April 28, 2017

Lack of Proof That Infringement was “But For” Cause of Lost Sales or Price Erosion Defeats Permanent Injunction

By Bryan K. Wheelock, Principal

In Nichia Corp. v. Everlight Americas, Inc., [2016-1585, 2016-1618] (April 28, 2017), the Federal Circuit affirmed the district court’s judgment that U.S. Patent Nos. 8,530,250, 7,432,589, and 7,462,870, directed to LED devices, were valid and infringed, as well as the district court’s denial of a permanent injunction.

The Federal Circuit affirmed the district court’s construction of “lead,” rejecting the argument that it should have been construed to mean “the conductive portion of the device that makes an electrical connection to a structure outside of the device” rather than “the portion of the device that conducts electricity.”  The Federal Circuit also affirmed the district court’s construction of “planar,” rejecting the argument that it should have been construed to mean “no measurable surface variation,” rather than “in a substantially same plane.”  Thus the Federal Circuit affirmed the finding of infringement.

With respect to validity, the Federal Circuit found substantial evidence supported the district court’s conclusion that some of the references asserted were not analogous, that claim elements were missing from other references, that there was a lack of motivation to combine, and thus that the patents were not proven obvious.

As to Nichia’s appeal, the district court held that Nichia failed to show that it had suffered irreparable harm and that remedies at law provided Nichia inadequate compensation.  The Federal Circuit agreed that Nichia failed to show irreparable harm, and thus did not reach the adequacy of compensation issue.  The Federal Circuit said that an injunction in patent law must be justified like any other: the moving party must satisfy the court that relief is needed.  Applying “well established principles of equity,” the Federal Circuit found the showing of irreparable harm lacking.

The district court noted the absence of meaningful competition between the parties.  The district court also found that Nichia had failed to establish past irreparable harm, or the likelihood of irreparable harm in the future based on lost sales” or “based on price erosion.”  The district court further found that Nichia’s licensing of the patents to major competitors suggested that harm from “infringement of the patents-in-suit is not irreparable.”  Finally, the district court found that Nichia’s licensing practices have made multiple low-priced non-infringing alternatives from competitors available to replace the accused Everlight products if such products were not available.

The Federal Circuit deferred to the district court because the court heard these arguments as the original finder of fact and concluded to the contrary, carefully weighing both parties’ evidence.  The Federal Circuit agreed that that parties sold in different markets, and Nichia failed to prove that any competition between the parties was meaningful.  The Federal Circuit noted that Nichia failed to show the infringement was the “but for” cause of even one lost sale, or the “but for” cause of price erosion.

The Federal Circuit rejected a rule that the patentee’s licensing activities automatically barred injunctive relief, but had no problem with considering licensing activities as a factor.  Because Nichia failed to establish one of the four equitable factors, the court did not abuse its discretion in denying Nichia’s request for an injunction.

It is interesting that principles of equity can defeat the Constitutionally established “exclusive rights” to inventions and discovery, yet principals of equity are insufficient to extend laches to patent cases.