LEGAL
In a decision that has changed patent law as we know it, the U.S. Supreme Court, in the recent eBay v. MercExchange case, held that a district court's decision to grant or deny request for a permanent injunction in a patent case must in the future conform to the same "traditional principles of equity" that guide courts in non-patent cases. Corporate Counsel Connect spoke with Allan Gabriel of Dykema to understand the full implications of this recent decision.
"When a patent owner prevailed on the merits in a patent infringement lawsuit, there was a well-established general rule that an injunction should issue absent the presence of a sound reason for denying it," explains Allan. What this rule meant was that if a permanent injunction was not issued, the district court had to offer an explanation for its failure to issue one.
This case directly overruled that notion. eBay v. MercExchange is a dispute over the patent that was owned by MercExchange and infringed by eBay for what is eBay's "Buy it Now" feature (opting to purchase an item from an auction website instantly, essentially). The issue before the Supreme Court wasn't a dispute over who owned the patent or even whether eBay had infringed on it – that had already been decided in a jury trial before the case got to the Supreme Court. Instead, the dispute in this case was whether a permanent injunction should be issued against eBay to prevent it from infringing the patent in the future.
The trial court said no, the appeals court reversed, and the Supreme Court essentially said "maybe" because it decided a different test should apply
"While the routine issuance of a permanent injunction to the prevailing patent owner was considered appropriate given that patent rights grant to their owners the right to exclude others from practicing the patented invention, this practice was inconsistent with well-established equitable principles governing the requisite showing necessary to obtain injunctive relief that apply to all other areas of law," states Allan. Pursuant to the dictates of the Supreme Court decision in eBay, the "traditional principles of equity" as embodied in the following four factors, are to be applied to all future patent cases. The patent owner must demonstrate that:
However, explains Allan, the eBay decision itself did not address whether the issuance of injunctions in trademark and copyright cases will be governed by the same "traditional principles of equity" now mandated for patent cases.
After this decision, proof of patent infringement and validity does not necessarily equal proof of irreparable harm, and therefore patent infringement injunctions are no longer virtually automatic. "Courts interpreting and applying eBay now must look to several factors to determine whether a prevailing patent-holder has established the irreparable harm necessary to support the issuance of an injunction," explains Allan. According to Allan, proof solely of lost sales alone is no long sufficient. Proof that the plaintiff patent owner holder practices the invention in its own patent and that the infringer's product competes in the same market increases the likelihood of obtaining an injunction.
"Several recent federal appellate opinions have acknowledged that the principles of the eBay decision apply not only to patents, but also to trademarks...requiring proof that irreparable harm has occurred," Allan adds. However, in the copyright arena, some courts are tending to stick to previous behaviors, issuing injunctions as a normal routine matter where copyright infringement has been proven.
So what happens if the court denies your request for a permanent injunction after a verdict and/or judgment of infringement? Allan answers, "Some courts have considered and awarded future royalties for continued infringement where there is no injunction in place. Other courts have suggested the possibility of a separate second lawsuit for that purpose during which additional relevant evidence will be presented to the court to fashion an appropriate remedyin the form of a reasonable prospective royalty under all the facts and circumstances of the case."
As far as trademark infringement, where there is no case law precedent for an award of future royalties, the only recourse may be a second lawsuit. For copyrights, Allan suggests the court may allow for one of two ways to allow recovery for future infringement, "repeat litigation or some type of ongoing damages." Neither are ideal. "Repeat litigation seems somewhat problematic for copyright infringement since copyrights have durations of life of the author, plus at least seventy (70) years and the infringement actions would repeat over an extended period of time," explains Allan. The second alternative of ongoing damages may face difficulties, with the plaintiff bearing the burden of proof of damages.
There are several lessons and factors to consider in defending patent infringement and other intellectual property claims for your legal department. Allan shares, "The more difficult path to both preliminary and permanent injunctive relief for intellectual property plaintiffs militates in favor of a more aggressive defense of such claims since the likelihood of a potentially business destructive injunction, which precludes further practice of a lucrative part of a business, or use of a key brand is diminished."
Start-up companies with a new product or service involving intellectual property should continue to include in their freedom to operate analysis potential patent claims, but those can now be viewed more in the context of, and should be evaluated from, a perspective of whether injunctive relief is possible or likely should the plaintiff prevail in litigation, according to Allan. "The likelihood of a business fatal result of an injunction directed to a new company is reduced when the potential patent plaintiff is a non-practicing entity or even one that practices an invention but is not faced with a competitive product being sold or offered for sale by the allegedly infringing defendant," states Allan. Therefore, the price of peace for a start-up may be significantly reduced in terms of avoiding costly litigation through a reasonable, not exorbitant, settlement.
For larger organizations faced with an onslaught of continuing patent infringement claims, the traditional balancing of the cost effectiveness of defending versus the payment of license fee or settlement viewed as unreasonable, but yet practical, has changed. "The overriding factor in many cases was the likely possibility of injunctive relief should the plaintiff prevail. Therefore, after eBay larger organizations in-house legal departments and management may decide to defend against claims at least to the point of obtaining a more favorable offer to settle, given the reduced likelihood of injunctive relief," shares Allan.
Given these new eBay factors, an evaluation of the likelihood of injunctive relief must be analyzed on a deeper level. Allan concludes, "Simply put, the presumption of irreparable harm and the virtual automatic of issuance of injunctive is in the past, whether viewed as a change in the traditional analysis, or triggered by an overruling of the presumption of irreparable harm that governs intellectual property cases. The landscape has changed, although the argument as to whether it is for the worse or better continues."
Allan Gabriel serves as the Director of Dykema's Intellectual Property and Intellectual Property Litigation Department. Mr. Gabriel's practice focuses on intellectual property litigation involving patent, trademark and copyright infringement, trade secrets, false advertising and right of publicity claims on trial court and appellate levels. In addition, he has substantial experience in handling antitrust, unfair competition, internet related and general business litigation matters for a variety of industries including software development, high tech components, manufacturing, consumer food products, newspaper publication, as well as investors and entrepreneurs.
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