed by the ’425 patent.    So,

this is not a case of “obviousness . . . established by combining

the teachings of the prior art.”     In re GPAC, 

(citation omitted).



     More importantly, however, even if Centricut had established

that all the elements of Claim 1 of the ’425 patent had been

taught by some combination of prior art references, Centricut has

failed to provide any evidence to support a finding that “the

combined teachings of the prior art references . . . suggest,

expressly or by implication, the improvements embodied by the

invention.”   

 (citing In re Sernaker, 

 (Fed. Cir.

1983)).   In other words, Centricut has produced no evidence to

show that “the prior art . . . provide[d] a suggestion or

motivation” to replace the boundary layer in the Kojo patent with

the sleeve claimed in the ’425 patent.     Heidelberger

Druckmaschinen AG v . Hantscho Commercial Prods., Inc., 

 (Fed. Cir. 1994) (citing Northern Telecom, Inc. v .



                                18
Datapoint Corp., 

 3 1 , 934 (Fed. Cir. 1990); In re

Geiger, 

 (Fed. Cir. 1987) (obviousness cannot be

established by combining pieces of prior art absent some

“teaching, suggestion, or incentive supporting the

combination”)).     Because no prior art either discloses a sleeve

or suggests the benefit of anything thicker than a “boundary

layer” between the emissive insert and the holder of an oxygen

electrode, Centricut has provided no evidence to demonstrate that

it would have been obvious to one skilled in the art of plasma

arc cutting that a silver sleeve would increase the effective

life of an oxygen electrode.



     In terms of the Beckson Marine factors, Centricut has failed

to demonstrate that the prior art includes any reference to the

sleeve element of the ’425 patent (factor 1 ) , which means that

the claimed invention is substantially different from the prior

art (factor 3 ) .   Thus, both factors weigh in favor of Esab.

Factor 4 , objective evidence of obviousness, also weighs in favor

of Esab. The Esab electrode was a commercial success because it

lasted longer than other oxygen electrodes, thus meeting a long-

standing unsolved need in the plasma arc cutting torch industry.



                                  19
While there may be lingering questions about the precise electro-

chemical processes that cause the Esab electrode to last longer

than electrodes without a silver sleeve,6 it is apparent that the

addition of the silver sleeve was the inventive step that gave

the Esab electrode its commercial advantage.   See In re GPAC, 

 (citations omitted).



     For the reasons given above, the addition of a silver sleeve

to an electrode composed of an emissive insert set in a copper

holder was an improvement in electrode design that would not have

been obvious to one skilled in the art at the time of the

invention claimed in the ’425 patent. Accordingly, Centricut has

failed to prove, by clear and convincing evidence, that Claim 1

of the ’425 patent is invalid for obviousness.




     6
       Centricut makes much of the physical mysteries of plasma
arc cutting, to the point of suggesting that plasma arc cutting
is a “black art.” If indeed plasma arc cutting is so poorly
understood, and if advances in the field come exclusively through
trial and error, it seems somewhat anomalous for Centricut also
to argue that the invention claimed by Esab was obvious. In
other words, it is difficult to see how Esab’s invention could be
obvious when the field of technology from which it sprang is so
poorly understood that it qualifies as a “black art.”

                               20
                             Damages

    Esab seeks both lost profits and enhanced damages for

willful infringement.   Centricut argues that the proper measure

of damages is a reasonable royalty rate rather than lost profits,

and that enhanced damages are inappropriate because any

infringement was not willful.



    The damages provision of the Patent Act provides, in

pertinent part:


         Upon finding for the claimant the court shall
    award the claimant damages adequate to compensate for
    the infringement, but in no event less than a
    reasonable royalty for the use made of the invention by
    the infringer, together with interest and costs as
    fixed by the court.

. In determining the proper measure of damages,

the following principle applies:


    The question to be asked in determining damages is “how
    much had the Patent Holder and Licensee suffered by the
    infringement. And that question [is] primarily: had
    the Infringer not infringed, what would Patent HolderLicensee have made?”




