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Permanent Injunction Affirmed Despite Prior License Agreements

December 30, 2008

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Last Month at the Federal Circuit - January 2009

Judges: Mayer, Lourie (author), Gajarsa

[Appealed from: D. Or., Judge Brown]

In Acumed LLC v. Stryker Corp., No. 08-1124 (Fed. Cir. Dec. 30, 2008), the Federal Circuit affirmed the district court’s grant of a permanent injunction barring defendants Stryker Corporation, Stryker Sales Corporation, Stryker Orthopaedics, and Howmedica Osteonics Corporation (collectively “Stryker”) from selling its T2 proximal humeral nails.

Plaintiff Acumed LLC (“Acumed”) is the assignee of U.S. Patent No. 5,472,444 (“the ’444 patent”), which is directed to a proximal humeral nail (“PHN”), a type of orthopedic nail used to treat upper arm bone fractures. Acumed sued Stryker, alleging that Stryker’s T2 PHN infringed the ’444 patent. A jury found that Stryker had willfully infringed certain valid claims of the ’444 patent and awarded damages to Acumed. The district court granted Acumed’s motion for a permanent injunction, and Stryker appealed.

While Stryker’s appeal was pending, the Supreme Court decided eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 394 (2006), which held that the traditional four-factor test for permanent injunctions must be faithfully applied in patent cases as in other types of cases. Accordingly, after affirming the district court’s finding of willful infringement, the Federal Circuit vacated the permanent injunction (which had been stayed) and remanded the case for reconsideration of the four-factor test for injunctive relief in light of eBay.

Acumed accordingly filed a new motion for a permanent injunction. Stryker submitted an opposition memorandum supported by new evidence, and Acumed then submitted a reply memorandum containing new arguments and evidence. Stryker filed a motion to strike the new arguments and evidence contained in Acumed’s reply memorandum. The district court denied Stryker’s motion to strike, and, applying the four-factor test for injunctive relief in accordance with eBay, concluded that a permanent injunction should issue. Stryker timely appealed the district court’s judgment.

On appeal, the Court first considered the first two factors of the four-factor test—irreparable harm and lack of an adequate remedy at law. The Court found no abuse of discretion in the district court’s finding that money damages constituted adequate compensation only for Stryker’s past infringement and that no adequate remedy at law existed for Stryker’s future infringement. The Court noted that “[t]he essential attribute of a patent grant is that it provides a right to exclude competitors from infringing the patent,” and “[i]n view of that right, infringement may cause a patentee irreparable harm not remediable by a reasonable royalty.” Slip op. at 6. The Court went on to stress that, while the fact that a patentee has previously chosen to license the patent may indicate that a reasonable royalty does compensate for an infringement, other factors such as the identity of the past licensees, the experience in the market since the licenses were granted, and the identity of the new infringer may affect the district court’s discretionary decision concerning whether a reasonable royalty from an infringer is adequate. The Federal Circuit found that the district court properly weighed these factors.

The Court then considered Stryker’s argument that the district court erred in determining that the balance of hardships favored Acumed. The Court noted that the balance considered is only between a plaintiff and a defendant, and thus the effect on customers and patients alleged by Stryker is irrelevant under this prong of the test. The Court found no abuse of discretion in the district court’s decision to not consider Stryker’s expenses in designing and marketing the infringing product. Similarly, the Court saw no abuse of discretion regarding the district court’s characterization of Stryker’s decision to not sell its own noninfringing alternate design in the United States as a business decision that did not tip the balance of hardships in Stryker’s favor.

Regarding the fourth factor, public interest, the Federal Circuit also found no abuse of discretion. Although Striker argued that its infringing device was demonstrably safer and superior to Acumed’s device, the district court concluded that there was not sufficient objective evidence of any public-health issue to find that public interest would be disserved by a permanent injunction. The Federal Circuit found this conclusion to be within the district court’s discretion. In addition, the Court found that the district court did not abuse its discretion by assuming that physicians could choose noninfringing alternatives to Acumed’s Polarus PHN. The Court went on to reason that, because the district court did not find Stryker’s public-health argument persuasive, it did not have to state explicitly that the available alternatives to the Polarus also did not suffer from the same public-health issue. Thus, the Federal Circuit held that the district court did not abuse its discretion regarding the final factor of the injunction test.

The Federal Circuit also held that the district court’s denial of Stryker’s motion to strike was not an abuse of discretion. The Court applied Ninth Circuit law, which reviews a district court’s decision to deny a motion to strike for abuse of discretion. While the Court noted that, generally, a court should not consider new evidence presented in a reply without giving the other party an opportunity to respond, the Court also stressed that “a district court must be allowed to halt the exchange of reply memoranda at some point.” Id. at 13. The Court pointed out that, although Stryker was not given an opportunity to respond on paper to the new arguments and evidence Acumed submitted in its reply, the district court gave Stryker an opportunity to present its rebuttal arguments orally. Consequently, the Court found that the district court did not abuse its discretion in denying Stryker’s motion to strike.

The Court characterized this as a “close case,” especially with regard to the irreparable harm and lack of adequate remedy at law prongs and the public interest prong of the four-factor test. Nonetheless, the Federal Circuit stated that the abuse of discretion standard of review compelled its decision to affirm the district court’s holding.