Remedies for Patent, Trademark, and Copyright Infringement
The remedy statute for patent infringement states, “Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court.” 35 U.S.C. § 284. “[T]he general rule for determining actual damages to a patentee that is itself producing the patented item is to determine the sales and profits lost to the patentee because of the infringement.” Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1545 (Fed. Cir. 1995) (en banc).
To be awarded lost profits, a patentee must establish: “(1) demand for the patented product; (2) absence of acceptable non-infringing substitutes; (3) manufacturing and marketing capability to exploit the demand; and (4) the amount of the profit it would have made.” Id. at 1545 (citing Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152 (6th Cir. 1978).
Proving lost profits or reasonable royalty requires expert witnesses like economists and CPAs and discovery to obtain the evidence. The cost to acquire evidence and prove and present a lost profit or reasonable royalty case may exceed the potential monetary award. The patent owner may be satisfied with remaining exclusive through an injunction.
A patent owner that proves infringement of a design patent can recover the infringer’s “total profit.” 35 U.S.C. § 289. Recovery is complicated if the defendant infringes a design and utility patent. Catalina Lighting v. Lamps Plus, 295 F.3d 1277, 1291-92 (Fed. Cir. 2002), provides a good explanation, which we will not discuss here.
Until 2006, an injunction in a patent case was almost automatic when the patent owner proved infringement. Richardson v. Suzuki Motor Co., 868 F.2d 1226, 1246–47 (Fed. Cir. 1989). In eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006), the Supreme Court reversed the Federal Circuit and did away with the “automatic injunction” approach.
According to well-established principles of equity, a plaintiff seeking a permanent injunction must satisfy a four-factor test before a court may grant such relief. A plaintiff must demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, consid- ering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.
Id. at 391. Since eBay, the courts apply the four factors. For example, in Bio-Rad Labs., Inc. v. 10X Genomics Inc., 967 F.3d 1353 (Fed. Cir. 2020) (O’Malley* Newman, and Taranto), the court reviewed an injunction from the District of Delaware. It’s a complicated case because it involved three patents, two of which it reversed the claim construction and remanded. It affirmed infringement and damages for one patent, the ‘083 patent.
The district court enjoined infringement of the ‘083 patent, finding plaintiff satisfied all four eBay factors, 967 F.3d at 1377, but the Federal Circuit found plaintiff’s proof of irreparable harm insufficient. Quoting from Apple Inc. v. Samsung Elecs. Co., 695 F.3d 1370, 1374 (Fed. Cir. 2012), the court held, “a patentee must show ‘that absent an injunction, it will suffer irreparable harm, and … that a sufficiently strong causal nexus relates the alleged harm to the alleged infringement.’” 967 F.3d at 1377– 78. The Federal Circuit agreed Bio-Rad would suffer irreparable harm because it competed directly with X10 for some product lines.
The “parties’ sizes, products, and revenue sources” are relevant in determining balance of hardships. Id. at 1378 (citing i4i Ltd. P’ship v. Microsoft Corp., 598 F.3d 831, 861 (Fed. Cir. 2010), aff’d, 564 U.S. 91 (2011)). Though Bio-Rad is the much larger company, it will suffer considerable hardship absent an injunction because it has invested almost half a billion dollars to develop its products. But “10X, a much smaller company, depends entirely on the sales of [two] enjoined products for its revenue.” 967 F.3d at 1378. The Federal Circuit held the district court’s balance-of-hardship analysis was wrong for its failure to consider its lack of the two non-infringing products and reversed the injunction for those two products. Id. at 1379.
Defendant had a clever argument for the public interest factor. It argued its customers were engaged in important research, but the court noted the injunction allowed sales of “consumables, and support, service, repair, and replacement for sales occurring before entry of the injunction subject to a 15% royalty. The court approved the district court’s public interest finding.
The adequacy of the remedy at law was not an issue.
These four factors are relevant for preliminary injunctions, but the patent owner also must establish “a likelihood of success on the merits rather than actual success.” Amoco Prod. Co. v. Vill. of Gambell, 480 U.S. 531, 546 n 12 (1987). Overturning a preliminary injunction requires determining “the district court made a clear error of judgment in weighing relevant factors, or relied on incorrect law or on clearly erroneous factual findings.” Novo Nordisk of N. Am., Inc. v. Genentech, Inc., 77 F.3d 1364, 1367 (Fed. Cir. 1996).
After eBay, the courts split whether irreparable harm should be presumed from trademark infringement. In U.S. Polo Ass’n, Inc. v. PRL USA Holdings, Inc., 800 F. Supp. 2d 515, 540 (S.D.N.Y. 2011), aff’d, 511 Fed. Appx. 81 (2d Cir. 2013), the court noted that because of eBay, “the presumption of irreparable injury in trademark cases is no longer appropriate.” Still, the court granted a permanent injunction because likelihood of confusion means that “the reputation and goodwill cultivated by PRL [Polo Ralph Lauren] would be out of its hands …. [T]he impression given to consumers by the USPA Parties’ product, and so the reputation and goodwill of the PRL Parties’, will not be in PRL’s control.” Id. at 541. Audemars Piguet Holding S.A. v. Swiss Watch Int’l, Inc., 46 F. Supp. 3d 255 (S.D.N.Y. 2014), mod. on reconsideration, 2015 WL 150756 (S.D.N.Y. 2015), also held there was no presumption of irreparable injury. But because of the likelihood of confusion between the parties’ marks, “the reputation and goodwill cultivated by [plaintiff] would be out of its hands.” Id. at 287. Therefore, an injunction was appropriate.
