January 22, 2013
LES Insights
Authored by R. Benjamin Cassady, D. Brian Kacedon, and John C. Paul
Under the Supreme Court's well-known eBay v. MercExchange case, permanent injunctions ceased to be the automatic result of a finding of infringement. While more difficult, obtaining a permanent injunctions is not impossible after eBay. In e2Interactive, Inc. v. Blackhawk Network, Inc.,1 a district court recently applied the four eBay factors and determined that a permanent injunction was appropriate based, in part, on the competition between the parties, the patentee's general licensing practices, and the nature of the infringing product.
In e2Interactive, Inc. v. Blackhawk Network, Inc., a jury found that Blackhawk infringed a patent owned by e2Interactive and Interactive Communications (collectively "InComm"), related to prepaid gift cards. In light of the infringement finding, InComm's moved for a permanent injunction. The court ruled on InComm's motion using the Supreme Court's four-factor test from eBay, which requires a patent holder to show that: (1) it has suffered an irreparable injury; (2) the remedies available at law are inadequate to compensate for that injury; (3) considering the balance of hardships, a remedy in equity is warranted; and (4) the public interest would not be disserved by a permanent injunction.
On the first factor, the court found that the risk of irreparable harm to InComm was great because InComm and Blackhawk competed for the same customers in the same market. Thus, the court found that Blackhawk's gain was InComm's loss as far as customers go. The court distinguished this situation from most other cases, in which the parties are part of a multi-competitor market. Most importantly, however, the court found that this case involved unique circumstances because the accused product was a computer program, the nature of which allows for easy modification to either include or exclude a particular function. In the court's view, Blackhawk could remove the infringing portion of the source code over the course of a weekend—perhaps during a lunch hour. According to the court, this flexibility and the ease with which Blackhawk could modify its product, in contrast to the difficulty InComm would face trying to detect and establish renewed infringement, weighed in favor of a finding of irreparable harm.
Turning to the second eBay factor, the court recognized that a plaintiff's general policy of not licensing its patent evidences the inadequacy of money damages. The court found persuasive the fact that InComm had never licensed any of its patents to a competitor. As a result, the court determined, monetary damages would not adequately compensate InComm.
Regarding the third eBay factor, the court "balanced the hardships" that granting or denying an injunction would impose on both parties, considering the significance of InComm's patent to its business compared with Blackhawk's claim that it had already deleted the infringing features in its products and the ease with which Blackhawk could reinstall the offending code. In other words, the great importance of the patented method to InComm, balanced against the apparently complete lack of impact on Blackhawk, weighed in favor of an injunction.
Turning finally to the fourth eBay factor, the court determined that the public interest favored enforcement of InComm's patent rights because the infringing products did not relate to health or safety. Accordingly, the court found that all four eBay factors favored InComm and therefore issued a permanent injunction. But despite concluding that an injunction was warranted, the court found the scope of InComm's request overbroad and limited the injunction to the methods and programs specifically found to infringe.
Before the Supreme Court's decision in eBay, courts routinely awarded permanent injunctions—as opposed to monetary damages—after a patent-infringement finding. Since eBay, however, the percentage of courts awarding injunctions has decreased. The recent e2Interactive decision shows that a patent holder's general practice of not licensing its patents, combined with accused products that can easily be modified to add or remove the infringing functionality, may adequately justify a permanent injunction.
One of the primary factors courts consider in deciding to award an injunction is whether or not money alone can adequately compensate a patent holder for the infringement. A court may conclude that a party's practice of licensing its patents shows a willingness to exchange its right to exclude others for monetary compensation. Thus, an award of monetary damages, which can be viewed as a de facto license, may be adequate to compensate a patent holder with an active licensing practice for any injury resulting from infringement.
On the other hand, a patent holder's general policy against licensing its patents indicates that the patent holder highly values the right to exclude others. In these cases, a court may be more likely to conclude that monetary damages are not an adequate remedy and that only an injunction can appropriately compensate for the harm caused by infringement. This may be true even if a patent holder occasionally licenses its patents but does not offer licenses to direct competitors.
Accordingly, patent holders should consider the consequences that licensing its patents to competitors may have on its ability to exclude others from using its patented technology. The e2Interactive decision teaches that patent holders should be wary that courts may consider all licensing practices when determining whether or not to award an injunction.
1 The e2Interactive decision is available here.
Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.
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