GENERAL MOTORS CORP. v. DEVEX CORP.
Legal provision: 35 U.S.C. 284
ORAL ARGUMENT OF GEORGE E. FROST, ESQ., ON BEHALF OF THE PETITIONER
Chief Justice Burger: We will hear arguments next in General Motors against Devex Corporation.
Mr. Frost, you may proceed when you are ready.
Mr. Frost: Mr. Chief Justice, and may it please the Court, this is a patent infringement case.
The patent is to a process of making bumpers and other products by cold forming.
The issue is whether the court below properly awarded prejudgment interest.
The case was filed in the Northern District of Illinois in--
Unidentified Justice: There isn't much left of the patent issue, is there?
Mr. Frost: --No, there isn't, Your Honor.
The patent expired more than a decade ago.
The case was filed in 1956 in the Northern District of Illinois.
Twenty-four years later, and after a number of conflicting decisions on both validity and the patent scope, the District Court of Delaware entered judgment on the accounting.
It assessed prejudgment interests of about $11 million against General Motors.
Interest was charged at the commercial bond rates from the dates the infringement was held to have occurred.
The specific question presented on certiorari here is whether the applicable statute, 35 USC 284, requires the award of prejudgment interest on unliquidated damages based on reasonable royalties, where there is a finding that the defendant acted in good faith and not recklessly.
Unidentified Justice: Is the question whether it requires it or whether it permits it, or are they the same thing?
Mr. Frost: No.
If the Court please, the first question here is whether it requires it.
We think the court of appeals held that interest was mandatory.
Then we go on to the question of whether the Duplate versus Triplex case is still the law, and finally, to the influence of the Georgia Pacific case, which I will mention in a few moments.
The statute provides that in patent cases, the Court shall award damages adequate to compensate for infringement, but no event less than a reasonable royalty, together with interest and costs as fixed by the court.
It is the direct successor to the 1946 Patent Act.
The Act provided for interest in similar language... the 1946 Act provided for interest in similar language, and it was the first reference to interest in the patent statutes.
The key factor in this case is that the initial form of the 1946 Act explicitly required the award of prejudgment interest.
As proposed, the court would be required to award damages which shall be due compensation for infringement, but not less than a reasonable royalty, together with interest from the time the infringement occurred.
It was in that form that the statute actually passed the House of Representatives, but in the Senate, this language was rejected.
The Senate struck the reference to interest from the time the infringement occurred.
In its place, the Senate substituted the expression,
"interest as may be fixed by the court. "
and it was in this amended form that the Act was passed by both Houses of Congress and signed by the President.
Unidentified Justice: Was that the only change that--
Mr. Frost: There are other changes unrelated to this particular item, dealing with attorney fees and things of that kind.
Yes, there are a few other changes.
Unidentified Justice: --Was that sentence otherwise changed?
Mr. Frost: Only in connection with the format of the attorneys' fees, yes, but it was not... it didn't have anything to do with the prejudgment interest part of the language.
I have got it here.
I could run through it quickly, but it--
Unidentified Justice: No, you take your own course.
Tell me, Mr. Frost, before 1946, were costs allowed as a matter of course?
Mr. Frost: --Yes, they were, Your Honor.
In accordance with the general way that they are in all cases.
Unidentified Justice: After the '46 amendment, what?
Are they allowed?
Mr. Frost: Same.
Unidentified Justice: Are they allowed as a matter of course?
Mr. Frost: Yes.
Unidentified Justice: Notwithstanding it says
"interest and costs as fixed by the court. "
Mr. Frost: Yes.
Unidentified Justice: And that is allowed as a matter of course.
Mr. Frost: Yes, they are allowed as a matter of course, and I might say, Your Honor--
Unidentified Justice: I just wonder why interest is in the same category.
Mr. Frost: --Because there is a settled rule before the Act on both costs and interests, and they are together because as to that phase of the Act, it preserved the existing law.
Unidentified Justice: What was the law as to interest?
Mr. Frost: The law as to interest was this Court's Duplate versus Triplex case, which required exceptional circumstances, meaning bad faith conduct of the defendant.
Coming over to attorneys' fees, the provision on attorneys' fees was a new provision in the Act, and the way the Act is set up, it is very clear that that is expressly stated to be discretionary, unlike the case of interests and costs which in each instance there was a settled rule, and the construction of the Act indicates that it was the intent of Congress that that rule be followed.
Now, coming to the 1952 Patent Code, it did codify the patent law, and Section 254 of the Code replaced the law on recoveries previously covered by the 1946 Act.
The language closely follows the 1946 Act.
The revisor notes on the Code point out that the Code only made some changes in language at that point, and plaintiffs here concede that Section 284 was not intended to change the applicable provisions of the 1946 Act.
