Wednesday, August 14, 2013

More on Preliminary Injunctions and Fee Awards Under U.S. Law

Following up from yesterday's post, it would be remiss of me not to mention two other recent Federal Circuit cases (decided August 9), one on preliminary injunctions and one on fees.  Both are accessible here.  

The case on preliminary injunctions is Aria Diagnostics, Inc. v. Sequenom, Inc.  The patent reads on a method for detecting fetal abnormalities.  The district court had denied the patentee (Sequenom) a preliminary injunction, but the Federal Circuit reversed on the grounds that the court (1) had misconstrued certain claims, and (2) improperly balanced the preliminary injunction factors.  On this latter issue, the Federal Circuit, in an opinion by Chief Judge Rader, the court stated first that whether there was a "substantial question" as to validity and infringement in the wake of the Supreme Court's June 2013 decision in Association for Molecular Pathology v. Myriad Genetics, Inc. (the gene patenting case) would be better addressed  by the district court on remand.  The rest of the court's opinion on the preliminary injunctions reads as follows (opinion pp. 12-15):
On remand, if the district court finds no substantial question of validity or infringement, it must address thetraditional equitable factors for a preliminary injunction.  The district court correctly held that in addition to showing the likelihood of success on the merits, Sequenom must show it likely will suffer irreparable harm, that the balance of equities tips in its favor, and that an injunction is in the public interest. . . .  Because it found substantial questions on infringement and “validity” in the form of ineligible subject matter, the district court only briefly addressed the traditional factors. . . .

Significantly, the district found that price and market erosion would occur. . . .  Under this court’s precedent, “[p]rice erosion, loss of goodwill, damage to reputation, and loss of business opportunities are all valid grounds for finding irreparable harm.” Celsis in Vitro, Inc. v. CellzDirect, Inc., 664 F.3d 922, 930 (Fed. Cir. 2012). Nonetheless, the district court denied Sequenom’s motion, giving four reasons.

First, the district court reasoned that the erosion to  Sequenom’s price and its loss of market share were not irreparable. J.A. 20. It reasoned that if Sequenom was proven correct that the ’540 patent and the MaterniT21 test would set new standards of care, then Sequenom could recover the market and receive damages to compensate for the infringement. J.A. 20. While the facts may show that damages would be reparable, this assumption is not sufficient. In the face of that kind of universal assumption, patents would lose their character as an exclusive right as articulated by the Constitution and become at best a judicially imposed and monitored compulsory license.

Second, the district court reasoned that the degree of price erosion and market loss had not been adequately shown by Sequenom’s expert, Dr. Rao. More specifically, the district court characterized it as a “significant deficiency” that he had not examined the “actual market” because he did not consider the impact of another test, sold by another company, Verinata Health, Inc. (Verinata). . . .  Yet, the district court found that Verinata’s tests did not compete in the actual market, but only “may eventually” do so. J.A. 7. Further, even if Verinata were actually in the same market, the “fact that other infringers may be in the marketplace does not negate irreparable harm.” Pfizer, Inc. v. Teva Pharm. USA, Inc., 429 F.3d 1364, 1381 (Fed. Cir. 2005).

Third, the district court found that a preliminary injunction would put Ariosa out of business. J.A. 20. A record showing that the infringer will be put out of business is a factor . . . but does not control the balance of hardships factor. . . .  This court can easily imagine a situation where the loser on either side may have to close its doors. At this point, however, this court has seen no comparison of difficulties or losses Ariosa might experience weighed against the harms Sequenom might suffer without protection of its legal exclusive rights. For example, the district court made no findings on the harm that would accrue to Sequenom’s R&D and investment in the technology, undermining work and money spent developing, validating, and commercializing any covered product. J.A. 6. These issues also await remand.

