Some Questions Relating to Patent Remedies in Edwards v. CoreValve

Most countries routinely award permanent injunctions to the prevailing patentee.  In the U.S., since the Supreme Court’s 2006 decision in eBay v. MercExchange, courts consider four equitable factors of irreparable injury, adequacy of the remedy at law, the balance of hardships, and the public interest.  As a result, U.S. courts now award permanent injunctions to prevailing patentees about 75% of the time; in the remaining quarter of cases, they award an ongoing royalty.

Over the past year the U.S. Court of Appeals for the Federal Circuit has given mixed signals as to how often courts should award patentees permanent injunctions.   I’ll have more to say about some of these opinions in future posts, but for today I’d like to focus on one case in particular, Edwards Lifesciences AG v. CoreValve, LLC, 699 F.3d 1305 (Fed. Cir. 2012), pet’n for cert. filed, __ U.S.L.W. __ (May 6, 2013) (No. 12-1325).  The patent in suit is for a medical device known as a transcatheter heart valve.  In 2011, a jury found the patent valid and infringed, and awarded Edwards lost profits of $72,645,555, along with $1,284,861 as a reasonable royalty.  If I understand the facts correctly, the device has been approved for marketing, and is not patented, outside the United States; as of the date of trial, however, the device was still awaiting FDA approval for marketing within the United States.  Thus all of the sales that Edwards allegedly lost to CoreValve occurred outside the United States.  (The manufacture of the allegedly infringing devices occurred within the United States, however.) The district judge denied a permanent injunction, however, based on, among other things, CoreValve’s representation “that it was immediately moving [its] manufacturing operation to Mexico, and thus that infringement would terminate.”   

Several issues were raised on appeal, but for present purposes I’ll focus exclusively on remedies.  First, on the issue of lost profits, the majority (in an opinion authored by Judge Newman) stated:

CoreValve argues “that the criteria for award of lost profits were not met, stating that it “could have manufactured its device overseas by March 2007,” CoreValve Br. 3, and thus would have avoided all liability for infringement, by avoiding infringement. CoreValve argues that this eliminates liability for damages based on its manufacture in the United States, or that at most it should be liable for only a modest royalty. Neither the jury nor the district court was persuaded by this argument. Nor are we. Whether or not CoreValve could have avoided infringement, it did not do so, although it was notified as early as 2005 of Edwards' position, and the record showed CoreValve's familiarity with the patents and the inventors.

 Second, the court reversed the denial of the injunction and remanded for further proceedings, stating:

A patentee's right to exclude is a fundamental tenet of patent law. Richardson v. Suzuki Motor Co., Ltd., 868 F.2d 1226, 1247 (Fed. Cir. 1989) (“The right to exclude recognized in a patent is but the essence of the concept of property.”) (quoting Connell v. Sears, Roebuck & Co., 722 F.2d 1542, 1548 (Fed. Cir. 1983)). The innovation incentive of the patent is grounded on the market exclusivity whereby the inventor profits from his invention. Absent adverse equitable considerations, the winner of a judgment of validity and infringement may normally expect to regain the exclusivity that was lost with the infringement. Edwards argues that the Court's ruling in eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 126 S. Ct. 1837, 164 L. Ed. 2d 641 (2006) supports its position, for the willfulness of the infringement and other equitable aspects weigh in favor of restoration of the exclusive patent right.

The Court in eBay did not hold that there is a presumption against exclusivity on successful infringement litigation. The Court did not cancel 35 U.S.C. § 154, which states that “Every patent shall contain ... a grant ... of the right to exclude others from making, using, offering for sale, or selling the invention,” nor did the Court overrule Article I section 8 of the Constitution, which grants Congress the power to “secur[e] for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” The Court held that equitable aspects should always be considered, stating: “We 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.” eBay, 547 U.S. at 394, 126 S.Ct. 1837. Statutory and historical as well as commercial considerations impinge on every equitable determination.

