Federal Circuit Overturns Preliminary Injunctions in Design Patent Cases

On Friday of last week, the Federal Circuit issued two related precedential opinions, both brought by design patent owners ABC Corporation I and ABC Corporation II against numerous companies that allegedly sell infringing hoverboards in e-commerce.  Both cases are procedurally complex.  For present purposes, I will note only that in the first of the two cases (No. 2021-2150) Judge Taranto, writing for the panel, vacates the preliminary injunction on the ground that the defendants in these cases were never afforded the requisite notice in accordance with Federal Rule of Civil Procedure 65(a).  In the second of the two opinions, Judge Dyk (writing for the same panel) concludes that a second preliminary injunction granted by the same judge against some of the same parties (and apparently not tainted by procedural irregularities) nevertheless rested on four separate errors, the first of three of which related to the "likelihood of success on the merits" factor:

            First, the district court applied, at least in part, the wrong legal standard. When the district court concluded that plaintiffs had established a likelihood of success on the merits . . . the court reasoned: “Resolving this expert dispute will likely require a trial. I find that the need for a trial is sufficient in this case for plaintiff to have met their burden to demonstrate a likelihood of success on the merits.” J.A. 8482 (emphasis added) . . . .  Elsewhere the district court stated: “[P]laintiff will likely succeed on the merits of their design patent . . . infringement. The claim designs in the infringing products are not sufficiently dissimilar, or plainly dissimilar . . . . ”  This reasoning is directly counter to our precedent. To show a likelihood of success on the merits, a patentee must show that it will likely prove infringement of the asserted claims. “If [the defendant] raises a substantial question concerning . . . infringement . . . , i.e., asserts an infringement . . . defense that the patentee cannot prove ‘lacks substantial merit,’ the preliminary injunction should not issue.” Amazon.com, Inc. v. Barnesandnoble.com, Inc., 239 F.3d 1343, 1350–51 (Fed. Cir. 2001) (quoting Genentech, Inc. v. Novo Nordisk, A/S, 108 F.3d 1361, 1364 (Fed.Cir.1997)). An injunction cannot be granted because a trial is required or because the accused products are not “sufficiently dissimilar” or “plainly dissimilar” from the patented design. Thus, the court failed, at least in part, to apply “the appropriate legal standard,” necessitating setting aside the 2021 preliminary injunction order. . . .

 

            Second, the district court was required to conduct the ordinary observer analysis through the lens of the prior art, and the court's conclusory discussion contains no indication that it conducted the required analysis. . . .

 

            Third, the district court failed to apply the ordinary observer test on a product-by-product basis, which is particularly important here in light of significant differences among the accused products themselves. . . .

 

            The fourth and final problem with the preliminary injunction order is that, even if the district court were to find a likelihood of success as to infringement, the language of the injunction is overbroad . . . . The order does not mention or specifically enjoin “Accused Products A through D.” . . . . Injunctions that by their terms apply to “any device” within the scope of the patent claims do not meet the specificity requirement of Rule 65(d). . .  (pp. 12-19).

That’s a lot of errors, though in fairness to the district court integrating the factors relevant to granting a preliminary injunction with the statutory presumption of validity is not easy—though there is case law addressing how courts are supposed to do so, as discussed in the opinion (and in some of my work, e.g., Comparative Patent Remedies pp. 98-99).  Design patent law is also an area in which few people, including judges, are likely to be proficient.  Cases like this one do lend some support to the idea of establishing specialized patent trial courts or specialized chambers within generalist courts, as is the practice many places, though there is always the countervailing risk that specialized courts will be subject to “capture” (a matter that some may argue has been true of those U.S. district courts that have managed to attract a disproportionate share of patent litigation over the years).  Finally, the problem of injunctions lacking the requisite specificity apparently is a recurring one, despite the clear mandate of Rule 65.  For previous (actually, still fairly recent) discussion on this blog, citing relevant work by Professors Golden and Trimble, see here.

For discussion of this case elsewhere in the blogosphere, see Professor Sarah Burstein's insightful post on Patently-O; see also posts by Eileen McDermott on IP Watchdog (the link is down at the moment, however) and this article by Dani Kass on Law360.

Professor Dmitry Karshtedt

I was saddened to hear this morning that George Washington University Law School Professor Dmitry Karshtedt has unexpectedly passed away.  I don't know any further details.  

Dmitry is someone I knew for the duration of his all-too-brief academic career.  He was a terrific scholar, whose work on matters including remedies and nonobviousness I have learned from and cited.  Occasionally he would pass along to me new district court decisions on patent damages, which I always appreciated.  More than anything, though, he was a very nice person, a good guy, whom I always enjoyed talking with at conferences and other events.  His death is a tremendous loss.  I'll miss him.

