Apple v. Samsung: The Federal Circuit Reverses the District Court and Sets New Standards for Obtaining Permanent Injunctions in Patent Infringement Actions

Stan Gibson's Notes from the Inventor Underground

 

As the ongoing war between Apple and Samsung continues, one of the key questions facing both parties is whether Apple can ultimately obtain permanent injunctive relief against Samsung in addition to a significant damages award.  The district court initially answered that question in the negative.  On appeal, however, the Federal Circuit reversed.  It held that the district court had abused its discretion, but remanded to the district court for further proceedings rather than enter its own permanent injunction.  On remand, in a decision that is certain to be appealed once again, the district court once again denied Apple’s request for a permanent injunction.  The Federal Circuit’s decision is important to review as it undoubtedly will set the standard by which future requests for permanent injunctive relief are judged.

 

By way of background, Apple filed its patent infringement action against Samsung in April 2011, alleging infringe­ment of several Apple patents and dilution of Apple’s trade dress.  In addition to its affirmative defenses, Samsung also filed counterclaims, which alleged in­fringement of Samsung’s patents.

 

A jury returned a verdict in Apple’s favor.  In addi­tion, the jury rejected Samsung’s counter­claims and awarded Apple more than $1 billion in damages.  The district court affirmed the jury’s finding of liability, but set aside a portion of the jury’s damages award for certain products and scheduled a new trial on damages.

 

After the jury trial, the parties filed various post-trial motions, including an Apple motion for a permanent injunction to enjoin Samsung from importing or selling any of its twenty-six infringing smartphones and tablets or any other product “not more than colorably different” from the infringing ones.  The district court denied Apple’s request for a permanent injunction.   Apple appealed the denial of the permanent injunction to the Federal Circuit.

 

On appeal, the Federal Circuit noted that the “district court analyzed the four principles of equi­ty enumerated in eBay and then, weighing the factors, concluded that they did not support the issuance of an injunction against Samsung’s infringement of Apple’s patents.”  The Federal Circuit found no “reason to dislodge the district court’s conclusion that Apple failed to demonstrate irreparable harm from Samsung’s infringement of its design patents.”  With respect to the utility patents, however, it decided that “the district court abused its discretion in its analysis.”  That decision provides new and significant guidance for parties seeking to obtain, or defend against, a permanent injunction in a patent infringement case.

 

Apple challenged the district court’s irrep­arable harm analysis on two main grounds.  First, Apple argued that the district court erroneously adopted a causal nexus requirement in the permanent injunction context.  Second, Apple argued, in the alternative, that it satisfied any reasonable causal nexus requirement should the Federal Circuit find that one existed.

 

The Federal Circuit began with Apple’s challenge to the causal nexus requirement and whether it should apply in both the context of preliminary injunctions and permanent injunctions.  The Federal Circuit found that, as in the preliminary injunction context, “the district court was correct to require a showing of some causal nexus between Samsung’s in­fringement and the alleged harm to Apple as part of the showing of irreparable harm.” Apple I, 678 F.3d at 1324.  Relying on Apple II, the Federal Circuit also explained that “the causal nexus inquiry is . . . part of the irreparable harm calcu­lus” and “although the irreparable harm and the causal nexus inquiries may be separated for the ease of analysis, they are inextricably related concepts.” Apple II, 695 F.3d at 1374-75.

 

The Federal Circuit also concluded that the causal nexus requirement is simply a way of distinguishing between irreparable harm caused by patent infringement and irreparable harm caused by otherwise lawful competition, such as “sales [that] would be lost even if the offending feature were absent from the accused product.” Apple I, 678 F.3d at 1324.  The former may weigh in favor of an injunction, whereas the latter, which stems from lawful competition, does not.  The Federal Circuit further explained that “[m]ore fundamentally, the purpose of the causal nexus requirement is to show that the patentee is irreparably harmed by the infringement.  Without such a showing, it is reasonable to conclude that a patentee will suffer the same harm with or without an injunction, thus undermining the need for injunctive relief in the first place.”

 

The Federal Circuit likewise rejected Apple’s argument that the causal nexus require­ment is a bright-line rule that is inconsistent with eBay’s elimination of categorical rules for injunctions.  “Like Apple’s first argument, this argument seems to be premised on the mistaken notion that the causal nexus is a separate factor from irreparable harm. As we have explained, however, the causal nexus requirement is part of the irreparable harm factor.  Without a showing of causal nexus, there is no relevant irreparable harm.  In other words, there cannot be one without the other. Therefore, it would be illogical to say that a weak showing of causal nexus could be offset by a strong showing of irreparable harm.”

