Federal Circuit Vacates Preliminary Injunction in Case Alleging Wrongful Accusation of Infringement

The opinion, published last Friday, is Myco Industries, Inc. v. BlephEx LLC, and is authored by Judge O'Malley, joined by Judges Newman and Taranto.   The facts, in brief, are as follows.  Myco alleges that BlephEx publicly accused Myco of infringing BlephEx's patent for a method for treating blepharitis, a condition that affects the eyelid.  Myco thereafter filed suit in federal district court, requesting a declaratory judgment that it neither directly nor indirectly infringes the relevant patent, and that the patent is invalid; and seeking an injunction and damages for unfair competition, based on the alleged false accusation of infringement.  Of interest here, Myco sought "a preliminary injunction, seeking to bar BlephEx from (1) 'Making false allegations that Myco’s AB Max infringes the ’718 patent' and; (2) 'making baseless threats against Myco’s medical-practitioner potential customers of AB Max.'"

The district court concluded that neither Myco nor its customers were infringing; and that even if the customers were using the patented method, they were immune from suit under Patent Act § 287 (relating to medical practitioner liability).  As for the unfair competition claims:

the district court found that “[t]he record does not establish that [Myco]’s version of the facts is more credible or accurate tha[n] [BlephEx]’s.” Myco, 2019 WL 4023789, at *7. Accordingly, the district court held that it could not “establish that Defendant made any false or misleading statements about the AB Max” and concluded that Myco had “not demonstrate[d] a strong likelihood of success on its unfair competition claims.” Id. (pp. 13-14 n.3).

Nevertheless, the court entered a preliminary injunction enjoining "BlephEx, its officers, agents, and those in active concert with BlephEx 'from making allegations of patent infringement and from threatening litigation against [Myco’s] potential customers.'”  This was based on (and I'm quoting here from the district court opinion) its conclusions that

Plaintiff has demonstrated a strong likelihood of success that it is not infringing Defendant’s patent. Second, this Court has found that Plaintiff has shown that it will suffer irreparable harm absent a preliminary injunction. Third, the Court concluded that Defendant has not shown that it will face substantial harm if this Court issues a preliminary injunction. Lastly, the Court has found that both parties have public interest considerations that weigh in their favor, leaving this factor neutral. Balancing these factors, this Court concludes that the issuance of a preliminary injunction is the proper remedy. This Court will issue a preliminary injunction enjoining Defendant, its officers, agents, and those in active concert with Defendant from making allegations of patent infringement and threatening litigation against Plaintiff’s potential customers.

The Federal Circuit vacates the injunction. For one thing, the district court was incorrect in its analysis of § 287, since that statute only prevents the patent owner from obtaining a remedy against certain practitioners of medical use patents.  It does not render those practitioners' unauthorized use of a valid patent noninfringing, nor does it prevent suits against third parties for indirect infringement.  In addition, the Federal Circuit perceives some problems with the district court's claim construction analysis, which requires vacating the finding of a likelihood of success on the merits of the noninfringement claim.  Most importantly, however, the district court should not have entered the preliminary injunction absent a finding of bad faith on the part of the defendant:   

[W]hen a preliminary injunction prevents a patentee from communicating its patent rights, a court applies “federal patent law and precedent relating to the giving of notice of patent rights.” GP Indus., Inc. v. Eran Indus., Inc., 500 F.3d 1369, 1373 (Fed. Cir. 2007). In such cases, the grant of a preliminary injunction is reviewed “in the context of whether, under applicable federal law, the notice of patent rights was properly given.” Id. We have further held that “federal law requires a showing of bad faith” before a patentee can be enjoined from communicating his patent rights. Id.

A showing of “bad faith” must be supported by a finding that the claims asserted were objectively baseless. See id. at 1374. An asserted claim is objectively baseless if no rea-sonable litigant could realistically expect success on the merits. Id. (citing Prof’l Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 60 (1993)) (p.15).

Thus:

The district court abused its discretion when it granted a preliminary injunction enjoining patentee speech without a finding of bad faith. . . . In this case, the district court neither made a finding of bad faith nor even adverted to the requirement. To the extent the court made any factual findings relevant to bad faith, moreover, the court expressly declined to find that any of BlephEx’s statements were either false or misleading. Myco, 2019 WL 4023789, at *7. This alone warrants reversal (pp. 15-16).

In conclusion:

Speech is not to be enjoined lightly. Here, there is not even a finding, let alone a finding supported by evidence and a correct view of the law, that the speech restrained was either false or misleading. The district court abused its discretion when it granted a preliminary injunction en-joining BlephEx from making allegations of patent infringement without a finding of bad faith and with no adequate basis to conclude that allegations of patent infringement would be false or misleading. It also abused its discretion in enjoining BlephEx from threatening Myco’s potential customers with litigation where there was not only no finding of bad faith but no evidence in the record that any such threats had even been made. We therefore reverse and vacate the district court’s preliminary injunction, and remand (p.25).