The United States Court of Appeals for the Federal Circuit has just handed Apple a major strategic win. The appeals court overruled part of the reasoning underlying Judge Lucy Koh's denial of a permanent injunction against Samsung and remanded the case to the district court for further proceedings, where entry of an injunction is now rather likely. The denial was affirmed as far as Apple's design patents and trade dress are concerned, but Apple gets a new bite at the apple with respect to its utility (i.e., technical) patents:
"We find no reason to dislodge the district court's conclusion that Apple failed to demonstrate irreparable harm from Samsung’s infringement of its design patents. Accordingly, we affirm the denial of injunctive relief with respect to those patents. However, with respect to Apple's utility patents, we conclude that the district court abused its discretion in its analysis and consequently remand for further proceedings."
On August 9 I had already said that Apple appeared to make headway toward an injunction against Samsung at the appellate hearing. Also, in my Q&A on the limited damages retrial that is now on the home stretch, I wrote last week that an injunction against Samsung was "actually quite likely" and that a decision on that one "could come down anytime now -- maybe even during the retrial (by coincidence)", but I also pointed out that the retrial has no bearing on the appeal of the denial of an injunction.
The significance of today's Federal Circuit opinion far transcends the three multi-touch software patents at issue in this case (rubber-banding, pinch-to-zoom API, tap-to-zoom-and-navigate). What really mattered strategically for Apple was the legal standard that would apply to such injunction requests. At the Apple v. Samsung trial scheduled for next spring, Apple will be asserting more powerful patents than in the first case, and after today's ruling it will then be much more likely to be able to convert liability findings by a jury into a permanent injunction.
From a strategic point of view, it's way more important for Apple to obtain injunctive relief over its utility patents than its design patents and trade dress. It's easy to design around design patents and trade dress, and for those types of intellectual property rights, damages are a substantial opportunity. Apple isn't asserting any design patents or trade dress in the second California case against Samsung, so any changes in the standard for injunctive relief over such IPRs wouldn't have had implications for next year's post-trial proceedings.
Apple needs access to injunctive relief to enforce the uniqueness of its products. You can "think different" all you want but won't be able to differentiate your offerings if everyone is free to copy.
In light of today's decision we might even see Apple reassert against Samsung one or more of the five utility patents it has on the backburner.
If the Federal Circuit had affirmed Judge Koh's denial of a permanent injunction despite a multiplicity of infringement findings and the "two-horse race" that is the smartphone market at the moment, it's hard to imagine that any patent holder could have won an injunction anymore against a multifunctional product.
I wish to stress that it's popular misbelief -- yes, misbelief -- that an injunction would affect only older products that Samsung no longer sells. Apple requested an injunction that also covers any devices with an infringement pattern that is no more than colorably different from the accused products in this particular case.
Further detail on the Federal Circuit's reasoning
The Federal Circuit had, as today's opinion also mentions, previously ruled on a couple of preliminary injunction requests by Apple and today ruled on a permanent injunction request. In the first case, Apple won a preliminary injunction (on remand) against the Galaxy Tab 10.1, but the appeals court's May 2012 ruling stated a "causal nexus" requirement between any infringements identified and the alleged irreparable harm to the patentee. In the second case, a preliminary injunction that Judge Koh had granted against the Galaxy Nexus smartphone was reversed for lack of such causal nexus.
Apple now told the appeals court that the causal nexus requirement should apply, if at all, only to preliminary injunction requests but not to (post-trial) permanent injunction requests. It argued that even if there was such a requirement, it should be brought down to a more surmountable level than the one based on which Judge Koh denied a permanent injunction. The first part didn't work out for Apple, but the second one did -- and that's all that Apple needs going forward.
This is a key passage in which the appeals court basically explains that Judge Koh set the bar too high:
"However, these principles do not mean Apple must show that a patented feature is the one and only reason for consumer demand. Consumer preferences are too complex—and the principles of equity are too flexible— for that to be the correct standard. Indeed, such a rigid standard could, in practice, amount to a categorical rule barring injunctive relief in most cases involving multi-function products, in contravention of eBay.