 

As a result, the Federal Circuit rejected Apple’s arguments and confirmed that the district court was correct to require a showing of some causal nexus between Samsung’s infringing conduct and Apple’s alleged harm.  However, the Federal Circuit then concluded that the district court had gone too far in setting the standards for that causal nexus requirement.

 

As an initial matter, the Federal Circuit noted that “the district court appears to have required Ap­ple to show that one of the patented features is the sole reason consumers purchased Samsung’s products. . ..  To the extent these statements reflect the view that Apple was necessarily required to show that a patented feature is the sole reason for consumers’ pur­chases, the court erred.”  Instead, the Federal Circuit found that “rather than show that a patented feature is the exclusive reason for consumer demand, Apple must show some connection between the patented feature and de­mand for Samsung’s products.  There might be a variety of ways to make this required showing, for example, with evidence that a patented feature is one of several features that cause consumers to make their purchasing decisions.  It might also be shown with evidence that the inclusion of a patented feature makes a product significantly more desirable.  Conversely, it might be shown with evidence that the absence of a patented feature would make a product significantly less desirable.”

 

The Federal Circuit also disagreed with the district court in its wholesale rejection of Apple’s attempt to aggregate patents for purposes of analyzing irreparable harm.  “While it is true that this court analyzed causal nexus on a patent-by-patent basis in Apple I, we did not mean to foreclose viewing patents in the aggregate.  Rather, we believe there may be circumstances where it is logical and equitable to view patents in the aggregate.  For example, it may make sense to view patents in the aggregate where they all relate to the same technology or where they combine to make a product significantly more valuable.  To hold otherwise could lead to perverse situations such as a patentee being unable to obtain an injunction against the infringement of multiple patents covering different— but when combined, all—aspects of the same technology, even though the technology as a whole drives demand for the infringing product.”

 

The Federal Circuit found that district court had erred by not considering Apple’s survey evidence.  “The district court did err, however, in its treatment of Dr. Hauser’s survey evidence. Dr. Hauser’s survey pur­ports to show that consumers would be willing to pay fairly significant price premiums for the features claimed in Apple’s utility patents.  In rejecting Dr. Hauser’s survey evidence, the district court stated that “evidence of the price premium over the base price Samsung consum­ers are willing to pay for the patented features is not the same as evidence that consumers will buy a Samsung phone instead of an Apple phone because it contains the feature.” Id. (emphasis added) (internal quotation marks omitted).”

 

The Federal Circuit found that the showing of causal nexus did not require this level of proof.  “Rather, there may be a variety of ways to show that a feature drives demand, including with evidence that a feature significantly increases the desirability of a product incorporating that feature.  Moreover, we see no reason why, as a general matter of economics, evidence that a patented feature significantly increases the price of a product cannot be used to show that the feature drives demand for the product.  This is not to suggest that consumers’ willingness to pay a nominal amount for an infringing feature will establish a causal nexus.  For example, consumers’ willingness to pay an additional $10 for an infringing cup holder in a $20,000 car does not demonstrate that the cup holder drives demand for the car.  The question becomes one of degree, to be evaluated by the district court.  Here, the district court never reached that inquiry because it viewed Dr. Hauser’s survey evidence as irrelevant.  That was an abuse of discretion.”

 

Accordingly, the Federal Circuit found that additional analysis was required.  The Federal Circuit stated that “[o]n remand, the court must assess whether Apple’s other evidence, includ­ing its ease-of-use evidence and evidence of copying, in combination with Dr. Hauser’s survey evidence, suffices to establish irreparable injury.”

 

The Federal Circuit then turned to the question of irreparable harm and found that the district court erred in its analysis of this factor as well.  “As an initial matter, we note that one of the two reasons the district court found this factor to weigh in favor of Samsung was Samsung’s ability to pay any monetary judgment.  However, unlike an infringer’s inability to pay a judgment, which may demon­strate the inadequacy of damages, see Bosch, 659 F.3d at 1155-56, a defendant’s ability to pay a judgment does not defeat a claim that an award of damages would be an inadequate remedy.  Rather, a defendant’s ability to pay merely indicates that a court should look to other consid­erations to determine whether a damages award will adequately compensate the patentee for the harm caused by continuing infringement.  Cf. Roper Corp. v. Litton Sys., Inc., 757 F.2d 1266, 1269 n.2 (Fed. Cir. 1985) (reject­ing the view that an alleged infringer’s “ability to com­pensate” ends the court’s inquiry).”

