Underwater Devices Inc. v. Morrison-Knudsen Co., Inc., 717 F.2d 1380 (Fed. Cir. 1983)

KASHIWA, Circuit Judge.

This is a consolidated appeal from judgments of the United States District Court for the District of Hawaii (Civil Nos. 74-296 and 79-0120), entered November 30, 1982. In a published opinion, Underwater Devices Inc. v. Morrison-Knudsen Co., 217 USPQ 1039, the district- court held that the appellant, Morrison-Knudsen Co. (“M-K”), had infringed claim 1 of appellees’ U.S. Patent No. 3,204,417 (the “’417 patent”)1 and claims 1-4 of appellees’ U.S. Patent Re. 29,364 (the “reissue patent”).2 The district court then awarded $200,000 as damages to the appellees and trebled that amount. In addition, prejudgment interest was assessed on the entire trebled amount of $600,000. The antitrust issues were dismissed with prejudice. We affirm in part and reverse in part.

Appellant’s invention relates to a method and an apparatus for laying underwater pipes such as sewer lines. The invention is best illustrated by the broadest independent claims in the patents. Claim 1 of the reissue patent states:

Claim 1 of the ’417 patent states:

said spine having portions disposed toward each end thereof movably secured to the transverse members for movement of the spine and said portions longitudinally of said transverse members;

Spencer H. Robley filed an application for the apparatus on October 28, 1963, which subsequently issued as the ’417 patent. In addition, he filed another application for the method on December 21, 1964, which subsequently issued as the ’682 patent. The method application, however, did not claim priority from the earlier apparatus application as required if the benefits of 35 U.S.C. § 120 are desired.3

In response to the examiner’s initial rejection of the method application under 35 U.S.C. § 112, Robley filed an amendment, dated November 3,1965, in which he stated that the “applicant can make definite reference to his corresponding issued apparatus case which does show one means* in detail for carrying out the steps of the instant method claims.” [Emphasis in original.] In a supplemental amendment filed March 16, 1966, Robley requested the addition of the following passage in the specification of the method application:

A patent for the method was thereafter duly issued.

By agreement dated August 31, 1972, Underwater Devices Inc. (“UDI”), the assignee of the ’417 and ’682 patents, licensed Buckley & Company, Inc. and R.W. Denny Corp. to “jointly and not severally” use and practice the Robley inventions. This license contained a provision for royalty payments under some circumstances. The royalty was to be based on a formula which takes into account the diameter and length of pipes laid, depth of lay and adjustments for changes in construction cost over time.4

By letter agreement dated March 15, 1974, UDI granted Hood Corporation a royalty free, nonexclusive worldwide license to make, use and practice the Robley inventions, with limitations. Similarly to the Buckley/Denny license, a royalty was to be paid under some circumstances. The agreement set forth a formula beginning with the same rates as those in the Buckley/Denny license but continuing on with rates for use in depths of water from 100 to 150 feet, 150 to 200 feet, 200 to 250 feet and over 250 feet.5

When M-K was bidding on an underwater sewer project for Sand Island, Hawaii, UDI wrote a letter to M-K on September 28, 1973, advising that it was the owner of the Robley patents. It was UDI’s common practice to advise prospective bidders for construction of ocean pipelines that UDI was the owner of the Robley patents and that UDI would grant a license for the use of the patented method and apparatus. All prospective bidders on the same project were offered the same terms. The letter, in pertinent part, stated:

After M-K was awarded the project, UDI reiterated the $200,000 license fee of

fer in a letter dated May 15, 1974. M-K, however, did not seek a license. Instead, M-K immediately investigated ways of getting around the Robley patents. A search in the United States Patent and Trademark Office (the “PTO”) for prior art was instituted. M-K’s in-house attorney, A.J. Schlanger, advised Jack Christensen, a regional manager, in a memorandum dated December 18, 1973, that M-K “could use the [prior art] system to place the above outfall without the need to pay anyone a royalty if the system is not described in any of the patents we received from the patent research firm.” This one-sentence memorandum did not deal with the validity or infringement of the Robley patents. In addition, Schlanger wrote to Christensen in a memorandum dated May 24, 1974:

Thereafter M-K, as said by the district court, “hung tough.” By letter dated July 10, 1974, Christensen informed UDI that M-K considered the Robley patents to be invalid. By letter dated July 23, 1974, Schlanger informed UDI’s counsel that “payment of royalty would be inappropriate.” By memorandum dated September 5, 1974, Schlanger stuck by his opinion that the patents were invalid. However, Schlan-ger did not order the file histories of the Robley patents until September 5, 1974. In addition, M-K did not receive the opinion of its patent counsel until November 30, 1974. UDI withdrew its offer to license in November, 1974.

The apparatus constructed by M-K was used from August 15, 1974, to about May 1, 1975. UDI filed Civil No. 74-296 (Appeal No. 83-633) on November 21, 1974, alleging infringement and seeking damages.

On December 14, 1976, UDI, the appellee, filed an application for reissue6 of the ’682

patent in order to obtain, inter alia, the benefits of the earlier filing date of the ’417 patent. The PTO allowed the inclusion of the following sentence in the reissue patent:

On March 12, 1979, M-K filed the second of the lawsuits, Civil No. 79-0120 (Appeal No. 83-634), asserting violation of the antitrust laws by the named individuals, shareholders of UDI. The district court consolidated these actions7 and, upon stipulation, stayed the antitrust issues pending the outcome of the patent issues.

In April, 1981, the district court found that the ’417 and reissue patents were valid. In addition, the court found that M-K willfully infringed both claim 1 of the ’417 patent and claims 1-4 of the reissue patent during the Sand Island project.

The district court then found $200,000 to be a reasonable royalty under 35 U.S.C. § 2848 and awarded such an amount to UDI as damages. The court based its finding on the estimated royalty fee, $200,000, quoted in UDI’s letter to prospective bidders. In addition, the court stated:

After trebling the $200,000 damage award to $600,000 for willful infringement, the district court assessed prejudgment interest of 10% uncompounded interest on the entire $600,000 amount.

M-K then filed a motion for new trial or in the alternative, an amendment of the findings of fact and conclusions of law in light of allegedly newly discovered prior art.9 M-K alleged that the newly discovered prior art discloses the lateral and twisting capability of the Robley apparatus. After a hearing, the district court denied MK’s motion for a new trial on the ground that the newly discovered prior art added “nothing that was not already present in the Tower and the Ferris jack-up barge against which the Robley patents were fully evaluated 10 Thus, the district court re-lodged its earlier decision with additional findings of fact that indicated that the inventions of the ’417 and reissue pat

ents were not obvious in view of the prior art.

Regarding invalidity of the ’417 and reissue patents, the appellant argues that the district court erred in its failure to consider the newly discovered pertinent and material invalidating prior art which was not before the PTO. In particular, the appellant contends that (1) the district court erred in finding the newly discovered prior art to be merely cumulative of the prior art already in the record; (2) the district court improperly relied on the presumption of validity of patents and erred in requiring M-K to prove the invalidity of the Robley patents by clear and convincing evidence when the newly discovered prior art was not before the PTO; and (3) this court should, in the public interest of not upholding invalid patents, consider the newly discovered prior art.

Concerning infringement, the appellant argues that (1) the district court erred in not according M-K intervening rights in the method invention of the reissue patent; and (2) the district court failed to properly construe the scope of claim 1 of the ’417 patent in light of the file history of the ’417 patent.

Further, the appellant argues that the district court erroneously awarded prejudgment interest on the punitive or enhanced portion of the damages.

Last, the appellant argues that the district court’s finding of willful infringement was erroneous.

