Full opinion text
DECISION AND ORDER REYNOLDS, Senior District Judge. I. INTRODUCTION This opinion addresses issues raised in the damages phase of a bifurcated patent infringement action. On March 22, 1983, Rite-Hite Corporation (“Rite-Hite”) commenced this action in which it alleges that Kelley Company, Inc.’s (“Kelley”) Truk Stop vehicle restraint infringed Rite-Hite’s U.S. Patent 4,373,847 (“the ’847 patent”). The ’847 patent was issued on February 15, 1983, and covers a device for restraining trucks to loading docks during the loading or unloading process. This action was bifurcated for trial purposes. After a hearing on the issue of liability, this court found on May 29, 1985, that the Kelley Truk Stop’s rack-and-pinion mechanism for raising a vertical hook was equivalent to the ratchet-and-pawl mechanism covered by the ’847 patent and that Kelley had therefore nonwillfully infringed the ’847 patent. On March 5, 1986, this court issued its findings of fact, conclusions of law, and judgment enjoining Kelley from further infringements and holding Kelley liable to all the plaintiffs for infringement damages plus prejudgment interest. The court found that the Rite-Hite MDL-55 unit, which utilized the patent in suit, was a commercially successful product and that the ’847 patent was valid. Finally, this court stayed the injunction pending Kelley’s appeal. These rulings were reported in Rite-Hite Corp. v. Kelley, 629 F.Supp. 1042, 281 U.S.P.Q. 161 (E.D.Wis.1986), aff'd, 819 F.2d 1120 (Fed.Cir.). On December 2, 1983, shortly after this action was filed, several independent RiteHite sales representative organizations (“ISO’s”) moved to intervene in this case, contending that their “Sales Representative Agreements” and “Dok-Lok Supplement” agreements with Rite-Hite, executed during the pendency of this lawsuit, made them exclusive licensees of the ’847 patent. On August 31, 1984, this court permitted the ISO’s to intervene in the liability and damages phases of the trial. On February 15,1989, seven ISO’s who had not yet intervened in this action brought a separate action entitled Block-Dickson, Inc. v. Kelley Co., Case No. 89-C-0190 (E.D.Wis.), which was consolidated with this action by stipulation of the parties on April 3, 1989. With Rite-Hite and the ISO’s as plaintiffs, the trial on the damages phase of this action commenced on November 7, 1990, and continued until December 7, 1990. After submitting proposed findings of facts and conclusions of law, the parties presented their closing arguments on December 19, 1990. Before the court at this damages phase of the litigation are the following primary issues: (1) whether the plaintiff ISO’s are entitled to recover damages; (2) whether the plaintiffs have proved that they lost sales on account of Kelley’s infringing competition of (a) vehicle restraints and (b) dock levelers; (3) whether plaintiffs have proved lost profits damages to a reasonable probability; (4) whether the plaintiffs may recover lost profits damages under Title 35 United States Code 284 for lost sales of (a) those vehicle restraints not embodying the ’847 patent, or (b) dock levelers, which also do not embody the '847 patent; (5) whether plaintiffs are entitled to a reasonable royalty for those lost sales on which they are not awarded lost profits damages, and if so, (6) what royalty rate is appropriate; and (7) what rate of prejudgment interest is appropriate. For the reasons below, this court awards Rite-Hite as a manufacturer the wholesale profits that it lost on lost sales of ADL-100 restraints, MDL-55 restraints, and restraint-leveler packages on account of Kelley’s sale of infringing Truk Stop restraints. This court also awards to RiteHite as a retailer and to the plaintiff ISO’s reasonable royalty damages on lost ADL-100, MDL-55, and restraint-leveler sales caused by Kelley’s infringing sales. II. FINDINGS OF FACT Much of the background of this case is recounted in the trial and appellate opinions on liability issues. That background will be retold and extended in this section only to the extent necessary to convey a complete understanding of issues presented in this damages phase of the case. This section addresses the following topics: (a) parties and jurisdiction, (b) overview of the vehicle restraint and dock leveler market, (c) Rite-Hite’s development of vehicle restraints and the significance of the ’847 patent, (d) Rite-Hite’s marketing of vehicle restraints, (e) Kelley’s development and marketing of the infringing Truk Stop restraint, (f) background of the Rite-Hite sales organizations and the exclusivity of their restraint licenses, (g) the period of infringement and the number of infringing units sold, (h) plaintiffs’ lost restraint sales, (i) plaintiffs’ lost dock leveler sales, (j) plaintiffs’ damages, (k) the reasonable royalty rate, and (l) plaintiffs’ claims for lost profits due to price cuts on actual sales. A. Parties and Jurisdiction Plaintiff Rite-Hite is a Wisconsin corporation with its principal place of business at Brown Deer, Wisconsin. Rite-Hite is the exclusive licensee of the ’847 patent, and owner, by assignment, of all causes of action and claims for relief arising out of any infringement of that patent. The other plaintiffs are independent Rite-Hite sales organizations (ISO’s) with principal places of business located throughout the country. Defendant Kelley is also a Wisconsin corporation having a principal place of business at Milwaukee, Wisconsin. The court has subject matter jurisdiction over this action under 28 U.S.C. § 1338(a), and this court is the proper venue under 28 U.S.C. § 1400(b). B. Overview of the Vehicle Restraint and Dock Leveler Market Both Rite-Hite and Kelley manufacture “vehicle restraints” and “dock levelers.” “Vehicle restraints” secure trucks to loading docks to prevent accidental departure from the dock during the loading or unloading process. “Dock levelers” are devices that automatically or semi-automatically bridge the gap between a truck and a dock so that forklift trucks can safely pass over that gap during the loading or unloading process. Dock levelers, in general, have replaced the loose plates that were often used when loading and unloading was accomplished manually (Findings of Fact, Mar. 5, 1986 Decision and Order on Liability (“Findings of Fact”), ¶ 9). By the time that Rite-Hite began to develop vehicle restraints, it had already established itself as a manufacturer of dock levelers. Rite-Hite and Kelley are both pioneers in the dock leveler business and for many years have been the primary competitors in that business. They both have strong distribution systems, and the two firms dominate their industry. During the period of infringement, they accounted for more than 80% of all dock leveler and 95% of all vehicle restraint sales (Nov. 7, 1990 Trial Testimony of Rite-Hite President Mike White (“Mike White”)). For years, manufacturers and users of dock levelers as well as regulatory agencies recognized the dangers inherent in the accidental separation of trucks from loading docks during the loading or unloading process. Such separation creates a gap between the truck and dock through which a forklift operator and his forklift can fall to the driveway below (Findings of Fact, ¶¶ 10). Such accidents can be catastrophic (Id.). The American National Standards Institute (ANSI) Safety Committee ¶¶ 14 addressed this danger during its October 1975 meeting (Id. ¶ 14). Specifically, ANSI