SEP ESP: Deciphering the United States’ Views on Irreparable Harm

Recently, in the matter of Radian Memory Systems LLC, v. Samsung Electronics Co., Ltd., and Samsung Electronics America, Inc. (E.D. Texas, 2024), a Statement of Interest (SOI) was filed by the United States of America setting forth the views of the U.S. Patent and Trademark Office (USPTO) and the U.S. Department of Justice (DOJ), Antitrust Division, regarding “how to assess whether a plaintiff alleging patent infringement has demonstrated a likelihood of irreparable harm under the four-factor test for a preliminary injunction under Supreme Court and Federal Circuit precedent.” While the SOI indicates that the United States does not take a position on any of the other factors for granting a preliminary injunction, or on the ultimate question of whether the court should exercise its discretion to issue a preliminary injunction, there are several statements potentially providing insight into the agencies’ current thinking on several related issues, including with respect to injunctions for infringement of patents related to industry standards. Notably, the SOI represents the most significant communication from the USPTO and DOJ regarding injunctive relief since the abandonment of the Biden Era 2021 Draft Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments and subsequent withdrawal of the December 19, 2019 Policy Statement issued during the first Trump administration (see here for more information).

Losing Control of a Unique Asset

Radian Memory Systems LLC’s (Radian) Complaint For Patent Infringement alleges that, with respect to standards specifications based on its patented technology, “Radian itself was cast out by the industry”, possibly as “retaliation for Radian’s refusal to join the NVMe industry standard organization and associated Technical Working Groups, which would have required Radian to give the industry royalty-free licenses to any of its patents that were practiced by implementations of the standards specifications,” and that Samsung, “a key participant in the industry, serving not only as a member of the NVMe industry standard organization, but also as a member of the specific Technical Working Group…” thereafter infringed Radian’s patents without obtaining a license. According to Samsung’s Opposition to Radian’s Motion for Preliminary Injunction, “Radian’s status as a non-practicing entity further undercuts its claim of irreparable” because “[a] non-practicing entity is more likely to expect ‘that the compensation for his invention will come in the form of some kind of royalty from the manufacturer to whom he licenses the invention,’ in which case ‘monetary relief provides full compensation for the inventor.’”

Relying on “traditional principles of equity”, the USPTO and DOJ argue that “an ongoing patent infringement would, in many cases, result in irreparable harm based on the inadequacy of a monetary remedy, which can be difficult to calculate accurately” (emphasis added).  A footnote in the same section, however, expresses disagreement with Radian’s position that “a finding of ongoing infringement is, as a matter of law, irreparable harm” stating that “[s]uch a categorical rule is inconsistent with [eBay Inc. v. MercExchange, L.L.C. (“eBay”)]… .” Further, according to the United States, such traditional principles of equity permit an injunction “…to prevent an ongoing violation of rights in a unique asset regardless of who owns the asset” (emphasis added). Related thereto, the agencies point to the fact that the Court in eBay “rejected the district court’s ‘broad classification’ that a patentee who is willing to license could not establish irreparable harm.”

The agencies go on to state that “[t]his position treats patents in this specific context like other unique assets that are difficult to value…”, noting that “Courts have found irreparable harm based on, inter alia, the loss of control over a unique product or business opportunity” (emphasis added in both places). They add that “[t]he loss of control over a unique asset is relevant to the patent infringement context too, as infringement deprives the patent holder of the ability to control to whom it licenses its products and the terms of that licensing” (emphasis added). For example, the SOI mentions that patent owners may wish to control which “claims, competitors, markets, fields of use, geographies, or time frames” are licensed.

Ultimately, the SOI concludes that “…to adopt a broader rule—that licensing is effectively dispositive of the right to exclude infringers—would contradict eBay…” and “…would risk creating a compulsory licensing scheme of the sort rejected by Congress.”

Preserving the Right to Exclude

Previously, we have written about damages / releases for past infringement on the one hand, and injunctions / licenses regarding future acts on the other, and how these distinct concepts are often inexplicably conflated (see here and here for example). Accordingly, one of the most interesting passages from the SOI, in our view, is the following (emphasis added):

“Chief Justice Roberts joined the majority [in eBay] but also penned a concurrence, writing that since ‘at least the early 19th century, courts have granted injunctive relief upon a finding of infringement in the vast majority of patent cases.’ Id. at 395 (Roberts, C.J. concurring). This ‘long tradition of equity practice is not surprising given the difficulty of protecting the right to exclude through monetary remedies that allow an infringer to use an invention against the patentee’s wishes’—a difficulty that suggests irreparable harm. Id. (quotation marks omitted).”

But regarding such “monetary remedies”, was Chief Justice Roberts referring to damages or to some forward-looking remedy? We believe the latter given there is no opportunity to exclude with respect to instances of past infringement. The United States’ apparent recognition of the inadequacy of monetary remedies for protecting the future right to exclude is further reflected in the SOI’s numerous references to, not simply infringement, but rather “ongoing” infringement and to having control over how to “license” one’s patent (see the preceding section). Consistent therewith, the agencies note the likely greater ability to show irreparable harm following a determination of infringement, albeit in the negative: (“[t]he ability to show irreparable harm is likely lower for a plaintiff seeking a preliminary injunction in a patent-infringement case, as compared to a permanent injunction, because with the former there has been no final determination that the patent has been infringed” (emphasis added)). Conversely, the SOI states that injunctive relief may not be equitable in situations where infringement is not willful and will not persist.

