ORDER

ELIZABETH A. KOVACHEVICH, District Judge.

This cause is before the Court on:

Plaintiffs LMK Enterprises, Inc. and LMK Pipe Renewal, LLC seek the award of sanctions, attorney's fees and costs. The Court granted Plaintiff's Motion for Contempt and retained jurisdiction to award monetary sanctions and attorney's fees and costs (Dkt. 56).

I. Plaintiffs' Motion

Plaintiffs seek the award of damages to compensate Plaintiffs for Defendant's

DONE and ORDERED in Chambers, in Tampa, Florida on this 9th day of March, 2012. infringing and contemptuous conduct, as follows:

A. Damages Resulting from Liner Kit Sales

Plaintiffs seek the award of lost profits to Plaintiff LMK Enterprises for liner kits in the amount of $222,838.22. In the alternative, Plaintiffs seek the award of a reasonable royalty, $112,693.66.

Plaintiffs further seek the award of lost profits for repair of main-lateral sewer junctions to Plaintiff LMK Pipe Renewal, LLC in the amount of $338,076.59.

B. Damages Resulting From InnerSeal Equipment

Plaintiff LMK Enterprises has twenty-two T-liner licensees, and all licensees have the same royalty clause, 10% of the licensee's equipment purchased from outside vendors. Plaintiffs seek a royalty of 18,845.73 based on Perma-Liner's reported equipment sales in the amount of $188,457.33.

C. Damages Resulting from InnerSeal Materials

Plaintiff LMK also seeks a reasonable royalty for lost material sales. All T-Liner licensees have the same royalty clause concerning materials, 10% of the ultimate sales price for all material purchased from outside vendors. Plaintiffs seek a royalty of $5,271.14 for materials, based on Perma-Liner's reported sales of $52,711.37 in materials.

D. Trebling of Damages

Plaintiffs argue that Defendant has demonstrated willful and deliberate conduct justifying the trebling of damages. Based on total damages sought in the amount of $585,031.68, Plaintiffs seek treble damages of $1,755,095.04.

E. Attorney's Fees and Costs

Plaintiffs argue that Defendant's failure to comply with the licensing agreement, willful disregard of the `079 patent and Injunction and continued sales of the unaltered system warrant the award of attorney's fees and costs. Plaintiffs seek the award of $115,639.80 for attorney's fees and $33,747.87 in costs. Plaintiffs therefore seek a total award of $1,904,482.71.

II. Opposition

A. Reasonable Royalty

Defendant Perma-Liner Industries, Inc. responds that Plaintiffs' actual loss is no more than the royalty it would have received under the Patent License. Defendant argues that this case is not an exceptional case, and Plaintiffs are not entitled to enhanced damages, costs or attorney's fees.

Defendant argues that Defendant modified the InnerSeal System and began selling the "Modified System" to the public in May, 2009. Defendant further argues that after Defendant submitted a late royalty payment on January 23, 2009, Plaintiffs wrongfully and unilaterally terminated the Patent License, and that the Patent License is still in force. Perma-Liner argues that if the Patent License is determined to be in full force and effect, any ruling by this Court other than to award royalties under the Patent License will be a nullity. The venue for any dispute arising from the Patent License is Illinois.

Defendant further argues that the evidence shows that Perma-Liner made good faith efforts to re-engineer the InnerSeal system, and that the significant litigation involved in this Court's determination (discovery, testimony, expert testimony, briefing and evidentiary hearing) show that this was a close case. Defendant argues that Perma-Liner did not simply carry on "business as usual" in flagrant disregard of this Court's order. Defendant argues that the Court has limited damages to Plaintiffs' actual losses, and because this is not an exceptional case, Plaintiffs are entitled only to actual losses, and not enhanced damages, costs and attorney's fees. Defendant contends that Plaintiffs' actual loss is no more than the royalty it would have received under the Patent License.