The error of the court below commenced with its misapplication of the dictum of the ruling of this Court in Aro versus Convertible Top, 377 US.
In that case, four Justices of this Court examined the basis for recoveries for patent infringement under 35 USC 284.
The issue of concern was whether the profits of the infringer or damages to the patentee are the measure of recovery.
In explaining the effect of the 1946 Act, they quoted the House report on the bill that became the 1946 Act.
At the time the House report was made, the bill included the later rejected interest language.
The portion of the report quoted in the opinion included this then existing language on interest.
The inclusion of this language did not relate to any issue being considered by this Court.
There is no issue in the case on prejudgment interest.
The courts of appeal for the Sixth, Second, and Seventh Circuits have specifically held that the quotation in the Aro case is not controlling, and that the statute does not compel prejudgment interest.
The court below stands alone in holding that the Aro quotation controls and in relying upon it to compel interest in a reasonable royalty case, notwithstanding the history of the statute.
To be sure, the Court added to its reference to Aro by seeking to justify the award of prejudgment interest because the defendant had the use of the royalty money in the time between the dates that infringement was held to take place and the time of judgment.
But this is true in every case.
There is always a span of time between the date of an infringement and the date of a judgment awarding damages.
If interest is allowable in this case, for this reason, it is allowable in every case.
In short, this reason only adds to the basic error of misapplying the dictum in the Aro case instead of looking to the Act as passed.
The judgment should be reversed, because the decision below is based on a mandatory interest requirement that Congress rejected and is clearly contrary to the statute.
Now, the history of the 1946 Act also answers other questions in this case.
Devex contends that the term 35 USC 284 requires prejudgment interest.
But the 1946 Act as it was passed by the House and reached the Senate provided for due compensation, not less than a reasonably royalty, using that very term, and the statute or post statute at that time also used explicitly required interest from the time infringement occurred.
After the Senate amendments, the reference to due compensation not less than a reasonable royalty remained in the statute, and the words
"interest as may be fixed by the court. "
were substituted for
"interest from the time the infringement occurred. "
Now, whether we take the time before the amendment or after, the term "due compensation" obviously was not used in a sense of requiring interest.
Otherwise, why the explicit reference to interest from the time the infringement occurred before the amendment, and why the reference to the interest as may be fixed by the court after the amendment?
At no point in the history was due compensation treated as if it required interest, and the same is true of damages adequate to compensate as the term is used in 35 USC 284.
Now, the history in the text of the 1946 Patent Act also compels the conclusion that the Act codified the pre-existing decisions on prejudgment interest in patent cases.
Prior to the 1946 Act, this Court had rendered a number of decisions on prejudgment interest in patent cases.
The key decision was Duplate versus Triplex, decided in 1936.
There, as here, there was a reasonable royalty which was the basis upon which the damages were awarded.
This Court, reversing the Court below, held that interest on a judgment for unliquidated reasonable royalty damages begins on the date of liquidation of damages unless exceptional circumstances are found to be present.
Now, there is no indication that the Congress intended to change this existing law on prejudgment interest.
Unidentified Justice: What if the House version had passed?
Mr. Frost: Had the House version passed, there would be no question that Duplate versus Triplex would be changed.
Unidentified Justice: And didn't the Senate report supporting the bill specifically approve the House version?
Mr. Frost: I don't think it did, Your Honor, at all.
It did... What it did do--
Unidentified Justice: It adopted the House report, didn't it?
Mr. Frost: --Well, they rather carelessly quoted it, yes, sir, but I think when you take the whole record--
Unidentified Justice: How careless can you get?
Mr. Frost: Well, this careless, if Your Honor please.
If you look at the front part of that report, it is very, very clear the changes that were made right in that very portion of the statute, and to have... to take the House--
Unidentified Justice: I know, but it was the same... that same report didn't agree with the House version on the attorneys' fees statement, and so they redrafted it.
It is all right.
Mr. Frost: --Yes.
Unidentified Justice: But they certainly didn't change their report with respect to interest.
Mr. Frost: They simply quoted the totality of the House report, and we think that taken in context, Your Honor, that that does not indicate intent otherwise.
Unidentified Justice: Taken in context, I would think you--
Mr. Frost: Now, I might add one thing.
Unidentified Justice: --How can you just ignore it?
Mr. Frost: I am not asking that the Court ignore it, but I do think there is a time to take the context--
Unidentified Justice: You say there is no evidence that they intended to change the Duplate law.
It seems to me both the House and the Senate report clearly indicate some evidence of an attempt to change the law.
Mr. Frost: --Well, let me go on just a second if I may, Your Honor.
The bill came up on the Senate floor, and this is in the appendix to our brief, and Senator Pepper, who was chairman of the Senate committee, was asked to explain the bill, and it is very clear in that.
