Federal Circuit Finds Prior Licensing Activity Does Not Per Se Prevent Permanent Injunction

In Acumed v. Stryker Corp., 551 F3d 1323; 89 USPQ2d 1612 (Fed. Cir. 2008), Stryker Corporation, Stryker Sales Corporation, Stryker Orthopedics, and Howmedica Osteonic Corporation (collectively, “Stryker”) appealed the District Court for the District of Oregon’s grant of a permanent injunction in favor of Acumed.  Acumed LLC is the assignee of U.S. Patent 5,472,444 (“the ‘444 patent”), which is directed to a proximal humeral nail (“PHN”) used for treatment of fractures of the upper arm bone. Acumed’s PHN is sold under the name Polarus®.

Stryker sold a competing product: the T2 PHN.   Acumed sued Stryker in April 2004 for infringement of the ‘444 patent based on the sales of the T2 PHN. Stryker was found to have willfully infringed the ‘444 patent and was granted a reasonable royalty and lost profits.  Acumed moved for a permanent injunction.  Upon a hearing in February 2006, the district court granted Acumed’s motion for a permanent injunction, applying the old rule that as long as there was not an exception circumstance to justify denial of injunctive relief, an injunction would issue in patent cases if infringement and validity were found. While Stryker’s appeal to this decision was pending, however, the Supreme Court decided eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 394 (2006) which held that the traditional four-factor test for permanent injunctions had to be applied in patent cases just as in other types of cases. On April 12, 2007, the Federal Circuit affirmed the finding of willful infringement, but vacated the permanent injunction and remanded the case to the district court for reconsideration of the four-factor test set forth by the Supreme Court in eBayAcumed LLC v. Stryker Corp., 483 F.3d 800, 811; 82 USPQ2d 1481 (Fed. Cir. 2007).

On remand, the district court considered the first two prongs of irreparable harm and lack of adequate remedy at law jointly. In finding that Acumed established these first two prongs, the district court noted the prior jury finding of lost profits and sales. It also credited three cases cited by Acumed in which permanent injunctions based on lost market share were granted. Secondly, the district court concluded that the balance of hardships favored Acumed because Acumed was much smaller than Stryker, and the Polarus® was Acumed’s flagship product.  In contrast, the T2 PHN was less prominent in Stryker’s offerings, and also noting that Stryker’s decision to use an infringing product instead of a non-infringing substitute was a business decision “that did not tip the balance of hardships in Stryker’s favor.” Lastly, the district court concluded that public interest would not be disserved by a permanent injunction because there was not sufficient evidence of a public health issue resulting from the use of Polarus® products, and since there were sufficient non-infringing substitutes that physicians were not forced to use only the Polarus® products. The district court, thus, again entered Acumed’s motion for a permanent injunction.

Upon Stryker’s appeal, the Federal Circuit reviewed the district court’s decision for abuse of discretion.

Irreparable Harm and Lack of Adequate Remedy at Law

Stryker argued that the district court erred in failing to give weight to Acumed’s previous licensing of the ’444 patent to two of its competitors. Stryker asserted that Acumed’s willingness to grant licenses demonstrated that money damages in the form of reasonable royalty were an adequate remedy.

Acumed, on the other hand, argued that the district court had the discretion to decide how much weight to give to a patentee’s prior willingness to grant licenses. It also argued that the lost profits awarded by the jury meant that direct competition existed between Stryker and Acumed, thus showing that there was irreparable harm without adequate legal remedy.

The Federal Circuit found that the district court did not abuse its discretion in concluding that an injunction was necessary.  Specifically, the Federal Circuit found that the district court weighed Acumed’s prior licenses in conjunction with several other factors to determine that money damages were adequate compensation only for Stryker’s past infringement and that there was no adequate remedy at law for Stryker’s future infringement. The Federal Circuit conceded that these prongs of the test made it a close case in view of the past license having been granted, but review under the standard of abuse of discretion compelled it to uphold the district court’s decision.

Balance of Hardships

As to the third factor, Stryker argued that the district court failed to realize that enjoining the manufacture, use, sale, offer for sale, or importation of its PHN would create hardships for Stryker, its customers, and patients. Also, Stryker asserted that Acumed would actually benefit from receiving a royalty because many of Stryker’s customers would otherwise be inaccessible to Acumed.

In arguing that the district court properly weighted the evidence concerning the relative size of the companies and commercial effect that the injunction would have on the parties, Acumed pointed out that Stryker was the world’s largest orthopedic implant company, and its T2 PHN represented only a small portion of Stryker’s sales. In fact, Stryker had a non-infringing straight nail design that it could use instead of theT2 PHN. The Polarus®, on the other hand, was one of Acumed’s flagship products.

In agreeing with Acumed that the district court did not abuse its discretion, the Federal Circuit noted that the balance of hardships only considers those of the plaintiff and the defendant.  Thus, Stryker’s argument about the effect on customers and patients was irrelevant under this prong. It was Stryker’s conscious business decision not to offer its straight nail design in theUnited States, so an injunction against the T2 PHN would not prevent Stryker from participating in the humeral nail market.

Public Interest

As to the last factor, Stryker argued that the district court abused its discretion in essentially placing the public interest burden on Stryker, and it asserted that the public interest was important in this case because the T2 PHN was demonstrably safer and superior to the Polarus.

The Federal Circuit held that Acumed had made a prima facie showing as to the effectiveness of the Polarus®. It conceded that this prong was a close call because of the medical testimony and evidence that the accused product was superior and safer than the Polarus®.  However, the Federal Circuit noted that the district court was in the best position to review the evidence and noted that there was evidence of bias by the experts called upon by Stryker to establish the problems experienced while using Polarus®.  Thus, the Federal Circuit found that the district court did not abuse its discretion in concluding that the public interest was not disserved by an injunction, but did note that such an argument might be persuasive in the right situation involving public health.

As such, the Federal Circuit found that the test set forth by the Supreme Court in eBay had been satisfied, and the Federal Circuit therefore affirmed the decision of the District Court for the District of Oregon to enter a permanent injunction directed to Stryker’s PHN. 

Significance to Patent Licensors

In Acumed, the Federal Circuit confirmed that the Supreme Court in MercExchange did not create a per se rule that any licensing creates a bar to obtaining an injunction.  Instead, Acumed is a reminder that such per se rules are not allowed, and that a district court must still perform the same test in regards to granting an injunction in all situations.  In the context of licensing, important factors that can arise include whether there is direct competition even with licensing of the patent in question.  Moreover, in the context of the public interest factor, Acumed highlights evidence which is persuasive in allowing an injunction in the medical device field.  Specifically, the court in Acumed found that, as opposed to being the only usable device, the infringer’s decision to infringe was based upon a rational business decision to infringe instead of using an acceptable non-infringing substitute, and the conflicting evidence of acceptability is resolved by the district court.

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