considered whether “safety legs,” Rite-Hite-manufactured devices which limited the extent to which the dockboard could extend, should be sold as required equipment along with levelers (Id. ¶¶ 14, 16). At that meeting, Arthur K. White, father of Mike White and the founder of Rite-Hite, proposed to eliminate the problem of accidental truck separation by developing a vehicle restraint device that would physically hook trucks to loading docks (Id. ¶ 16). Such devices did not yet exist at the time, and the only existing solutions to the inadvertent truck separation problem, wheel chocks and “communication” systems, were generally ineffective (Id. ¶¶ 16). C. Rite-Hite’s Development of Vehicle Restraints and the Significance of the ’847 Patent Rite-Hite spent nearly five years developing its first commercially successful vehide restraint (Id. ¶ 17). Rite-Hite’s vehide restraint development program was arduous and involved many discarded designs (Id. H 18). Rite-Hite developed its first vehicle restraint, which was never marketed, by 1977 (Id.). By continually researching new restraint designs, RiteHite gradually developed restraints that were less expensive, less obtrusive, and less vulnerable to being damaged by vehicles than their predecessors (Id. ¶ 19). By the spring of 1978, Rite-Hite developed a vehicle restraint which was mounted on the vertical face of a dock and which utilized a pivoted hook design (Id. ¶ 20). RiteHite eventually developed a pivoted hook design that functioned by rotating upward to engage the truck’s Interstate Commerce Commission bar (“ICC bar”) and that was operable either manually or automatically (Id.). In April 1980, Rite-Hite introduced its first restraint, the Automatic Dok-Lok model 100 (“ADL-100”) (Id. ¶ 37). This device functioned automatically, contained an adjustable trapezoidal carriage to accommodate ICC bars of different heights, and used a rotating or “pivoted hook.” The ADL-100 was covered by Rite-Hite patents other than the ’847 patent in suit (Id. ¶¶ 17-23). Following the introduction of ADL-100, Rite-Hite continued to develop restraints (Id. ¶ 24). At the time it sought primarily to develop a simplified and less expensive restraint that was capable of manual operation (Id.). In the spring of 1981, one year after the introduction of the ADL-100, Rite-Hite employees Steven Hipp and Norbert Hahn developed the first of Rite-Hite’s Manual Dok-Lok (“MDL”) vehicle restraints, which incorporated the releasable locking device covered by the ’847 patent (Id. ¶ 25). The inventors filed their patent application in the U.S. Patent and Trademark Office on May 4, 1981, and the ’847 patent was issued on February 15, 1983. During the late summer of 1981, RiteHite introduced the MDL-55 unit (“MDL-55”) (Id. ¶ 38). This model featured the vertically moving, releasable hook technology covered by the ’847 patent in suit (Id. ¶¶ 24-25). This court found following the liability trial that the vertically moving hook assembly covered by the ’847 patent was “a new departure from and an improvement over previous ‘pivoted hook’ designs,” the design used in the Rite-Hite ADL-100 (Id. 1130). This court found the ’847 technology to be superior to the “pivoted hook” design in several ways: (1) the ’847 technology resulted in a better range of engagement and larger “capture area,” (2) it required a smaller sweep or clearance, and (3) it avoided the tendency of the pivoted hook to rotate away from the ICC bar (Id.). This court therefore concluded following the trial on liability that: (1) the 847 patent represented a “significant advance in the art” whose commercial success was “manifest,” (Conclusions of Law, ¶¶ 13-14), (2) the ’847 patent was a significant cause for the commercial success of both the Rite-Hite MDL-55 and the Kelley Truk Stop (Findings of Fact, ¶¶ 34, 67), and (3) the claims and value of the ’847 patent were not limited to the simplicity of its construction or the possibility of manual operation (Id. ¶¶ 30, 80). The list price of the MDL-55 ranged from only one-half to one-third the list prices of the ADL-100 and the Kelley Truk Stop restraints during the period of infringement, primarily because it did not contain a motor (See Plaintiffs’ Damages Trial Exh. (“PDTX”) -33; Testimony of Mike White). Nonetheless, the MDL-55 offered some advantages over the ADL-100 in that it used the advanced releasable, travelling hook technology provided by the ’847 patent. D. Rite-Hite’s Marketing of Vehicle Restraints The vehicle restraint has proved to be a very profitable product for Rite-Hite and for the Rite-Hite ISO’s (Testimony of Mike White & Michael Belcher, co-owner of ISO Todd Equipment Corp.; see PDTX-21). Rite-Hite consistently earned its highest profit margins on its restraint devices (Testimony of Mike White). Rite-Hite initially developed and marketed restraints as safety devices which would pay for themselves by preventing costly accidents (Id.). Rite-Hite later attempted to sell restraints as devices that would reduce loading-dock costs by eliminating the time-consuming wheel-chocking process (Id.). In addition to using these new sales tactics, however, Rite-Hite also found that it needed to employ a new basic marketing strategy in order to market restraints effectively (Id.). Prior to the introduction of the vehicle restraint, Rite-Hite salespersons typically waited for new construction projects to develop and then made bids on the projects (Id.). With the vehicle restraint in its product line, however, RiteHite attempted to introduce the vehicle restraint concept to potential customers by arranging meetings, sometimes over a several-month period, with the customer’s high-level manufacturing, traffic, and safety personnel (Id.). Rite-Hite generally did not make immediate sales with this “deep-selling” strategy, but it sometimes won restraint sales at a later date when the customer finally decided to retrofit existing docks with restraints. (Id.). Rite-Hite claims that this long-term marketing approach made it particularly vulnerable to Kelley’s infringement (Id.). Rite-Hite showed that its representatives in many cases made the initial presentation of the restraint concept to the customer, only to have a Kelley representative snatch away the sale in the end by offering a lower-priced Truk Stop unit (Id.). RiteHite was able to retain a large market share despite the infringing competition, but as discussed below, plaintiffs did lose numerous sales on account of Kelley’s infringing competition. The plaintiffs failed to demonstrate convincingly, however, that it was Kelley’s infringing competition alone that caused them to make the price cuts that they attribute to Kelley’s infringing competition. E. Kelley’s Development and Marketing of the Infringing Truk Stop Restraint When Kelley first confronted Rite-Hite’s ADL-100 restraint, it downplayed the significance of the restraint concept by focusing its efforts on developing communication-type devices and other alternative solutions to loading dock hazards. (Id. ¶ 37). By 1981, however, Kelley representatives recognized that Rite-Hite restraints were achieving marketplace acceptance and demanded that Kelley develop a vehicle restraint of its own (Id. ¶ 39). These representatives were concerned not only that Kelley was missing the boat in the restraint market, but also that Kelley was losing dock leveler sales to customers who sought restraint-leveler packages. (Id.). At trial, Kelly