Somewhat confusingly, but nonetheless consistent with protecting the future right to exclude, the agencies refer to the difficulty and expense of calculating an “ongoing reasonable royalty” (emphasis added), and how “a court-imposed reasonable royalty lessens the patentee’s ability to control the scope and terms of its license” (emphasis added). The notion of a reasonable royalty, however, stems from the “Damages” section of the patent laws (35 U.S.C. §284) having the express purpose “to compensate for the infringement” (i.e. past infringement).

In any event, conspicuously absent from the United States’ argument is the fact that district courts have rejected patent owner attempts to impose licenses as a remedy (see HTC Corporation, HTC America Inc v. Telefonaktiebolaget LM Ericsson, Ericsson Inc, (E.D. Texas, 2019), Memorandum Opinion and Final Judgment at 15-16: “None of the cases that Ericsson cites in its motion go so far as to permit a court to impose a contract on a party, especially in a case such as this where not all of the material terms have been negotiated or agreed upon by the parties.”). Even the courts of the United Kingdom do not go so far as to impose a license as a remedy. So while we do not disagree with the agencies that calculating royalties to address future acts of infringement is difficult and expensive, the fact that such forward-looking monetary remedies are not typically awarded (absent an agreement of the parties) seems to support their position all the more so.

Gaming the System

Another interesting aspect of the SOI is the United States’ recognition of how “[t]he possibility of an injunction also helps prevent potential licensees from viewing infringement as economically efficient…”, as a result of damages not exceeding the cost of a license and not accounting for the patent owner’s enforcement costs, citing articles from IPWatchdog contributors, Kristen Osenga and Adam Mossoff, in support thereof.

At the same time, though, the agencies appear to be of the view that if there is an established royalty rate based on prior licensing, irreparable harm is less likely to occur. See, for example, the following footnote:

“The United States notes that sometimes the evidence will not support a finding of difficulties with calculating a royalty. For example, if the plaintiff is willing to license and if there is already a well-established royalty rate for all comers (which is not disputed by the accused infringer), an injunction likely will not be appropriate, because the plaintiff would get everything it asked for if it wins on validity and infringement.”

The problem with this statement is that, even if an established rate exists, the plaintiff does not truly get everything it wants if there is no remedy to address ongoing infringement.

The agencies also confusingly refer to infringers being incentivized not to pay when injunctive relief is unavailable, “absent a finding of willful infringement” (emphasis added). Even if one accepts, for sake of argument, that enhanced damages could potentially deter future infringement, such an approach places an additional burden of enforcement on the patent owner. In comparison, the agencies note, “… an injunction can shift the burden of determining costs from the court to the parties.”

Standards Related Patents

Although Radian’s complaint involved a patent related to a standard developed by a private consortium in which Radian did not participate, and Radian did not bring an antitrust claim, the SOI provides that “[t]here is ‘serious potential for anticompetitive harm’ inherent in these standards-development organizations (SDO), which “often have economic incentives to restrain competition”. A footnote adds that “[w]hile the standard at hand was developed by a private consortium rather than an SDO, given the similar collaborative nature of the private consortia and SDO activities, for purposes of this brief, the two are analyzed under the same framework.” Are we to infer then that the agencies do not believe patents relating to industry standards should be treated any differently for purposes of assessing irreparable harm (which would be largely consistent with the aforementioned December 19, 2019 Policy Statement)?

The United States’ concerns with efficient infringement also appear to echo statements made by former Assistant Attorney General, Makan Delrahim, with respect to standards related patents, during the first Trump Administration:

“Too often lost in the debate over the hold-up problem is recognition of a more serious risk: the hold-out problem. … In this regard, I believe Judge Posner was badly mistaken in the Apple v. Motorola case, in which he held that IP owners who make FRAND commitments somehow sacrifice their right even to seek an injunction. Though the Federal Circuit corrected that ill-conceived decision, its ruling did not improve matters much. The court of appeals held that making a FRAND commitment and entering into other licenses ‘strongly suggest’ that damages for infringement should be adequate relief, meaning that injunctive relief should be denied except in rare cases.”  (emphasis added).

Regarding the difficulty and expense associated with calculating patent damages, the SOI further explains that “…additional steps become necessary when the damages must be apportioned—for example, where a patent covers a component of a larger device or is part of an industry standard (i.e., a standard essential patent (SEP)).” The fact that a patent covers a component of a larger integrated system also seemingly supports the finding of irreparable harm on the basis that ongoing infringement is likely in view of the impracticality of designing around. Later, though, the agencies indicate that “[a]n injunction should not be punitive and is not designed to give a patent owner undue leverage”, adding that “if the invention is essential to the value of the product, the injunction will provide greater leverage in license negotiations” (emphasis added). The United States’ use of the term “essential” here is notable given that is a loaded term in the world of standards related patents. Further we note that the issue of leverage seems more like a balance of hardships issue than one of irreparable harm.

Even if a patent is essential to an industry standard, in situations where the infringer has made no commitment to obtaining FRAND licenses following a finding of infringement (i.e. ongoing infringement is going to occur), shifting the burden of determining the terms of a license from the court to the parties seems more consistent with traditional principles of equity than requiring the patent owner to go to court over and over again for damages. Especially when one considers that an infringer can sue for breach or specific performance of any applicable FRAND licensing related obligations if the patent owner’s license demands are inconsistent therewith. The difference being that the burden of enforcement is now shifted to the infringer.

Image Source: Deposit Photos
Author:AndreyPopov
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