Monday, May 1, 2017

Nichia v. Everlight: Does the Patentee Have to Prove All Four eBay Factors to Merit Injunctive Relief?

That seems to be what the Federal Circuit is saying in Nichia Corp. v. Everlight Ams., Inc., a precedential opinion authored by Judge Stoll that issued on Friday of last week.  Nichia, the plaintiff, "is the world’s largest supplier of LEDs" (p.2), and it owns three patents relating to "package designs and methods of manufacturing LED devices" (p.3).  The defendant, Everlight, "buys chips from suppliers and packages them into LEDs," which it sells "directly to customers and through its subsidiaries" (p.2)  The district court found the patents valid and infringed but denied a permanent injunction, despite the fact that the parties are competitors, on the ground that Nichia hadn't proven irreparable harm or that remedies at law (i.e., damages) were inadequate:
Specifically, the court found that “[t]he record shows an absence of meaningful competition.” . . .  It found that Nichia had “failed to establish past irreparable harm, or the likelihood of irreparable harm in the future based on lost sales” or “based on price erosion.” . . . It found that Nichia’s licensing of the patents to major competitors suggested that harm from “infringement of the patents-in-suit is not irreparable.” . . . And it found that Nichia’s licensing practices have made “multiple low-priced non-infringing alternatives from competitors available to replace the accused Everlight products if such products were not available” (pp. 21-22). 
Nichia contested those findings, but the Federal Circuit concluded that the district judge didn't abuse his discretion in reaching them--e.g., "despite the parties’ stipulation that they competed in the same market, . . . the court found that Nichia failed to prove that this competition was meaningful," p.23; "[t]he court found that Nichia 'failed to establish that [Everlight was] responsible for causing a single lost sale in the U.S.'" (id.); the court rejected Nichia's claim of price erosion relating to a sale of LEDs to GE (p.24).  Moreover:
Nichia argues that the court wrongly found that its licensing activities precluded a finding of irreparable harm. Nichia argues that the court’s decision is contrary to settled law, as it applies a categorical rule that licenses preclude irreparable harm.
To the extent the court adopted a categorical rule, we agree with Nichia; such a rule would run afoul of our precedent. . . 
But to the extent that the court found that Nichia’s prior licenses weighed against a finding of  irreparable harm, we countenance that approach. While evidence of licensing activities cannot establish a lack of irreparable harm per se, that evidence can carry weight in the irreparable-
harm inquiry (pp. 24-25).
None of this is inconsistent with prior post-eBay U.S. case law, I don't think, but then we get to the kicker at the end:
We discern no clear error in the district court’s finding that Nichia failed to prove that it would suffer irreparable harm absent the injunction. On that traditional equitable factor, Nichia did not bear its burden. See W. T. Grant Co., 345 U.S. at 633. Because Nichia failed to establish one of the four equitable factors, the court did not abuse its discretion in denying Nichia’s request for an injunction (p.25).
As I've noted before, a literal reading of eBay, Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006), might seem to require the prevailing patent owner to prove all four of the factors Justice Thomas identified as being relevant to a grant of injunctive relief.  To quote from the opinion (p.391):
According to well-established principles of equity, a plaintiff seeking a permanent injunction must satisfy a four-factor test before a court may grant such relief. A plaintiff must demonstrate: (1) that it 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.
As I write in my book (p.103):
. . . a literal reading of Justice Thomas’s statement that “a plaintiff must demonstrate” the four factors would appear to depart from tradition not only insofar as it expressly allocates the burden to the plaintiff on all four factors but arguably requires the plaintiff to prevail on all four factors. . . . Some district courts have not read the opinion quite so literally, however. The district court on remand from the Supreme Court’s eBay decision, for example, denied a permanent injunction despite concluding that the third factor (balance of hardships) favored neither party.115/  Nevertheless, in at least one post-eBay opinion the Federal Circuit seems to have taken Justice Thomas at his word, stating that “not all patentees will be able to show injury, and even those who do must still satisfy the other three factors.”116/
115/  See eBay, 500 F. Supp. 2d at 584. See also I-Flow Corp. v. Apex Med. Techs., Inc., No. 07cv1200, 2010 WL 141402, at *1–2 (S.D. Cal. Jan. 8, 2010) (granting a permanent injunction even though only three of the four eBay factors favored an injunction; the balance of the hardships factor was neutral); cf. Smith & Nephew, Inc. v. Synthes (U.S.A.), 466 F. Supp. 2d 978, 982–85 (W.D. Tenn. 2006) (explaining that “[t]he four-factor eBay test is a balancing test under which the plaintiff must demonstrate that the totality of circumstances weighs in its favor” and granting an injunction even though two factors, the balance of the hardships and the public interest, were “speculative” but nevertheless also in plaintiff ’s favor) (emphasis added).
116/  i4i Ltd. P’ship. v. Microsoft Corp., 598 F.3d 831, 862 (Fed. Cir. 2010), aff ’d on other grounds , 131 S. Ct. 2238 (2011). In Robert Bosch LLC v. Pylon Mfg. Corp ., 659 F.3d 1142 (Fed. Cir. 2011), discussed infra at note 121 and accompanying text, the court held that an injunction should have issued where the first three factors favored the patentee and the fourth was neutral. Whether this more recent holding means that patentees do not have to prevail on all four factors is still unclear, however, given the odd phrasing of the fourth factor (that the public interest “would not be disserved” by entry of the injunction).
I wonder if there's any chance the court would agree to rehear this case en banc to resolve the matter?  (Though whether there is a conflict in Federal Circuit case law may be a matter of opinion.  Bosch, as noted in footnote 116 above, may not be very strong support for the proposition that the patentee doesn't need to prevail on all four factors, particularly in light of later statements by the court in Apple Inc. v. Samsung Elecs. Co., 809 F.3d 633, 646-47 (Fed. Cir. 2015), that the fourth factor usually weighs in favor of patentees because of the public interest in enforcing patents.)  In my view, as suggested above, requiring the patentee to prove all four factors is hardly an "equitable" or "traditional" approach.  (Doesn't it, in a sense, turn the inquiry into a bright-line rule of the sort the court says is undesirable?)  To be sure, I wouldn't want us to go back to the days of mandatory injunctive relief (though I would prefer that courts focus more on the underlying economic reasons for granting or denying injunctions, e.g., granting them reduces the burden on the courts to try to determine the value of an intangible asset, while denying them reduces the risk of holdup and other costs not related to the value of the invention).  And it may be that an injunction wouldn't have been a good idea in this particular case on its facts.  But reading the Supreme Court opinion in such a literal manner seems unwise to me.  It also leads U.S. law even farther afield from the standards that apply in other countries, where injunctive relief still mostly remains the norm.

