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Schwendimann v. Arkwright Advanced Coating, Inc.

United States District Court, D. Minnesota

July 30, 2018

JODI A. SCHWENDIMANN, f/k/a JODI A. DALVEY Plaintiff,
v.
ARKWRIGHT ADVANCED COATING, INC. Defendant. ARKWRIGHT ADVANCED COATING, INC. Counterclaim Plaintiff,
v.
JODI A. SCHWENDIMANN, f/k/a JODI A. DALVEY and COOLER CONCEPTS, INC. Counterclaim Defendants.

          David A. Davenport, Devan V. Padmanabhan, and Michelle E. Dawson, WINTHROP & WEINSTINE, PA, for Jodi A. Schwendimann and Cooler Concepts, Inc.

          Katherine J. Rahlin, Kurt J. Niederluecke, and Laura L. Myers, FREDRIKSON & BYRON, PA, for Arkwright Advanced Coating, Inc.

          MEMORANDUM OPINION AND ORDER

         TABLE OF CONTENTS

         TABLE OF CONTENTS .................................................................................................. 2

         BACKGROUND ................................................................................................................ 3

         I. FACTUAL BACKGROUND ..................................................................................... 3

         A. Schwendimann's Patents ............................................................................... 3

         B. AACI's Patents .............................................................................................. 3

         C. ACT, Cooler Concepts, and NuCoat ............................................................. 4

         D. Arkwright and AACI ..................................................................................... 4

         II. PROCEDURAL BACKGROUND ............................................................................. 5

         A. Pre-Trial ......................................................................................................... 5

         B. Trial ............................................................................................................... 6

         C. Verdict and Post-Trial Motions ..................................................................... 8

         DISCUSSION ..................................................................................................................... 9

         I. STANDARD OF REVIEW ........................................................................................ 9

         II. LOST PROFITS ........................................................................................................ 11

         A. Elements of Lost Profits .............................................................................. 11

         B. Absence of Acceptable, Noninfringing Alternatives .................................. 13

         III. DAMAGES ............................................................................................................... 19

         A. Motion to Amend Judgment ........................................................................ 19

         B. New Trial ..................................................................................................... 22

         C. Remittitur ..................................................................................................... 34

         IV. WILLFUL INFRINGEMENT AND ENHANCED DAMAGES ............................. 35

         A. Enhanced Damages ..................................................................................... 35

         B. Judgment as a Matter of Law and New Trial .............................................. 50

         V. PREJUDGMENT INTEREST .................................................................................. 50

         VI. POST-JUDGMENT INTEREST .............................................................................. 53

         VII. PERMANENT INJUNCTION .................................................................................. 54

         A. Standard of Review ..................................................................................... 54

         B. Irreparable Injury ......................................................................................... 55

         C. Inadequate Remedies ................................................................................... 57

         D. Balance of Hardships .................................................................................. 59

         E. Public Interest .............................................................................................. 60

         F. Scope of Injunctive Relief ........................................................................... 60

         ORDER ............................................................................................................................. 61

         Plaintiff Jodi Schwendimann brought this patent-infringement action against Arkwright Advanced Coating, Inc. (“AACI”), for infringement of a number of patents related to dark T-shirt transfer technology. AACI countered with infringement allegations of its own. The jury returned a verdict in favor of Schwendimann, finding that AACI has directly infringed at least one claim of her patents, and that AACI's patents are invalid. The jury awarded Schwendimann $2, 624, 228.00 in damages and found that AACI had infringed willfully. Both Schwendimann and AACI have filed a number of post-trial motions with respect to damages and post-trial relief. The Court will consider each motion in turn.

         BACKGROUND

         I. FACTUAL BACKGROUND

         A. Schwendimann's Patents

         Schwendimann's companies, NuCoat and Cooler Concepts, produce specialty paper products, including inkjet image transfer paper or sheets. Schwendimann alleged that AACI's 888 and 889 products infringe five of Schwendimann's patents:

1. U.S. Reissued Patent No. RE41, 623 (“the '623 Patent”)
2. U.S. Patent No. 7, 749, 581 (“the '581 Patent”)
3. U.S. Patent No. 7, 754, 042 (“the '042 Patent”)
4. U.S. Patent No. 7, 766, 475 (“the '475 Patent”)
5. U.S. Patent No. 7, 771, 554 (“the '554 Patent”)

         B. AACI's Patents

         AACI also produces inkjet image transfer paper or sheets, including the accused 888 and 889 products. AACI alleged that Schwendimann's products infringe two of AACI's patents:

1. U.S. Patent No. 6, 667, 093 (“the '093 Patent”)
2. U.S. Patent No. 7, 943, 214 (“the '214 Patent”)

         C. ACT, Cooler Concepts, and NuCoat

         In 1992, Schwendimann began working for American Coating Technologies (“ACT”), which was owned by Bill Nasser. (Trial Tr. Vol. II at 91:2-20, Nov. 27, 2017, Docket No. 761.) Between 1993 and 1994, ACT developed light T-shirt transfer products. (Id. at 97:16-98:16.) ACT began marketing these products in 1996. (Id.)

