Ck Claridge inc
Purcell hoped that by the end of the afternoon, aided by Schilling’s insights, he would be able to establish a course of action that might hasten the final settlement of a patent suit brought against CKC three years earlier by the Tolemite Corporation and its licensee, Barton Research and Development (BARD). The Contenders CKC was founded in Milwaukee, Wisconsin, in 1948 as a commercial outlet for the inventive genius of Dr. Charles K. Claridge, an astute organic chemist. Dr.
Claridge owned and managed the company until 1996, when, desiring to retire, he sold it along with all of its patents and products to Arnoux Industries, a small Chicago-based conglomerate. CKC continued to prosper as an Arnoux subsidiary and by 2009 had projected annual sales of about $105 million, 14% of the Arnoux total. About 10% of CKC’s sales in 2009 were derived from a chemical component called Varacil, whose manufacturing process was the subject of the patent suit. The remainder of its sales included a wide range of specialty organic chemical products, sold in relatively small volume, primarily to the pharmaceutical industry.
Tolemite, also headquartered in Chicago, was a chemical and pharmaceutical manufacturer with estimated 2009 sales in excess of $3. 0 billion. In 2000 Tolemite had been awarded a 17-year patent covering various aspects of a new, low-cost process for synthesizing Varacil. The techniques covered by the patent had been discovered at Tolemite’s research facility in 1994 as an offshoot of another project. (Tolemite had filed a patent application in early 1995. ) Since Tolemite was neither a user nor a producer of Varacil, it had decided to offer the use of the patent, under license, to BARD, the principal Varacil producer in the United States.
As drugs requiring Varacil had been phased out, new ones requiring the compound had typically appeared. Furthermore, industry leaders had no reason to believe that this stability would be lost over the next several years; they projected industry unit sales to be quite flat as far as five to ten years out. On the dollar value side, however, the story was quite different. Prices for Varacil had been in decline for several years. When converting to the synthetic process, each competitor in the industry had tooled up to supply an optimistic share of the market.
Then, when market share objectives were not met, prices were slashed in an attempt to keep manufacturing facilities operating at efficient levels and to bring in as much contribution as possible toward fixed costs. This situation was expected to continue for at least five years. Exhibit 1 shows industry unit and dollar sales of synthetic Varacil for the period 2000-2009, as well as management’s projections for 2010-2020. In 2009 there were seven principal competitors in the synthetic Varacil market. BARD, with $60 million in sales, took roughly 66% of the market. CKC, with about $10 million in sales, was the
Upon filing of the suit, CKC’s process engineers had tried hard to develop a process modification that avoided infringing the patent in the manner that the CKC-discovered process allegedly did, but after a year of trying determined that this was not feasible. 2 C. K. Claridge, Inc. 910-045 second largest and held an 11% share. The remaining five competitors, none of whose Varacil sales exceeded $6 million, then constituted the remaining 23% of the market. By 2006 all seven of the principal competitors were manufacturing synthetic Varacil by nearly identical processes. Only BARD, however, was paying royalties to Tolemite.
Based on the logic of the lawsuit, the other producers were technically infringing the patent. Background on the Litigation On June 12, 2006, Tolemite (as the patent owner) and BARD (with sublicensing rights) had jointly filed suit in the United States District Court for the Eastern District of Wisconsin charging CKC with having infringed on Tolemite’s patent. To remedy the infringement, Tolemite and BARD were seeking an injunction against future infringement over the ten years remaining on the 17-year life of the patent, as well as damages equivalent to license royalty payments of 20% on Claridge’s past and future sales of synthetic Varacil.
When confronted with the suit, Purcell had immediately discussed the matter with Aaron Mantiris, general counsel for Arnoux Industries. Both had felt there was considerable evidence indicating that Tolemite’s process might not be patentable. At Mantiris’ suggestion, CKC had retained the services of Evans and Blaylock, a well-known and highly reputable firm of intellectual property attorneys in New York. These attorneys quickly agreed with Mantiris on the potential weakness of the Tolemite suit. Thus, in 2006, Evans and Blaylock had begun to intensively prepare the case for CKC’s defense.
Tolemite’s patent contained 12 claims of originality. Like all successful patent applicants, Tolemite had had to demonstrate to the patent examiners that there was no “prior art,” e. g. previous patents, applied-for patents, or processes in the public domain—unpatentable, but generally known—that were similar. In fact, there were many instances of patents being successfully challenged. However, once a patent was issued, the burden lay with a potential infringer to prove that the claimed invention was unpatentable.
And, unless there was a serious irregularity such as fraud associated with its issuance, a patent was treated as valid unless and until it was legally invalidated. In the matter of synthetic Varacil, Mantiris argued that Tolemite had not, in fact, introduced any novelty, but had merely observed and harnessed a naturally occurring process that, in itself, was not patentable. A patent holder whose patent was infringed was entitled to sue the infringer for damages to compensate for sales and profit wrongfully obtained.
In awarding damages in a case like that brought jointly by BARD and Tolemite against CKC, a court would almost certainly consider a reasonable royalty and the plaintiff’s lost profits—with the award potentially trebled in the case of egregious circumstances, which seemed unlikely in this suit. In determining the amount to be demanded in a lawsuit, the plaintiff usually calculated these damages in a way most favorable to itself. However, if the plaintiff prevailed in court, the actual damages awarded were often considerably less.
In the Varacil matter it was the strongly held opinion of both Mantiris and the Evans and Blaylock lawyers—based on considerable comparable experience, relevant legal precedents, and other data–that although the suit specified a 20% royalty payment, the amount awarded if CKC lost the suit would be equivalent to approximately 10% royalties on past and future sales through the life of the patent. Purcell was persuaded of the accuracy of this assessment; as was common, in the view of CKC and its attorneys, the plaintiffs had claimed an amount roughly double their likely award–if they ended up prevailing in court.