INJURY, INEQUALITY, AND REMEDIES: DEVELOPMENTS IN INJUNCTIVE RELIEF AND DAMAGES IN INTELLECTUAL PROPERTY CASES.

Date01 January 2021
AuthorTravis, Hannibal
  1. Introduction

    The copyright and patent systems are framed as rights to exclude others, while trade secrets and trademarks borrow their remedial structure from their federal statutory predecessors. (1) Ongoing developments present owners of intellectual property (IP) with enforcement challenges, however. (2) Principles of equity present difficult hurdles to protecting intellectual property, particularly when owners have small market shares, have offered license their rights to others, or face difficulties in providing evidence of the value of the disputed asset. (3) This Essay illustrates these complexities via an analysis recent developments in the law governing injunctions, royalties, lost profits, and related matters. (4) Specifically, it investigates the strategies utilized by IP owners to overcome challenging precedents issued in the wake of eBay v. MercExchange and Apple Inc. v. Samsung Electronics, Co., Ltd. (5) Injunctive relief is rare even in the copyright and patent areas. (6) In eBay Inc. v. MercExchange, L.L.C., the United States Supreme Court held that the traditional four-factor test for permanent injunctive relief applies to disputes arising under the Patent Act. (7) Such a test requires a plaintiff to demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction. (8) The economic and policy-based considerations that drive remedial decisions tend to favor the larger, repeat players in each industry. (9) This trend surfaces in at least three areas of remedial doctrine. (10) First, "implementer" or "practicing" patent owners along with many copyright and trademark owners may enjoy a presumption in favor of injunctive relief absent extraordinary circumstances, or at least do not suffer from the virtual per se rule that non-practicing entities have no right to exclude. (11) By virtue of conceptual shortcuts that help drive equitable relief decisions, they might find it easier to establish irreparable injury and no adequate remedy at law, even when they may be entitled to a windfall in statutory or treble damages. (12) Second, the balance of hardships and public interest factors do not appear to aid small or medium-sized enterprises striving to level the playing field with well-funded, litigious infringers, as one might expect from "equity." (13) And lastly, firms with lucrative existing intellectual-property licensing or exploitation arrangements are better situated to show the incremental contribution of the infringed right to the respective revenue or anticipated profits of the parties. (14) This is critical to the remedial balance of power in an infringement action, and not only when courts calibrate lost-profits or reasonable-royalty awards, but also when they decide whether an infringement causes irreparable injury. (15)

  2. Irreparable Injury

    The United States Court of Appeals for the Ninth Circuit, the Eleventh Circuit, and the Federal Circuit have held that the MercExchange factors are actually elements whose existence the proponent of permanent injunctive relief must establish. (16) When determining whether a plaintiff suffered an irreparable injury in cases involving complex products, questions arise concerning the contribution of the patented invention to the product's success and the patentee's alleged harm. (17) Injunctive relief might be denied simply because of this proportionality problem: "where the accused product includes many features of which only one (or a small minority) infringe, a finding that the patentee will be at risk of irreparable harm does not alone justify injunctive relief." (18) Thus, to satisfy the element that a patentee suffered an irreparable injury, a patentee must establish two requirements: (1) that absent an injunction, it will suffer irreparable harm, and (2) that a sufficiently strong casual nexus relates the alleged harm to the alleged infringement." (19) A number of cases reject injunctive relief based on irreparable injury alone. (20)

    Inequality in remedies has often been the rule since eBay disrupted the courts' interpretation of the Patent Act, and since the process of calculating a royalty rate and royalty base has been tightened up by a series of post-eBay cases. (21) Christopher Seaman has observed that prior to eBay, "injunctions were granted to prevailing patentees in almost all cases" (in which they were sought). (22) The Federal Circuit looked to the Patent Act's identification of a patent right as a right to exclude others from a property, which often still prevails in copyright. (23) In eBay's wake, some district courts have stated that the typical scenario in which injunctions are issued to implementers who compete directly with the alleged infringer. (24) Thus: "In most cases involving non-practicing entities the second factor is decisive: a firm that is not practicing it patents has only one expectation of profit, and that is royalties, for which damages are an adequate substitute." (25)