He explained what the changes were.
One, two, three.
Not saying one word of interest.
Then he is asked, has the Senator explained all the changes made by the bill, meaning, of course, the bill as amended, and he said, yes.
Now, it seems to me that is very clear.
And it is--
Unidentified Justice: Well, Mr. Frost--
Mr. Frost: --Yes?
Unidentified Justice: --Aro sort of accepted what the House report said, did it not?
Mr. Frost: I think that--
Unidentified Justice: Was that inadvertent, too?
Mr. Frost: --I think it was.
Yes, Your Honor.
Unidentified Justice: It was?
Mr. Frost: The... What happened was this.
Unidentified Justice: If it is in line, I made a mistake.
Mr. Frost: No, not at all.
What actually happens is this, Your Honor.
In the Aro case, you are concerned with whether the bill, the 1946 Act changed the rule on recoveries in patent infringement cases, the difference being between damages and... both damages and profits of the infringer.
And in addressing that, Your Honor did just exactly what seems to me the logical thing to do is go to the House report, and on that point the House report was entirely accurate and meaningful, and all that happened--
Unidentified Justice: No different from the later Senate report?
Mr. Frost: --In that respect.
In that respect, no.
Unidentified Justice: And the actual language was,
"together with interest from the time infringement occurred rather than profits and damages. "
Then Aro went on to say,
"There can be no doubt that the amendment succeeded in effectuating this purpose. "
This is way back in 1963, and I confess my memory of what we were thinking about then doesn't help me.
Mr. Frost: Well, I think if Your Honor will check it, you will see that for the purpose it was quoted, that is, the question of damages versus profits to the infringer, and that was the only question in the case, the only reason it was quoted, the quotation was perfectly correct.
Unidentified Justice: Let's assume--
--He could have added... excuse me, Mr. Chief Justice.
He could have... Justice Brennan could... the majority could have added that the... quoted from the House report and said, agreed to by the Senate.
Mr. Frost: Agreed to on the--
Unidentified Justice: Or repeated in the Senate report.
Mr. Frost: --Well, I think repeated in the Senate report is--
Unidentified Justice: Well, it adopted the House--
Mr. Frost: --getting us back to that--
Unidentified Justice: --It adopted the House report.
Mr. Frost: --The Senate report in its first paragraphs states very specifically the changes in the Act, and what you have reference to, Your Honor, is a quotation of the House report in its totality, which is unselective, and it seems to us it has to be taken in the context of the change that was actually made.
Mr. Chief Justice, do you have a question?
Unidentified Justice: Yes.
Assume that we have some ambiguity here.
Assume that for purposes of my question.
Is not this kind of a claim one which is equitable in nature, an equity suit for an accounting?
Is that not in general the nature of the claim?
Mr. Frost: Yes, Your Honor.
Unidentified Justice: Well, then, what are the equities?
Equities rule out interest?
Mr. Frost: I think they do, Your Honor, and let me explain.
Unidentified Justice: Why?
Mr. Frost: In the first place, General Motors' conduct was in good faith, not reckless.
Then it seems to me that we should turn to the question of the conduct of Devex here, and particularly the conduct of Devex insofar as it relates to the delays that took place in this case.
Obviously, we are dealing with a case here that was a protracted case.
And it seems to me that the key point here is, how did the conduct of Devex pertain to that factor?
And in two respect, we think it very clearly was contrary to allowing prejudgment interest.
And the two respects are, first, the venue question.
The case was filed in the Northern District of Illinois, and there was an early hearing on venue.
Devex was fully aware of the facts, and it then sidestepped venue, went through a trial on validity, and then almost ten years later moved to shift the case to Delaware, which motion was successful, was done, but certainly delayed the case.
The second thing that occurred here was the patent claim itself.
The patent claim was broad and sweeping and invalid as literally construed.
This is exactly what Judge Robson held in around 1960, and the court of appeals agreed with that finally, but it did give the claim a narrow and restricted construction.
It rewrote the claim.
The effect of that rewriting of the claim was to make it impossible to know exactly what the claim did cover, with one exception.
In their briefs, the plaintiffs wrote... this is in the court of appeals...
"If defendants want to avoid infringement, all they need to do is leave out the Borax. "
That is the literal language that was in their brief.
Now, the delays that occurred in this case had in great measure dealt with the... resolving the questions of what was left of the patent, what it did cover, and the... one of those issues had to do with leaving out the Borax.
What happens if it is something other than Borax?
And the court of appeals had validated the patent because of special chemical coaction between the Borax and the other ingredients, so that when the court of appeals decision was made, notwithstanding the broad language of the claim, it just made inevitable the decisions that later followed having to do with the scope of the patent.
