A few years ago, against the backdrop of patent reform, the U.S. Court of Appeals for the Federal Circuit threw out a half-billion dollar verdict against Microsoft because of “a lack of evidence demonstrating the patented method … as the basis — or even a substantial basis —of consumer demand for Outlook.” (Lucent Tech. v. Gateway Inc., 580 F.3d 1301 (Fed. Cir. 2009).) The authors interpreted that decision and others at the time to reflect the Federal Circuit’s defense of judicial prerogative. By insisting on proof of a causal relation between the patented technology and the economic basis for damages, the Federal Circuit brought about a sea change in patent damages jurisprudence (and patent reform without provisions for damages).
In a recent headline-grabbing case, the Federal Circuit has revisited the issue of causation, this time in the context of equitable relief, twice turning away Apple’s requests to preliminarily enjoin Samsung because Apple had not established sufficient causal nexuses between consumer demand and the allegedly infringing features. Though concededly far from a case involving patent trolls, the Apple-Samsung battle is taking place against the backdrop of continuing outcry concerning patent enforcement activities, and the Federal Circuit is surely once again aware of the consequences of its high-profile decisions.
Apple v. Samsung
During the landmark throwdown between two technology giants, Apple has repeatedly sought to enjoin Samsung’s sale of infringing products. In the summer of 2011, Apple moved for a preliminary injunction to block sales of Samsung’s accused products, including the Galaxy S 4G and Infuse 4G smartphones and Galaxy Tab 10.1 tablet. Apple asserted that these products infringed multiple design patents and a utility patent. While the design patents claimed various design features embodied in the iPhone and iPad, the utility patent was directed to the “bounce-back” that occurs when a user lifts the finger used for scrolling at the end of a document.
Judge Lucy Koh of the U.S. District Court for the Northern District of California denied Apple’s motion with respect all of the patents and accused devices. (Apple Inc. v. Samsung Electronics Co., No. 11-cv-1846, 2011 U.S. Dist. LEXIS 139049 (N.D. Cal. Dec. 2, 2011), affirmed in part, vacated in part, and remanded, 678 F.3d 1314 (Fed. Cir. 2012).
Of particular note, Judge Koh found that Apple had failed to show a nexus between Samsung’s infringing conduct and Apple’s claimed harms of loss of customers and market share and, consequently, had failed to establish a likelihood of irreparable harm in the absence of an injunction, one of the requirements for injunctive relief. The court observed that the evidence did not demonstrate that either product design or the bounce-back feature was a primary factor in consumer purchasing decisions.
Reminiscent of Lucent, the Federal Circuit agreed, reasoning that sales lost to an infringing product cannot harm a patentee if consumers buy that product for reasons other than the patented feature. In other words, if the patented feature does not drive product demand, sales would be lost even if the offending feature were absent. Merely showing that Apple might lose some insubstantial market share as a result of Samsung’s infringement was not enough to establish irreparable harm, nor that Samsung’s own employees subjectively believed incorporating the patented features into Samsung’s products was important.
In a subsequent decision concerning Apple’s later attempt to enjoin Samsung’s infringement of claims reading on the iPhone’s universal search feature (which allows a user, in a single query, to search information on multiple data modules, such as local memory and the Internet), the Federal Circuit reinforced the causation requirement. This time overturning Judge Koh’s grant of a preliminary injunction, the Federal Circuit held: “Thus, to satisfy the irreparable harm factor in a patent infringement suit, a patentee must establish both of the following requirements: 1) that absent an injunction, it will suffer irreparable harm, and 2) that a sufficiently strong causal nexus relates the alleged harm to the alleged infringement.” Apple Inc. v. Samsung Electronics Co., 695 F.3d 1370, 1374 (Fed. Cir. 2012). The court observed that the causal nexus inquiry informs the injunctive relief analysis and, more specifically, whether the patentee seeks to leverage its patent for competitive gain beyond that which the inventive contribution and value of the patent warrant.
Though Apple presented survey evidence with respect to its own products, it failed to demonstrate that the unified search feature was among the top reasons consumers selected accused products. Neither deliberate incorporation of the patented feature in the competing products nor a blogger’s favorable review of the infringing feature were deemed sufficient to demonstrate consumer drive. Moreover, the court also rejected Apple’s attempt to establish a causal relationship by showing that removing the patented feature would diminish the value of the accused products. That proof, according to the court, does not show the patented feature to be the reason for consumer demand.
The Apple cases set a surprisingly high bar for equitable relief from a court that, until fairly recently, almost routinely affirmed injunctions in patent cases where supported on the merits. Indeed, until the Supreme Court’s decision in eBay Inc. v. MercExchange LLC, 547 U.S. 388 (2006), irreparable harm was taken virtually for granted in patent cases, and in at least two opinions subsequent to the second Apple-Samsung decision, the Federal Circuit found irreparable harm without discussing a causal nexus requirement (or citing the Apple cases), both times disagreeing with the court below. Douglas Dynamics, LLC v. Buyers Products Co., 717 F.3d 1336 (Fed. Cir. 2013)(reversing denial of permanent injunction); Presidio Components Inc. v. Am. Tech. Ceramics Corp., 702 F.3d 1351 (Fed. Cir. 2012)(vacating denial of permanent injunction).
Perhaps even more tellingly, most recently, the court actually cited the first Apple-Samsun case, but downplayed the causal nexus requirement. See Broadcom Corp. v. Emulex Corp., (Fed. Cir. Oct. 7, 2013). The court distinguished the “design wins” model OEM market in that case from the consumer market in the Apple cases, but also asserted that the trial court had found evidence of a causal nexus. The court did not discuss the second Apple-Samsung case, in which it had overturned an injunction despite a similar finding. Interestingly, all three decisions were written by Chief Judge Rader, who led the charge for a causal nexus in the damages context.
At the district court level, reactions to the Apple cases have been mixed. For example, while the District Court for the Northern District of New York relied on the second Apple-Samsung decision to deny a preliminary injunction in Briggs & Stratton Corp. v. Chongquing RATO Power Co. Ltd., (Northern District of New York, July 23, 2013), at least one judge in the Northern District of California has cast doubt on the causal nexus inquiry, Brocade Communication Systems Inc. v. A10 Networks Inc., (Northern District California, Jan. 10, 2013)(granting permanent injunction). Thus, the ultimate impact of the Apple cases remains to be seen.
Prescription For Relief?
Whether or not the Apple cases swing the pendulum further in favor of defendants after eBay, patent holders are well advised to arm themselves with objective evidence of causation, e.g., that infringing features drive consumer demand. As with the old saw about keeping doctors away, heeding he second Apple-Samsung ruling can only help. Besides, causal evidence developed for use in injunction proceedings may be usefully deployed to prove damages too.•