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September 12, 2012 Articles

The Pendulum Swings: Bosch and Permanent Injunctions

Courts historically have granted patent injunctions in all but extreme circumstances, but granting or denying an injunction should be determined by traditional equitable principles.

By Christopher B. Lay

The Federal Circuit's recent decision in Robert Bosch LLC v. Pylon Manufacturing Corp. 659 F.3d 1142, 1149 (Fed. Cir. 2011) has been widely recognized for its explicit "jettison[ing]" of the presumption of irreparable harm previously applied in patent infringement cases where the prevailing patentee sought a permanent injunction. This ruling ended a debate that erupted after the U.S. Supreme Court in eBay Inc. v. MercExchange, LLC 547 U.S. 388 (2006) struck down the Federal Circuit's "general rule" in patent cases that a permanent injunction should necessarily follow a finding of infringement. Although the express elimination of the presumption of irreparable harm ended any lingering doubts, many district courts had already concluded that the presumption was likely dead.

Behind the fanfare of the Federal Circuit's confirmation that eBay eliminated the presumption of irreparable harm lies the body of the Federal Circuit's opinion, which, in both its tenor and conclusions, signals to defendants that avoiding permanent injunctions in the future may be more difficult than in the past since district courts began applying the tenets of eBay. Specifically, the court warned that, "[a]lthough eBay abolishes our general rule that an injunction normally will issue when a patent is found to have been valid and infringed, it does not swing the pendulum in the opposite direction." 659 F.3d at 1149. Just how far the pendulum may swing back toward the Federal Circuit's "general rule" is the subject of this analysis.

Traditional Rules of Equity
The Supreme Court has consistently reviewed injunctive relief through the prism of equitable principles. Following those principles, the Court has held that irreparable harm and the inadequacy of legal remedies form the basis for injunctive relief. Weinberger v. Romero-Barcelo, 456 U.S. 305, 312 (1982). Because an injunction is an equitable remedy, it is not automatic. Amoco Production Co. v. Village of Gambell, 480 U.S. 531, 542 (1987). Rather, the traditions of equity emphasize the power of the district court to exercise its sound discretion. 456 U.S. at 320. Analyzing the facts of the case before it, the district court must balance opposing allegations of harm and consider the effect on each party of granting or denying such relief. 480 U.S. at 542. The hallmark of equity is that "[f]lexibility rather than rigidity has distinguished it." 456 U.S. at 312 (quoting Hecht Co. v. Bowles, 321 U.S. 321, 329 (1944)). But before exercising its discretionary power to issue an injunction, a court should strongly consider the impact on the public of that "extraordinary remedy."

According to the Supreme Court, district courts retain full discretion in deciding whether to grant an injunction unless Congress has expressly restricted that discretion. 480 U.S. at 542. Without any such expression from Congress, statutes that permit injunctive relief as a remedy do not require it. 456 U.S. at 316. In both Weinberger v. Romero-Barcelo and Amoco Production Co. v. Village of Gambell,the Supreme Court determined that the statutes at issue did not limit the discretionary power of the district court, and concluded in each case that Congress had not expressed or implied any intention that injunctions should automatically be issued following a violation of the statute.

Against that backdrop, the Federal Circuit forged a different philosophy in patent cases concerning injunctive relief. Because patent rights are property rights, the court considered the patent owner's right to exclude an essential element of those rights. Therefore, after a finding of infringement, a denial of an injunction ran afoul of the laws of property. Richardson v. Suzuki Motor Co., 868 F.2d 1226, 1246–47 (Fed. Cir. 1989). The Federal Circuit thus embraced a "general rule" that when infringement is found, an injunction should be issued absent exceptional circumstances. Id. at 1247.

