Atlantic Thermoplastics Co., Inc., James B. Sullivan and Richard B. Fox v. Faytex Corporation

5 F.3d 1477, 28 U.S.P.Q. 2d (BNA) 1343, 27 Fed. R. Serv. 3d 548, 1993 U.S. App. LEXIS 25036, 1993 WL 383307

• Court: Court of Appeals for the Federal Circuit
• Decided: September 30, 1993
• Docket: 93-1110
• Status: Published

Opinions

ARCHER, Circuit Judge.

Faytex Corp. appeals the judgment of the United States District Court for the District of Massachusetts finding United States Patent No. 4,674,204 (’204 patent) not invalid and infringed by Faytex and awarding damages to Atlantic Thermoplastics Co., James B. Sullivan and Richard B. Fox (collectively, Atlantic). Atlantic Thermoplastics Co. v. Faytex Corp., No. 88-0210-H (D.Mass. Oct. 28, 1992). Because the district court did not provide findings of fact relating to validity as required by Rule 52(a) of the Federal Rules of Civil Procedure, the judgment is vacated and the case is remanded. Although not required, we also consider Faytex’s arguments as to the damage award and find no error.¹

I.

This case is before us again after remand to the district court. The facts will be discussed only as necessary for this opinion.² For the second time these parties are here contesting the validity of the ’204 patent and the damages for its infringement. Atlantic Thermoplastics Co. v. Faytex Corp., 970 F.2d 834, 23 USPQ2d 1481 (Fed.Cir.1992), was remanded for fact-findings on the on-sale bar issue and for a recalculation of the appropriate damages.

Regarding the on-sale bar issue, we stated:

The district court did not provide any findings of fact or analysis for its conclusion. Moreover, the district court’s finding does not consider several offers to sell before October 1984. The district court apparently assumed, incorrectly, that mere offers do not trigger the on-sale bar rule. In any event, in the absence of findings, this court cannot determine whether the trial court properly considered those offers of sale and therefore applied the correct legal-standard. ■

After a bench trial, a trial court must put forth the findings of fact relied upon to justify its actions. Fed.R.Civ.P. 52(a). Without findings, this court has no basis to evaluate whether the district court’s analysis uses the proper legal standard. Cf. Nutrition 21 v. United States, 930 F.2d 867, 869, 18 USPQ2d 1347, 1349 (Fed.Cir.1991) (preliminary injunction). Because the absence of findings goes to the heart of the issue, any error cannot be harmless. Therefore, this court vacates the district court’s judgment on validity and remands for a proper on-sale analysis.

Atlantic, 970 F.2d at 837, 23 USPQ2d at 1483. In its .decision on remand, the district court has failed to carry out the remand instructions and has provided only conclusory findings, as follows:

This court found, and again finds, that the ’204 patent was not invalid under the on sale bar of 35 USC § 102(b). Faytex failed to show by clear and convincing evidence that Atlantic sold or offered for sale the claimed innersole before the critical date of October 9, 1984. Prior to that date, Atlantic had indeed engaged in negotiations with Triangle, but this court found that these preliminary negotiations concerned primarily the necessity of further prototype testing and development. Consistent with the testimony of all participants in the dealings between Atlantic and Triangle, this court found no definite sale or offer to sell prior to October -9, 1984. This court found and now reaffirms its finding that the dealings prior to the bar date were for experimental purposes and not primarily for profit.

Atlantic, slip op. at 1-2. Under the circumstances of this case, see II B., infra, we again must conclude that the court’s findings of fact are inadequate and do not comply with Fed.R.Civ.P. 52(a).

II.

A. Rule 52(a) provides:

In all actions tried upon the facts without a jury ... the court shall find the facts specially and state separately its conclusions of law thereon.... Findings of fact shall not be set aside unless clearly erroneous.