Defendant argues that because Plaintiffs wrongfully terminated the Patent License in bad faith, Plaintiffs' damages should be limited to those under the contract, and Plaintiffs should not be permitted to now seek additional costs, attorney's fees, interest, lost profits, or enhanced damages that could have been, but were not, negotiated for or contemplated by the parties.

B. Lost Profits Analysis

Defendant further argues that because Plaintiffs have not offered "sound economic proof" of additional profits that Plaintiffs would have made absent Defendant's alleged infringement, Plaintiffs cannot recover lost profits. Defendant argues that Defendant infringed only because Plaintiffs wrongfully terminated the Patent License Agreement. Defendant argues that there is no evidence that Defendant sold anything to Plaintiffs' installers or that Defendant's installers would have defected to Plaintiffs.

C. Treble Damages

Defendant argues that Perma-Liner acted in good faith in re-designing the InnerSeal system, and Plaintiffs have offered no evidence to the contrary.

Defendant further argues that Plaintiffs' allegation that Perma-Liner "continued marketing and supporting the InnerSeal Process for almost an entire year without making any changes" is false. Perma-Liner President Gerald D'Hulster testified that Perma-Liner began making modifications to the InnerSeal system in May, 2008 and completed the modifications in Fall, 2008. Defendant further argues that the testimony of D'Hulster establishes that after Fall, 2008, Perma-Liner did not market, sell or use the infringing InnerSeal system. Perma-Liner offered the modified system for sale to the public in May, 2009.

Defendant argues that there is no evidence of bad faith or other willful and deliberate conduct by Perma-Liner that justifies the award of treble damages.

D. Costs, Interest, Attorney's Fees

Defendant argues that this is not an exceptional case, and therefore Plaintiffs are not entitled to the award of costs, interest or attorney's fees under 35 U.S. Sec. 284.

Defendant argues that Plaintiffs have not established clear and convincing evidence of Defendant's bad faith in which Perma-Liner willfully disregarded the `079 license. Perma-Liner made changes to the InnerSeal system which Perma-Liner believed rendered the modified InnerSeal system non-infringing. Defendant argues that Perma-Liner tendered payment to Plaintiffs in compliance with the Patent License, which Plaintiffs refused in bad faith.

III. Reply

In Plaintiffs' Reply, Plaintiffs argue that Defendant Perma-Liner: 1) incorrectly asserts that "LMK wrongfully and unilaterally terminated the Patent License between LMK and Perma-Liner; 2) incorrectly asserts that the Patent License between LMK and Perma-Liner constitutes a reasonable royalty; 3) incorrectly asserts that Perma-Liner ceased sales of the unaltered InnerSeal System after Fall 2008; and 4) misconstrues the requirements under Panduit Cor. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152 (6th Cir. 1977) for establishing entitlement to lost profits.

A. Termination of License

Plaintiffs argue that LMK provided a courtesy notice of Perma-Liner's default on November 4, 2008. When Perma-Liner did not make the required payment, LMK provided formal notice and began a 30-day cure period on December 12, 2008. Perma-Liner admits it did not tender payment until January 23, 2009.

The Court notes that Perma-Liner's conduct also included failure to provide a royalty statement and failure to pay the upfront license fee, as required by the Patent License Agreement, in addition to the failure to pay monthly royalties.

B. Reasonable Royalty

Plaintiffs argue that Perma-Liner ignores the fact that the Patent License was part of a settlement agreement, and, as a result, reflects the "avoidance of the risk and expense of litigation." LMK entered the Patent License seeking to avoid the uncertainty and expense of litigation, but Perma-Liner's conduct deprived LMK of that benefit.

C. Continued Sales of Unaltered InnerSeal System in Violation of the Injunction

Plaintiffs argue that Perma-Liner's business records shows that Perma-Liner continued selling the unaltered InnerSeal system until late 2009 or early 2010 (Dkt. 50, 11-12).

