Federal Circuit Affirms Preliminary Injunction

Macom Tech. Sols. Holdings, Inc. v. Infineon Techs. AG, No. 2017-1448, (Fed. Cir. Jan. 29, 2018) (Before Prost, C.J., Wallach, and Stoll, J.) (Opinion for the court, Prost, C.J.)

MACOM obtained a preliminary injunction against Infineon in district court. The injunction declared Infineon’s termination of an agreement was ineffective and ordered Infineon to comply with that agreement. On appeal, the Court affirmed in part, vacated in part, and remanded for further proceedings.

Nitronex, later acquired by MACOM, developed semiconductors using gallium nitride (“GaN”), obtained patents relating to that technology, and sold those patents to a company later acquired and renamed as Infineon. As part of the sale, Nitronex and Infineon’s predecessors executed a separate agreement, licensing back to Nitronex certain rights under the patents.  Under the Agreement, MACON is licensed to practice Infineon’s patents within the “Field of Use only,” characterized as GaN-on-silicon (“GaN-on-Si”) technology. MACOM and Infineon share rights to practice the GaN-on-Si technology, and MACOM also has certain rights in an “Exclusive Field.”

Infineon subsequently notified MACOM that it believed MACOM had breached the Agreement by making and selling products using GaN-on-silicon-carbide (“GaN-on-SiC”) technology, which is distinct from GaN-on-Si and outside the Agreement. MACOM responded that its GaN-on-SiC sales were minimal and any breach had been cured. Nonetheless, Infineon terminated the agreement, claiming a material breach. MACOM sued Infineon, asserting various contract claims and a claim for declaratory judgment of noninfringement of the licensed patents. MACOM also moved for a preliminary injunction based on its claim that the Agreement was wrongfully terminated and remains in effect. The district court issued an opinion and order granting a preliminary injunction, and Infineon appealed. Specifically, Infineon argued that the district court erred in finding that MACOM showed a likelihood of success on its wrongful termination claim and irreparable harm, and Infineon also challenged the content of the injunction.

Regarding MACOM’s likelihood of success, the district court found that MACOM could likely establish that its activity outside the Agreement’s licensed Field of Use did not breach the Agreement’s implied covenant of good faith and fair dealing and thus Infineon was not entitled to the breach remedy of termination. The Court noted that applicable law implies a covenant of good faith and fair dealing in every contract, but this “cannot impose substantive duties or limits on the contracting parties beyond those incorporated in the specific terms of the contract.” (internal quotation marks omitted). The Agreement provides that “Infineon hereby grants to MACOM . . . [a] license in the Field of Use only.” The Court found this language to be “in essence nothing more than a promise by the licensor not to sue the licensee,” and “[a]side from this promise not to sue,” the Agreement “suggests no additional promise by (or obligation of) MACOM not to exceed the Field of Use on which [the Court] may hinge an implied duty.” The Court clarified that it “do[es] not suggest that MACOM is free to operate outside the Field of Use” and Infineon is free to enforce its patents against MACOM for activity outside the licensed Field of Use. The Court concluded, however, that the district court did not err in finding that MACOM could likely establish that its activity outside the Agreement’s licensed Field of Use did not breach the Agreement’s implied covenant of good faith and fair dealing.

Regarding MACOM’s likelihood to suffer irreparable harm in the absence of a preliminary injunction, Infineon argued that the district court erred in relying on evidence that MACOM was being harmed by Infineon’s marketing of GaN-on-Si products in MACOM’s Exclusive Field because MACOM never showed that the allegedly marketed products actually practiced the licensed patents. MACOM thus failed to show a “causal nexus” between the Agreement’s termination and Infineon’s marketing. Agreeing that a nexus is required, the Court noted that the district court did not rely solely on Infineon’s marketing in finding irreparable harm. If the termination were effective, MACOM would lose its exclusive license to practice the licensed patents in the Exclusive Field. Additionally, MACOM submitted a declaration from a senior MACOM employee who stated that it would be difficult for MACOM to compete for business without the exclusivity that the Agreement provides.

After considering this testimony, the district court ultimately agreed that “MACOM would suffer harm by virtue of its customers’ perception that it no longer holds an exclusive license,” and the district court found that “such harm will occur even if Infineon is not practicing a patent within MACOM’s exclusive use.” In light of the district court’s findings, the Court concluded that a sufficient causal nexus exists between Infineon’s termination of the Agreement and the identified harm to MACOM, and thus, the district court did not err.

Turning to the injunction, Infineon was enjoined from undertaking certain activities concerning products in the Exclusive Field that practice the licensed patents. The Court vacated this provision because it lacks the specificity required by FRCP 65(d). The Court found that this sentence of the injunction “is, in essence, an injunction prohibiting infringing acts—but without reference to any particular, adjudicated infringing product,” and “[i]ndeed, no product has yet been adjudicated.”

The second provision enjoined Infineon from granting particular licenses or sublicenses to the licensed patents. The Court noted that “[t]o enjoin the breach of a contract is, in effect, to decree its specific performance,” and “specific performance is a remedy for breach of contract, a cause of action which requires proof the contract was breached.” (emphasis in original). Because the Court saw no evidence or argument suggesting that Infineon breached or threated to breach the Agreement by granting licenses or sublicenses to the licensed patents in the Exclusive Field, the district court abused its discretion in ordering specific performance.

The Court found that the third provision “merely clarifies what the Injunction does not prohibit—namely, Infineon’s activities concerning GaN-on-SiC products” (emphasis in original). While —this sentence may no longer be necessary in light of the Court’s striking of the first and second provisions, the Court saw no abuse of discretion in its incorporation into the injunction.

Finally, the Court evaluated Infineon’s request to vacate the injunction’s fourth paragraph, which concerns notice of the injunction that Infineon must provide to other persons or entities. The Court found that Infineon “lump[ed] the fourth paragraph with its third-paragraph arguments” but failed to explain “how or why those same arguments apply to the fourth paragraph’s notice provisions.” The Court thus found “Infineon’s arguments undeveloped and insufficient to show that the fourth paragraph was improperly entered.”

Accordingly, the Court affirmed entry of the injunction but vacated the first and second sentences of the injunction’s third paragraph, remanding to the district court to consider whether the third sentence of the third paragraph remains necessary in light of the Court’s decision.

Take Away

Typically, there is no implied covenant in a patent license that enables the licensor to terminate the license based on infringing activities outside the scope of the license. The license must expressly provide for such a scenario.




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