2007 Leadership Forum Irreparable Harm and Injuctions February 16, 2007

Sarah Columbia, Choate, Hall & Stewart LLP SColumbia@choate.com, 617.248.5053 Edward Gold, PricewaterhouseCoopers LLP edward.gold@us.pwc.com, 202.414.1330

Current Situation

What have judges decided post-Ebay regarding injunctions?

February 16, 2007 Slide 2

eBay Inc. v. MercExchange, LLC, 126 S.Ct. 1837 (2006)

Patent holder must show that: (1) it has suffered irreparable injury; (2) remedies at law (money) are inadequate to compensate for injury; (3) considering the balance of the hardships, an injunction is equitable; (4) public interest would not be disserved by an injunction.

February 16, 2007 Slide 3

Early Indications Post eBay: Patent Holders who are competing with infringer will still get a permanent injunction; those who are not will not
Permanent/Preliminary Injunctions Granted: - Black & Decker Inc. v. Robert Bosch Tool Corp. (N.D. Ill.) - Rosco, Inc. v. Mirror Lite Co (E.D.N.Y.) - Smith & Nephew, Inc. v. Synthes (U.S.A.), et al. (W.D. Tenn.) - 3M v. Avery Dennison (D. Minn) - TiVo Inc. v. Echostar Communications Corp. (E.D. Tex) (Folsom) - Telequip Corp. v. The Change Exchange, et al. (N.D.N.Y.) - Wald v. Mudhopper Oilfield Servs., Inc. (W.D. Okla.) - Am. Seating Co. v. USSC Group Inc. (W.D. Mich.) - Litecubes LLC v. Northern Light Products (E.D. Mo.)

February 16, 2007 Slide 4

Early Indications Post eBay: Patent Holders who are competing with infringer will still get a permanent injunction; those who are not will not
Permanent/Preliminary Injunctions Granted (Continued): - Floe Int'l, Inc., et al. v. Newmans' Mfg. Inc., et al. (D. Minn) - Christiana Indus. v. Empire Elec., Inc. (E.D. Mich.) - Canon Inc. v. GCC Int'l Ltd., et al. (S.D.N.Y.) - Visto Corp. v. Seva Networks Inc. (E.D. Tex.) Permanent Injunctions Denied: - Voda v. Cordis Corp. (W.D. Okla.) - Paice LLC v. Toyota Motor Corp. (E.D. Tex.) - Z4 Techs., Inc. v. Microsoft Corp. (E.D. Tex.) - Finisar Corp. v. DirecTV Group, Inc. (E.D. Tex.)

February 16, 2007 Slide 5

Irreparable Harm

Competition from infringer shown to inhibit patent-holders ability to develop new products and relationships with customers (Smith & Nephew) Court will not disturb patent holders determination to litigate rather than license (3M) Loss of market share in this nascent market is a key consideration in finding that Plaintiff suffers irreparable harm - losing market share that it will not have the same opportunity to capture once the market matures (Tivo) Loss of market share and brand name recognition incalculable and irreparable (Smith & Nephew) Loss of market share and loss of opportunity to maintain the industry standard and reputation for innovation (MudHopper)
February 16, 2007 Slide 6

Adequacy of Remedies at Law ($$)

Damages due to lost sales might theoretically be proven with lesser or greater degree of certainty, but intangible losses, such as the loss of goodwill, can never be ascertained accurately (Smith & Nephew) It is true that the jury awarded a large damages verdict. Those damages, however, are designed to compensate Visto fairly and reasonably for its past injury. Although future damages may compensate Visto for its approximate loss, that does not make them adequate in the sense that they are suitable proxy for injunctive relief. (Visto)

February 16, 2007 Slide 7

Balance of Hardships

Patent holder has been barred from exercising its right to exclude conveyed by the patent for 20% of the limited life of the patent (3M) Patented product is plaintiffs primary product; infringing products do not form the core of Defendants business (Tivo) if no permanent injunction is entered, [plaintiff] will lose goodwill, potential revenue, and the very right to exclude that is the essence of the intellectual property at issue. (Visto)

February 16, 2007 Slide 8

Public Interest

The public maintains an interest in protecting the rights of patent holdersa permanent injunction will further consumer access to more competitive products from the patent holder (Smith & Nephew) The products are not related to any issue of public health or other key interest they are related to entertainment (Tivo)

February 16, 2007 Slide 9

Irreparable Harm

When does irreparable harm occur?