In 2005, the Federal Circuit reaffirmed its general rule when it reversed the district court in MercExchange, LLC v. eBay, Inc.,a case in which the Eastern District of Virginia denied a permanent injunction. 401 F.3d 1323, 1339 (Fed. Cir. 2005). Although the court acknowledged that in "rare instances," district courts appropriately denied permanent injunctions, it emphasized that the circumstances justifying a denial must relate to an extraordinary public interest. Id. at 1338–39. In MercExchange, however, the Federal Circuit found nothing "sufficiently exceptional" that justified the "unusual step" of denying injunctive relief. Id. at 1339.    

The Supreme Court in eBay Rejects the General Rule
Following the Federal Circuit's decision in MercExchange, the Supreme Court granted certiorari "to determine the appropriateness of this general rule." To assess the rule, the Court first discussed permanent injunctions in the context of traditional equitable principles. It enumerated the four-factor test that a party moving for a permanent injunction must satisfy. The "plaintiff must demonstrate: (1) that is 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." eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006).

Under this framework, the Court unanimously rejected the Federal Circuit's general rule. In the opinion, Justice Thomas explained why the treatment of injunctive relief in patent cases must be no different from that applied in all other cases, which followed naturally from precedent that a "decision to grant or deny permanent injunctive relief is an act of equitable discretion by the district court, reviewable on appeal for abuse of discretion."

Tracking its analysis in earlier, non-patent cases, the Court reviewed the Patent Act and found no language signifying an intention by Congress to limit the district courts' discretionary powers The Court noted, however, that the Patent Act includes provisions equating patents to personal property, which include the right to exclude. Id. at 392 (citing 35 U.S.C. §§ 261, 154(a)(1)). The Court also focused on Section 283 of the Patent Act, which states that courts "may grant injunctions in accordance with the principles of equity." Id. at 392 n.2 (quoting 35 U.S.C. § 283).

Because of the discretion afforded to district courts by Section 283, the Court expressly rejected the use of "categorical rules" that would dictate a district court's determination of whether to grant or deny an injunction. The Court determined that the eBay district court "erred in its categorical denial of injunctive relief," and that the Federal Circuit, applying its general rule, "erred in its categorical grant of such relief." Id. at 394. In conclusion, the unanimous Court stated that "[w]e hold only that the decision whether to grant or deny injunctive relief rests within the equitable discretion of the district courts, and that such discretion must be exercised consistent with traditional principles of equity, in patent disputes no less than in other cases governed by such standards."

Two concurring opinions in eBay, cited often by courts granting permanent injunctions, sought to restrain district courts' discretion within the confines of past precedent. One of the concurring opinions, that of Chief Justice Roberts, noted that from the early 1800s "courts have granted injunctive relief upon a finding of infringement in the vast majority of patent cases," and urged that "there is a difference between exercising equitable discretion pursuant to the established four-factor test and writing on an entirely clean slate." Id. at 395.

District Courts Following eBay Largely Avoid Categorical Rules
When determining whether to grant or deny permanent injunctions, district courts have largely attempted to follow the principles set forth in eBay and have faithfully applied the traditional four-part test. Although courts have been careful not to use categorical rules to support the grant or denial of injunctions, they nonetheless have gravitated toward certain fact patterns that inform their analyses. One set of recurring themes can be seen in cases in which injunctions have been granted, and another set can be seen in cases in which injunctions have been denied.

In post-eBay cases where permanent injunctions have been granted, several recurring fact patterns have emerged that are often used by courts as support for their determination that the four-factor test has been satisfied. Irreparable harm, for example, has often been found where the patentee directly competes with the infringer. This is especially true where the patentee can demonstrate that its market share, sales, goodwill, reputation as an innovator, or research efforts have been negatively impacted by sales of the infringing product. ePlus, Inc. v. Lawson Software, Inc., 2011 WL 2119410, at *7, 11 (E.D. Va. May 23, 2011); Smith & Nephew, Inc. v. Arthrex, Inc., 2010 WL 2522428, at *2 (E.D. Tex. June 18, 2010). In addition, irreparable harm is often found where a patentee's invention lies at the core of its business, as in Trading Techs. Int'l, Inc. v. eSpeed, Inc., 2008 WL 4531371, at *3 (N.D. Ill. May 22, 2008), for example.

