Court Opinion

ID: 4184727
Source: CourtListenerOpinion
Date Created: 2017-07-10 15:01:55.134641+00
Date Added: 2024-06-11T14:13:11.982447
License: Public Domain

United States Court of Appeals
      for the Federal Circuit
                ______________________

                 GENBAND US LLC,
                  Plaintiff-Appellant

                          v.

METASWITCH NETWORKS CORP., METASWITCH
            NETWORKS LTD.,
           Defendants-Appellees
          ______________________

                      2017-1148
                ______________________

   Appeal from the United States District Court for the
Eastern District of Texas in No. 2:14-cv-00033-JRG,
Judge J. Rodney Gilstrap.
                ______________________

                Decided: July 10, 2017
                ______________________

   DOUGLAS M. KUBEHL, Baker Botts, LLP, Dallas, TX,
argued for plaintiff-appellant. Also represented by
JEFFERY D. BAXTER, SAMARA KLINE; MICHAEL HAWES,
Houston, TX.

    CHARLES KRAMER VERHOEVEN, Quinn Emanuel Ur-
quhart & Sullivan, LLP, San Francisco, CA, argued for
defendants-appellees. Also represented by KEVIN
ALEXANDER SMITH, DAVID EISEMAN, IV; JOSHUA L. SOHN,
Washington, DC.
                ______________________
2           GENBAND US LLC   v. METASWITCH NETWORKS CORP.

     Before LOURIE, TARANTO, and CHEN, Circuit Judges.
TARANTO, Circuit Judge.
    Appellant Genband US LLC sued Metaswitch Net-
works Corp. and Metaswitch Networks Ltd. (together,
Metaswitch) for patent infringement. After a jury found
that Metaswitch infringed various claims of several of
Genband’s patents, and that the claims at issue had not
been proven invalid, Genband sought a permanent injunc-
tion. The district court denied the request, concluding
that Genband had not established irreparable harm from
the infringing activities. That conclusion, however, may
have relied on too stringent an interpretation of the
requirement, for an injunction, that the allegedly irrepa-
rable harm is being caused by the infringement. Based on
the district court’s opinion and the briefing in this court,
moreover, we cannot be confident of the answer to the
causation question under the standard properly governing
the inquiry or whether there is any independent ground
for finding no irreparable harm or otherwise denying an
injunction. Accordingly, we vacate the denial of the
injunction and remand for reconsideration.
                             I
    Genband sells products and services that help tele-
communications companies offer voice-communications
services over Internet Protocol networks, i.e., “voice over
IP” (VoIP) services. Genband owns a number of patents
related to its offerings, some of them acquired in 2010
when it purchased the Carrier VoIP and Application
Solutions line of business from Nortel Networks Inc. out
of Nortel’s bankruptcy. Metaswitch sells telecommunica-
tions products and services that compete with Genband’s
offerings, though Metaswitch was not a major competitor
until recent years. See Genband US LLC v. Metaswitch
Networks Ltd, 211 F. Supp. 3d 858, 865–66, 871–72 (E.D.
Tex. 2016).
GENBAND US LLC   v. METASWITCH NETWORKS CORP.             3

    On January 21, 2014, Genband filed a complaint
against Metaswitch in the United States District Court
for the Eastern District of Texas, alleging that certain
Metaswitch products infringed and/or continue to infringe
seven U.S. patents owned by Genband: U.S. Patents Nos.
6,772,210; 6,791,971; 6,885,658; 6,934,279; 7,995,589;
7,047,561; 7,184,427; and 7,990,984. See id. at 866–69.
The lawsuit proceeded to a jury trial in January 2016, and
the jury found that Metaswitch infringed all asserted
claims and that those claims were not invalid. Id. at 868.
The jury awarded $8,168,400 in damages. Id.
    The district court thereafter held a bench trial to ad-
dress various matters, including equitable defenses and
Genband’s request for a permanent injunction. Id. On
September 29, 2016, the district court issued an opinion
and order containing extensive findings of fact and ac-
companying conclusions of law. Among other things, the
court rejected Metaswitch’s equitable defenses, including
laches, finding no unreasonable delay by Genband in
asserting the patents. Id. at 895–901.
     The court also denied Genband’s request for a perma-
nent injunction. Id. at 894–95. The district court rested
its denial entirely on the determination that Genband
failed to show that it would suffer irreparable harm from
Metaswitch’s continued infringement. The court gave two
reasons, without indicating that the second reason inde-
pendently supported its determination.
    First, the court held that Genband did not demon-
strate a causal nexus between the alleged irreparable
harm (based on lost sales) and the presence of the infring-
ing features in Metaswitch’s infringing products. Id. at
894–95. In so ruling, the district court stated that “it is
Genband’s burden to demonstrate that the patented
features drive demand for the product.” Id. at 894. The
court borrowed certain language from this court’s decision
in Apple, Inc. v. Samsung Electronics Co. (Apple II), 695
F.3d 1370, 1375 (Fed. Cir. 2012) (“The patentee
4            GENBAND US LLC   v. METASWITCH NETWORKS CORP.