                                21
Aro Mfg. C o . v . Convertible Top Replacement Co., 

 (1964) (quoting Livesay Window C o . v . Livesay Indus., Inc.,

 (5th Cir. 1958)).



     The Patent Act establishes a “reasonable royalty” as the

minimum level of legally adequate damages to compensate for

infringement.   See King Instruments Corp. v . Perego, 

 4 1 ,

947 n.2 (Fed. Cir. 1995) (citing Rite-Hite Corp. v . Kelley Co.,

 (Fed. Cir. 1995) (en banc)).    In other words, “the

purpose of [the reasonable royalty] alternative is not to direct

the form of compensation, but to set a floor below which damage

awards may not fall.”   Rite-Hite, 

 (citing Del Mar

Avionics, Inc. v . Quinton Instr. Co., 

 (Fed.

Cir. 1987)).    In the event that damages in the amount of a

reasonable royalty are inadequate to compensate for infringement,

the court may award other damages, such as lost profits.



     In addition, “the court may increase the damages up to three

times the amount found or assessed.”    

. Finally,

“the patent owner [Esab] bears the burden of proving by a

preponderance of the evidence the quantum of damages, [which is]



                                 22
an issue of fact. . . .”    Transclean Corp. v . Bridgewood Servs.

Inc., 

 (Fed. Cir. 2002) (citing SmithCline

Diagnostics, Inc. v . Helena Labs. Corp., 

(Fed. Cir. 1991)).



I.   Lost Profits

     Esab argues that adequate compensation for Centricut’s

infringement consists of profits lost through: (1) Centricut’s

sale of infringing electrodes;7 (2) erosion of the price Esab

could charge for its own electrodes, due to infringing

competition from Centricut;8 and (3) Esab’s lost opportunities to

sell nozzles and other torch parts that are typically sold along

with electrodes.9    Centricut contends that the proper measure of


     7
       The parties agree that Centricut sold 152,707 infringing
electrodes between 1997 and 2002. However, while Esab asserts
that it lost profits of $1,817,672 on those sales, Centricut
contends that under a reasonable royalty calculation, Esab’s
damages amount to only $221,425.15.
     8
      Esab claims losses of $903,343 resulting from price
erosion.
     9
       Esab claims $1,086,440 in lost profits from nozzle sales
it allegedly did not make as a result of Centricut’s sales of
infringing electrodes, and $1,559,588 in profits lost from other
torch-part sales it would have made if not for Centricut’s
infringement. According to Centricut, if damages are awarded for
Esab’s lost profits from sales of nozzles and other torch parts,
those damages should also be based on a reasonable royalty, and

                                  23
damages is a reasonable royalty, and that a reasonable royalty

rate is ten percent of the price Centricut charged its customers

for the infringing electrodes, because that is the rate Centricut

pays Esab under two current licenses, one for a nitrogen

electrode and one for a nitrogen nozzle. Centricut further

argues that if damages are awarded for lost sales of nozzles and

other torch parts, the ten-percent royalty rate should also

apply.



     The Patent Act directs the court to award damages adequate

to compensate for infringement, without specifying any particular

form of compensation.   See Rite-Hite, 

. Wide

latitude is granted in determining damages. See 

;

State Indus., Inc. v . Mor-Flo Indus., Inc., 

, 1576-

77 (Fed. Cir. 1989) (“Deciding how much to award as damages is

not an exact science, and the methodology of assessing and

computing damages is committed to the sound discretion of the

district court.”) (citation omitted). 10


amount to $219,826 for nozzle sales and $155,956 for sales of
other torch parts.
     10
       This point is underscored by the various ways in which
courts have dealt with the availability of damages based upon the
sale of unpatented items that are closely associated with

                                 24
    Damage awards for lost profits are governed by the following

rule:


