Schwendimann v. Arkwright Advanced Coating, Inc.

Background

Jodi A. Schwendimann sued Arkwright Advanced Coating, Inc. (AACI) for infringing five patents concerning dark T-shirt transfer technology. AACI brought counterclaims alleging that Schwendimann and Cooler Concepts, Inc. infringed two AACI patents.

The jury found that AACI directly infringed at least one claim of one or more of Schwendimann’s patents and awarded Schwendimann $2,624,228 in damages. It also found that AACI’s infringement was willful. On AACI’s counterclaims, the jury found that Claims 1 and 11 of AACI’s ’093 Patent were invalid, and that neither Schwendimann nor Cooler Concepts directly infringed AACI’s ’214 Patent or actively induced NuCoat or Cooler Concepts to infringe that patent.

Before the jury decided damages, the court granted AACI judgment as a matter of law on Schwendimann’s lost-profits theory because she had not provided enough evidence about acceptable, noninfringing alternatives. A judgment as a matter of law is a ruling that the evidence legally cannot support a party’s position. The court allowed the damages issue to proceed on a reasonable-royalty theory.

Lost-Profits Motion

Schwendimann moved for a new trial on lost profits. The court denied the motion. To recover lost profits, a patent owner must show a reasonable probability that it would have earned the claimed profits without the infringement. The court applied the four-part test commonly used for this question: demand for the patented product, no acceptable noninfringing alternatives, the ability to make and sell the product, and the amount of profit that would have been earned.

The court held that Schwendimann did not prove the absence of acceptable, noninfringing alternatives. The evidence showed that the market included numerous competitors, including Neenah, Iya, Chemica, Siser, Stahls, One Step, Forever GmbH, Upsilon Enterprises, and Chinese manufacturers. Schwendimann did not establish which competitors’ products infringed, which products were unacceptable alternatives, or what market share those competitors held. Her damages expert also did not adequately reconstruct the market or account for the untested Neenah product and other identified competitors.

AACI’s Damages Motion

AACI moved to alter or amend the damages judgment, or alternatively for a new trial or remittitur. Remittitur is a reduction of a jury’s damages award. The court denied the motion.

The court held that Schwendimann had not expressly given up her right to a reasonable royalty merely because her expert focused on lost profits. The pleadings, trial presentations, jury instructions, and closing arguments showed that a reasonable royalty remained part of the case.

The court also held that sufficient evidence supported the $2,624,228 award as a reasonable royalty. The evidence included the parties’ direct competition, the advantages of Schwendimann’s one-step transfer product over older two-step products, the sales and profitability of AACI’s products, and the factors used to evaluate a hypothetical patent license. The court explained that the jury was not required to adopt either expert’s proposed figure and could reach a different royalty rate based on the entire record.

The court rejected AACI’s arguments that the jury needed an additional instruction about the lost-profits ruling and that the testimony of Donald Gorowsky should have been excluded. The damages instructions addressed reasonable royalty damages, AACI told the jury that lost profits were unavailable, and Gorowsky’s testimony remained relevant to some reasonable-royalty factors. The court therefore denied AACI’s request for a new trial and denied its request for remittitur.

Enhanced Damages and Willfulness

Schwendimann moved for enhanced damages based on the jury’s finding of willful infringement. Enhanced damages are additional damages that a court may award for especially egregious infringement. The court denied the motion.

After considering the circumstances, the court found that the case was not an egregious case warranting enhanced damages. The court found Schwendimann’s evidence of copying speculative, noted that AACI’s technical team investigated infringement and concluded that its products did not infringe, and found that both parties engaged in excessive motion practice and misleading or frivolous arguments. The court also considered AACI’s financial difficulties, the closeness of the case, the lack of evidence that AACI was motivated to harm Schwendimann or tried to conceal infringement, and AACI’s cessation of sales. Although the length of infringement and lack of remedial action weighed somewhat in favor of enhancement, the court found those considerations insufficient overall.

Because the court declined to award enhanced damages, it denied as moot AACI’s renewed motion for judgment as a matter of law or, alternatively, a new trial on willful infringement. A motion is moot when the court’s ruling means that deciding it would not affect the result.

Interest

The court granted Schwendimann’s motion to amend the judgment to include interest. It awarded $1,915,328 in prejudgment interest, calculated at the Minnesota statutory rate from July 6, 2010, through October 23, 2017. The court rejected AACI’s proposed 1.42 percent Treasury rate and held that the settlement-offer provision did not apply because the asserted offer was not written.

The court also awarded post-judgment interest at a simple rate of 1.42 percent beginning October 23, 2017, and continuing until the judgment is satisfied. The amended judgment therefore included the $2,624,228 damages award, the $1,915,328 prejudgment-interest award, and the post-judgment interest.

Permanent Injunction

Schwendimann moved for a permanent injunction. The court granted the motion but modified the requested injunction because it was overbroad.

The court found irreparable injury based on the parties’ direct competition, Schwendimann’s lost market share, and substantial doubt that AACI could satisfy later judgments if infringement continued. It found that money alone would not adequately remedy possible future loss of market share, customers, and pricing power. The balance of hardships favored Schwendimann because AACI had stopped making and selling the relevant products, sold the necessary machinery, and stated that it had no imminent plan to reenter the market. The court also found that the injunction would not harm the public interest.

The final injunction prohibited AACI and persons acting in active concert or participation with AACI from making, using, offering to sell, selling within the United States, or importing into the United States AACI’s 888 and 889 products and all substantially similar products, through September 9, 2019. The court did not issue the broader proposed injunction covering any products covered by Schwendimann’s patents.

Order

Judge Tunheim ordered the following:

- Schwendimann’s motion for a new trial on lost-profit damages was denied. - AACI’s motion to alter or amend the damages judgment, or alternatively for a new trial or remittitur, was denied. - Schwendimann’s motion to add enhanced damages was denied. - AACI’s renewed motion for judgment as a matter of law or alternatively a new trial on willful infringement was denied as moot. - Schwendimann’s motion to add prejudgment and post-judgment interest was granted. - Schwendimann’s motion for a permanent injunction was granted, with the narrower scope stated in the order.

The opinion contains an internal discrepancy: the jury verdict and final order identify the damages as $2,624,228, while some discussion refers to $2,624,288. This summary follows the amount stated in the final order.