The Truth About Injunctions In Patent Disputes OCTOBER 2017 nixonvan.com
Injunction Statistics Percent of Injunctions Granted 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Injunction Grant Rate by PAE Status 16% Patent Assertion Entities (PAEs) 80% All Other Patentees 2
Injunction Statistics Percent of Injunctions Granted 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Injunction Grant Rates: Competition Between Litigants 84% Competitors 21% Not Competitors 3
Historical Injunctions Roman Praetor s Interdicts Prohibitory - forbidding an act Most common Restitutory ordering property to be restored Exhibitory produce something in court Raack, David W. (1986) "A History of Injunctions in England Before 1700," Indiana Law Journal: Vol. 61 : Iss. 4, Article 1. 4
Historical Injunctions Orders (Writs) of the King Orders to recusant defendants Often property-related e.g., to not molest lands, woods, pastures 5
Historical Injunctions Equity in common law courts (before about 1380 AD) Writ of Prohibition Order defendant to refrain from wrongful act Again, often property-related Order defendant to take affirmative steps to remove interference with another s property e.g., remove a dike that restricted access to pasture land 6
Historical Patent Remedies 1790 Patent Act 1 Stat. 109 (1790) Plaintiff allowed to recover damages (determined by jury) and possession of the infringing device 1793 Patent Act 1 Stat. 318 (1793) Infringers pay at least three times the amount the patentee usually received for either selling the patented invention or licensing the invention Patent Act of April 17, 1800 2 Stat. 37 Infringer should pay a sum equal to three times the actual damage sustained 7
Historical Patent Remedies Congress allowed federal courts equitable jurisdiction in all patent cases in 1819 (3 Stat. 481) Injunctions and equitable accounting Division between law and equity remained Court sitting in equity could not award damages Patent Act of 1836 Maintained law/equity divide Section 14 allowed actions on the case to recover actual damages Section 17 allowed for suits in equity 8
Preliminary vs. Permanent Injunctions Preliminary Injunctions In early 19 th century, granted if no glaring defects Today, four-factor test is typically applied Preliminary injunctions granted inconsistently Risky for patent owner s to request For preventing both patent infringement & other acts such as the filing of infringement actions Permanent Injunctions Often granted to prevailing plaintiff No reason for hesitation associated with preliminary injunctions 9
35 U.S.C. 283 The Patent Act states that patents shall have the attributes of personal property. 35 U.S.C. 261. Patents convey the right to exclude others from the making, using, offering for sale, or selling the invention throughout the United States or importing the invention into the United States. 35 U.S.C. 154(a)(1). Courts may grant injunctions in accordance with the principles of equity to prevent the violation of any right secured by patent, on such terms as the court deems reasonable. 35 U.S.C. 283. 10
Injunctive Relief Without this injunctive power of the courts, the right to exclude granted by the patent would be diminished, and the express purpose of the Constitution and Congress, to promote the progress of the useful arts, would be seriously undermined.... 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. Smith Intern., Inc. v. Hughes Tool Co., 718 F.2d 1573, 1577 78, 219 U.S.P.Q. 686 (Fed. Cir. 1983) 11
Injunctive Relief In view of the finite life of a patent and the prolonged nature of patent infringement litigation, the preliminary injunction becomes a necessary tool to insure that accused infringers do not abuse the litigation process by using a lawsuit as a means of obtaining a compulsory license during the pendency of the suit. H.H. Robertson, Co. v. United Steel Deck, Inc., 820 F.2d 384, 390, 2 U.S.P.Q.2d 1926 (Fed. Cir. 1987) (abrogated on other grounds by, Markman v. Westview Instruments, Inc., 52 F.3d 967, 34 U.S.P.Q.2d 1321 (Fed. Cir. 1995)) 12
Pre-eBay From at least the early 19th century, courts have granted injunctive relief upon a finding of infringement in the vast majority of patent cases. ebay concurrence 13
