How To Evaluate The Possibility of an Injunction Post-eBay: Where You Are and Who You Are May Be Determinative - Part I

Thursday, February 1, 2007 - 01:00

A patent gives its owner the right to exclude others from making, using, selling, or offering to sell the patented invention.1 Historically, courts interpreted these rights to include granting injunctive relief to the patent owner unless exceptional circumstances apply.2 Since the United States Supreme Court's holding in eBay v. MercExchange, legal commentators have speculated that the presumed grant of an injunction after a finding of infringement would now be far from automatic.3 This presents a difficult situation for a defendant attempting to craft a settlement proposal. Certainly, the threat of an injunction is a powerful sword that a patent holder wields during settlement negotiations. But, if a defendant has reason to believe that an injunction is not likely to issue, regardless of a finding of infringement, then the dynamic of settlement discussions shifts, and the appropriateness of a settlement offer varies.

How do you know if an injunction is likely to issue? Part I of this article discusses how courts have handled the issue of injunctive relief post- eBay, and Part II discusses the factors that are important for determining if an injunction is likely to issue. Surprisingly, two of the most determinative factors for predicting whether an injunction will issue are (1) where the case is pending and (2) the nature of the defendant. The table at the end of this article summarizes the District Court rulings on injunctions since eBay , and is instructive for determining the likelihood of injunction with regard to a particular set of circumstances.

I. Never Assume Anything

The patent statues state that a court "may grant injunctions in accordance with the principles of equity to prevent the violation of any right secured by the patent"4 Prior to May of 2006, injunctions against a patent infringer were freely given. In fact, the Federal Circuit had long stated its general rule that "courts will issue permanent injunctions against patent infringement absent exceptional circumstances."5 Thus, when a patent holder successfully proved infringement at trial, it was virtually a foregone conclusion that an injunction would soon issue. It was therefore safe to assume that the downside of a loss on infringement included an injunction preventing the continued sale of the infringing product.

Counsel were required to reevaluate this assumption when the Supreme Court issued its opinion in eBay v. MercExchange.6 MercExchange, the owner of a business method patent related to sales of goods between private individuals by establishing a central authority, brought an infringement action against eBay. A jury found that eBay infringed the patent in suit, but the District Court denied MercExchange's motion for a permanent injunction. Citing its "general rule," the Federal Circuit reversed, granting MercExchange's permanent injunction.

The Supreme Court reversed the Federal Circuit's grant of the injunction. Instead of the longstanding presumption, the Court stated that "well-established principles of equity," which require the party seeking a permanent injunction to satisfy a four-factor test, govern the grant or denial of a permanent injunction. It required that the patent holder show (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.7 Since "nothing in the Patent Act indicates that Congress intended such a departure" from the long tradition of equity practice, the Supreme Court stated that the four-part test would apply to patents just as it would in other areas of law.

II. The More Things Change The More They Stay The Same

Interestingly, in the more than seven months since eBay, District Courts continue to grant permanent injunctions - they just apply the four-factor test instead of the Federal Circuit's now overruled presumption. The courts have generally held steadfast to their long held belief that the public is best served by a strong and healthy patent system.8 They reason that an injunction's hardship on a defendant, with nothing more, is not enough to overcome the hardship the plaintiff suffers from a denial of the injunctive relief. While the means to the end may have changed, the outcome remains fairly similar.9 That is, the patent owner continues to enjoy a high likelihood that it will obtain an injunction if it proves infringement. That is not to suggest that a mere finding of infringement guarantees an injunction. A patent holder must set forth evidence regarding each of the four factors in order to obtain the injunction.10 However, the outcome of the post eBay cases suggests that factors not addressed in the Supreme Court's decision may be more determinative then the four factors listed above.

