Injunctions and Levels of Scrutiny

        It occurred to me the other day that there is an analogy between, on the one hand, the standards different jurisdictions apply in determining whether to deny or delay granting the prevailing patentee a permanent injunction, and the standards U.S. courts use in determining whether a statute (or any activity undertaken by the state) violates an individual’s constitutional rights.  Whether or not it is a useful analogy, I'm honestly not sure, and would be interested in hearing what readers think.

        Anyway, here is what I mean.  Suppose that the state enacts a statute that I believe interferes with my fundamental right to, let's say, freedom of speech, in violation of the First Amendment.  If I am correct in characterizing the statute as restricting my speech on the basis of my viewpoint or of its content, a court would apply “strict scrutiny” to determine whether the statute, on its face or as applied, is constitutional.  Under this standard, the statute survives only if it serves a compelling state interest and is narrowly tailored to achieve that interest (which is pretty rare).  The same sort of analysis would apply to deprivations of other fundamental rights, such as a denial of equal protection on the basis of a suspect classification such as race.  On the other hand, if the statute (or other state action) does not interfere with a fundamental right—if it is, say, just a commonplace economic regulation--then normally it would only undergo “rational basis” basis.  Under this standard, it survives as long as it could serve a legitimate government interest.  Almost all statutes and other forms of state action that are subject to this standard of review are constitutional.  Third, for certain types of state action, courts apply an intermediate standard of review.  Going back to the speech example, a content-neutral regulation that imposes only “incidental” burdens on speech is permissible if “it furthers an important or substantial governmental interest; if the governmental interest is unrelated to the suppression of free expression; and if the incidental restriction on alleged First Amendment freedoms is no greater than is essential to the furtherance of that interest.”  Turner Broadcasting Co. v. FCC, 512 U.S. 622, 662 (1994) (quoting O’Brien v. United States, 391 U.S. 367, 377 (1968)).  Obviously there are many other nuances, and other constitutional issues, that require their own version of the above standards or different standards altogether; but for readers not familiar with U.S. constitutional law this is, in a nutshell, how the different standards of review work, and is sufficient for the analogy I wish to make here.

So here is the analogy.  In your typical civil-law jurisdiction, where courts almost always grant the prevailing patent owner a permanent injunction, you could think of the question whether to deny or delay entry of an injunction as requiring the court to engage in something that resembles the application of a form of strict scrutiny.  Traditionally, courts in these jurisdictions will grant an injunction except in the rare case in which the patentee is guilty of abusing its dominant position in violation of competition law, or engaging in an “abuse of right”; or the defendant successfully invokes a statutory right to a compulsory license. Moreover, even after Germany amended its Patent Act to permit courts to delay or deny injunctive relief when granting it would result in disproportionate hardship to the defendant or third parties (see, e.g., here), a defendant asking for a delay or denial of injunctive relief still faces (very much) an uphill task.  According to some of the commentary and decisions to date, for example, it is possible that the amendment doesn’t apply at all in FRAND cases, or is “subsidiary” to the Patent Act’s (rarely invoked) compulsory licensing provision (see here, here).  As with strict scrutiny, in other words, certain rationales for what the defendant is seeking to do may be off the table altogether, which reduces the need to balance various rights and interests; and if practice to date is indicative, even for those cases that could arguably present disproportionate hardship, the defendant is going to need to come forward with a pretty compelling argument for deviating from the norm.  Moreover, a stay is almost surely going to have to be (narrowly?) tailored, to last only as long as needed to permit a sell-off or design-around; outright denials are expected to be even more rare. 

By contrast, practice in the U.S. following eBay involves a more open-ended approach, in which the court may consider, and balance, various private and public interests as they relate to the four eBay factors; and outright denial of injunctive relief, coupled with an ongoing royalty, is not uncommon—though it remains the case, as far as I can tell, that prevailing patent owners who request permanent injunctions still get them in the majority of cases, albeit presumably with some degree of self-selection going on.  Finally, both grants and denials are subject to review on appeal only for abuse of discretion.  The analogy here would be to rational-basis scrutiny, under which the state is largely free to regulate as it pleases, and only rarely will it overstep the constitutional boundaries (though to be fair, reversals for abuse of discretion are probably much more common than are judgments that state action is precluded under rational-basis scrutiny).

Fitting somewhere in between (though probably closer in spirit to the civil-law model), and therefore perhaps somewhat analogous to intermediate scrutiny, is judicial practice in the U.K. and other Commonwealth countries, where there remains a presumption that the prevailing patent owner is entitled to an injunction, but there is some room to delay or deny where, e.g., the effect of an injunction would be “grossly disproportionate.”  A somewhat broader class of interests, such as public health, also may be relevant in the U.K., in comparison with what some of the German commentators and courts, thus far, have contemplated.

I’m not sure whether thinking about the different regimes in this manner is helpful or not, and as indicated above would be interested in hearing what readers think.    

