CAFC Reverses Claim Construction, Orders Permanent Injunction


Just over one month ago, the United States Court of Appeals for the Federal Circuit issued a decision in Douglas Dynamics, LLC v. Buyers Products Co.  Douglas sued Buyers for infringement of several patents related to snowplow mounting assemblies. The United States District Court for the Western District of Wisconsin granted summary judgment of non-infringement of U.S. Patent No. Re. 35,700 (’700 Patent) in favor of Buyers. Following a jury verdict that found U.S. Patent No. 5,353,530 (’530 Patent) and U.S. Patent No. 6,944,978 (’978 Patent) valid and infringed, the district court denied Douglas a permanent injunction and assigned an ongoing royalty. While this case was on appeal, the ’530 patent expired, rendering an injunction on the technology covered by that patent moot. The ’978 patent, however, remains in force.

Because the district court applied an erroneous claim construction in granting summary judgment of non-infringement of claim 45 of the ’700 Patent, the Federal Circuit reversed, with Chief Judge Rader writing the opinion and with Judge Newman joining. This Federal Circuit majority also reversed the denial of a permanent injunction against continued infringement of the ’978 Patent, and remanded the case for entry of a permanent injunction consistent with this opinion. Judge Mayer dissented and filed a separate opinion.

Permanent injunctions are no longer the rule, but seem to unfortunately be the exception ever since the irrational decision of the Supreme Court in eBay v. MercExchange. The Supreme Court’s decision in eBay v. MercExchange related to the issuance of injunctions to victorious patent owners upon successful completion of patent litigation.  Prior to the decision, when a patent owner prevailed on the merits in a patent infringement lawsuit, there was a well-established general rule that an injunction should issue absent the presence of a sound reason for denying it.  However, the Supreme Court determined that the familiar principles of equity as applied to permanent injunctions should apply to disputes arising under the Patent Act.  The translation: the often applied bright-line rule is erased in favor of the traditional four-factor test for granting injunctions. The problem? The traditional equity test ignores the inescapable reality that a patent by definition provides the patent owner the right to exclude. It is a Bizarro world where a victorious patent plaintiff, who prevails with an established valid patent, cannot obtain a permanent injunction that does nothing more than order the defendant to do what the patent grant itself mandated in the first place; namely to forego infringing activities once and for all. For more on the eBay case, see Happy 5th Anniversary: The Impact of eBay v. MercExchange.

On appeal, Buyers conceded the validity and infringement of the patents but contends the district court properly denied a permanent injunction because Buyers does not “directly compete” with Douglas and because the ’530 and ’978 Patents cover only some components of the accused snowplow assemblies. The problem, however, was that the companies did directly compete, so while a nice argument, it was counter-factual.

 The district court concluded that “Douglas has failed to make even a threshold showing of irreparable harm.” This determination was based on the fact that the patentee was able to continue to sell units and make a profit. But Chief Judge Rader explained:

Simply because a patentee manages to maintain a profit in the face of infringing competition does not automatically rebut a case for irreparable injury. Irreparable injury encompasses different types of losses that are often difficult to quantify, including lost sales and erosion in reputation and brand distinction.

The district court also found a permanent injunction was unwarranted given the fact that consumers were not confused, seemingly confusing patent law with trademark law relative to the likelihood of confusion. On this point, Chief Judge Rader explained:

The district court also made a clear error of judgment in its analysis of Douglas’s reputation loss. The district court found that Douglas had a reputation as an innovator, yet determined there was no injury because there was no evidence that interested consumers confused the two companies. Even absent consumer confusion, however, there can still be harm to a company’s reputation, particularly its perception in the marketplace by customers, dealers, and distributors.

Chief Judge Rader also correctly pointed out that the very nature of a patent right is exclusivity:

Lastly, the evidence shows that Douglas had never licensed the infringed patents, and intentionally chose not to, so that it could maintain market exclusivity. Exclusivity is closely related to the fundamental nature of patents as property rights. It is an intangible asset that is part of a company’s reputation, and here, Douglas’s exclusive right to make, use, and sell the patented inventions is under attack by Buyers’s infringement.

In the end it was clear that the district court just didn’t like patents very much. Chief Judge Rader explained that the district court was clearly wrong when it characterized the patents as “minor.” Rader pointed out:

[T]he ’530 Patent is Douglas’s only patent that covers the embodiment of the attachment/detachment technology used by Buyers and by Douglas’s own Minute Mount products. In fact, the record shows that Buyers’s initial attempts to design-around the ’530 Patent failed.

With all this, the Federal Circuit had little difficulty determining that a permanent injunction was appropriate.

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