Friday, December 21, 2012

Apple to appeals court: 'costs to innovation will be profound' if injunctions become unavailable

Yesterday Apple filed a notice of appeal of Judge Koh's denial of a permanent injunction against Samsung, and as I mentioned in my post on the notice of appeal, it near-simultaneously sent a letter to the United States Court of Appeals for the Federal Circuit in another pending case, the appeal of a preliminary injunction against the Galaxy Nexus smartphone.

In October, a three-judge panel of the Federal Circuit reversed that preliminary injunction, mostly because it held that Apple had failed to meet the "causal nexus" requirement (linking the infringement of specific patent claims to the alleged irreparable harm), but on Monday it turned out that a rehearing en banc (full-bench review) is quite a possibility.

While Samsung is preparing its response to Apple's petition for a rehearing en banc, Apple wanted to reinforce the urgent need for such a rehearing with yesterday's letter. The letter informs the Federal Circuit of Judge Koh's denial of a permanent injunction and the extent to which Judge Koh's reasoning is based on the Federal Circuit's decisions on two previous Apple v. Samsung matters, the appeals of the preliminary injunctions against the Galaxy Tab 10.1 and the Galaxy Nexus.

Apple's letter notes that "a jury found Samsung willfully infringed six Apple patents and diluted Apple's trade dress", but "the district court denied a permanent injunction, relying on the 'causal nexus' requirement announced in [the two aforementioned preliminary injunction appeals]". Apple quotes certain statements from Judge Koh's order acknowledging facts that, per se, weigh in favor of injunctive relief, such as the fact that Apple "practices its invention and is a direct market competitor" to Samsung and that Apple "has likely suffered, and will continue to suffer, the loss of some downstream sales". But, because of the new and very high (if not insurmountable) "causal nexus" hurdle, the court denied the injunction because Apple "would need to show not just that there is demand for the patented features, but that the patented features are important drivers of consumer demand for the infringing products". Even in the public interest context, Judge Koh adopted this logic, finding that "[i]It would not be equitable to deprive consumers of Samsung’s infringing phones when, as explained above, only limited features of the phones have been found to infringe any of Apple's intellectual property".

The final two sentences of the letter explain why it's so key that the Federal Circuit grant Apple's motion for a rehearing en banc and correct or clarify the "causal nexus" requirement:

"This decision highlights the stark consequences of the new 'causal nexus' requirement: despite the jury finding dozens of Samsung products infringe multiple Apple patents, Apple is powerless to prevent further trespass by Samsung. If patentees cannot obtain injunctions against continued infringement by competitors, the strength of patents will sharply diminish, and the costs to innovation will be profound.

Apple respectfully submits that this decision confirms the need for en banc review."

In my opinion, this is a powerful argument in favor of a rehearing. Intellectual property policy is always about striking a balance between legal imitation and illegal copying. If smartphone and tablet computers become immune to injunction requests only because they incorporate large numbers of features, a whole category of patents (with many subcategories) is devalued in the United States, forcing patent holders to rely on injunction-friendlier jurisdictions abroad.

Judge Koh's decision was unprecedented and expected at the same time. Unprecedented because there doesn't seem to be any example of a case in which seven intellectual property rights (six patents, one trade dress) are found infringed, even willfully, but no injunction issues despite the undeniable competitive situation between the parties. Expected because the Federal Circuit's two previous Apple-Samsung rulings, especially the second one (on the Galaxy Nexus), raised the bar for injunctive relief in this industry and most parts of the technology sector (except maybe some segments in which products have very small feature sets).

It's no secret that Judge Koh would rather have Apple and Samsung settle at the earliest opportunity. Their two cases are difficult to manage, and there's the whole political issue of when intellectual property enforcement could be (mis)perceived to constitute an act of protectionism. It appears to me that she always likes to behind others, be it the appeals court or the jury (though I guess she will overrule the jury in some limited ways). The Federal Circuit is in a different position and may be quite receptive to Apple's arguments that injunctions must remain available in the smartphone and tablet computer industry (and industries with similarly multi-functional products) in the interest of innovation. Patents are meant to be an exclusionary right, but the "causal nexus" requirement establishes a compulsory-licensing regime.

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