 

The Federal Circuit also found that the district court’s “exclusive focus on whether Apple’s patents are ‘priceless’ and whether Samsung is ‘off limits’ led it to disregard Apple’s evidence that Samsung’s use of these patents is different.  Apple points to numerous factors that the district court failed to consider in deter­mining the relevance of Apple’s past licensing behavior.  For example, Apple notes that IBM is not a competitor in the smartphone market, and that the license was entered into five years before Apple launched the iPhone. Apple further notes that it entered into the HTC and Nokia agreements to settle pending litigation.” The Federal Circuit also rejected the notion of a categorical rule that Apple’s willingness to license its patents precluded the issuance of an injunction.  “Indeed, the district court’s focus on Apple’s past licensing practices, without exploring any relevant differences from the current situation, hints at a categorical rule that Apple’s willingness to license its patents precludes the issuance of an injunction.  “To the extent that the District Court adopted such a categorical rule, . . . its analysis cannot be squared with the princi­ples of equity adopted by Congress.” eBay, 547 U.S. at 393; see also Acumed, 551 F.3d at 1328 (“A plaintiff’s past willingness to license its patent is not sufficient per se to establish lack of irreparable harm if a new infringer were licensed.”).”

 

As a result, the Federal Circuit found that the district court “abused its discretion by fail­ing to properly analyze whether damages would ade­quately compensate Apple for Samsung’s infringement of these patents.  Accordingly, we vacate the district court’s finding with respect to this factor and remand for further consideration. Of course, if, on remand, Apple cannot demonstrate that demand for Samsung’s products is driven by the infringing features, then Apple’s reliance on lost market share and downstream sales to demonstrate the inadequacy of damages will be substantially under­mined.”

 

The Federal Circuit next turned to the balance of hardship factor, noting that “[o]n appeal, each party argues that this factor weighs in its favor.”  Apple argued that Samsung would not be harmed by an injunction if it had designed around Apple’s patents, but that Apple would be harmed if there was no injunction by the risk of Samsung’s continued infringement.  In turn, Samsung argued that Apple would not benefit from an injunction because Samsung was no longer selling the accused products, but that it and others would be harmed by an injunction, which would “create fear, doubt and uncertainty in the market as to what other products Apple might later claim are covered by its sweeping injunction.”

 

Based on these arguments, the Federal Circuit found that there was no error in the district court’s determination that this factor was neutral.  “In essence, each party asks us to reweigh the various factors that go into the balance of hardships. However, we discern no clear error of judgment or error of law in the district court’s analysis.  Therefore, we conclude that the district court did not abuse its discretion in determining that this factor was neutral.”

 

Finally, the Federal Circuit turned to the public interest factor.  Here, the Federal Circuit found that the district court did not abuse its discretion in finding that the injunction was not in the public interest. “We see no problem with the district court’s decision, in determining whether an injunction would disserve the public interest, to consider the scope of Apple’s requested injunction relative to the scope of the patented features and the prospect that an injunction would have the effect of depriving the public of access to a large number of non-infringing features. . . .  Accordingly, Apple has failed to show that the district court abused its discretion in concluding that the public interest weighs against the grant of an injunction.”

 

Because the Federal Circuit found that the district court abused its discretion in denying the permanent injunction based on irreparable harm and inadequacy of legal remedies, the Federal Circuit reversed and remanded for further proceedings.  “In conclusion, we find that the district court abused its discretion in analyzing Apple’s evidence of irreparable harm and the inadequacy of legal remedies.  We therefore remand the case to the district court to reconsider, con­sistent with this opinion, Apple’s request for a permanent injunction against Samsung’s infringement of its three utility patents.”

 

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This is a significant opinion that provides further guidance on the ability to obtain permanent injunctions for patent infringement.  On the one hand, the Federal Circuit makes clear that the “causal nexus” requirement applies not just in the preliminary injunction context but also in the permanent injunction context, which raises the bar for obtaining a permanent injunction.  On the other hand, the Federal Circuit also found that the district court applied overly strict requirements, and otherwise erred and abused its discretion, in denying a request for permanent injunction.  In so doing, the Federal Circuit provides meaningful guidance on how to obtain a permanent injunction in the future, and highlights the growing trend of Federal Circuit decisions allowing permanent injunctions in competitor vs. competitor cases.