         ACT's light T-shirt transfer products did not properly display the transferred image on colored T-shirts. (Id. at 101:13-103:3.) As a solution, ACT and its employees, primarily Nasser, Schwendimann, and Mike Galatowitsch, began developing dark T-shirt transfer products in 1995. (Id. at 99:2-101:12.) ACT sold these products from 1999 until it closed in 2001 (Id. at 110:18-23; Trial Tr. Vol. III at 359:4-364:16, Nov. 27, 2017, Docket No. 762.) Schwendimann now sells these dark T-shirt transfer products through Cooler Concepts and NuCoat. (Trial Tr. Vol. II at 108:10-109:6; 159:20-160:3.)

         D. Arkwright and AACI

         Arkwright and Schwendimann were direct competitors in the dark T-shirt transfer market. (Trial Tr. Vol. II at 147:4-24; Trial Tr. Vol. V at 925:19-22, Nov. 27, 2017, Docket No. 764.) Arkwright first began developing its dark T-shirt transfer products in 2000. (Trial Tr. Vol. III at 497:5-18.) Arkwright began selling these products in 2001. (Id. at 496:18-22; 507:15-25.)

         In July 2008, Sihl purchased Arkwright's assets, including the rights to its dark T-shirt transfer products. (Trial Tr. Vol. V at 919:18-922:1.) Following this acquisition, AACI was formed. (Id. at 922:2-19.) AACI ceased selling its 888 and 889 products in 2015. (Trial Tr. Vol. VII at 1334:1-2; 1338:8-10, Nov. 27, 2017, Docket No. 766.)

         II. PROCEDURAL BACKGROUND

         A. Pre-Trial

         Both parties in this case engaged in substantial pre-trial motion practice.

         On December 16, 2016, the Court issued its summary-judgment order. Schwendimann v. Arkwright Advanced Coating, Inc. (“Summary Judgment Order”), 220 F.Supp.3d 953 (D. Minn. 2016). The Court granted AACI's motion for summary judgment with respect to Schwendimann's infringement of the '093 Patent. Id. at 963. The Court denied AACI's motion for summary judgment with respect to Schwendimann's lost-profits claim. Id. at 972-75 The Court concluded that genuine questions of material fact remained over whether NuCoat's and Cooler Concepts' profits flowed inexorably to Schwendimann and that Schwendimann must present “contractual, structural, or historical” of inexorable flow. Id. at 974-75.

         On the eve of trial, both parties brought numerous motions in limine. Schwendimann v. Arkwright Advanced Coating, Inc. (“Motions in Limine Order”), No. 11-820, 2017 WL 4277142 (D. Minn. Sept. 25, 2017). First, the Court concluded that Schwendimann was only entitled to seek damages starting on July 6, 2010. Id. at *3. Second, the Court denied AACI's motion to exclude Schwendimann's arguments about lost profits and testimony from Donald Gorowsky, but the Court warned Schwendimann that “she must product contractual, structural, historical evidence showing that her companies' profits inexorably flow to her lest she risk dismissal of her theory of lost profit damages.” Id. at *4. Third, the Court denied AACI's motion to preclude Schwendimann from testifying that other competitors infringe her patents. Id. at *6. Fourth and finally, the Court denied AACI's motion to exclude Schwendimann from arguing or introducing evidence that AACI copied her products. Id.

         B. Trial

         In October 2017, the case proceeded to trial. Schwendimann called a number of current and former ACT, NuCoat, and Cooler Concepts employees. Schwendimann - the plaintiff in this case - began working at ACT in 1992 and now owns NuCoat and Cooler Concepts. (Trial Tr. Vol. II at 91:11-20, 105:7-109:2.) Bill Nasser was the owner of ACT from approximately 1985 until it closed in 2001. (Trial Tr. Vol. III at 359:16-362:22.) Mike Galatowitsch worked at ACT from 1989 to 2001 and NuCoat from 2013 to 2016. (Trial Tr. Vol. IV at 528:2-529:10, 535:15-20, Nov. 27, 2017, Docket No. 763.)