         To recover lost profits damages for patent
    infringement, the patent owner must show that it would
    have received the additional profits “but for” the
    infringement. The patent owner bears the burden to
    present evidence sufficient to show a reasonable
    probability that it would have made the asserted
    profits absent infringement. See, e.g., Del Mar
    Avionics, Inc. v . Quinton Instr. Co., 

 (Fed. Cir. 1987).



patented devices. Such damages have been allowed both in
reasonable-royalty cases, see Ga.-Pac. Corp. v . U.S. Plywood
Corp., 

 (S.D.N.Y. 1970) (listing, as a
factor relevant to determining a reasonable royalty, “[t]he
effect of selling the patented specialty in promoting sales of
other products of the licensee; the existing value of the
invention to the licensor as a generator of sales of his nonpatented items; and the extent of such derivative or convoyed
sales”), and in lost profits cases, see Kalman v . Berlyn Corp.,

 (Fed. Cir. 1990) (affirming award of damages
based upon profits lost on sales of unpatented filter screens
that were usually sold along with the device disclosed in the
patent in suit). Similarly,

         [w]hen a patentee seeks damages on unpatented
    components sold with a patented apparatus, courts have
    applied a formulation known as the “entire market value
    rule” to determine whether such components should be
    included in the damage computation, whether for
    reasonable royalty purposes, see Leesona Corp. v .
    United States, 

 5 8 , 974 (Ct. C l . 1979), or for
    lost profits purposes, see Paper Converting Machine C o .
    v. Magna-Graphics Corp., 

 1 , 23 (Fed. Cir.
    1984

Rite-Hite, 

 (parallel citations omitted).

                                25
King Instruments, 

 (parallel citations omitted).

Lost profits damages are particularly appropriate in the context

of a two-supplier market. See Shockley v . Arcan, Inc., 

 (Fed. Cir. 2001) (citing Lam, Inc. v . Johns-Manville

Corp., 

 (Fed. Cir. 1983)); see also State

Indus., 

 (“In the two-supplier market, it is

reasonable to assume, provided the patent owner has the

manufacturing and marketing capabilities, that it would have made

the infringer’s sales.”) (citation omitted).   Moreover, when

awarded, lost profits damages are generally subject to the

following test, under which the patentee must establish:


     (1) demand for the patented product; (2) absence of
     acceptable non-infringing substitutes; (3)
     manufacturing and marketing capability to exploit the
     demand; and (4) the amount of the profit it would have
     made.


Rite-Hite, 

 (citing Panduit Corp. v . Stahlin Bros.

Fibre Works, Inc., 

 (6th Cir. 1978)).



     Here, Esab has failed to establish the second element of the

Panduit test. Specifically, Centricut’s Silverline electrode

appears to be an “acceptable non-infringing substitute[]” for



                                26
Esab’s patented electrode. 

    While Esab offered testimony

that customers seeking long-life oxygen electrodes were unlikely

to purchase Centricut’s Silverline electrodes, because they look

different from both Esab’s patented electrodes and Centricut’s

infringing electrodes, the fact remains that the Silverline

electrode was available in the market and could well have been

purchased, instead of Esab’s electrodes, had the infringing

electrodes not been available for sale. In sum, Esab has failed

to prove by a preponderance of the evidence that at the time of

Centricut’s infringement, there was an absence of acceptable non-

infringing substitutes in the market. Accordingly, Esab is not

entitled to lost profits damages, under the test set out in

Panduit.



    Even though Esab is not entitled to lost profits damages, it

is entitled to damages adequate to compensate for Centricut’s

infringement.   Because each of the three categories of damages

claimed by Esab could, conceivably, factor into the calculation

of a reasonable royalty, each category of damages is considered

in turn.




