The Interplay between Reexaminations, Preliminary Injunctions and Stays of Litigation

by Dennis Crouch

Automated Merchandising Systems (AMS) v. Crane Co. (Fed. Cir. 2009)(nonprecedential)

We are approaching the point that most patents being litigated are also undergoing a parallel reexamination at the patent office. Defendants file reexamination requests as both (a) a way to invalidated claims and (b) a litigation strategy.  One aspect of the litigation strategy is the notion that a district court may completely stay proceedings until the outcome of the reexamination (typically a multi-year delay). This case also suggests that a pending reexamination may help a defendant defeat a preliminary injunction. Finally, this case is important because it holds that a patentee has no presumption of irreparable harm based on proof of infringement.

AMS & Crane compete in the market for vending machines. AMS asserted patents cover the “use of optical technology to determine whether a [purchased product] has actually been delivered.”  In the infringement litigation, the West Virginia federal district court took the unusual approach of simultaneously (1) granting the patentee’s motion for a preliminary injunction and (2) granting the defendant’s motion to stay proceedings until the outcome of the copending reexamination.

The Federal Circuit has interlocutory jurisdiction over appeals from orders granting or denying preliminary relief. 28 U.S.C. § 1292(a)(1).  Using that jurisdictional hook – the court also considered the stay.  (The court also held that the right to appeal attaches once the PI motion is decided – regardless of whether a PI bond is posted.). 

The Federal Circuit has previously held that a “district court ordinarily should not grant both a preliminary injunction and a stay.” Procter & Gamble, 549 F.3d at 849 (Fed. Cir. 2008).  On appeal, the Federal Circuit reversed the preliminary injunction, but affirmed the stay.

Preliminary Relief: The equitable remedy of a preliminary injunction is governed by a four-factor test much like those outlined in the Supreme Court’s case of eBay v. MercExchange.  These four factors include: (1) the likelihood of the patentee’s success on the merits; (2) irreparable harm if the injunction is not granted; (3) the balance of hardships between the parties; and (4) the public interest.  In the factors for permanent injunctive relief is that preliminary relief considers the likelihood of success on the merits. That factor is not relevant to permanent relief because that injunction question is only asked after the patent has been held valid and infringed. The first two factors must each be established before preliminary relief may be granted. Thus, although identified as factors, they are more properly seen as required elements.

On appeal, the Federal Circuit found that the district court had abused its discretion in finding that the patentee had established a likelihood of success and irreparable harm.

Irreparable Harm: In a definitive statement, the appellate panel held that there is no presumption of irreparable harm “based just on proof of infringement.” Although prior cases have found a presumption, those cases were overturned by eBay.

[T]he district court relied on . . . the old presumption that harm from patent infringement was irreparable, [and consequently that] the burden was on the defendant to demonstrate that the potential harm from not granting a preliminary injunction was finite, calculable, and compensable. This is no longer the law, as these cases all pre-dated the Supreme Court’s decision in eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 392-94 (2006), in which the presumption of irreparable harm, based just on proof of infringement, was discarded. The burden is now on the patentee to demonstrate that its potential losses cannot be compensated by monetary damages.

In looking at the patentee’s evidence of irreparable harm, the Federal Circuit held that its evidence of lost sales and arguments of lost market share were insufficient. “[L]ost sales standing alone are insufficient to prove irreparable harm” because they are presumed to be compensable through damages. Lost market share and price erosion could lead to a conclusion of irreparable harm. However, those must be proven or “at least substantiated with some evidence” and shown to be caused by ongoing infringement. 

More Than de Minimis: The patentee did provide evidence of one lost contract (Mountain Coin Machines) due to the ongoing infringement. However, the Federal Circuit rejected that “loss of one distributor” as sufficient to show irreprable harm. “We cannot agree that, under the circumstances of this case, the defection of a single distributor from the patentee’s camp to the accused infringer’s camp is sufficient to demonstrate irreparable harm.”

Likelihood of Success: The patentee must show that it is “reasonably likely to succeed in the case-proper in order to win a preliminary injunction. In other cases, the Federal Circuit has held that a “substantial question” of patent validity is sufficient to derail a preliminary injunction. On appeal here, the Federal Circuit found such a substantial question based on the prior-art presented by the defendants.  Most of the court’s analysis, however, is directed at the district court’s analysis that was “too quick to dismiss Crane’s invalidity argument.” 

Reexamination and Likelihood of Success: Although dicta, the court suggests that the PTO’s decision to reexamine the pending reexamination also impacts the likelihood of success because reexamination is premised on a decision that the patent faces a “substantial question of patentability.”

Because it logically seems that there cannot simultaneously be a substantial issue of patentability and no substantial issue of patentability, stays pending reexamination are typically inappropriate in cases in which preliminary injunctions are appropriate.

The Federal Circuit’s suggestion is off-base for many reasons – most notably that the PTO grants reexamination requests in almost every case.  Interestingly, the one reexamination request from this case that I pulled-up (90/009,231) was denied by the PTO because the submitted reference was not prior art. 

Based on the adjudged “weaknesses” of the patentee’s proof of likelihood of success and irreparable harm, the Federal Circuit reversed the lower court’s grant of preliminary relief.