Inadequate remedies at law, including damages, are intertwined with a finding of irreparable harm. Thus, the same facts that support irreparable harm also tend to support the inadequacy of money damages, as found in Metso Minerals, Inc. v. Powerscreen Int'l Distribution Ltd., 788 F. Supp. 2d 71, 76 (E.D.N.Y. 2011). Inadequacy of damages and irreparable harm are often found where the patentee's harm is unquantifiable, as in ActiveVideo Networks, Inc. v. Verizon Commc'ns., Inc., 2011 WL 5878365, at *7 (E.D. Va. Nov. 23, 2011).

Under the balance of harms factor, courts granting permanent injunctions sometimes compare the harms that are likely to befall the patentee in the absence of an injunction, with the likely harm to the infringer in the presence of an injunction. Power Integrations, Inc. v. Fairchild Semiconductor Int'l, Inc., 2008 WL 5210843, at *1 (D. Del. Dec. 12, 2008). The court states often, however, that any harm the infringer might incur as a result of an injunction will be the direct consequence of its infringement.

The public interest is generally examined for serious or life-threatening public health or safety concerns. Courts under this high bar generally find that these issues are not implicated, or that they can be mitigated under a provision of the injunction. Counterbalanced against any public health interest is often the public's "interest in a strong patent system." Smith & Nephew, 2010 WL 2522428, at *5. In other words, the public interest is generally served by enjoining infringers.

The statutory right to exclude is frequently cited by courts in support of granting a permanent injunction. The court typically invokes this right while still acknowledging that under eBay the statutory right to exclude alone is insufficient to justify an injunction. ePlus, 2011 WL 2119410, at *6.

Where permanent injunctions have been denied, courts have often considered the following circumstances under the irreparable harm or inadequacy of legal remedies factors to provide support: (1) lack of direct competition in the same market between the patentee and the infringer, or competition between more than two competitors in which the patentee cannot show a relationship between the infringer's sales and harm suffered by the patentee; (2) licensing by the patentee to other competitors, or systematic licensing of the patents at issue; (3) small relative size or importance of the inventive technology compared with the accused product as a whole; and (4) adequacy of money damages. Accentra Inc. v. Staples, Inc., 2011 WL 7563039, at *28 (C.D. Cal. Dec. 19, 2011) (competition); Advanced Cardiovascular Sys., Inc. v. Medtronic Vascular, Inc., 579 F. Supp. 2d 554, 558-59 (D. Del. 2008) (multiple competitors); Johnson & Johnson Vision Care, Inc. v. Ciba Vision Corp., 712 F. Supp. 2d 1285, 1287-89 (M.D. Fla. 2010) (licensing); LaserDynamics, Inc. v. Quanta Computer, Inc., 2010 WL 2574059, at *2 (E.D. Tex. June 22, 2010) (small proportion); Conceptus, Inc. v. Hologic, Inc., 2012 WL 44064, at *2-3 (N.D. Cal. Jan. 9, 2012) (adequacy of money damages).

Courts' assessment of the balance of harms factor has typically weighed the size of and potential harm to the patentee relative to the size of and potential harm to the infringer. LG Elecs. U.S.A., Inc. v. Whirlpool Corp., 798 F. Supp. 2d 541, 564 (D. Del. 2011). The balance of harms factor and the public interest factor generally play roles secondary to the first two factors. Occasionally, however, the public interest factor plays a key part in supporting the denial of a permanent injunction, even where dire health consequences are not implicated. Johnson & Johnson Vision Care, 712 F. Supp. 2d at 1292–93. Of course, where the removal of a medical device from the market poses life-threatening risks, courts invariably find that public interest weighs heavily against granting an injunction. Bard Peripheral Vascular, Inc. v. W.L. Gore & Assocs., Inc., 2009 WL 920300, at *8 (D. Ariz. Mar. 31, 2009).

