Permanent Injunctions in Patent Cases: Generating Evidentiary Support

The Supreme Court recently changed the longstanding rules for obtaining a permanent injunction in patent infringement cases. eBay Inc. v. MercExchange LLC, 126 S.Ct. 1837 (2006). Prior to the Supreme Court's ruling in eBay, it was generally accepted that a successful plaintiff in a patent infringement trial was entitled to a permanent injunction virtually automatically. The Federal Circuit's rule was 'courts will issue permanent injunctions against patent infringement absent exceptional circumstances.' The few exceptions to this rule were generally limited to situations where public health would be affected by enjoining the infringer.

In the eBay decision, the Supreme Court rejected the Federal Circuit's general rule that permanent injunctions will issue automatically. Now, a successful plaintiff must satisfy the traditional four-factor test before a permanent injunction will be entered. The four factors that the plaintiff must satisfy are:

• That it has suffered an irreparable injury;
• That remedies available at law, such as monetary damages, are inadequate to compensate for that injury;
• That, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and
• That the public interest would not be disserved by a permanent injunction.

See eBay Inc. v. MercExchange LLC, 126 S.Ct. 1837.

This article considers the strategic implications of the eBay decision in developing and presenting evidence relevant to the issuance of a permanent injunction.

What Kind of a Patentee Are You?

While many things remain unclear in the wake of the eBay decision, one thing is for certain ' who you are matters. If you are a patentee who is a manufacturer of a product embodying the invention at issue, and you sue a direct competitor for infringement, your chances of obtaining a permanent injunction at the end of the day are not significantly different under the new standard. However, if you are a non-manufacturing patentee, or worse yet, a 'patent troll' ' times have changed. This article focuses on the last two types of patentees, because that is where the effects of eBay will be the most pronounced.

Non-Manufacturing Patentees: Proceed with Caution

The jury is still out on exactly how much the eBay decision compromises a non-manufacturing patentee's ability to obtain injunctive relief. The preliminary outlook, however, is not good. Even a cursory review of district court decisions handed down since the eBay decision demonstrate that unless you are actually a manufacturer and are suing a direct competitor, you face an uphill battle in proving that the four equitable factors weigh in your favor. For example, the Eastern District of Texas has not been shy about denying permanent injunctions involving defendants that it finds do not directly compete with the plaintiff. z4 Tech., Inc. v. Microsoft Corp., 434 F.Supp.2d 437 (E.D. Tex. 2006); Paice LLC v. Toyota Motor Corp., 2006 WL 2385139 (E.D. Tex. Aug. 16, 2006). On the other hand, applying the same reasoning to different facts has also yielded decisions granting permanent injunctions. See, e.g., Visto Corp. v. Seven Networks, Inc., 2006 WL 3741891 (E.D. Tex. Dec. 19, 2006) (interestingly, entry of the permanent injunction was stayed pending a decision on appeal regarding the plaintiff's alleged bad conduct during litigation); Smith & Nephew, Inc. v. Synthes, 466 F.Supp.2d 978 (W.D. Tenn. 2006). In each of these cases, the plaintiff was a manufacturer and direct competition existed between the parties. One of the reasons that the courts seem to put so much weight on the issue of direct competition is that, without it, there is little risk that the patentee will lose good will or suffer an injury to reputation as a result of the infringement. In such cases, absent some other extenuating circumstances, it is likely that monetary damages are adequate to compensate for the infringement.

Interestingly, one quasi 'protected class' that emerges from the eBay decision is the non-manufacturing university researcher or professor. The Court specifically noted that these types of individuals may 'reasonably prefer to license their patents, rather than undertake efforts to secure the financing necessary to bring their works to market themselves.' eBay, 126 S.Ct. at 1840. The Court went on to say that these individuals may be able to satisfy the four-factor test, and that they therefore should not be categorically denied the opportunity to do so.

Patent Trolls: Proceed At Your Own Risk

A patent troll can be loosely defined as a person or company that owns patents and does not manufacture or sell anything, including products based on the patent(s) in question. Patent trolls are often small companies that focus their business on enforcing patent rights against accused infringers. The eBay decision essentially removes the threat of a permanent injunction from a patent troll's quiver, thereby impeding its ability to negotiate licensing fees that are grossly out of alignment with its contribution to the alleged infringer's product or service. One interesting ramification of the eBay decision is that determining whether a plaintiff is a 'patent troll' by definition requires the consideration of so-called 'character evidence,' i.e., how many patents does the patentee hold, do they manufacture any products covered by any of those patents, past behavior with regard to licensing and other litigation, etc. Never before has this type of evidence been particularly relevant, let alone so significant. For instance, one's prior conduct with regard to other patents can now have a tremendous impact on whether one can meaningfully enforce a patent completely unrelated to the patent at issue when the prior conduct took place.