denied that its decision to develop its infringing Truk Stop unit was motivated by a fear of losing leveler sales. Numerous Kelley documents written around the time that Kelley developed the Truk Stop belie Kelley’s claim. On November 13, 1981, John Hogseth, Kelley’s Vice President of Marketing (“Hogseth”), wrote a memorandum (“Hogseth memorandum”) to Joseph Driear (“Driear”), Kelley’s Director of Engineering, requesting Driear to develop a vehicle restraint that would be competitive with Rite-Hite’s restraints. (Id. ¶ 41; PDTX-32). The Hogseth memorandum underscores that Kelley developed the Truck Stop, at least in part to avoid losing associated leveler sales. The memorandum states: Although we haven’t completed a full analysis of our past and projected losses in dockleveler sales due to our inability to meet increasing owner specifications for this [restraint] product, please begin an engineering feasibility study to allow introduction of such a product by June 1, 1982, if possible. (PDTX-32). Driear responded that he would comply with Hogseth’s request, but indicated that he needed a picture and samples of RiteHite’s new MDL-55 Dok-Lok restraint (Findings of Fact ¶ 42). On the next day, Driear reviewed copies of various RiteHite patents, including the patent claiming the ADL-100 restraint (Id.). On December 30, 1981, Kelly purchased and installed at its Tuf-Seal subsidiary one of the first MDL-55 units sold (Id. ¶ 48). Kelley engineers immediately began to inspect, disassemble, measure, operate, and photograph it (Id.). By this time, Keiley had obtained all information available about the construction and operation of the MDL-55. (Id. ¶¶ 48-49). Although Kelley had examined the ADL-100 in developing its Truk Stop unit (Findings of Fact, 1134), Kelley advanced its research efforts most significantly by examining the MDL-55: The evidence at trial, both through the testimony of Kelley’s personnel and its documentation, shows that Kelley had given a great deal of thought to the question of a product that would compete with Rite-Hite’s vehicle restraint, and that Kelley had made little progress in its own efforts to come up with a competing device until after its engineers had the benefit of the MDL-55 Dok-Lok brochures and inspected, tested, and dismantled an actual MDL-55. (Id. 11 55). Although the MDL-55 devices were marked “patent pending” at that time, Kelley did not attempt to determine what patents might issue on the MDL-55 (Id. 1142). By January 12, 1982, Kelley completed the first of its sketches of Kelley’s Truk Stop device, which embodied all of the features claimed in ’847 patent claims 1, 2, 3, 8,12, and 13, including the vertically travel-ling hook technology covered by the ’847 patent. These first sketches show the infringing product that Kelley eventually marketed as the Truk Stop (Id. ¶ 51). This court concluded at the liability trial that the Kelley Truk Stop infringed the ’847 patent embodied in the MDL-55 device (Id. ¶ 73). Although the Kelley Truk Stop infringed the '847 patent embodied in the Rite-Hite MDL-55 unit, the record makes clear that Kelley intended the Truk Stop to compete with Rite-Hite’s ADL-100, which was introduced earlier than the MDL-55 and which proved to be more commercially successful than the MDI^55 (PDTX-32; Kelley’s Proposed Findings of Fact ¶ 16). The Kelley Truk Stop employed an electric motor and functioned automatically, like the Rite-Hite ADL-100 unit, and unlike the manually-functioning MDL-55 (Id. 119). The list price of the Kelley Truk Stop was also closer to that of the ADL-100 than the MDL-55 throughout the period of infringement (PDTX-33). Thus, Kelley developed its Truk Stop restraint both in order to capture part of the newly-developed restraint market and to avoid losing leveler sales. Moreover, the features and pricing of the Kelley Truk Stop indicate that the unit was intended to compete primarily with the ADL-100 rather than the MDL-55. Rite-Hite’s lost sales figures confirm that the Kelley Truk Stop did in fact cause Rite-Hite to lose significantly more sales of the ADL-100 than the MDL-55 (PDTX-3). F. Background of the Rite-Hite ISO’s and the Exclusivity of their Restraint Licenses For the reasons below, this court finds that both the Rite-Hite owned sales organizations and the ISO’s are exclusive licensees of the ’847 patent. 1. Background of the ISO’s Rite-Hite distributed all its products during the period of infringement through Rite-Hite sales organizations (Testimony of Mike White). Each organization sold a variety of products manufactured by RiteHite and other firms at retail prices. These additional products included “dock seals” and “dock shelters,” which products were not manufactured by Rite-Hite but were frequently sold in contractual “packages” along with Rite-Hite vehicle restraints and levelers (Id.). The sales organizations had substantial and permanent places of business and offered installation, repair, and maintenance for the products they sold (Id.). Rite-Hite owned and operated several Rite-Hite sales organizations throughout the period of infringement (Id.). During that time, all of the assets of those RiteHite owned sales organizations which had been established as separate wholly-owned subsidiaries or were otherwise acquired were transferred to Rite-Hite Corporation (Id.). Thereafter, all Rite-Hite owned sales organizations operated as a division of the Rite-Hite Corporation under the name “Arbon Equipment Corporation.” The RiteHite owned sales organizations accounted for approximately 30 percent of the retail dollar sales of Rite-Hite products, and the ISO’s accounted for the remaining 70 percent during the period of infringement (Id). Only the ISO’s are plaintiffs along with Rite-Hite in this action. Rite-Hite itself is suing for its lost profits at the wholesale level and for the lost retail profits of Rite-Hite owned sales organizations. The ISO’s are suing only for their lost retail profits. Rite-Hite assigned each sales organization an exclusive territory in order to prevent Rite-Hite sales representatives from competing with one another (Testimony of Mike White). Where sales efforts were made by more than one Rite-Hite sales organization in more than one exclusive territory, the profits on the resulting sale were shared according to Rite-Hite’s “split commission” rules (Id.). These rules applied to both the independent and to the Rite-Hite owned sales organizations (Id.). This court finds that these split commission rules are not inconsistent with the finding that the ISO’s enjoyed exclusive territorial rights with respect to vehicle restraint products. Rite-Hite gave the ISO’s the option of either having Rite-Hite invoice the customers or paying Rite-Hite for the products and invoicing the customers themselves. If the ISO’s elected to invoice the customers themselves, they received a slightly more favorable price from Rite-Hite (Id). Rite-Hite invoiced slightly more than half of the sales of the Rite-Hite ISO’s during the period of infringement. Rite-Hite also published Rite-Hite’s prices and distributed them to the organizations, after consulting with its “dealer representative counsel,” an organization representing the ISO’s (Id). Mike White testified that Rite-Hite expected the ISO’s to abide by the prices published by Rite-Hite (Id.) ISO’s which engaged in unauthorized price cutting were occasionally penalized twenty percent of their commissions on the unauthorized sales (Id). 