         Both parties called a number of current and former Arkwright and AACI employees. Frank Shea was Arkwright's Marketing Director from 1999 to 2003. (Trial Tr. Vol. III at 494:22-495:6.) Melissa Jendzejec-Blanchard worked at Arkwright from 1997 to 2008 and has worked at AACI since 2008. (Trial Tr. Vol. VI at 1108:10-1109:11, 1112:1-20, Nov. 27, 2017, Docket No. 765.) Stephanie Provost worked at Arkwright from 1998 to 2008 and has worked at AACI since 2008, serving as Chief Financial Officer since 2014. (Trial Tr. Vol. VII at 1326:19-1327:17.) Phil Hursh began working at Sihl in 1996 as its Chief Executive Officer (“CEO”) and served as CEO of AACI from 2008 until 2013. (Trial Tr. Vol. V at 917:23-919:2, 922:9-22, 924:5-7.)

         Both parties called expert witnesses to testify about the technical composition of Schwendimann's and AACI's products. Schwendimann called Dr. Scott Williams. (Trial Tr. Vol. IV at 579:12-580:4.) AACI called Dr. Chris Macosko. (Trial Tr. Vol. VII at 1371:10-12.)

         Both parties also called expert witnesses to testify about damages. Schwendimann called Donald Gorowsky, who provided an opinion about the amount of lost profits that the jury should award Schwendimann. (Trial Tr. Vol. V at 983:111-14; 995:23-996:7.) Gorowsky opined that Schwendimann should be awarded $6.7 million in lost profits. (Id. at 1009:1-7.) He did not testify about the amount of a reasonable royalty that Schwendimann should be awarded. (Id. at 1032:16-25.) AACI called Arthur Cobb, who did provide an opinion about the amount of a reasonable royalty that Schwendimann should be awarded. (Trial Tr. Vol. VIII at 1639:23-1640:4, Nov. 27, 2017, Docket No. 767.) Cobb opined that, if the jury found that AACI infringed Schwendimann's patents, the jury should award Schwendimann a reasonable royalty of 2% or $337, 105. (Id. at 1686:14-1687:21.) He also testified that Schwendimann should not be awarded lost profits. (Id. at 1676:22-25.)

         Following Schwendimann's case-in-chief, AACI moved for judgment as a matter of law on the issues of willful infringement and lost profits. (AACI's Mot. for J. as a Matter of Law, Oct. 13, 2017, Docket No. 637.) The Court denied AACI's motion with respect to the willful-infringement issue but noted that the issue was “somewhat close.” (Trial Tr. Vol. VIII at 1835:22-25.) However, the Court granted AACI's motion with respect to lost profits because Schwendimann failed to present sufficient evidence on the absence of acceptable, noninfringing alternatives. (Id. at 1836:11-25.) Schwendimann moved for reconsideration. (Mot. to Reconsider, Oct. 17, 2017, Docket No. 651.) The Court denied Schwendimann's motion. (Trial Tr. Vol IX at 1917:2-23, Nov. 27, 2017, Docket No. 768.)

         C. Verdict and Post-Trial Motions

         The jury returned a verdict in favor of Schwendimann. (Am. J., Nov. 14, 2014, Docket No. 705.) The jury found:

1. Schwendimann has proven that AACI has directly infringed at least one claim of the '623, '581, '475, '042, or '554 Patents;
2. As a result of AACI's conduct, plaintiff is entitled to damages in the amount of $2, 624, 228.00;
3. Schwendimann has proved that AACI willfully infringed;
4. Schwendimann and Cooler Concepts have proven that Claims 1 and 11 of the '093 Patent (Yuan) are invalid;
5. Neither Schwendimann nor Cooler Concepts directly infringes the '214 Patent (Bamberg);
6. Schwendimann did not actively induce NuCoat or Cooler Concepts to infringe the '214 Patent (Bamberg).

(Id.)

         The parties have now filed post-trial motions. On February 23, 2018, the Court denied Schwendimann's Motion for Attorney Fees. Schwendimann v. Arkwright Advanced Coating, Inc., (“Attorney Fees Order”), No. 11-820, 2018 WL 1041038 (D. Minn. Feb. 23, 2018). On February 26, the Court denied AACI's Renewed Motion for Judgment as a Matter of Law on Infringement of the Schwendimann Patents. Schwendimann v. Arkwright Advanced Coating, Inc., (“Infringement Order”), No. 11-820, 2018 WL 1064556 (D. Minn. Feb. 26, 2018).