February 16, 2007 Slide 10

Preliminary Injunction (patent case, pre-eBay)

1 2

Request for Preliminary Injunction

Trial with Injunction

Harm and observation of events (lost sales, price movements, etc.)

Harm ended and no observation of events

February 16, 2007 Slide 11

What makes a good PI case?

Preliminary Injunction

Infringement But for V2

REVENUE

But for V1

Actual

PERIOD
February 16, 2007 Slide 12

What factors help an irreparable harm argument?

Emerging market / technology New product(s) launched Rapidly changing technology Market leader position First move advantage Very long sales cycles Very few, but large dollar, sales Reputation at risk Customer relationships at risk Intellectual property at issue is small part of whole Price erosion
February 16, 2007 Slide 13

Permanent Injunction (patent case, post-eBay)

1 2 3

Beginning of infringement

Trial

Appeal

Harm and observation of events (lost sales, price movements, etc.)

Harm without injunction, observation of events?

Injunction? Observation of events?

February 16, 2007 Slide 14

Post Trial: Compulsory License Finisar Corp. v. DirecTV Group, Inc. The court grants a compulsory license. Defendants are ordered for the remaining life of the patent to pay a quarterly royalty. $1.60 per set-top box through April 2012. The court maintains jurisdiction to enforce this portion of the Final Judgment.

February 16, 2007 Slide 15

Post Trial: Compulsory License z4 can be compensated for any harm it suffers in the way of future infringement at the hands of Microsoft by calculating a reasonable royalty An efficient method for z4s recovery post-verdict is needed. Court severs z4s action for post-verdict infringement Court orders z4 to file an appropriate complaint Microsoft is required to file quarterly sales reports to preserve z4s rights to future monetary damages.

February 16, 2007 Slide 16

Post Trial: Escrow Account Voda v. Cordis As our defendant has indicated, it will continue to infringe, the court must fashion a remedy for the continuing, harm Defendant to pay future royalties into escrow account at rate set by jury. The court ordered quarterly filing of sales reports until final resolution of this action.

February 16, 2007 Slide 17

Footnote in Paice v. Toyota

The Court notes that monetary relief could result in lower licensing rates than plaintiff would desire. The Court also recognizes that, if an injunction were to issue, Plaintiff would have a more impressive bargaining tool. This consideration, however, does not replace the four-factor test that must be satisfied for equitable relief. No injunction, but no order regarding future royalties

February 16, 2007 Slide 18

If Permanent Injunction is Not Awarded, What is the Remedy?

Compulsory license? Escrow in anticipation of future damages? Require filing of successive infringement actions? Automatic finding of willfulness?

February 16, 2007 Slide 19

Implications of Ebay to damages trends

Shift in bargaining power may reduce number of patent infringement lawsuits filed Defendants may be more willing to go to trial. Compulsory license becomes extension of hypothetical license - Did judge / jury consider all relevant future damage issues when deciding past damages? New potential infringer may prefer to allow jury to set rate rather than negotiate with patent holder.
February 16, 2007 Slide 20

Questions suggested by Ebay:

Should Plaintiff counsel leave some components out of damages to argue irreparable harm post trial? Should damages expert be prepared to say these components left out are not calculable but components left in are? If either competitor / patent holder is only requesting royalties as compensation, then should injunction issue?

February 16, 2007 Slide 21

MedImmune v. Genentech (S. Ct. Opinion January 9, 2007)

HOLDING: A patent licensee may seek a declaratory judgment of invalidity or non-infringement even though it is paying the license fee and enjoying the benefits of the license (i.e. protection from an infringement action) Questions/Implications: - New Landscape for Licensee: pay royalties under protest and challenge patent - Impact on express prohibitions in licenses against validity challenges esp. in settlement agreements - Incentives: for patent holder to be paid up front; for licensee to pay running or deferred royalties
February 16, 2007 Slide 22

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