In addition, courts denying injunctions routinely focus on the burden of proof—which eBay places squarely on the patentee—and on the patentee's inability to provide sufficient evidence to satisfy that burden. As aptly stated by the district court in MercExchange, L.L.C. v. eBay, Inc. on remand, "putting the onus on the plaintiff to prove irreparable harm is much more than an idle exercise as numerous case-specific facts may weigh against the issuance of an injunction, notwithstanding the nature of the patent holder's right." 500 F. Supp. 2d 556, 569 (E.D. Va. 2007) (emphasis in original). Thus, even where facts tend to favor an injunction, courts will often cite as fatal to a motion for injunctive relief a patentee's failure to provide sufficient evidence of irreparable harm or inadequacy of money damages. Advanced Cardiovascular, 579 F. Supp. 2d at 560; Edwards Lifesciences AG v. CoreValve, Inc., 2011 WL 446203, at *15 (D. Del. Feb. 7, 2011); Presidio Components Inc. v. Am. Technical Ceramics Corp., 723 F. Supp. 2d 1284, 1336–37 (S.D. Cal. 2010); Humanscale Corp. District courts recognize that, although eBay did not identify the "quantum" of evidence necessary to support a permanent injunction, the patentee in every instance must establish the irreparability of its harm. eBay Inc. v. MercExchange, LLC, 500 F. Supp. 2d at 577–78.

The Pendulum Swings Back
In 2010, the district court in Robert Bosch, LLC v. Pylon Manufacturing Corp. denied Bosch's motion for a permanent injunction. The court concluded that Bosch failed to satisfy its burden of demonstrating that such relief was justified. Robert Bosch LLC v. Pylon Manufacturing Corp., 748 F. Supp. 2d 383, 407 (D. Del. 2010). It acknowledged the Supreme Court's rejection of "categorical rules, classifications, and assumptions in permanent injunction analyses," but then identified several trends common to cases in which injunctions had been granted. These included the circumstances discussed above, such as where the plaintiff practices its invention, the parties are direct competitors, and the invention comprises the core of the plaintiff's business. Id. at 407–08.

The district court held that "Bosch has failed to show that it would suffer irreparable harm absent a permanent injunction." Id. at 408. The court also noted Bosch's failure to sufficiently define the relevant market, as well as the parties' failure to disclose their market shares. Together, the evidentiary failures, presence of multiple competitors, and the non-core nature of the patented technology provided the court's justification for its denial.

The Federal Circuit reversed and remanded, directing the court to enter an injunction. Robert Bosch LLC v. Pylon Manufacturing Corp., 659 F.3d at 1145. After confirming that the presumption of irreparable harm was eliminated by the Supreme Court in eBay, the court seemed to adopt the sentiments contained in eBay's concurring opinions. Specifically, the court stated that the "abolition of categorical rules and the district court's inherent discretion to fashion equitable relief" do not "mandate that district courts must act on a clean slate." Id. at 1149. Rather, standards developed by the Federal Circuit over the last 25 years should "inform the four-factor inquiry and, in particular, the question of irreparable harm." Id. at 1150. According to the Federal Circuit, by "ignoring these standards, and supplanting them with its own," the district court "committed legal error by the weight given to the factors cited, and made a clear error in judgment in its analysis of the irreparable harm factor."

To support its denial, the Federal Circuit labeled as legal error the district court's reliance on the presence of multiple competitors in the market and the small size of Bosch's wiper blade technology relative to its entire business. In explaining this ruling, the court arguably mischaracterized the district court's analysis. The Federal Circuit stated that the lower court erred in "concluding that the absence of a two-player market effectively prohibits a finding of irreparable harm," and also in concluding that "if a fact supports the granting of an injunction, its absence likely compels denial of one." Id. at 1151–52. The district court neither expressed nor implied either of these conclusions.

The Federal Circuit in Bosch further criticized the reasoning it attributed to the district court by stating that, "[w]hile the existence of a two-player market may well serve as a substantial ground for granting an injunction . . . the converse is not automatically true . . ." Id. at 1151 (emphasis in original). However, the district court never came close to resorting to such categorical reasoning.

