The subject of this controversy is the measure of petitioners' liability for damages and profits under a decree for an accounting by infringers of a patent.
Respondent, complainant below, is the owner of a patent, No. 1,182,739, for the making of laminated glass, which will crack, but not shat er. The product is better known as 'safety' or 'shatterproof' glass, and is used very largely in the making of automobiles. In the process of manufacture, a sheet of pyralin or celluloid is sandwiched between two thin sheets of plate glass, each one-eighth of an inch thick, the pyralin being cemented to the opposite glass sheets by a film of gelatin. The heat and pressure necessary to induce adhesion are applied to the 'sandwiches' in a receptacle known as an autoclave, a steel boiler of large size. At the end of the process, the glass and the pyralin are firmly joined together with the appearance of a single sheet. For users of motorcars the risk of injury from flying glass is greatly reduced, if not removed altogether.
Complainant had a decree against the Duplate Corporation, one of the petitioners here, for an infringement of this patent. (D.C.) 42 F.(2d) 737; (C.C.A.) 42 F.(2d) 739. Later a supplemental decree was entered against the other petitioner, Pittsburgh Plate Glass Company, the owner of 50 per cent. of the stock of Duplate. Puttsburgh was a contributory infringer, supplying Duplate, its subsidiary, with the glass, which was then wrought into the finished product. An accounting followed before a master. The defendants satisfied the master that they were not conscious or deliberate infringers. The finding by the master in that regard was approved by the District Court and later by the Court of Appeals. It will be accepted as a datum here. The account is to be stated on the assumption that the defendants, though infringers, have acted in good faith. Cf. R.S. §§ 4919, 4921; 35 U.S.C. §§ 67, 70, 35 U.S.C.A. §§ 67, 70; L. P. Larson, Jr., Co. v. Wm. Wrigley, Jr., Co., 277 U.S. 97, 48 S.Ct. 449, 72 L.Ed. 800.
The controversy as to the measure of liability divides itself into two branches, one concerned with the defendants' profits, the other with the complainant's damages. In reckoning the profits, the master made allowance to the defendants for the cost of labor and material wasted without fault in the manufacturing process. This amounted to $1,192,264.32 ($435,207.52 for loss of glass; $219,036.93 for loss of pyralin; $538,019.87 for loss of labor and material other than glass or pyralin). The master made allowance also for the cost of labor and material that entered into merchandise returned by the defendants' customers for defects afterwards discovered. This amounted to $504,137.45. He refused to make allowance for more than the manufacturing cost of the material bought by one defendant from the other, but did allow the saving effected by the use of patented devices. He found himself unable to ascertain the specific costs of operation to be attributed to sales that had been made at known prices, and refused in stating the account to compare specific prices with average costs of operation, and fix the liability accordingly. Instead, he treated the business as one continuous infringement, a unitary transaction, comparing average costs with average prices. Through this method of computation he arrived at the conclusion that during the period covered by the accounting the defendants had operated at a net loss of $276,857.47 in the sale of the infringing product. That being so, there was nothing owing on the score of profits.
'In patent nomenclature what the infringer makes is 'profits,' what the owner of the patent loses by such infringement is 'damages." Diamond Stone-Sawing Machine Co. v. Brown (C.C.A.) 166 F. 306. The master found the evidence insufficient to show the extent of the sales that the complaint could have made if the defendants had not infringed, or what the sales would have netted even if they had been made. He did find, however, that the effect of the infringement had been to drive the complainant out of business, and that a few sales which had been made were at greatly reduced prices, with a loss of $2,807.89 as a result of the enforced reduction. The diverted sales, if any, nad their value being not susceptible of proof, the master held that general damages should be awarded on the basis of a reasonable royalty to be paid by the defendants upon their sales of the infringing product, whether gainful or the opposite. Cf. McKee Glass Co. v. H. C. Fry Glass Co. (C.C.A.) 248 F. 125, 129. This royalty was ascertained to be $414,120.70. Nothing was said by the master as to an award of interest.