         The parties have filed a number of motions that collectively relate to damages or other forms of post-trial relief. AACI has filed the following motions:

1. Motion for New Trial on Damages or Remittitur (“Damages Motion”), Nov. 20, 2017, Docket No. 730; and
2. Renewed Motion for Judgment as a Matter of Law or, in the Alternative, a New Trial on Willful Infringement (“Willful Infringement Motion”), Nov. 20, 2017, Docket No. 734.

         Schwendimann has filed the following motions:

1. Motion to Amend Judgment to Include Pre-Judgment and Post-Judgment Interest (“Interest Motion”), Nov. 20, 2017, Docket No. 716;
2. Motion for Permanent Injunction (“Injunction Motion”), Nov. 20, 2017, Docket No. 721;
3. Motion for New Trial on Lost Profits Damages (“Lost Profits Motion”), Nov. 20, 2017, Docket No. 726; and
4. Motion to Amend Judgment to Include Enhanced Damages (“Enhanced Damages Motion”), Nov. 20, 2017, Docket No. 743.

         The Court will address each motion in turn.

         DISCUSSION

         I. STANDARD OF REVIEW

         Federal Circuit law governs substantive patent law; regional circuit law governs a district court's rulings on post-trial motions for judgment as a matter of law and for a new trial. Finjan, Inc. v. Secure Computing Corp., 626 F.3d 1197, 1202 (Fed. Cir. 2010).

         Under Rule 50(a)(1) of the Federal Rules of Civil Procedure, the Court may resolve an issue as a matter of law if “a reasonable jury would not have a legally sufficient evidentiary basis to find for the party on that issue.” A party may renew its motion after trial. Fed.R.Civ.P. 50(b). “A motion for judgment as a matter of law should be granted when all the evidence points one way and is susceptible of no reasonable inferences sustaining the position of the nonmoving party.” Hunt ex rel. Hunt v. Lincoln Cty. Mem'l Hosp., 317 F.3d 891, 893 (8th Cir. 2003) (quoting Neely v. Am. Family Mut. Ins. Co., 123 F.3d 1127, 1129 (8th Cir. 1997)). In making this determination, the Court must

consider the evidence in the light most favorable to the prevailing party, assume that the jury resolved all conflicts of evidence in favor of that party, assume as true all facts which the prevailing party's evidence tended to prove, give the prevailing party the benefit of all favorable inferences which may reasonably be drawn from the facts, and deny the motion, if in light of the foregoing, reasonable jurors could differ as to the conclusion that could be drawn from the evidence.

Minneapolis Cmty. Dev. Agency v. Lake Calhoun Assocs., 928 F.2d 299, 301 (8th Cir. 1991) (quoting Atlas Pile Driving Co. v. Dicon Fin. Co., 886 F.2d 986, 989 (8th Cir. 1989)).

         Under Rule 59(a) of the Federal Rules of Civil Procedure, the Court may grant a motion for a new trial “on all or some of the issues.” Fed.R.Civ.P. 59(a)(1). “A new trial is appropriate when the first trial, through a verdict against the weight of the evidence . . . or legal errors at trial, resulted in a miscarriage of justice.” Gray v. Bicknell, 86 F.3d 1472, 1480 (8th Cir. 1996). “The authority to grant a new trial is within the discretion of the district court.” Id. The Court may grant a new trial where erroneous evidentiary rulings “had a substantial influence on the jury's verdict.” Littleton v. McNeely, 562 F.3d 880, 888 (8th Cir. 2009) (quoting Harris v. Chand, 506 F.3d 1135, 1139 (8th Cir. 2007)). Further, only if the jury's verdict is so against the great weight of the evidence that it constitutes a miscarriage of justice should a motion for a new trial be granted. Ogden v. Wax Works, Inc., 214 F.3d 999, 1010 (8th Cir. 2000).

         II. LOST PROFITS

         The Court must decide whether to order a new trial on lost profits. During trial, the Court granted AACI's motion for judgment as a matter of law after concluding that Schwendimann did not meet her burden of demonstrating the absence of noninfringing alternatives. (Trial Tr. Vol. VIII at 1836:1-25.) The Court will deny Schwendimann's motion for a new trial.

         A. Elements ...


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