OPINION

I. Validity

The appellant contends that the district court erred in finding the newly discovered prior art to be merely cumulative of the prior art already in the record, especially the “Tower” apparatus and the Ferris barge. We disagree. The standard of review of a district court’s denial of a motion for a new trial is abuse of discretion. Montgomery Ward & Co. v. Duncan, 311 U.S. 243, 251, 61 S.Ct. 189, 194, 85 L.Ed. 147 (1940). The right to a new trial requires, inter alia, that the movant is diligent, that the newly discovered prior art is not merely cumulative, that the prior art is material, and that the prior art will probably produce a different result. See McCullough Tool Co. v. Well Surveys, Inc., 343 F.2d 381, 410, 145 USPQ 6, 29 (10th Cir.1965), cert. denied, 383 U.S. 933, 86 S.Ct. 1061, 15 L.Ed.2d 851 (1966). In the instant case the district court found the newly discovered prior art to be not material, but rather, merely cumulative of the prior art already in the record. In particular, the appellant failed to show that it was diligent in bringing the newly discovered prior art to the district court’s attention. See Pacific Contact Laboratories, Inc. v. Solex Laboratories, Inc., 209 F.2d 529, 533-34, 100 USPQ 12, 15 (9th Cir.1953), cert. denied, 348 U.S. 816, 75 S.Ct. 26, 99 L.Ed. 643 (1954). M-K failed to explain or excuse the seven-year delay in “discovering” this new prior art. Moreover, this new prior art was not discovered until the appellant had its day in court and after new counsel had been substituted for its trial counsel. In addition, the newly discovered prior art did not prima facie compel a different result. See Borg-Warner Corp. v. Mall Tool Co., 220 F.2d 803, 806, 105 USPQ 147, 149 (7th Cir.1955). The district court, thus, did not abuse its discretion in denying appellant’s motion.

The appellant also contends that the district court improperly relied on the presumption of validity as provided in 35 U.S.C. § 28211 in its findings of validity of the ’417 and reissue patents. For instance, the “Tower” apparatus, Minty ’884 patent and Ramsden patent were not before the PTO during the prosecution of the ’417

and ’862 patents. Contrary to appellant’s contention, the party asserting invalidity bears the burden of proof even if the prior art references were not before the PTO. Stratoflex, Inc. v. Aeroquip Corp., 713 F.2d 1530 at 1534 (Fed.Cir.1983); Solder Removal Co. v. USITC, 582 F.2d 628, 632-33, 199 USPQ 129, 132-33, 65 Cust. & Pat.App. 120 (1978). Although the appellant contends that the standard of proof should change from the “clear and convincing” standard to the “preponderance of the evidence” standard once it presents prior art not before the PTO, we need not decide which standard is appropriate since the appellant had failed to meet its burden under either standard.

The appellant further contends that because of the public interest in striking down invalid patents, this court should consider the Minty ’884 and Ramsden patents. Since these patents are not in the record, we cannot do so. Unless authorized by statute, appellate courts cannot consider evidence de novo. See Youngs Rubber Corp. v. C.I. Lee & Co., 45 F.2d 103, 106, 8 USPQ 6, 7 (2d Cir.1930); Chisholm-Ryder Co. v. Buck, 65 F.2d 735, 18 USPQ 31 (4th Cir.1933).

Accordingly, we agree with the holding of the district court that the appellant did not sustain its burden of showing the patents to be invalid.

II. Infringement

Appellant contends that the district court erred in not according M-K intervening rights in the method invention of the reissue patent. We, however, disagree. Intervening rights, as provided under 35 U.S.C. .§ 252,12 is an affirmative defense, see Devex Corp. v. Houdaille Industries, Inc., 382 F.2d 17, 24, 154 USPQ 384, 389 (7th Cir.1967), that must be raised at trial. 35 U.S.C. § 282.13 Failure to plead an affirmative defense is a waiver of that defense; it cannot be raised for the first time on appeal. See Trio Process Corp. v. L. Goldstein’s Sons, Inc., 461 F.2d 66, 74, 174 USPQ 129, 135 (3d Cir.1972), cert. denied, 409 U.S. 997, 93 S.Ct. 319, 34 L.Ed.2d 262 (1972). Appellant may not raise this defense for the first time at the appellate stage. Accordingly, we agree with the district court that claims 1-4 of the reissue patent were infringed by the appellant.14