2. The Exclusivity of ISO Vehicle Restraint Licenses Rite-Hite assigned to each ISO a virtually exclusive right to sell Rite-Hite dock products within a specified territory (PDTX-61). Specifically, Rite-Hite promised “not to appoint any other sales representative [organization] in the [t]erritory so long as, in [Rite-Hite’s] good faith judgment, [the sales] representative [organization] is doing an adequate job in that entire [territory for all listed products” (RiteHite Sales Representative Agreement 11 3, in PDTX-29 and DTX-547). Rite-Hite reserved to itself, however, a nonexclusive right to make direct sales within the assigned territory to the “motor freight industry, governmental agencies and government contractors.” (Id) The agreement also limited the authority of the ISO’s to that of soliciting contracts for sale of RiteHite products for final approval by the Rite-Hite “home office” (Id 114). During 1983, Rite-Hite executed with each of the ISO’s a supplementary agreement to the basic sales representative agreement (PDTX-61). That supplementary agreement, the “Dok-Lok Supplement,” expressly added to the ISO’s product line: [A]ll products manufactured and sold by [Rite-Hite] under the name “Dok-Lok” and all other products manufactured or sold in the future by [Rite-Hite] ... embodying any of the claims set forth in the Rite-Hite patents relating to “Dok-Lok” devices, including (but not by any way of limitation) U.S. Patent No. 4,373,8)7. (Dok-Lok Supplement to Rite-Hite Sales Representative Agreement, ¶ 1, in PDTX30 (emphasis added)). The supplement further provided that the ISO’s right to sell Rite-Hite’s patented restraint devices was virtually exclusive: Representatives shall have the exclusive right in the territory defined in the Sales Representative Agreement between [Rite-Hite] and Representative to sell and to solicit the sales of all of [RiteHite’s] products embodying the Dok-Lok device patents, except products sold to the motor freight industry. (Id. 112 (emphasis added)). This agreement remained in effect throughout the period of infringement. A group of ISO’s filed for leave to intervene on December 2, 1983, and this court granted their motion by marginal order on December 30, 1983. Kelley then filed a motion to reconsider and a brief opposing the ISO’s intervention. On August 31, 1984, this court denied Kelley’s motion to reconsider, finding that the ISO’s had a “sufficient, legally recognized interest in the rights secured by the patent to warrant participation.” (Aug. 31, 1984 Decision and Order at 2, quoting Waterman v. MacKenzie, 138 U.S. 252, 11 S.Ct. 334, 34 L.Ed. 923 (1891)). This court concluded that the ISO’s were exclusive licensees, because they possessed the right to exclude others from selling the Dok-Lok in their respective territories. This court found that Rite-Hite’s reservation in the sales representative agreement of a nonexclusive right to sell to government agencies and government purchasers did not apply with respect to Dok-Lok sales, because the Dok-Lok agreement, which superseded the earlier sales representative agreement, did not include such a reservation (Id. at 3). This court also found that Rite-Hite’s reservation in the Dok-Lok supplement of the right to make direct sales of Dok-Lok restraints is limited to purchasers in the motor freight industry, which is an insignificant market for Rite-Hite products. (Id.) Finally, this court found that the provision permitting Rite-Hite to approve the ISO’s sales did not reduce the ISO’s legal interests in the ’847 patent, because the court found that (1) the provision merely permits Rite-Hite to check the credit of potential customers and (2) the ISO’s are permitted to purchase Dok-Loks from Rite-Hite and to resell them under their own names. (Id.) Kelley has not specifically challenged the validity of the Dok-Lok supplement, nor has it pointed to new agreements or case law that would alter this court’s earlier conclusion that the ISO’s are exclusive licensees. Instead, Kelley reiterates its earlier argument that Rite-Hite’s right to sell to the motor freight industry defeats a finding of license exclusivity. Second, Kelley argues that Rite-Hite’s publication of price lists necessarily implies that the ISO’s are mere agents and not exclusive licensees. Kelley reasons that Rite-Hite’s publication of price lists would constitute resale price maintenance in violation of applicable antitrust law, unless the ISO’s are considered to be agents rather than exclusive licensees. Kelley’s first argument is unpersuasive. Mike White gave uncontroverted testimony that the motor freight market was throughout the period of infringement and has remained an insignificant and relatively unprofitable market for Rite-Hite products, including vehicle restraints. He also testified that Rite-Hite retained the right to make direct sales to motor freight customers only because the ISO’s had historically been unable to service that market profitably (Id.). This unrebutted testimony confirms this court’s earlier finding that Rite-Hite’s reservation of a nonexclusive right to sell to this industry does not defeat the exclusivity of the ISO’s ’847 license. Nor is this court persuaded by Kelley’s second argument that the ISO’s must be considered as agents, given Rite-Hite’s publication and occasional enforcement of its suggested price list. Whether Kelley is correct in claiming that it is a violation of the antitrust laws for a patentee-manufacturer to fix the resale prices of its sales organizations unless the organizations are the manufacturer’s agents has not been litigated in this case. This court declines to recharacterize Rite-Hite’s agreements with the ISO’s and thereby diminish the rights of the ISO’s, in order to make Rite-Hite’s pricing practices appear more benign under the antitrust laws when the antitrust implications of Rite-Hite’s pricing practices are not before this court. This court therefore reiterates and extends its August 31, 1984 conclusion that the ISO’s have a “sufficient, legally recognized interest in the rights secured by the [’847] patent,” by finding that, under the express terms of the Dok-Lok supplement, the ISO’s are exclusive licensees of the ’847 patent and all other Rite-Hite vehicle restraint patents, including the patents covering the ADL-100 unit. G. The Period of Infringement and Number of Infringing Units Sold Kelley began selling the Truk Stop in July 1982, about seven months before the ’847 patent issued. The period of infringement began with the issuance of the ’847 patent on February 15, 1983, This court did not enter a preliminary injunction barring Kelley from selling the Truk Stop, and Kelley continued to sell Truk Stops pending the outcome of the liability trial. Notably, Kelley also continued to sell Truk Stops after the liability trial while the appeal was pending. When the United States Court of Appeals for the Federal Circuit (“Federal Circuit”) affirmed this court’s finding of liability on April 30, 1987, Kelley ceased producing and selling the infringing Truk Stop. The period of infringement thus extended from February 15, 1983, to April 30, 1987. Although Kelley estimates that it sold only 3,765 infringing Truk Stop units, this court finds Rite-Hite’s figure of 3,825 infringing sales to be more accurate. Kelley’s estimate, set forth in a document that Kelley sent to Rite-Hite in 1987 for settlement purposes, was not authenticated by any witness and was not shown to have been based on Kelley’s ordinary business records (See Defendant’s Trial Exh. (“DTX”) -586). In contrast, Rite-Hite’s figure, is documented in PDTX-3 and the “individual claim volumes” supporting that exhibit. These individual backup claim volumes contain Truk Stop invoices that Kelley furnished to Rite-Hite. Kelley did not challenge the occurrence of any of the particular sales listed in Rite-Hite’s backup volumes and summarized in PDTX-3. This court therefore finds that Kelley sold 3,825 infringing Truk Stop units during the period of infringement. H. Plaintiffs’ Lost Restraint Sales For the purpose of determining plaintiffs’ lost profits damages, this court finds that, in the absence of Kelley’s infringing Truk Stop competition, the plaintiffs would have sold 3,243 additional ADL-100 vehicle restraints and 80 additional MDL-55 restraints for a total of 3,323 additional restraints (PDTX-3). 