EBAY INC. v. MERCEXCHANGE, L.L.C. According to well-established principles of equity, a plaintiff seeking a permanent injunction must satisfy a four factor test before a court may grant such relief These familiar principles apply with equal force to disputes arising under the Patent Act. 14
EBAY INC. v. MERCEXCHANGE, L.L.C. A patentee (patent owner) must satisfy the following four-factor test for injunctive relief before a court may grant a permanent injunction: (1) that the patent owner 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 patent owner and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction. ebay Inc. v. MercExchange, LLC, 547 U.S. 388, 391, 126 S. Ct. 1837 (2006). 15
Injunctions Law The decision to grant or deny a permanent injunction is an act of equitable discretion by the district court judge, reviewable on appeal for abuse of discretion. ebay Inc., 547 U.S. at 391, 126 S. Ct. at 1839. On appeal, an abuse of discretion may be found on a showing that the court made a clear error of judgment in weighing relevant factors or exercised its discretion based upon an error of law or clearly erroneous factual findings. Acumed, 551 F.3d at 1327. Practically speaking, under this standard of review, it is very difficult to have a district court s decision on whether or not to grant an injunction overturned on appeal. 16
Injunctions Law Factors typically analyzed in connection with factors (1) and (2), namely whether the patent owner has suffered irreparable harm and whether monetary damages are inadequate to compensate for that injury, include: Whether the patent owner and defendant are direct competitors in the marketplace regarding the patented product. Whether the patent owner has lost market share or lost sales due to the infringement. Whether the patent owner has suffered price erosion due to the infringement. Whether the patent owner has lost goodwill with customers due to the infringement. Prior licensing activities by the patent owner, including whether the patent owner has previously licensed the patent to competitors. Whether the patent owner has previously offered to license the patent to the defendant. Whether the patent owner delayed in bringing suit or failed to request a preliminary injunction. See e.g., Broadcom Corp. v. Emulex Corp., 732 F.3d 1325 (Fed. Cir. 2013); ActiveVideo Networks v. Verizon Communications, 694 F.3d 1312 (Fed. Cir. 2012); Robert Bosch LLC v. Pylon Mfg. Corp., 659 F.3d 1142 (Fed. Cir., 2011); Halo Electronics, Inc. v. Pulse Electronics, Inc., 2013 WL 3043668 (D. Nev. 2013). 17
Injunctions Law In the majority of cases where infringement is found and the patent owner and defendant are direct competitors, courts (A) grant permanent injunctions, (B) find irreparable harm with respect to factor (1) including loss of market share, customer goodwill and/or price erosion, and (C) find that monetary damages are inadequate to compensate for injuries due to infringement with respect to factor (2). See e.g., Broadcom, 732 F.3d at 1336 39; Bosch, 659 F.3d at 1150 57; Acumed, 551 F.3d at 1327 31; O2 Micro, 2011 WL 5601460 at *8 11; Verizon Services Corp. v. Vonage Holdings Corp., 503 F.3d 1295, 1310 11 (Fed. Cir. 2007); Dominion Resources Inc. v. Alston Grid, Inc., 2016 WL 5674713, *12 17 (E.D. Pa. 2016); Quality Edge, 2016 WL 4536327 at *2 5; Halo, 2013 WL 3043668 at *2 13; eplus, 2011 WL 2119410 at *13; Ion Inc. v. Sercel, Inc., 2010 WL 3911378, *3 8 (E.D. Tex. 2010); ReedHycalog, 2010 WL 3238312 at *11 14; Extreme Networks, Inc. v. Enterasys Networks, Inc., 2008 WL 4756498, *2 3 (W.D. Wis. 2008); Transocean, 2006 WL 3813778 at *4 5; Amgen, Inc. v. F. Hoffman La Roche Ltd., 581 F.Supp.2d 160, 210 12 (D. Mass. 2008), aff d in part, vacated in part on other grounds, remanded, 580 F.3d 1340 (Fed. Cir. 2009); and Black & Decker Inc. v. Robert Bosch Tool Corp., 2006 WL 3446144, *4 5 (N.D. Ill. 2006). 18
EBAY INC. v. MERCEXCHANGE, L.L.C. An industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees For these firms, an injunction, and the potentially serious sanctions arising from its violation, can be employed as a bargaining tool to charge exorbitant fees to companies that seek to buy licenses to practice the patent. 19
