On April 5, 2005, the U.S. Bankruptcy Court in Atlanta ordered Weyerhaeuser Corporation to pay Paragon Trade Brands Inc. nearly $460 million in damages. The damages award is based almost entirely on the calculations of Nathan Associates President and CEO John Beyer.
Trouble began in 1993 when Weyerhaeuser spun off one of its divisions, warranting that the newly formed company had adequate patent rights to continue making disposable diapers with an inner leg gather that reduces leakage by 15 percent. Proctor & Gamble and Kimberly Clark—makers of Pampers and Huggies—had introduced the patented feature in 1989. Eager to compete in the lucrative disposable diaper market, Weyerhaeuser wanted this feature on its private label diapers manufactured by one of its divisions but did not want to pay the royalties for the licenses. When the division, now called Paragon, was spun-off it was the leading manufacturer of private label diapers for Wal Mart, Kroeger, and Eckerds, among others.
But in late 1997 Paragon learned that it did not have adequate patent rights when Proctor and Gamble won its patent infringement suit. A federal court awarded the third largest damage award in the history of patent infringement and Paragon declared bankruptcy in 1998. As part of the settlement to emerge from bankruptcy, the U.S. Federal Bankruptcy court in Atlanta granted Paragon equity holders’ claim that Weyerhaeuser had violated its warranties when Paragon was spun off.
In November and December of 2003, Mr. Beyer testified as the plaintiff’s damages expert concerning the damages that Paragon suffered because it did not have the patent rights that Weyerhaeuser warranted it had at the time of the spin-off. Using three distinct but related methodologies in the valuation of Paragon with and without adequate patent rights, he presented damage estimates ranging from $687 million to $815 million. According to the Wall Street Journal (April 5, 2005), money from the damages ruling will be distributed to Paragon shareholders and some creditors.