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The District Court Did Not Abuse Its Discretion in Dissolving an Injunction in Light of eBay, but It Should Have Explained Its Post-Verdict Damages Award

07-1236
February 26, 2008

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Last Month at the Federal Circuit - March 2008

Judges: Bryson, Clevenger, Linn (author)

[Appealed from: C.D. Cal., Judge Carter]

In Amado v. Microsoft Corp., Nos. 07-1236, -1255 (Fed. Cir. Feb. 26, 2008), the Federal Circuit affirmed the district court, holding that it had not abused its discretion in extending the stay of a permanent injunction against Microsoft Corporation (“Microsoft”) in dissolving the permanent injunction in light of eBay, Inc. v. MercExchange, LLC, 126 S. Ct. 1837 (2006), and in denying Microsoft’s motion for relief from judgment because of post-trial reexamination. However, because the district court failed to adequately explain the basis for its post-verdict damages award and because the Supreme Court’s decision in Microsoft Corp. v. AT&T Corp., 127 S. Ct. 1746 (2007), may affect those damages, it vacated-in-part and remanded.

Carlos Armando Amado owns U.S. Patent No. 5,293,615 (“the ’615 patent”) relating to a software program that combines the functionalities of spreadsheet and database software. Amado sued Microsoft, alleging that certain versions of Microsoft’s Office Suite infringed his patent. A jury found the ’615 patent valid and infringed, and awarded Amado $0.04 per unit in damages. The district court granted Amado’s request for a permanent injunction, but stayed the injunction until seven days after appeal. Microsoft and Amado appealed.

On appeal, the Federal Circuit affirmed in all respects. Amado v. Microsoft Corp., 185 Fed. App’x 953 (Fed. Cir. 2006) (“Amado I”). On remand, the district court (1) extended the stay of the permanent injunction so it could consider Microsoft’s motion to dissolve the injunction in light of eBay; (2) subsequently dissolved the injunction; (3) denied Microsoft’s motion for relief from judgment based on alleged disclaimers made during post-trial reexamination; and (4) awarded Amado $0.12 per infringing unit from the escrow account for sales made during the period of the stay. Amado and Microsoft appealed.

On appeal, the Federal Circuit first addressed the issue of whether the district court erred by extending the stay of the permanent injunction past seven days after appeal, the period specified in its original order. When Amado sought to enforce the injunction after remand in Amado I, the district court interpreted its order staying the injunction to include a petition for certiorari to the U.S. Supreme Court. In addition, after denial of certiorari, the district court granted Microsoft’s motion to extend the stay. Amado argued that the district court’s interpretation of “appeal” as including a petition for certiorari was an error. The Federal Circuit disagreed, noting that a district court’s interpretation of its order is entitled to deference unless the interpretation is unreasonable or is otherwise an abuse of discretion. The Court explained that the district court’s interpretation of “appeal” as including a petition for certiorari was reasonable and, thus, worthy of deference.

The Federal Circuit also rejected Amado’s argument that, because the original order staying the injunction was incorporated into the Amado I mandate, the district court lacked power to modify the terms of the injunction or the stay. The Court explained that “district courts possess broad equitable authority to modify injunctions,” regardless of whether the order that originally set the terms of the stay is incorporated into an appellate mandate. Slip op. at 7. The Court held that the district court did not abuse its discretion by extending the stay of the injunction in order to address pending motions.

The Federal Circuit next considered Amado’s argument that the district court erred in dissolving the permanent injunction in light of eBay. The Court agreed with Amado that the grant of the permanent injunction was within the scope of the Amado I mandate and that because Microsoft failed to challenge that grant, it became a part of the Court’s mandate. It rejected Microsoft’s argument that eBay was an intervening decision and, thus, an exception to the mandate rule. The Court noted that eBay was handed down after the completion of briefing but prior to oral argument in Amado I. It explained that Microsoft thus had the opportunity during Amado I to challenge the district court’s grant of a permanent injunction on the basis of eBay, but declined to do so. Accordingly, the Court concluded that the mandate rule operated as a bar to the district court’s reconsideration of the initial issuance of the injunction.

The Court noted, however, that there is a fundamental difference between the granting of retrospective relief and the granting of prospective relief. It explained that “[w]hile the mandate rule would prevent the district court from dissolving the injunction ab initio, it [did] not preclude the district court from modifying, or dissolving, the injunction if it determine[d] that it [was] no longer equitable.” Id. at 10-11. It concluded that the district court was well within its discretion in this case to reconsider the prospective application of the permanent injunction in light of eBay and that it did not abuse its discretion in dissolving the injunction after determining that an injunction was no longer equitable under the circumstances.

The Court then turned to the district court’s award of a post-verdict royalty of $0.12 per infringing unit sold during the stay of the injunction. To arrive at that figure, the district court trebled the jury’s award of $0.04. Amado argued that the district court abused its discretion by failing to award the full $2.00 per infringing unit, which the district court had required Microsoft to place into an escrow as a condition of the stay of the injunction. The Federal Circuit rejected this argument, noting that the district court’s order staying the injunction never set an amount Amado would receive if successful on appeal.

On the other side of the royalty dispute, Microsoft argued that the district court was permitted to award Amado no more than the $0.04 reasonable royalty awarded by the jury. The Federal Circuit also disagreed with Microsoft, pointing to the “fundamental difference . . . between a reasonable royalty for pre-verdict infringement and damages for postverdict infringement.” Id. at 13. The Court, however, found that the district court may have erred in basing its post-verdict damages on an award for pre-verdict infringement, as determined by the jury. The Court set forth the factors the district court should have considered, including any change in the parties’ bargaining positions and any change in economic circumstances resulting from the determination of liability. Because the district court failed to adequately explain the basis for its award of $0.12 per infringing unit sold, the Federal Circuit held that it was unable to determine whether the district court’s award was a reasonable exercise of its discretion, vacated the award, and remanded for reconsideration.

The Federal Circuit next considered Microsoft’s argument that the district court erred in denying Microsoft’s motion for relief from judgment pursuant to Rule 60(b)(6), which grants federal courts broad authority to relieve a party from a final judgment “upon such terms are just” so long as the moving party demonstrates extraordinary circumstances suggesting the party is faultless in any delay. Microsoft had moved for relief from judgment because Amado allegedly narrowed the scope of his patented invention by statements he made to the PTO during the reexamination of the ’615 patent. The district court denied Microsoft’s motion, noting that Microsoft delayed in filing its request for reexamination. Because Microsoft did not show any extraordinary circumstances, the Federal Circuit concluded that the district court had not abused its discretion when it denied Microsoft’s motion.

Finally, the Court considered Microsoft’s argument that any damages award to Amado must be adjusted in light of the Supreme Court’s ruling in AT&T, which was decided after the parties filed the appeal, and which held that liability under 35 U.S.C. § 271(f) does not extend to the installation of software onto a computer abroad when the copies are not “supplied” from the United States. Specifically, Microsoft argued that any damages should be limited to products manufactured or sold in the United States. The Federal Circuit noted that although Microsoft was entitled to raise AT&T, it was unable to determine whether the infringing products sold by Microsoft were provided in such a way as to not be “supplied from the United States” to extinguish § 271(f) liability. The Court concluded that the district court, which presided over the trial, was better suited to decide the applicability of AT&T, and may do so when it reconsiders the proper disbursement of funds from escrow on remand.