 

Blogging Break

I'm recovering from a mild bout of COVID, and will be taking off the upcoming week from blogging.  Hoping to resume the week of October 31.

Letter to DOJ Regarding Avanci Business Letter

I may have more to say about this in due course, but for now I will just note that on Monday "28 former government enforcement officials, professors, and public interest advocates" sent a letter to the DOJ's Assistant Attorney General in charge of the Antitrust Division, Jonathan Kanter, urging him to reconsider the Avanci Business Review Letter his predecessor, Makan Delrahim, issued in July 2020.  For coverage elsewhere, see this article on Law360, and Florian Mueller's critical take on the letter here.  For those who are interested, here are the US DOJ & FTC's January 12, 2017 Antitrust Guidelines for the Licensing of Intellectual Property, which discuss pooling principally in section 5.5.

More on Patent Damages and Immoral Inventions

Following yesterday's post, three of my academic colleagues contacted me with some interesting follow-ups.

First, Professor Martin Stierle, whose paper with Franz Hofmann on proportionality and injunctions I cited the other day, informed me that he gave a presentation last year in Switzerland along much the same lines as my post yesterday, and is working on a paper.  I look forward to reading a draft when it's ready, and will be sure to bring the published version of it to readers' attention.  Great minds think alike!

Second, Professor Sarah Burstein called my attention to a pending case she mentioned on Twitter just last week.  The case, Gene Pool Technologies, Inc. v. Coastal Harvest, LLC, involves--guess what?--patents being enforced against companies that allegedly are infringing them by engaging in cannabis extraction.  The defendants have moved to dismiss for lack of subject matter jurisdiction or, alternatively, for failure to state a claim upon which relief may be granted (see brief here).  They assert that the court cannot award the sought-after reasonable royalty (for past infringement) and ongoing royalty (for future infringement) because doing so would reward allegedly illegal (under federal law) conduct.  In response, the plaintiff argues, among other things, that the cases the defendants cite (most but not all of which involve bankruptcy or contract claims) are distinguishable, and that public policy favors enforcing its patent (because otherwise patent infringers who also violate the Controlled Substances Act are better off than infringers who don't).  (See brief here; see also the defendant's reply brief here.)  The defendant also cites a law review article, which I had not previously come across and which provides arguments for nonenforcement:  William J. McNichol, Jr., The New Highwayman:  Enforcement of U.S. Patents on Cannabis Products, 101 J. Pat. & Trademark Off. Soc'y 24 (2019).  The article discusses the moral utility doctrine as well as the doctrine of ex turpi causa in U.S., U.K., and Canadian law.  Plaintiff's brief, on the other hand, cites a district court  decision (Lifted Limited, LLC v. Novelty Inc., 2021 WL 4480566 (D. Colo. Sept. 30, 2021), denying a motion to dismiss in another case involving somewhat analogous facts and also raising an illegality defense--though in that case the court resolved the matter based on its determination that the defendant's product was not, as the defendant claimed, illegal drug paraphernalia.  (These cases are so weird . . . .)  

Third, Professor Norman Siebrasse, who has previously blogged about the ex turpi causa doctrine in Canada (see here), suggests that with regard to marijuana-related patents it would make sense to award damages for the uses that are legal and not for those that are illegal.  I'm inclined to think this is the most sensible solution, though I plan to continue thinking matters through and perhaps reviewing some of the non-patent cases cited in the Gene Pool briefs.  (Cf. the McNichol article cited above, which argues that, on the basis of the moral utility doctrine, the USPTO should grant patents only on medically-related cannabis products.) 

I'm sure there's more that can and will be said about moral utility, ex turpi causa, public policy, and cannabis-related patent infringement actions.  Meanwhile, if anyone know of any other cases like these, or relevant commentary, please let me know.

