Injunctive Relief: Splitting the baby?

Verizon v. Vonage (Fed. Cir. 2007).

Both Judge Dyk of the CAFC and Judge Hilton of the Eastern District of Virginia raise the issue of partial injunctive relief. 

For his part, Judge Hilton issued a permanent injunction barring infringement by Vonage, but partially stayed the injunction pending appeal to the CAFC. According to the temporary modification, Vonage would be permitted to continue to sell infringing services to current customers, but would stop Vonage from infringing activity associated with any new customers. That injunction was stayed without discussion by the CAFC on an emergency motion before a panel of Judges Michel, Gajarsa, and Dyk. (2007 WL 1202744).

In oral arguments of the appeal, Judge Dyk shifted the focus to what he calls a “middle ground” when the infringer is facing an irreparable harm such as bankruptcy. 

Judge Dyk: “They say no injunction, you say injunction. But, isn’t there kind of a middle ground in these cases where the injunction would put someone out of business? Shouldn’t that be a consideration in framing the injunction? Shouldn’t the district court perhaps allow time for a work-around as part of the injunction? Verizon’s interest is in not losing customers. I’m not sure that Verizon has an interest in putting Vonage out of business. Shouldn’t the district court under these circumstances consider whether the injunction should be framed in such a way as to allow reasonable time for a work-around – particularly where as here, it is non-willful infringement?”

Both judges focus on a middle-ground with a temporal limit. For Judge Hilton, the limited injunction ends at the appeal decision. For Judge Dyk, an injunction might remain entirely stayed, but only for a limited time to avoid bankruptcy while a work-around is developed.  The problem with these stays is that they undermine the rule of law as well as the patentee’s legal claim.  In addition, they run the risk of being proverbial solutions that leave neither party better off.  Despite the problems, the temporal opportunities available in injunction jurisprudence should not be overlooked.  A patentee who is denied injunctive relief should be allowed to present evidence of irreparable harm at a later date. Similarly, an enjoined infringer should be allowed to later provide new evidence of the sufficiency of monetary relief.

On appeal, Vonage also offered several reasons why injunctive relief should be rejected under the eBay standard. Perhaps most interesting is the question of whether Verizon’s potential lost customers would be lost due to the patented invention or some other feature of the Vonage equipment. Under Vonage’s apparent formulation, non-patent related harm should not be considered in the injunction analysis. The court would then not consider market share loss as irreparable harm if the customers switched because of Vonage’s service reputation rather than based on a patented feature.  In addition, Vonage argues that Verizon’s four-year delay in filing suit evidences a lack of irreparable harm. Next, Vonage argues that irreparable harm should not be found where, as here, the infringer is not the patentee’s “main competitive threat.”

Comments

[Steve Sereboff]

Vonage already had lots of time to develop and implement a design-around. The suit was filed quite some time ago. While the lawyers are busy lawyering, maybe the engineers should have been engineering. RIM was in the same situation with NTP, as was eBay with MercExchange. The design-around work should start when the complaint is served, not when judgment is entered.

[Thomason]

Isn't the balance struck more fairly when, during the stay of the injunction, the infringer must escrow a portion of the proceeds from it providing continued service and adding new service customers.

[SF]

"Judge Dyk, an injunction might remain entirely stayed, but only for a limited time to avoid bankruptcy while a work-around is developed."

Assume a work-around could be developed during the months and years that the case was pending at the district court. By choosing not to develop a work-around, the infringer assumes the risk of an adverse judgment and a subsequent injunction. Why reward the infringer for delaying the work-around?

[Jay]

"Why reward the infringer for delaying the work-around?"

Why punish an ALLEGED infringer with potentially unjustified r&d and engineering costs before they've been found liable?

[Anon E. Moose]

Nuts and bolts question to DC: I'm assuming you listened to the oral arg. recording from fedcir.gov. I couldn't make it past the first 90 sec. due to low sound levels. Are they all that bad?

[Dennis Crouch]

Anon E Moose -- It helps if you play some low-level music in the background...

[Mark Perdue]

When the stakes are as high as they were for Vonage, the failure to design and be ready to implement a design-around is a colossal failure of either management or counseling or both.

