How To Evaluate The Possibility Of An Injunction Post- eBay: Where You Are And Who You Are May Be Determinative - Part II

Thursday, March 1, 2007 - 01:00

Part I of this article described the four-factor test for granting an injunction for patent infringement, pointing out the nature of the parties and their relationship may be determinative of the court's willlingness to grant an injunction.

I. Location, Location, Location

Venue is one of the most important factors in determining the likelihood of an injunction. The Eastern District of Texas, a high volume patent district, has been the most active court in denying requests for injunctive relief since eBay.1 In Paice LLC v. Toyota Motor Corporation, the court found that the plaintiff simply failed to establish any elements of the four-factor test.2 There was no irreparable harm for several reasons, including the lack of direct competition between the parties and the repeated attempts by plaintiff to license its patents.3 Perhaps most importantly, the court noted the fact that plaintiff's licensing attempts failed due to its own misrepresentations and improper business tactics.4 The court further found that the harm plaintiff would suffer in its licensing efforts without an injunction did not justify its grant.5

The Eastern District of Texas considered issues of antitrust in its denial of the injunction in Finisar v. DirecTV Group.6 It considered the fact that there were only two main players in the market, and enjoining one of those parties would create a monopoly in favor of the other. Further, the court found that Finisar, the patent owner, never actually had the means to implement the patent, and in fact never made the invention.7 Finally, considering that the patent in the suit involved television technology, the court found that the public interest would be harmed, since a great deal of users would lose their television signal.

In one of the more developed and fact-specific cases since the eBay decision, the court denied an injunction in z4 Technology, Inc. v. Microsoft Corporation.8 The jury found that a portion of Microsoft's program used z4's patented technology, and found infringement. z4 then moved for a permanent injunction, essentially requiring Microsoft to remove or disable its activation software. The court found that this would be likely to do more harm than good, as without the activation software, Microsoft's software would be rapidly copied.9 Further, the court found that z4 would suffer no irreparable harm, as Microsoft does not directly produce the patented software and then individually sell or distribute that software. Thus, there was no direct competition between the parties, and there would subsequently be no loss of market share or brand name recognition.10

Finally, the court found that monetary damages would adequately compensate z4. It stated that monetary damages are generally appropriate in situations where the "patented invention is but a small component of the product the companies seek to produce."11 Since the activation software was but a small component of the larger product, the court was more inclined to deny the injunction of the product. In its decision, the court noted that monetary damages could be inadequate in situations where an infringer "saturates the market with an infringing product or damages the patent holder's good will or brand name recognition by selling infringing products."12 That was not the situation in the Z4 case, and the injunction was denied.

While the Eastern District of Texas has been the most aggressive district in denying permanent injunctive relief, it should be understood that the factual bases for the refusals were real and present. Each of the districts since the eBay decision have been consistent, in that all courts now apply the four-factor test. The Eastern District of Texas has simply been more willing to deny relief upon the facts as presented.

II. What About Preliminary Injunctions?

The future of preliminary injunctive relief is beyond the scope of this article, but a brief discussion is appropriate. Courts following the Supreme Court's decision have stated that "the eBay Court addressed the proper analysis for permanent injunctive relief," leaving traditional preliminary injunctive relief unchanged.13 Courts since eBay have been consistent in upholding the traditional presumption of irreparable harm for preliminary injunctions.14 Traditionally, when a patent owner seeks a preliminary injunction during an action, the patent owner must satisfy a test similar to the one set forth in eBay .15 Historically, the courts have applied a presumption of irreparable harm upon a showing of likelihood of success on the merits in patent infringement actions.16 The presumption will be granted upon a showing of likely infringement of a valid and enforceable patent.17

At least one court, however, has put aside the traditional presumption of irreparable harm in light of eBay, and weighed the factors individually in issuing a preliminary injunction. In Canon, Inc. v. GCC International, Ltd., the Southern District of New York weighed the facts in determining whether there existed irreparable harm without an injunction.18 It, like most of the courts following eBay, still granted the injunction. In finding irreparable harm, the court specifically noted that the plaintiff was actually practicing his technology, that the plaintiff did not freely license the product at suit to others, and any licenses that were granted were not for the manufacture and sale of products.19 In the absence of an injunction, the court found that the patent holder would lose not only sales, but market share to the defendants.20

Although most of the courts have not modified their approach to preliminary injunctions, it is not unreasonable to believe that the trend set forth in eBay will soon follow into the area of preliminary injunctive relief. The Federal Circuit has cautioned that a preliminary injunction is a "drastic and extraordinary remedy that should not be routinely granted."21 Although the presumption only applies upon a high showing of likelihood of success on the merits, which is not an easy hurdle to overcome, it is difficult to imagine that seeking a preliminary injunction, described as a "drastic" remedy, could be easier to obtain than one in which the defendant has already been found to infringe. It is possible that the trend will shift to align preliminary injunctions with their permanent counterparts.

