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Seeking Only Reasonable Royalty for Past Infringement May Be Factor that Prevents Injunctive Relief

Tuesday, May 03, 2016   (0 Comments)
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Seeking Only a Reasonable Royalty for Past Infringement May Be a Factor that Prevents Injunctive Relief

By John Paul, Brian Kacedon, and Laith Abu-Taleb

To obtain a permanent injunction against infringers, patent owners must show that a mere payment of money damages would not adequately compensate their injury from infringement, that the “balance of hardships” between the parties warrant an injunction, and that an injunction would not disserve the public interest.

Recently, in Texas Advanced Optoelectronic Solutions, Inc. v. Intersil Corp., a Texas court denied a patent owner’s request for a permanent injunction, finding that monetary damages would be adequate to compensate the patent owner for the defendant’s continued infringement.  The court noted that because the patent owner viewed a reasonable royalty as sufficient compensation for past infringement, it could be adequately compensated in a similar way for the defendant’s future infringement.  In denying the permanent injunction, the court ordered the parties to negotiate an ongoing reasonable royalty for continued patent infringement.

The case originated from a prospective business relationship between Intersil and Texas Advanced Optoelectronic Solutions (“TAOS”) in 2004, when the parties had entered into a “Confidentiality Agreement” to negotiate Intersil’s potential acquisition of TAOS.  Though the negotiations ultimately failed, confidential business information was shared between the parties.  TAOS later alleged that Intersil had used that information to manufacture and sell digital light sensors that competed with TAOS’s product line and infringed on TAOS’s patents and misappropriated its trade secrets.  According to TAOS, Intersil competed with it for Apple’s business, gaining market share at TAOS’s expense.  After succeeding on these claims in a jury trial, TAOS moved for a permanent injunction to prevent Intersil from continuing to sell products that incorporate TAOS’s trade secrets and/or patented technology.

Specifically, TAOS argued that Intersil copied its ambient light sensors in order to become a direct competitor in the relevant market where, according to TAOS, Intersil was able to win contracts with Apple, nearly forcing it out of business.  TAOS contended that it would be injured irreparably if it is forced to compete again with Intersil’s products that incorporate TAOS’s trade secrets and patented technology.

Intersil countered, first arguing that TAOS’s trade secrets are no longer secret as evidenced by TAOS’s release of its product.  According to Intersil, the trade secrets were publicly available through reverse engineering once TAOS released its product.  Further, Intersil argued that TAOS had shown no evidence that its business was presently at risk, pointing out that while Intersil may have won Apple’s business over TAOS in 2007, TAOS had secured Apple’s business for each of the last four generations of iPhones over the past six years.

The TAOS Decision
The court refused to award a permanent injunction on TAOS’s misappropriation of trade secrets claim and agreed with Intersil that once TAOS’s products were on the market, Intersil was permitted to reverse engineer those products.  According to the court, the threat of any future harm to Intersil’s trade secrets had “long passed.” The court also pointed out that trade secret misappropriation is not a continuing tort under Texas law, such that the jury’s award to TAOS of a single disgorgement of profits could be viewed as TAOS’s full compensation.

In contrast to its analysis of the trade secret claim, the court reasoned that a patent infringer commits a new tort each time it makes, uses, or sells the patented product.  Thus, the court turned its attention to whether TAOS was entitled to a permanent injunction based on its patent-infringement claims.

First, the court considered the jury’s verdict.  At trial, the jury was instructed that if it found Intersil liable for patent infringement, TAOS would be entitled to at least a reasonable royalty to compensate it for the infringement.  Of particular relevance to the court was that TAOS only sought to recover a reasonable royalty.  Because of this, the court concluded that TAOS had viewed a reasonable royalty as sufficient compensation for past infringement, and as a result, TAOS could be similarly compensated by money for the any future infringement by Intersil.  The court therefore concluded that TAOS would not be irreparably harmed absent an injunction and that monetary damages would be adequate to compensate TAOS for any continued infringement.

Second, the court looked to the balance of hardships between the parties.  TAOS argued that Intersil’s net worth was approximately $957 million, and that the infringing sales made up only 1.3% of its total revenue between 2006 and 2013.  An injunction, TAOS argued, would harm Intersil very little—but would benefit TAOS a great deal.  The court summarily rejected this argument, pointing to TAOS’s inability to establish it would suffer an irreparable harm absent an injunction.

Third, the court rejected TAOS’s argument that a permanent injunction would be in the public’s interest.  Though TAOS argued that a permanent injunction was necessary to prevent Intersil from continuing to misuse TAOS’s intellectual property, the court ruled that TAOS did not address how the public would be protected from the injunction’s adverse effects, finding this factor weighed against the issuance of an injunction.

In denying the permanent injunction, the court ordered the parties to negotiate an ongoing reasonable royalty for continued patent infringement, but not for trade secret misappropriation.  The court also noted that if the parties cannot reach an agreement, TAOS could move the court to impose an ongoing royalty rate.

Strategy and Conclusion
This case shows how a court may be reluctant to permanently enjoin future infringement where the patent owner seeks only reasonably royalty damages for past infringement and indicates at trial that such reasonable royalty damages are sufficient compensation.

Further Information
The TAOS decision is found here.

Editors and Authors
The editors and authors are attorneys at Finnegan, Henderson, Farabow, Garrett & Dunner, LLP.

John Paul - john.paul@finnegan.com
Brian Kacedon - brian.kacedon@finnegan.com
Christopher McDavid - christopher.mcdavid@finnegan.com
Robert Wells - robert.wells@finnegan.com
Laith Abu-Taleb - laith.abu-taleb@finnegan.com

This article is for informational purposes and does not constitute legal advice.
The views expressed do not necessarily reflect the views of LES or Finnegan.