Patent Damages and Immoral Inventions

This post addresses a theoretical question that occurred to me last week in connection with a class discussion of the "moral utility" doctrine in patent law.  As most readers probably are aware, article 27.2 of TRIPS states that member states "may exclude from patentability inventions, the prevention within their territory of the commercial exploitation of which is necessary to protect ordre public or morality, including to protect human, animal or plant life or health or to avoid serious prejudice to the environment, provided that such exclusion is not made merely because the exploitation is prohibited by their law."  Patent laws in many countries expressly provide for such an exclusion, though to my knowledge it is only rarely invoked.  In the U.S., the Patent Office and the courts on occasion have applied an analogous "moral utility" doctrine, on the authority of dictum in Justice Story's opinion in Lowell v. Lewis, 15 F. Cas. 1018, 1019 (C.C.D. Mass. 1817), that “All that the law requires is, that the invention should not be frivolous or injurious to the well-being, good policy, or sound morals of society. The word ‘useful,’ therefore, is incorporated into the act in contradistinction to mischievous or immoral. For instance, a new invention to poison people, or to promote debauchery, or to facilitate private assassination, is not a patentable invention.”  Many of the cases in which U.S. authorities at one time applied the doctrine, however--involving supposedly "immoral" or "deceptive" subject matter such as gambling games and seamless stockings--seem rather silly with the benefit of hindsight.  (According to Professors Rajec and Gilden, moreover, inventors often succeeded in getting patents on sexual devices even during the moral utility's heyday.)  In any event, the Federal Circuit may have put the doctrine to rest altogether in Juicy Whip, Inc. v. Orange Bang, Inc., 185 F.3d 1364 (Fed. Cir. 1999).  That said, on its facts Juicy Whip involved allegedly deceptive subject matter (a post-mix beverage dispenser disguised to look like a pre-mix dispenser), and one could argue that the USPTO and the courts retain some inherent authority to reject claims to inventions for inventions the practice of which would truly shock the conscience.  Then again, maybe not.  In the U.S., at least, there is no express statutory authority to inject moral considerations into questions relating to patentability--though section 181 of the Patent Act authorizes the federal government to keep secret applications claiming inventions with national security implications, and there are stand-alone federal statutes prohibiting the patenting of human organisms and nuclear weapons.  Moreover, in a pluralistic society people may hold very different views about what is or is not immoral.  Prevailing moral sentiments also can change over time, and in any event many (surely patentable) inventions--guns, drugs, whatever--can be used for both moral and immoral purposes.  On the other hand, if the USPTO were to start granting patents on, say, methods for poisoning people or facilitating private assassination, to cite two of Justice Story's examples, perhaps some would view this as a sort of government endorsement of the claimed invention; and even though such a perspective would be incorrect, one might worry about the potential "expressive" function of the law being compromised.  (Note, however, that in Matal v. United States and Brunetti v. United States, the U.S. Supreme Court held that the First Amendment prohibits the USPTO from denying trademark registrations for vulgar or disparaging terms.  The fact that some may view such registrations as a governmental stamp of approval is irrelevant.  To my knowledge, such subject matter may remain off limits in other countries, however.)

So, what does all of this have to do with patent damages?  It occurred to me that one additional reason why we may not need a moral utility doctrine is that there is usually going to be no market incentive to claim subject matter the practice of which would be illegal.  Suppose that I did obtain a patent claiming, let's say, a new method for planting car bombs.  What exactly would I do with it?  A patent, after all, is a negative right, so all it grants me is a right to exclude others from practicing the claimed method--which, if anything, would be a good thing, but unnecessary given the fact that planting car bombs is illegal anyway.  There also probably aren't many people who would go to the trouble of obtaining patents merely to contribute to law enforcement's efforts to stamp out car-bombing or other illegal practices.  Alternatively, though, suppose that our hypothetical patentee is a "practicing entity," say, a drug lord who obtains a patent on a new method for efficiently managing a drug cartel, and seeks to enforce it against a rival cartel.  The example is absurd, which again perhaps suggests why we don't need a moral utility doctrine, but let's pursue the logic anyway.  What remedy would a court grant for the infringement of such a patent?  Lost profits?  A reasonable royalty?  I'm inclined to think that any monetary remedy would be viewed as contributing to the plaintiff's illegal enterprise,  and therefore against public policy--or, to put it another way, that the plaintiff's loss wouldn't be a cognizable harm.  (I'm not 100% sure of this, though, and I wonder if there might be analogies arising in areas of law.  If a brothel burns down because of a gas leak caused by a contractor's negligence, for example, is it entitled to recover economic damages for the profits it would have earned, but for the business disruption, from the exploitation of sex workers?  Or suppose that a mob boss dies because the brakes in his SUV were defective.  Is his family entitled to wrongful death damages reflecting his future loss of income from racketeering?)  The fact, if it is a fact, that such patents would be effectively unenforceable therefore lends weight to the view that the moral utility doctrine is unnecessary to discourage people from obtaining such patents in the first place.

