New England Biz Law Update
The U.S. Supreme Court last year in eBay v. MercExchange, LLC. (126 S.Ct. 1827) struck down the Federal Circuit’s long-standing rule that a patent holder who proves infringement is entitled to injunctive relief absent exceptional circumstances.
The Court ruled patent holders are instead entitled to injunctive relief only if they can satisfy the traditional four-factor test for obtaining an injunction. A patent holder must show that: (1) it has suffered an irreparable injury; (2) there are no adequate remedies available at law; (3) the balance of hardships warrants a remedy in equity; and (4) the public interest would not be disserved by a permanent injunction.
In the wake of the eBay decision, several commentators have argued the value of patent rights would be substantially diminished, and injunctive relief would be difficult obtain.
A review of post-eBay patent cases, however, reveals that U.S. District Courts remain quite willing to grant injunctive relief where infringement is found – particularly where the patent holder seeks to enjoin infringement by a competitor that has resulted in the patent holder’s loss of market share, sales, reputation as an innovator, or goodwill.
Licensing the patented technology will not foreclose the availability of injunctive relief, but the patentee should avoid offering to license the technology to a party it anticipates seeking an injunction against.
The exceptions where injunctive relief is denied involve precisely the sort of facts that the Supreme Court in eBay predicted would not warrant injunctive relief.
For example, the availability of injunctive relief is less certain where the patent holder seeks to enjoin infringement by non-competitors, especially where the patent holder has freely licensed its technology or the patented technology makes up only a small part of the infringing product. The patent holder in such cases should expect the remedy for infringement to be limited to damages (likely a reasonable royalty), rather than an order stopping the infringement.
The most uncertainty arises where the patented technology makes up only a small part of the accused product or devise.
Ideally, the patent holder will be seeking relief against a competitor in the market for the patented technology. Otherwise, the patent holder’s success may rest on showing the patented technology is nevertheless the core of the infringing product, or that other equitable factors weigh very heavily in favor of injunctive relief.
The post-eBay cases are discussed below.
Cases granting injunction
In cases where the patent holder and the infringer are direct competitors in the relevant market, the District Courts have tended to find irreparable harm and no adequate remedy at law, and have consequently granted injunctive relief.
For example, in TiVo, Inc. v. Echostar Communications Corp., 446 F.Supp.2d 664 (E.D. Tex. 2006), TiVo held patents relating to digital video recorder (DVR) technology. Echostar sold DVRs that infringed TiVo’s patents.
The District Court granted TiVo’s motion for a permanent injunction, reasoning that the Echostar DVR competed directly with TiVo and the availability of the infringing product led to a loss of market share and customer base that cannot be remedied by monetary damages.
Other cases granting injunctions are variations on the theme that infringement by a competitor results in irreparable harm for which no there is no adequate remedy at law. These cases support injunctions against infringement where the patent holder has suffered or will likely suffer loss in sales or market share as a result of the defendant’s infringement. See, e.g., Canon, Inc. v. GCC International Ltd., 450 F.Supp.2d 243, 255-256 (S.D.N.Y. 2006).
Market erosion and lost profits occasioned by a competitor’s infringement also support a finding of irreparable harm. See, e.g., MPT, Inc. v. Marathon Labels, Inc., Case No. 1:04-cv-2357, 2007 WL 184747, *14-15 (N.D. Ohio, Jan 19, 2007).
Similarly, other courts have issued injunctions against future infringement by a competitor, reasoning that such infringement may tend to injure the patent holder’s reputation for innovation, reduces the patentee holder’s ability to create customer relationships, and causes a loss of brand name recognition or goodwill. See e.g., Smith & Nephew, Inc. v. Synthes (U.S.A.), —- F.Supp.2d ——, 2006 WL 3543274, *3 (W.D. Tenn., Oct. 27, 2006).
In each of these cases, the trial courts have characterized these injuries as both incalculable and irreparable.
Cases denying injunctions
In the few cases where the patent holder has been denied an injunction, the facts warranting denial were anticipated by the hypothetical discussion in eBay concerning patent holders who license their products, or cases in which the infringing article constitutes only a small part of the defendant’s product. In no case were the plaintiff and the defendant competing in the same market.
For example, in Paice LLC v. Toyota Motor Corp., Case No. 2:04-cv-211, 2006 WL 2385139 (E.D. Tex., Aug. 16, 2006), the district court denied plaintiff’s motion for a permanent injunction against Toyota infringing Paice’s patent in technology comprised in components Toyota uses in a number of its hybrid vehicles.
In denying the injunction, the court found no showing of irreparable harm where Paice did not manufacture and sell automobiles and did not otherwise compete with Toyota. The court reasoned that there was no danger of loss of market share or damage to the plaintiff’s brand resulting from continued infringement.
Rather, the plaintiff sought only to license its patented technology (and indeed offered to license its technology to Toyota throughout the litigation) and could not show that Toyota’s infringement hampered its licensing efforts. (C.f., 3M Innovative Properties Co. v. Avery Dennison Corporation, Case No. 01-1781, 2006 WL 2735499, *1-2 (D. Minn., Sept. 25, 2006) (plaintiff’s continuous refusal to license patented technology to defendant supported finding of irreparable harm).)
Also, the plaintiff’s patented technology constituted only a small part of the Toyota hybrid vehicles.
Similarly, in z4 Technologies, Inc. v. Microsoft Corp., 434 F.Supp.2d 437 (E.D. Tex. 2006), the district court denied injunctive relief where Microsoft had infringed z4’s patent for a software activation program that enabled Microsoft to validate its Windows XP and Office software.
In denying the injunction, the court noted Microsoft only used the infringing technology as a small component of its software, and it is unlikely any consumer of Office or Windows XP purchases these products for their product activation functionality.
The court specifically found that Microsoft’s infringement could not have inhibited z4 from licensing its technology to other software manufactures and that the balance of harms tipped in Microsoft’s favor.
As an aside, even where an infringing use of a technology is embodied in only a part of a product, a trial court judge has nonetheless enjoined future infringement where the patented technology related to the core functionality of the accused device, and where the infringer competed in the same market as the patent holder. Transocean Offshore Deepwater Drilling, Inc. v. GolabalSantaFe Corp., Case No. 03-2910, 2006 WL 3813778, *5 (S.D. Tex., Dec. 27, 2006).
Tom Kenney is a member and Chris Engebretson is of counsel at Pierce & Mandell, P.C. (www.piercemandell.com), a full- service law firm with expertise in intellectual property, commercial litigation and healthcare law. They can be reached at [email protected] and [email protected], or 617.720.2444.
