On December 16, 2009, in this non-precedential decision, the Federal Circuit ruled on the propriety of a district court simultantously entering a preliminary injunction and a stay pending outcome of reexamination.  The preliminary injuction was vacated, while the stay pending reexamination was upheld.  Interestingly, the reexamination appeared to play no role in the decision to vacate the injunction.   Read the full decision here.

The parties have a history of patent litigation against each other, having filed four earlier separate patent lawsuits against each other in the Northern District of West Virginia going back to 2003.  All of the earlier cases are currently stayed pending reexamination of the asserted patents.  In the present case, which is apparently the fifth patent suit between the parties, Chief Judge Bailey simultaneously entered a preliminary injunction against sales of the allegedly infringing products and stayed all other claims pending outcome of ongoing reexamination proceedings.  Both parties filed interlocutory appeals.  Both parties agreed that the district court erred by simultaneously entering a preliminary injunction and staying the case.  They disagreed, naturally, on which order should be maintained.

After resolving a jursidictional challenge by Crane, the Federal Circuit first turned to the preliminary injunction arguments.  The Federal Circuit found that the district court abused its discretion in determining that Automated Merchandising Systems (AMS) would suffer irreparable harm.  The irreparable harm was based solely on lost revenue and market share.  The lost revenue argument cannot by itself support a finding of irreparable harm because it is presumed to be compensable through damages.   The Federal Circuit found the lost market share and price erosion analyses to be speculative and not supported by the Supreme Court’s decision in eBay Inc v. MercExchange LLC.

The Federal Circuit then turned to the likelihood of success on the merits and found that the district court had improperly shifted the burden to Crane to show AMS was unlikely to succeed on the merits, rather than forcing AMS to demonstrate that it was reasonably likely to succeed on the merits.  It also found the district court too quick to dismiss Crane’s invalidity arguments.  It cited to the Supreme Court’s decision in KSR International Co. v. Teleflex Inc., noting that it “changed the state of obviousness law [and] was issued after the patents were examined in the PTO,  but before the district court issued the decision under review here.  Interestingly, the Federal Circuit made no reference at all to the pending reexaminations as a factor in this analysis.

Because the Federal Circuit found no irreparable harm had been proven, and that AMS has failed to prove reasonable likelihood of success on the merits, the Court vacated the preliminary injuction.

The Federal Circuit then turned to the propriety of the stay pending reexamination.  It agreed with the parties that the District Court erred in both granting a preliminary injunction and a stay pending the outcome of reexamination.  The Court stated that “[b]ecause it logically seems that there cannot simultaneously be a substantial issue of patentability and no substantial issue of patentability, stays pending reexamination are typically inappropriate in cases in which preliminary injunctions are appropriate.”  Because the Court vacated the injunction, it stated that “there is no longer any problem with staying AMS’s claims agains Crane pending the outcome of the reexamination process.”  It further acknowledged that “it may simplify the issues for trial [and it] might even render a trial unnecessary.”  The Court then noted that “given the wide discretion the district court generally has to manage its docket, this seems to be a case in which the stay could have been correctly granted or denied.”  The Court found no abuse of discretion and affirmed the district court’s stay of AMS’s claims against Crane, as well as against Crane’s co-defendant Seaga.

See also, the recent Reexamination Center posting related to a stay pending reexamination and a preliminary junction in the District Court of New Jersey here.