Thus, rather than show that a patented feature is the exclusive reason for consumer demand, Apple must show some connection between the patented feature and demand for Samsung's products. There might be a variety of ways to make this required showing, for example, with evidence that a patented feature is one of several features that cause consumers to make their purchasing decisions. It might also be shown with evidence that the inclusion of a patented feature makes a product significantly more desirable. Conversely, it might be shown with evidence that the absence of a patented feature would make a product significantly less desirable."
The appeals court also disagrees with Judge Koh on her "wholesale rejection of Apple's attempt to aggregate patents for purposes of analyzing irreparable harm". Apple had argued that, for example, several patents combined relate to ease of use. The Federal Circuit now clarifies that it analyzed the causal nexus on a patent-by-patent basis in its Galaxy Tab 10.1 decision but didn't mean to "foreclose viewing patents in the aggregate [...] where it is logical and equitable [to do so]". Whether Apple's aggregate perspective was appropriate here will now have to be decided by Judge Koh on remand. She may or may not find that a set of patents could be looked at as a group. She now knows that this can be an option, depending on case-specific facts.
After its discussion of the proper standard, the appellate opinion then looks at different categories of asserted IPRs. On the design patents the appeals court doesn't necessarily agree with Judge Koh (in the sense of "we would have ruled the same way if we had been sitting on a district court"), but the standard of review is abuse of discretion, and any evidence linking the infringement of certain design patents to a loss of sales or market share by Apple was not powerful enough to persuade the appeals court that Judge Koh had abused her discretion. She may have been strict, but not abusively strict.
Even parts of Judge Koh's reasoning concerning Apple's utility patents weren't an abuse of discretion in the Federal Circuit's view. But there is one item that met that threshold in the appeals court's assessment: a study by an Apple expert, Dr. Hauser, had showed that consumers would be willing to pay a premium for a smartphone that comes with the feature covered by one of the asserted utility patents (pinch-to-zoom) or, even more so, with the combined feature set covered by all asserted utility patents. It was already crystal clear at the appellate hearing in August that the Federal Circuit attached a great deal of importance to Dr. Hauser's study.
This, of course, doesn't mean that any such study is going to win a patentee an injunction. The appellate opinion provides an example of a cup holder for which people might pay a $10 premium over the $20,000 base price of a car. It's about the relative value:
"The question becomes one of degree, to be evaluated by the district court. Here, the district court never reached that inquiry because it viewed Dr. Hauser's survey evidence as irrelevant. That was an abuse of discretion."
This was only about one eBay factor, irreparable harm. The appellate opinion also favors Apple's cause with respect to the other factors. In connection with the inadequacy of monetary relief, the Federal Circuit found that Judge Koh erred in its analysis of this factor. I had disagreed with Judge Koh from the beginning on certain items such as the conclusions she drew from Apple's license deals with HTC and others involving certain patents -- license deals that actually don't provide comparable benefits to licensees as the ones Samsung would get from a de facto compulsory license.
With respect to eBay factors 3 (balance of hardships) and 4 (public interest), the appeals court declined to overrule Judge Koh.
All in all, the standard laid out by this appellate opinion looks favorable to Apple and its strategic objectives. But it isn't all bad news for Samsung. For example, the Federal Circuit likes the idea (proposed by Apple as an argument against the "causal nexus" requirement) of injunctions that enter into force with a delay so as to allow workarounds. In connection with Dr. Hauser's study, the appeals court leaves it to Judge Koh to adjudge, among other things, Samsung's argument that the study has methodological flaws. The decision to vacate Judge Koh's findings concerning inadequacy of monetary relief (where Apple's existing license agreements played a key role) won't carry the day unless Apple shows irreparable harm ("if, on remand, Apple cannot demonstrate that demand for Samsung’s products is driven by the infringing features, then Apple's reliance on lost market share and downstream sales to demonstrate the inadequacy of damages will be substantially undermined").
Apple's lead counsel in this appeal, WilmerHale's Bill Lee, and his team have some work to do on remand, and in the meantime Samsung will almost certainly request a rehearing en banc (and maybe even file a petition for certiorari with the Supreme Court).
Entry of an injunction is not going to happen automatically, but it does appear far more likely to me than another denial.
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