must . . . show that the infringing feature drives consum-
er demand for the accused product.”), which in turn relied
on similar language in Apple, Inc. v. Samsung Electronics
Co. (Apple I), 678 F.3d 1314, 1324 (Fed. Cir. 2012) (“If the
patented feature does not drive the demand for the prod-
uct, sales would be lost even if the offending feature were
absent from the accused product.”). Before reiterating the
“drive demand” principle, the district court quoted this
court’s statement in Apple, Inc. v. Samsung Electronics
Co. (Apple III), 735 F.3d 1352, 1364 (Fed. Cir. 2013), that
“this inquiry should focus on the importance of the
claimed invention in the context of the accused product,
and not just the importance, in general, of features of the
same type as the claimed invention.” Genband, 211 F.
Supp. 3d at 894. The district court then noted Genband’s
arguments that certain stringency-reducing explanations
of “drive demand” are found in both Apple III, 735 F.3d at
1365 and Apple, Inc. v. Samsung Electronics Co. (Apple
IV), 809 F.3d 633, 641–42 (Fed. Cir. 2015), cert. denied,
136 S. Ct. 2522 (2016), petition for cert. filed, 85 U.S.L.W.
3460 (U.S. Mar. 10, 2017) (No. 16-1102). But the court
did not indicate agreement with Genband that those
explanations state the governing law. Genband, 211 F.
Supp. 3d at 894.
    The court then applied its articulated legal standard
as follows:
         During the bench trial, Genband presented
    the following regarding the causal nexus, which
    falls into three general categories: (1) a self-
    generated “win-loss” report; (2) demonstratives
    purporting to correlate dates of Metaswitch press
    releases with an alleged decline in Genband’s
    market share; and (3) statements from
    Metaswitch marketing materials and opinion tes-
    timony from Mr. McCready [a Genband execu-
    tive].
GENBAND US LLC   v. METASWITCH NETWORKS CORP.               5

        Genband’s presentation of evidence does not
    satisfy its burden to show causal nexus. Accord-
    ingly, Genband fails to show that it has suffered
    irreparable harm as required for a permanent in-
    junction.
Id. at 894–95.
    The district court’s second reason for finding no irrep-
arable harm involved Genband’s litigation choices. The
court found that, although Genband did not unreasonably
delay in suing Metaswitch for infringement, it did delay
in suing for several years after analyzing Metaswitch’s
products, and the court also observed that Genband did
not seek a preliminary injunction. Those facts, the court
concluded, weighed against a finding of irreparable harm
from Metaswitch’s sales. Id. at 895. The district court
denied the requested permanent injunction without
addressing other considerations. Id.
   Genband appeals.         We have jurisdiction under 28
U.S.C. § 1292(a), (c)(1).
                              II
     We review a district court’s grant or denial of injunc-
tive relief for abuse of discretion. Ecolab, Inc. v. FMC
Corp., 569 F.3d 1335, 1352 (Fed. Cir. 2009). “A district
court would necessarily abuse its discretion if it based its
ruling on an erroneous view of the law or on a clearly
erroneous assessment of the evidence.” Cooter & Gell v.
Hartmarx Corp., 496 U.S. 384, 405 (1990); see Highmark
Inc. v. Allcare Health Mgmt. Sys., Inc., 134 S. Ct. 1744,
1748 n.2 (2014). A “clear error of judgment in weighing
relevant factors” is also a ground for finding an abuse of
discretion. Ecolab, 569 F.3d at 1352 (quoting Innogenet-
ics, N.V. v. Abbott Labs., 512 F.3d 1363, 1379 (Fed. Cir.
2008)). Where it is not evident that a district court has
applied the correct legal standard in exercising its discre-
tion, we may vacate and remand for the district court to
do so in the first instance, especially where further factual
6            GENBAND US LLC   v. METASWITCH NETWORKS CORP.

