Fed. Circ. Should Clarify Irreparable Harm In Patent Cases

Transcription

1 Fed Circ Should Clarify Irreparable Harm In Patent Cases Law360, New York (December 02, 2013, 1:23 PM ET) -- As in other cases, to obtain an injunction in a patent case, the plaintiff is required to demonstrate, among other things, an irreparable injury or, in the case of a preliminary injunction, a likelihood of irreparable harm absent an injunction[1] Nevertheless, until 2006, when the US Supreme Court overturned the Federal Circuit in ebay v MercExchange, injunctions were the general rule in patent cases once infringement had been established[2] Left open by ebay was whether irreparable harm might mean something different in patent cases Lower courts have struggled to fill that vacuum In Broadcom v Emulex, a recent pronouncement on the issue, the Federal Circuit hewed closely to its old bias in favor of injunctions, explaining the long history of remedying trespass on property rights including patent rights by removing the trespasser on the basis of a constitutional and statutory grant to exclude others from one s property [3] The court affirmed the grant of a permanent injunction, reasoning, in part: The district court determined that Broadcom and Emulex were competitors and that Broadcom lost market share while Emulex gained it thus Broadcom established irreparable harm [4] Such facile reasoning bodes well for patentees in future cases, but departs from other recent, less plaintiff-friendly decisions establishing a causal nexus requirement The Causal Nexus Requirement The epic battle between titans Apple Inc and Samsung Electronics Co Ltd has spawned three injunction decisions by the Federal Circuit: two during 2012, one harsher to Apple as patent holder than the next; and a third, after Broadcom, that provided some slim hope for Apple[5] In Apple I, the Federal Circuit affirmed the denial of a preliminary injunction, holding the district court was correct to require a showing of some causal nexus between Samsung s infringement and the alleged harm to Apple as part of the showing of irreparable harm [6] Thus introducing a causal nexus requirement into the injunction inquiry, the court reasoned: To show irreparable harm, it is necessary to show that the infringement caused harm in the first place Sales lost to an infringing product cannot irreparably harm a patentee if consumers buy that product for reasons other than the patented feature If the patented feature does not drive the demand for the product, sales would be lost even if the offending feature were absent from the accused product Thus, a likelihood of irreparable harm cannot be shown if sales would be lost regardless of the infringing conduct[7] In Apple II, the court went further Reversing the grant of a preliminary injunction, the court grafted an express new requirement into the injunction standard, stating: Thus, to satisfy the irreparable harm factor in a patent infringement suit, a patentee must

2 establish both of the following requirements: 1) that absent an injunction, it will suffer irreparable harm, and 2) that a sufficiently strong causal nexus relates the alleged harm to the alleged infringement [8] The court insisted harm flowing from the alleged infringement is the only harm that should count ; thus, the causal nexus requirement informs whether the patentee s allegations of irreparable harm are pertinent to the injunctive relief analysis or whether the patentee seeks to leverage its patent for competitive gain beyond that which the inventive contribution and value of the patent warrant [9] Finally, in Apple III, the court vacated the denial of a permanent injunction with respect to Apple s utility patents, while upholding the causal nexus requirement and affirming denial of an injunction with respect to Apple s design patents Is Causal Nexus Required to Prove Irreparable Harm in Patent Cases? Despite the Apple cases, the Broadcom court affirmed the grant of an injunction, going little further than to approve the district court s conclusion that Broadcom s exclusion from a fair opportunity to compete for design wins constitutes irreparable harm [10] Concededly, the court asserted undisputed evidence at trial linked the claimed invention of the [asserted] patent to the success of the products incorporating it, [11] but, in Apple II, the court had rejected evidence that the claimed invention contributed to the success of Apple s iphone 4S as insufficient absent evidence the claimed invention contributed to success of the infringing product as well[12] Likewise, Broadcom relied on evidence that Broadcom lost market share to Emulex, without inquiring, as the Apple cases would require, whether market share was lost because of infringement or for some other reason Broadcom purported to distinguish Apple I on the basis of a difference in market dynamics[13] Apple I, of course, had concerned the consumer electronics market, more specifically the market for smartphones and tablets, such as the iphone and ipad In that context, the court concluded that the district court was correct to require a nexus between infringement of the patent and some market-based injury, be it as a result of consumer preference or some other kind of causal link [14] Mere evidence that Samsung believed it important to incorporate a patented feature was deemed relevant, but insufficient to prove that the feature actually drove demand, as required to prove causal nexus Likewise, with respect to a design patent, evidence that design had some effect on sales failed to establish sufficient nexus because design was not a determinative factor in consumer decision-making Broadcom, in contrast, concerned a design wins OEM market In that market, there are few customers, and once a supplier is chosen for a product line, its component is essentially designed into the product for its life cycle Further, there is an incumbency effect, which enhances the supplier s ability to win subsequent design competitions Thus, according to Broadcom, the effect on -2-