Stay Pending Reexamination: A court’s discretion in managing its docket appears broader than its discretion in granting or denying injunctive relief. Here, the Federal Circuit gave the challenge to the stay only cursory review.

AMS’s claims against Crane are still in their very early stages: Crane requested the stay only two months after the complaint was filed, and the district court entered the stay order before any discovery was conducted. Because the stay was granted pending the outcome of patent reexamination proceedings, it may simplify the issues for trial. It might even render a trial unnecessary. Given these facts, and given the wide discretion the district court generally has to manage its docket, this seems to be a case in which the stay could have been correctly granted or denied. We cannot say that the district court abused its discretion here by granting the stay.

Stay affirmed.

Notes: PAIR Docket Information

 

Comments

[Scott]

Dennis,

There are several ongoing reexaminations, see 90/009,233.

[Paul F. Morgan]

"..simultaneously granting .. a preliminary injunction and ..staying proceedings until the outcome of the ..copending reexamination" is indeed ridiculously inconsistent, and presumably rare.

{If it were possible, an injunction requiring the PTO not to engage in their gross violations of their express statutory requirement to handle reexaminations with “special dispatch” would be more appropriate.}

As to litigation stays for reexaminations in general, note the difference between ex parte and inter partes reexaminations. Although discretionarily possible with the former, only the latter has a specific provision for stays, and it is somewhat less discretionary - 35 USC 318. But as demonstrated in E.D. TX and elsewhere, the “interests of justice” exception for the later can be easily met by showing the current pattern of the PTO in delaying inter parte reexam decisions so long than the court can easily conduct a whole trial before then.

[Bob Matthews]

Given the confusion among the district courts as to whether the presumption of irreparable harm survived eBay, it is surprising that the Federal Circuit announced its apparent overruling of its prior “presumption of irreparable harm” precedents in a nonprecedential opinion. As late as last month, district courts have reached opposite conclusions on this issue. Compare Bushnell, Inc. v. Brunton Co., 2009 WL 4251633, *19 (D. Kan. Nov. 25, 2009) (concluding that the presumption of irreparable harm may no longer be invoked) with Powell v. Home Depot U.S.A., Inc., 2009 WL 3855174, *13-*14 (S.D. Fla. Nov. 17, 2009) (opining, in dictum, that the presumption of irreparable harm for preliminary injunctions in patent infringement actions survived eBay) [more cases on both sides of the issue are collected in the Annotated Patent Digest (APD) in § 32:64 Questions Regarding Legality of the Presumption].

Perhaps Judge Michel was floating a trial balloon, indicating in dictum where he wants to see the court go on this issue. Notably, the panel found that the patentee had only made a “weak” showing of a likelihood of success on the merits. Under Federal Circuit precedent, a patentee may invoke the presumption of irreparable harm only if it makes a “strong” showing of a likelihood of success on the merits. See generally, APD § 32:61 Strength of Showing Needed to Invoke Presumption. Thus, on the record before the court, as a matter of law, it was not proper to apply a presumption of irreparable harm regardless whether the presumption survives eBay [and also regardless of whether the presumption was ever legally proper in the first instance in view of Amoco Prod. Co. v. Village of Gambell, Alaska, 480 U.S. 531, 544-45 (1987) (stating that presumptions of irreparable harm are “contrary to traditional equitable principles”)].

[Just Visiting]

"Given the confusion among the district courts"

I don't understand the confusion. Wasn't the SC pretty clear about this exact point in Ebay. I thought the presumption of irreparable harm was completely gone. Were this not the case, wouldn't post infringement cases in which the plaintiff has already prevailed on the merits always end up with a presumption of irreparable harm?

[caesar]

Spelling correction:

It is "de minimis" - no "U".

Veni, vidi, vinci.

[Paul F. Morgan]

I think Mr. Matthews is quite properly questioning whether the Federal Circuit has properly specifically applied the Sup. Ct. eBay majority decision to requests for PRELIMINARY injunctions? It would seem logical that it should especially strongly apply to such pre-trial injuctions?

[BigGuy]

"A court’s discretion in managing its docket appears broader than its discretion in granting or denying injunctive relief."

One would certainly hope so.

[curious]

Paul writes " the current pattern of the PTO in delaying inter parte reexam decisions so long than the court can easily conduct a whole trial before then."

There is no excuse for these delays.

[Kevin R.]

"Interestingly, the one reexamination request from this case that I pulled-up (90/009,231) was denied by the PTO because the submitted reference was not prior art."

whoops. hahaha!!

[Ned Heller]

Obviously the Supreme Court in eBay did not consult or did not care to consult the Constitution which essentially states that the purpose for patents is to provide inventor with the exclusive rights to their inventions.

Article 1, section 8, states in part:

"To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries...."

[Ned Heller]

It is good that Dennis points out that the patent office always grants re-examination requests, with no exceptions.

Now compare that statistic with the percentage of re-examined patents that have confirmed claims.

What this would illustrate is that the patent office is accepting allegations in the request without any kind of substantive filter. I think the problem is related in great degree due to the lack of opportunity for the patent owner to file any paper prior to the examiner having to make a decision to grant or not to grant the request.