May 1, 2017
On April 28, 2017, in Nichia Corp. v. Everlight Americas, Inc., the Federal Circuit issued an important decision concerning the availability of injunctive relief at the conclusion of an infringement case. The court affirmed the district court’s holdings that the three patents in suit were infringed and that Everlight had failed to prove the patents invalid. Nonetheless, and significantly, the court affirmed the district court’s denial of a permanent injunction against Everlight.
Nichia manufactures and supplies LED lights worldwide. Everlight is an assembler of LEDs, which it sells in the United States directly to customers and through subsidiaries. Nichia sued Everlight for patent infringement, asserting that Everlight infringed three Nichia patents directed toward designs and methods of manufacturing LEDs. At the conclusion of a bench trial, the district court held that Everlight infringed the patents and had failed to prove the patents invalid. Nichia moved for a permanent injunction, which the district court denied. Both parties appealed.
On appeal, the Federal Circuit affirmed the district court in its entirety. After first addressing the infringement and invalidity issues, the court turned to the district court’s denial of injunctive relief. The court began its analysis by observing that its standard review of a decision to grant or deny an injunction was for abuse of discretion, a standard that is highly deferential to the district court. On this standard, and based on the facts before the court, the Federal Circuit affirmed.
The court noted the long-standing rule that a preliminary injunction is an equitable remedy, which is not a remedy that “issues as a course.” Rather, as established in the U.S. Supreme Court’s decision in eBay v. MercExchange, a plaintiff seeking a permanent injunction must satisfy the traditional four-factor test in equity. Specifically, a party seeking an injunction must demonstrate that (1) it has suffered an irreparable injury; (2) remedies available at law would be inadequate to compensate for that injury; (3) considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) the public interest would not be disserved by a permanent injunction.
The district court had weighed these factors in favor of Everlight, and the Federal Circuit agreed. First, the court rejected Nichia’s argument that the district court had abused its discretion in finding no direct competition between Nichia and Everlight. The district court had found that Nichia and Everlight generally sell to different segments of the market, and there was generally an “absence of actual competition” between these parties. Also, the district court disagreed with Nichia’s contention that it would suffer future or reparable harm because of lost sales, finding that Nichia had “failed to establish that [Everlight was] responsible for causing a single lost sale in the U.S.” Considering these factors, the Federal Circuit held that Nichia failed to show an abuse of discretion in determining that these factors favored Everlight.
Next, Nichia also had alleged that it had suffered price erosion because of Everlight’s infringement via a sale to a large customer. Nichia presented evidence that it had lowered its price to compete against Everlight and its infringement, and this infringement had caused this price erosion. The district court disagreed, finding that the customer had required the lower price and, in any event, other competitors had also offered products at similar lower prices. Also, Nichia’s expert admitted that he had not attempted a price-erosion analysis. Given these factors, the Federal Circuit again determined that there had been no abuse of discretion in finding for Everlight.
Finally, the district court had observed that Nichia was willing to license some of its patents, and this factor weighed against Nichia. The Federal Circuit, while denying that there was a categorical rule against granting of an injunction in cases where the patents have been licensed, nonetheless refused to disturb the district court’s judgment, finding that “[w]hile evidence of licensing activities cannot establish a lack of irreparable harm per se, that evidence can carry weight in the irreparable-harm inquiry.” The Federal Circuit held that Nichia had, on this record, failed to establish irreparable harm, and thus was not entitled to the injunction.
This case is significant in that it provides guidance to both patentees and established infringers in the injunction analysis. The Federal Circuit confirmed that courts are not required to grant an injunction at the conclusion of a successful patent infringement lawsuit (notwithstanding the putative status of a patent as a “right to exclude”). Rather, the patentee must establish proof of all four equitable factors, as in any other type of lawsuit, and it must do so on the merits of its particular case. Moreover, while there is no categorical rule against granting an injunction where there has been licensing activity, this factor will appear to weigh strongly against the patentee in the injunction analysis.
For more information on this case, please contact Fitch Even partner Allen E. Hoover, the author of this alert.
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