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August 20, 2006

Irreparable Harm

In the months following the Supreme Court eBay v. MercExchange decision, recent rulings demonstrate a revised trend in granting injunctions, most notably recognizing marketplace clout. Granting a permanent injunction to TiVo against competitor EchoStar, though stayed for the time being, illustrates the power injunctive relief can provide.

The presumption that a patent confers a right of exclusivity cast aside, the weighing scale created in the eBay ruling for a court determining injunctive relief is the malleable notion of "principles of equity."

The traditional four-factor test applied by courts of equity when considering whether to award permanent injunctive relief to a prevailing plaintiff applies to disputes arising under the Patent Act. That test requires a plaintiff to demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law 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. The decision to grant or deny such relief is an act of equitable discretion by the district court, reviewable on appeal for abuse of discretion. These principles apply with equal force to Patent Act disputes. [A] major departure from the long tradition of equity practice should not be lightly implied. Weinberger v. Romero-Barcelo, 456 U. S. 305, 320. Nothing in the Act indicates such a departure. Pp. 2.6.

The lead factor of the four-factor test, "irreparable harm," has taken center stage. A marketplace competitor is much more likely to be granted injunctive relief than a non-practitioner of the patented technology. In the Eastern District of Texas last week, non-practitioner Paice couldn't get an injunction against Toyota.

"Principles of equity" has also become a code word for market power. In the Eastern District of Texas, z4, a practitioner, couldn't get an injunction against behemoth Microsoft.

But TiVo and EchoStar go head to head in the digital video recorder (DVR) market, and so TiVo was able to wrestle a permanent injunction from Eastern District of Texas Judge Folsom, the same judge in the Paice v. Toyota case -

Defendants compete directly with Plaintiff – Defendants market their infringing products to potential DVR customers as an alternative to purchasing Plaintiff’s DVRs. The availability of the infringing products leads to loss of market share for Plaintiff’s products.

EchoStar got its stay, but...

"It is a technical stay that could be only a few days," said Janco Partners analyst Matthew Harrigan. "When you look at the pool of people who are going to be dissuaded from signing up for EchoStar and instead go to DirecTV or cable, it really would be a very serious competitive impediment."

TiVo stock closed 8.2 percent higher at $7.02 per share while EchoStar dropped 30 cents, or nearly one percent, to finish at $32.45, both on Nasdaq. (from Reuters)

EchoStar remains desperate for appellate relief: "We continue to believe the Texas decision was wrong, and should be reversed on appeal." Many business analysts think EchoStar's best bet is a negotiated settlement, but pig-headed corporate leaders, their careers made on stubborn determination, gamblers to the core, seldom possess the grace to take the path of least resistance. Think RIM.

In Abbott Labs v. Andrx Pharma, the Appeals Court (CAFC 05-1433) tossed a preliminary injunction, holding that direct competition "alone does not establish that Abbott’s harm will be irreparable." But this reflects a different calculus applied to preliminary injunctions: the probability of success. Andrx had raised doubts about Abbott prevailing, raising strong arguments regarding validity, and a snowstorm on other issues. In contrast, just last week in the Eastern District of Michigan, the court, in Christiana Industries v. Empire Electronics, denied reconsideration of a preliminary injunction grant; marketplace competitors, and the defendant hadn't summarily marshaled a strong defense.

For now, "principles of equity" applied, it seems an infringer can fend off a permanent injunction if it has enough market power, and an accused infringer can dodge a preliminary injunction if it's got a good, quick, song-and-dance on the merits.

Posted by Patent Hawk at August 20, 2006 12:28 PM | Injunction


Suppose a new entrant into an established marketplace wishes to build market share by using a patented invention. (For ex.: you invent a new razor blade.)

From your comments re "eBay", it cannot ever get a permanent injunction (its market share is minimal).

I am not an attorney, but doesn't "eBay" simply legitimize theft by large corporations??

Posted by: clarence at August 21, 2006 8:27 AM

In reply to clarence's question, "Doesn't "eBay" simply legitimize theft by large corporations?" -

The court's current thinking is that monetary compensation suffices when the "principles of equity" with regard to both infringed & infringer are weighed, and an injunction is too disruptive to business as usual.

In view of recent developments, the SC eBay decision certainly was a hosing down of patent power, viewing a patent as a grant to exclude.

Posted by: Patent Hawk at August 21, 2006 10:17 AM