    The idea that nonpracticing inventors or owners of patents are different and should not obtain injunctive relief attracted only three votes in 2006, in eBay. (26) Still, in upholding an issuance of injunctive relief for the benefit of a software company, the Federal Circuit emphasized that it practiced its patent and had lost goodwill. (27) The Federal Circuit, in 2012, notably vacated and remanded a decision denying an injunction to the patentee after noting that its subsidiary may have been a direct competitor of the infringer. (28)

    While eBay rejected a presumptive or automatic entitlement to injunctive relief as an incident of exclusive rights, a revised version of the presumption might return if direct market competition tends to result in irreparable injury and if the public interest and hardship factors are discounted. (29) Direct competitors in the market may also be treated differently for purposes of assessing irreparable harm. (30) In TEK Global, S.R.L. v. Sealant Systems Int'l, Inc., the Federal Circuit observed that "head-to-head competition and lost market share" support a contention that irreparable injury is being inflicted. (31) This assumption seems to bestow an advantage on those rightsholders who are best equipped to show lost profits or an enhanced reasonable royalty. (32) In 2019, a district court distinguished competition with licensees under the past and market share lost to licenses, and held that taking sales or revenue away from the licensees does not tend to inflict irreparable injury on the patentee. (33)

    Impacts on an intellectual property owner's sales and/or prices can be irreparable. (34) "Irreparable injury encompasses different types of losses that are difficult to quantify, including lost sales and erosion in reputation and brand distinction." (35) Perceptual harm could also qualify as irreparable harm. (36) A party with an exclusive license to practice its licensed patent in an exclusive field of use can enjoin designs that create a perception of non-exclusivity. (37) The party would "suffer harm merely by virtue of [its] customers' perception that it no longer hold[s] an exclusive... license." (38)

    In Genentech, Inc. v. AmgenInc., the owner of 10 patents sought a preliminary injunction against a competitor's sale or use of dosage ranges of a monoclonal antibody and one of its biosimilars. (39) The district court concluded that the patentee's pattern of granting licenses to the patented dosing methods resulted in a lack of irreparable injury. (40) The Federal Circuit affirmed. (41)

    Licensing others or seeking a reasonable royalty does not always fatally undermine an assertion of irreparable injury. (42) The Federal Circuit has affirmed a permanent injunction despite the patent owner granting licenses to other entities, because "[a]dding a new competitor to the market may create an irreparable harm that the prior licenses did not." (43) A royalty may be the most appropriate remedy for past infringement, because it measures those harms which are reliably measurable. (44) However, there are the "hard-to-measure harms, such as impaired goodwill and competitive position, that can justify injunctions to prevent them before they occur (precisely because they are hard to quantify later)." (45) Thus, a patentee's request for relief in the form of a reasonable royalty is relevant, but it is not conclusive without further analysis. (46) In addition to an owner's request for reasonable royalty as compensation for past infringement, a court must consider other hard-to-measure harms such as impaired goodwill and competitive position. (47)

    The nature or extent of competitive injury that may be "irreparable" may be difficult to establish clearly in some cases. (48) In one case, evidence that a patentee would likely need to lower its prices to compete with the infringer, whose offering was 20% cheaper, was not adequate evidence of irreparable harm because the patentee also used to sell at a lower price point. (49) Even if the patentee feels pressure to cut advertising nd other investments to remain profitable in order to compete, that may not be enough to establish irreparable harm. (50) The court acknowledged that irreparable harm can be found if there is price erosion given the same sales, channels of trade, and other contextual facts. (51)

    A plaintiff does not necessarily have to prove that specific sales were lost to prove irreparable harm. (52) Under the Federal Circuit's approach in i4i Ltd. Partnership v. Microsoft Corp.: "Past harm to a patentee's market share, revenues, and brand recognition is relevant for determining whether the patentee has suffered an irreparable injury." (53) In that case, i4i was not...

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