Rule 52(a) makes clear the separate and ■distinct roles of the trial and the appellate court. This court must review factual findings made by the district court; it may not guess at findings left unmade. Fact-finding by the appellate court is simply not permitted. See Anderson v. City of Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 1511, 84 L.Ed.2d 518 (1985) (quoting Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 123, 89 S.Ct. 1562, 1576, 23 L.Ed.2d 129 (1969)) (“The reviewing court oversteps the bounds of its duty under Rule 52(a) if it undertakes to duplicate the role of the lower court_ ‘[A]ppellate courts must constantly have in mind that their function is not to decide factual issues de novo.’”). Findings of fact are said to be adequate when “they are sufficiently comprehensive and pertinent to the issue to form a basis for the decision.” Medtronic, Inc. v. Daig Corp., 789 F.2d 903, 906, 229 USPQ 664, 667 (Fed.Cir.1986) (quoting Loctite Corp. v. Ultraseal Ltd., 781 F.2d 861, 873, 228 USPQ 90, 98 (Fed.Cir.1985)). Here the court’s opinion is too eonclusory and sparse to provide a factual basis for determining whether the invention was on sale within the meaning of 35 U.S.C. § 102(b) prior to the critical date. See Digital Equip. Corp. v. Emulex Corp., 805 F.2d 380, 382, 231 USPQ 779, 781 (Fed.Cir.1986) (“failure to follow the procedures [including making findings of fact in accordance with Rule 52(a) ] effectively makes the merits unreviewable”); Thermo Electron Corp. v. Schiavone Constr. Co., 915 F.2d 770, 773 (1st Cir.1990) (“Until the district court makes the findings of fact called for under [Rule 52(a) ], appellant is unfairly deprived of an opportunity to pursue a meaningful appeal.”).

Although Rule 52(a) does not require elaborate, detailed findings on every factual issue raised, it does require that the findings of the trial court include as many of the subsidiary facts as are necessary to disclose to the appellate court the steps by which the trial court determined factual issues and reachéd its ultimate conclusions. See Kelley v. Everglades Drainage Dist., 319 U.S. 415, 422, 63 S.Ct. 1141, 1145, 87 L.Ed. 1485 (1943) (“Nor do we intimate that findings must be made on all of the enumerated matters or need be made on no others.... We hold only that there must be findings ... which are sufficient to indicate the factual basis for the ultimate conclusions.”); Golf City, Inc. v. Wilson Sporting Goods Co., 555 F.2d 426, 433 (5th Cir.1977) (“[T]he findings of the trial court must be sufficiently detailed to give us a clear understanding of the analytical process by which ultimate findings were réached and to assure us that the trial court took care in ascertaining the facts.”). “When the trial court provides only eonclusory findings, illuminated by no subsidiary findings or reasoning on all the relevant facts, as was the case here, there is not that ‘detail and exactness’ on the material issues of fact necessary for an understanding by an appellate court of the factual basis for the trial court’s findings and conclusions, and for a rational determination of whether the findings of the trial court are clearly erroneous.” EEOC v. United Va. Bank/Seaboard Nat’l, 555 F.2d 403, 406 (4th Cir.1977). In such cases, remand is necessary and proper. See Echols v. Sullivan, 521 F.2d 206, 207 (5th Cir.1975) (remanding for failure to resolve evidentiary conflicts and for conclusory findings); Hydrospace-Challenger, Inc. v. Tracor/Mas, Inc., 520 F.2d 1030, 1034 (5th Cir.1975) (remanding for insufficient findings).

Although this court reviews judgments not opinions, King Instrument Corp. v. Otari Corp., 767 F.2d 853, 862, 226 USPQ 402, 408 (Fed.Cir.1985), “[w]here evidence creates disputes as to the facts, the facts must be found by the district court which we must review in accordance with Rule 52(a).” Digital, 805 F.2d at 382, 231 USPQ at 781. This case presents several factual disputes which must be resolved before an ultimate conclusion can be drawn as to the on-sale .bar.