The Ninth Circuit took an opposite approach in Herb Reed Enterp., LLC v. Florida Enter. Manage., Inc., 736 F.3d 1239, 1250 (9th Cir. 2013) (requiring “[e]vidence of loss of control over business reputation and damage to goodwill [that] could constitute irreparable harm.”). But see the later case, 2Die4Kourt v. Hillair Capital Manage., LLC, 692 Fed. Appx. 366, 369 (9th Cir. 2017) (taking opposite approach in suit involving the Kardashians).
Neither the New York nor the Ninth Circuit cases control because in late-2020, Congress added a presumption of irreparable harm in Lanham Act cases:
The several courts vested with jurisdiction of civil actions arising under this chapter shall have power to grant injunctions, according to the principles of equity and upon such terms as the court may deem reasonable, to prevent the violation of any right of the registrant of a mark registered in the Patent and Trademark Office or to prevent a violation under subsection (a), (c), or (d) of section 1125 of this title. A plaintiff seeking any such injunction shall be entitled to a rebuttable presumption of irreparable harm upon a finding of a violation identified in this subsection ….
15 U.S.C. § 1116(a) (“rebuttable presumption” added in P.L. 116-260, 134 Stat. 2208 (Dec. 27, 2020)). The amendment eliminated eBay’s requirement that trademark plaintiffs must prove irreparable harm for an injunction
AK Futures LLC v. Boyd St. Distro, LLC, 35 F.4th 682 (9th Cir. 2020 is a recent Ninth Circuit case applying the presumption of irreparable harm in a Lanham Act case. AK manufactures e-cigarette and vaping products. It sued Boyd Street, a smoke products wholesaler, for infringing AK’s “Cake”-branded e-cigarette and vaping products containing delta-8 THC, which is derived from hemp. Boyd Street claimed AK has no protectible trademarks because delta-8 THC is illegal under federal law. After the district court held the 2018 Farm Act legalized AK’s delta-8 THC products, it enjoined Boyd Street’s use the Cake mark.
AK relied on the rebuttable presumption of irreparable harm but also–wisely, I think—provided evidence of the harm. Id. at 694. Because of the product’s nature, the court discussed the public interest factor. Boyd Street argued against any public interest because “delta-8 THC is potentially unsafe for consumers.” Id. at 695. The court noted that denying an injunction would not keep the product off the market; it would only allow Boyd Street’s infringements. Id.
Back to the “rebuttable presumption”: What happens if the party opposing the injunction introduces contrary evidence. Under Fed. R. Evid. 301, “In a civil case … the party against whom a presumption is directed has the burden of producing evidence to rebut the presumption. But this rule does not shift the burden of persuasion, which remains on the party who had it originally.” Professor McCarthy argues the Rule 301 applies to the rebuttable presumption. See 5 T.J. McCarthy, McCarthy on Trademarks and Unfair Competition § 30:47 (5th ed.). He call the rule, “the ‘bursting bubble’ presumption in that once the opposing party presents rebuttal evidence sufficient to support a contrary finding, the presumption “bursts” like a bubble.”
The Lanham Act has special sections covering remedies when an infringer sells counterfeit goods. Under 15 U.S.C. § 1117, a court should award treble damages and attorney fees. The plaintiff can elect statutory damages of not less than $1,000 or more than $200,000 per counterfeit mark. The amounts increase to not more than $2 million for willful counterfeiting.
“[A]n infringer of copyright is liable for either (1) the copyright owner’s actual damages and any additional profits of the infringer, as provided by subsection (b); or (2) statutory damages, as provided by subsection (c).” 17 U.S.C. 504(a). Subsection (b) reads:
The copyright owner is entitled to recover the actual damages suffered by him or her as a result of the infringement, and any profits of the infringer that are attributable to the infringement and are not taken into account in computing the actual damages. ….
Attorney fees also may be awarded. 17 U.S.C. § 505 (In any civil action under this title, the court in its discretion may allow the recovery of full costs by or against any party …. Except as otherwise provided by this title, the court may also award a reasonable attorney’s fee to the prevailing party as part of the costs.”). See Fogerty v. Fantasy, Inc., 510 U.S. 517, 534 n.19 (1994) (approving “frivolousness, motivation, objective unreasonableness (both in the factual and in the legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence” as factors court can use when considering awarding attorney fees).
Obtaining statutory damages and attorney fee requires registration before any infringement begins.
Consider cases involving copying one photograph for a webpage. The actual damages and the infringer’s profits usually are small and often are not worth a lawsuit. But if a plaintiff can elect statutory damages under 17 U.S.C. § 504(c) (not less than $750 or more than $30,000 but up to $150,000 for willful infringement), that route is often the better one. If an award of attorney fees under section 505 is possible, it works to disincentivize a defendant from pursuing a strong defense.
Michael D. Harris, a partner in our Westlake Village office will discuss damages in intellectual property at our next SoCal IP Institute meeting on Monday, March 20, 2023.