Licensing Patents to Competitors Could Weigh Against Granting an Injunction

Authored by Lauren J. Dowty, D. Brian Kacedon, and John C. Paul

Abstract

After finding an LED manufacturer’s patents were infringed, one district court refused to grant a permanent injunction to prevent the infringing party from selling its LEDs. The Federal Circuit affirmed the district court’s denial of the injunction, reasoning that the injunction was not necessary to protect the patent holder from irreparable harm, in part because the LED manufacturer had previously licensed several of its competitors.

After succeeding on an infringement claim, a patent owner may seek a permanent injunction to prevent the infringer from marketing or selling infringing products in the future. Injunctions, however, are not granted as a matter of course. Rather, a patent holder must prove that it would suffer irreparable harm without the injunction. Recently, in Nichia Corp. v. Everlight Americas, Inc., the U.S. Court of Appeals for the Federal Circuit found that prior licenses granted by the patentee to some of its competitors could be considered in determining whether the patentee would be irreparably harmed without an injunction. Relying in part on these prior licenses, the court affirmed the district court’s denial of Nichia’s request for an injunction.

Background

Nichia sued Everlight for infringing its patents covering LED manufacturing methods and package designs. Following a trial, the court issued a ruling that Everlight infringed the patents and Nichia asked the court to issue a permanent injunction preventing Everlight from marketing or selling its infringing products. The district court denied Nichia’s request, finding that Nichia failed to prove that it would be irreparably harmed without an injunction. To be entitled to a permanent injunction, a patentee must prove: (1) that it has suffered an irreparable injury; (2) that remedies available at law, like monetary damages, are inadequate to compensate for that irreparable injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction. Nichia provided evidence of only one lost sale to support its claim of irreparable harm. The district court concluded, however, that Nichia’s evidence did not even prove a single lost sale because there were several other lower-priced and licensed competitors that had the same sales opportunity. And because several of Nichia’s licensees sold competing products at lower prices, the district court found that Nichia did not prove that Everlight’s infringement caused any price erosion that damaged Nichia. The district court found, instead, that Nichia’s licensing activities and the resulting sales of competing products changed the market by making multiple low-priced alternatives available. Nichia appealed, arguing in part, that the district court improperly considered Nichia’s licensing activities in determining whether Nichia would be irreparably harmed absent a permanent injunction.

The Federal Circuit Decision

The Federal Circuit explained that although patent ownership grants a patentee the right to exclude others from practicing a patented invention, an injunction in patent law requires proof, under the four-factor test, that the patent holder would be irreparably harmed without one. The Federal Circuit rejected Nichia’s argument that courts cannot consider patent licenses in determining irreparable harm under the four-factor test, finding instead that the patentee’s licenses could weigh against a finding of irreparable harm. The court explained that Nichia’s granting of licenses, the identity of licensees, the experience in the market since granting the licenses, and the identity of the accused infringers could all affect the court’s analysis of whether irreparable harm. The Federal Circuit stated that regardless of the district court’s licensing analysis, it properly treated the licenses as an independent ground for denying Nichia’s request for an injunction. More particularly, rather than relying on its licensing analysis alone, the district court found the licenses bolstered its separate finding that Nichia failed to establish market competition, lost sales, and price erosion. The Federal Circuit agreed with these findings—all of which weighed against concluding that Nichia would suffer irreparable harm absent an injunction.

Strategy and Conclusion

Granting patent licenses to competitors may make it difficult to get injunctions against other competitors, allowing them to stay on the market with an ongoing royalty despite infringement.

Further Information

The Nichia opinion can be found here.