B. Atlantic had numerous dealings with a prospective purchaser of the subject innersole prior to the critical date.³ The parties dispute whether any of three particular events triggers the application of the on-sale bar. On May 3, 1984, an Atlantic salesman met with representatives of Triangle⁴ and showed them innersoles made in accordance with the claims of the ’204 patent. In a July 9,1984 letter, Atlantic quoted Triangle a “projected unit cost” of $1.30 to $1.50 per pair of “Product C” — innersoles made in accordance with the claims of the ’204 patent. In an August 10, 1984 letter, Atlantic told Triangle that “we now have” the “products you want” (including Product C) and included an invoice for tooling charges for those products. Although highly probative of whether the product of the claims of the ’204 patent was sold or offered for sale, the district court did not evaluate the May meeting or the July or August letters.

In its decision on remand, the district court noted that it had previously “found” that “preliminary negotiations [between Atlantic and Triangle] concerned primarily the necessity of further prototype testing and development” and therefore, those dealings “were for experimental purposes.” In so concluding, the district court did not discuss any evidence relevant to the need for or the existence of testing and development of the innersole. A bare “finding” of “prototype testing and development” is inadequate to support the determination of experimental use.⁵

Furthermore, experimental use does not defeat the on-sale bar once the invention has been reduced to practice. RCA Corp. v. Data General Corp., 887 F.2d 1056, 1061, 12 USPQ2d 1449, 1453 (Fed.Cir.1989). In this case, the patentee stated that prior to the critical date a prototype innersole “was made in accordance with the process later described in the ’204 patent.” Without the benefit of the district court’s findings and conclusions regarding reduction to practice, however, we have nothing to review. We will not and cannot take a first look at this important issue on appellate review.

Also unanswered in the district court’s opinion is how an innersole similar to one insufficiently developed to trigger an on-sale bar is capable of infringing the claims of the patent. The claims of the ’204 patent require that the elastomeric insert have sufficient tack to remain in place in the mold upon the introduction of expandable polyurethane foam. If displacement occurs, a portion of the foam seeps under the bottom edges of the insert. Atlantic argues in this appeal: “If the- insert moved, the innersole would be useless.... If the insert were lifted, the open-celled polyurethane would seep under the insert and the result would be unacceptable.” Atlantic further argues that the innersole of the ’204 patent could not have been on sale prior to the critical date because further innersole testing was required to increase tack and eliminate displacement, thereby eliminating seepage. Yet Atlantic’s representation of the infringing product shows seepage indicating that some displacement occurred during production. Again, however, the district court has not discussed any evidence or made any findings or conclusions in this regard leaving us without a renewable record.

In Atlantic’s first appeal we found the district court’s opinion insufficient under Rule 52(a) and remanded the case for specific fact-findings. Without making the necessary fact-findings based on the record before it, the district court reiterates fact-dependent conclusions as to the on-sale bar just as it did in its original opinion. This is wholly inadequate; Rule 52(a) requires more. We have no choice but to remand this case to the district court a second time. On remand, the district court “shall find the facts specially and state separately its conclusions of law thereon.” Fed.R.Civ.P. 52(a).

III.

We disagree with the dissent’s position that the district court has now made adequate findings. The district court has simply restated its previous conclusory findings, merely adding an equally conclusory statement as to the negotiations, without any further explanation of the underlying facts relied on or rationale to support them. The findings of the district court were insufficient then; the record before us has not changed; the findings are insufficient now.

