Solving the “Patent Troll” Problem

Travis Waller, MJLST Managing Editor

“Dovre: What’s the distinction between troll and man?

Peer: So far as I know, there is none, by my score.

The big want to roast you, the small ones to scratch you; —

same as with us, if they dare but catch you.”

Henrik Ibsen, Peer Gynt, Act II, ll. 903–06 (John Northam, trans., 2007) (1876).

In recent events, internet “trolling” has become something of a hot issue. This discussion will not address internet trolling (even tangentially), but will instead endeavor to shed light upon a different, often craftier member of troll-kind: the patent troll.

To begin, what is a “patent troll?” The term has taken a somewhat expansive usage since its original appearance in a 1990’s educational video released to corporations. Today, the term can refer to a broad range of practices, but most commonly is understood as the practice of an individual or corporation (sometimes with a large patent portfolio) that abusively uses the threat of enforcement litigation for overly broad, and probably invalid, patents that it has acquired to essentially extort licensing agreements from companies (often quite small) that do not necessarily have the resources to devote to patent litigation, and are likely not even infringing on the “trolls” patented invention to begin with.

Since that was a mouthful, let me provide an example:

Company A (the “troll”) purchases a patent on invention A3;

Company B independently creates invention ABC123, and acquires a patent;

Company A claims that patent A3 reads on patent ABC123, because it claims elements A3 are contained in Company B’s patent ABC123;

Company A sends a letter to Company B demanding that it licenses patent A3, or will face a “prompt” litigation action.

In this example, Company B, fearing that Company A may actually be within it’s legal rights, agrees to pay Company A the fee to license patent A3 for fear of Company A filing expensive patent litigation against Company B, even though a court would almost certainly find that invention ABC123 is nothing like patent A3, and therefore that Company B is not infringing on Company A’s rights (for a few “real world” examples, as well as a dash of technology industry gossip, see this article by Business Insider).

The question arising from situations like this that many courts and lawmakers have hemmed and hawed over is this: who is right? On the one hand, federal patent law strives to protect the rights of the legitimate inventor, and incentivize the very “progress of the useful arts”. On the other hand, how can the law protect companies and individuals like Company B from being bullied by the aggressive assertion of patent rights by companies like Company A?

The answers have manifested themselves mostly through federal and state law making, starting first with the enactment of the Lahey-Smith America Invents Act (the “AIA” for those in the know). This Act modified existing US patent law to allow for a process called “post-grant opposition,” which essentially allows individuals to challenge the validity of a patent after it has been issued by the USPTO, but without having to set foot in a courtroom (theoretically creating a much cheaper option than trial for individuals seeking to invalidate broad patents) (for more info on the process, see here).

The AIA is still relatively new (enacted in 2012), and it is hard to say for certain how this procedure has affected the act of “patent trolling”, however some have made the claim that the AIA has not had the effect of “starving patent trolls” that the lawmakers hoped it would (see here for more discussion on this point).

As such, individual states have taken the fore in this fight against the patent troll, and it is often the case that state consumer protection agencies make up the front lines, by way of various state unfair trade practice laws. However, many state legislatures have taken a much more targeted strategy, and have begun to arm their agencies with the ability to specifically bring actions against individuals and corporations for the “bad faith assertion of patent rights” (as of 2016, Minnesota became one such state).

This action gives state agencies a huge benefit in targeting “troll-like” behavior in the patent industry, but at what cost? Federal patent law preemption issues aside for right now (and yes, they are out there), how exactly will an agency define what “trolling” is? How will state agencies determine that the assertion of the patent right was “in bad faith?” Moreover, how will this effect an otherwise uniform protection that patent holders have across the US?

These questions, and many more, will no doubt need to be addressed by states adopting the “bad faith assertion of patent rights” statutes. For now, since I don’t have an answer off-hand to this incredibly intricate legal and policy question, I will simply eco the words of Henrik Ibsen: “what is the distinction between troll and man?” What is the distinction between patent troll, and legitimate inventor? And finally, are these definitions really something we want to leave in the hands of state agencies, which may or may not be relatively unsophisticated in the intricacies of federal patent law?

My initial impression is one of skepticism, but if the willingness of a great deal of state legislators to adopt such measures can be taken as some indication of a nationwide public demand for a new way to address these issues, maybe this is the start of a conversation that should have happened some time ago.