The Early Bird Catches the Worm

Should a plaintiff in a patent infringement action seek a preliminary injunction? Absolutely. What was once the exception is quickly becoming the rule. One need not look far to find support for this position. In MercExchange L.L.C. v. eBay, Inc., 467 F.Supp.2d 608 (E.D. Va. 2006) (on remand from the Federal Circuit after the Supreme Court decision), the Eastern District of Virginia denied MercExchange's motion for a permanent injunction, specifically noting that MercExchange had not moved the court for a preliminary injunction. The court went on to reason that if MercExchange really believed that it was suffering irreparable harm by eBay's continued infringement of its patents, it should have moved for a preliminary injunction.

Prior to the eBay decision, the analysis of whether to seek a preliminary injunction in a patent infringement case turned, at least in large part, upon practical considerations. How much money it would cost, what kind of evidence was available at the time of the filing of the lawsuit, would seeking one be more likely to force settlement or allow the plaintiff to predispose the judge to certain issues, etc. Now the decision not to seek a preliminary injunction may very well be held against the patentee. The upshot of this is twofold. First, it is likely that courts will now bring their approach to preliminary injunctions in line with the eBay decision on permanent injunctions; that is, they may no longer be willing to apply the usual presumption of irreparable harm upon a showing of a likelihood of success on the merits and instead insist upon weighing the four factors individually before issuing a preliminary injunction. Second, the total cost of patent litigation will likely spiral upwards from the already exorbitant average amount of nearly $2 million, from filing through trial.

Generating the Right Evidence

eBay requires all plaintiffs to do a better and more thorough job of generating evidence of all of the four factors, but most importantly, of the irreparable harm suffered as a result of the alleged infringement. Irreparable harm will no longer be presumed, regardless of the relationship between the parties and whether the plaintiff is actually a manufacturer of a product incorporating the patented invention. The following types of evidence are of particular relevance to assertions of irreparable harm.

1) You Cannot License to the Company of Your Choice Or You Cannot Generate the Value of an Exclusive License.

Evidence that you tried to manufacture a product embodying the patented invention or that you tried to exclusively license the invention to a manufacturing entity would be priceless when seeking a permanent injunction. However, this type of evidence may also be hard to come by. Oftentimes, such evidence simply doesn't exist because the plaintiff was not aware of the infringement when it initially began its licensing campaign. It is important to document all early attempts to license, in the event that those attempts fail or are compromised by the presence of the infringer. This may run contrary to current practice, but would go a long way toward securing a preliminary and/or permanent injunction in subsequent litigation.

2) The Patented Invention Is a Major Component of the Product.

Before eBay, there was really no strategic reason for a patent infringement plaintiff to generate and introduce proof early in the litigation that the patented invention is a major or important component of the competitor's product. By introducing this type of evidence, the patentee may be defining and limiting the scope of its claims at a very early stage in the litigation, likely before any meaningful discovery has occurred and at a time when there is a great potential for unknown prior art references. However, now that irreparable harm is no longer presumed, one must weigh the risks and benefits associated with the generation of this type of evidence from the very beginning of the litigation, and must be prepared to generate and introduce this evidence as early as possible. After eBay, the plaintiff must decide early on exactly what it seeks to prevent the defendant from doing, and characterize its patented invention as being a major component of the defendant's product. See, e.g., z4 Technologies, Inc. v. Microsoft Corp., 434 F.Supp.2d 437 (E.D. Tex. 2006) (refusing to grant an injunction and instead finding that monetary damages would adequately compensate z4 because the 'patented invention is but a small component of the product the companies seek to produce').

3) The Infringer Is Manufacturing Low Quality Goods That Compromise Or Destroy the Market for the Patented Invention.

Proof that the infringing products are of low quality that compromise or destroy the market for the patented invention would weigh heavily in favor of the grant of a permanent injunction. While expensive, this could be documented by conducting a consumer survey ' either of actual or potential consumers. Making this proposition even more expensive, however, is the fact that if the survey evidence is generated in support of a motion for a preliminary injunction, it will likely need to be updated when seeking the entry of a permanent injunction.

Conclusion

The eBay decision demonstrates the importance of generating evidence early on to satisfy the traditional four-factor test in order to obtain a preliminary and/or a permanent injunction in a patent infringement case. How arduous a task this will be seems to be directly proportional to your 'patentee status,' i.e., are you a manufacturing patentee, a patent troll, or something in the middle?

David P. Irmscher is a partner and Abigail M. Butler is an associate at Baker & Daniels LLP. They specialize in intellectual property litigation involving diverse technologies and industries.