D. Panduit Test for Lost Profits

Plaintiffs argue that once a party has made a showing of: 1) demand for the patented products; 2) the absence of acceptable noninfringing substitutes and 3) the patentee's ability to meet the demand for the patented products, a prima facie case of "but for" causation has been established, and the Court can reasonably infer that the patentee would have received the infringer's sales. Ryco, Inc. v. Ag-Bag Corp., 857 F.2d 1418, 1427 (Fed. Cir. 1988). Plaintiffs argue that Defendant Perma-Liner does not contest LMK's showing on these elements.

Plaintiffs argue that the fourth element of the Panduit test relates to the amount of profit the patentee would have made; "but for" causation is established by the first three elements of the test. Plaintiffs rely on the holding of the Federal Circuit that "the use of the patent owner's profit margin, unaffected by the infringing sales, is necessary to estimate what the patent owner's lost profits would have been had there never been an infringement. King Instrument Corp. v. Otari Corp., 767 F.2d 853, 864 (Fed. Cir. 1985). Plaintiffs argue that Perma-Liner has not challenged any of LMK's evidence regarding its average profit margin.

IV. Discussion

Although this contempt proceeding arises in a patent infringement suit, which is governed by Federal Circuit law, the Court's exercise of its contempt power is governed by the law of the Eleventh Circuit Court of Appeals. A movant in a civil contempt proceeding bears the burden of establishing by clear and convincing evidence: 1) that a court order was in effect; 2) that the order required certain conduct by the respondent; and 3) that the respondent failed to comply with the court's order. McComb v. Jacksonville Paper Co., 336 U.S. 187, 191 (1949). The Court has wide discretion to fashion an equitable remedy for contempt that is appropriate to the circumstances.

The purpose of any sanction imposed on Defendant must be remedial and/or coercive rather than punitive. To the extent the sanction serves a remedial function, it should compensate Plaintiffs for damages caused by Defendant's noncompliance. This includes losses flowing from Defendant's noncompliance, and expenses reasonably and necessarily incurred in the attempt to enforce compliance. Damages for patent infringement may be based on the determination of the patentee's lost profits, but should, in any event, be no less than a reasonable royalty for the use made of the invention by the infringer. See Rite-Hite Corp. v. Kelley Co., Inc., 56 F.3d 1538, 1544 (Fed. Cir. 1995). Where the patent owner and the infringer compete in the same market, the lost profits measure is appropriate. Rite-Hite Corp., 56 F.3d at 1544-47. The royalty measure is appropriate where there is an established royalty rate, or where lost profits cannot be sufficiently proved or are otherwise inappropriate. A mixed award, using lost profits on infringing sales the patent owner proves it could have made, and a reasonable royalty on the remainder, may be appropriate, and has been approved by the Federal Circuit. Crystal Semiconductor Corp. v. TriTech Microelectronics Intern., Inc., 246 F.3d 1336, 1354 (Fed. Cir. 2001).

A. Damages

Defendant has argued that Plaintiffs' actual losses are limited to the royalties Plaintiffs would have received from the terminated Patent License. The Court notes that the parties settled this case by submitting a stipulated consent judgment, and entered into a separate Patent License Agreement at that time, as part of a Settlement Agreement. (Dkt. 65-1). Given that the Patent License Agreement was entered into as part of the settlement, to end the litigation and avoid future litigation, the Court cannot rely on terms of the Patent License Agreement as an established reasonable royalty, or to determine the outcome of a hypothetical negotiation. Putnam v. Henkel Consumer Adhesives, Inc., 2007 WL 4794115 (N.D. Ga. 2007); Hanson v. Alpine Valley Ski Area, Inc., 718 F.2d 1075 (Fed. Cir. 1983).