So, we think that in this case, starting out with the conduct of General Motors, it has been found to be in good faith and not reckless, and there is no such finding for the plaintiffs, and when you measure what the plaintiffs did, it had the effect of extending the case far longer than had to be.
Now, bear in mind that the language of that patent claim was chosen by the plaintiffs, not by GM, and that the issue here is not whether they might in the end win on various issues, but rather, was it the consequence of something they did that prolonged the duration of this case, and we think clearly it was.
Now, I just want to add that with respect to the Duplate rule of this Court, there is plenty of good reasons in favor of the rule as announced by this Court.
Now, the Court did... the Congress did in the Act of course inject itself into the patent... into the patent law, and to that extent it's replaced the Duplate case as such, but we brought it out in their brief.
There are a number of reasons why the Duplate rule is a very good one, the first one being, it puts the heat on the defendant... plaintiff to keep things moving.
It makes the defendant follow reasonable, good faith conduct.
It fits with the public interest in patent cases.
And finally, the distinction between liquidated and unliquidated damages is specifically important in patent cases.
In this case, it was 1980, and we have a master and a district court that could not agree on either what the patent covered or what the reasonable royalty was.
Unless there is some question, I would like to reserve time for rebuttal.
Unidentified Justice: Very well.
Could I... Suppose the statute as passed read as the... was the House version.
Wouldn't it still be possible under that statute to deny interest from the date of the violation, if the equities were sufficiently strong?
Mr. Frost: I have difficulty with that right off.
Unidentified Justice: Do you?
So no discretion whatsoever in... interest?
Mr. Frost: That's... Yes, Your Honor.
That's as I read it.
There are areas in this where the equity comes in.
The junction, for example.
And things of that kind.
Unidentified Justice: But it's damages, isn't it?
Isn't it compensation?
Mr. Frost: Well, it's damages, and the statute specifically--
Unidentified Justice: It is damages, but it is supposed to be measured by how much you are hurt.
Mr. Frost: --Well, the statute says not less than a reasonable royalty.
That is the floor the statute puts under the damages.
Unidentified Justice: Yes.
Then it says, together with interest and--
Mr. Frost: The other such interest as the court may allow, yes.
Unidentified Justice: --But it is still supposed to be compensation and damages, isn't it?
It's the injury.
It's not profits.
Mr. Frost: It's not profits.
That's for sure.
Unidentified Justice: Well, it seems to me if you were able to prove, for example, that the plaintiff in this suit, or that your opposition... it was the plaintiff in this suit--
Mr. Frost: Right.
Unidentified Justice: --had unconscionably delayed the suit, can anybody claim that during that period that you had injured them, that your client had injured them?
Mr. Frost: That question did not arise, Your Honor.
Unidentified Justice: I know it didn't arise.
I am just questioning whether there is room for that sort of a claim.
Mr. Frost: Frankly, I hadn't thought about it that way.
Unidentified Justice: Okay.
Thanks a lot.
Mr. Frost: That is the only answer I can give you.
I am sorry.
Unidentified Justice: Thank you very much.
Chief Justice Burger: Mr. Bender.
ORAL ARGUMENT OF SIDNEY BENDER, ESQ., ON BEHALF OF THE RESPONDENTS
Mr. Bender: Mr. Chief Justice, and may it please the Court, plaintiff's position is that the judgment below should be affirmed on two separate grounds, as was found by the courts below.
The first ground is that Section 284 requires the payment of interest from the date infringement occurred, and secondly, the award of interest is permissible and within the sound discretion of the trial court, and that here that discretion was properly exercised, and the affirmance by the court of appeals demonstrates that.
Unidentified Justice: Do you think there is room for your second ground under the... Suppose we agreed with you that the statute should be read as though it had the House words in it.
Mr. Bender: Well, Your Honor, I believe under those circumstances the case ends there.
Unidentified Justice: Oh, you do?
Oh, you do?
Mr. Bender: Yes.
I believe that under those circumstances it is mandatory that interest should run from the time infringement occurred, and it is my position here, Your Honor, that the statute should be read that way in light of the evidence of the legislative history, and in light of the Aro decision.
Unidentified Justice: Did the court below agree with you?
Mr. Bender: The court below did say that, Your Honor.
Unidentified Justice: Saying that they adopted your first--
Mr. Bender: Position.
Unidentified Justice: --submission rather than your--
Mr. Bender: They adopted both positions, Your Honor.
Unidentified Justice: --Yes.
Mr. Bender: They adopted... They adopted the... the court of appeals, at Page 336 of the record, if Your Honor please, specifically quoted from the Aro decision.
Unidentified Justice: Right.
