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September 25, 2007

Gutter Mouth

Eran makes and markets rain gutter covers, covered by 5,557,891. Fired employees set up shop as competitors, named GP Industries. Eran sent a scary letter to its customers and distributors that GPI's product would be infringing '891. GPI responded with a declaratory judgment motion to kill '891 and stop the alleged tortious business interference. Eran responded with a patent infringement and trade secret theft suit. GPI then successfully sought a preliminary injunction against Eran further bad-mouthing them. The appeals court barked "not so fast."

GP Industries and a Bunch of Guys v. Eran Industries and James E. Bachman (CAFC 2007-1087)

As long as a patent holder is somewhere north of "objectively baseless", shoot off thy mouth about thy patent as much as thy pleaseth.

A party seeking an injunction must show: (1) a reasonable likelihood of success on the merits; (2) irreparable harm; (3) a balance of hardships in its favor; and (4) a public interest in favor of the injunction. Tex. Instruments Inc. v. Tessera, Inc., 231 F.3d 1325, 1329 (Fed. Cir. 2000). The United States Court of Appeals for the Eighth Circuit applies a similar test. See Dataphase Sys., Inc. v. C L Sys., Inc., 640 F.2d 109, 113-14 (8th Cir. 1981) (en banc). The grant of a preliminary injunction is reviewed for “an abuse of discretion or misplaced reliance on an erroneous legal principle.” Pediatric Specialty Care, Inc. v. Ark. Dep’t of Human Serv., 444 F.3d 991, 994 (8th Cir. 2006) (internal citation omitted). That deferential standard permits us to reverse the district court only if, “after a thorough review of the record, the proof unmistakably establishes a clear error or an abuse of discretion.” Id. (internal citation omitted). When a patentee is prevented from communicating its patent rights, “[w]e apply federal patent law and precedent relating to the giving of notice of patent rights, in reviewing the grant of an injunction against the giving of such notice. . . . The grant of the preliminary injunction, then, is reviewed in the context of whether, under applicable federal law, the notice of patent rights was properly given.” Mikohn Gaming Corp. v. Acres Gaming, Inc., 165 F.3d 891, 898 (Fed. Cir. 1998). We have further held that “federal law requires a showing of bad faith in order to bar such communications.” Id.

First, we wish to note the rarity of an injunction being granted against communicating with others concerning one’s patent rights. This is not a grant or denial of an injunction against infringement, but an injunction against communication, a much more serious matter. One has a right to inform others of his or her patent rights. See 35 U.S.C. § 287. Thus, an injunction against communication is strong medicine that must be used with care and only in exceptional circumstances.

While we recognize that a district court’s discretion to enter a preliminary injunction is entitled to a high standard of deference, the patent laws permit a patentee to inform a potential infringer of the existence of its patent. See, e.g., 35 U.S.C. § 287 (authorizing a patentee to “give notice to the public” of a patent); Virtue v. Creamery Package Mfg. Co., 227 U.S. 8, 37-38 (1913) (“Patents would be of little value if infringers of them could not be notified of the consequences of infringement or proceeded against in the courts.”); Va. Panel Corp. v. MAC Panel Co., 133 F.3d 860, 869 (Fed. Cir. 1997) (“[A] patentee must be allowed to make its rights known to a potential infringer so that the latter can determine whether to cease its allegedly infringing activities, negotiate a license if one is offered, or decide to run the risk of liability and/or the imposition of an injunction.”).

GPI’s claim for tortious interference with business relationships is based on the letters sent to Eran’s distributors and customers, wherein Eran gave notice of its patent rights and its intent to enforce them. Federal patent law governs the propriety of giving such notice, and a patentee has a right to inform potential infringers of a patent and potentially infringing activity unless the communication is made in bad faith. See Hunter Douglas, Inc. v. Harmonic Design, Inc., 153 F.3d 1318, 1336 (Fed. Cir. 1998) (“[F]ederal patent law bars the imposition of liability for publicizing a patent in the marketplace unless the plaintiff can show that the patent holder acted in bad faith.”). “Indeed, a patentee, acting in good faith on its belief as to the nature and scope of its rights, is fully permitted to press those rights even though he may misconceive what those rights are.” Mikohn Gaming, 165 F.3d at 897 (internal citation omitted). Mikohn Gaming involved similar facts in which a potential infringer sought an injunction to enjoin the patentee from communicating the existence of its patent rights to its customers. Id. at 894. The potential infringer had filed an action for a declaratory judgment against the patentee, alleging tortious interference with business relationships based on the letters. The district court granted the preliminary injunction, but we did not uphold the grant of that injunction, stating that the “record provided shows no more than a negligible likelihood of success in showing bad faith in [the patentee’s] giving of notice by letters and publicity release.” Mikohn Gaming, 165 F.3d at 898.

Thus, as part of the district court’s analysis in deciding whether to grant a preliminary injunction that would prevent Eran from communicating its patent rights to a potential infringer, the court should have considered whether Eran’s assertions were objectively baseless. The court did not cite the Professional Real Estate “objectively baseless” standard in its discussion of the relevant law or analysis. In fact, the court made certain statements in its opinion that nonetheless demonstrate that Eran’s assertions were not objectively baseless. The court stated that “[a]t this stage of the proceedings, it cannot be said that either one side or the other will prevail on the ultimate issues.” Preliminary Injunction Order, slip op. at 10. The court further stated that “the validity of Eran’s patent presents a close question.” Id. at 9. By recognizing that the patent is not necessarily invalid and that the court could not conclude that there was no infringement, the court established that Eran’s assertions were not objectively baseless. In fact, the court only stated that the letters “approach the bad-faith threshold,” clearly implying that they did not meet the bad faith standard. Thus, GPI could not show a reasonable likelihood of success that Eran’s assertions were objectively baseless. As we held in Globetrotters, because GPI cannot show that Eran’s assertions were objectively baseless, the bad faith standard cannot be satisfied, and the court therefore erred in enjoining Eran from giving notice of its patent rights to potential infringers.

Injunction reversed.

Posted by Patent Hawk at September 25, 2007 4:45 PM | Injunction


This injuction was over turned.

Posted by: ERAN Ind at October 17, 2007 10:47 AM