                                 27
     A.   Centricut’s Sales of Infringing Electrodes

     As noted, the parties agree upon the number of infringing

electrodes Centricut sold; the only question is the amount of

damages to award for each sale. Centricut argues for a ten-

percent royalty (which works out to $1.45 per electrode), while

Esab contends that it should be awarded the same rate of profit

it earned on the electrodes it sold itself (which works out to

approximately $11.90 per electrode).   Neither approach is quite

right.



     Centricut’s position – that a reasonable royalty is ten

percent of the price it charged its customers for the infringing

electrodes – is not well supported in the record.   Esab granted

Centricut licenses to manufacture and/or sell nitrogen electrodes

and nozzles in exchange for a ten-percent royalty, but those

license agreements are not the best measure of damage resulting

from Centricut’s manufacture and sale of the oxygen electrodes at

issue here. The record demonstrates that Esab allows several

after-market suppliers to sell its oxygen electrodes.11   Because

     11
       Esab began selling its oxygen electrodes to American
Torch Tip (“ATT”) under an agreement that resulted from Esab’s
discovery that ATT had been attempting to market an allegedly
infringing electrode. Under that agreement, ATT stopped

                                28
those electrodes are identical to those at issue in this case,

the royalty Esab negotiated with its licensees provides a more

reasonable measure of Esab’s damages than the royalty rate

specified in the nitrogen electrode licensing agreements between

Centricut and Esab.12   Accordingly, the court rejects Centricut’s

argument that a ten-percent royalty is adequate to compensate

Esab.



     While a ten-percent royalty would undercompensate Esab,

Esab’s calculation of lost profits damages would lead to

overcompensation.   Specifically, Esab’s calculation fails to

account for the availability of the Silverline electrode in the

market and the likelihood that at least some customers would have



manufacturing the challenged electrode, and now buys Esab
electrodes for resale, paying Esab $10.50 per electrode. In
contrast, Zap Plasmatherm/Thermacut (“ZP/T”), which also resells
Esab’s oxygen electrodes, initially approached Esab with a
request to purchase unbranded Esab electrodes for resale to its
customers. ZP/T buys Esab electrodes for $12 each.
     12
       In one of the leading cases on patent infringement
damages, the court compiled “[a] comprehensive list of
evidentiary facts relevant, in general, to the determination of
the amount of a reasonable royalty for a patent license.”
Georgia-Pacific, 

. The first item on that
list is “[t]he royalties received by the patentee for the
licensing of the patent in suit, proving or tending to prove an
established royalty.” 

 (emphasis added).

                                 29
purchased Silverline electrodes rather than Esab electrodes in

the absence of the infringing electrodes. Thus, adequate

compensation for Centricut’s sales of the infringing electrodes

falls somewhere between the ten-percent royalty Centricut

advocates and the lost profits calculation advanced by Esab.



     An award of $10.50 per infringing electrode, less the cost

of manufacture, will provide Esab with full and fair compensation

for Centricut’s sales of infringing electrodes. Esab agreed,

after arm’s-length negotiations, to accept $10.50 for each

electrode it sold to American Torch Tip which, like Centricut, is

an after-market supplier of torch parts.13   However, because Esab

incurred the cost of manufacturing the electrodes it sold to ATT,

but did not incur the cost of manufacturing the infringing

electrodes, Esab is not entitled to a full $10.50 for each

infringing electrode Centricut sold.   Rather, the royalty must be

     13
       The $10.50 royalty Esab received from ATT, rather than
the $12 royalty Esab received from ZP/T, is the better measure of
damages because Esab gave ATT a lower royalty rate than ZP/T due
to ATT’s larger volume of sales. On this record, the number of
infringing electrodes Centricut sold is greater than the number
Esab electrodes ATT sold. Moreover, while the record does not
establish how many more Silverline electrodes Centricut would
have sold if it had not sold the infringing electrodes, using the
lower royalty rate provides some measure of correction for the
Silverline factor.

