Fujifilm Corp. v. Benun

United States Court of Appeals
for the Federal Circuit
__________________________

FUJIFILM CORPORATION,
Plaintiff-Appellee,
v.
JACK C. BENUN,
Defendant-Appellant,
and
JAZZ PRODUCTS LLC, POLYTECH ENTERPRISES
LTD,
and POLYTECH (SHENZHEN) CAMERA CO. LTD.,
Defendants-Appellants.
__________________________

2009-1487
__________________________

Appeal from the United States District Court for the
District of New Jersey in case no. 2:05-CV-1863, Judge
Katharine S. Hayden.
______________________

Decided: May 27, 2010
_______________________

LAWRENCE ROSENTHAL, Stroock & Stroock & Lavan
LLP, of New York, New York, argued for plaintiff-
appellee. With him on the brief were MATTHEW W.
SIEGAL, and ANGIE M. HANKINS.
FUJIFILM CORPORATION v. BENUN 2

JOHN M. PETERSON, Neville Peterson LLP, of New
York, New York, argued for defendants-appellants. With
him on the brief were GEORGE W. THOMPSON, and
MICHAEL T. CONE. Of counsel on the brief was JERRY P.
WISKIN, Simons & Wiskin, of South Amboy, New Jersey.
__________________________

Before MICHEL, Chief Judge, MAYER, and LINN, Circuit
Judges.
PER CURIAM.

Jack C. Benun (Benun), Jazz Products LLC (Jazz),
Polytech Enterprise Ltd. (PE) and Polytech (Shenzhen)
Camera Co. (PC) (collectively, defendants) appeal the
judgment of the United States District Court for the
District of New Jersey finding that defendants infringed
patents owned by Fujifilm Corporation (Fuji). Fujifilm
Corp. v. Benun, No. 2:05cv1863 (D. N.J. July 22, 2009)
(Final Order and Judgment). We affirm.
BACKGROUND
This appeal concerns single-use cameras, or lens-
fitted film packages (LFFPs). Fuji participates in the
LFFP market and owns U.S. patents directed to LFFPs.
Once a LFFP is used by a consumer it is taken to a film
processor who opens the LFFP and processes the film.
The film processor does not return the empty LFFP (shell)
to the consumer. Jazz bought used LFFPs, refurbished
them, and sold them as new.
This is the sixth appeal from decisions finding liabil-
ity for infringing Fuji’s LFFP patents by Benun and
companies under his control. The case that is the subject
of this appeal began in 2005 when Fuji sued Benun, Jazz,
PE, and PC. Jazz is Benun’s new company, initially
formed as Ribi Tech Products LLC, after the Bankruptcy
3 FUJIFILM CORPORATION v. BENUN

Court for the District of New Jersey shut down Jazz Photo
Corp. PE supplied Jazz with LFFPs that were refur-
bished by PE’s subsidiary, PC. PC operated a factory in
China where the LFFPs were refurbished. On April 4,
2005, Jazz purchased Jazz Photo Corp.’s inventory of
about 1.4 million LFFPs made by PE and PC (collectively,
Polytech), essentially continuing the LFFP business
where Jazz Photo Corp. left off after being shut down by
the bankruptcy court.
On June 6, 2005, the district court’s first preliminary
injunction enjoined the defendants from infringing and
inducing others to infringe, and ordered Jazz to maintain
an inventory of LFFPs until the parties reached a sam-
pling agreement. On June 15, 2005, the district court’s
second preliminary injunction enjoined defendants from
selling in or to the United States: LFFPs not made from
shells first sold in the United States by Fuji or its licen-
sees; and LFFPs not having a back cover that replaces the
full back cover sold with the original LFFP. We affirmed
the court’s second injunction in Fuji Photo Film Co., Ltd.
v. Benun, 463 F.3d 1252 (Fed. Cir. 2006).
The 1.4 million LFFPs Jazz purchased were detained
due to International Trade Commission (ITC) orders
prohibiting importation of LFFPs that infringe Fuji’s
patents. Based on the ITC orders, Jazz exported most of
the detained LFFPs. From October 2005 to January
2006, however, PE sold almost a million of these previ-
ously detained LFFPs back to Jazz in the United States.
These re-imported LFFPs were released by Customs
based on an October 14, 2005, letter from defendants’
counsel. Fuji discovered the re-importation in March
2006, while deposing Benun for this case.
On October 10, 2006, Fuji filed a contempt motion
based on Jazz’s re-importation. On December 5, 2006, the
district court found defendants in contempt of the pre-
liminary injunction based on clear and convincing evi-
FUJIFILM CORPORATION v. BENUN 4