1. Admissibility and Relevance of Plaintiffs’ Evidence of Lost Restraint Sales Plaintiffs’ summary exhibit PDTX-3 summarizes plaintiffs’ lost sales claims and traces them back to specific transactions. The specific “lost sales” are more fully documented in plaintiffs backup claim files (“claim files”) supporting PDTX-3. This court has considered Kelley’s objections to PDTX-3 and the claim files and finds that PDTX-3 and the claim volumes are admissible and provide adequate proof of plaintiffs’ claims for the reasons given below. Each of plaintiffs’ claim files contains several documents pertaining to a single transaction or series of transactions with a single customer. The files include deposition testimony from a member of a RiteHite sales organization regarding a sale that Rite-Hite claims to have lost on account of an infringing Kelley sale. The files also include “projection” forms summarizing the data in depositions. According to plaintiffs’ expert witness, accountant Ronald Beckman, every claim file regarding transactions in which plaintiffs seek lost profit damages contains testimony that: (1) prior to the Kelley sale, Rite-Hite salespersons had solicited the Kelley customer for Rite-Hite vehicle restraints, and (2) vehicle restraints from other manufacturers had not been bid or had been ruled out by the customer because of perceived product problems. Some of the backup files also contain testimony to the effect that the Kelley Truk Stop purchasers were interested in Rite-Hite restraints and levelers, but that they purchased from Kelley solely on the basis of price. PDTX-143 specifically itemizes 169 cases in which plaintiffs’ salespersons testified that they had initially convinced the customer to purchase a restraint before the customer ultimately purchased from Kelley. Kelley objected to plaintiffs’ backup claim files on the ground that they contain inadmissible hearsay testimony. Specifically, Kelley argued that the testimony of the salesperson-witnesses describing customer motives for purchasing the Kelley Truk Stop should be excluded as hearsay. At trial, this court overruled Kelley’s hearsay objection, reasoning that the customer statements to the salespeople were admissible under the “state of mind” exception to the hearsay rule. This exception, as set forth in Fed.R.Evid. 803, provides: The following are not excluded by the hearsay rule, even though the declarant is available as a witness: (3) Then existing mental, emotional, or physical condition. A statement of the declarant’s then existing state of mind, emotion, sensation, or physical condition (such as intent, plan, motive, design, mental feeling, pain, and bodily health), but not including a statement of memory or belief to prove the fact remembered or believed unless it relates to the execution, revocation, identification, or terms of declarant’s will. Based upon the testimony of Michael Belcher, co-owner of ISO Todd Equipment Corp., about the timing of the customer statements, this court found at trial that the customers’ statements concerning their purchasing motives were made “substantially contemporaneously” with the customers’ decisions to purchase Kelley units. This court therefore ruled that the customer statements were admissible under Fed. R.Evid. 803(3). This court notes that evidence of customer motives is highly relevant to the issue of whether to award lost profits damages, because this court must determine the extent of competition that a customer perceived on a particular bid. See, e.g., Kori Corp. v. Wilco Marsh Buggies & Draglines, 761 F.2d 649, 653, 225 U.S.P.Q. 985 (Fed.Cir.), cert. denied, 474 U.S. 902, 106 S.Ct. 230, 88 L.Ed.2d 229 (1985). In Kori, the court upheld the district court’s award of lost profits damages, based upon the district court’s finding that “from a buyer’s perspective, the only acceptable substitute for the [plaintiff’s] patented ... machines were the infringing machines.” 761 F.2d at 653 (emphasis added). Thus, evidence of customer purchasing motives is probative of whether purchasers of the infringing Truk Stop perceived the Truk Stop to be the only real alternative to RiteHite’s restraints. 2. Reliability of Plaintiffs’ Evidence of Lost Restraint Sales In admitting the salesperson testimonial evidence regarding customer motives, however, the court noted that it would consider the substance of Kelley’s various objections to this evidence, including the hearsay objection, in assessing the reliability of this evidence. Regarding the reliability of the salesperson testimonial evidence, Kelley first argues that plaintiffs have promised the salespeople whose testimony supports plaintiffs’ claims part of any recovery that plaintiffs might obtain in this action. Kelley further argues that the salesperson testimony regarding whether customers would have purchased Rite-Hite products but for Kelley’s infringing competition is both speculative and was elicited by leading questions. Kelley argues that plaintiffs prompted their salespersons’ deposition testimony by providing the salespeople with “lost sale projection sheets” prepared by plaintiffs’ attorneys. Kelley also notes that many of the claim files do not contain records of plaintiffs’ bids or do contain bid documents that were prepared by someone other than the testifying salesperson. Finally, Kelley argues that the lost profit claim file was not properly audited by the plaintiffs’ accounting expert. Kelley correctly pointed out at trial that the accounting expert merely checked Rite-Hite’s arithmetic, but did not question the premises of plaintiffs’ claim or independently verify the salesperson testimony. Such accounting analysis was not an “audit” performed according to the Attestation Standards prescribed by the American Institute of Certified Public Accountants (See DTX-780, p. 2844). Kelley therefore urges this court to find that the claim files do not show to a reasonable probability that RiteHite would have made the claimed lost sales. This court declines Kelley’s request to place little or no weight upon the evidence contained in plaintiffs’ claim file, because under the facts of this case, salesperson testimony regarding customer statements is the most reliable type of evidence available. Based upon the in-court testimony of various salespersons, including that of Michael Belcher and W. Michael McKinley, this court finds that salespersons commonly rely upon what the customers tell them. Such evidence of a customer state of mind, as recounted by salespersons, is the most