For what it's worth, the Supreme Court uses very similar mandatory-sounding language in a post-eBay opinion on preliminary injunctions, Winter v. Natural Resources Defense Council, 555 U.S. 7 (2008) ("A plaintiff seeking a preliminary injunction must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest").  Again, I'd be surprised if the Court really meant that plaintiffs must prevail on all four factors to obtain a preliminary injunction, but who knows?  For further discussion, see Mark Gergen, John M. Golden, & Henry E. Smith, The Supreme Court’s Accidental Revolution? The Test for Permanent Injunctions, 112 Columbia Law Review 203, 210-11 & n.35 (2012) (stating, inter alia, that "[c]ircuits have split over whether the preliminary injunction analog of the eBay test articulated in Winter . . .  abrogates a previously common approach under which a particularly strong showing on one factor (e.g., irreparable harm) can mean that an otherwise inadequate showing on another factor (e.g., likelihood of success) suffices").

Some of the discussion among my colleague law professors about this case over the past few days has suggested that maybe irreparable harm is now a sine qua non for injunctive relief, but that an injunction could still issue under appropriate circumstances even if the evidence doesn't favor the plaintiff on some of the other factors.  Maybe that's a reasonable way of looking at the matter, post-eBay.  Whether it makes sense or not is another matter, however; and whatever the correct interpretation is, in my view the way the Supreme Court has articulated the standard is clumsy and prone to potential misinterpretation.

For Dennis Crouch's insightful discussion of this case on Patently-O, see here.   

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