The Supreme Court recently changed the longstanding rules for obtaining a permanent injunction in patent infringement cases. eBay Inc. v. MercExchange LLC , 126 S.Ct. 1837 (2006). Prior to the Supreme Court's ruling in eBay, it was generally accepted that a successful plaintiff in a patent infringement trial was entitled to a permanent injunction virtually automatically. The Federal Circuit's rule was 'courts will issue permanent injunctions against patent infringement absent exceptional circumstances.' The few exceptions to this rule were generally limited to situations where public health would be affected by enjoining the infringer.

In the eBay decision, the Supreme Court rejected the Federal Circuit's general rule that permanent injunctions will issue automatically. Now, a successful plaintiff must satisfy the traditional four-factor test before a permanent injunction will be entered. The four factors that the plaintiff must satisfy are:

• That it has suffered an irreparable injury;
• That remedies available at law, such as monetary damages, are inadequate to compensate for that injury;
• That, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and
• That the public interest would not be disserved by a permanent injunction.

See eBay Inc. v. MercExchange LLC , 126 S.Ct. 1837 .

This article considers the strategic implications of the eBay decision in developing and presenting evidence relevant to the issuance of a permanent injunction.

What Kind of a Patentee Are You?

While many things remain unclear in the wake of the eBay decision, one thing is for certain ' who you are matters. If you are a patentee who is a manufacturer of a product embodying the invention at issue, and you sue a direct competitor for infringement, your chances of obtaining a permanent injunction at the end of the day are not significantly different under the new standard. However, if you are a non-manufacturing patentee, or worse yet, a 'patent troll' ' times have changed. This article focuses on the last two types of patentees, because that is where the effects of eBay will be the most pronounced.

Non-Manufacturing Patentees: Proceed with Caution

The jury is still out on exactly how much the eBay decision compromises a non-manufacturing patentee's ability to obtain injunctive relief. The preliminary outlook, however, is not good. Even a cursory review of district court decisions handed down since the eBay decision demonstrate that unless you are actually a manufacturer and are suing a direct competitor, you face an uphill battle in proving that the four equitable factors weigh in your favor. For example, the Eastern District of Texas has not been shy about denying permanent injunctions involving defendants that it finds do not directly compete with the plaintiff. z4 Tech., Inc. v. Microsoft Corp. , 434 F.Supp.2d 437 (E.D. Tex. 2006); Paice LLC v. Toyota Motor Corp., 2006 WL 2385139 (E.D. Tex. Aug. 16, 2006). On the other hand, applying the same reasoning to different facts has also yielded decisions granting permanent injunctions. See, e.g., Visto Corp. v. Seven Networks, Inc., 2006 WL 3741891 (E.D. Tex. Dec. 19, 2006) (interestingly, entry of the permanent injunction was stayed pending a decision on appeal regarding the plaintiff's alleged bad conduct during litigation); Smith & Nephew, Inc. v. Synthes , 466 F.Supp.2d 978 (W.D. Tenn. 2006). In each of these cases, the plaintiff was a manufacturer and direct competition existed between the parties. One of the reasons that the courts seem to put so much weight on the issue of direct competition is that, without it, there is little risk that the patentee will lose good will or suffer an injury to reputation as a result of the infringement. In such cases, absent some other extenuating circumstances, it is likely that monetary damages are adequate to compensate for the infringement.

Interestingly, one quasi 'protected class' that emerges from the eBay decision is the non-manufacturing university researcher or professor. The Court specifically noted that these types of individuals may 'reasonably prefer to license their patents, rather than undertake efforts to secure the financing necessary to bring their works to market themselves.' eBay, 126 S.Ct. at 1840. The Court went on to say that these individuals may be able to satisfy the four-factor test, and that they therefore should not be categorically denied the opportunity to do so.

Patent Trolls: Proceed At Your Own Risk

A patent troll can be loosely defined as a person or company that owns patents and does not manufacture or sell anything, including products based on the patent(s) in question. Patent trolls are often small companies that focus their business on enforcing patent rights against accused infringers. The eBay decision essentially removes the threat of a permanent injunction from a patent troll's quiver, thereby impeding its ability to negotiate licensing fees that are grossly out of alignment with its contribution to the alleged infringer's product or service. One interesting ramification of the eBay decision is that determining whether a plaintiff is a 'patent troll' by definition requires the consideration of so-called 'character evidence,' i.e., how many patents does the patentee hold, do they manufacture any products covered by any of those patents, past behavior with regard to licensing and other litigation, etc. Never before has this type of evidence been particularly relevant, let alone so significant. For instance, one's prior conduct with regard to other patents can now have a tremendous impact on whether one can meaningfully enforce a patent completely unrelated to the patent at issue when the prior conduct took place.

