First published in LES Insights
In Sealant Systems International, Inc. v. TEK Global, S.R.L.,1 the Northern District of California did the unusual; it issued a permanent injunction for a non-practiced patent. The suit was, however, between "fierce" competitors and the patent owner had never licensed the patent to anyone. The Court subsequently denied the adjudged infringer’s motion to stay the injunction in an opinion that provides unique insight into post-eBay injunction law.
The issuance of injunctions against patent infringers post the U.S. Supreme Court's seminal eBay v. MercExchangeopinion in 2006 has been a subject of much discussion particularly regarding when injunctions should be granted to nonpracticing patent owners. In Sealant Systems International, Inc. v. TEK Global, S.R.L., the Northern District of California refused TEK Global's request to stay or delay an order enjoining it from various infringing acts despite that the patent owner did not practice the patented technology itself. The court found that the fierce competition between the parties as well as the exclusionary nature of patents justified continuing the injunction.
TEK first sued Sealant Systems International, Inc. (SSI) for infringement of U.S. Patent No. 7,789,110. SSI countered with its own suit for a declaratory judgment of non‑infringement. Subsequently, SSI's sister company Accessories Marketing, Inc. (AMI) bought U.S. Patent No. 6,789,581 from an unrelated third party and sued TEK for its infringement.
TEK lost on both fronts. On TEK's '110 patent, AMI won summary judgment of noninfringement. On AMI's newlypurchased '581 patent, TEK was found to infringe by a jury. Posttrial, the court granted AMI's motion for a permanent injunction against TEK. At that time—eleven months after the jury verdict—the court allowed TEK an additional ninemonth sunset period to "get its affairs in order and minimize any unjustified impact on third parties."
TEK subsequently asked the court to stay the injunction or alternatively extend the sunset provision by five months so that it could appeal the verdict at the Court of Appeals for the Federal Circuit. TEK had unsuccessfully requested the same stay when it argued against the original injunction. The court, however, once again denied both the stay and the extension requests making only one minor modification to the injunction.
The Court's Decision
In the "aftermath" of eBay v. MercExchange, the court explained, the grant of a permanent injunction is "no mere perfunctory or mechanical exercise." Traditional principles of equity determine whether the injunction should issue. After the jury found against TEK, the court granted a permanent injunction against TEK in view of its"strenuous claims" at trial that "the '581 patent was not necessary" and that it "could be quickly designedaround," and also in view of "strong evidence of fierce competition between TEK and AMI in the onboardtirerepairkit market." In short, TEK's attempts to minimize the patent's importance at trial played a central role in the court's thinking when considering injunctive relief.
The court explained that TEK's present motion to stay an injunction requires an independent equitable determination from the original injunction inquiry. In the stay determination, four equitable factors are considered on a sliding scale. The Court must weigh and consider each: first, a movant's likelihood of success on appeal; second, a movant's potential irreparable injury absent a stay; third, a stay's harm to other parties interested in the proceeding; and, fourth, the public interest.
On the third prong, potential harm to AMI given a stay, the court faced a thorny issue: AMI did not directly practice the patent it asserted. Both patents-in-suit concerned tire repair kits generally, and TEK and AMI both operate in the tire-repair kit industry. The court even described their competition as "fierce." But AMI does not practice the '581 patent it asserted against TEK, so AMI does not fear direct competition from TEK's infringement. TEK argued that AMI's failure to practice the patent deeply reduced the severity of harm it might suffer under a potential stay.
The court first explained that TEK's argument amounted to an impermissible attempt to bootstrap the original sunset provision. By asking the Court to focus on the minimal harm resulting from a short extension, TEK's argument would "require a follow-on stay anytime even if a one-day sunset period were permitted." In other words, TEK had attempted to minimize the harm by simply cutting the proposed extended stay into smaller time-chunks, which, the court observed, the law did not allow.
Second, the court addressed the harm to AMI headon, explaining that TEK's arguments "[took] no account of the fundamental nature of the right at issue: the right to exclude." TEK's ongoing infringement, the court emphasized, "denies AMI of AMI's right to exclude competitors from practicing the patent's claims." In other words, the court understood AMI's potential injury to be, at least in part, the loss of its legal right to exclude—a right equally held, the court explained, by both practicing and non-practicing patent owners: "Put another way, whether for Thomas Edison and his light bulb patents or AMI and its off-the-shelf purchase, the exclusive rights under 35 U.S.C. § 271 are the same; that period of exclusivity never comes back."
The alternative, the court explained, would amount to a compulsory license. TEK had proposed an alternative stay arrangement where it would pay royalties to AMI for any infringment occurring during the pendency of the stay. This proposal, however, met with skepticism from the court. Specifically, the court explained that TEK's proposal effectively forced AMI to license the paten t—a patent currently licensed to no one—to a "fierce" competitor. Noting that other courts have repeatedly declined to force one competitor to license a product to another, the court similarly declined to compel AMI to license the patent to TEK.
The court also considered the three other prongs of the injunction stay inquiry. On the first, the movant's likelihood of success, the court reasoned that TEK offered no new substantive arguments or evidence and therefore found it was unlikely to prevail on appeal. On the second, potential irreparable harm to TEK, the court evaluated TEK's claims that testing and validation for their new non-infringing product had gone slower than expected and that, but-for a stay, it would be forced to commence layoffs. Although the court weighed these threats to TEK carefully, it eventually dismissed the potential harms as limited, particularly in light of TEK's acknowledgement it would finish the redesign by April, 2015, and in view of the principle that harm suffered from avoiding infringement is generally insufficient for staying an injunction. And on the fourth prong, the public interest, the court examined and dismissed concerns of potential harm to customers and downstream users. The court particularly noted that while the public "has a strong interest in maintaining a competitive market for tire repair kits, that market is supported by the capital investments in research and development that patents and patent alienability nurture." All four prongs thoroughly examined, the court denied TEK's motion to stay or delay the injunction.
This case serves as a reminder that, even in the "aftermath" of the Supreme Court's decision in eBay, injunctions still issue for non-practiced patents. Here, the non-practicing patent owner successfully emphasized the parties' status as "fierce" competitors and the infringer's encroachment on its right to exclude others from practicing the patent, which the patent owner had never before licensed. The case also highlights the difficulties of delaying and staying injunctions post-issuance.