dence that the re-imported LFFPs were infringing as
determined by the sampling process. The court later
awarded Fuji $117,486 in attorneys fees based on the
contempt citation. Defendants’ appeal to this court was
dismissed for lack of jurisdiction. Fuji Photo Film Co. v.
Benun, 240 Fed. App’x 862 (Fed. Cir. 2007).
In this case, Fuji moved for partial summary judg-
ment of infringement on all but certain LFFPs made by
refurbishing Achiever-brand LFFPs. Defendants moved
for summary judgment that (1) Fuji had already recov-
ered damages from the Jazz Photo Corp. bankruptcy, (2)
this action was mooted by Fuji’s settlement of bankruptcy
claims against Jazz Photo Corp., (3) the bankruptcy sale
of Jazz Photo Corp.’s inventory to Jazz was a patent
exhausting first sale, and (4) the LFFPs were permissibly
repaired. On June 30, 2008, the district court granted
Fuji’s motion for partial summary judgment of infringe-
ment, and denied defendants’ motions.
On March 16, 2009, defendants moved in limine to
bar reference to prior litigations and administrative
actions, and to collaterally estop Fuji from litigating
whether defendants had met the process requirement for
permissible repair. On April 6, 2009, the court ordered
each side to attend a pretrial conference that would
include “a specific offer of proof as to each side.” Defen-
dants were tasked to show how they would prove less
than 40% of Polytech’s LFFPs made through December
13, 2003, were made from foreign shells, and consequently
infringed Fuji’s patents. Fuji was tasked to show how it
would prove that defendants’ LFFPs were reconstructed
as opposed to permissibly repaired.
The court found both offers insufficient. Therefore,
defendants were precluded from arguing that more than
60% of their LFFPs were refurbished from LFFP shells
sold in the United States for the period prior to December
5 FUJIFILM CORPORATION v. BENUN

12, 2003. Fuji was similarly precluded from arguing
reconstruction for the entire time period at issue.
A jury trial ensued. At the close of Fuji’s case, defen-
dants moved for judgment as a matter of law (JMOL)
under Fed. R. Civ. P. 50(a) on Fuji’s infringement claim
based on defendants refurbishing Achiever-brand LFFPs.
Defendants’ JMOL motion, which contained no other
issues, was denied. The jury found willful infringement of
Fuji’s patents and awarded a $2.00 per infringing LFFP
running royalty, resulting in a verdict, including interest,
of $16,191,406 against PE, of which Benun and Jazz are
jointly and severally liable for $3,690,239; and an addi-
tional $2,500,000 lump sum royalty payment. The court
denied defendants’ post-trial motion for JMOL under Fed.
R. Civ. P. 50(b) based on non-infringement by
Achiever-brand LFFPs and inapplicability of a first sale’s
location, and its motion for a new trial on damages.
DISCUSSION
For nonpatent issues we apply the law of the circuit in
which the district court sits. In re Cambridge Biotech,
186 F.3d 1356, 1368 (Fed. Cir. 1999). In this case, Third
Circuit law governs procedures for preserving issues for
appeal and denial of motions for JMOL or a new trial.
Voda v. Cordis Corp., 536 F.3d 1311, 1318 (Fed. Cir.
2008). Under Third Circuit law we have plenary review
over a district court’s rulings on motions for JMOL, apply-
ing the same standards as the district court. Gagliardo v.
Connaught Labs., Inc., 311 F.3d 565, 568 (3d Cir. 2002).
We review for an abuse of discretion the district court’s
decision on whether to grant a new trial based on the
verdict being against the weight of the evidence.
Greenleaf v. Garlock, Inc., 174 F.3d 352, 365-66 (3d Cir.
1999). In the Third Circuit, a district court has abused its
discretion if its determinations are based on an erroneous
view of the law or on a clearly erroneous assessment of
FUJIFILM CORPORATION v. BENUN 6

the evidence. Simmerman v. Corino, 27 F.3d 58, 62 (3d
Cir. 1994).
For issues of substantive patent law and procedural
issues pertinent to patent law, we apply our own law.
Cambridge Biotech, 186 F.3d at 1368. Accordingly, we
apply Federal Circuit law in reviewing, for an abuse of
discretion, a district court’s finding of contempt of an
injunction by infringement. Int’l Rectifier Corp. v. Sam-
sung Elecs. Co., 361 F.3d 1355, 1359 (Fed. Cir. 2004).
I.
Defendants present four issues for review: (1) whether
Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S.
, 128 S. Ct. 2109 (2008), eliminated the territoriality
requirement for patent exhaustion announced in Jazz
Photo Corp. v. United States International Trade Com-
mission, 264 F.3d 1094 (Fed. Cir. 2001) (Quanta argu-
ment); (2) whether the court invoked non-mutual
collateral estoppel and precluded Polytech from present-
ing its permissible repair and first sale defenses on the
basis of court proceedings to which Polytech was not a
party (estoppel argument); (3) was a new trial on damages
warranted by the jury’s $2.00 per infringing LFFP run-
ning royalty and $2.5 million lump sum award (new trial
argument); and (4) whether the court properly held de-
fendants in contempt of a preliminary order enjoining
importation of infringing LFFPs (contempt argument).
First, we consider whether issues (1) and (2) are waived.
Regarding defendants’ Quanta argument, defendants
can only appeal issues presented to the jury that were
included in an earlier motion for JMOL under Fed. R. Civ.
P. 50(a), and properly renewed in a Fed. R. Civ. P. 50(b)
post-trial motion. Lightning Lube, Inc. v. Witco Corp., 4
F.3d 1153, 1172-73 (3d Cir. 1993). Fuji, however, did not
raise a timely objection to Jazz’s 50(b) motion arguments,
including the Quanta argument, that were not present in
7 FUJIFILM CORPORATION v. BENUN

