Patent Damages
6Jul/11Off

EDVA approves permanent injunction; provides detailed analysis of eBay factors and injunction scope

On May 23, 2011, Judge Robert E. Payne of the Eastern District of Virginia issued an opinion granting ePlus’ (“plaintiff”) motion for a permanent injunction against Lawson (“defendant”). ePlus, Inc. v. Lawson Software, Inc., Case No. 3:09-CV-620 (E.D. Va., May 23, 2011). Defendant infringed plaintiff’s e-procurement software patent. Defendant, a large company, manufactured a “Core S3 Procurement System” able to run either defendant’s or plaintiff’s e-procurement software.

The court analyzed the facts of the case in light of the Supreme Court’s decision in eBay, Inc. v. MercExchange, LLC., 547 U.S. 388 (2006). eBay held that a patentee must satisfy a four-factor test for injunctive relief:

(1) That [the plaintiff] has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.

Id.

In addition, the Court stressed that “[a]fter eBay, the ‘statutory right to exclude,’ standing alone, is insufficient to justify permanent injunctive relief following a verdict of infringement.” ePlus at 15.

(A)   Applying the eBay Factors

(1)    Irreparable Injury

The court scrutinized five topics argued by defendant concerning irreparable injury: direct competition, two-competitor markets, lost market shares and sales, high litigation costs, and failure to file for a preliminary injunction.

(a)     Direct Competition

The court analyzed three factors that “clearly establish[ed]” direct competition between the parties.

First, the court held that direct competition was not precluded despite a lack of overall direct competition between the parties. Id. at 17. This is because both parties compete for business in the “people looking for more functionality” marketplace when using defendants Core S3 Procurement System, according to the court. Thus, the court seemed to stress that direct competition amongst products and not the parties’ overall market competition is sufficient to show direct competition. Id.

Second, both parties targeted similar customers in certain industries. This, the court found, was evidence of direct competition. For example, both parties marketed to similar hospitals.

Third, the court found that public opinion of the parties was evidence of direct competition. For example, "[t]hird-party market analyst reports group the two companies as competitors in the e-procurement software market." Id. at 19. Hence, the reports indicated direct competition.

(b)   Two-Competitor Markets

The court rejected defendant’s argument that “in general, courts that find irreparable harm when there is direct competition have done so only in a two-competitor market.” Id. at 20. Rejecting the argument, the court pointed to K-TEC v. Vita-Mix, 2011 WL 285699, *9 (D. Utah, Jan. 26, 2011) and Callaway Golf Co. v. Acushnet Co., 585 F. Supp. 2d 600, 619-21 (D. Del. 2008) as evidence of other courts rejecting the same two-competitor market argument. ePlus at 22

(c)    Lost Market Shares and Sales

The court indicated that lost market shares and sales are not necessary to find irreparable harm, but are factors weighing in its favor. Specifically, defendant argued that plaintiff could "point to only a small number of lost sales, [and] that factor carries no weight." Id. at 26. The court emphasized that no company could know all of a competitor’s sales. And, given that the plaintiff is a small company, a small amount of sales could prove substantial. Id. Thus, the lost market shares and sales topic favored plaintiff’s request for an injunction.

(d)   High Litigation costs

The court rejected defendant's argument that litigation costs were a past and not a future harm. Past harm being a requirement for injunctive relief. The court considered the plaintiff’s diverted costs from research and development for future products to litigation as a future harm. Notably, the court recognized the size of plaintiff; "[f]or a small company[, policing the infringement of its product] is a significant, and costly, undertaking." Id. at 28.

(e)   Failure to file a Preliminary Injunction

Defendant argued that plaintiff’s failure to file for a preliminary injunction should bar a permanent injunction. Id. In response, the court stated that "there is no requirement that a party must seek a preliminary injunction as the predicate to securing a permanent one." And, the court is "aware of no authority" that counsels against a finding of irreparable injury because of that failure. Id. at 32. In addition, the court found that plaintiff’s slight delay in bringing suit against defendant should not prevent an injunction. According to the court, plaintiff, a small company, acted prudently based on its limited resources by suing other companies before defendant. Id.

