Heeling Sports Ltd. v. U.S. Furong International, Inc.

NOTE: This disposition is nonprecedential.
United States Court of Appeals for the Federal Circuit
2008-1483
HEELING SPORTS LIMITED,
Plaintiff-Appellant,
v.
US FURONG INTERNATIONAL INC., AIR FLY, APPLE FOOTWEAR INC., ZI ZHEN
QIAO (also known as Jenny Qiao), 2000 SHOES and DOES 1-10 Inclusive,
Defendants-Appellees.
Craig B. Florence, Gardere Wynne Sewell LLP, of Dallas, Texas, for plaintiff-
appellant. With him on the brief was Stacy R. Obenhaus. Of counsel was Thomas C.
Wright.
Jen-Feng Lee, WorldEsquire Law Firm, LLP, of Pasadena, California, for
defendants-appellees.
Appealed from: United States District Court for the Central District of California
Judge Florence-Marie Cooper
NOTE: This disposition is nonprecedential.
United States Court of Appeals for the Federal Circuit
2008-1483
HEELING SPORTS LIMITED,
Plaintiff-Appellant,
v.
US FURONG INTERNATIONAL INC., AIR FLY, APPLE FOOTWEAR, INC.,
ZI ZHEN QIAO (also known as Jenny Qiao), 2000 SHOES and DOES 1-10 Inclusive,
Defendants-Appellees.
Appeal from the United States District Court for the Central District of
California in case no. 2:06-CV-07624, Judge Florence-Marie Cooper.
___________________________
DECIDED: April 3, 2009
___________________________
Before MAYER, PLAGER, and BRYSON, Circuit Judges.
PER CURIAM.
DECISION
Heeling Sports Ltd. appeals the amount of a damages award for patent
infringement and the amount of the associated attorney fee award. Based on the record
before us, we are unable to determine whether the district court’s damages award can
be sustained. We therefore vacate and remand to allow the district court to reassess
the damages and fee award, or to explain the basis for the damages award.
BACKGROUND
Heeling owns a series of patents related to shoes that have an embedded “covert
wheel assembly” in the heel, which allows the wearer to walk, run, or roll in shoes that
have the appearance of normal footwear. Heeling sells its embodiment of the invention
as “Heelys Skates.” In 2006, Heeling sued the defendants, a number of footwear
importers and distributors, for infringing its patents by selling footwear similar to the
Heelys Skates. The defendants failed to appear, and the United States District Court
for the Central District of California entered a default judgment against them. The court
issued a preliminary injunction and ordered discovery relating to damages. After the
defendants failed to respond to the court-ordered discovery, Heeling filed a motion for
contempt. The district court granted the motion and allowed seizure of defendants’
documents in order to assist in calculating damages. The documents indicated that the
defendants had imported at least 186,150 units of “roller skate” shoes.
Heeling then filed a motion for an award of damages. The motion was supported
by the declaration of an expert witness. Based on various factors, including his
determination that each unit would produce at least $15.00 in profit, the expert
concluded that a reasonable royalty would be $15.00 per infringing unit. See Georgia-
Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970),
modified and aff’d, 446 F.2d 295 (2d Cir. 1971); see also Interactive Pictures Corp. v.
Infinite Pictures, Inc., 274 F.3d 1371, 1385-86 (Fed. Cir. 2001). By multiplying the
royalty rate by the number of infringing units imported, Heeling concluded that its
damages were $2,792,250.00. Heeling accordingly requested that the court enter an
award in that amount and grant $54,436.95 in attorney fees.
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In response, the defendants asserted that rather than selling the shoes for
$45.00 per pair, as Heeling’s expert had concluded they could have, they actually sold
the shoes for $6.50 per pair. The defendants claimed that their profit per pair was only
$1.50. After hearing from both sides, the district court issued a permanent injunction,
awarded damages of $279,000.00, and ordered the defendants to pay a total of
$9,184.50 in attorney fees pursuant to 35 U.S.C. § 285 and Central District of California
Local Rule 55-3. Heeling appeals the damages award and the attorney fees award.