But maybe it isn't quite so simple after all.  What if certain practices are legal in some parts of a country but not others?  To cite a more real-world example, according to one source there are thousands of pending cannabis-related patent applications before the USPTO. But while marijuana possession and distribution is now legal in some U.S. states, at least under some conditions, these practices remain illegal in other states and under federal law (though as I understand it, federal prosecutors rarely charge simple possession, and President Biden recently pardoned people convicted of this offense under federal law).  Suppose that, in the not-too-distant future, a patent owner seeks to enforce a patent claiming a new type of cannabis, or some other marijuana-related product or process, in federal court.  (In fact, according to Rajec and Gilden, there was at least one such case pending as of 2020, and a quick Westlaw search reveals a few more since then, though to my knowledge none of these so far have resulted in any rulings on remedies.)  Would a federal court award damages to compensate the patent owner for profits it would have made, or royalties it would have earned, in carrying out a business that (while legal some places) remains illegal under federal law?  I have no idea, but a moral utility doctrine might at least enable courts to dodge the issue--though perhaps at too great a cost given the doctrine's other drawbacks.  (I would note that there is some case law recognizing copyright in legally obscene works; and under Miller v. California, obscenity depends on "contemporary community standards," so perhaps a similar issue has arisen in that context, though I am not aware of any such examples.  Also, Rajec and Gilden cite one 1905 case in which a federal court granted a preliminary injunction in a patent case involving a vibrator, so maybe courts wouldn't find this to be such a difficult issue after all; I don't know.) 

To be sure, the issues presented above may never see the light of day in any real-world patent disputes.  Then again, who knows?  When Angela Mirabole and I wrote what (I think) was the first law review article discussing IP rights in tattoos, some twenty years ago, it wasn't entirely clear we would ever see real cases in which these issues would arise . . . and yet, now we have.  On that example, it may not be all that surprising if courts have to confront the continued viability of the moral utility doctrine, and the related remedies issues, in some subset of patent cases down the road.   

Some More New FRAND Papers

1.  Renato Nazzini has posted a paper on ssrn titled Global Licences under Threat of Injunctions: FRAND Commitments, Competition Law and Jurisdictional Battles.  Here is a link, and here is the abstract:

This paper examines three, intertwined questions arising from recent case law on global FRAND licences under threat of injunction. Firstly, whether the obligation of an implementer to enter into a global licence of all the SEP owner’s relevant SEPs on pain of a national injunction is consistent with the policies underpinning a SEP owner’s obligation to grant a FRAND licence. Secondly, whether the conduct of a SEP owner insisting on an implementer entering into a global licence under threat of an injunction is compatible with the UK Chapter II prohibition and Article 102 TFEU. Thirdly, whether the assumption and exercise by national courts of the power to settle the terms of global licences is a rational way of resolving global FRAND licensing disputes. On all three counts, the conclusion is that departing from territorial jurisdiction in the matter of FRAND licences is not advisable as it has the effect of distorting the incentives of SEP owners and implementers in such a way that FRAND licences and FRAND negotiations are less likely to reflect, or be driven by, the value of the underlying technology. As a result, global FRAND licences may apply excessive royalties or royalties for SEPs that are invalid, not essential, or not infringed. A system of national enforcement is better suited to striking a right balance between the interests of SEP owners and implementers, producing better outcomes in terms of effects on social welfare and productivity.

2. Matthias Leistner and Lukas Kleeberger have published FRAND-Erklärungen ohne Rechtswahl am Beispiel der Standardisierungsorganisationen ITU/ISO/IEC:  Ein praxisrelevantes dogmatisches Problem im internationalen Privatrecht (“FRAND Declarations with Choice of Law, on the Example of the Standard-Setting Organizations ITU/ISO/IEC:  A Practical, Dogmatic Problem in International Private Law”), 17-18 GRUR  Here is the abstract: 1261 (2022).  Here is the abstract, in my translation from the German:

Up to now, the contractual effects of common FRAND declarations have played a comparatively smaller role in German than in English case law.  This is beginning to change, especially in the literature and case law, as the effects of the ETSI-FRAND declaration increasingly will be explicitly and more precisely examined.  In this regard, the following contribution fills what is, for legal practice, a significant gap:  it frames the FRAND declarations of the standard-setting organizations ITU/ISO/IEC within the context of conflict of laws and contract law, and addresses the fundamental problem of the appropriate application of private international law to FRAND declarations absent a choice-of-law clause.

3.  Patricia Cappuyns and Narmeen Al Ganim have an article coming out in JIPLP titled  Four times FRAND: an analysis of recent judgments from the UK, Germany, the Netherlands and France, and lessons for the upcoming UPC system.  Here is a link and here is the abstract:

 

In Huawei v ZTE, a number of issues regarding the enforcement and licensing of standard essential patents (SEPs) on fair, reasonable and non-discriminatory (FRAND) terms were not addressed or resolved by the Court of Justice of the European Union (CJEU).  This article aims at summarizing the sometimes diverging guidance provided by the main national European courts in FRAND cases and focuses on these issues.  For this purpose, we contrast the recent FRAND case law in the UK, Germany, the Netherlands and France over the last three years.