Mr. Bender: And in addition, they held that they were affirming also the exercise of discretion by the trial court, and I would like to go back to the plain meaning of the statute, if I may, and the starting point in every case, as this Court has held in Ernst and Ernst v. Hockfelder, is the language of the statute itself, and indeed, the ascertainment of Congressional intent must rest primarily on the language of the statute.
Now, this statute says,
"The court shall award adequate compensation, but not less than a reasonable royalty together with interest and costs as fixed by the court. "
We submit that the term
"shall award a reasonable royalty together with interest. "
is mandatory, at least that prejudgment interest should be awarded.
"as may be fixed by the court. "
we submit goes to the interest rate as being discretionary with the court, and that discretion was exercised by the trial court here, and there has been no appeal and no contest on the interest rate that was awarded below.
Unidentified Justice: When did he fix that?
Mr. Bender: That was fixed by the special master pursuant to the parties stipulating as to what the interest rates would be--
Unidentified Justice: In what year?
Mr. Bender: --Pardon me?
Unidentified Justice: In what year?
Mr. Bender: In every year, Your Honor, because--
Unidentified Justice: When did he make that order?
Mr. Bender: --The order was... it was a stipulation that was signed by the parties in November of 1978, and the special master awarded the interest in February of 1980 on his recommendation, and the district court entered judgment in October of 1980.
Unidentified Justice: Mr. Bender, may I ask, if you looked at the statute just literally for the moment, and left out the "but" clause, the "but in no event" clause, just had it, damages... leave out the reasonable royalty floor, just said
"damages adequate to compensate for the infringement together with interest and costs. "
would it be perfectly clear to you that the interest would be prejudgment interest?
Mr. Bender: Oh, yes, Your Honor.
I think there is no question but that what they are talking about there is prejudgment interest, and there is another statute on post-judgment interest, and that post-judgment interest is affixed according to state law, and no one has challenged that particular concept, Your Honor.
That is really not in issue.
So that plaintiff's submission is that "together with interest" at least means that the prejudgment interest as such is mandatory.
Now, considering the fact that the statute as passed is silent as to the time frame and as to when the interest should begin to run, then under those circumstances the intended scope of the interest provision is revealed explicitly in the legislative history.
The Senate committee expressly adopted the House committee report, which stated,
"a reasonable royalty together with interest from the time infringement occurred. "
In addition, the House committee's rationale was also stated, namely, in referring to proceedings before masters that are often protracted for decades, and in many cases result in a complete failure of justice.
Thus, the statute history reflects the intent of Congress to make interest mandatory from the time infringement occurred.
This interpretation is not a departure from the language of the statute, but is consistent with it.
The House committee report with respect to the 1946 amendment stated,
"The object of the bill is to make the basis of recovery in patent infringement suits general damages, that is, any damages that complainant can prove not less than a reasonable royalty together with interest from the time infringement occurred. "
So, as the bill left the House, three things were mandatory in that bill: interest, costs, and attorneys' fees.
When the bill... and at that particular time, I think it would be helpful if I read the proposed House bill.
"royalty therefore together with his costs and reasonable attorneys' fees to be fixed by the court and interest from the time infringement occurred. "
and that was the shape of the bill as it left the House.
The Senate itself adopted the mandatory provisions of the House bill on interest and costs, but amended it to make attorneys' fees discretionary.
As the bill was amended by the Senate, the bill read
"royalty therefore together with such costs and interest as may be fixed by the court. "
"The court may in its discertion award reasonable attorneys' fees to the prevailing party upon the entry of judgment on any patent case. "
End of quote.
Therefore, it was clear that when the Senate wanted to say "in its discretion" with respect to attorneys' fees, it so stated.
It didn't say anything to change the basic mandatory concept about interest and costs.
And it did delete--
Unidentified Justice: Well, suppose that the only language that had appeared in either bill, either the Senate or the House, was the language that is now in the statute.
Mr. Bender: "Together with interest and costs as may be fixed by the court. "
Unidentified Justice: "As fixed by the court".
Mr. Bender: Yes, Your Honor.
Unidentified Justice: What would be the ordinary reading of that?
Mr. Bender: The ordinary reading of that, Your Honor, would be that interest and costs were mandatory except that costs are discretionary as to amount, and interest is discretionary as to rate.
Unidentified Justice: Well, why would you say that "as fixed by the court" wouldn't apply to interest?
Mr. Bender: It does apply to interest.
Unidentified Justice: But only... but you say only as to rate.
Mr. Bender: Because if Your Honor please, I believe if the... if the Congress intended to make interest and costs discretionary, just as it did with attorneys' fees, they would have worded it this way.