                                30
reduced by Esab’s manufacturing costs. Accordingly, as a result

of Centricut’s sales of infringing electrodes, Esab is entitled

to damages in the amount of $1,096,532.24, which represents

$10.50 for each of the 152,707 infringing electrodes, for a total

of $1,603,423.24, less $506,891.26 in manufacturing costs.



     B.   Price Erosion

     With regard to price-erosion damages, the failure to obtain

lost profits damages undermines Esab’s price-erosion claim.

Indeed, such damages generally have been regarded as a category

of lost profits. See, e.g., Vulcan Eng’g C o . v . FATA Alum.,

Inc., 

 (Fed. Cir. 2002); Lam, 

(“Lost profits may be in the form of diverted sales, eroded

prices, or increased expenses.”).     As a logical matter, it is

difficult to see how downward price pressure on a licensor’s

patented invention could possibly increase a reasonable royalty,

when that term is defined as “the amount that ‘a person, desiring

to manufacture [, use, or] sell a patented article, as a business

proposition, would be willing to pay as a royalty and yet be able

to make [, use, or] sell the patented article, in the market, at

a reasonable profit.’”    Trans-World Mfg. Corp. v . Al Hyman &



                                 31
Sons, Inc., 

 (Fed. Cir. 1984) (quoting

Goodyear Tire & Rubber C o . v . Overman Cushion Tire Co., 

 (6th Cir. 1938); citing Panduit, 

).



     But even assuming price-erosion damages to be available in

this case, Esab has failed to prove that it is entitled to such

damages.   Esab’s evidence of price erosion is simply too

speculative; the record contains evidence of any number of

factors other than Centricut’s improper competition – such as

national economic trends and steel tariffs – that may well have

contributed to erosion of the prices Esab was able to charge for

its electrodes. Absent testimony from an economics expert, the

court simply cannot find, by a preponderance of the evidence,

that Centricut’s infringement eroded the price that Esab was able

to charge for its electrodes. Accordingly, the court declines to

award damages based upon price erosion.



     C.    Lost Sales of Nozzles and other Torch Parts

     The evidence of lost nozzle sales is solid enough to support

an award of damages, but the evidence pertaining to lost sales of

other torch parts is too speculative. As noted above, in



                                 32
footnote 1 0 , lost sales of unpatented components, accessories, or

other items typically sold with patented devices may be

considered in the calculation of either lost profits or a

reasonable royalty.   Thus, absence of a lost profits damage award

creates no obstacle to Esab’s recovery of damages based upon lost

sales of unpatented torch parts.



     There are two situations in which patent infringement

damages may include a patent owner’s lost sales of items other

than the patented device. First, under the “entire market value

rule,” which does not apply here, patent infringement damages may

be based upon the value of an entire device, containing both

patented and unpatented components, when “the unpatented and

patented components together were considered to be components of

a single assembly or parts of a complete machine, or they

together constituted a functional unit,” Rite-Hite, 

 (citing Velo-Bind, Inc. v . Minn. Mining & Mfg. Co., 

 (9th Cir. 1981)), and when “the patent-related feature is the

‘basis for customer demand,’” Rite-Hite, 

 (quoting

State Indus., 

; citing TWM Mfg. C o . v . Dura

Corp., 

 (Fed. Cir. 1986)).



                                 33
     Second, when an unpatented device is routinely “bundled” for

“convoyed sales” along with a patented device, the scope of

damages may include lost sales of the unpatented devices. See

Interactive Pictures Corp. v . Infinite Pictures, Inc., 

 (Fed. Cir. 2001) (upholding jury award which “rel[ied]

on evidence of bundling and convoyed sales in determining the

proper scope of the royalty base”) (citing Deere & C o . v . Int’l

Harvester Co., 

 (Fed. Cir. 1983)).    As the

court in Interactive Pictures noted, “[t]he ‘extent of . . .

derivative or convoyed sales’ is one of the often-cited Georgia-

Pacific factors relevant to determination of a reasonable royalty

rate.”   