reliable proof of the extent of competition that a customer perceived on a particular bid, absent subpoenaing the customers themselves. This court declines to penalize plaintiffs for failing to subpoena purchasers of the infringing product because: (1) plaintiffs might have lost the good will of the subpoenaed parties, (2) the testimony of these parties would be of dubious competence, and (3) Kelley had an equally good opportunity to depose these Kelley customers in order to refute the testimony of Rite-Hite salespeople. Moreover, although the salesperson testimony may be “interested” testimony, Kelley has offered no evidence that specifically contradicts it. Kelley has also failed to point out which of the hundreds of claim files are missing bid sheets or even to approximate what percentage of files are missing such bid sheets. This court therefore heeds Kelley's caution that Rite-Hite's claim file has not actually been “audited” in the usual sense, but this court nonetheless accepts the plaintiffs’ claim files as reasonably reliable evidence of their lost sales. The reliability of plaintiffs’ proof of lost sales is not as significant an issue as Kelley suggests, however, because plaintiffs’ may prove their lost sales through the alternative market share method. The plaintiffs’ lost sales estimates, are consistent with the amount of lost sales predicted by the market share method, which is an appropriate alternative means of measuring lost profits damages in this case. This court recognizes the danger in relying upon testimony of potentially interested salespeople, but it finds the salesperson testimony to be accurate in the aggregate, largely because the lost sales claim based upon this testimony is consistent with the number of lost sales projected by market share analysis. For these reasons, the plaintiffs’ lost sales claim evidence is admissible and reliable. 3. Elements of Panduit Test for Lost Profit Damages a. Demand for Restraints This court finds that demand existed for vehicle restraints during the period of infringement as evidenced by the sale of a substantial number of infringing TrukStop units. b. Absence of Acceptable Noninfringing Substitutes This court finds that acceptable non-infringing substitutes were unavailable in the specific transactions in which Rite-Hite claims to have lost sales to Kelley. Plaintiffs offered specific testimony indicating that manufacturers other than Rite-Hite and Kelly either were not competing in the transactions at issue or had been ruled out by the customers. Moreover, competitors other than Kelley, Rite-Hite, and Serco (whose restraint infringed a Rite-Hite patent, as discussed below) did not enter the market until late in the period of infringement, and even then, none of these other competitors had a broad distribution network or sold a significant number of restraints (See PDTX-35). Plaintiffs’ claim of 3,323 lost restraint sales is corroborated by the market share analysis contained in PDTX-35, the accuracy of which was conceded at trial by Kelley CEO Robert C. Kuhns (“Robert Kuhns”). This exhibit, listing estimated sales of Rite-Hite, Kelley, and other competitors during each year of the infringement period, uses market share analysis to estimate that Rite-Hite lost 2,907 restraint sales. This figure corroborates plaintiffs’ claim of 3,323 lost sales reasonably well, particularly because the market share method yields conservative estimates of Rite-Hite’s lost sales. The lost sales calculations set forth in PDTX-35 do not consider the Kelley sales in territories of those Rite-Hite ISO’s who have not become parties to this lawsuit. Sales lost by those non-party ISO’s are included in the claim of Rite-Hite as a manufacturer (See PDTX-3), however, causing the market share analysis in PDTX-35 to underestimate Kelley’s infringing market share and Rite-Hite’s lost sales. The analysis in PDTX-35 further underestimates plaintiffs’ lost restraint sales because it erroneously failed to include Serco’s infringing sales along with Rite-Hite’s restraint sales in calculating Rite-Hite’s share of the noninfringing market. Wheel chocks were not acceptable noninfringing substitutes for the customers who actually chose to purchase the Kelley Truk Stop unit. It is true that both wheel chocks and restraints satisfied applicable OSHA regulations (DTX-729), and that the overwhelming majority of loading dock customers still use chocks. Nonetheless, restraints were marketed as cost-saving devices, and many of the customers who actually purchased restraints were undoubtedly persuaded by this marketing approach. By spending several extra thousand dollars to purchase the Kelley Truk Stop restraint rather than simple wheel chocks, the Truk Stop customers demonstrated that chocks did not meet their needs. Accordingly, when a customer specified a need for a “vehicle restraint or equivalent” in a bid, a wheel chock was not considered to be an acceptable substitute (Testimony of Michael McKinley). Kelley’s arguments that many of the Truk Stop purchasers would not have purchased the Rite-Hite ADL-100 is unpersuasive. Kelley did not show that its customers were so loyal, that Kelley’s service was so superior, or that the Truk Stop was so much less expensive or better than the Rite-Hite restraints, that the Truk Stop purchasers would not have purchased a Rite-Hite restraint. Such arguments are not patently unreasonable, but they are unsupported by the facts. Kelley offered no customer testimony showing that Truk Stop purchasers would have categorically refused to purchase Rite-Hite products or that the Truk Stop purchasers perceived the Truk Stop to be significantly better than the ADL-100. Kelley also failed to proffer any evidence concerning (1) the average actual price difference between the Kelley Truk Stop and ADL-100 or (2) the price elasticity of demand for restraints held by the Truk Stop purchasers. According to PDTX-33, the list price of the ADL-100, which ranged from $2,500 to $3,000 during the period of infringement, never exceeded the list price of the Truk Stop by more than $300. On the average, the list price of the ADL-100 was only $200 higher than that of the Kelley Truk Stop during the period of infringement (PDTX-33). Although Kelley claims to have offered significant, but unspecified discounts, it failed to show that Truk Stop purchasers would not have purchased the ADL-100 because of its slightly higher price. This court finds that most customers who are willing to purchase a $2000-$3000 Kelley Truk Stop rather than inexpensive wheel chocks would also be willing to purchase a slightly more expensive ADL-100 restraint. This court also rejects Kelley’s argument that Rite-Hite’s lost sales figure should be reduced to account for the increase in total market-wide restraint sales that Kelley attributes to its entry into the market. Kelley suggests that its mere presence in the market increased customer acceptance of the restraint concept and thereby indirectly increased market-wide restraint sales, including Rite-Hite’s sales. Kelley’s argument is resourceful but without factual support. For the foregoing reasons, this court concludes that Rite-Hite would have made its claimed lost sales but for Kelley’s infringing competition. c. Rite-Hite’s Manufacturing and Marketing Capabilities This court finds that the plaintiffs had the manufacturing and marketing capabilities to exploit the full demand for vehicle restraints during the period of infringement (Testimony of Mike White). Even in 1985, the year in which Kelley sold its greatest number of Truk Stop units, RiteHite could have manufactured sufficient restraints to satisfy the demand of the Truk Stop customers by increasing its production by less than twenty-five percent (Id-)- d. Plaintiffs’ Proof of Lost Profits See section II.J., infra. 