"The court may in its discretion award interest, costs, and attorneys' fees to the prevailing party. "
Unidentified Justice: Or it could have said,
"Interest as fixed by the court, and cost as fixed by the court. "
but instead it just said
"interest and costs as fixed by the court. "
Mr. Bender: But, Your Honor, I believe that does take it out of context, because the preamble to that is,
"The court shall award a reasonable royalty. "
"The court shall award a reasonable royalty together with interest. "
and under those circumstances, I believe that the "together with interest" and "a reasonable royalty" mean that the court must fix a reasonable royalty together with interest, and "as fixed by the court" does not mean that the interest itself is fully discretionary.
And I think the legislative history demonstrates that, if Your Honor please, because Senator Pepper in reporting the House bill to the Senate, he said, it is a House bill, and he says, it has the unanimous support of the Senate Committee on Patents.
In fact, the bill as adopted by the Senate, contrary to what Mr. Frost said, was very specific about that.
"The House Committee on Patents held hearings and made the following report, which is adopted as the report of the Senate Committee on Patents. "
and then it set forth what the House committee report was, and that said,
"together with interest from the time infringement occurred. "
and I submit that the Senate did not intend to change the part
"together with interest from the time infringement occurred. "
It is true that "from the time infringement occurred" was deleted, but the legislative intent, when seen in context and the fact that Senator Pepper only referred to the change on attorneys' fees being made discretionary, demonstrates that the Senate did not intend to change the purport of the interest provision.
Unidentified Justice: Or at least that is what Senator Pepper thought.
Mr. Bender: And that is what Senator Pepper thought.
Unidentified Justice: At least.
That doesn't bind--
Mr. Bender: Yes, Your Honor, and when the bill--
Unidentified Justice: --That doesn't bind the whole body.
Mr. Bender: --Well, Your Honor, that's correct.
He was managing the bill.
And when the bill came back to the House after it had been amended by the Senate, Representative Lanham, who had managed the bill, reported that the... reported that the Senate amendment does not interfere with the purport of the bill.
"There is a provision with reference to attorneys' fees and how they shall be paid. "
End of quote.
And that was the report as the bill had come back to the House of Representatives and as amended by the Senate, the bill was again passed by the House.
In 1964, this Court, in deciding the Aro case, adopted the mandatory interest language that was contained in the House committee report.
Referring to the 1946 amendment, this Court quoted from the House report adopted by the Senate, and this Court made note of the fact that the Senate report... it referred to the Senate report as well.
That was one of the references to the quotation, was to the Senate report in the Aro case, and there, this Court said,
"The object of the bill is to make the basis of recovery. "
"not less than reasonable royalty together with interest from the time infringement occurred. "
And the Devex case was not the only case that referred to the Aro report.
In 1964, the Marvel case in the Fourth Circuit adopted and followed the language specifically of the Aro court... of the Aro decision by this Court, and then Devex followed that decision as well, and there have been many district court decisions that have likewise followed the Aro decision on the question of prejudgment interest.
In fact, GM in its reply brief at Page 2 concedes that the House committee language,
"interest from the time infringement occurred. "
is "mandatory interest language".
And that is Page 2 of General Motors' reply.
The effect of the '46 amendment is correctly stated in 35 UCS, Appendix 2, Section 70, in which, in reference to the '46 amendment, it says,
"A reasonable royalty together with interest from the time infringement occurred. "
Now, this appeared before the 1952 codification in the present Section 284.
So Congress knew how this 1946 amendment was being reported in the text.
Unidentified Justice: Mr. Bender--
Mr. Bender: It was being reported as interest from the time infringement occurred.
Unidentified Justice: --That language you quote on Page 17 of your brief, do you know who wrote that?
Was that one of Mr. Federico's commentaries?
Mr. Bender: I do not, Your Honor.
I am very sorry.
That under the circumstances, Congress was aware of the fact that it was being reported that interest from the time infringement occurred was the construction, at least in terms of the legislative note with respect to 35 USC Section 70.
Despite that, Congress re-enacted Section 284, and in its present form, which is
"together with interest as fixed by the court. "
This Court, in applying another patent statute, 28 USC Section 1498, under which the United States pays compensation for patent use, adopted the view that interest runs from the date of infringement, despite the fact that there is no reference in the statute to interest.
They adopted that view because the statute reads "entire compensation", and this Court has said that in order to make entire compensation under the circumstances, it is necessary to give interest from the time infringement occurred, and in order to do complete justice, as between the plaintiff and the United States government.
Now, we submit the statute here provides for adequate compensation, and it also expressly refers to "together with interest".
And under those circumstances, interest should be allowed from the time infringement occurred.
Arguendo, even if interest is mandatory and the time frame is discretionary, we submit that under those circumstances, there was no abuse of discretion in allowing interest from the time infringement occurred here in this case, and the court of appeals affirmed saying there was no abuse of discretion by the district court.
In 1952, Congress specifically provided for the award of attorneys' fees only in exceptional cases, thus demonstrating its intent not to require exceptional circumstances before there is an award of interest.