Plaintiffs argue that the lost profits measure of damages is appropriate on Liner Kit sales and repair of main-lateral sewer junctions, and that Defendant's business records establish that Defendant continued selling the unaltered InnerSeal System until late 2009 or early 2010 (Dkt. 50, 11-12). Plaintiffs further seek a damages award which includes a reasonable royalty on InnerSeal equipment and InnerSeal materials. A damages award for Defendant's contempt covers the period from the termination of the license agreement, 1/11/2009, until 10/18/2010, based on Defendant's business records (Dkt. S-2).

The Court notes that Plaintiffs and Defendant compete in the same market. Based on the Panduit factors, Plaintiffs have established causation in fact. The Court finds that Plaintiffs are entitled to a sanctions award for lost profits for Liner Kit sales and main-lateral junction repairs in the amount of $560,914.81. The Court further finds that Plaintiffs are entitled to a reasonable royalty for lost equipment and materials sales of $24,116.87. The Court grants Plaintiff's Motion for the Award of Sanctions in the total amount of $585,031,68.

B. Enhanced Damages

Plaintiffs seek treble damages in the amount of $1,755,095.04.

Proof of willful infringement permitting enhanced damages requires at least a showing of objective recklessness. In Re Seagate Technology, LLC, 497 F.3d 1360, 1371 (Fed. Cir. 2007). To establish willful infringement, a patentee must show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent.... The state of mind of the accused infringer is not relevant to this objective inquiry. If this threshold objective standard is satisfied, the patentee must also demonstrate that this objectively-defined risk (determined by the record developed in the infringement proceeding) was either known or so obvious that it should have been known to the accused infringer. Id.

The Court determines whether to enhance damages based on the totality of the circumstances; the Court takes into account the factors which would render Defendant culpable, but must also take into account mitigating factors. Read Corp. v. Portec, 970 F.2d 816, 826 (Fed. Cir. 1992) superseded on other grounds as recognized by Celanese Corp. v. BP Chemicals, Ltd., 78 F.3d 1575, 1578 (Fed. Cir.1996). The Read factors include: (1) "whether the infringer deliberately copied the ideas or design of another"; (2) "whether the infringer knew of the patent, investigated the patent's scope and formed a good-faith belief of its invalidity or noninfringement"; (3) "the infringer's behavior as a party to the litigation"; (4) the "infringer's size and financial condition"; (5) the "closeness of the case"; (6) the "duration of Defendant's misconduct"; (7) "remedial action by the infringer"; (8) the "infringer's motivation for harm"; and (9) "whether the infringer attempted to conceal its misconduct."

1. Deliberate Copying

Defendant contends Defendant attempted to "design around" the `079 Patent. Defendant contends that the modifications were extensive enough to warrant significant discovery, extensive briefing, expert testimony and an evidentiary hearing.

In his deposition, Defendant's corporate representative testified that the modifications were an attempt to make the system more "user friendly" for installers. Defendant sold the original InnerSeal system after the termination of the License Agreement. Defendant modified the InnerSeal System and marketed and sold the modified System without consulting patent counsel.

2. Investigation of Scope of Patent/Good Faith Defenses

The Consent Judgment (Dkt. 10), entered on 7/23/2008, reflects Defendant's knowledge that the `079 Patent is not invalid or unenforceable, and that Defendant's InnerSeal system infringes.

Defendant contends that Defendant infringed because Plaintiffs wrongfully terminated the Patent License Agreement, and Defendant believed in good faith that Defendant's modified system was non-infringing.

Plaintiffs contend that Defendant exhibited bad faith in implementing the License Agreement, based on Defendant's complete failure to comply with the terms of the License Agreement, willful disregard of the `079 patent and injunction, and continued sales of the unaltered system.

3. Litigation Conduct

Plaintiffs contend that Defendant's failure to provide a straight-forward response to the Court's Order to Show Cause resulted in otherwise unnecessary legal expenses, including discovery, a demonstration of the modified system, an evidentiary hearing, and motion practice, resulting in extensive delay in the enforcement of the injunction, and increased legal expenses. Plaintiffs also contend that Defendant's corporate representative did nothing to prepare for his deposition.

