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Decision ends speculation over permanent injunctions

For any inside counsel charged with protecting a company’s intellectual property assets, it is surely frustrating that, in recent years, it has become more difficult to stop patent infringers in their tracks.

While a monetary award compensates a patent owner for a defendant’s past infringement, only an injunction stops future infringement for the life of a patent.

The lingering uncertainty makes it increasingly difficult for a company to assess how hard a lawsuit will hit an infringer.

In Robert Bosch LLC v. Pylon Manufacturing Corp., 2011-1096, the Federal Circuit ruled that permanent injunctions are not awarded as a matter of course, but at the same time took a District Court judge to task for not granting such relief to Bosch, a large supplier of automotive equipment.

Whether the ruling portends an era of more easily obtained injunctions depends on how District Court judges read between the lines of Bosch.

In any type of dispute, a party seeking a permanent injunction must show that:

•           it will suffer irreparable harm if the defendant is permitted to continue the offending conduct;

•           other remedies, such as monetary damages, do not suffice to compensate for the harm;

•           the balance of hardships between the parties tilts in favor of the claimant; and

•           a permanent injunction will serve the public interest.

Factor no. 1, proof of irreparable harm, is always the dominating factor in this widely followed approach; without it, an injunction won’t issue.

For many years, in the early stages of a patent case, if a patent owner proved a likelihood of success on his claim for infringement, irreparable harm was presumed and a preliminary injunction would issue to stop the accused infringer from its offending activities for the duration of the litigation.

The analysis for a preliminary injunction involves the same factors, but includes the requirement that the party seeking relief must show a likelihood of success on the merits of its claim. Likewise, once a party prevailed in proving infringement at trial, irreparable harm was again presumed and a permanent injunction was granted in short order.

That mighty sword was lost to patent owners with the Supreme Court’s 2006 decision in eBay Inc. v. MercExchange, L.L.C. 547 U.S. 388, (2006).

The case eliminated the presumption of irreparable harm and required District courts to engage in a more robust analysis of the facts. The result has been that, unless the patent owner itself sells a patented product, preliminary injunctions are all but impossible to obtain.

Even those patent owners who do compete with the accused infringers have faced an uphill battle.

Patent owners have been adjusting their strategies to accommodate for the change in their leverage in litigation matters. It has been the working assumption that eBay inhibited the allowance of permanent injunctions as much as it did preliminary injunctions.

The courts had not, however, provided clear and consistent guidance. Was it now actually the law that a patent owner needed to show more than a judgment of infringement to prove irreparable harm, and in turn, to merit a permanent injunction? Or was there still room to argue that once the patent owner prevailed on the merits, the fundamental right that the patent confers — to exclude others — would translate into a right to bar the defendant from future infringement?

In Bosch, a case involving a patent on wiper blades, the Federal Circuit took the opportunity to respond. There, the patent owner had proven infringement and asked the District Court to enjoin further infringement. The District Court denied the request, and the patent owner appealed.

Tackling the big picture issue of the status of injunction law, the Federal Circuit, to no one’s surprise, said: “We take this opportunity to put the question to rest and confirm that eBay jettisoned the presumption of irreparable harm as it applies to determining the appropriateness of injunctive relief.”

In other words, patent owners simply don’t have a shortcut to injunctive relief.

Despite that pronouncement, the Federal Circuit did not leave Bosch out in the cold. The court instructed that District Court judges should not “entirely ignore the fundamental nature of patents as property rights granting the owner the right to exclude.”

The demise of the almost-automatic permanent injunction and the District Court’s broad discretion in awarding injunctive relief “do not mandate that district courts must act on a clean slate.”

The court explained the value of examining prior decisions, including those with similar facts. Ultimately, the Federal Circuit rejected the District Court’s judgment and ordered it to enter a permanent injunction.

Such a reversal is not ordered lightly, since the standard of review is stringent: abuse of discretion, which requires an error of law, erroneous findings of fact, or a clear error of judgment.

That means that the Federal Circuit must give more deference to a District Court’s decision on injunctive relief than it is required to in reviewing claim construction, for example.

For the Federal Circuit, the facts made the case. The parties were direct competitors, the patent owner had lost market share and customer access, and the infringer did not appear to have the financial means to satisfy a monetary judgment.

In light of that evidence, the court held that there was no basis for the lower court’s judgment.

For its part, the District Court had declined to find irreparable harm because the parties were not the only two players in the market, and the wiper blades were not the core of Bosch’s business.

The Federal Circuit explained that while the patented product being the core of a patent owner’s business can weigh in favor of an injunction, the fact that it is not at the core does not require denial of the injunction.

It is not hard to see why the Federal Circuit reversed the District Court’s judgment on injunctive relief. The result is not novel or inconsistent with past cases examining similar requests. It seems a wholly sensible application of key equitable principles. If this patent owner could not show irreparable harm sufficient to win an injunction, we would be hard-pressed to find one who could.

If the logic of the District Court were allowed to stand, we might see courts deciding what actually constitutes a party’s core business. That could evolve into a scenario in which only a patent owner whose sole business was the sale of a patented product could make a case for injunctive relief.

The Federal Circuit, if nothing else, erected a guardrail in front of that slippery slope.

The question now is: Does Bosch provide useful guidance as to when a permanent injunction is proper? Does it change the way the courts remedy patent infringement?

The answer is that Bosch is a net gain for patent owners, but not because of the individual holdings. In Bosch, two things happened, and it was important that they happened together.

First, the court put to rest the issue of whether eBay extends to permanent injunctions.  The decision — that it does — is not controversial after eBay. Litigators have been operating on the assumption that they have to develop concrete evidence to support a request for any type of injunctive relief.

The Federal Circuit simply confirmed that District courts must perform the full four-pronged analysis in acting on requests for an injunction.

That holding, on its own, does not favor patent owners. As with eBay, it lessens an infringer’s risk of drawing a lawsuit, because the drastic outcome of having to stop the infringing activity does not automatically accompany a finding of liability.

The second thing the Federal Circuit did, however, was more important. It gave cover to courts inclined to use their considerable discretion and experience to impose injunctive relief, particularly when the parties are direct competitors.

The opinion assures District Court judges that equitable relief is not a profanity. It allows patent owners to invoke caselaw, even in a post-eBay world. It explicitly rejects the need of a “core business” requirement or a two-player market for a showing of irreparable harm.

While the headline legal holding does not bring particular relief to patent owners who may be feeling embattled, the Federal Circuit’s coupling of the pronouncement with a harsh reversal of the District Court’s denial of injunctive relief sends another message: District courts cannot automatically rule out injunctions.

Certainly, it would have been more useful if the Federal Circuit had provided a bright-line test for evaluating irreparable harm. Yet the ruling clearly signals to District Court judges that, with the right evidence, it is proper for them to award permanent injunctions to prevailing patent owners.

Meredith Ainbinder is a partner in the litigation practice of Sunstein, Kann, Murphy & Timbers in Boston.

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