Clearly, Congress was dealing with the term 1952.
Unidentified Justice: Of course, you could argue just as well that Congress was dealing with attorneys' fees in 1952, and decided to require them only in exceptional circumstances.
It depends on which word and phrase you catalogue the thing under.
Mr. Bender: Well, if Your Honor please, what Congress had done with respect to attorneys' fees was change it from discretionary, as it existed in 1946, in 1952 to require exceptional circumstances of an exceptional case, in order to enable a prevailing party to get attorneys' fees.
Now, the defendant's argument is that the Duplate rule which was pre-1946 was still in place in 1946.
Now, under those circumstances, we submit that if Congress intended exceptional circumstances to apply also to interest, it would have so stated.
Instead, it left the 1946 Act intact, which provided "together with interest".
Pre-1946, Section 70 was completely silent on interest.
Unidentified Justice: In 1952, was a general revision?
Mr. Bender: A codification.
Unidentified Justice: A codification.
Mr. Bender: And Section 284, which was codified in 1952, provided "together with interest" and dropped out the term "may be" and said "as fixed by the court", and
"costs as fixed by the court. "
Arguendo, a second view of Section 284 is that expressed by the Second Circuit in the Georgia Pacific case, in which it was held that the change in the statute in 1946 was intended to grant the trial court its traditional discretionary power in equity.
Even if this Court adopts the view of the Second Circuit and says that Section 284 is a discretionary award of interest in its entirety, we submit that there was no abuse of discretion by the trial court which was affirmed by the Third Circuit.
Indeed, the court in Georgia Pacific rejected the argument and the notion that by the 1946 amendment, Congress intended no change whatsoever in the existing law respecting interest, which is the defendant's position here, thus demonstrating that that issue was considered by the Second Circuit and rejected.
In addition to that, there are some other equitable grounds which support the exercise of discretion by the courts below.
Number One, GM's entire defense below was founded on the concept that the selection of the inorganic chemicals was to save... costs by General Motors, and therefore the entire reasonable royalty here should be in the area of between $100,000 and $200,000.
The special master said, "that this"... The special master held, "that this was contrived".
And that finding of fact by the special master was affirmed by the district court, was adopted by the district court and affirmed by the court of appeals.
The court of appeals affirmed the district court's finding that in addition to the bumper infringement here, that there was infringement on non-bumper parts of 1,300,000,000 parts that had been made by the Hendricks process, and that there was good infringement proved on those one billion parts.
Despite that, and despite the requirement of a reasonable royalty, the courts held below that plaintiffs had not established an adequate basis for determining a reasonable royalty on non-bumper parts, despite the fact that plaintiff showed from defendant's own records that there were savings in excess of $60 million on those non-bumper parts.
We submit that this is an additional ground for holding that prejudgment interest is proper in this particular situation.
In addition, let us show by the mere recital of the facts themselves in this case.
GM was given notice in 1955 of its infringement.
The lawsuit was commenced in November of 1956.
Almost all of GM's bumper infringement thereafter took place after the commencement of this litigation, from 1956 through to March, 1969, when the patent expired.
And then, in July of 1963, the Seventh Circuit held that this patent was valid, and this Court denied certiorari in January of '64.
In November of 1964, 16 years before a decision was entered in the district court, General Motors was offered a license by the plaintiffs at three-quarters of 1 percent of their sales prices.
GM refused that offer of a license.
After 16 years of litigation, the district court awarded that very same royalty rate of three-quarters of 1 percent as the reasonable royalty here.
Therefore, 16 years of litigation could have been avoided had General Motors accepted in 1964--
Unidentified Justice: Well, of course, that--
Mr. Bender: --the offer that was ultimately awarded of three-quarters of 1 percent.
Unidentified Justice: --I suppose that is often true, but isn't it true that you did offer a lower rate, your rates to your others was lower, wasn't it?
Mr. Bender: No, that was an industry-wide offer at that time, Justice--
Unidentified Justice: Didn't you settle with other people at a lower rate?
Mr. Bender: --We settled with other people in litigations--
Unidentified Justice: At lower rates.
Mr. Bender: --and... at lower rates, yes.
Unidentified Justice: Before this offer was made?
Mr. Bender: No.
We didn't make any settlements before this offer was made.
Unidentified Justice: I see.
Mr. Bender: There was an industry defense against this patent, Your Honor.
The chemical companies, the suppliers had all joined together with General Motors in making certain that they were going to defend this case to the hilt, and nobody took a license from the plaintiffs, and that in effect, that open infringement by the entire industry even beat down that offer that we made of three-quarters of 1 percent.
