On Thursday, September 17, 2015, in the fourth Federal Circuit opinion arising out of the patent skirmishes between global high technology titans Apple and Samsung Electronics, a sharply divided Federal Circuit panel vacated the trial court’s denial of Apple’s post-trial motion for a permanent injunction against Samsung. At trial, Apple prevailed on its infringement claims in the Northern District of California (and received a jury award of approximately $120M) but failed to persuade District Court Judge Koh to permanently enjoin Samsung from “making, using, selling, developing, advertising, or importing software or code capable of implementing the infringing features” in smartphones that directly compete with Apple’s ubiquitous iPhone devices.
Despite the narrowness of Apple’s requested injunction — which included a 30-day “sunset” period during which Samsung could design around the infringed claims that Samsung had represented at trial that it could design around quickly and easily — the trial court found that Apple had not demonstrated that it would suffer irreparable harm without an injunction. On this basis alone, the injunction was denied, notwithstanding Judge Koh’s conclusions that both the public interest analysis and the balance of hardships favored Apple. The Federal Circuit held that the “district court abused its discretion when it did not enjoin Samsung’s infringement. If an injunction were not to issue in this case, such a decision would virtually foreclose the possibility of injunctive relief in any multifaceted, multifunction technology.”
The decision is an important departure from the weight of post-eBay precedent, which has diminished, if not removed altogether, the ability of patent holders to enjoin infringers. As Judge Reyna noted in his emphatic concurring opinion, the remedy of an injunction had for decades been an important aspect of the right to exclude enjoyed by a patent owner. Yet in recent years this remedy seemed increasingly difficult, if not impossible, to obtain. In fact, practitioners and commentators pointed to the district court’s decision underlying Apple IV as an example of the fundamental erosion of injunctive relief as a potential remedy for patent infringement: at trial, a vigorous competitor of the infringer was denied an injunction by the trial court even after proving infringement (willful infringement, at that, for at least one of the three asserted patents) and after being awarded nine-figure damages by a jury. These practitioners and commentators queried whether obtaining injunctive relief was even possible in an Article III court anymore. In Apple IV, Judge Moore, joined by Judge Reyna, answered this question in the affirmative.
As to the first eBay factor of irreparable harm — which requires that the patent holder demonstrate the existence of a nexus, or “some connection,” between the patented feature and consumer demand—the panel concluded that “[w]hen a patentee alleges it suffered irreparable harm stemming from lost sales solely due to a competitor’s infringement, a finding that the competitor’s infringing features drive consumer demand for its products satisfies the causal nexus” between infringement and lost sales. The district court “erred when it required Apple to prove that the infringing features were the exclusive or predominant reason why consumers bought Samsung’s products to find irreparable harm.” Apple had demonstrated that its customers wanted, preferred, and would pay extra for the patented features; Samsung believed that these features were important and copied them; Samsung’s carriers and users wanted these features on their phones; Apple believed that these features were important to customer demand; and the two companies were fierce rivals. This evidence was sufficient to establish the requisite causal nexus between infringement and lost sales under the irreparable harm analysis.
As to the second eBay factor, whether remedies available at law are inadequate, the panel also reversed, stating that “[b]ecause we find the district court’s finding that Apple did not suffer any irreparable harm stemming from its losses of sales was predicated on a legal error, it also erred when it found that this factor weighs against an injunction. This factor strongly weighs in favor of Apple because, as the district court found, the extent of Apple’s downstream and network effect losses are very difficult to quantify.”
On the third eBay factor, whether the balance of hardships tipped in Apple’s favor, the district court concluded that because “Apple’s proposed injunction targets only specific features, not entire products” and contains a 30-day “sunset provision,” and because “Samsung repeatedly told the jury that designing around the asserted claims of the three patents at issue would be easy and fast,” the district court found that Samsung would “not face any hardship” from Apple’s proposed injunction. The Federal Circuit agreed.
The panel also affirmed the trial court’s conclusion that the fourth eBay factor — whether the injunction would harm the public interest — favors Apple. It concluded that …
the public generally does not benefit when that competition comes at the expense of a patentee’s investment-backed property right. To conclude otherwise would suggest that this factor weighs against an injunction in every case, when the opposite is generally true. We base this conclusion not only on the Patent Act’s statutory right to exclude, which derives from the Constitution, but also on the importance of the patent system in encouraging innovation. Injunctions are vital to this system. As a result, the public interest nearly always weighs in favor of protecting property rights in the absence of countervailing factors, especially when the patentee practices his inventions. “[T]he encouragement of investment-based risk is the fundamental purpose of the patent grant, and is based directly on the right to exclude.” …
This is not a case where the public would be deprived of Samsung’s products. Apple does not seek to enjoin the sale of lifesaving drugs, but to prevent Samsung from profiting from the unauthorized use of infringing features in its cellphones and tablets.