Ultimately, the court found that plaintiff suffered irreparable harm under eBay’s first prong.

(2)    No Adequate Remedy at Law

The court found the five factors above influential regarding defendant’s “no adequate remedy at law” argument. Id. at 34 In addition, the court found that licenses, which were urged by the court for the patent at issue, between plaintiff and third-parties were not evidence of a suitable remedy with defendant. The influence on the third-party negotiations, stated the court, affected the willingness of plaintiff to compromise in its negotiations. Specifically, if no injunction was issued, plaintiff would be forced to "license its patents to [defendant] without any of the restrictions that it has negotiated in the other licenses." Id. at 36. Thus, the court reasoned that found no other adequate remedy at law was available.

(3)    Balancing the Hardships

The court reiterated that all of the factors discussed within irreparable harm and no adequate remedy favored plaintiff. In addition, the court emphasized that defendant’s size compared with plaintiff meant that “"any harm [would] be minimal in comparison." Id. at 41.

Defendant also argued that the PTO would likely find the patent invalid, which should discredit the weight of the jury’s findings. The court flatly rejected that argument, stating that the jury findings could not be ignored.

(4)    Public Interest

Defendant argued that an injunction violates the public’s interest. Defendant pointed out that hospitals use its product, and that without the ability to procure the necessary items to run a successful hospital, the public interest would be affected. Id. The court rejected those arguments for four reasons: (1) suitable alternatives to getting the needed supplies are available; (2) defendant has to indemnify its customers, such as, hospitals for this inconvenience; (3) only two customers argued, by way of affidavit, to the court that it would be inconvenienced and nothing more; and (4) a sunset provision of six months would be given to defendant and customers to alleviate the hardships. Thus, the court found that the public interest argument disfavored defendant.

(B)   Scope of the Injunction

Defendant argued alternatively that “the scope of [plaintiff’s] proposed injunction exceed[ed] what is allowed by Rule 65(d) of the Federal Rules of Civil Procedure. That rule directs that ‘[e]very order granting an injunction … must: (A) state the reasons why it issued, (B) state its terms specifically; and (C) describe in reasonable detail … the act or acts restrained or required.’” Id. at 49. Citing FRCP 65(d), defendant requested that “[f]irst, [] any injunction should not extend to [its] service, maintenance, or repair of infringing systems it sold prior to the verdict[;] [s]econd, [] that the injunction should not apply to the Core S3 Procurement System[;] [t]hird, it argues that the injunction against [its procurement software] should expire when the [] patent expires[; and,] [f]ourth, [] that portions of the proposed injunction are too vague to comply with Rule 65(d).” Id. at 50.

(1)    The court rejected defendant’s first request for two reasons. First, because defendant was found to infringe the patents, “every time that [defendant] fixes, updates, services, repairs, or maintains the infringing system configurations for its customers, it engages in indirect infringement[.]” Id. at 52. Second, defendant improperly argued that the court’s “ruling that a discovery sanction which barred [plaintiff] from recovering past damages for an inadmissible expert report [] should equate to a finding that [plaintiff] failed to exercise its right to exclude, thereby impliedly authorizing [defendant] [] to repair/service/maintain the systems.” Id. at 57. Accordingly, the court rejected the second argument, “Exclusion of the deficient testimony was a sufficient sanction and the appropriate one[,]” moreover “[i]t would be gross overkill, and indeed fundamentally unfair, also to foreclose injunctive relief” by precluding an injunction. Id. at 57-58.

(2)    The court directly rejected defendants’ second request by pointing out that defendant’s “premise [was] simply wrong.” Defendant argued that the Core S3 Procurement System was not an adjudicated device subject to injunction. However, the court found that the jury form clearly stated otherwise.

(3)    The third request by defendant is fact specific and does not pertain directly to patent damages.

(4)    Lastly, the court agreed with defendant that plaintiff’s proposed order for injunction “simply prohibits future infringement of a patent[,]” and should be precluded from the injunctive order.

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