Appellant also contends that the district court failed to properly construe the scope of claim 1 of the ’417 patent in light of that patent’s file history. We, however, need not reach this issue since the damage award will stand if either the ’417 patent or the reissue patent was infringed. The district court based its award of $200,000 on the royalty formulae in UDI’s agreements, especially the agreement with Hood Corporation. The formula in that agreement includes:

ing from 50 to 100 feet, measured from mean low water to the ocean floor;

We interpret the use of the disjunctive “or” to mean that the use of either the patented process (reissue patent) or the patented apparatus (’417 patent) results in the same royalty fee.

Accordingly, since we affirmed the holding that the appellant infringed the reissue patent, we need not reach the issue of whether the ’417 patent was also infringed.

III. Prejudgment Interest

The appellant further argues that the district court erroneously awarded prejudgment interest on the punitive or enhanced portion of the damages. We agree.

Contrary to appellees’ contention, citing Brian Jackson Associates, Inc. v. San Manuel Copper Corp., 305 F.Supp. 66, 163 USPQ 198 (D.Ariz.1969) and Corometrics Medical Systems, Inc. v. Berkeley Bio-Engineering, Inc., 193 USPQ 467 (N.D.Cal.1977), that the award of prejudgment interest on the punitive or enhanced portion was proper, we hold that prejudgment interest can only be applied to the primary or actual damage portion and not to the punitive or enhanced portion.

Prejudgment interest is awarded to the patent owner for the purpose of making him whole, not only for the value of the actual damage suffered but also for the loss of any possible use of the money between the time of the infringement and the date of the judgment. General Motors Corp. v. Devex Corp., — U.S. —, —, 103 S.Ct. 2058, 76 L.Ed.2d 211, 217 USPQ 1185, 1189 (1983). It is awarded to compensate for the delay in payment of the damages, and not to punish the infringer. In Trio Process Corp. v. L. Goldstein’s Sons, Inc., 638 F.2d 661 (3d Cir.1981), where the district court had doubled the damage award for willful infringement pursuant to section 284, the Third Circuit concluded that the enhanced portion was punitive in character. As such, it held that prejudgment interest could not be assessed on the enhanced portion of the damage award. The Third Circuit stated:

Id., at 663. Accord H.K. Porter Co. v. Goodyear Tire & Rubber Co., 536 F.2d 1115, 1124, 191 USPQ 486, 493 (6th Cir.1976); General Electric Co. v. Sciaky Brothers, Inc., 415 F.2d 1068, 1076, 163 USPQ 257, 263 (6th Cir.1969).

In the instant case, the enhanced portion of the damage award, $400,000, is punitive in character since it was assessed by the district court for M-K’s willful infringement of UDI’s patents. See infra. We therefore reverse the district court’s award of prejudgment interest on the enhanced or punitive portion of the damage award.

IV. Willful Infringement

Last, the appellant argues that the district court’s finding of willful infringement was erroneous. We disagree.

The district court’s finding of willful infringement is a finding of fact, and as such, the standard of review is the clearly erroneous standard. F.R.Civ.P. 52(a). The appellant, however, has failed to show that the district court’s finding was clearly erroneous. United States v. United States Gypsum Co., 333 U.S. 364, 68 S.Ct. 525, 92 L.Ed. 746 (1948). See also Kalman v. Kimberly-Clark Corp., 713 F.2d 760, 218 USPQ 781 (Fed.Cir.1983).