In his concurrence, Judge Reyna emphasized that although the Federal Circuit cautioned in the wake of eBay that courts should not necessarily ignore the fundamental nature of patents as property rights granting the owner the right to exclude, “our recent cases have done precisely that, ignoring the right to exclude in determining whether to issue an injunction.” This disregard for the right to exclude in assessing a plaintiff’s right to an injunction “extends eBay too far.” According to Judge Reyna, a patentee earns the right to exclude by disclosing a useful invention to the public, and when the “courts do not force the public to hold up its end of the bargain they inhibit rather than ‘promote’ the ‘progress of the useful arts.’”
Judge Reyna went on to stress that “irreparable” does not mean that the injury cannot be remedied at all — otherwise the plaintiff would lack standing to sue — but rather that monetary damages are inadequate to remedy the harm. The inadequacy of monetary damages was historically found where, among other reasons, such damages are merely difficult to measure. Referring to an entity that uses patents primarily to obtain licensing fees as a counterpoint, Judge Reyna underscored that Apple’s business objective clearly encompass far more than obtaining licensing fees and the relationship between Apple and Samsung is dramatically different from a non-practicing entity and an infringer. For example, the two companies fiercely compete as the clear leaders in the mobile device hardware and software markets. Due to this and other reasons, “it is difficult, if not impossible, for a court to accurately value Apple’s right to exclude.”
Because a jury found that Samsung injured Apple’s right to exclude through its infringement of Apple’s patents, and, in view of the parties’ “unique competition,” Judge Reyna would have concluded that a “court cannot accurately determine Apple’s injury, and thus, I would find that [the infringement] irreparably injures Apple.” Judge Reyna went on to discuss his view that continued infringement by Samsung would irreparably injure Apple’s reputation as an innovator. Important to this conclusion was that the patented features at issue were ones that consumers regularly interact with while using Apple’s products, and were not just latent features that consumers might not be aware of.
Chief Judge Prost began her vigorous dissent by stating that “this is not a close case.” She emphasized that two of the three asserted patents relate merely to “minor features” on the iPhone while the third is not even practiced by Apple, and concluded that the majority reached a result “that comports with neither existing law nor the record in this case.” The Chief Judge criticized the majority for ignoring the weight of the evidence, including its purported failure to properly defer to the trial court which was “faithfully following our precedent” in requiring objective evidence demonstrating a nexus between the infringement and the alleged lost sales. In fact, Chief Judge Prost wrote that “[t]here is simply no basis for this court, on an abuse of discretion review, to reverse the district court’s denial of Apple’s injunction request.” Perhaps in a nod to observers questioning whether an injunction could ever be obtained in the post-eBay world, Chief Judge Prost concluded by addressing the majority’s warning that if an injunction were not available to Apple under these circumstances, such a decision would virtually foreclose the possibility of injunctive relief in any multifaceted, multifunction technology: “injunctive relief will be appropriate when and if, consistent with our case law, the causal nexus requirement is met. This is not such a case.”
Samsung will undoubtedly petition to have this case heard en banc by the Federal Circuit and, given its importance with respect to the eBay decision, it is likely that the Supreme Court may also weigh in before all is said and done. In the meantime, Apple IV teaches several important things.
First, injunctions are not dead post-eBay. Second, and most immediately, for at least part of the Federal Circuit and under the limited circumstances at issue in Apple IV (lost sales, direct and fierce competitors), an injunction is still a vital component of the redress for demonstrated infringement of a patent. Third, when such circumstances are present, the rift among the Federal Circuit revealed by this opinion is what quantum and quantity of evidence are needed to establish the causal nexus, or “some connection,” requirement of the first eBayfactor. Accordingly, en banc review, if granted, will likely center on whether the patented features were shown to drive consumer demand. Finally, at a more general level, Apple IVshows that at least among certain of the Federal Circuit judges, a concern exists that eBayhas had too significant an impact on an injunction’s vital role in our patent system and its ability to promote innovation.