The Early Bird Catches the Worm

Should a plaintiff in a patent infringement action seek a preliminary injunction? Absolutely. What was once the exception is quickly becoming the rule. One need not look far to find support for this position. In MercExchange L.L.C. v. eBay, Inc., 467 F.Supp.2d 608 (E.D. Va. 2006) (on remand from the Federal Circuit after the Supreme Court decision), the Eastern District of Virginia denied MercExchange's motion for a permanent injunction, specifically noting that MercExchange had not moved the court for a preliminary injunction. The court went on to reason that if MercExchange really believed that it was suffering irreparable harm by eBay's continued infringement of its patents, it should have moved for a preliminary injunction.

Prior to the eBay decision, the analysis of whether to seek a preliminary injunction in a patent infringement case turned, at least in large part, upon practical considerations. How much money it would cost, what kind of evidence was available at the time of the filing of the lawsuit, would seeking one be more likely to force settlement or allow the plaintiff to predispose the judge to certain issues, etc. Now the decision not to seek a preliminary injunction may very well be held against the patentee. The upshot of this is twofold. First, it is likely that courts will now bring their approach to preliminary injunctions in line with the eBay decision on permanent injunctions; that is, they may no longer be willing to apply the usual presumption of irreparable harm upon a showing of a likelihood of success on the merits and instead insist upon weighing the four factors individually before issuing a preliminary injunction. Second, the total cost of patent litigation will likely spiral upwards from the already exorbitant average amount of nearly $2 million, from filing through trial.

Generating the Right Evidence

eBay requires all plaintiffs to do a better and more thorough job of generating evidence of all of the four factors, but most importantly, of the irreparable harm suffered as a result of the alleged infringement. Irreparable harm will no longer be presumed, regardless of the relationship between the parties and whether the plaintiff is actually a manufacturer of a product incorporating the patented invention. The following types of evidence are of particular relevance to assertions of irreparable harm.

1) You Cannot License to the Company of Your Choice Or You Cannot Generate the Value of an Exclusive License.

Evidence that you tried to manufacture a product embodying the patented invention or that you tried to exclusively license the invention to a manufacturing entity would be priceless when seeking a permanent injunction. However, this type of evidence may also be hard to come by. Oftentimes, such evidence simply doesn't exist because the plaintiff was not aware of the infringement when it initially began its licensing campaign. It is important to document all early attempts to license, in the event that those attempts fail or are compromised by the presence of the infringer. This may run contrary to current practice, but would go a long way toward securing a preliminary and/or permanent injunction in subsequent litigation.

2) The Patented Invention Is a Major Component of the Product.

Before eBay, there was really no strategic reason for a patent infringement plaintiff to generate and introduce proof early in the litigation that the patented invention is a major or important component of the competitor's product. By introducing this type of evidence, the patentee may be defining and limiting the scope of its claims at a very early stage in the litigation, likely before any meaningful discovery has occurred and at a time when there is a great potential for unknown prior art references. However, now that irreparable harm is no longer presumed, one must weigh the risks and benefits associated with the generation of this type of evidence from the very beginning of the litigation, and must be prepared to generate and introduce this evidence as early as possible. After eBay, the plaintiff must decide early on exactly what it seeks to prevent the defendant from doing, and characterize its patented invention as being a major component of the defendant's product. See, e.g., z 4 Technologies, Inc. v. Microsoft Corp. , 434 F.Supp.2d 437 (E.D. Tex. 2006) (refusing to grant an injunction and instead finding that monetary damages would adequately compensate z4 because the 'patented invention is but a small component of the product the companies seek to produce').

3) The Infringer Is Manufacturing Low Quality Goods That Compromise Or Destroy the Market for the Patented Invention.

Proof that the infringing products are of low quality that compromise or destroy the market for the patented invention would weigh heavily in favor of the grant of a permanent injunction. While expensive, this could be documented by conducting a consumer survey ' either of actual or potential consumers. Making this proposition even more expensive, however, is the fact that if the survey evidence is generated in support of a motion for a preliminary injunction, it will likely need to be updated when seeking the entry of a permanent injunction.

Conclusion

The eBay decision demonstrates the importance of generating evidence early on to satisfy the traditional four-factor test in order to obtain a preliminary and/or a permanent injunction in a patent infringement case. How arduous a task this will be seems to be directly proportional to your 'patentee status,' i.e., are you a manufacturing patentee, a patent troll, or something in the middle?

David P. Irmscher is a partner and Abigail M. Butler is an associate at Baker & Daniels LLP. They specialize in intellectual property litigation involving diverse technologies and industries.