its 50(a) motion. Chainey v. Street, 523 F.3d 200, 218 (3d
Cir. 2008). Fuji’s argument that defendants waived their
Quanta argument by consenting to the jury instructions
fails for similar reasons. Accordingly, defendants’ Quanta
argument is properly before this court.
Defendants’ estoppel argument was not raised in de-
fendants’ 50(a) or 50(b) motions, and their failure to raise
the argument in either motion precluded Fuji’s objection
because it lacked notice that the argument was main-
tained beyond the pre-trial motions. Fuji timely asserts
waiver, and defendants’ estoppel argument is waived.
II.
Quanta Computer, Inc. v. LG Electronics, Inc. did not
eliminate the first sale rule’s territoriality requirement.
Three LG patents, relating to systems in which a micro-
processor writes or reads memory unit data, were at issue
in Quanta. LG licensed Intel to make, use, or sell combi-
nation products practicing these patents, but restricted
Intel from passing a license on to Intel customers to make
the patented combination by joining Intel’s unpatented
chips with components from a non-Intel source. Quanta
Computer, Inc., 553 U.S. at , 128 S. Ct. at 2114. The
license also stated that patent exhaustion applied when
Intel sold its LG-licensed products. Id. In a second
agreement, Intel agreed to provide written notice to its
customers that Intel’s LG license did not extend to any
subsequent purchaser’s product made by combining an
Intel product with any non-Intel product. Id.
Intel sold chips to Quanta without hardware to con-
nect them in a working computer; it also provided Quanta
with the required written notice. Id. LG’s patents were
not infringed until the chips were assembled with hard-
ware, but the only reasonable and intended use for the
chips was practicing LG’s patents. Id. at 2119. Quanta
combined Intel’s chips with non-Intel hardware so that
FUJIFILM CORPORATION v. BENUN 8

LG’s patents were practiced. Id. The Supreme Court
resolved whether Intel selling chips to Quanta exhausted
LG’s patent rights in the chip-using system. Id. at 2122.
Holding the case governed by United States v. Univis Lens
Co., 316 U.S. 241 (1942) (exhaustion occurs when the only
reasonable and intended use of the products sold is to
complete the patented combination), the Court found that
Intel’s chips substantially embodied the patented inven-
tion and their unconditional, authorized sale by Intel
thereby exhausted LG’s patents. Quanta Computer, Inc.,
553 U.S. at , 128 S. Ct. at 2122.
Defendants assert that Quanta created a rule of
“strict exhaustion,” that the Court’s failure to recite the
territoriality requirement eliminated it. That case, how-
ever, did not involve foreign sales. Defendants rely on
Quanta’s footnote 6 because it contains the phrase
“[w]hether outside the country.” ∗ This phrase, however,
emphasizes that Univis required the product’s only use be
for practicing–not infringing–the patent; and a practicing
use may be “outside the country,” while an infringing use
must occur in the country where the patent is enforceable.
Read properly, the phrase defendants rely on supports,
rather than undermines, the exhaustion doctrine’s terri-
toriality requirement.

∗
LGE suggests that the Intel Products would not
infringe its patents if they were sold overseas, used as
replacement parts, or engineered so that use with
non-Intel products would disable their patented features.
But Univis teaches that the question is whether the
product is ‘capable of use only in practicing the patent,’
not whether those uses are infringing. Whether outside
the country or functioning as replacement parts, the Intel
Products would still be practicing the patent, even if not
infringing it.” Quanta Computer, Inc., 553 U.S. at __, 128
S. Ct. at 2119 n.6 (citations omitted) (emphasis in origi-
nal).
9 FUJIFILM CORPORATION v. BENUN