Halo Electronics v. Pulse Electronics: More Discretion of District Courts in Granting Enhanced Damages

Tianxiang (Max) Zhou, MJLST Staffer

The recent US Supreme Court case, Halo Electronics v. Pulse Electronics, grants district courts more discretion in determining “enhanced damages.” The previous clear standard of the enhanced damages became murkier after this case and left much room for lower courts to decide what constitutes enhanced damages.

Section 284 of the Patent Act provides that, in a case of infringement, courts “may increase the damages up to three times the amount found or assessed.” Enhanced damages are appropriate only when the patentee proves, by clear and convincing evidence, that the infringer “willfully” infringed the patent. Prior to Halo, courts adopted a bifurcated approach to enhanced damages established in In re Seagate: First, the patentee must show the infringer’s recklessness by clear and convincing evidence, that “the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent.” If the objective standard of recklessness is satisfied, then patentee must demonstrate that the risk was either known or so obvious that it should have been known to the accused infringer.

In Halo, the jury in the district court found a high probability that the infringement was willful. However, the district court refused to grant an enhanced damages based on the two-part test, and found as a matter of law, that the patentee did not prove objective recklessness of the infringer. The Federal Circuit Court affirmed the decision.

However, the Supreme Court reversed the Appeal Court’s decision, and rejected the two-part test set forth in In re Seagate. Specifically, the Supreme Court, citing Octane Fitness LLC v. ICON Heath & Fitness, Inc, found that the test is “unduly rigid, and it impermissibly encumbers the statutory grant of discretion to district courts.” Though rejecting the two-part test, the Supreme Court did not give a clear guideline for lower courts to follow. Halo provides that, “[a]s with any exercise of discretion, courts should continue to take into account the particular circumstances of each case in deciding whether to award damages, and in what amount.” According to the Supreme Court, district courts are “‘to be guided by [the] sound legal principles’ developed over nearly two centuries of application and interpretation of the Patent Act.” Besides, the Supreme Court found that the prior two-part test, which requires a finding of objective recklessness, excludes discretionary punishment of “wanton and malicious pirate” who intentionally infringes another’s patent, and a district may grant enhanced damages even in the absence of a finding such objective recklessness.

Overall,  Halo broadened district courts’ discretion in evaluating facts of patent infringement and granting enhanced damages. While the Halo decision will definitely increase the unpredictability of patent infringement lawsuits, it is still unclear whether the broad discretion of district courts will open the gate of flood of enhanced damages. Besides, before we think about the standard of enhanced damages, it is also worthy to consider the policy implications of enhanced damages, and to ask whether and when enhanced damages are appropriate. Anyway, it would be exciting to see a clearer standard of enhanced damages in future cases, or amendments of laws and regulations.

Patent Damages

Tianxiang (Max) Zhou, MJLST Staffer

In Dec. 2015, almost five years after Apple sued Samsung for infringing a smartphone design patent, Samsung agrees to pay Apple $548 million. Apple is now demanding Samsung pay an additional $180 million for the patent dispute. Besides the huge amounts of damages, the case is not over and it continues raising fundamental issues of how to evaluate values of design patent infringements.

In the petition for writ of certiorari challenging the $400 million that it has paid for infringing Apple’s design patent, Samsung writes, “The questions presented are: . . . Where a design patent is applied to only a component of a product, should an award of infringer’s profits be limited to those profits attributable to the component?

The second issue stated in the writ is noteworthy. Under the current rule, the awards in a design patent infringement case to the patent owner are the whole profits from the sale of the infringing products. This rule has created and will create massive jury verdicts in design patent infringement cases, and the Supreme Court has not reviewed the rule. As Samsung writes in the petition, “the Supreme Court has not reviewed a design-patent case in more than 120 years.” With the new development of the industries and various design patents, it is doubted whether the awards of whole profits are reasonable.

Although statistically the Supreme Court will not take the case, the issue of design patent awards raised heated discussions. In 2014, a group of 27 law professors submitted an amicus brief in support of Samsung urging the Federal Circuit to interpret the relevant statutory provision to limit the award of profits in design patent infringement cases. The amicus brief stated: “the Court should require proof of some connection between the patented design and the defendant’s profits, the order the district court to remit the award of profits to the extent it exceeds those profits attributable to the patented designs.” The professors argued the origin and context of the controlling statute Section 289, and that awarding a defendant’s entire profits makes no sense in the modern world, and to prevent disgorgement of profits.

As stated above, the Supreme Court has not reviewed the issue for over one hundred years. With the unsettled dispute between Samsung and Apple continuing, we could look forward to whether the Supreme Court would take the case and redefine Section 289. However, a question posed to the judges is, if the awards to the design patent infringement are not the whole profits of the sale, then what proportion of the profits should be awarded? Judges should figure out a reasonable standard to evaluate the amount attribute to the infringed design.