Most important, by finding legal error in the weight the district court gave to certain evidence—or lack thereof—the Federal Circuit appeared to meddle with the district court's exercise of discretion. Further, in finding that the district court "erred in attributing weight," implying any weight whatsoever to the "non-core nature of Bosch's wiper blade business," the court came very close to establishing a new categorical rule of its own. Id. at 1152.

The opinion further stated that the lower court "committed a clear error in judgment when it concluded that Bosch failed to demonstrate irreparable harm." The court cited, among other things, "undisputed evidence of direct competition"; "unrebutted evidence of loss of market share and access to potential customers"; and "unrebutted" evidence of irreversible price erosion demonstrating that Bosch's harm was irreparable. Id. at 1152–54. The court found it important that in the mass-merchandise segment of the industry, Bosch secured Wal-Mart as a customer, lost their business to Pylon. Although noting that it was Bosch's failure to timely deliver its product that caused the loss of Wal-Mart's business, the court credited testimony of a Bosch executive as evidence that Bosch's inability to re-acquire the Wal-Mart account—or other mass-merchandiser business—as showing that Bosch suffered irreparable harm at the hand of Pylon. Id. at 1153–54.

In addition, the court highlighted evidence that Pylon might not be able to satisfy a judgment for past or future damages, and pointed to the company's failure to provide evidence to the contrary as supporting a finding of irreparable harm. Id. at 1154–55. In this and other contexts, the court emphasized the lack of rebuttal evidence provided by the infringer. In another example, the court faulted Pylon for providing no evidence to rebut Bosch's "prima facie showing" of lost market share. Id. at 1154. By requiring Pylon to put forth evidence that the harm to Bosch was not irreparable, the court appeared to place the onus on the defendant to disprove irreparable harm.

The court concluded that together with its determination that the remaining factors also supported an injunction, there was "no basis on which the district court rationally could have concluded that Bosch failed to demonstrate irreparable harm, or that a remedy other than an injunction is sufficient to address its harm." Id. at 1155. As a result, the court reversed and remanded the case with instructions that an injunction be entered.

Circuit Judge Bryson, dissenting in part, disagreed that the record compelled the court to enjoin Pylon. Judge Bryson explained that "injunctive relief is a fact-intensive inquiry that requires a careful balancing of competing equitable concerns, none of which is dispositive." Id. at 1157. Therefore, he argued, weighing the competing facts is a function purely of the district court—echoing the mandate of eBay. Id. at 1157–58.

Further, Judge Bryson questioned the sufficiency of the evidence cited by the majority, finding that the evidence supplied by Bosch regarding the loss of market share, price erosion, loss of customers, and loss of access to new customers was not compelling.Noting that the majority appeared to shift the burden to the defendant, the dissent asserted that the evidence "was not so clear-cut that those issues can be resolved based on a shifting of the burden of proof." Judge Bryson urged his colleagues not to usurp the district court's discretion by directing it to enter an injunction without further analysis. Id. at 1158.

Looking Forward
The Federal Circuit in Bosch has seemingly aligned itself with the concurring opinions in eBay. Because courts in patent cases historically have granted injunctions in all but extreme circumstances, courts' discretionary ability to deny permanent injunctions must be molded within the framework of pre-eBay Federal Circuit precedent. This view, however, seems to ignore the main thrust of the unanimous opinion in eBay, which is that the decision to grant or deny an injunction is to be decided by the district court exercising its sound discretion under traditional equitable principles.

Nonetheless, Bosch makes it more likely that an injunction will be issued almost as a matter of course where the parties compete and seems to lower the bar for the "quantum" of evidence needed to support an injunction. So although district courts will continue to avoid overt categorical rules, with the imprimatur of the Federal Circuit, they may be emboldened to wield the vestiges of categorical rules to justify a post-eBay grant of an injunction that otherwise should not be issued.

Keywords: litigation, intellectual property, permanent injunction, irreparable harm, patent infringement, patent rights, injunctive relief

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