Precedent illustrates the variety of equitable considerations, and responsive equitable remedy in patent cases; for example, the grant of a royalty-bearing license instead of imposing an injunction in situations where the patentee would experience no competitive injury, as in ActiveVideo Networks, Inc. v. Verizon Communications, Inc., 694 F.3d 1312, 1339–40 (Fed. Cir. 2012); or where there is an overriding public interest in continued provision of the infringing product, as in Bard Peripheral Vascular, Inc. v. W.L. Gore & Assocs., Inc., No. 03–CV–0597 (D. Ariz. July 21, 2010), where the Gore vascular graft materials were not available from the successful patentee Bard. Another form of equitable response is illustrated in Broadcom Corp. v. Qualcomm Inc., 543 F.3d 683, 704 (Fed.Cir.2008), where the court postponed the effective date of an injunction for twenty months, to relieve hardship on the infringer.

In Advanced Cardiovascular Sys. v. Medtronic Vascular, Inc., 579 F.Supp.2d 554 (D. Del. 2008), the court observed that: “Courts awarding permanent injunctions typically do so under circumstances where plaintiff practices its invention and is a direct market competitor.” Id. at 558. Edwards argues that these conditions here prevail. However, the district court declined to impose the requested injunction. First, the district court responded to Edwards' argument that without exclusivity it would lose first-mover advantage and market share and reputation, by stating that these had already been lost—although Edwards states that this is incorrect, for sales in the United States had not yet been authorized by the FDA, as to either the Edwards or the CoreValve/Medtronic product. The district court also stated that Edwards had given up exclusivity by licensing the ′552 patent to another competitor. CoreValve does not dispute that the district court erred in its view of that transaction, and that no such license exists.

The district court's explanation of why it was withholding an injunction placed significant weight on CoreValve's statements that it was immediately moving this manufacturing operation to Mexico, and thus that infringement would terminate. Edwards at *16, 2011 U.S. Dist. LEXIS 12022, at *29 (“The remaining two eBay factors do not alter the court's analysis, since the only practical effect of a permanent injunction would be that CoreValve would be forced to move its United States manufacturing operations for the accused product to Mexico.”). The district court stated that if CoreValve should renew its infringing manufacture in the United States, then “[a]s it did in this case, Edwards can bring suit against CoreValve and seek damages if CoreValve continues its infringing manufacturing operations in spite of the judgment of infringement.” Id. at *15, 2011 U.S. Dist. LEXIS 12022, at *28. Edwards states on this appeal, and CoreValve does not deny, that CoreValve never stopped its infringing manufacture in California. Whether or not that representation was known to be false when made, the situation before us reflects, at least, changed circumstances.

In TiVo Inc. v. EchoStar Corp., 646 F.3d 869, 890 n. 9 (Fed. Cir. 2011) this court en banc noted that “district courts are in the best position to fashion an injunction tailored to prevent or remedy infringement.” Recognizing that the circumstances have not been fully explored in the record before us, we vacate the denial of the injunction, and remand to the district court for consideration in light of ensuing events and any other relevant factors.

Judge Prost, concurring in the judgment, wrote that she joined the majority opinion

in all respects except one—the majority's discussion of the permanent injunction standard. The majority opines that “[a]bsent adverse equitable considerations, the winner of a judgment of validity and infringement may normally expect to regain the exclusivity that was lost with the infringement.” Majority Op. 1314. To the extent that one reads this statement as creating the presumption of an injunction once the plaintiff prevails, which must be rebutted by the defendant, that is not the law.