In Telequip Corp. v. The Change Exchange, the Northern District of New York granted the patentee's request for a permanent injunction.11 While it considered the four-factor test as required by the Supreme Court, the court seemed to rely heavily on the inherent value of patent rights. In determining that monetary damages would not be adequate, the court stated that "the principal value of a patent is its statutory right to exclude."12 Further, without the right to obtain an injunction, the "right to exclude granted to the patentee would have only a fraction of the value it was intended to have, and would no longer be as great an incentive to engage in the toils of scientific and technological research."13

Other courts have considered the inherent value of patents in reaching their decision to grant an injunction. In Litecubes LLC v. Northern Light Products, for example, the Eastern District of Missouri found important that the patent owner "went through the time and expense of developing the patented device and obtaining legal protections for his invention in the form of a patent."14 The Court noted the fact that the defendant "has no such protection and seeks to poach customers in violation of Plaintiff's rights."15

In addition to the inherent value of patents, courts have considered important the level of direct competition between the plaintiff and defendant, and the effect that the lack of an injunction would have on the patent holder's market share. In TiVo v. Echostar Communications Corporation, the court granted a permanent injunction in consideration of the fact that the parties were direct competitors, and without an injunction the plaintiff would lose its market share.16 The Court of International Trade, in Canadian Lumber Trade Alliance v. United States, came to the same conclusion, finding that the loss of trade over time was an irreparable harm to the plaintiff in light of the direct competition between the parties.17

Similarly, in 3M Innovative Properties v. Avery Dennison Corporation, the District of Minnesota granted the patent holder's request for a permanent injunction.18 The court found that the patent holder would experience severe hardship without an injunction, as it would be barred from exercising its statutory right to exclude.19 Additionally, the court found important the fact that the patent owner actually practiced the technology and had consistently refused to license its patent.20 Recently, the Western District of Tennessee granted a permanent injunction in Smith & Nephew, Inc. v. Synthes (USA), with the court finding irreparable harm to the patent holder due to damage to its goodwill and brand recognition, as well as the loss of the ability to form and continue relationships with its customers.21 The court additionally found that the public would benefit as a result of an injunction, as it would allow the patent holder to develop new and better products, and gain better brand recognition.22

The Western District of Oklahoma, in Wald v. Mudhopper Oilfield Services, Inc., granted a permanent injunction, because the plaintiff established that it would lose much more than simply money should the injunction not be granted.23 Instead, the court found that the plaintiff would lose its market share, and even more importantly, its "reputation for innovation."24 Further, it was the plaintiff that would bear the risk of future infringement without an injunction, without any established harm to the defendant.25 Other courts, such as the Western District of Michigan and the Eastern District of New York, have granted permanent injunctions under similar facts.26

III. Who Am I?

Although it sounds metaphysical, when calculating the risk of an injunction the parties to the litigation need to know who they are. A company that does not practice its technology, as is the case with so-called "patent trolls", or the company that has not suffered direct harm through infringement, will be less likely to obtain an injunction. In addition to whether it actually practices the technology, the relationship between the patent holder and the infringer is important.

The answer to the "Who am I?" question was predictive in Finisar, explained above, as well as other actions.27 In Voda v. Cordis Corporation, the Western District of Oklahoma denied a request for a permanent injunction due to the fact that the plaintiff failed to establish any harm to itself whatsoever.28 Instead, the plaintiff relied solely upon harm to a third party, an exclusive licensee, in its request for an injunction. In denying the request, the court stated that a plaintiff seeking a permanent injunction must establish a personal harm - harm to third parties will not suffice.29 In support of this reasoning, the court noted that an exclusive licensee could bring its own suit and request a permanent injunction if it so desired.30 1 35 U.S.C. 154(a)(1)

2 See, for example, Richardson v. Suzuki Motor Co., 868 F.2d 1226, 1246 (Fed. Cir. 1989).

3 eBay Inc. v. MercExchange, L.L.C., 126 S. Ct. 1837, 2006 U.S. LEXIS 3872 (2006).

4 35 U.S.C. 283.

5 See W.L. Gore & Assocs., Inc. v. Garlock, Inc., 842 F.2d 1275, 1281 (Fed. Cir. 1988) ("[A]n injunction should issue once infringement has been established unless there is a sufficient reason for denying it.").

6 eBay Inc. v. MercExchange, L.L.C., supra .

7 eBay, 126 S. Ct. at 1839, 2006 U.S. LEXIS 3872 at *5. See also Weinberger v. Romero-Barcelo , 456 U.S. 305, 311-313 (1982).

