Big business just got a gift from the Court of Appeals for the Federal Circuit – a ruling that will decrease the opportunities for patentees to stop infringing entities earlier rather than later.

A patent holder is entitled to a legal monopoly over her invention, and “the heart of the patentee’s legal monopoly is the right to invoke the State’s power to prevent others from utilizing [her] discovery without consent.”  Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 135 (1969).  Given the patent holder’s grant, preliminary injunctions serve a useful and necessary purpose in the field of patent law—they allow a patentee to stop an infringing party at an early stage of the litigation thereby preserving possible profits or licensing opportunities while promoting settlement with a (likely) infringing party.  Although there are benefits to patentees (and given the explicit language of the patent laws) the Supreme Court has rightfully recognized that even in cases of possible patent infringement, a preliminary injunction is an extraordinary remedy never awarded as of right. See Ebay Inc. v. Mercexchange, LLC, 547 U.S. 388, 392 (2006).

Unfortunately, since the Ebay Court’s decision and despite caution enunciated by members of the Court in changing the current practice regarding injunctions, the Federal Circuit has taken it upon itself to further narrow the availability of preliminary injunctions, with the latest case resulting in a boon to big business.

Just to lay the groundwork for this discussion—a plaintiff seeking a preliminary injunction must estrablish that:

1. She is likely to succeed on the merits (i.e., prove both that her patent is valid and infringed);
2. She is likely to suffer irreparable harm in the absence of preliminary relief;
3. The balance of equities tips in her favor; and
4. An injunction is in the public interest.

In Apple v. Samsung (App. No. 2012-1507) (colloquially, Apple II), the Federal Circuit reversed the District Court’s decision to issue a preliminary injunction, relying in part on a determination that Apple had not shown a sufficient nexus between the patented invention and its irreparable harm in the absence of preliminary relief.  Specifically, the Court stated that:

It is not enough for the patentee to establish some insubstantial connection between the alleged harm and the infringement and check the causal nexus requirement off the list. The patentee must rather show that the infringing feature drives consumer demand for the accused product. Only viewed through the prism of the causal nexus analysis will the irreparable harm allegations reflect a realistic sense of what the patentee has at stake.

Slip Op. at 8. (emphasis added).

I agree with commentators, such as Dennis Crouch, who have indicated that the Federal Circuit’s decision, while consistent with Ebay, clearly limits the availability of a preliminary injunction to a patentee.  However, not only does this decision limit the availability of preliminary injunctions—it also significantly undermines the value of patents, and especially those owned by companies and individuals with limited monetary resources.  Unabashed infringement undoubtedly takes place because of a disparity of resources, and the lack of a preliminary injunction remedy will only further embolden wealthy infringers.   A defendant argued similarly before the Federal Circuit recently, stating:

According to a survey published in 2009 by the American Intellectual Property Law Association (“AIPLA”) the median cost for a patent litigation in which the amount in controversy is from $1-25 million, through the end of discovery, is $2.5 million (inclusive of all costs). Unscrupulous large companies know this, and, unfortunately, can use patent litigation as a weapon against competitors, especially smaller competitors. Many smaller competitors simply do not have the financial resources or wherewithal to defend a patent infringement case, no matter how spurious the contentions. Judge Story once wrote that patent litigation is the ‘sport of kings.’ Larger companies can exploit this fact to the detriment of their smaller competitors.

Icon Health & Fitness, Inc. v. Octane Fitness, LLC, Appeal Nos. 2011-1521, -1636 (Oct. 24, 2012) (Brief of Defendant-Cross-Appellant).

Moreover, the lack of a preliminary injunction remedy will further burden a court system already flooded with patent related litigation.

The problem truly arises from the preliminary injunction test itself as it makes no explicit accommodation for the potential impact on the infringing party of a preliminary injunction and does not consider the importance of the technology to the patentee (one could argue that this should find itself in the “balancing of equities prong,” but the Federal Circuit doesn’t get there because of its finding on the second prong).  If the patented component is truly a minor component of a larger item, then potential harm to the infringer is minimal. Consider specifically Apple II – if Apple’s patent is valid and Samsung is infringing (setting aside the Federal Circuits ruling on this specific issue) is it unreasonable that Samsung should be required to stop infringement? Even if monetary damages are adequate, isn’t it irrational to allow Samsung to continue to infringe especially when the patented technology is minimal?  If the patentee is no longer Apple, but instead a small software developer whose product is the heuristic search that Samsung has implemented in its phones, he would not be able to prove harm under the Federal Circuit’s construction, but would be significantly harmed.  In fact, it is questionable whether the patentee should have to prove harm at all in these instances.

Justice Roberts was right in Ebay to caution a change in practice of the issuance of injunctions based upon the Court’s decision in Ebay, stating:

From at least the early 19th century, courts have granted injunctive relief upon a finding of infringement in the vast majority of patent cases. This “long tradition of equity practice” is not surprising, given the difficulty of protecting a right to exclude through monetary remedies that allow an infringer to use an invention against the patentee’s wishes—a difficulty that often implicates the first two factors of the traditional four-factor test. This historical practice, as the Court holds, does not entitle a patentee to a permanent injunction or justify a general rule that such injunctions should issue. The Federal Circuit itself so recognized in Roche Products, Inc. v. Bolar Pharmaceutical Co., 733 F. 2d 858, 865-867 (1984). At the same time, there is a difference between exercising equitable discretion pursuant to the established four-factor test and writing on an entirely clean slate. “Discretion is not whim, and limiting discretion according to legal standards helps promote the basic principle of justice that like cases should be decided alike.” Martin v. Franklin Capital Corp., 546 U. S. 132, 139 (2005). When it comes to discerning and applying those standards, in this area as others, “a page of history is worth a volume of logic.”

New York Trust Co. v. Eisner, 256 U. S. 345, 349 (1921) (opinion for the Court by Holmes, J.).

The Ebay Court clearly had concerns about extortionist actions by non-practicing entities (i.e., patent trolls) as a backdrop; however, by placing further restrictions on the remedies available to patent holders, the Federal Circuit has not only taken a playing card away from non-practicing entities—it has taken a tool away from small businesses and individual inventors to enforce their rights against larger companies and to, at least in some instances save their businesses from unlawful competition.  Effectively eliminating the possibility of a preliminary injunction to a patentee who contributes a small portion of a larger device disadvantages patentees in settlement negotiations as richer infringers will be able to use the threat of protracted litigation to force settlement terms (or just tell the patent holder to pound sand).