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District Court Abused Its Discretion by Enjoining Patentee’s Communications Where Assertions Were Not Objectively Baseless

07-1087
September 20, 2007

Decision icon Decision

Last Month at the Federal Circuit - October 2007

Judges: Newman, Lourie (author), Prost

[Appealed from: D. Neb., Judge Bataillon]

In GP Industries, Inc. v. Eran Industries, Inc., No. 07-1087 (Fed. Cir. Sept. 20, 2007), the Federal Circuit reversed the district court’s entry of a preliminary injunction enjoining Eran Industries, Inc. (“Eran”) from future correspondence with present and potential customers during the pendency of the litigation. The Federal Circuit held that “because GPI cannot show that Eran’s assertions were objectively baseless, the bad faith standard cannot be satisfied, and the court therefore erred in enjoining Eran from giving notice of its patent rights to potential infringers.” Slip op. at 10.

Eran is the assignee of U.S. Patent No. 5,557,891 (“the ’891 patent”) related to a rain gutter cover. GP Industries, Inc. (“GPI”) was created by former employees of Eran, and is also in the business of developing and marketing gutter covers.

Eran sent letters to distributors and contractors providing notice of GPI’s plans to manufacture and sell a gutter cover that would infringe the ’891 patent. The letters also warned that Eran would take all necessary steps to stop the infringement by GPI and anyone who purchased infringing gutter cover products from GPI. In response, GPI filed a DJ action of noninfringement, invalidity, and enforceability of the ’891 patent, as well as tortious interference with business relationships, and violations of the Nebraska Deceptive Trade Practices Act. GPI subsequently filed a motion for a preliminary injunction requesting that the district court enjoin Eran from “(1) seeking to prevent GPI from making and selling its gutter products during the pendency of this litigation and (2) making vague and unspecified allegations of infringement against GPI in the marketplace.” Id. at 3.

Eran sent another letter to distributors and contractors threatening that Eran “will consider naming your company as an additional defendant unless you either demonstrate that your company is not selling or offering for sale the Leaf-X and Leafree products or agrees to promptly forever cease selling or offering for sale those products.” Id. The district court considered Eran’s two letters when granting GPI’s motion for a preliminary injunction. The district court determined that  “Eran’s activities approach the bad-faith threshold” and “are particularly scurrilous, accusatory and threatening.” Id. at 4. Eran appealed.

On appeal, the Federal Circuit first noted the rarity of granting an injunction against communicating one’s patent rights, instructing that “[t]his is not a grant or denial of an injunction against infringement, but an injunction against communication, a much more serious matter. One has a right to inform others of his or her patent rights. Thus, an injunction against communication is strong medicine that must be used with care and only in exceptional circumstances.” Id. at 7 (citation omitted).

The Federal Circuit then concluded that the district court abused its discretion in granting the preliminary injunction against Eran’s communicating with customers and potential customers about its patent rights. The Court explained that the patent laws permit providing notice regarding patent rights and potentially infringing activity unless the communication is made in bad faith. In Globetrotter Software, Inc. v. Elan Computer Group, Inc., 362 F.3d 1367, 1375 (Fed. Cir. 2004), the Federal Circuit announced that the bad-faith requirement cannot be met without a showing that the claims asserted were objectively baseless.

The Federal Circuit concluded that the district court failed to consider whether the patentee’s assertions were “objectively baseless.” Indeed, the Federal Circuit cited the district court’s own statements that “[a]t this stage of the proceedings, it cannot be said that either one side or the other will prevail on the ultimate issues” and “the validity of Eran’s patent presents a close question.” Slip op. at 9 (alteration in original). The Federal Circuit further found that the district court’s analysis of bad faith encompassed irrelevant subjective considerations and unconvincing objective factors. For example, the Federal Circuit concluded that the president of a company does not necessarily need to examine an accused product or seek expert advice on a product as uncomplicated as a gutter cover. Moreover, the Federal Circuit did not agree with the district court’s characterization of Eran’s letters as scurrilous. The Federal Circuit therefore found that the grant of the preliminary injunction was improper.