Supreme Court to Hear Willful Infringement Cases: Will the Justices Clear the Way for Enhanced Damages for Patentees?

Na An, MJLST Staffer

The U.S. Supreme Court granted certiorari to hear two patent cases challenging the current Federal Circuit standard for proving willful infringement on October 19, 2015. The finding of willfulness allows judges to award triple damages, providing more leverage for patentees in licensing and settlement negotiations. The patent litigation world watches with great anticipation as the Court’s Octane Fitness decision rejected a similar rule for awarding attorney’s fees in patent cases last year.

The Federal Circuit established the current willfulness test in its landmark Seagate decision in 2007, which required the patentee to prove that there was an objectively high likelihood that the infringer’s actions constituted infringement and that the likelihood was either known or so obvious that it should have been known to the accused infringer. The Seagate two-prong test overruled decades of precedents that had imposed an affirmative duty on accused infringers to obtain opinion of counsel and posed a substantially heightened burden for a patentee seeking to establish willfulness. Later on, the Federal Circuit recognized the complexity of post-Seagate inquiry and held in Bard Peripheral Vascular that the threshold objective prong of the test is a question of law, reallocating the roles of the judge and jury in determining willfulness of the infringement. Consequently, as opposed to the traditional consideration of willfulness as a question of fact, a district court must now determine whether a reasonable person would have found there to be a high likelihood of infringement (first prong), while the jury determines the patent infringer’s subjective intent (second prong).

Upon a finding of willfulness, the court has discretion to increase the damages up to three times the amount found or assessed, as authorized in 35 U.S.C. § 284. This statutory provision is very similar to § 285, which grants the court power to award reasonable attorney fees in exceptional cases. Before the Supreme Court’s Octane Fitness decision last year, the Federal Circuit restricted its application of § 285 to cases, in which the losing party’s position was “objectively baseless” and brought in “subjective bad faith.” Octane Fitness rejected such a rigid rule and held that judges can decide to award fees when a case “stands out from others.” Seagate’s two-prong test bears a striking resemblance to pre-Octane fee inquiry, sparking much anticipation among practitioners and scholars that the high court would similarly strike down the restrictive willfulness test. The Court found its opportunity in Halo and Stryker.

Halo involves infringement of three US patents, which disclose “surface mount electronic packages containing transformers for mounting on a printed circuit board inside electronic devices.” The Federal Circuit affirmed the district court’s denial of increased damages because the patentee failed to satisfy the objective prong of the Seagate test. Similar issues arose in Stryker. The patents in Stryker were directed to devices that deliver pressurized irrigation for different medical therapies, and the Federal Circuit again denied increased damages due to district court’s failure to undertake an objective assessment of the infringer’s defense. Interestingly, Judge Kathleen O’Malley, concurring in Halo, called for a complete reevaluation of the two-prong test for finding willful infringement, and she reasoned that increased damages and attorney fees should be grouped, given their analogous frameworks and statutory provisions. Therefore, in light of the Octane Fitness decision, the Seagate two-prong test merits reconsideration.

The Federal Circuit voted 8-2 in March not to reconsider the willfulness standard en banc in Halo; nevertheless, the Court granted certiorari without a sharp divide in the lower court. It signals that the Court is unlikely to retain the Seagate standard. But the question remains how much more flexible the new test will be. Will the Court use the same “stands out from others” language in Octane Fitness? Are the justices taking the second prong of the Seagate test away from juries? Or are we going back to the pre-Seagate rule that a mere notice of patent infringement triggers an affirmative duty on the defendant to obtain opinion of counsel? Additionally, the statutory language in § 284 says nothing about willfulness. Will the court give judges even broader discretion to award increased damages in absence of willfulness? If so, is there a danger of more forum shopping? We eagerly await the high court’s decision.

The “Patent Dance” for Now: Rehearing Denied in Amgen v. Sandoz

Jeff Simon, MJLST Staffer

On July 21, 2015, the Federal Circuit’s decision in Amgen v. Sandoz established that a biosimilar applicant does not have to follow the patent dispute resolution procedures set forth by the Biologics Price Competition and Innovation Act. The BPCIA’s “patent dance,” located at 42 U.S.C. § 262(l)(2)(a), sets forth procedures requiring biosimilar applicants to disclose the biosimilar application and information describing the methods and procedures of its production to the sponsor of the reference biologic drug. The Federal Circuit’s fractured decision denied the compulsory nature of the “patent dance,” while still holding that biosimilar applicants are required to provide the biologic drug sponsor 180 days advanced notice of the first commercial marketing of its biosimilar product in accordance § 262(l)(2)(a).

