Injunction Practice After 'eBay'; Cybersquatting Liability

, New York Law Journal

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Lewis R. Clayton
Lewis R. Clayton

Nine years ago, the U.S. Court of Appeals for the Federal Circuit could write confidently that "[b]ecause the 'right to exclude recognized in a patent is but the essence of the concept of property,' the general rule is that a permanent injunction will issue once infringement and validity have been adjudged." MercExchange v. eBay, 401 F.3d 1323, 1338 (Fed. Cir. 2005). For that reason, injunctions were denied to successful plaintiffs in patent litigation only in "exceptional" cases.

All of that changed in 2006, when the Supreme Court reversed the Federal Circuit's eBay decision. 547 U.S. 388 (2006). The Supreme Court held that an injunction is a "drastic and extraordinary remedy" that may be granted—even in a patent case—only when the plaintiff satisfies a traditional test, requiring a showing of irreparable injury, that legal remedies are inadequate and that the balance of hardships and the public interest favor equitable relief. Recent rulings of the Federal Circuit in Apple's long-running battle with Samsung and of the U.S. Court of Appeals for the Ninth Circuit in a trademark case illustrate how much the landscape of injunctive relief in intellectual property cases has changed over the past seven years.

In Apple v. Samsung Electronics, 735 F.3d 1352 (Fed. Cir. 2013), the Federal Circuit reviewed the decision of a California district court to deny Apple any injunctive relief, although a jury found that Samsung smartphones infringed several Apple design and utility patents and infringed Apple's iPhone trade dress. Apple contended that, because it sought a permanent injunction after trial, rather than a preliminary injunction on a limited record, it did not have to show a "causal nexus" between Samsung's infringement and Apple's alleged irreparable harm.

Rejecting that argument, the Federal Circuit emphasized that the "causal nexus requirement is simply a way of distinguishing between irreparable harm caused by patent infringement and irreparable harm caused by otherwise lawful competition." While the requirement may be easy to meet for "relatively 'simple' products"—for example, products built around a small number of key attributes—it likely demands detailed proof for complex products that may include hundreds of patentable features.

On the other hand, the Federal Circuit agreed with Apple that the district court was wrong in requiring that Apple show that its inventions or trade dress were the "sole reason" consumers bought Samsung products. While a plaintiff must show that "the infringing feature drives consumer demand for the accused product," that feature may be among a group of reasons for purchase. Evidence that a feature makes a product "significantly more desirable"—or that its absence makes the product significantly less attractive—may suffice.

Applying these principles, the Federal Circuit affirmed the denial of injunctive relief for infringement of Apple's design patents and trade dress. It reversed and remanded, however, the district court's denial of an injunction prohibiting infringement of Apple's utility patents. These patents claim a "bounce-back" feature that animates movement of screen features as a user scrolls, a "multi-touch display" that allows a range of action when a user taps a screen with two fingers, and a "double-tap-to-zoom" feature that enlarges and centers a document when a user taps an icon.

Apple attempted to show irreparable injury through evidence that smartphone consumers value ease of use and that Samsung had deliberately copied the patented features, and through a consumer survey that concluded that consumers would pay up to $100 more for a phone including all of Apple's inventions. The district court was directed to weigh this evidence on remand.

The Ninth Circuit considered the impact of eBay in Herb Reed Enterprises v. Florida Entertainment Management, 736 F.3d 1239 (9th Cir. 2013), one of a series of cases concerning trademark rights to the name of the legendary 1950s vocal group The Platters. Deciding an issue of first impression in the circuit, the court held that what it called the "eBay principle—that a plaintiff must establish irreparable harm—applies to a preliminary injunction in a trademark infringement case." It therefore disclaimed pre-eBay precedent holding that irreparable injury may be presumed where a plaintiff shows a likelihood of success on the merits of a trademark infringement claim.

On that basis, the Ninth Circuit reversed an injunction issued in favor of Herb Reed, one of the original Platters, preventing a rival group from performing under the name. Reed's only evidence of injury, the court found, showed "customer confusion" but not irreparable harm.

As these cases demonstrate, after eBay, federal courts will look closely at every request for injunctive relief in an intellectual property case, weighing evidence concerning the drivers of consumer demand and irreparable injury, requiring a showing that money damages are insufficient and narrowly tailoring injunctions. That development is not a devaluation of intellectual property rights. Instead, it reflects the increasing value of intellectual property as trademarks, copyrights and patents are embedded in products and services throughout the marketplace, dramatically increasing the stakes when courts decide whether to issue or withhold preliminary or permanent injunctions.

Patents

Discussion in the media and Congress about what some observers regard as abusive patent litigation has focused attention on the standards governing the award of sanctions in patent cases. In Kilopass Technology v. Sidense, 2013 WL 6800885 (Fed. Cir. Dec. 26, 2013) the Federal Circuit vacated and remanded for reconsideration a district court's denial of a fee award to a successful defendant. The Federal Circuit has confirmed that a case is "exceptional" warranting an award of fees under 35 U.S.C. §285 if the litigation is brought in subjective bad faith and is objectively baseless.

The court then held that: (1) subjective bad faith is evaluated under a known or should have known standard, and does not require actual knowledge of baselessness; (2) determinations of subjective bad faith require analysis of the objective merits of the claims and other objective indicia, such as failure to conduct a pre-suit investigation, vexatious or unduly burdensome litigation tactics or an oppressive purpose; and (3) objective baselessness alone can create a sufficient inference of bad faith, unless the circumstances show the patentee did not act recklessly. Chief Judge Randall Rader's concurrence stated his view that courts are empowered to shift fees in their discretion in a variety of contexts even without finding bad faith.

In a ruling that may significantly limit the power of the International Trade Commission (ITC), a split Federal Circuit panel ruled as a matter of first impression that the ITC lacks authority to issue exclusion orders banning the importation of goods "predicated on a theory of induced infringement under 35 U.S.C. §271(b) where direct infringement does not occur until after importation." Suprema v. International Trade Commission, 2013 WL 6510929 (Fed. Cir. Dec. 13, 2013).

The panel majority concluded that the governing statute, 19 U.S.C. §1337, is limited to "articles that infringe"—in other words, articles that are infringing at the time of importation. Judge Jimmie Reyna, who practiced as an international trade attorney before taking the bench, dissented on the basis that the statute is designed to remedy acts of unfair trade, including acts that lead to the importation of articles that will be used to harm a domestic industry. Reyna was concerned that the majority's holding could invite would-be infringers to avoid an exclusion order by importing disassembled components of a patented machine or importing an article capable of performing almost all of the steps of the patented method, but reserving final assembly or the performance of the last step for an end-user in the United States.

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