The- dissent suggests that there is only one possible path leading to the conclusion that there was no on-sale bar in which case we do not heed expansive fact-findings. But this case is fraught with factual issues— some of which we have pointed out — that demand close examination. Only by clairvoyance could we know what evidence the district court considered and found persuasive in determining the facts underlying its conclusion of no on-sale bar. That the record may support findings that could be implied from the district court opinion does not satisfy the requirement that findings adequate to support the judgment be “specially” found. It is not the function of an appellate court “to search the record and analyze the evidence in order to supply findings which the trial court failed to make.” Kelley v. Everglades, 319 U.S. at 421-22, 63 S.Ct. at 1145. The dissent’s hypothetical opinion may articulate some or many of the district court’s unwritten findings but we do not know which of the hypothetical findings the district court would have made. If we succumb to making findings to justify the lower court’s conclusion, our role as an appellate court has been abrogated and we have not performed our duty. We therefore believe it is proper, as well as required by Rule 52(a), that the district court perform its fact-finding role in the first instance. In doing so, it may or may not agree with the' fact-findings in the dissenting opinion.

rv.

On remand, the district court thoroughly reviewed and recalculated the damages award “using a permissible market share approach” as instructed by this court. Atlantic, 970 F.2d at 847, 23 USPQ2d at 1492. In determining Atlantic’s market share, the district court took into account the patented innersoles and acceptable noninfringing substitutes. Atlantic was awarded lost profits on its market share percentage of the infringing sales and a reasonable royalty on the remaining infringing sales.

Faytex contends that the district court’s determination of the relevant market was unreasonable because it did not include the 16 domestic and several foreign manufacturers of foam innersoles. The district court concluded that the “Sorbothane products were the only acceptable non-infringing substitute” based on its finding that other products on the market “did not have the beneficial attributes of the light weight molded polyurethane innersoles with shock-absorbing inserts.” Atlantic, slip op. at 3. We are not persuaded that this finding is clearly erroneous. See Standard Havens Prods., Inc. v. Gencor Indus., Inc., 953 F.2d 1360, 1373, 21 USPQ2d 1321, 1331 (Fed.Cir.1991) (“[T]he mere existence of a competing device does not necessarily make that device an acceptable substitute. A product on the market which lacks the advantages of the patented product can hardly be termed a substitute acceptable to the customer who wants those advantages.” (citations omitted)); TWM Mfg. Co. v. Dura Corp., 789 F.2d 895, 901, 229 USPQ 525, 529 (Fed.Cir.1986) (a finding that alleged substitutes did not have the beneficial characteristics of the patented product supported the determination that there were no acceptable substitutes).

The district court found Atlantic entitled to a royalty rate of $0.25 per pair of innersoles because “[t]his is the royalty rate at which Atlantic offered to license the invention of the ’204 patent to Spenco Medical Corporation and is consistent with the commercial value and profitability of the ’204 patent and the extensive remaining life of the patent at the time of the infringement.” Atlantic, slip op., at 4. Contrary to Faytex’s argument, there was sufficient evidence of record to support the district court’s finding, which we do not hold to be clearly erroneous.

COSTS

Each party to bear its own costs.

VACATED and REMANDED.

1 . Consideration of damages is for judicial efficiency since this case is now before .this court for the second time.

2 . For a detailed background discussion, see Atlantic Thermoplastics Co. v. Faytex Corp., 970 F.2d 834, 23 USPQ2d 1481 (Fed.Cir.1992).

3 . The critical date is October 9, 1984, one year prior to the filing date of the '204 patent. If the invention was sold or offered for sale before the critical date, other than primarily for a bona fide experimental purpose to perfect the invention, 35 U.S.C. § 102(b) bars Atlantic from obtaining a patent therefor.

4 . Triangle is a division of the Campbell Soup Company.

5 . See Stearns v. Beckman Instruments, Inc., 737 F.2d 1565, 222 USPQ 457 (Fed.Cir.1984) involving a first, second and third prototype of a syringe. Samples of the second prototype were sent to prospective purchasers and a price for the syringes was quoted. The patent in suit was applied for after a third prototype was completed. The district court found that the syringe was “on sale” based on the activities involving the second prototype. Continuing • prototype testing and development did not preclude the advent of the on-salc bar.