Thursday, September 17, 2015

Federal Circuit Vacates Denial of Injunction in Apple v. Samsung

Again, here is a link to the opinion.  The appeal involves three patents, including the one with the "slide to unlock" feature.  Judge Moore wrote the majority opinion, and the key issue on appeal is whether there was a sufficient "causal nexus" between Samsung's infringement and Apple's alleged lost sales, i.e., whether the infringement caused Apple to suffer irreparable harm.  Here is the key passage from Judge Moore's opinion (pp. 10-12):
When a patentee alleges it suffered irreparable harm stemming from lost sales solely due to a  competitor’s infringement, a finding that the competitor’s infringing features drive consumer demand for its products satisfies the causal nexus inquiry. In that case, the entirety of the patentee’s alleged  harm weighs in favor of injunctive relief. Such a showing may, however, be nearly impossible from an evidentiary standpoint when the accused devices have thousands of features, and thus thousands of other potential causes that must be ruled out. Nor does the causal nexus requirement demand such a showing. Instead, it is a flexible analysis, as befits the discretionary nature of the four-factor test for injunctive relief. We have explained that proving a causal nexus requires the patentee to show “some connection” between the patented features and the demand for the infringing products.  Apple III, 735 F.3d at 1364./1  Thus, in a case involving phones with hundreds of thousands of available features, it was legal error for the district court to effectively require Apple to prove that the infringement was the sole cause of the lost downstream sales. The district court should have determined whether the record established that a smartphone feature impacts customers’ purchasing decisions. Apple III, 735 F.3d at 1364. Though the fact that the infringing features are not the only cause of the lost sales may well lessen the weight of any alleged irreparable harm, it does not eliminate it entirely. To say otherwise would import a categorical rule into this analysis.
/1  As we explained in Apple III, “some connection” between the patented feature and consumer demand for the products may be shown in “a variety of ways,” including, for example, “evidence that a patented feature is one of several features that cause consumers to make their purchasing decisions,” “evidence that the inclusion of a patented feature makes a product significantly more desirable,” and “evidence that the absence of a patented feature would make a product significantly less desirable.” Id. These examples do not delineate or set a floor on the strength of the connection that must be shown to establish a causal nexus; rather, they are examples of connections that surpass the minimal connection necessary to establish a causal nexus. Apple III included a fourth example to demonstrate a connection that does not establish a causal nexus—where consumers are only willing “to pay a nominal amount for an infringing feature.” Id. at 1368 (using example of $10 cup holder in $20,000 car). There is a lot of ground between the examples that satisfy the causal nexus requirement and the example that does not satisfy this requirement. The required minimum showing lies  somewhere in the middle, as reflected by the “some connection” language.
Judge Moore then praises the virtues of property rights and exclusivity (p.12):
The right to exclude competitors from using one’s property rights is important. And the right to maintain exclusivity—a hallmark and crucial guarantee of patent rights deriving from the Constitution itself—is likewise important. “Exclusivity is closely related to the fundamental nature of patents as property rights.” Douglas Dynamics, 717 F.3d at 1345. And the need to protect this exclusivity would certainly be at its highest when the infringer is one’s fiercest competitor. Essentially barring entire industries of patentees—like Apple and other innovators of many-featured products—from taking advantage of these fundamental rights is in direct contravention of the Supreme Court’s approach in eBay. 547 U.S. at 393 (“[E]xpansive principles suggesting that injunctive relief could not issue in a broad swath of cases . . . cannot be squared with the principles of equity adopted by Congress.”).
As a result, she writes, "The district court thus erred when it required Apple to prove that the infringing features were the exclusive or predominant reason why consumers bought Samsung’s products to find irreparable harm," and that it "should have considered whether there is 'some connection' between the patented features and the demand for Samsung’s products," that is, that it "should have required required Apple to show that the patented features impact consumers’ decisions to purchase the accused devices" (p.12).  Moreover, Judge Moore writes, "the record here establishes that these features do influence consumers’ perceptions of and desire for these products" (p.13), after which she discusses evidence that she believes indicated that Samsung copied, a matter that on the facts of this case was relevant to the issue of whether "carriers or users valued those features" (pp. 13-15).  She also notes Apple's expert's "conjoint study, which established that consumers would not have purchased a Samsung phone if it lacked the patented features, that they valued these features, and that they were willing to pay considerably more for a phone that contained these features" (p.15)--thus perhaps giving a boost to future uses of conjoint studies in matters relating to patent remedies (a topic I have blogged about here and here).