III.
We also consider defendants’ new trial argument that
the $2.00 per infringing LFFP running royalty and the
$2.5 million lump sum, are excessive, punitive, and un-
supported by substantial evidence. Under 35 U.S.C. § 284,
Fuji was entitled to “damages adequate to compensate for
the infringement, but in no event less than a reasonable
royalty.” To determine a reasonable royalty, a jury must
find the royalty that would have been agreed to in a
hypothetical negotiation between a willing licensee and
willing licensors at the time infringement began. Rite-
Hite Corp. v. Kelley Co., 56 F.3d 1538, 1554 (Fed. Cir.
1995) (en banc). The jury’s award should stand unless it
is grossly excessive, not supported by evidence, or based
on only speculation or guesswork. Oiness v. Walgreen Co.,
88 F.3d 1025, 1031 (Fed. Cir. 1996).
Fuji presented testimony that in a hypothetical nego-
tiation it would have enjoyed a strong bargaining position
based on (1) defendants’ entire business depending on a
Fuji license; (2) Customs excluding infringing LFFPs; and
(3) defendants’ demonstrated inability to segregate in-
fringing LFFPs from non-infringing LFFPs. Relying on
these and other factors from Georgia-Pacific Corp. v.
United States Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y.
1970), Fuji’s expert testified that the parties would have
agreed to a 40 cent royalty rate. Based on defendants’
inability to separate the LFFPs, the expert testified at
length about Georgia-Pacific factor 6 (collateral sales) and
included both infringing and non-infringing LFFPs in the
royalty base. In support of its all-product royalty base,
Fuji presented the method as an accepted technique to
avoid repeated disputes over what percentage of LFFPs
infringe, a point of contention between Fuji and defen-
dants.
FUJIFILM CORPORATION v. BENUN 10

Critically, Fuji’s expert testified that in a hypothetical
negotiation the royalty rate would have changed inversely
to royalty-base changes, resulting in a consistent royalty
amount. Specifically, if 50% of LFFPs infringed, and the
royalty base only included infringing LFFPs (a reduction
by one-half in the size of the potential royalty base of all
LFFPs), then the royalty rate would double from 40 cents
to 80 cents per infringing LFFP. In short, Fuji advocated
a consistent royalty amount that would not vary with
changes in the royalty-base size. To that end, Fuji’s
expert provided the jury with sufficient information to
reach Fuji’s proposed royalty amount, whether the royalty
base included all LFFPs (a larger royalty base, driving the
royalty rate down to reach Fuji’s proposed royalty
amount), or only infringing LFFPs (a smaller royalty
base, driving the royalty rate up to reach Fuji’s proposed
royalty amount). By increasing the royalty rate in an
amount proportionate to any reduction in the size of the
royalty base, the jury could have reached a $2.21 royalty
rate for application to a royalty base including only in-
fringing LFFPs. ** $2.21 is even larger than the $2.00 per
infringing LFFP royalty the jury awarded.
Defendants seize on the 40 cent royalty rate and ar-
gue that the royalty base for the proposed royalty rate can
only include infringing LFFPs, thereby making the jury’s
$2.00 royalty rate excessive. This argument fails because
the jury was entitled to rely on evidence of bundling and
convoyed sales in determining the proper scope of the
royalty base. Deere & Co. v. Int’l Harvester Co., 710 F.2d
1551, 1559 (Fed. Cir. 1983). “The fact that bundling and
convoyed sales affected [Fuji’s] estimate of both the roy-
alty base and the royalty rate is thus not a sufficient
reason to nullify the jury’s award.” Interactive Pictures v.
Infinite Pictures, 274 F.3d 1371, 1385 (Fed. Cir. 2001).

**0.40 per LFFP ÷ (4,600,000 LFFPs ÷ 25,400,000
LFFPs)) = $2.21
11 FUJIFILM CORPORATION v. BENUN

Because defendants apply similar logic in their assertion
that the $2.5 million lump sum is excessive, these argu-
ments also are unconvincing.
IV.
Finally, defendants challenge whether the court prop-
erly held them in contempt of a preliminary order enjoin-
ing importation of infringing LFFPs. They do not dispute
the existence of a valid court order, or their knowledge of
that order. Instead, they argue that contempt was not
supported by sufficient evidence of infringement, the
imported cameras were redesigned, and Fuji’s patent
rights were terminated during the bankruptcy sale. We
need not reach defendants’ third argument; it was waived
by their failure to raise it in either the 50(a) or 50(b)
motion.
Defendants’ remaining arguments are unconvincing.
The district court correctly relied on three fact witness
reports and a statistical expert to show that imported
LFFPs included shells that were not first sold in the
United States, and not redesigned. Therefore, the court
did not abuse its discretion in finding contempt of the
preliminary injunction.
CONCLUSION
Accordingly, the judgment of the United States Dis-
trict Court for the District of New Jersey is affirmed.
AFFIRMED