4. Defendant's Size/Financial Condition

The Court is not aware of any evidence that establishes Defendant's size and financial condition, or that would throw some light on the impact that a sanctions award would have on Defendant. The Court has accorded no weight to this factor.

5. Closeness of Case

Defendant contends that this case is a close case.

Plaintiffs contend that Defendant's infringing conduct has been egregious and flagrant, and that Defendant's willful infringement is plain.

6. Duration of Misconduct

Defendant's infringement spans from 1/11/2009 to 10/18/2010, and includes Defendant's sales of unmodified InnerSeal systems as well as sales of modified InnerSeal systems.

7. Remedial Action Taken by Defendant

Defendant contends Defendant continued to attempt to "design around" the `079 patent.

8. Motivation for Harm

Plaintiffs and Defendant are competitors in the marketplace.

9. Attempt to Conceal Infringement

Plaintiffs concede that Defendant openly advertised the Perma-Liner InnerSeal System. Plaintiffs characterize Defendant's infringement as "in flagrant disregard" of the Court's injunction.

This case involves post-filing infringement. Plaintiffs moved for an order to show cause and contempt order on 11/6/2009, after becoming aware of Defendant's continuing infringement in July/August, 2009. (Dkt. 14-13). Plaintiffs argue that Defendant's conduct was reckless, and the totality of the circumstances supports an award of enhanced damages.

The Court bears in mind that this proceeding is a civil contempt proceeding. The purpose of any sanction awarded is to compensate Plaintiff, not to punish Defendant. After considering the totality of the circumstances, the Court finds that there is an element of willful infringement as to Defendant's continued sales of the unmodified InnerSeal system, coupled with Defendant's recognition of the validity and enforceability of the `079 Patent, Defendant's knowledge that the Patent License Agreement terminated, and Defendant's knowledge of the Consent Judgment to which Defendant agreed. Defendant's sale of the modified InnerSeal System without consulting counsel is an additional factor that weighs in favor of enhancing damages. A finding of willful infringement permits, but does not mandate, the enhancement of damages. Stryker Corp. v. Davol, 234 F.3d 1252, 1259-60 (Fed. Cir. 2000). The Court declines to enhance damages where the award of a compensatory sanction and the award of attorney's fees and costs will make Plaintiffs whole for the losses associated with Defendant's conduct.

After consideration, the Court denies Plaintiffs' Motion for the Award of Sanctions as to the award of enhanced damages.

C. Attorney's Fees

Plaintiff's seek the award of attorney's fees in the amount of $115,639.80, and costs associated with the contempt proceeding in the amount of $33,747.87.

Defendant contends that this case is not an exceptional case, and Plaintiffs' request for the award of attorney's fees and costs should be denied.

The Court has made a determination of willful infringement. Even without the determination of willful infringement, it is within the Court's discretion to award attorney's fees and costs reasonably incurred to the injured party in a contempt proceeding. See Sizzler Family Steakhouses v. Western Sizzlin Steakhouse, Inc., 793 F.2d 1529, 1534-35 (11th Cir. 1986). The Court has examined the records provided by Plaintiffs, and finds that amount of time expended and the hourly rates were reasonable and necessary. Defendant has not challenged the reasonableness or necessity of Plaintiffs' attorney's fees and costs.

In order to compensate Plaintiffs for the costs directly related to Defendant's contempt, the Court grants Plaintiff's Motion for the Award of Attorney's Fees and Costs in the total amount of $149,387.67.

The Court has awarded damages to compensate Plaintiffs in the amount of $585,031.68. The Court has also granted attorney's fees and costs in the amount of $149,387.67. The total award is $734,419.35. Accordingly, it is

ORDERED that Plaintiffs' Motion for the Award of Sanctions, Fees and Costs is granted in part and denied in part. The award to Plaintiffs for Sanctions, Fees and Costs is $734,419.35.