Nor do the selected portions of eBay cited by the majority provide support for its position. First, while I agree with the majority that in eBay the Supreme Court did not cancel 35 U.S.C. § 154, the majority overlooks the Court's explanation that “the creation of a right is distinct from the provision of remedies for violations of that right,” such that “injunctive relief ‘may’ issue only ‘in accordance with the principles of equity.’” eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 392, 126 S.Ct. 1837, 164 L.Ed.2d 641 (2006) (quoting 35 U.S.C. § 283). Second, the majority excludes from its analysis the four-factor equitable standard, the preamble of which states that “the plaintiff must demonstrate” these factors. Indeed, the majority's analysis might be read to suggest that the defendant, not the plaintiff, bears the burden of establishing the equitable factors.

Some complain of areas of patent law in which our guidance is mixed or muddled. This is not—or should not be—one of those areas after the Supreme Court's clear pronouncement in eBay. eBay made clear that there is no general rule that a successful plaintiff is entitled to an injunction; rather, the plaintiff bears the burden of establishing the four equitable factors that weigh in its favor in order to obtain a permanent injunction. We should take care to avoid possible misinterpretation of an otherwise clear Supreme Court standard. Because the majority's statements appear to me to deviate from the standard articulated by the Supreme Court and our court, I respectfully concur. See Robert Bosch LLC v. Pylon Mfg. Corp., 659 F.3d 1142, 1149 (Fed. Cir. 2011) (recognizing that “ eBay abolishes our general rule that an injunction normally will issue when a patent is found to have been valid and infringed”).

In its May 6 cert. petition, CoreValve raises two questions, one relating to enablement and the other to injunctive relief, specifically “Whether the Federal Circuit’s holding that an injunction is presumptively warranted after a verdict of infringement conflicts with this Court’s decision in eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006).”

Whether the Supreme Court decides to take the case or not, I find a couple of things notable about the majority opinion.  First, contrary to Judge Newman, I don’t see any reason in principle why a product lawfully manufactured and sold abroad cannot be a noninfringing alternative to which the defendant could have resorted in order to avoid infringement; under appropriate circumstances, the existence of such an alternative could demonstrate that the patentee suffered no lost profits.  If taken seriously, Judge Newman’s statements that we must focus on what the patentee actually did, not what it could have done, would overturn long-settled case law in the United States that the existence of noninfringing alternatives can reduce or eliminate a patentee’s entitlement to lost profits; indeed, Judge Newman’s language sounds a lot like the “reasoning” employed in the U.K. to deny the relevance of noninfringing alternatives to awards of lost profits (see my book, pp. 187-89).   The district judge’s actual reasons for entering the jury’s lost profits awards, however, seem more sound; in relevant part, Judge Sleet stated that “the jury also properly rejected CoreValve's noninfringing alternative of moving abroad because Edwards demonstrated that CoreValve had limited capital and could not design a marketable product abroad.”  See 2011 WL 446203, at *16 (D. Del.  Feb. 7, 2011).  If moving abroad wasn’t an available alternative during the period for which the lost profits award was calculated, then it was correct to award lost profits. 

I don’t claim to be familiar enough with the facts of Edwards to offer an opinion whether an injunction would be warranted or not.   As a general matter, however, my own view is that a presumption in favor of permanent injunctive relief wouldn’t be such a bad idea, as long as the presumption is a rebuttable one—though I recognize that this is not what the Supreme Court held in eBay.  More generally, I have argued that, as a theoretical matter, injunctive relief is often the better option because (1) if the patentee is the more efficient user of the patented invention, injunctive relief preserves the patent incentive by enabling the patentee to exclude others during the patent term; and (2) if the infringer is the more efficient user, the parties themselves can bargain toward an appropriate license—and should have better information than a court would have as to the value of such a license.  When there is a risk of patent holdup, however—in particular, where the patent reads on only one feature of a complex device, the infringement is inadvertent, and the value of a license ex post would be substantially greater than the value ex ante—courts should deny permanent injunctions and enter ongoing damages instead.  See my book, pp. 53-62, 105-07. 

Readers may agree or disagree with my analysis, but I think it would be a brighter day if courts would focus on the underlying policies served by injunctions and damages rather than on formalistic legal doctrine.