Difficulty Collecting Judgment from Foreign Defendant May Be Sufficient to Establish Irreparable Harm Needed for Preliminary Injunction

Authored by D. Brian Kacedon and John C. Paul

Injunctive relief remains a potent tool for plaintiffs in patent-infringement cases, but the bar for obtaining such relief is high. Specifically, a patent owner must be able to demonstrate that it will suffer irreparable harm in the absence of an injunction. This usually requires proof that monetary damages would not be sufficient to remedy the harm caused by any alleged infringement. In a recent opinion, the U.S. District Court for the District of Nevada found that a patent owner met this standard based on the difficulty of collecting monetary damages from a foreign entity. Aevoe Corp. v. Shenzhen Membrane Precise Electron Ltd.,¹ 2012 U.S. Dist. LEXIS 8920 (D. Nev. Jan. 26, 2012).

The Aevoe Decision

Plaintiff Aevoe Corporation sued Shenzhen Membrane Precision Electron Ltd. for infringement of U.S. Patent No. 8,044,942 in the District of Nevada. The patent covered a touch-screen protector for handheld devices such as phones and tablets. While at the International Consumer Electronics Show in Las Vegas, Aevoe learned that Shenzhen Membrane imported and marketed products allegedly infringing the '942 patent. Aevoe petitioned the Court for a Temporary Restraining Order to prevent Shenzhen from continuing to sell or market the allegedly infringing items and a Seizure Order to collect products that appear to be infringing items. The Court granted both requests and addressed the issue of ordering a preliminary injunction before trial.

The Court began with a four-part test for determining the propriety of preliminary injunctive relief. Under the test, a plaintiff must show (1) a strong likelihood of success on the merits, (2) the likelihood of irreparable injury to plaintiff if preliminary relief is not granted, (3) a balance of hardships favoring the plaintiff, and (4) advancement of the public interest.

A patent-infringement claim has two elements, the existence of a valid U.S. patent and infringement of the patent's claims. Aevoe therefore must show a likelihood that the '942 patent was valid and infringed. The Court first noted that an issued patent is presumed valid. As a result, Shenzhen Membrane bore the burden to produce evidence of invalidity. While Shenzhen pointed to a spacer in the iPhone 3G as prior art, the Court found it failed to disclose each and every element of the claimed invention as anticipation requires. Similarly, the Court found that Shenzhen failed to raise a substantial question regarding nonobviousness. The Court noted that Shenzhen did nothing to demonstrate why it would be obvious to a personal of ordinary skill in the art to use a spacer along the outer perimeter of a touch-screen protector to eliminate bubbles from being captured between the touch screen and the touch-screen protector. Therefore, Shenzhen did not raise any substantial question on the patent's validity.

The Court next evaluated whether Shenzhen Membrane's product infringed each element of the first claim of the '942 patent. At the hearing, the Court had the opportunity to physically examine the allegedly infringing products and identified each element of the patent claim. Accordingly, the Court found Aevoe likely to succeed on the merits of its infringement claims.

The Court turned to the second part of the test, whether Aevoe could demonstrate irreparable injury in the absence of preliminary relief. Aevoe argued that a forward-looking award of money damages would be insufficient because Shenzhen Membrane is a foreign company with no assets in the United States. The Court noted that other courts have found money damages insufficient in other patent-infringement cases with foreign infringers and cited a number of such decisions. Shenzhen did not deny that it has no assets in the United States but argued it is a reputable business operating in sixteen countries with plans for a future California office. The Court remained persuaded, however, that it may be difficult or impossible to collect on a money judgment because of the foreign-entity status. Significantly, the Court determined the defendant's foreign status alone was sufficient to show that Aevoe would likely be irreparably harmed. A footnote in the opinion notes that Shenzhen Membrane was advised that if its foreign-entity status changed, it may ask the court to consider lifting the injunction.

Shenzhen Membrane argued that Aevoe's delay in bringing suit constituted an implicit admission that Aevoe is not suffering irreparable harm. But the patent issued in October 2011, and the CES show was after in January 2012. Aevoe also filed two suits in California against two other companies for infringement of the same patent. Taken together, the Court found Aevoe diligent in its efforts to protect its rights.

The Court next turned to the balance-of-hardships factor. The Court ultimately sided with Aevoe. The Shenzhen Membrane products were a small portion of their product line, which Shenzhen admitted had not yet been sold in the United States. This also ran counter to Shenzhen Membrane's claims that it would necessitate laying off 200 workers if the products could not be sold in the United States. Additionally, Shenzhen Membrane sells its products for $10, while Aevoe sells them for $40.

The Court also found the last factor, the public interest, supported Aevoe since Aevoe's workers were in the United States and Shenzhen Membrane's workers were outside the United States. According to the Court, public interest favors saving U.S. jobs over foreign jobs. The Court's skepticism over Shenzhen's losing a small portion of its U.S. product line leading to the loss of jobs also contributed to its decision.

As each part of the test supported Aevoe, the Court preliminarily enjoined Shenzhen Membrane from practicing, making, manufacturing, using, importing, offering for sale, or selling products that infringe the '942 patent.

Strategy and Conclusion

Preliminary injunctive relief remains a tool for plaintiffs in patent-infringement cases. Plaintiffs seeking this relief must meet a four-part test to have a preliminary injunction granted. Often, the toughest element to prove is the likelihood of irreparable harm suffered in the absence of the injunction. But the Aevoe decision allows a plaintiff to more easily meet this burden when the defendant is a foreign entity. By presuming irreparable harm when forced to collect monetary damages from a foreign defendant, the Aevoe decision gives plaintiffs further support to use preliminary injunctions while awaiting trial.

Endnotes 
¹The Aevoe decision: http://law.justia.com/cases/federal/district-courts/nevada/nvdce/2:2012cv00054/85326/31/

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