Showing Substantial Question of Invalidity During Preliminary Injunction Proceedings Requires Less Proof Than the “Clear and Convincing” Standard
February 19, 2008
Last Month at the Federal Circuit - March 2008
Judges: Newman (dissenting), Rader (author), Dyk
[Appealed from: N.D. Ohio, Judge O’Malley]
In Erico International Corp. v. Vutec Corp., No. 07-1168 (Fed. Cir. Feb. 19, 2008), the Federal Circuit vacated the district court’s grant of preliminary injunction, finding that defendant Doc’s Marketing Corporation (“Doc’s”) raised a substantial question as to the validity of the patent at issue.
Erico International Corporation (“Erico”) develops and manufactures a variety of fasteners used in the installation of electrical and communications cables for commercial buildings and other facilities. In particular, Erico sells a popular J-Hook fastener. The J-Hook is a metal device that supports lengths of cable. Erico, through the inventor, Raymond Laughlin, obtained U.S. Patent No. 5,740,994 (“the ’994 patent”) on its J-Hook and the method for its use.
In a first reexamination of the ’994 patent, the PTO cancelled numerous apparatus claims on the J-Hook. Specifically, the PTO found the apparatus claims obvious under 35 U.S.C. § 103 in light of three references, one of which was an OBO Bettermann publication. The Board affirmed the cancellations. Claim 17, the method of using the J-Hook, survived reexamination.
Doc’s manufactures a variety of hardware items and specifically manufactures and sells J-Hooks, which it concedes are copies of Erico’s J-Hook. Erico discovered that Doc’s was selling a copy of its J-Hook and filed suit to enjoin Doc’s alleged infringement of claim 17 of the ’994 patent. Doc’s then challenged the validity of claim 17.
The district court considered the traditional four factors for a preliminary injunction and particularly emphasized the “likelihood of success.” In analyzing Erico’s likelihood of success on the merits, the district court considered three defenses raised by Doc’s: (1) inequitable conduct by Erico in obtaining the patent; (2) on-sale bar under 35 U.S.C. § 102(b); and (3) obviousness under 35 U.S.C. § 103.
First, the district court found that Doc’s did not prove that Erico intended to defraud the PTO, even though Doc’s alleged that Erico did not disclose the 1990 Electronics Industries Alliance/Telecommunications Industry Association (“EIA/TIA”) standard that sets forth a spacing standard for open-top cable supports. The district court found that those facts alone did not show that Doc’s was likely to succeed on its inequitable conduct argument.
Second, the district court also found that § 102(b) does not likely apply because Doc’s presented no evidence that anyone actually practiced the method of claim 17 by using a J-Hook more than one year before the filing date of the ’994 patent.
Third, the district court also found that Doc’s third invalidity defense was not likely to succeed. Doc’s asserted that claim 17 was invalid as obvious over the OBO Betterman publication in combination with the 1990 EIA/TIA spacing standards. The district court found that the conforming standards identified in the ’944 patent are the very spacing requirements set forth in the 1990 EIA/TIA standard. However, the district court found Doc’s obviousness defense likely to fail because it believed that the same evidence was before the PTO during the reexamination proceedings. Additionally, the district court found that secondary considerations of nonobviousness cut in Erico’s favor.
On appeal, Doc’s contended that it raised a substantial question that claim 17 was invalid as obvious over the hook disclosed in the OBO Betterman publication in combination with the EIA/TIA standard, which was supported by Mr. Laughlin’s testimony regarding cable installation practices. Further, Doc’s contended that the district court misinterpreted the PTO’s consideration of the EIA/TIA standards because the PTO’s second reexamination cast doubt that the “conforming standards” mentioned in the ’994 patent were the same as the 1990 EIA/TIA standard and that the PTO had considered the 1990 standard during the first reexamination.
Erico, on the other hand, asserted that the district court performed a proper obviousness analysis under KSR International Co. v. Teleflex, Inc., 550 U.S. __, 127 S. Ct. 1727 (1977). Erico contended that the district court correctly rejected Doc’s validity challenge because the PTO reexamined the ’944 patent in view of the OBO Betterman publication and the disclosure of “conforming standards” in the patent itself, and that the district court is not bound by decisions of the PTO.
The Federal Circuit explained that during preliminary injunction proceedings, a defendant must put forth a substantial question of invalidity to show that the claims at issue are vulnerable, but need not prove actual invalidity. “Thus,” the Court stated, “a showing of a substantial question of invalidity requires less proof than the clear and convincing standard to show actual invalidity.” Slip op. at 8.
The Federal Circuit found that the OBO Betterman publication, coupled with the EIA/TIA standards and Mr. Laughlin’s testimony, presented a serious challenge to the validity of claim 17. First, the OBO Betterman publication disclosed a hook fastener with downwardly flared flanges nearly identical to the Erico J-Hook. To the Court, the downwardly flared flanges implicitly pointed to the reasonableness of sag in cables installed by using OBO Betterman fasteners. Second, the EIA/TIA standard disclosed the appropriate spacing used between open-top cable supports. Further, the Court noted that OBO Betterman fasteners and the J-Hooks are similar to opentop cable supports in that cables are suspended between supporting members (i.e., J-Hooks, rungs of an open-top cable ladder).
Additionally, the Court stated that “[i]t is reasonable to see that downwardly flared flanges coupled with the EIA spacing requirements could implicitly motivate a person of ordinary skill to use J-Hooks with the EIA spacing to achieve cable sag of no more than about 30 centimeters.” Id. at 9 (citing KSR, 127 S. Ct. at 1743). Further, Mr. Laughlin’s testimony both demonstrated an implicit motivation to combine the prior art and showed the reasonableness of installing cables using open-top cable supports with EIA spacing standards resulting in less than 30 centimeters of sag.
Even assuming the accuracy of the district court’s secondary consideration analysis, the Federal Circuit found it “reasonable to infer that one of ordinary skill would have considered the OBO Betterman hook coupled with the EIA standards and common knowledge within the art as shown by Mr. Laughlin’s testimony to explain that Claim 17 is vulnerable based on invalidity.” Id. at 10-11. Thus, Doc’s obviousness challenge cast enough doubt on the validity of claim 17 to “negate likelihood of success on the merits as to infringement of a valid patent.” Id. The Court thus vacated the preliminary injunction.
In dissent, Judge Newman leveled multiple criticisms at the panel majority for applying an incorrect standard to the preliminary injunction factor of likelihood of success on the merits and departing from the policy guidance of precedent. In particular, Judge Newman asserted that the panel majority did not explain how the district court abused its discretion, did not apply the proper standard of review, and did not consider the equitable factors supporting the grant of this preliminary injunction. Importantly, she disagreed with the majority that casting doubt or raising a question about a patent’s validity was sufficient to show that an alleged infringer was likely to succeed on the merits; rather, “[p]recedent is clear that the standard is the likelihood of success at trial, with recognition of the presumptions and burdens.” Newman Dissent at 5. Further, she faulted the majority for disregarding the objective evidence of commercial success and the defendants’ admitted copying. Finally, she criticized the majority for failing to consider the other factors traditionally considered in ruling on a preliminary injunction, including the balance of harms, which the district court had found in favor of Erico based on the potential price and market erosion it faced from competition with Doc’s.