3 competition of a design win is both more profound and longer lasting than the effect of infringement on competition in the consumer products market If one accepts the distinction Broadcom purports to draw between the consumerproduct and OEM markets, as the court did in Apple III,[15] one would expect the causal nexus requirement to be alive and well After all, there are a great many patent suits relating to consumer products Nevertheless, there are strong reasons, even after Apple III, to doubt First, while the differences between the two markets may be appreciable, those differences do not really address the causal nexus question or explain the Federal Circuit s essentially ignoring that requirement in the Broadcom case Suppose, for example, an infringer achieves design wins on the basis of design features other than the patented feature and, indeed, the patented feature was not a material factor in the win How, then, could one conclude that the infringement caused the patentee harm even in an OEM market? And, absent that, why should the design-wins nature of the market alter the calculus? Second, the causal-nexus requirement appears inconsistent with Supreme Court precedent The Supreme Court has spelled out the four requirements for injunctive relief To obtain a permanent injunction, a plaintiff must 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[16] Likewise, to obtain a preliminary injunction, a plaintiff must show: (1) that he is likely to succeed on the merits, (2) that he is likely to suffer irreparable harm in the absence of preliminary relief, (3) that the balance of equities tips in his favor, and (4) that an injunction is in the public interest[17] In Apple III, the Federal Circuit rejected Apple s contention that causal nexus had become an unprecedented fifth requirement, insisting the inquiry is simply part of the irreparable harm calculus [18] Nevertheless, the Supreme Court has never used the phrase causal nexus in explaining this standard, let alone suggested that irreparable harm (or, in the case of a preliminary injunction, the likelihood thereof) includes proof of causal nexus Finally, the Apple formulation does not appear to have been well received even within the Federal Circuit Broadcom is the only injunction case (outside the Apple/Samsung litigation) in which any Apple opinion was cited in a majority opinion of the court At least two opinions ignored both the Apple cases and the causal-nexus requirement entirely[19] While Apple III dismisses those case, they, like Broadcom, were written by Chief Judge Randall Rader Both as chief judge and as a chief proponent of causal -3-