III. Conclusion

Overall, even after eBay , the courts have been likely to issue a permanent injunction upon the finding of patent infringement. Although the courts do follow the Supreme Court's reasoning and consider all four factors, the courts have continued to grant the injunctive relief, following the traditional right to exclude granted by the patent statutes. Even the Eastern District of Texas, which has been the most likely to reject injunctive relief, has only denied injunctions in light of fact-specific issues.

Injunctions are most likely to be denied when one of the following factual situations is found: when the harm is to a third party and not the plaintiff (Voda ; when there is no direct competition between the parties (z4); when the patented invention is but a small part of the product (Justice Kennedy's concurrence in eBay); when the patent owner freely licenses or attempts to license its patent (Paice); and when an injunction would likely result in an improper monopoly (Finisar).

While a patent holder must now hurdle the four factor test to obtain an injunction, the likelihood of an injunction remains high. Still, to appropriately determine the settlement value of a case, a party needs to know where it is and who it is so it can appropriately gauge the likelihood of an injunction. The four-factor test is still a necessity - how it is considered may significantly differ.1 It should be understood that the Eastern District of Texas has also granted injunctions since the eBay decision, see Visto Corp. v. Seven Networks, Inc., 2006 U.S. Dist. LEXIS 91453 (E.D. Tex. 2006). This district has simply been the most active in denying injunctive relief.

2 Paice LLC v. Toyota Motor Corp., 2006 U.S. Dist. LEXIS 61600 (E.D. Tex. 2006).

3 Id. at *14.

4 Id. at *13-14.

5 Id.

6 Finisar v. DirecTV Group, No. 1:05-cv-264 (E.D. Tex. 2006)

7 Id. This ruling suggests the court's disfavor of so-called "patent trolls."

8 z4 Tech., Inc. v. Microsoft Corp., 434 F. Supp. 2d 437 (E.D. Tex. 2006).

9 Id.

10 Id. at 440.

11 Id. at 441, quoting Justice Kennedy's concurrence in eBay.

12 Id.

13 Christiana Indus. v. Empire Elecs., Inc., 2006 U.S. Dist. LEXIS 54210, *5 (E.D. Mich. 2006) (emphasis in original) (upholding a grant of a preliminary injunction since the eBay decision "did not invalidate the presumption" of irreparable harm for preliminary injunctions).

14 See PHG Techs. v. Timemed Labeling Sys., 2006 U.S. Dist. LEXIS 66828 (M.D. Tenn. 2006) ("having established the first factor of likelihood of success on the merits PHG is entitled to a rebuttable presumption of irreparable harm"); Sanofi-Synthelabo v. Apotex, Inc., 2006 U.S. Dist. LEXIS 65127 (S.D. N.Y. 2006) ("if the moving party 'clearly establishes the first factor, it is entitled to a rebuttable presumption' of irreparable harm").

15 A party must show (1) a likelihood of success on the merits; (2) irreparable harm if the injunction is not granted; (3) the balance of hardships between the parties weighs in favor of the patent owner; and (4) the public interest is served by the grant of the injunction. See Oakley, Inc. v. Sunglass Hut Int'l., 316 F.3d 1331, 1339 (Fed. Cir. 2003).

16 Pfizer, Inc. v. Teva Pharms., USA, Inc., 429 F.3d 1364, 1381 (Fed. Cir. 2005); Smith Int'l, Inc. v. Hughes Tool Co., 718 F.2d 1573, 1581 (Fed. Cir. 1983); Polymer Techs. V. Bridwell, 103 F.3d 970, 973 (Fed. Cir. 1996).

17 Pfizer, 429 F.3d at 1381.

18 Canon, Inc. v. GCC Int'l, Ltd., 2006 U.S. Dist. LEXIS 61321 (S.D. N.Y. 2006).

19 Id. at *31.

20 Id. at *32. With respect to the public interest factor, the court, like many of the others above, found that there is "a strong public interest in ensuring that valid patents are enforced [which] encourages and promotes useful inventions." Id. at *35.

21 Nutrition 21 v. United States, 930 F.2d 867, 869 (Fed. Cir. 1991)

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

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