The Diminshing Value of “Small” Improvements

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U.S. Patent No. 7,469,381

In a previous post I discussed the problems with the Supreme Court’s Ebay v. Mercantile Exchange decision in the context of the denial of Apple’s preliminary injunction motion (Apple II), and namely my assertion that the nexus test between the claimed invention and sales based upon the inventive attribute should not be strictly applied.

Since then, the district court presiding over the Apple v. Samsung litigation also denied Apple’s request for a permanent injunction, which included additional patents that were deemed to be infringed by Samsung and lead to the 1 billion (yes, billion, with a “b”) dollar verdict.  As part of the court’s analysis, Judge Koh poured cold water on Apple’s claims that sales of iPhones were driven heavily by its design, stating:

But even if design was clearly a driving factor, it would not establish the required nexus.The design of the phones includes elements of all three design patents, as well as a whole host of unprotectable, unpatented features. Apple makes no attempt to prove that any more specific element of the iPhone’s design, let alone one covered by one of Apple’s design patents, actually drives consumer demand. The Federal Circuit made clear in  Apple II that customer demand for a general feature of the type covered by a patent was not sufficient; Apple must instead show that consumers buy the infringing product specifically because it is equipped with the patented feature.695 F.3d at 1376.

Apple v. Samsung, Order Denying Motion for Preliminary Injunction at page 8 (emphasis added).  There is no doubt that the district court’s analysis hues very closely to the intent of the Federal Circuit; however, what is also pronounced in the district court’s analysis is how inappropriate this standard is.  Under the rubric, almost any design patent that is component part of a larger system would not be entitled to an injunction without extraordinary evidence that it is the solely the patented feature that is driving consumer demand.  Consider where this may be a problem for design patent owners:

  • If the product is not being produced (Note: there are caveats in the caselaw for this situation, but their foundation may be shifting];
  • If the product has multiple patented design features that collectively define a design (as proffered by Apple);
  • If the product has a single design element, but that design element is amassed with one or more other unpatented design features;
  • If the design element is contained in a single device (think automobile headlight cover), but the device is contained in a larger product (e.g., car).

In each of the instances presented above, injunctive relief is difficult, if not impossible, to receive and the patentee would have to settle for monetary damages.  Admittedly, monetary damages, such as those granted in Apple’s case, may be sufficient (obviously Apple didn’t think so…); yet, it is bizarre that the courts (and the Supreme Court specifically) has essentially codified corporate march-in rights for patented technologies unless it can be shown that the patented concept has such “power” that it drives consumption of the product.  In the instant case, the district court has determined the license fee due to Apple and by not putting in place a permanent injunction, it has essentially dictated the terms of an agreement between the companies.

Interestingly, if Samsung were to continue to infringe, there would be a very strong argument that the case be deemed exceptional and that treble damages would be awarded.  Of course, this only increases the licensing fee and if Samsung finds it reasonable it will continue to infringe and just incorporate the cost into the device.

The rubric followed by the district court is even more problematic for utility patents.  Specifically, the district court stated that in order to receive an injunction, Apple would need to established that it’s ’381 patent was “necessary for the product to function, or a core technology of the product.”  This statement presents real problems for patentees: rarely, if ever, is a claimed invention “necessary for a product to function.”  Moreover, this presents some puzzling questions:

  1. What is the product? Is it the apparatus defined by the claims? Does it include those non-binding limitations presented in the preamble of a claim? If the novel feature is part of a larger system, is the product the entire system or merely the novel feature?
  2. What level of functionality is required? If the claimed invention is directed to a phone’s wireless connection, but the phone can still transmit data over its cellular connection, is the wireless connection necessary?  It is to certain wireless communications, but not to the phone as a whole.

These issues will likely be ferreted out in future decisions, but for now, this leaves patent practitioners and patentees in the dark as to how to draft claims to novel features of existing devices that would warrant injunctive relief.

Patents and Preliminary Injunctions – Federal Circuit Continues Giveaways to Big Business

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Big business just got a gift from the Court of Appeals for the Federal Circuit – a ruling that will decrease the opportunities for patentees to stop infringing entities earlier rather than later.

A patent holder is entitled to a legal monopoly over her invention, and “the heart of the patentee’s legal monopoly is the right to invoke the State’s power to prevent others from utilizing [her] discovery without consent.”  Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 135 (1969).  Given the patent holder’s grant, preliminary injunctions serve a useful and necessary purpose in the field of patent law—they allow a patentee to stop an infringing party at an early stage of the litigation thereby preserving possible profits or licensing opportunities while promoting settlement with a (likely) infringing party.  Although there are benefits to patentees (and given the explicit language of the patent laws) the Supreme Court has rightfully recognized that even in cases of possible patent infringement, a preliminary injunction is an extraordinary remedy never awarded as of right. See Ebay Inc. v. Mercexchange, LLC, 547 U.S. 388, 392 (2006).

Unfortunately, since the Ebay Court’s decision and despite caution enunciated by members of the Court in changing the current practice regarding injunctions, the Federal Circuit has taken it upon itself to further narrow the availability of preliminary injunctions, with the latest case resulting in a boon to big business.