Where, as here, a potential infringer has actual notice of another’s patent rights, he has an affirmative duty to exercise due care to determine whether or not he is infringing. See Milgo Electronic

Corp. v. United Business Communications, Inc., 623 F.2d 645, 666, 206 USPQ 481, 497 (10th Cir.1980), cert. denied, 449 U.S. 1066, 101 S.Ct. 794, 66 L.Ed.2d 611 (1980). Such an affirmative duty includes, inter alia, the duty to seek and obtain competent legal advice from counsel before the initiation of any possible infringing activity. See General Electric, supra, at 1073-74, 163 USPQ at 261; Marvel Specialty Co. v. Bell Hosiery Mills, Inc., 386 F.2d 287, 155 USPQ 545 (4th Cir.1967), cert. denied, 390 U.S. 1030, 88 S.Ct. 1409, 20 L.Ed.2d 286 (1968). In this case, M-K obtained its counsel’s advice after it commenced its infringing activities. Although Mr. Schlanger did order a patent search and received the results of that search in late 1973, he did not evaluate the validity or infringement of the Robley patents before M-K began the infringing activities. Such an evaluation would generally include an analysis of the file history of the patent. Mr. Schlanger, however, did not order the file histories of the Robley patents until September 5, 1974, well after the infringement had begun. Moreover, M-K did not receive the opinion of its patent counsel until November 30, 1974, long after infringement had commenced and even after the complaint for the instant case was filed.

Contrary to appellant’s contention that it proceeded with the infringing activities in good faith based on the advice of its counsel, Mr. Schlanger, we disagree. Rather, M-K knew or should have known that it proceeded without the type of competent legal advice upon which it could justifiably have relied. M-K knew that the attorney from whom it sought advice was its own in-house counsel. While this fact alone does not demonstrate M-K’s lack of good faith, it is a fact to be weighed. See Western Electric Co. v. Stewart-Warner Corp., 631 F.2d 333, 337, 208 USPQ 183, 187 (4th Cir.1980), cert. denied, 450 U.S. 971, 101 S.Ct. 1492, 67 L.Ed.2d 622 (1981). In addition, M-K knew or should have known that Mr. Schlanger was not a patent attorney. Again, this fact alone is not controlling, but does bear on the question whether M-K, when it sought advice, did so in good faith.

Although M-K might have demonstrated to the district court that despite any inference arising from these circumstances, it was in fact justified in believing Mr. Schlanger was capable of rendering an independent and competent opinion because he did take the steps normally considered to be necessary and proper in preparing an opinion, it failed to do so. As stated previously, Mr. Schlanger did not order the file histories until September, 1974, such step being a normal and necessary preliminary to a validity or infringement opinion. In addition, M-K might have demonstrated to the district court that its counsel’s opinion, without an analysis of the file histories, was in fact thorough and competent. Although the December, 1973 memorandum may be considered legal advice, it was not legal advice upon which the appellant was justified in relying, since it was not based on an evaluation of the validity or infringement of the Robley patents. The May, 1974 memorandum is similarly inadequate. It contains only bald, conclusory and unsupported remarks regarding validity and infringement of the Robley patents. Had it contained within its four corners a patent validity analysis, properly and explicitly predicated on a review of the file histories of the patents at issue, and an infringement analysis that, inter alia, compared and contrasted the potentially infringing method or apparatus with the patented inventions, the opinion may have contained sufficient internal indicia of creditability to remove any doubt that M-K in fact received a competent opinion. What these memoranda clearly demonstrated was M-K’s willful disregard for the Robley patents. The appellant clearly failed to exercise its affirmative duty. Accordingly, the district court’s finding that infringement was willful, in the totality of the circumstances presented in this case, is not clearly erroneous and the district court did not abuse its discretion in awarding treble damages. Milgo, supra, at 665, 206 USPQ at 497.

V. Conclusion

Accordingly, we affirm the district court’s conclusions regarding the validity of

the patents at issue, infringement of the reissue patent, willful infringement, the amount of the damages, the trebling of the damages, and the award of prejudgment interest on the primary portion of the damage award. We reverse the award of prejudgment interest on the punitive portion of the damage award.

AFFIRMED-IN-PART; REVERSED-IN-PART.