Injunction against patentee’s assertions of infringement reversed, bad faith standard not metSeptember 24, 2007

In a decision last week, the Federal Circuit vacated a preliminary injunction after finding that the district court abused its discretion. The district court enjoined a patent owner from any future correspondence with any existing or potential customers of an alleged infringer (started by former employees of the patent owner), essentially stopping the patentee from sending letters asserting infringement of its patent by products purchased from the allegedly infringing manufacturer.The Federal Circuit noted that in order for such an injunction to be proper, the claims of infringement must be "objectively baseless." Only then is the subjective intent of the patentee relevant. Here, the while statements in the letters were, according to the district court, "made in disregard to the truth or falsity of the purported infringement," nevertheless "it cannot be said that either one side or the other will prevail on the ultimate issues." As a result, the Federal Circuit noted that the infringement claims were not "objectively baseless," and the grant of a preliminary injunction was reversed.More detail of GP Indus., Inc. v. Eran Indus., Inc. after the jump.

Eran is the assignee of a patent relating to rain gutter covers. GP Industries ("GPI") is a company that manufactures and markets gutter covers developed by former Eran employees. Eran wrote letters to distributors and contractors informing them of its belief that GPI's products infringed Eran's patent. The second such letter threatened to name the companies as defendants in litigation if they sold or offered to sell the allegedly infringing GPI products. After Eran sent these letters, GPI filed a declaratory judgment action asserting that the patent was invalid and not infringed, and also filed a motion for a preliminary injunction to prevent Eran from any further correspondence with GPI's customers regarding the patent. The district court determined that "Eran's activities approach the bad-faith threshold" required to prevent a patentee from communicating its patents rights to potential infringers. The court based this determination on the accusatory and threatening manner of the letters, as well as a lack of evidence that Eran actually examined the allegedly infringing products to determine the accuracy of its accusations. The district court then applied the Eighth Circuit's factors for granting injunctive relief. It noted that GPI was threatened with irreparable harm by the infringement of its patent and trade secrets, that public interest favors enforcing patents, but that it was uncertain who would prevail on the ultimate issue. Based on the balancing of these factors, the district court entered an injunction preventing Eran from communicating information similar to that contained in the two letters to GPI's customers, distributors, contractors and any others throughout the litigation. Eran appealed the preliminary injunction to the Federal Circuit. The court applies a four favor test to determine whether a preliminary injunction should be granted. The party requesting an injunction must show: "(1) a reasonable likelihood of success on the merits; (2) irreparable harm; (3) a balance of hardships in its favor; and (4) a public interest in favor of the injunction." This test is very similar to the Eighth Circuit's Dataphase standard applied by the district court.The court highlighted the rarity of granting a preliminary injunction against communications with others regarding patent rights, as it prohibits speech rather than an infringing activity. As stated by the court, "an injunction against communication is strong medicine that must be used with care and only in exceptional circumstances." Because of this, a limitation on communicating with potential infringers may only be placed when the claim of infringement made is in "bad faith." In order for such a claim to be in bad faith, the claim must be "objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits." The district court did not apply the "objectively baseless" standard to Eran's assertions of patent infringement, instead relying on subjective evidence of Eran's motivation in sending the letters. Upon review, the Federal Circuit highlighted much of the district court's language to identify that there was some likelihood of success on the merits, such as the district court's statement that "the validity of Eran's patent presents a close question," illustrating that Eran's assertions were not objectively baseless. Moreover, the district court stated that Eran's letters "approach the bad-faith threshold," implying that the bad faith threshold was not satisfied. The preliminary injunction was ultimately reversed based on the Federal Circuit's finding that Eran did not make objectively baseless accusations of infringement, and therefore, no matter its subjective motives, did not act in bad faith. To read the full decision in GP Indus., Inc. v. Eran Indus., Inc., click here.