 (quoting Georgia-Pacific, 

).



     In Trans-World Manufacturing, 

, the

defendant infringed the plaintiff’s patent on a rack used to

display eyeglasses. The district court excluded, as irrelevant

to the determination of a reasonable royalty, “evidence of

[defendant’s] profits from the sale of [unpatented] displayed

eyeglasses.”   

   The court of appeals reversed that ruling,

reasoning:



                                 34
           By supplying the patented racks for displaying the
      eyeglasses, [defendant] Hyman used “the patented
      [invention] in promoting sales of” the nonpatented
      eyeglasses. [Plaintiff] Trans-World may be able to
      prove that Hyman’s infringing use of the displays
      played an important part in the retail sales of Hyman’s
      eyeglasses. Furthermore, the extent of the profits
      from such sales could be relevant in determining the
      amount of a reasonable royalty. I f , for example, sales
      were increased because of the infringing use of the
      displays, that fact could affect the amount of
      royalties a potential licensee would be willing to pay.

   In Kalman, 

, the defendant infringed the

plaintiff’s patent for a filtering device, and the court of

appeals affirmed an award of lost profits damages, 

 at 1484-

8 5 , including “lost profits for the sale of unpatented screens

and accessories for the [patented] Autoscreen device, in addition

to those lost profits attributable to the Autoscreen body

itself,” 

 (citation omitted).   The court of appeals

noted that “[a]t trial, [plaintiff] D r . Kalman testified that the

screens were usually sold with the Autoscreens.”    

.

Similar reasoning was adopted by the district court in Andrew

Corp. v . Gabriel Electronics, Inc., 

 (D. M e .

1992).   In that case, the court ruled that plaintiff’s net

profits from sales of accessory items normally sold along with

the patented horn reflector antenna were an appropriate component


                                 35
of the plaintiff’s damages for patent infringement.       

 at 1051

(citing Paper Converting Mach. Co., 745 F.2d at 2 3 ) .



     Here, Esab offered unchallenged evidence that electrodes and

nozzles wear out at approximately the same rate. Thus, both

those parts of a plasma arc torch typically need to be replaced

at about the same time. The preponderance of the evidence

supports a finding that torch operators typically prefer to

purchase replacement electrodes and nozzles from the same source,

at the same time. Therefore, Esab has proven that purchases of

electrodes and nozzles tend to be bundled together or “convoyed.”

In other words, Esab has proven that Centricut’s sales of

infringing electrodes deprived Esab of both electrode sales and

nozzle sales. Thus, for Esab to obtain damages adequate to

compensate for Centricut’s infringement, the damage award must

include compensation for Esab’s lost nozzle sales. The court is

persuaded by Esab’s proffered estimates, which do not claim that

each Centricut electrode sale represented a nozzle sale lost to

Esab, but, instead, factor in the availability of Esab electrodes

from American Torch tip and Zap Plasmatherm/Thermacut.      Esab is




                                 36
entitled to damages in the amount of $1,086,440 for lost nozzle

sales.



      However, Esab has not proven by a preponderance of the

evidence that it would have sold retaining caps, swirl baffles,

torch bodies, or other torch parts but for Centricut’s

infringement.   By Esab’s own concession, those parts wear out

much more slowly than either nozzles or electrodes.    Because

those parts wear out at substantially different rates than do

electrodes, it is far less likely that purchases of those parts

are typically bundled with purchases of electrodes.    Thus,

damages based upon lost sales of torch parts other than nozzles

are far too speculative, and the court declines to award them.



II.   Increased Damages for Willful Infringement

      Esab contends that Centricut’s infringement of the ’425

patent was willful, and that Centricut’s willful infringement

provides the basis for an award of enhanced damages.    Centricut

counters that the record fails to support a finding of willful

infringement.   The court agrees.




