Addressing a lower court’s decision to impose a permanent injunction, the U.S. Court of Appeals for the Federal Circuit reversed the lower court, finding that an ongoing royalty for future infringement was the appropriate remedy.  ActiveVideo Networks, Inc. v. Verizon Communications, Inc, et al., Case Nos. 11-1538, -1567, 12-1129, -1201 (Fed. Cir., Aug. 24, 2012) (Moore, J.).

ActiveVideo, a seller of video-on-demand products, sued Verizon for patent infringement based on video services sold by Verizon.  Verizon counterclaimed that ActiveVideo infringed certain of its patents.  At trial, a jury found that Verizon infringed four ActiveVideo patents and that ActiveVideo infringed two Verizon patents.  The district court entered a permanent injunction against Verizon, but delayed imposition of the injunction for six months during which Verizon was ordered to pay a sunset royalty for infringing activity.

On appeal the Federal Circuit reversed the grant of a permanent injunction, finding that the district court erred in its treatment of three of the four factors that must be met to demonstrate that an injunction should issue. 

The Federal Circuit first observed that the issues of irreparable harm and adequacy of remedies at law are “inextricably intertwined” and accordingly discussed them together.  The district court had found irreparable harm based on loss of customers by ActiveVideo’s customer Cablevision, which the district court reasoned lead to “a loss of market share by Activision and Cablevision,” and also found irreparable harm from litigation costs incurred by ActiveVideo.

The Court summarily rejected the district court’s finding that litigation costs supported irreparable harm and quoted its Innogenetics decision in observing that if the rule were otherwise, “injunctive relief would be warranted in every litigated patent case.” 

The Court also found no proof of loss of market share for ActiveVideo.  Verizon and ActiveVideo do not compete, noted the Federal Circuit, and reliance on loss of customers by one of ActiveVideo’s customers could not support a finding of irreparable harm to ActiveVideo.  The actual harm to ActiveVideo—loss of royalties that should have been paid by Verizon—is readily quantifiable.  The Court thus concluded that the district court committed clear error in its findings on irreparable harm and adequacy of remedy at law.

As to the balance of hardships, the Federal Circuit rejected the district court’s emphasis on the small size of ActiveVideo as favoring an injunction and concluded there was no proof that the hardships supported an injunction.  The Court did not, however, find error in the district court’s treatment of the public interest factor, noting that customers’ interests in entertainment did not outweigh the public interest in allowing patentees to enforce their right to exclude.  In its holding on the injunction issue, the Federal Circuit vacated the permanent injunction and remanded for determination of an ongoing royalty rate for future infringement.

The Court approved and found no error in the district court’s calculation of a sunset royalty to be paid by Verizon during the stay of the injunction.  The lower court had focused on “the much better bargaining position” enjoyed by ActiveVideo post-verdict, and the Court found this to be a valid factor and accurate view of the relative strength of the parties’ positions.  The Court also rejected Verizon’s argument that the royalty rate from the jury’s damages award conflicted with the sunset royalty calculation. 

Finally, the Federal Circuit noted that the district court’s calculation on remand of an ongoing royalty for prospective damages would involve much the same inquiry as the sunset royalty calculation, although ActiveVideo’s bargaining position would be “even stronger after this appeal.”