Considering that the decision of the court was split by favoring the biosimilar applicants regarding the issue of the “patent dance” while favoring the biologic sponsor when it came to market disclosure, the decision was far from a satisfying result for either party as neither party came out as the clear victor. As such, both Amgen and Sandoz filed petitions for an en banc rehearing on August 20, 2015. Amgen’s petition for review once again contended that the language of § 262(I)(2)(a) as stated by congress, specifically the use of the word “shall,” indicates that the “patent dance’s” procedures are mandatory. Sandoz contended among other things that the 180-day provision necessarily increases the exclusivity period from 12 years to 12 and a half years and further that the court incorrectly asserted that notice was mandatory and enforceable. Both parties submitted amicus curiae briefs in agreement that, as a matter of first impression, it was appropriate for an en banc rehearing.

However, despite a fractured panel deciding a matter of first impression, Federal Circuit denied a rehearing in decision on October 16, 2015. The decision came as surprise to many of those associated with the biologic drug industry, especially considering the novelty and discord upon the issues. Considering the fact that both parties sought a rehearing, the court may have decided that the issue was undeserving of the court’s continued interest and resources. Both parties may file petitions for certiorari.

In regards to the future implications of the decision, it’s important to note that many of the high revenue pioneer biologic drugs are set to have their US patents expire within the next few years. This expected “patent cliff’ is certain to drive momentum within the biosimilar market. This wave of biosimilar applications is sure to have large implications upon the BPCIA, and particularly whether the “patent dance” is optional. All considered, the issues presented in Amgen may be approaching a level of importance that draws the attention of SCOTUS. It’s possible that a grant of certiorari may be in order to settle the debate on the BPCIA’s “patent dance” and market disclosure requirements, particularly considering the economic ramification of the anticipated biologics’ patent cliff.

Apple Loses Multi-Million Dollar Lawsuit

Riley Conlin, MJLST Staffer

Earlier this month, the Wisconsin Alumni Research Foundation (WARF) won a large patent lawsuit against Apple Inc. The suit relates to WARF’s 1998 patent of a technology that improves microchip efficiency. WARF initiated the suit in January 2014 contending that Apple’s A7, A8 and A8X processors violate the patent. The processors are found in the iPhone 5s, 6, 6 Plus, and many variations of the iPad.

Apple denied that their microchips infringed WARF’s patent and contended that the patent was invalid. The U.S. Patent and Trademark Office declined to review the patent’s validity. The jury, sitting in the U.S. District Court for the Western District of Wisconsin, concluded that Apple’s processing chips improperly used technology owned by WARF. U.S. District Court Judge William Conley has scheduled to trial in three phases. First, the jury determined whether or not Apple was liable. Second, the jury will determine the appropriate damages. Finally, the jury will consider whether Apple willfully violated the patent, which could lead to additional damages. Based on Conley’s recent ruling, Apple already faces damages reaching potentially $862.4 million.

WARF has initiated lawsuits around this patent before. In 2008, the foundation used that patent to sue Intel Corp. However, that case never made it to trial, because it was settled shortly prior to it beginning.

In September 2015, WARF filed a subsequent lawsuit against Apple. The foundation contends that Apple’s A9 and A9X chips also infringe upon their patent. The A9 and A9X chips can be found in Apple’s more recent technology including the: iPhone 6S and 6S Plus, and the iPad Pro.

Akamai Techs. v. Limelight Networks: An Expansion of the Scope of Patent Direct Infringement

Tianxiang (“Max”) Zhou, MJLST Staffer

This August the Federal Circuit Court delivered an en banc opinion of Akamai Techs. v. Limelight Networks, affirming the jury decision awarding $40 million in damages. The per curium opinion provided that the Court “unanimously set forth the law of divided infringement under 35 U.S.C. § 271(a)” and there was substantial evidence “support[ing] the jury’s finding that Limelight directly infringed U.S. Patent No. 6,108,703.” Accordingly, the Federal Circuit reversed the District Court’s grant of Limelight’s motion for judgment of non-infringement as a matter of law.