[Jay]

Vonage's CEO claimed they had a work-around for two of the patents and were working on the third within days of the jury coming back. http://arstechnica.com/news.ars/post/20070510-vonage-weve-got-a-workaround-for-verizon-patents.html

[Andrew Dhuey]

I noticed that the press and investors in Vonage saw Judge Dyk's "middle ground" idea as a very postitve sign. I saw it as just the opposite. A permanent injunction is relevant only if the Federal Circuit affirms the judgment of infringement.

Verizon's counsel skillfully shot down the middle ground idea, saying that it would make sense only if the infringer could show some real world path to a non-infringing work around. Vonage has never done anything close to that. Indeed, Vonage's counsel in rebuttal had nothing to say about any progress toward a non-infringing work around.

My prediction: affirmed, and the stay on the injunction will be lifted while Vonage files its cert. petition. I can't see any reason the Supreme Court would take this up, and I doubt the CAFC would see any reason to delay the injunction during the pendency of the petition.

[Arnold Wolf]

When big fish eat the intellectual property of little fish by infringement all new ideas are stifled.

eBay has spent tens of millions in legal fees to prevent MercExchange from licensing them for a fraction of that cost. eBay with their money has power and influence even over politicians and the USPTO. It will be interesting to see if Judge Friedman is also a pawn in the hands of the beg fish eBay.

As of this date, it is not known whether Judge Friedman has rendered a decision on MercExchange infringement action.

[Yorrick]

Very interesting comments.

I also listened to the arguments and do not assign any weight to Judge Dyk's comment other then to suggest guidance to future trial courts.

However, I do consider it instructive that neither the Court nor Vonage uttered a single word about the obviousness issue. Very little was said about the injunction. My guess is that the decision will turn on claim construction (the same panel previously stayed the injunction--perhaps convinced by liklihood of success on the merits?).

If the Court vacates on claim construction, then the Court conviently does not have to address obviousness, since any new trial will have new jury instructions, presumably enlightened by KSR. If the second trial results in a judgment of infringement, then perhaps Judge Hilton will have the opportunity to consider Dyk's comment.

Prediction: Vacated & remanded.

[Andrew Dhuey]

Yorrick, the problem with claim construction for Vonage is the waiver issue. Most of oral argument pertained to whether Vonage has waived the issue by not objecting to the jury instructions. So, in addition to showing error on the construction, Vonage has to show that they preserved the issue. It looks grim for Vonage on that.

I agree with you that obviousness is a non-issue. Like you, I cannot recall a single word about it in a full hour of argument.

As for the stay of the injuction, the motions panel (same judges, I think) seemed to be focusing on the absence of irreparable harm to Verizon for such a short time period.

[Yorrick]

I have a hard time seeing Vonage shut down over waiver--which is equitable rather than legal here, no? Vonage presented its argument that the issue was preserved during claim construction and it would have been futile to repeatedly object during the jury instructions. Verizon had little to say on this point, except to overstate the record that Vonage never presented contrary instructions. I felt that Taranto lost some credibility at that point, or perhaps I misheard what he was saying. The panel also seemed interested in which Circuit's doctrine to apply on this point.

[Andrew Dhuey]

I'm not sure whether to characterize the waiver issue as purely equitable here, as we're dealing with the specific requirements of the revised FRCP 51. If Verizon is correct that Vonage didn't meet the explicit requirement of R 51, I think that's the end of it, without any further analysis of the equities of the situation.

[Yorrick]

"When the claim construction is resolved pre-trial, and the patentee presented the same position in the Markman proceeding . . . a further objection to the district court's pre-trial ruling may indeed have been not only futile but unnecessary." Cardiac Pacemakers, Inc. v. St. Jude Med., Inc., 381 F.3d 1371, 1381 (Fed. Cir. 2004).

This is in the reply brief, I think. Like Vonage said, this was not the type of trial with a "rolling claim construction."

[Palo Alto]

Many large companies are hit with patent infringement suits constantly. These suits often concern suspect patents on relatively tiny pieces of technology in very complex consumer products.

Should these companies be required to start designing around every patent that lands on their doorstep? If so, why even go to trial? So you can just go back to version 1.0 when you win?

If the stats are to be believed, nearly half of patents litigated to judgment are invalidated. It's unreasonable to demand that companies constantly redesign their products (i.e. increase cost to consumers) to address this issue. Partial injunctive relief is a fantastic approach to this problem.