4 nexus in the context of patent damages,[20] his reticence to apply that analysis in the injunction context is noteworthy Conclusion In a recent address, Chief Judge Diane Wood of the Seventh Circuit Court of Appeals called to abolish the Federal Circuit s exclusive jurisdiction in patent cases, arguing, among other things, that exclusivity prevents incubation of ideas[21] Others have leapt to the defense of the Federal Circuit, observing that many complain there is in fact too much variability among its panels[22] However, failure (or refusal) by one panel to follow the holding of another panel of the same court is error While our judicial system tolerates and even encourages disagreement among coordinate courts, disagreements within a single court result all too often in poor distinctions[23] and uncertainty If the Federal Circuit wishes to maintain its prerogative, it must keep its house in order It should therefore take its first en banc opportunity to clarify the irreparable harm requirement for injunctive relief in patent cases In the meantime, litigants ignore the heightened Apple requirements at their peril --By Jonathan B Tropp, Elizabeth A Alquist and Cecilia Zhang Stiber, Day Pitney LLP Jon Tropp is an intellectual property department partner in the Stamford, Conn, office of Day Pitney Beth Alquist is a partner in the Hartford, Conn, office and chairwoman of the department Cecilia Stiber is a department associate in the firm s Stamford office The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc, or any of its or their respective affiliates This article is for general information purposes and is not intended to be and should not be taken as legal advice [1] ebay Inc v MercExchange, LLC, 547 US 388, 394 (2006)(holding whether to grant or deny injunctive relief rests within the equitable discretion of the district courts, and that such discretion must be exercised consistent with traditional principles of equity, in patent disputes no less than in other cases governed by such standards ); see Winter v Natural Res Def Council, Inc, 555 US 7, 20 (2008)(describing preliminary injunction standard) [2] ebay, 547 US at 393 [3] Broadcom Corp v Emulex Corp, 732 F3d 1325, 1338 (Fed Cir 2013)(citing US Const art I, cl 8; 35 USC 154(a)(1)) [4] Id [5] Apple Inc v Samsung Elecs Co, 678 F3d 1314 (Fed Cir 2012)( Apple I ); Apple -4-

5 Inc v Samsung Elecs Co, 695 F3d 1370 (Fed Cir 2012)( Apple II ); Apple Inc v Samsung Elecs Co, 2013 US App LEXIS (Fed Cir Nov 18, 2013)( Apple III ) [6] Apple I, 678 F3d at 1324 [7] Id [8] Apple II, 695 F3d at 1374 [9] Id at 1375 [10] Broadcom, 732 F3d at 1337 [11] Id [12] Compare id (finding link between patented invention and commercial success relevant) with Apple II, 695 F3d at 1376 (finding link between patented invention and patent holder s commercial success irrelevant absent evidence of link specifically to infringer s commercial success) [13] Though Broadcom issued on October 7, 2013, all of the appellate briefs in the case were submitted before the decision in Apple II, and Broadcom did not cite that decision [14] Apple I, 678 F3d at 1327 [15] Apple III, 2013 US App LEXIS 23167, at *21 [16] ebay, 547 US at 391 [17] Winter, 555 US at 20 [18] Apple III, 2013 US App LEXIS 23167, at *17 [19] Douglas Dynamics, LLC v Buyers Prods Co, 717 F3d 1336 (Fed Cir 2013)(Rader, CJ)(reversing denial of permanent injunction); Presidio Components, Inc v Am Tech Ceramics Corp, 702 F3d 1351 (Fed Cir 2012)(Rader, CJ)(vacating denial of permanent injunction) [20] See, eg, ResQNetcom, Inc v Lansa, Inc,, 594 F3d 860, 869 (Fed Cir 2010)( At all times, the damages inquiry must concentrate on compensation for the economic harm caused by infringement of the claimed invention ); Uniloc USA, Inc v Microsoft Corp, 632 F3d 1292, 1320 (Fed Cir 2011)( This case provides a good example of the danger of admitting consideration of the entire market value of the accused where the patented component does not create the basis for customer demand ) Chief Judge Rader served on the panel in both cases -5-

6 [21] Diane P Wood, Is it Time to Abolish the Federal Circuit s Exclusive Jurisdiction in Patent Cases?, 13 Chicago Kent J Intell Prop 1 (2013) [22] Eg, In_Defense_of_the_ Federal_Circuit_A_Response_to_Judge_Wood&slreturn= [23] The court also distinguished Apple I on the ground that Emulex had been adjudicated an infringer Broadcom, 372 F3d at This distinction between preliminary and permanent injunctions was roundly rejected in Apple III 2013 US App LEXIS 23167, at *21-*22 All Content , Portfolio Media, Inc -6-