The issue in this case is whether Limelight should be liable for direct infringement of the patent by inducing consumers to infringe the patent and should thus be jointly and directly liable under 35 U.S.C. §271(a). The Supreme Court held that induced infringement under §271(b) requires a single direct infringer. According to the Supreme Court, Limelight should not be liable as the it only performed some but not all of the infringement steps.

The Federal Circuit expanded the scope of direct infringement and held Limelight liable. The Federal Circuit held that Direct infringement under §271(a) occurs where “all steps of a claimed method are performed by or attributable to a single entity.” According to the Federal Circuit, when there are two or more actors from a joint enterprise, all can be charged with the acts of the other, “rendering each liable for the steps performed by the other as if each is a single actor.” The Court further cited the definition of joint enterprise in Restatement (Second) of Torts and provided four factors in determining whether there is joint enterprise.

The case is important because it set forth the rule that the actors in a joint enterprise can be liable for the other actors. The case prevented a possible way to dodge the direct infringement liability by inducing the consumers to perform some of actions of infringement.

Inter Partes Review: A Questionable Item in the Generic’s Tool Kit

Will Orlady, MJLST Lead Articles Editor

In 1984, Congress enacted the Drug Price Competition and Patent Term Restoration Act (Hatch-Waxman). Since then, pioneer pharmaceutical manufacturers and their generic counterparts have resolved patent disputes in federal district court under the Hatch-Waxman patent dispute framework. This framework is admittedly complex. But it forces interested parties to engage with Hatch-Waxman, mandating compliance with congressionally determined policy decisions regarding pharmaceutical exclusivity. Hatch-Waxman’s patent dispute framework was part of the larger bill, crafted to balance the interests of pioneer and generic drug manufacturers. Congress enacted the law to address two (apparently competing) goals: (1) to encourage innovation in pharmaceutical research and development and (2) to help generic drugs reach the market more quickly. The tension between these goals merits further discussion.

Before Hatch-Waxman, concerns grew that drug prices were too high and that access to certain treatments was too limited. Thus, there was both need and substantial demand for cheaper, generic drugs. On the other hand, pioneer drug manufacturers complained of inadequate market exclusivity following FDA’s New Drug Application (NDA) process. Put simply, pioneer companies spent (and continue to spend to this day) approximately $1 Billion brining a new drug to market. On top of the money, pioneer manufactures potentially spend several years of their drugs’ valuable patent terms going through the NDA process. Thus, pioneer companies noted that recouping R&D and regulatory expenses was not feasible given the “short” market exclusivity period.

Hatch-Waxman was a carefully wrought legislative compromise. It granted pioneers a patent term extension based on the length of FDA’s regulatory review, non-patent market exclusivity provisions, a mechanism for increasing the public notice of patents and patent challenges, and an automatic injunction forbidding FDA approval of a generic drug in certain circumstances. The generic manufacturers got, among other things, the Abbreviated New Drug Application (ANDA), making the regulatory process for generic drugs less onerous. To be sure, Hatch-Waxman is not without its critics, and its nuances are immense. But it is important to remember that the act represents a careful Congressional balancing of industry and public interests. Hatch-Waxman’s patent dispute resolution mechanism squarely fits within this compromise.

Enter the America Invents Act (AIA) of 2011. Of note, the AIA revised certain post-grant opposition procedures. Specifically, the law expanded the importance of inter partes review (IPR). IPR is a process by which a third party may have a patent reexamined by the patent office to verify that the office validly issued the patent. Since the AIA’s enactment, IPR has become immensely popular. Why is this? IPR offers a potential alternative to district court litigation. It provides advantageous invalidation standards—e.g. the “broadest reasonable interpretation” during claim construction. Further, IPR allows patent challenges with relatively limited discovery, cutting both the time and cost of district court patent litigation. Finally, IPR petitioners have been enormously successful in invalidating many of the patents challenged to date.

Needless to say, IPR frightens patentees holding rights to valuable patents. Can you see where I’m going here? Are particular Congressional mandates and policy determinations on a collision course?

The post-AIA surge of IPR proceedings has pioneer pharmaceutical manufacturers worried—rightly so. Generic manufacturers are already petitioning the U.S. Patent and Trademark Office (PTO) for IPR of patents protecting various pharmaceutical and biologic products. Given the aforementioned advantages of IPR, this shouldn’t come as a surprise, but that is not to say that it is not remarkable. Generic manufacturers could be leveraging the advantages of IPR to force pioneer drug manufacturers to settle patent disputes out of district court. Or, of more consequence, they could be using IPR to skirt the patent dispute frameworks required by Hatch-Waxman and the BPCIA (for biologics).