Federal Circuit Vacates Grant of Preliminary Injunction

The decision, handed down this morning, is Well Cell Global LLC v. Calvit, nonprecedential opinion by Judge Chen, joined by Judges Prost and Cunningham.  The patent at issue, U.S. Patent No. 10,533,990, “is directed to an individualized therapy for infusing insulin intravenously to a patient.”  Plaintiff licensed the use of the patented method, but following a dispute filed suit against the defendants for, inter alia, patent infringement and for misappropriation of trade secrets.  Plaintiff then moved for a preliminary injunction, which the district court granted.  The Federal Circuit reverses, concluding that (1) although the district court did not abuse its discretion in finding that the defendants had waived their invalidity challenge, at least for purposes of the motion for preliminary injunction, but (2) the evidence presented in support of the balance of hardships and likely success on the infringement claim was speculative and conclusory:

 

Well Cell at best provided evidence of speculative harm, not likelihood that such harm would occur as required to establish irreparable harm for a preliminary injection. . . . Well Cell argued—and the district court found—that Well Cell’s reputation risked being damaged if Appellants performed the claimed methods illegally or improperly and Well Cell was blamed for such behavior. . . .

 

Well Cell’s argument rests on two levels of speculation—first that Appellants would perform the claimed methods illegally or improperly and second that Well Cell would then get pinned with the blame for Appellants’ misconduct. But Well Cell never explained or proved why there was reason to believe Appellants would likely misuse Well Cell’s intellectual property, or, if they had, how and why the public would assume Well Cell was at fault. Because Well Cell’s irreparable harm allegations rested on unsubstantiated assertions, the court clearly erred by finding that Well Cell sufficiently established a likelihood of irreparable harm. . . .

 

. . . the record shows Well Cell never identified any particular claim of the ’990 patent in its likelihood of infringement arguments, and the district court’s opinion never analyzed any particular claim either. Nor did Well Cell ever establish on the record what particular steps and procedures Appellants perform when providing their insulin therapy. Instead of comparing one of the patent claims to Appellants’ established procedures, Well Cell and the district court appeared to assume the Appellants must have performed at least one of the claimed methods during the pendency of the license, and Appellants must have continued practicing the same procedures without a license unless Appellants could prove otherwise. . . . Despite some Appellants having been former licensees, Well Cell’s infringement theory still rests on assumptions, not proof. On the facts of this case, this argument cannot support a finding of a likelihood of success on the merits for infringement (pp. 8, 10).

In addition, the Federal Circuit states that neither the district court nor the plaintiff identified the alleged trade secrets, and thus the trade secret claim doesn’t support the injunction either.  The decision thus highlights that the movant bears the burden of demonstrating likely success on infringement and irreparable harm. Relatedly, although reputational harm resulting from an act of infringement can factor into the analysis--and might even, on occasion, result in damages liability, as I explain in this article--the movant has to demonstrate the existence of that harm.

In a footnote at the end of the opinion, the court also reminds us that, in U.S. practice, injunctions are supposed to be specific:  "We note Appellants’ concern that the district court’s injunction was overly broad without specifying the methods enjoined. On remand, should a new injunction issue later in the case, the district court must describe the methods enjoined with specificity consistent with our case law. See Int’l Rectifier Corp. v. IXYS Corp., 383 F.3d 1312 (Fed. Cir. 2004)."

Federal Circuit Declines to Reach Design Patent Damages Issues

The decision, handed down on Friday, is Columbia Sportswear North America, Inc. v. Seirus InnovativeAccessories, Inc., with a precedential opinion by Judge Prost, joined by Judges Reyna and Hughes.  This a design patent case, involving the alleged infringement of D657,093, for “the ornamental design of a heat reflective material,” and this is the second time it has been to the Federal Circuit.  The first time around, the district court had granted a summary judgment of infringement, after which a jury awarded damages in the amount of $3,018,174.  The Federal Circuit vacated the grant of summary judgment of infringement and remanded for further proceedings, without reaching the damages issues.  This time around, the case went to the jury, which found no infringement.  On appeal, the parties dispute whether certain issues were “the law of the case,” as well as the correctness of the jury instructions on prior art and infringement.  Since this blog focuses on damages, I will pass over these except to note that the appellate court’s holdings on some of these issues—that “to qualify as comparison prior art, the prior-art design must be applied to the article of manufacture identified in the claim”; that the district court erred by “failing to instruct the jury as to the scope of the D’094 patent claim (design for a heat reflective material) and, relatedly, the proper scope of comparison prior art”; and that “just because a logo’s potential to eliminate confusion as to source is irrelevant to design-patent infringement, its potential to render an accused design dissimilar to the patented one—maybe even enough to establish non-infringement as a matter of law—should not be discounted”—would seem pretty important to the substantive law of design patents.   Nevertheless, because the case has to go back yet again for retrial, the court (correctly, in my view) leaves the damages issues (important thought they indeed are) for another day:

Seirus argues that, for purposes of calculating damages under 35 U.S.C. § 289,¹⁴ the relevant “article of manufacture” is the HeatWave material—not the entire end product to which it is applied (e.g., gloves with portions not made of HeatWave material). . . . Seirus also argues that the district court erred by instructing the jury (at the damages trial) that Seirus bore the burden of proving that the article of manufacture for § 289 damages purposes is less than the entire end product. According to Seirus, Columbia—as the patentee—bore the burden of proving what that article is. The parties further disagree as to whether any damages retrial on profit-disgorgement issues should be tried to a jury or the bench.