It is this simple history of this litigation which demonstrates why this guilty tort feasor did not take a license, because it was hoping that ultimately it was going to, even if it had to pay a reasonable royalty ultimately, it was going to garner in the interest that it had retained from that reasonable royalty for, indeed, over a 25-year period, GM would have made $11 million of interest on the reasonable royalty if it were permitted to keep that interest.
Under those circumstances, the courts below found that it would be against public policy not to award the interest, because it would defeat the amicable licensing of patents and it would tend to prolong the litigation.
Indeed, we have had that right here, that this litigation has been prolonged because of GM's hope that it will not have to pay the prejudgment interest.
In addition, there is a very... another very important factor here that supports the judgment below, and that is inflation.
When this lawsuit was begun, in 1956, the inflation factor was 80.
In 1967, that inflation factor was 100.
In July of this year, when General Motors paid the $8.8 million, that inflation factor was 291.8.
Under those circumstances, when you adjust that $8.8 million by the inflation factor, the plaintiffs have been paid in real dollars $3 million.
Unidentified Justice: How, again, were your damages computed?
Was that.75 percent of something?
Mr. Bender: .75 of 1 percent of the sales value of the bumpers, which was $1,175,000,000.
Unidentified Justice: And some of those bumpers were presumably sold in 1963 and at $100, and if you had gotten your judgment in 1963, you would have gotten 100 1963 dollars.
Mr. Bender: That's correct.
Unidentified Justice: But as it is, you are getting 100 1982 dollars.
Mr. Bender: That is correct, Your Honor.
We submit that is a further ground for supporting the exercise of discretion below.
We must not overlook the fundamental fact that this is a 26-year-old patent case.
The patent system itself must provide an economic incentive to invent, innovate, and come up with new ideas.
Indeed, our patent system cannot survive where infringers such as General Motors adopt a policy of economic interorems which is designed to financially exhaust the plaintiffs.
After 26 years of litigation, it would be a grave miscarriage of justice to take away prejudgment interest and thus leave plaintiffs without adequate compensation.
I want to address myself to the fact that General Motors has stated something about delay by the plaintiffs.
The district court made a specific finding in connection with GM's contention to have the costs of the special master taxed equally between the plaintiffs and General Motors.
The district court denied that.
And it did say with respect to cost that it did have discretion involving unnecessary delay, but they said in this case Devex has done no more than fully litigate its claims achieving a large judgment in its favor.
The court thus sees no reason for following GM... for relieving GM, whose infringement necessitated this case from the normal responsibilities of a wrongdoer.
I thank you.
Chief Justice Burger: Do you have anything further, Mr. Frost?
ORAL ARGUMENT OF GEORGE E. FROST, ESQ., ON BEHALF OF THE PETITIONER -- REBUTTAL
Mr. Frost: Yes, I do have a few things, Your Honor.
First off, on the last point, the reference was to the costs and the costs involved in the accounting itself.
And that finding had nothing to do with earlier proceedings in the case.
On the.75 percent royalty, the master specifically found that the royalty rate was too high.
He went into the subject of the conditions at the time of that offer, and he specifically so held.
Houdi, the defendant in the Northern District of Illinois whose case was separated, went to soap only immediately after the 1973... '63 Seventh Circuit decision.
General Motors discontinued using Borax in its processes, and the only thing left after that time was the so-called TKPP lubricants, which did not use Borax and were within the category of lubricants where General Motors really did leave out the Borax.
We were using the TKPP lubricants in our bumper operations beginning around 1963, and by the time... oh, by '65 it was 100 percent.
Now, there is another point with respect to this Marvel case that has been mentioned, and it brings out this.
There is a difference between reasonable royalties and established royalties, and the decisions prior to the 1946 Act made it very clear that where you have a situation where the patent is generally licensed at generally uniform rates, so much so that there is an established royalty, that in that case the patentee cannot recover any greater sum than the established royalties, but in that case the damages are in effect liquidated, and therefore prejudged interest should be allowed.
That is what happened in the Marvel case, and the reference to the change in the statute in that case and the Aro quotation was on an entirely different factual setting for just that reason.
Reference has been made to the US Code, and as I recall it was the 1946 edition.
In any event, that is not an official compilation of the law at all.
If you look at the front part, it very clearly states it was prepared by West Publishing Company and several other contractors, and the committee very carefully states that it is only prima facie law.
Now, lastly, I do want to point out that there has been no reason at all for the Senate to have changed the text of the bill that became the 1946 Act if it was satisfied with mandatory interest.
There is no other possible explanation than what the Senate did was to recognize that requirement of interest from the time of infringement as being not what it wanted.
Unless there is further question, I will conclude.
Chief Justice Burger: Thank you, gentlemen.
The case is submitted.
Unidentified Justice: The Honorable Court is now adjourned until tomorrow at 10 a.m..