Indeed, if pioneer pharmaceutical manufacturers hold patents allowing for market exclusivity, the patents should be validly issued. It is, however, simultaneously important to remember that Congress has treated drug and biologic patents differently since, at the very least, 1984. Pharmaceutical patents are remarkable in at least three key ways. First, patents on commercially successful drugs are extraordinarily valuable. Congress (at least ostensibly) allows this because of the enormous regulatory barriers to entry. In other words, it’s a trade. FDA imposes supra-burdensome regulatory costs to ensure new drugs are safe and effective. Consequently, Congress allows pioneer drug manufacturers to unilaterally exploit the market to recoup losses, and make money. Second, pharmaceutical patents read on particles of matter that are harnessed to treat disease and save lives. This creates a unique demand. And third, pharmaceutical patents read on products which require sensational development costs, including the time and money required for regulatory approval.

Does this mean pharmaceutical patents should be treated differently, or made exempt from IPR? The answer is not so simple. But legislators, scholars, and practitioners should consider whether IPR is having unintended consequences within the pharmaceutical industry. Just as a quick example: Did Congress truly intend for the AIA’s IPR to be a way around Hatch-Waxman or the BPCIA? And even if it did, does it make sense to put enormously valuable patents at the mercy of an overburdened administrative agency? As I said, the answers don’t come readily. It’s a policy debate that needs to happen. Until it does, I think it unwise to abandon previously established Congressional compromises—i.e. Hatch-Waxman—for a hasty change to our patent system.

The Mystery of the Preliminary Injunction’s Tiny Role in Patent Litigations in China and Some Newest Developments

Sen “Alex” Wang, MJLST Managing Editor

In an unpublished note completed early February this year, I compared the current standards of granting preliminary injunctions in patent litigations in the Chinese People’s courts and the US federal courts. The preliminary injunction, an equitable remedy that has long been available to patent litigants in the US, was not codified in the Chinese Patent Act until 2000 as part of China’s effort to fulfill its obligations after joining the WTO. Since then, China has been consciously strengthening the protection for intellectual property rights within its jurisdiction and has taken great pride in the progress it has made so far. In particular, the numbers of patent applications as well as litigations in China have skyrocketed in China, and the People’s courts have become more confident in handling high profile patent cases and issuing large damage awards. However, the preliminary injunction, even after its inception in the Chinese Patent Act, has only played a mysteriously tiny role in protecting the patentees’ rights during the years. For example, from 2003 to 2009, the People’s courts in Guangdong province, one of the biggest and most developed provinces in China, ruled respectively on 54, 19, 21, 20, 24, 5, and 11 preliminary injunction applications involving intellectual property rights (not just patents) while granting only 17, 6, 12, 8, 5, 2, and 1 of the applications in each corresponding year. By contrast, the number of intellectual property cases considered by the People’s courts in Guangdong during the same time frame was 1465, 3199, 4257, 3644, 3989, 5312, and 7152, respectively.

As a powerful and drastic remedy, the preliminary injunction exists to provide speedy relief from irreparable injury and is “generally granted under the theory that there is an urgent need for speedy action to protect the plaintiff’s rights.” Apple, Inc. v. Samsung Elecs. Co., 678 F.3d 1314, 1334 (Fed. Cir. 2012) (O’Malley, J., concurring-in-part, dissenting-in-part) (internal citation omitted). In the US, the Federal Circuit utilized, for a long time, a balancing—or so called “sliding scale”—test for issuing preliminary injunctions, where the movant must establish a right thereto in light of four factors: (1) a reasonable likelihood of success on the merits; (2) irreparable harm if an injunction is not granted; (3) the balance of hardships tipping in its favor; and (4) the impact of the injunction on the public interest., Inc. v., Inc., 239 F.3d 1343, 1350 (Fed. Cir. 2001) (citing Hybritech, Inc. v. Abbott Laboratories, 849 F.2d 1446, 1451 (Fed. Cir. 1988)). None of the factors, taken individually, is dispositive; rather, the court must “weigh and measure each factor against the other factors and against the form and magnitude of the relief requested.” Id. However, following the Supreme Court’s rulings in eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006) and Winter v. NRDC, Inc., 555 U.S. 7 (2008), the Federal Circuit has given up its balancing test to comply with the more rigorous requirements set forth by the Supreme Court. Compare Abbott Labs. v. Sandoz, Inc., 544 F.3d 1341, 1365 (Fed. Cir. 2008), with Titan Tire Corp. v. Case New Holland, Inc., 566 F.3d 1372, 1375–76 (Fed. Cir. 2009). Currently, “a showing on one preliminary injunction factor does not warrant injunctive relief in light of a weak showing on other factors.” Wind Tower Trade Coal. v. United States, 741 F.3d 89, 100 (Fed. Cir. 2014).