¹⁴ Section 289 provides (in relevant part):

 

Whoever during the term of a patent for a design, without license of the owner, (1) applies the patented design, or any colorable imitation thereof, to any article of manufacture for the purpose of sale, or (2) sells or exposes for sale any article of manufacture to which such design or colorable imitation has been applied shall be liable to the owner to the extent of his total profit, but not less than $250, recoverable in any United States district court having jurisdiction of the parties.

 

35 U.S.C. § 289.

 

As we indicated in Columbia I, these are important issues. See 942 F.3d at 1132. But we did not reach them there because our disposition left the case with no infringement determination. See id. Because our disposition here likewise leaves the case without an infringement determination, we do not reach these issues (pp. 32-33).

Federal Agencies to Hold Public Listening Session on Standards, FRAND Issues

On Monday, the U.S. International Trade Administration (ITA), the National Institute of Standards and Technology (NIST), and the USPTO published a notice in the Federal Register titled "Joint ITA-NIST-USPTO Collaboration Initiative Regarding Standards; Notice of Public Listening Session and Request for Comments."  These agencies state that they "are seeking stakeholder input on the current state of U.S. firm participation in standard setting, and the ability of U.S. industry to readily adopt standards to grow and compete, especially as that relates to the standardization of critical and emerging technologies."  The will hold a public listening session on Wednesday, September 20, 2023, from 1 to 5 p.m. ET.  The notice includes instructions on how to request a slot to speak (in person) or attend (virtually or in person).  The agencies list twelve questions that respondents may address, although they also state that respondents "may address additional related topics that implicate the intersection of standards and intellectual property rights."  Here are the twelve listed questions:

1. Do the intellectual property rights policies of foreign jurisdictions threaten any of U.S. leadership in international standard setting, U.S. participation in international standard setting, and/or the growth of U.S. SMEs that rely on the ability to readily license standard essential patents?

2. If responding affirmatively to question 1, what can the Department of Commerce do to mitigate the effects of any adverse foreign policies relating to intellectual property rights and standards? Please clearly identify any such adverse foreign policies with specificity.

3. What more can other entities do, such as standards development organizations, industry or consumer associations, academia, or U.S. businesses to help improve American leadership, participation in international standard setting, and/or increased participation of small to medium-sized enterprises that rely on the ability to readily license standard essential patents?

4. Are current fair, reasonable, and non-discriminatory (FRAND) licensing practices adequate to sustain U.S. innovation and global competitiveness? Are there other international models which would better serve U.S. innovation in the future? 

5. Are there specific U.S. intellectual property laws or policies that inhibit participation in standards development?

6. Are there specific U.S. intellectual property laws or policies that inhibit growth of SMEs that rely on licensing and implementing standards?

7. Which, if any, actions would be advisable for the Department of Commerce to further explore regarding the interplay of intellectual property and standards, including but not limited to:

a. educational guidance to SMEs to become more involved in standards;

b. recommendations for standards development organizations regarding intellectual property policies and enforcement thereof; 

c. a database of judicially determined or otherwise voluntarily-made-public licensing rates for technologies covered by a FRAND commitment; and 

d. other voluntary and/or public disclosures?

8. How can the Department of Commerce reinforce the importance of IP-based incentives for participation in international technology standards development, especially around critical and emerging technologies?

9. What can the Department of Commerce do to mitigate emergence or facilitate the resolution of FRAND licensing disputes? Can requiring further transparency concerning patent ownership make standard essential patent (SEP) licensing more efficient? What are other impediments to reaching a FRAND license that the Department of Commerce could address through policy or regulation?

10. Are there steps that the Department of Commerce can take regarding intellectual property rights policy that will help advance U.S. leadership in standards development and implementation for critical and emerging technologies?

11. Do policy solutions that would require SEP holders to agree collectively on rates or have parties rely on joint negotiation to reach FRAND license agreements with SEP holders create legal risks? Are there other concerns with these solutions?

12. What can the Department of Commerce do to help facilitate the efficient resolution of FRAND disputes? What can the Department of Commerce do with the World Intellectual Property Organization and/or standard setting bodies to promote alternative dispute resolution to more efficiently resolve FRAND disputes?

Hat tip to Adam Lidgett on Law360 for calling this to my attention.