CAFC Sanity on Permanent Injunctions. A Twisted Sister Moment?

On Monday the United States District Court for the Northern District of California refused to issue a permanent injunction against Samsung’s continued infringement of Apple’s patents. That ruling was reached despite the fact that Apple’s patents withstood invalidity challenges from Samsung, despite the fact that Apple prevailed in the patent infringement litigation AND despite the fact that the district court found that Apple and Samsung were direct competitors. For my rant on the decision explaining why it was wrong and the damage done to the patent system by failure to grant permanent injunctions to victorious patentees who are competitors see No Permanent Injunction for Apple in Samsung Patent Battle.

On Wednesday, December 19, 2012, in a wholly unrelated case, but one that shares important factual similarity to the aforementioned Apple/Samsung matter, the United States Court of Appeals for the Federal Circuit determined that the United States Federal District Court for the Southern District of California abused its discretion when it refused to award a victorious patent plaintiff a permanent injunction where the patentee directly competes with the infringer. The case is Presidio Components v. American Technical Ceramics. The opinion was authored by Chief Judge Rader and joined by Judge Plager and Judge Wallach.

Perhaps this case will be a turning point, something of a Twisted Sister moment. You know — “we’re not gonna take it, no, we ain’t gonna take it, we’re not gonna take it anymore…” I sure hope so!

[Patent-Litigation]

Background

After a trial, the district denied American Technical Ceramics Corporation’s (“ATC”) motions for judgment as a matter of law (“JMOL”) and in the alternative a new trial on validity and infringement of U.S. Patent No. 6,816,356 (“the ’356 patent”). ATC appealed those decisions. Presidio Components, Inc. (“Presidio”) cross-appealed the district court’s denial of a permanent injunction, JMOL on willfulness, and its ongoing royalty rate and false marking determinations.

The Federal Circuit affirmed the vast majority of the district court’s determinations set forth in what Chief Judge Rader characterized as a comprehensive and attentive opinion. The exception, however, was with respect to the district court’s finding of no irreparable injury and the related denial of a permanent injunction, as well as the ongoing royalty determination and false marking judgment.  The false marking judgment was reversed due to an intervening change in law.

Lack of Permanent Injunctions

The part of the case I want to focus on is with respect to the issue of whether the patentee was entitled to a permanent injunction. Once upon a time a victorious patentee was ordinarily granted a permanent injunction nearly as a matter of right.  That made perfect sense given that the patent grant itself is an exclusive right and a permanent injunction is an exclusionary order. The permanent injunction in a patent case really would say nothing more than the patent itself says. The sole effect of the permanent injunction is really to continue to vest the district court with authority to enforce the right granted in the patent after a finding that the patents in question are not invalid and have been infringed. That just means that if there is continued infringement of the same order the patentee could return to the district court under a contempt proceeding rather than having to start over from scratch with a long, protracted and expensive patent litigation.

Starting late in the morning on May 15, 2006, the United States Supreme Court changed everything. The court issued its ruling in eBay v. MerchExchange that day, which ruled that in order to receive a permanent injunction in a patent litigation the victorious plaintiff needs to demonstrate: (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.

Ever since the eBay decision it has been harder and harder for victorious patentee plaintiffs to get a permanent injunction, which largely turns the patent system into a compulsory licensing regime. In my opinion, and the opinion of many in the industry, the eBay case was a bad mistake by the Supreme Court. It is, however, the law and until they decide to change it or Congress steps in we have to deal with it.

Having said that, there has to be a place where the patent grant itself actually gets considered. If the familiar 4 part injunction test doesn’t ever consider that we are dealing with an exclusionary right then it simply is not appropriate in patent cases. If we are going to live with the 4 factor test it has to be informed by the fact that the patentee has been given a right to exclude and the patent has withstood challenge. The patent is valid and being infringed. There has to be injunctive relief in most cases, otherwise why get a patent? Unfortunately, in most cases since eBay a permanent injunction is not obtained, which is just wrong.

The CAFC on Permanent Injunctions

Enter the Federal Circuit.

Based on the aforementioned four-factor test for permanent injunctions, the district court denied Presidio’s request for a permanent injunction. Specifically the trial court detected no irreparable injury or inadequacy of monetary damages. The court also found that the balance of hardships favored injunction, while the public interest tipped in ATC’s favor. However, the trial court noted that “substantial evidence supported the jury’s finding that demand existed for the BB capacitors, which compete with the 545L capacitors.” With this direct competition in the same market, the district court still opined that ATC was not a direct competitor for purposes of finding irreparable injury.

Chief Judge Rader wrote:

The tension created by acknowledging competition for one purpose but not for another, combined with Presidio’s other evidence showing irreparable injury, shows that the district court clearly erred by dismissing the irreparable injury evident on this record.

Of course the axiomatic remedy for trespass on property rights is removal of the trespasser.

Indeed, it is axiomatic that when one trespasses on property the proper outcome is a removal or the trespasser and an order forbidding future trespass. That is property law 101. But the Federal Circuit did not stop here. Rader went on to say:

This historical practice of protecting the right to exclude through injunctive relief is not surprising given the difficulties of protecting this right solely with monetary relief. Indeed, a calculating infringer may thus decide to risk a delayed payment to obtain use of valuable property without prior negotiation or the owner’s permission.While a patentee is not entitled to an injunction in every case, it does not follow that courts should entirely ignore the fundamental nature of patents as property rights granting the owner the right to exclude.

But wait, there is more. The Chief Judge Rader also explained that the district court put too much weight on the fact that the patentee did not practice the invention embodied in the ‘356 patent. He wrote:

Even without practicing the claimed invention, the patentee can suffer irreparable injury. Direct competition in the same market is certainly one factor suggesting strongly the potential for irreparable harm without enforcement of the right to exclude.

In this case the patentee plaintiff did sell capacitors, although the patent that was being infringed related to capacitors different than those being sold by the patentee plaintiff. So even though the patentee plaintiff did not practice the invention of the ‘356 patent the patentee plaintiff and infringing defendant did compete in the same market.

Importance of the Decision

The Federal Circuit again points out that district courts must not ignore the fundamental nature of patents, which is a right to exclude, when they consider the four-factor injunction test. If district courts really do consider that in their analysis we will see a reversal of the rate of permanent injunctions. Not every case will result in a permanent injunction, but more often than not a permanent injunction should issue.

This case is also important because it point blank says that even a non-practicing patentee who competes in the same market should be entitled to prevail on the all important irreparable injury consideration. Again, if district courts follow this that should mean that patentees who are competitors should be granted permanent injunctions because the four-factor test will tip heavily in their favor. Again, a sensible approach to the issue of permanent injunctions that recognizes the exclusive rights granted in a patent and the fact that a patent is a wasting asset. Stopping competitors for the term of the patent is the whole point of obtaining a patent. Of course there will be irreparable harm when patentee and infringer compete!

Lastly, this decision is important for Apple. If they have not yet already done so they will almost certainly be filing a motion to reconsider in their battle with Samsung. In that case Apple and Samsung directly compete and Apple does practice the invention infringed. Thus, based on the decision in Presidio Components, it is clear that Apple should have been awarded a permanent injunction.  At least it is clear to me and I suspect it will be equally clear to the Federal Circuit on appeal.

This is a good decision for patentees who sue competitors and prevail. It brings sanity back to the permanent injunction inquiry. Thank you Chief Judge Rader, Judge Plager and Judge Wallach!

HAT TIP AND THANKS… to Paul Ackerman of The Point of Novelty for bringing this case to my attention.