8 See, for example, Abbott Labs. v. Andrx Pharms., Inc., 452 F.3d 1331 (Fed. Cir. 2006), in which the Federal Circuit vacated the grant of a preliminary injunction, but still found that the public interest factor weighed in favor of issuing an injunction since "the public is best served by enforcing patents that are likely valid and infringed."

9 See, for example, KEG Techs. Inc. v. Laimer, 436 F. Supp. 2d 1364, 1371 (N.D. Ga. 2006), where the District Court required the parties to take additional evidence and argument regarding the four-factor test, since the plaintiffs did not have any notice of a need to show satisfaction of the four factors. The Supreme Court had issued its ruling in eBay on the day of the evidentiary hearing.

10 The Federal Circuit has remanded the decision of at least one district court that failed to establish the four factor test. Monsanto Corp. v. Scruggs, 459 F.3d 1328 (Fed. Cir. 2006) (remanding the grant of an injunction for failure to establish all factors of the four-factor test).

11 Telequip Corp. v. The Change Exch., 2006 U.S. Dist. LEXIS 61469 (N.D. N.Y. 2006).

12 Id . at *5.

13 Id . at *5, quoting Honeywell Int'l. v. Universal Avionics Sys. Corp., 397 F. Supp. 2c 537, 546 (D. Del. 2005).

14 Litecubes LLC v. Northern Light Prods, 2006 U.S. Dist. LEXIS 60575, *321 35 U.S.C. 154(a)(1)

15 Id. at 32.

16 The loss of market share would be considered and irreparable harm. TiVo Inc. v. Echostar Comm. Corp. , 2006 U.S. Dist. LEXIS 64290 (E.D. Tex. 2006).

17 Canadian Lumber Trade Alliance v. U.S., 441 F. Supp. 2d 1259 (Ct. Int'l. Trade 2006).

18 3M Innovative Prop. v. Avery Dennison Corp., 2006 U.S. Dist. LEXIS 70263 (D. Minn. 2006).

19 Id. at *5.

20 Id. at *4. The court also noted that there was no concern for public health or safety, which would have weighed against the grant of an injunction in the public interest

21 Smith & Nephew, Inc. v. Synthes (USA), 02-CV-2873 (W.D. Tenn. 2006) ("by damaging Smith & Nephew's goodwill and brand name recognition, Synthes has violated Plaintiff's exclusionary right in a manner that cannot be compensated adequately through pecuniary damages.")

22 Id . The court also noted that there was direct competition between the parties, and that the patent holder has consistently been unwilling to license its patent.

23 Wald v. Mudhopper Oilfield Svcs., Inc., 2006 U.S. Dist. LEXIS 51669 (W.D. Ok. 2006).

24 Id . at *16. See also Black & Decker v. Robert Bosch Tool Corp., 2006 U.S. Dist. LEXIS 86990 (N.D. Ill. 2006).

25 Id .

26 American Seating Co. v. USSC Group, Inc., 2006 U.S. Dist. LEXIS 59212 (W.D. Mich. 2006); Roscoe, Inc. v. Mirror Lite Co., 2006 U.S. Dist. LEXIS 73366 (E.D. N.Y. 2006); Transocean Offshore Deepwater Drilling, Inc. v. Globalsantafe Corp., 2006 U.S. Dist. LEXIS, 93408 (S.D. Tex. 2006); Visto Corp. v. Seven Networks, Inc., 2006 U.S. Dist. LEXIS 91453 (E.D. Tex. 2006); Floe Int'l. v. Newman's Mfg. Inc ., 2006 U.S. Dist. LEXIS 59872 (D. Minn. 2006) (parties stipulated to an injunction).

27 In Finisar, the patent owner never made, nor had the means to make the invention. Finisar, No. 1:05-cv-264.

28 Voda v. Cordis Corp. (E.D. Mo. 2006).

29 Id. at *18-19.

30 Id.

Michael Cukor is a Director and John A. Chiodo is an Associate in the Intellectual Property Department of Gibbons P.C.

Please email the authors at mcukor@gibbonslaw.com or jchiodo@gibbinslaw.com with questions about this article.