4. Number of Lost Sales Due to Infringement For the above reasons, this court finds that, in the absence of Kelley’s infringing Truk Stop competition, the plaintiffs would have sold 3,243 additional ADL-100 units, which do not embody the ’847 patent in suit, and 80 additional MDL-55 units, which do embody the '847 patent in suit, for a total of 3,323 additional restraints (PDTX-3). That the plaintiffs claim to have lost far more sales of ADL-100 model vehicle restraints than MDL restraints is reasonable, given that Kelley’s Truk Stop restraint was designed and marketed to compete against Rite-Hite’s ADL model (See PDTX-32 & -33). I. Plaintiffs’ Lost Sales of Dock Levelers This court finds that in the absence of Kelley’s infringing Truk Stop competition, plaintiffs would have sold an additional 1,692 dock levelers in restraint-leveler package sales during the period of infringement. Without the Truk Stop in its product line, Kelley would not have made these leveler sales for the reasons below. Although both parties sold most of their levelers without restraints (see, e.g., PDTX-3 at 1), the restraint was most useful when used in combination with a leveler (Testimony of Mike White). Following the development of the restraint, loading industry customers frequently solicited package bids for the simultaneous installation of vehicle restraints and dock levelers, especially for new dock installations (Id.). Such package bids made it easier for customers to contract with suppliers and to coordinate construction schedules (Id.). Restraints installed at new installations were in fact normally installed with levelers (Testimony of Mike White). Customers purchasing restraint-leveler packages almost invariably purchased both items from the same manufacturer (Id.). Kelley’s November 13, 1981 internal Hogseth memorandum underscores Kelley’s early awareness of the linkage between restraint and leveler sales (PDTX-32). Both Rite-Hite and Kelley encouraged this linkage during the period of infringement by offering “combination discounts” on restraint-leveler packages (Testimony of Mike White). Some Kelley representatives further reinforced this linkage by informing customers that Kelley would void warranties for levelers to which a Rite-Hite restraint had been attached (Testimony of Michael Sherrard). Not surprisingly, of the 3,825 infringing Kelley restraints sold during the period of infringement, 1,692 were sold in restraint-leveler packages (PDTX-3 at 1). This court finds that Rite-Hite could normally have anticipated selling restraint-leveler packages to customers who bought Kelley restraint-leveler packages in transactions in which a Rite-Hite package was bid. J. Plaintiffs’ Damages Kelley argues that the plaintiffs’ damages claims are excessive in that the plaintiffs failed to deduct a sufficient amount of their avoided variable costs from their damages claims. In their joint damage exhibits, the thirty-four plaintiff ISO’s estimate that they would have incurred additional incremental expenses amounting to only one percent of the net sales revenue that they would have earned had they made Kelley’s infringing sales. Rite-Hite estimates that its own incremental manufacturing costs would only have amounted to .17 percent of the additional net sales revenue that it would have earned had it made the sales it lost to Kelley. Kelley’s criticism, based largely upon the testimony of its expert witness Dr. James Adler (“Dr. Adler”), points out the need to deduct from plaintiffs’ claims the percentage sales commissions that both the Rite-Hite owned sales organizations and the ISO’s avoided having to pay to their salespeople as a result of Kelley's infringement. On this point, the court is persuaded that Dr. Adler is correct. Rite-Hite has proved its lost profits damages as a manufacturer to a reasonable probability, but Rite-Hite as a retailer and the ISO’s have failed to prove their retail damages to a reasonable probability. As discussed below, Rite-Hite as a manufacturer is entitled to lost profits damages, but Rite-Hite as a retailer and the ISO’s are entitled only to reasonable royalty damages. 1. Reliability of Rite-Hite’s Claim for Lost Profits at the Wholesale Level Dr. Adler criticized plaintiffs’ lost profit claim on various grounds. First, Dr. Adler suggested that Rite-Hite’s gross profits were not credible, because Rite-Hite’s historical gross profit margins were significantly lower than the gross profit margins used to calculate Rite-Hite’s damages claim (See DTX-572). Rite-Hite effectively rebutted Dr. Adler’s criticism through the testimony of Mark Kirkish (“Kirkish”), the controller of Rite-Hite. Kirkish attributed the discrepancy in gross profit margins to three factors: (1) Rite-Hite had higher profit margins on restraints than on other classes of products, (2) Rite-Hite did not claim damages for lost sales of “options,” which generally sold at gross profit margins lower than those for restraints alone, and (3) Rite-Hite was forced to offer price discounts to the ISO’s in order to meet Kelley’s infringing competition. This court is unpersuaded by Adler’s criticism of the gross profit margins included in RiteHite’s claim, because Dr. Adler failed to rebut specifically any of Kirkish’s explanations. Dr. Adler next compared Rite-Hite’s actual operating profits and expenses during the period of infringement to the operating profit and expense estimates in Rite-Hite’s claim (DTX-574 & -682). Dr. Adler noted that Rite-Hite earned an eight percent profit on net sales dollars during the period of infringement, but that Rite-Hite assumes in its damages claim that it would have earned a fifty-one percent profit on the net sales dollars that it would have made but for the infringement (Id.). Without identifying any specific errors in RiteHite’s operating profits calculations, Dr. Adler suggested that the discrepancy between the historical and the claimed incremental operating expenses undermined the credibility of Rite-Hite’s lost profit claim. Rite-Hite’s expert, accountant Donald Beckman (“Beckman”), an accountant with Coopers & Lybrand, effectively countered Dr. Adler’s criticism by offering a reasonable explanation for the differences between Rite-Hite’s historical operating expenses and the incremental operating expenses included in Rite-Hite’s claim for lost wholesale profits (PDTX-140). Beck-man attributed the discrepancies in RiteHite’s historical and claimed operating expenses to the three factors: (1) one-time expense increases that Rite-Hite incurred in 1986; (2) increases in other expenses that had no relationship to sales, e.g., rent and executive salaries paid to stockholder families; and (3) increases in “stepped fixtures” sales and marketing expenditures that were unrelated to sales. Beckman further suggested that the amount of incremental operating expenses deducted from Rite-Hite’s lost profit claim was reasonable because: (1) Rite-Hite had included $95,000 of fixed expenses in its calculation of operating expenses and (2) Rite-Hite’s incremental expenses would have been $84,000 less than