Finally, the district court reasoned that the public interest favored denial of the preliminary injunction.  Sequenom marketed its tests only to women over 35 and at high risk both of having a fetus with Down’s Syndrome and of losing a fetus through invasive testing, J.A. 4, but Ariosa marketed its products to both high- and low-risk women. Ariosa argued there was “no reason” to refuse to serve the 3,550,000 women in the low risk category, instead of only the 750,000 in the high risk category. J.A. 6-7. After the preliminary injunction hearing, this court took judicial notice that an expert organization had warned that cffDNA tests should not, yet, be used in low risk women. Am. Coll. of Obstetricians and Gynecologists Comm. on Genetics, Noninvasive Prenatal Testing for Fetal Aneuploidy, Op. No. 545 (Dec. 2012). On remand, if necessary the district court should consider this and any other evidence pertaining to the public interest anew.
Chief Judge Rader's analysis seems well-reasoned to me, particularly his observation that the court shouldn't simply assume that the patentee's losses would be reparable by monetary damages. 

The case on fees is Taurus IP, LLC v. DaimlerChrysler Corp.  The plaintiff is a patent assertion entity and the patent in suit is directed toward "a computer system for managing product knowledge related to products offered for sale by a selling entity.”  The opinion is long and covers many issues, but on the issue of "exceptional case" the court recites the governing legal standard as follows:
Absent misconduct in litigation or in securing the patent, a case may be found exceptional under § 285 only if (1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless.  Brooks Furniture Mfg., Inc. v. Dutailier Int’l, Inc., 393 F.3d 1378, 1381 (Fed. Cir. 2005). Subjective bad faith by the offending party can be upheld on review if, despite the lack of an explicit finding by the district court, other findings of fact are compatible with, and only with, that view. . . . There exists a “presumption that the assertion of infringement of a duly granted patent is made in good faith.” Brooks Furniture, 393 F.3d at 1382. Factual findings regarding subjective bad faith are reviewed for clear error. . . .  

To be objectively baseless, the patentee’s assertions—whether manifested in its infringement allegations or its claim construction positions—“must be such that no reasonable litigant could reasonably expect success on the merits.” Dominant Semiconductors Sdn. Bhd. v. OSRAM GmbH, 524 F.3d 1254, 1260 (Fed. Cir. 2008), quoted in iLOR, LLC v. Google, Inc., 631 F.3d 1372, 1378 (Fed. Cir. 2011). As a question of law, this court reviews a district court’s determination of whether a party’s claim or defense in a patent case is objectively baseless without deference. Highmark, 687 F.3d at 1308–09.  

Because of the reputational and economic impact of sanctions, this court must carefully examine the record when reviewing an exceptional case finding. . . .  We are, however, also mindful of the fact that the district court, with its first-hand knowledge of the parties and their positions, should not be unduly second-guessed. . . .
Applying that standard here, the court concludes (opinion pp. 30-32) that 
no reasonable litigant in [plaintiff's] position could have expected a finding that a web surfer accessing the accused external websites satisfed the requirement for a "user," as recited in claim 16.   Although reasonable minds can differ on claim construction positions, [plaintiff's] proposed constructions of “user,” and the related terms discussed above, fall below the threshold required to avoid a finding of objective baselessness. . . .
The court also reviews for clear error the evidence on subjective bad faith (opinion pp. 32-34), and concludes that the district court's findings supported the district court's implicit conclusion that the plaintiff "knew that the DaimlerChrysler Patent Suit lacked a reasonable basis and was, therefore, pursued and maintained in bad faith."  Since the plaintiff did not dispute the fee amount ($1.6 million), the court affirmed the judgment in that amount.

Notwithstanding the outcomes of these two appeals, I stand by my assertion that, as a general matter, it is difficult for plaintiffs to obtain preliminary injunctions and for defendants to obtain attorneys' fees.  While I remain somewhat agnostic as to whether preliminary injunctions ought to be easier to obtain, the question of whether attorneys' fees should be routinely awarded, as they are (at least to some degree) in most countries, deserves serious consideration.


  1. With the renewed focus on the equitable factors for injunctive relief, I thought I'd post a reminder of Douglas Laycock's book, The Death of the Irreparable Injury Rule (1991). A preliminary version of parts of the book appeared as Douglas Laycock, “The Death of the Irreparable Injury Rule” (1990) 103 Harv. L. Rev. 687. Is the irreparable injury rule still dead?

  2. On the observation that the court shouldn't simply assume that the patentee's losses would be reparable by monetary damages, it has always struck me that the strongest practical evidence that monteary damages are not fully compensatory is the high priority patentees put on interlocutory injunctions. If damages were fully compensatory, why bother?