Canada should keep eye on U.S. patent ruling

In May 2005, the U.S. Supreme Court surprised the IP bar by overturning the ruling of the U.S. Court of Appeals for the Federal Circuit in MercExchange v. eBay.

The Court of Appeals had granted patent holder MercExchange an injunction against eBay. But the high court unanimously sent the case back for reconsideration, reasoning that trial judges should have greater discretion in deciding whether to grant permanent injunctions.

The high court also stated that the usual four-factor test - irreparable harm, inadequacy of available remedy, balance of hardship, and public interest - for determining whether equitable relief should be granted was applicable to patent cases and ought to have been applied.

Although the court was unanimous in its disposition of the case, and unanimous in reasoning that there were no automatic rules or exceptions governing the granting of injunctions, there were two “concurring” but conflicting opinions that left key issues up in the air.  

Justice Anthony Kennedy, writing for four members of the panel, said judges should consider deviating from the practice of granting injunctions in three types of cases: where the plaintiff was a “patent troll,” where the patents were of questionable validity, and where the offending patents were relatively minor elements of an overall invention. 

But Chief Justice John Roberts, writing for the remaining three members of the panel, said that courts should rarely refuse to grant injunctions because injunctions were the only way to give effect to patent holders’ “right to exclude.” He cautioned that injunctions in patent cases should not be denied on a “whim.”

“All the headlines suggested that injunctions were dead in patent cases in the U.S., but the real message was that injunctions were not automatic and that trial judges would have to look at the facts closely in deciding whether to grant them,” says Sheldon Burshtein of Blake Cassels & Graydon LLP’s Toronto office. 

Neil Henderson of Borden Ladner Gervais LLP’s Toronto office is of similar mind.

eBay was just an adjustment that ratcheted up the requirement for getting injunctions by one step,” he said.

A study by Wolf Greenfield & Sacks P.C., a Boston-based IP law firm, of 50 cases decided since eBay bears out the notion that the ruling would not have a cataclysmic effect.

“Although eBay made it tougher to win injunctions in patent-infringement cases, most plaintiffs still win them - but only if they are actually competing in the marketplace,” says Allen Rugg, a senior litigator with Wolf Greenfield.

Federal district courts and the U.S. Court of Appeals for the Federal Circuit issued preliminary or permanent injunctions in 37 of the 50 cases examined.

“These were traditional infringement cases involving competitors where irreparable injury - like loss of goodwill or unquantifiable market impact - could be proved,” Rugg says.

In several of the 13 cases in which injunctions were denied, the plaintiffs were not competitors but rather firms seeking to collect licence fees.

“Other factors cited by courts that denied injunctions included the failure to offer any evidence of irreparable injury, a prior voluntary cessation of infringing activity, or an admission by that plaintiff that damages were calculable,” Rugg says.

The point is that plaintiffs interested in seeking an injunction must assess the strengths and weaknesses of their case strategically.

The key step in doing so, according to Rugg, is determining whether the plaintiff’s business model is consistent with seeking an injunction or with proving damages. 

“Patent holders now must prove that they themselves, as opposed to their licensees, have or will suffer irreparable harm,” Rugg says. “Irreparable injury and the inadequacy of money damages are no longer presumed. If the plaintiff has demonstrated a willingness to accept licence income, the courts have held that the plaintiff has basically admitted that money damages are adequate.”

There is an exception that applies to universities and other research organizations that do not practise the patented technology and rely instead on monetizing it through licence fee income.

“Only one case involving a research organization has come up since the eBay case, and the plaintiff won the injunction,” Rugg says.

Canadian IP lawyers, however, should note that even the relaxed approach to injunctions in eBay contrasts markedly with Canadian jurisprudence, which tends to lean against the granting of injunctions. For example, in the leading case of Proctor & Gamble Inc. and The Proctor & Gamble Co. v. Unilever PLC and Lever Bros. Ltd. (1995), the Ontario Court of Appeal affirmed a finding of infringement but refused to grant injunctive relief against Unilever after the trial judge found that damages were an adequate remedy. The court reached its conclusion even though there was no suggestion that Unilever, a large operating company, was analogous to a patent troll.

Despite the differences, it’s important for Canadian lawyers to keep an eye on the developments south of the border. Consider, for example, that the Canadian government took the rare step of filing an amicus brief in support of Research In Motion during the company’s high-profile defense of the infringement suit brought by NTP Inc. against RIM’s ubiquitous BlackBerry product. The government’s brief lamented the application of U.S. patent law to cases in which a component of the alleged infringing activities were in Canada.

“Canada also believes,” the authors added, “that this decision, as it relates to the interpretation and scope [of U.S. patent law], is susceptible of interpretations that may have unfortunate and unintended consequences affecting Canada’s interests, as well as the interests of Canadian companies carrying on multi-jurisdictional operations.”

The Canadian Chamber of Commerce and the Information Technology Association of Canada also intervened in RIM, marking an awareness that U.S. IP decisions can land solidly on Canada’s business landscape and the role of the lawyers who are its primary advisers.

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