its actual expenses on account of economics of scale that RiteHite would have enjoyed if it had made Kelley’s sales. Dr. Adler did not respond specifically to any of Beckman’s explanations. Rite-Hite’s other expert, Dr. Rita Cheng, of the University of Wisconsin at Milwaukee School of Business, also criticized Dr. Adler’s analysis. First, she noted that Dr. Adler’s analysis did not take into account the additional sales expense that Rite-Hite spent in order to meet Kelley’s infringing competition. Second, she reiterated Beck-man’s analysis that some of Rite-Hite’s operating expenses were unrelated to sales volume, including, for example, increased expenses incurred by Rite-Hite in connection with its retail operations in 1986 and various “stepped fixed” marketing costs. Third, Dr. Cheng criticized the basic assumption of Dr. Adler’s regression analysis that operating costs were completely dependent upon sales. Dr. Cheng noted that sales could equally plausibly be considered to be partially dependent upon sales expenses, and that operating costs should therefore not necessarily be considered a dependent variable and sales should not necessarily be considered an independent variable. Dr. Cheng also noted that the reversal of the dependent and independent variables would cause a regression analysis to yield erroneous statistical results. Dr. Cheng’s testimony was impressive, credible, and persuasive, and greatly assisted this court in understanding the parties’ use of statistical evidence. Although Dr. Adler’s analysis initially raised questions about the credibility of Rite-Hite’s claim for lost profits at the wholesale level, this court finds that RiteHite’s expert witnesses satisfactorily explained the apparent discrepancies uncovered by Dr. Adler’s analysis. As Dr. Adler cautioned, his econometric models could not in themselves project what Rite-Hite’s true operating expenses would have been. Further, Dr. Adler did not perform any threshold study to establish the credibility of his assumption that operating costs were entirely dependent upon sales. Therefore, it is almost impossible, based upon RiteHite’s historical operating cost figures, for this court to determine whether Rite-Hite’s claim significantly understates Rite-Hite’s incremental operating costs. Finally, doubts regarding the precision of the damages are resolved against the infringer, see Kaufman Co. v. Lantech, Inc., 926 F.2d 1136, 1141, 17 U.S.P.Q.2d 1828 (Fed.Cir.1991). Accordingly, Rite-Hite as a manufacturer has met its burden of establishing to a reasonable probability its lost profits at the wholesale level. 2. Reliability of the Claims of RiteHite as a retailer and the ISO’s for Lost Profits at the Retail Level This court finds that the sales representatives have failed to prove their lost profits damages to a reasonable probability, because they have failed to deduct avoided percentage sales commissions from their claims. Dr. Adler questioned the accuracy of the lost profit claims of the ISO’s because their claimed operating profits significantly exceeded their historical operating profits. Dr. Adler’s analysis compared the historical operating profits and expenses of five of the largest ISO’s to the operating profit and expense figures used in the joint damages exhibits of all the ISO’s (DTX-576). The five ISO’s analyzed by Dr. Adler had an average historical operating profit of approximately five cents for every commission dollar of revenue during the period of infringement, yet request approximately ninety-nine cents in operating profit for every dollar of lost revenue. The plaintiffs contend that claim files of each sales representative organization demonstrate that (1) the sales organizations would have incurred only minimal incremental expenses on additional sales, and (2) these expenses would have been offset by lost installation income, for which no damages are sought here. Plaintiffs also refer to testimony of Kelley representatives William McAnulty, Gerald Saks, and Michael McKinley, who admitted that many post-sale expenses, e.g., site inspection and site preparation, completing documents, and providing usage instructions to customers, were normally covered by separately-billed installation charges. The plaintiffs therefore claim that the deduction of one percent of commission income from their claims adequately covers any additional expenses that the representatives would have incurred if they had made the infringing sales. Although the lost profit claims of the ISO’s and Rite-Hite owned sales organizations need not be reduced to cover installation costs for which plaintiffs normally received separate compensation, these claims must be reduced to cover noninstallationrelated costs that the sales organizations avoided by losing sales to Kelley. The most significant of these avoided costs are the percentage sales commissions that the sales organizations’ avoided having to pay to their salespeople. This court cannot assume that profits on installation activities would have offset the sales organizations avoided incremental costs, because the sales organizations introduced no evidence on their net profits on installation activities. In evaluating the reasonability of the sales representatives’ damages claims, this court analyzes the operating costs of ISO, W.E. Carlson Corp. (“W.E. Carlson”). William Carlson (“Carlson”), who jointly owns ISO W.E. Carlson with his wife, offered three explanations for the apparent discrepancy between the sales representatives’ historical and claimed operating costs, based upon his firm’s experience (PDTX-135). First, Carlson noted that W.E. Carlson’s historical operating costs included the “sunk” costs that W.E. Carlson incurred in marketing to customers who eventually bought from Kelley. Carlson suggested that these “sunk” costs were directly caused by Kelley’s infringement and therefore should not be deducted from the sales organizations’ damages claims. Second, Carlson noted that W.E. Carlson’s historical operating “expenses” included costs that increased for reasons apart from increased sales, such as annual increases in salaries that the firm paid to Carlson and his wife as co-owners of the business. Third, Carlson pointed out that W.E. Carlson’s claimed operating costs were lower than its historical operating costs because the firm did not deduct from its claimed operating costs the percentage sales commissions (“sales commissions”) that it and the other sales organizations normally paid to salespeople for making sales. Carlson agreed that these commission expenses varied directly with sales, but he suggested that these expenses are not “avoided” operating costs, because W.E. Carlson and the other independent and Rite-Hite owned sales organizations are “legally obligated” to pay a portion of any damages recovered in this case as “lost commissions” to their salespeople. These explanations do not satisfactorily explain the discrepancy between the sales representatives’ historical and claimed operating costs. The “sunk” cost phenomenon would explain some undetermined portion of this discrepancy. In addition, “step fixed” costs, such as salaries, which increased independently of sales volume throughout the period of infringement, would explain part of this discrepancy. For example, roughly $168,000, or twenty-five (25) percent, of the $660,000 increase in W.E. Carlson’s selling and administrative expenses during the period of infringement was in