Having concluded that the irreparable harm factor weighed in Apple's favor, Judge Moore also concludes that the "inadequate remedy at law" factor does too (not surprising, since those factors more or less mean the same thing), given the difficulty in quantifying "the extent of Apple's downstream and network effect losses" (p.18).  The court then agrees with Judge Koh that the balance of hardships and public interest factors weighed in favor of Apple.  In discussing the public interest factor in particular, Judge Moore again stresses the value of property rights and exclusivity (p.21):
. . . the public generally does not benefit when that competition comes at the expense of a patentee’s investment-backed property right. To conclude otherwise would suggest that this factor weighs against an injunction in every case, when the opposite is generally true. We base this conclusion not only on the Patent Act’s statutory right to exclude, which derives from the Constitution, but also on the importance of the patent system in encouraging innovation. Injunctions are vital to this system. As a result, the public interest nearly always weighs in favor of protecting property rights in the absence of countervailing factors, especially when the patentee practices his inventions. 
The result is a remand that presumably will result in an injunction conditioned (as Apple proposed) on Samsung having 30 days to design around the patents at issue.  

If Judge Moore's opinion ultimately carries the day (I imagine there may be a request for rehearing en banc or a cert petition, and if so I don't know what to predict), this could signal to the district courts that at least some of the judges on the Federal Circuit are eager to reinvigorate injunctive relief, which at present is granted about 75% of the time to the prevailing patent owner.  All the more so given Judge Reyna's concurring opinion, in which he writes (pp. 4-5):
Though we read eBay to overrule our presumption of irreparable injury, we cautioned that courts should not necessarily “ignore the fundamental nature of patents as property rights granting the owner the right to exclude.” Robert Bosch LLC v. Pylon Mfg. Corp., 659 F.3d 1142, 1149 (Fed Cir. 2011). Yet our recent cases have done precisely that, ignoring the right to exclude in determining whether to issue an injunction. . . .
I believe that this recent trend extends eBay too far. Infringement on the right to exclude is, in my view, an “injury” that is sometimes irreparable. An “injury” is not limited to tangible violations but rather encompasses “violation[s] of another's legal right, for which the law provides a remedy; a wrong or injustice.” 
There is no reason to treat patent rights differently. 
Actually, I can think of reasons why it might be desirable to treat patents differently, the principal one being their utilitarian nature:  they are a means to an end, and thus the law of remedies for their infringement should turn exclusively on economic factors, among them the risk (or not) of holdup and the ability (or not) of the courts to adequately preserve the patent incentive by awarding compensatory damages.  In other words, I'd rather see the discussion turn (as it often does in antitrust law) on economics than on formalistic invocations of the sanctity of property.  (To be fair, Judge Reyna isn't making a purely formalistic argument--see his opinion at pp. 6-7, for example--but I am concerned about how all of this constitutional and property-based rhetoric is going to be used in the future.  And Judge Reyna, unlike Judge Moore who does not reach this issue, would find that Apple was threatened with injury to its reputation as an innovator, even without any empirical evidence to substantiate this, see pp. 10-18 of his concurrence.)

Judge Prost's strongly worded dissent seems consistent with her previous pronouncements on the "causal nexus" issue in previous litigation between these parties.  Here's her opening salvo (pp. 1-2):
This is not a close case. One of the Apple patents at issue covers a spelling correction feature not used by Apple. Two other patents relate to minor features (two out of many thousands) in Apple’s iPhone—linking a phone number in a document to a dialer, and unlocking the screen. Apple alleged that it would suffer irreparable harm from lost sales because of Samsung’s patent infringement. For support, Apple relied on a consumer survey as direct evidence, and its allegations of “copying” as circumstantial evidence. The district court rejected both evidentiary bases. On the record of this case, showing clear error in the district court’s factual findings is daunting, if not impossible. 
She also disputes the majority's findings on the issues of carrier and user preferences and copying as not being supported by the evidence (pp. 7-12).

Again, we'll see what happens, but I wonder if this case will be taken as a signal to the district courts to be more willing to grant injunctions in cases involving component patents, that is, patents that make up but one feature of a product that may embody many more patented and unpatented technologies.  Perhaps, if as Samsung asserted at oral argument it can easily design around the patents in suit and at present only sells one product that incorporates any of them (majority op. pp. 5, 20), it would have made more sense to resolve the case on narrower grounds rather than making sweeping claims about the wonders of injunctive relief; but so it goes.

One other thing I would note as well:  some previous descriptions of the "causal nexus" requirement might have led one to think that injunctions would rarely issue in cases in which the patent owner cannot demonstrate that the patented feature at issue sufficiently "drives the demand" for the product to satisfy the entire market value rule (though even Judge Prost has stated that that is not necessarily the case, see discussion on this blog here).  In any event, the majority opinion here seems to dispel any such notion.

Finally, I must confess that I called this one wrong:  I thought the Federal Circuit would affirm.  See here.

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