Across the Pacific Ocean, the Chinese People’s courts, under a civil law system, rely heavily on statutes, regulations, and other promulgated rules. To comply with the requirements of the TRIPS Agreement, both Article 66 of the Chinese Patent Act and Article 100 of the Chinese Civil Procedure Act now recognize the preliminary injunction as a provisional remedy in patent litigations. While the acts passed by the People’s Congress form the statutory bases for issuing preliminary injunctions, in practice, the more detailed procedural as well as substantive requirements for obtaining such provisional remedy are actually found in in several judicial interpretations and judicial policy documents promulgated by the Supreme People’s Court (SPC). The foundational judicial interpretation in this regard is the Several Provisions of the Supreme People’s Court Concerning the Application of Law to Pre-trial Cessation of Patent Infringement (最高人民法院关于对诉前停止侵犯专利权行为适用法律问题的若干规定) [hereinafter Provisions on Pre-trial Cessation of Patent Infringement] (2001), the Article 11 of which requires the People’s courts to consider four factors when ruling on an application for a preliminary injunction, namely (1) whether the alleged current or imminent conduct infringes the patent; (2) whether the applicant will suffer irreparable harm without an injunction; (3) the guarantee provided by the applicant; and (4) whether the public interest will be disserved. Despite the SPC’s wording of the first factor, it has been treated as inquiring into the applicant’s likelihood of success on the merits. As to the second—irreparable harm—prong of the test, there had been a great amount of confusion among the lower courts until Cao Jianming, vice president of the SPC, pointed out in February 2008 that the core of the irreparable harm analysis is whether the damage can be compensated by monetary award and whether there is a reasonable expectation of collecting such award in light of the alleged infringer’s financial condition.

With the first two factors being the most important in the determination, the standard in China looks very similar to the one currently used in the federal courts in patent cases as the Rule 65 of Federal Rules of Civil Procedure also mandates the applicants to provide security. This similarity between the standards makes one even more curious about why preliminary injunctions have only been utilized at such a low rate in patent cases in China. The answer—also the problem of the current Chinese approach—lies in the restrictions buried in two judicial policy documents from the SPC. Although the four-factor test seems to be applicable to all patent cases, the SPC has confined the issuance of preliminary injunctions to cases where the facts are clear and the infringement is easy to determine. Opinions on Issues Concerning Maximizing the Role of Intellectual Property Trials in Boosting the Great Development and Great Prosperity of Socialist Culture and Promoting the Independent and Coordinated Development of Economy (关于充分发挥知识产权审判职能作用推动社会主义文化大发展大繁荣和促进经济自主协调发展若干问题的意见) [hereinafter Opinions on Maximizing the Role of Intellectual Property Trials], art. 16 (2011). In particular, when there is no literal infringement and the court has to conduct complicated technical comparisons, a preliminary injunction is deemed inappropriate. Opinions on Several Issues Concerning Intellectual Property Trials Serving the Overall Objective Under the Current Economic Situation (关于当前经济形势下知识产权审判服务大局若干问题的意见) [hereinafter Opinions Under the Current Economic Situation], art. 14 (2009). In addition, if the alleged infringer has challenged the validity of the patent(s) in question or has initiated a separate declaratory judgment action, the courts are required to be extremely cautious in granting preliminary injunctions. Id.

This “clear” and “easy” yet rigid approach seems to be contrary to the legislative intent of introducing such a provisional remedy in the first place and only makes sense to some extent when considered in a bigger context. On several different occasions and in various promulgated documents, the SPC has expressed some serious concern that preliminary injunctions or the process by which they are granted may be abused to impede competition, while adding to the concern is the present procedural setup of obtaining a preliminary injunction. In the People’s Courts, there is no similar remedy as a TRO but only a general preliminary injunction. It is general in the sense that the application can be filed before, at the same time with, or after the commencement of an infringement action, and once granted, the injunction will usually remain in force until the final adjudication on the merits take effect. Provisions on Pre-trial Cessation of Patent Infringement art. 14. Furthermore, a preliminary injunction issued before the filing of an infringement action will, so long as the applicant initiates the formal infringement suit within 15 days of getting the injunction, enjoin the alleged infringer all the way until the end of the infringement action. Id. Also, a preliminary injunction can be issued without notice to the enjoined party, although the courts have the obligation to notify the enjoined party no later than 5 days after the issuance of the injunction. Id. art. 9. Moreover, the People’s courts only have 48 hours (96 hours at most) to make a decision in writing after receiving eligible applications. Id. Additionally, though the People’s Courts are authorized to summon one or all parties to clarify factual issues, no hearing of any form is required. Id. One final point, the enjoined party has no right to appeal but may apply, within 10 days of receiving the injunction, for review once, though the injunction will not be suspended during the review period and there will still be no guaranteed hearing opportunity. Id. art. 10. Given the powerful nature of the remedy once granted, the tight time frame for making a decision in writing, and the limited hearing requirement, it is understandable that the fear of mistakes and misuses has prompted the SPC to take a cautious position.