DISCUSSION
After a finding of patent infringement, “the court shall award the claimant
damages adequate to compensate for the infringement, but in no event less than a
reasonable royalty for the use made of the invention by the infringer, together with
interest and costs as fixed by the court.” 28 U.S.C. § 284. One appropriate means of
calculating the amount of a reasonable royalty is to employ “the conceptual framework
of a hypothetical negotiation between the patentee and the infringer.” Interactive
Pictures, 274 F.3d at 1384; see also Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1554
(Fed. Cir. 1995) (en banc).
As we have previously explained, “The question to be asked in determining
damages is how much had the Patent Holder and Licensee suffered by the
infringement. And that question is primarily: had the Infringer not infringed, what would
the Patent Holder-Licensee have made?” King Instruments Corp. v. Perego, 65 F.3d
941, 948 (Fed. Cir. 1995) (citations removed); see also Paper Converting Mach. Co. v.
FMC Corp., 432 F. Supp. 907, 916 (E.D. Wis. 1977), aff’d, 588 F.2d 832 (7th Cir. 1978)
(“If a rule were to be applied limiting post-infringement court determination of royalties to
2008-1483 3
the infringer’s actual profits, the effect would be to insure the infringer against losses in
those situations where actual profits are less than the royalty level that would have been
freely negotiated prior to the infringement.”). Heeling asserts that in selecting an award
of damages that was only 10 percent of Heeling’s request, the court must have
determined the reasonable royalty based on the defendants’ profits rather than the
profits the patentee would have made absent infringement. Heeling asks us to set
aside the district court’s award and to grant its entire damages request.
When reviewing the court’s “methodology for arriving at a reasonable royalty,” we
employ a deferential abuse-of-discretion standard. See SmithKline Diagnostics, Inc. v.
Helena Labs. Corp., 926 F.2d 1161, 1164 (Fed. Cir. 1991). However, in this case we
cannot review the court’s methodology because the court did not provide an explanation
of how it arrived at the damages award that it entered. As we have explained, “To
enable appellate review, a district court is obligated to explain the basis for the award.”
Read Corp. v. Portec, Inc., 970 F.2d 816, 828 (Fed. Cir. 1992). While we have
cautioned that in light of the need to conserve judicial resources, a remand is a “step not
lightly taken,” Consol. Aluminum Corp. v. Foseco Int’l Ltd., 910 F.2d 804, 814 (Fed. Cir.
1990), we remand when it is necessary to ensure that we are reviewing a judgment
rather than speculating as to the methodology used by the district court or making
determinations on our own that should be made in the first instance by the district court.
While Heeling may be correct about the method the district court used to
calculate the damages award, there is nothing in the court’s order that compels that
conclusion. We could guess that the trial court based its damages award on the
defendants’ claimed profit levels, but it would be a guess, and we think it preferable for
2008-1483 4
the district court to explain the rationale underlying its decision, so that we can review
that decision with that rationale in mind.
Based on Local Rule 55-3, the district court awarded attorney fees in an amount
calculated directly from the damages award. Because Heeling contends that the district
court’s presumed method of calculating damages was incorrect, it challenges the award
of attorney fees as well (although it does not challenge the district court’s methodology
of basing the attorney fee award on the amount of the damages award under Local Rule
55).
Because review of the damages award cannot stand without a fuller explanation
by the district court as to how the court arrived at the award, and because the attorney
fee award was apparently tied directly to the damages award, we remand to allow the
district court either to reassess the damages and fees or to explain how the damages
award was calculated. If the damages award is based on a determination of the
reasonable royalty per unit, the court should explain why the per unit damages award
represents a reasonable royalty that would have been agreed upon following a
hypothetical negotiation between the patentee and the infringer.
Costs for this appeal are awarded to Heeling.
2008-1483 5