                                37
     When exercising its statutory discretion to award enhanced

damages for patent infringement, the court may consider:


     (1) deliberate copying; (2) infringer’s investigation
     and good-faith belief of invalidity or noninfringement; (3) litigation conduct; (4) infringer’s
     size and financial condition; (5) closeness of the
     case; (6) duration of the misconduct; (7) remedial
     action by the infringer; (8) infringer’s motivation for
     harm; and (9) concealment.


Transclean, 

-78 (citing Read Corp. v . Portec,

Inc., 

 (Fed. Cir. 1992).     “A finding of willful

infringement ‘authorizes but does not mandate an award [of]

increased damages.’”    Transclean, 

 (quoting

Modine Mfg. C o . v . Allen Group, Inc., 

 3 8 , 543 (Fed.

Cir. 1990)).   In turn,


          [w]illful infringement is a question of fact,
     American Med. Sys. [v. Med. Eng’g Corp.] 6 F.3d [1523,
     1530-31 [(Fed. Cir. 1993)], and must be established by
     clear and convincing evidence, for “the boundary
     between unintentional and culpable acts is not always
     bright.” Pall Corp. v . Micron Separations, Inc., 

 (Fed. Cir. 1995).


SRI Int’l, Inc. v . Advanced Tech. Labs., Inc., 

 (Fed. Cir. 1997) (parallel citations omitted).




                                  38
    Esab has failed to prove willful infringement by clear and

convincing evidence. Centricut’s “short-sleeve” design, while

infringing, plainly demonstrates a good-faith effort to design

around the sleeve limitation of the ’425 patent. Second, Esab’s

own inability to provide direct evidence of the work function of

Centricut’s sleeve material must also count as evidence of both

the difficulty Centricut faced in selecting materials from which

to manufacture a non-infringing electrode and the strong

possibility of failing to do so while nonetheless acting in good

faith.   Finally, while the legal opinions that Centricut obtained

proved incorrect, Centricut suspended production of the

infringing electrodes until it had legal advice in hand.    That

advice was apparently procured in good faith, and gave Centricut

a reasonable basis for believing that it had successfully

designed around the ’425 patent. See 

. Because

Esab has not provided clear and convincing evidence of willful

infringement, and has not made a sufficient case under any of the

other Read factors, an award of enhanced damages is not

warranted.




                                39
                             Conclusion

       For the reasons given above, Centricut is liable for

infringing Claim 1 of the ’425 patent, and Esab is entitled to

damages in the total amount of $2,182,972.24. The Clerk of Court

shall enter judgment in accordance with this order and close the

case.



       The foregoing order shall constitute the findings of fact

and conclusions of law required by Rule 52 of the Federal Rules

of Civil Procedure. The court notes that the parties have

submitted numerous requests for findings of fact and rulings of

law.    It is well settled, however, that the court “does not have

to make findings on every proposition put to it by the parties.”

Applewood Landscape & Nursery C o . v . Hollingsworth, 

 (1st Cir. 1989) (quoting Morgan v . Kerrigan, 

, 588 n.14 (1st Cir. 1974)).    Rather, factual findings are

adequate if “sufficient to indicate the factual basis for the

ultimate conclusion.”   Kelley v . Everglades Drainage Dist., 

 (1943) (per curium).     If either party believes that

additional findings of fact or rulings of law are necessary, or

even would prove helpful, it may, within fifteen days of the date



                                  40
of this order, submit a written request for additional findings

or rulings, along with a short (but fully explanatory) statement

of why each requested finding or ruling is necessary or would be

helpful.   All requests for findings of fact or rulings of law not

expressly or implicitly granted in the body of this opinion are

hereby denied.



      SO ORDERED.




                              Steven J. McAuliffe
                              United States District Judge

July 9, 2003

cc:   Edward A . Haffer, Esq.
      Michael J. Bujold, Esq.
      Neal E . Friedman, Esq.
      John R. Hughes, Jr., Esq.
      Blas P. Arroyo, Esq.




                                  41