EBAY INC. v. MERCEXCHANGE, L.L.C. When the patented invention is but a small component of the product the companies seek to produce and the threat of an injunction is employed simply for undue leverage in negotiations, legal damages may well be sufficient to compensate for the infringement and an injunction may not serve the public interest. 20
Post-eBay Several prior empirical studies have sought to evaluate ebay s impact by reviewing district court decisions on permanent injunctions in patent cases post-ebay. Although these studies have evaluated different time periods, they generally agree that patent owners who prevail in litigation receive an injunction (a property rule) about three-quarters of the time post-ebay. 21
Post-eBay However, certain categories of patentees are much less successful at obtaining injunctive relief, most notably patent assertion entities (PAEs), which are firms that principally exploit their patents through litigation and/or licensing rather than direct commercialization. These previous studies show that PAEs sometimes pejoratively called patent trolls generally receive only monetary compensation (a liability rule) instead of an injunction against future infringement. 22
Post-eBay A further empirical study of district court injunction decisions for a 7½-year period following the Supreme Court's decision (May 2006-December 2013) confirmed that while most patentees still obtain injunctive relief, PAEs rarely do. [D]istrict courts appear to have adopted a de facto rule against injunctive relief for PAEs and other patent owners who do not directly compete... against an infringer a rule which, ironically, is in tension with the Court s conclusion in ebay that the District Court erred in its categorical denial of injunctive relief to a non-practicing patentee. 23
Injunction Statistics Permanent Injunction Grant Rate: May 2006 to December 2013 27.50% 72.50% Denied Granted 24
Injunction Statistics 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Permanent Injunction Grant Rate by Year 80% 83% 77% 69% 66% 67% 68% 67% 2006 2007 2008 2009 2010 2011 2012 2013 25
Injunction Statistics Injunction Grant Rate, by Technology Technology Grant Rate N Biotechnology 100% 4 Pharmaceuticals 92% 25 Other 87% 23 Electrical 83% 12 Chemistry 78% 9 Mechanical 75% 36 Electronics 67% 39 Medical Devices 65% 34 Software 53% 36 26
Injunction Statistics Injunction Grant Rate, by District Technology Grant Rate N District of New Jersey 92% 13 District of Massachusetts 82% 11 Central District of California 73% 11 National Average 72.5% Eastern District of Texas 61% 36 Northern District of California 60% 10 District of Delaware 50% 26 27
Injunction Statistics Percent of Injunctions Granted 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Injunction Grant Rate by PAE Status 16% Patent Assertion Entities (PAEs) 80% All Other Patentees 28
Injunction Statistics Percent of Injunctions Granted 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Injunction Grant Rates: Competition Between Litigants 84% Competitors 21% Not Competitors 29
Injunction Statistics 90% 80% 80% Types of Irreparable Harm Found 70% 60% 50% 40% 43% 30% 20% 19% 17% 13% 10% 5% 0% Loss of Market Share Loss of Goodwill Loss of Business Opportunity Other Price Erosion Inability to Pay 30
Post-eBay Injunction Statistics Affirmance Rate 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Affirmance Rates - Permanent Injunction Decisions (All Merits Decisions) 53% (9 of 17) Injunction Denied 88% (22 of 25) Injunction Granted Patent Injunctions on Appeal: An Empirical Study of the Federal Circuit's Application of ebay 92 Washington Law Review 145 (2017) 31
Post-eBay Injunction Statistics Affirmance Rate 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Affirmance Rates - Permanent Injunction Decisions (Excluding Rule 36 Affirmances) 33% (4 of 12) Injunction Denied 77% (10 of 13) Injunction Granted Patent Injunctions on Appeal: An Empirical Study of the Federal Circuit's Application of ebay 92 Washington Law Review 145 (2017) 32