Although the SPC’s current approach is to some extent understandable, it has comprised the preliminary injunctions’ function as an important provisional remedy for patent holders and has likely caused many patent holders to refrain from even considering this option as evidenced by the extremely low application rate in Guangdong. Fortunately, the SPC has finally noticed this alarming trend. On February 26, 2015, the SPC published for public comment a draft SPC Judicial Interpretation on Several Issues in Application of Law in Determination of Action Preservation in Intellectual Property and Competition Controversies ((最高人民法院关于审查知识产权与竞争纠纷行为保全案件适用法律若干问题的解释) (征求意见稿)). This new judicial interpretation purports to supersede prior judicial interpretations involving preliminary injunctions in patent and trademark cases. According to the draft, the time frame for rendering a preliminary injunction decision is a non-emergency matter may be adjusted to 30 days. It also details other procedural as well as substantive aspects of preliminary injunctions such as the jurisdiction of the court, what constitutes “irreparable harm,” hearing and notice requirement, handling of appeals of cases and handling of oppositions to provisional measures, the effect of changed circumstances, civil liability arising from wrongful application, and other matters. Notably, the draft adopts the exact same four-factor test in the US federal courts. However, it only requires the People’s courts to evaluate the four factors as a whole under the circumstances without identifying any single factor as dispositive. This arguably bears a resemblance to the balancing or sliding scale analysis once used in patent cases in the US federal courts, which opens up the possibility of greater use of preliminary injunctions in the People’s courts in the near future.

It’s Apple Season: Federal Circuit Court Rules for Apple in Patent Dispute, Requiring Samsung to Change Some of Its Technology Features

Emily Harrison, MJLST Editor-in-Chief

This month, the United States Court of Appeals for the Federal Circuit gave Apple its latest victory against its biggest competitor, Samsung. In May 2014, the United States District Court for the Northern District of California denied Apple’s motion for a permanent injunction to bar Samsung from using software or code tending to infringe patented features in Apple’s products. However, on September 17, 2015, the court in Apple Inc. v. Samsung Electronics Co. Ltd., No. 2014-1802, 2015 WL 5449721 (Fed. Cir. Sept. 17, 2015), held that the lower court abused its discretion in failing to grant Apple the permanent injunction, and remanded the case to the lower court for reconsideration of the motion.

The current dispute between the competitors surrounds Apple’s patents covering its slide-to-unlock, autocorrect, and data detection features. The federal circuit notes that Apple has invested billions of dollars in introducing the iPhone. To decrease the risk associated with its large investments, Apple has applied for and received patents for much of the technology it has developed in the iPhone, including the features at issue. Furthermore, Apple filed a motion seeking permanent injunction that would bar Samsung from “making, using, selling, developing, advertising, or importing into the United States software or code capable of implementing the infringing features in its products.” The federal circuit found that Apple established a “causal nexus” between irreparable harm and Samsung’s infringement such that there was “some connection between infringing features and demand for competitor’s products,” Apple suffered irreparable harm, Apple lacked adequate remedy at law, and both the balance of hardships and public interest favored the injunction.

In determining the consequences of this decision, the court emphasizes the narrowness of this injunction: “This is not a case where the public would be deprived of Samsung’s product. Apple does not seek to enjoin the sale of lifesaving drugs, but to prevent Samsung from profiting from the unauthorized use of infringing features in its cellphones and tablets.” The court was also convinced that Samsung could remove the patented features without recalling products or disrupting customer use. Although the injunction is arguably narrow, the court’s decision may have a broad impact on product differentiation requirements with respect to complex technology. The federal circuit’s decision also signals a greater willingness to protect patent rights of inventors in the face of a key market rival.