Just to lay the groundwork for this discussion—a plaintiff seeking a preliminary injunction must estrablish that:

  1. She is likely to succeed on the merits (i.e., prove both that her patent is valid and infringed);
  2. She is likely to suffer irreparable harm in the absence of preliminary relief;
  3. The balance of equities tips in her favor; and
  4. An injunction is in the public interest.

In Apple v. Samsung (App. No. 2012-1507) (colloquially, Apple II), the Federal Circuit reversed the District Court’s decision to issue a preliminary injunction, relying in part on a determination that Apple had not shown a sufficient nexus between the patented invention and its irreparable harm in the absence of preliminary relief.  Specifically, the Court stated that:

It is not enough for the patentee to establish some insubstantial connection between the alleged harm and the infringement and check the causal nexus requirement off the list. The patentee must rather show that the infringing feature drives consumer demand for the accused product. Only viewed through the prism of the causal nexus analysis will the irreparable harm allegations reflect a realistic sense of what the patentee has at stake.

Slip Op. at 8. (emphasis added).

I agree with commentators, such as Dennis Crouch, who have indicated that the Federal Circuit’s decision, while consistent with Ebay, clearly limits the availability of a preliminary injunction to a patentee.  However, not only does this decision limit the availability of preliminary injunctions—it also significantly undermines the value of patents, and especially those owned by companies and individuals with limited monetary resources.  Unabashed infringement undoubtedly takes place because of a disparity of resources, and the lack of a preliminary injunction remedy will only further embolden wealthy infringers.   A defendant argued similarly before the Federal Circuit recently, stating:

According to a survey published in 2009 by the American Intellectual Property Law Association (“AIPLA”) the median cost for a patent litigation in which the amount in controversy is from $1-25 million, through the end of discovery, is $2.5 million (inclusive of all costs). Unscrupulous large companies know this, and, unfortunately, can use patent litigation as a weapon against competitors, especially smaller competitors. Many smaller competitors simply do not have the financial resources or wherewithal to defend a patent infringement case, no matter how spurious the contentions. Judge Story once wrote that patent litigation is the ‘sport of kings.’ Larger companies can exploit this fact to the detriment of their smaller competitors.

Icon Health & Fitness, Inc. v. Octane Fitness, LLC, Appeal Nos. 2011-1521, -1636 (Oct. 24, 2012) (Brief of Defendant-Cross-Appellant).

Moreover, the lack of a preliminary injunction remedy will further burden a court system already flooded with patent related litigation.

The problem truly arises from the preliminary injunctiontest itself as it makes no explicit accommodation for the potential impact on the infringing party of a preliminary injunction and does not consider the importance of the technology to the patentee (one could argue that this should find itself in the “balancing of equities prong,” but the Federal Circuit doesn’t get there because of its finding on the second prong).  If the patented component is truly a minor component of a larger item, then potential harm to the infringer is minimal. Consider specifically Apple II – if Apple’s patent is valid and Samsung is infringing (setting aside the Federal Circuits ruling on this specific issue) is it unreasonable that Samsung should be required to stop infringement? Even if monetary damages are adequate, isn’t it irrational to allow Samsung to continue to infringe especially when the patented technology is minimal?  If the patentee is no longer Apple, but instead a small software developer whose product is the heuristic search that Samsung has implemented in its phones, he would not be able to prove harm under the Federal Circuit’s construction, but would be significantly harmed.  In fact, it is questionable whether the patentee should have to prove harm at all in these instances.

Justice Roberts was right in Ebay to caution a change in practice of the issuance of injunctions based upon the Court’s decision in Ebay, stating:

From at least the early 19th century, courts have granted injunctive relief upon a finding of infringement in the vast majority of patent cases. This “long tradition of equity practice” is not surprising, given the difficulty of protecting a right to exclude through monetary remedies that allow an infringer to use an invention against the patentee’s wishes—a difficulty that often implicates the first two factors of the traditional four-factor test. This historical practice, as the Court holds, does not entitle a patentee to a permanent injunction or justify a general rule that such injunctions should issue. The Federal Circuit itself so recognized in Roche Products, Inc. v. Bolar Pharmaceutical Co., 733 F. 2d 858, 865-867 (1984). At the same time, there is a difference between exercising equitable discretion pursuant to the established four-factor test and writing on an entirely clean slate. “Discretion is not whim, and limiting discretion according to legal standards helps promote the basic principle of justice that like cases should be decided alike.” Martin v. Franklin Capital Corp., 546 U. S. 132, 139 (2005). When it comes to discerning and applying those standards, in this area as others, “a page of history is worth a volume of logic.”

New York Trust Co. v. Eisner, 256 U. S. 345, 349 (1921) (opinion for the Court by Holmes, J.).

The Ebay Court clearly had concerns about extortionist actions by non-practicing entities (i.e., patent trolls) as a backdrop; however, by placing further restrictions on the remedies available to patent holders, the Federal Circuit has not only taken a playing card away from non-practicing entities—it has taken a tool away from small businesses and individual inventors to enforce their rights against larger companies and to, at least in some instances save their businesses from unlawful competition.  Effectively eliminating the possibility of a preliminary injunction to a patentee who contributes a small portion of a larger device disadvantages patentees in settlement negotiations as richer infringers will be able to use the threat of protracted litigation to force settlement terms (or just tell the patent holder to pound sand).