Several weeks ago, the Federal Circuit issued an interesting decision in Aria Diagnostics v. Sequenom, which seems to continue a recent trend showing that at least certain panels of the Federal Circuit would like to see a different interpretation by district courts relative to the injunction standards.
Aria (known as Ariosa Diagnostics, Inc. at the time of appeal) sought a declaration that its Harmony test did not infringe any claim of U.S. Patent No. 6,258,540 (the ’540 patent), owned by defendant Isis Innovation Limited (Isis) and licensed by Isis exclusively to Sequenom, Inc. Sequenom counter-claimed, alleging that Ariosa’s Harmony test infringes the ’540 patent. The United States District Court for the Northern District of California denied Sequenom’s motion for a preliminary injunction to prevent Ariosa from making, using, or selling that test. However, the Federal Circuit (per Chief Judge Rader, with Judges Dyke and Reyna) determined that the district court incorrectly interpreted the asserted claims and improperly balanced factors regarding issuance of a preliminary injunction.
Most interesting was the discussion about how the district court failed to properly consider the familiar four-factor injunction test. The district found that price and market erosion would occur. Under Federal Circuit precedent, price erosion, loss of goodwill, damage to reputation, and loss of business opportunities are all valid grounds for finding irreparable harm. Yet, the district court denied the injunction for four specific reasons.
First, the district court reasoned that the erosion to Sequenom’s price and its loss of market share were not irreparable. The district court reasoned that if Sequenom was proven correct, that the ’540 patent and the MaterniT21 test would set new standards of care, and Sequenom could then recover the market and receive damages to compensate for the infringement. Chief Judge Rader correctly pointed out: “In the face of that kind of universal assumption, patents would lose their character as an exclusive right as articulated by the Constitution and become at best a judicially imposed and monitored compulsory license.”
Second, the district court reasoned that the degree of price erosion and market loss had not been adequately shown by Sequenom’s expert. More specifically, the district court characterized the expert testimony as deficient because the expert did not examine the proper market because he did not consider the impact of another test, sold by another company, Verinata Health, Inc. Confusingly, the district court also found that Verinata’s tests did not compete in the actual market. So how could the testimony of the expert be deficient for not considering the Verinata test when the district court also found that the test was not in the same market? Chief Judge Rader explained: “[E]ven if Verinata were actually in the same market, the fact that other infringers may be in the marketplace does not negate irreparable harm.” Rader cited Pfizer, Inc. v. Teva Pharm. USA, Inc., 429 F.3d 1364, 1381 (Fed. Cir. 2005), for this proposition.
Third, the district court found that a preliminary injunction would put Ariosa out of business. Of course, a showing that the infringer will be put out of business is a factor, but does not control the balance of hardships factor. (See the case for lengthy citations for each of the aforementioned propositions). Rader explained: “This court can easily imagine a situation where the loser on either side may have to close its doors. At this point, however, this court has seen no comparison of difficulties or losses Ariosa might experience weighed against the harms Sequenom might suffer without protection of its legal exclusive rights.”
Finally, the district court reasoned that the public interest favored denial of the preliminary injunction. Although not very well developed in the opinion, the concern here seemed to be centered around who each company targeted for the test. Sequenom marketed its tests only to women over 35 and at high risk both of having a fetus with Down’s Syndrome and of losing a fetus through invasive testing, but Ariosa marketed its products to both high- and low-risk women. After the preliminary injunction hearing, the Federal Circuit took judicial notice that an expert organization had warned that cffDNA tests should not, yet, be used in low-risk women. Chief Judge Rader said that on remand, if necessary, the district court should consider this and any other evidence pertaining to the public interest anew.
So now the case goes back to the district court. Who knows what the outcome will be, but it is always good to see the Federal Circuit recognize the exclusive nature of a patent. There is simply no amount of damages that will compensate a patent holder for infringement because one of the most valuable rights in the patent bundle is the right to prevent others. In fact, that is really the only right in the patent bundle. You have no right to do anything in the affirmative. The patent is purely an exclusive right. So if damages are going to be presumed sufficient in all cases, then the fabric of the patent grant has been stripped and we have a compulsory licensing regime, which is exactly what the infringer-lobby would like. Sadly, that seems to be what the Supreme Court decision in eBay v. MercExchange authorized. Sadly, it doesn’t seem the Supreme Court really had a clue about what they were saying or doing. It is good to see the Federal Circuit reasserting the exclusive nature of the patent grant.
Tags: CAFC, Federal Circuit, injunction, patent, patents, preliminary injunction
You share in the PLI Practice Center community, so we just ask that you keep things civil. Leave out the personal attacks. Do not use profanity, ethnic or racial slurs, or take shots at anyone's sexual orientation or religion. If you can't be nice, we reserve the right to remove your material and ban users who violate our Terms of Service.