findings may be warranted under the correct legal stand-
ard. Id.; see Apple III, 735 F.3d at 1368.
     In this case, the sole basis for denial of the requested
injunction was the district court’s finding that Genband
did not show irreparable injury from the conduct it sought
to enjoin, one precondition to issuing the requested in-
junction. See eBay Inc. v. MercExchange, L.C.C., 547 U.S.
388, 391 (2006).       Genband relied on evidence that
Metaswitch was making sales in direct competition with
it, causing Genband to lose sales and thereby to suffer
harms of the type often found irreparable. See Apple IV,
809 F.3d at 640–41; Broadcom Corp. v. Emulex Corp., 732
F.3d 1325, 1336–37 (Fed. Cir. 2013); Douglas Dynamics,
LLC v. Buyers Prods. Co., 717 F.3d 1336, 1345 (Fed. Cir.
2013). But the district court held that Genband had not
met a requirement that is part of the irreparable-injury
component of eBay in cases like this—namely, the re-
quirement of “some causal nexus” between the infringing
features of the infringer’s products and the sales lost to
the patentee. Apple I, 678 F.3d at 1324; see Apple II, 695
F.3d at 1374–75 (“a sufficiently strong causal nexus [that]
relates the alleged harm to the alleged infringement” is
“part of the irreparable harm calculus”); Apple III, 735
F.3d at 1364 (“some causal nexus between [defendant’s]
infringing conduct and [patentee’s] alleged harm” is
required); Apple IV, 809 F.3d at 640 (requiring “a causal
nexus linking the harm and the infringing acts” to ensure
that “an injunction is not entered on account of ‘irrepara-
ble harm caused by otherwise lawful competition’” (quot-
ing Apple III, 735 F.3d at 1361)).
    The district court’s opinion, however, leaves us uncer-
tain whether the court relied on too stringent an interpre-
tation of the causal-nexus requirement.         The court
declared that Genband had to prove that “the patented
features drive demand for the product.” Genband, 211 F.
Supp. 3d at 894; see id. (quoting Apple II’s reference to
“drives consumer demand”). But we cannot be sure that
GENBAND US LLC   v. METASWITCH NETWORKS CORP.              7

the district court, in demanding such proof, used the
standard for causal nexus now established to be the
governing standard.
    The “drive demand” formulation, on its face, is sus-
ceptible to importantly different interpretations, some
stricter, some more flexible, at least in situations where
the product at issue has multiple purchasers and multiple
features that different purchasers might assign different
weights in their purchasing decisions. For example, as
the district court in Apple III had assumed, the “drive
demand” formulation could require that the infringing
feature be “the driver” of decisions by consumers treated
collectively as a kind of unit, even requiring proof that no
or almost no buyers would buy the product but for the
infringing feature. Or it could require less, e.g., that the
infringing feature be “a driver” of decisions by a substan-
tial number of individual consumer decision-makers
considering multiple features.
    Here, Genband argued for a standard on the less
stringent side of the spectrum. The district court de-
scribed Genband’s argument, but the court did not itself
say anything to indicate its adoption of the argument.
Genband, 211 F. Supp. 3d at 894. Yet it has been clear
since at least Apple III that a standard of the less de-
manding variety—as an interpretation of “drive demand,”
a standard based on “a driver” as opposed to “the driver,”
applied in the multi-consumer, multi-feature context—is
the governing one for what suffices to meet the causation
component of the requirement of irreparable injury, i.e.,
that the injury asserted to be irreparable be injury from
the defendant’s use of infringing features. 1

   1    We are concerned here only with standards in the
injunction context. “Drive demand” and related formula-
tions appear in damages cases, but that context involves
distinctive apportionment-based, evidentiary-reliability
8           GENBAND US LLC   v. METASWITCH NETWORKS CORP.

    Even in Apple I, which used the phrase “drive the de-
mand,” the court articulated the governing standard as
“some causal nexus” or “a nexus.” 678 F.3d at 1324, 1327.
And what the court declared insufficient to establish a
causal nexus was a “mere showing that Apple might lose
some insubstantial market share as a result” of the in-
fringement, i.e., that “the alleged infringement caused an
insignificant amount of lost sales.” Id. at 1324 (emphases
added). In Apple II, the court found insufficient evidence
to establish the required causal nexus where “the only
pertinent evidence” showed that the infringing feature
was “not one of the top five reasons consumers select the”
allegedly infringing product. 695 F.3d at 1376 (“[T]he
causal link between the alleged infringement and con-
sumer demand for the [accused device] is too tenuous to
support a finding of irreparable harm.”). The court ex-
plained that “[i]t is not enough for the patentee to estab-
lish some insubstantial connection between the alleged
harm and the infringement and check the causal nexus
requirement off the list.” Id. at 1375.
    In Apple III, the court repeated the “some causal nex-
us” standard and rejected certain formulations as too
stringent. 735 F.3d at 1364. It stated that the patentee
need not “show that one of the patented features is the
sole reason consumers purchased” the accused products.
Id.; see id. (ruling that patentee need not “show that a
patented feature is the one and only reason for consumer
demand” and explaining that such a requirement is too
rigid and inflexible given the complexity of consumer
preferences). And it stated that “a showing of causal

considerations. See, e.g., Commonwealth Sci. & Indus.
Research Org. v. Cisco Sys., Inc., 809 F.3d 1295, 1301–04
(Fed. Cir. 2015); LaserDynamics, Inc. v. Quanta Comput.,
Inc., 694 F.3d 51, 67 (Fed. Cir. 2012); Rite–Hite Corp. v.
Kelley Co., 56 F.3d 1538, 1549 (Fed. Cir. 1995) (en banc).
GENBAND US LLC   v. METASWITCH NETWORKS CORP.               9

nexus does not require” proof “that consumers will buy
[the accused product] instead of [the patentee’s competing
product] because it contains [the infringing] feature.” Id.
at 1367 (internal quotation marks omitted); see id. at
1364 (same). More affirmatively, the court explained:
        Thus, rather than show that a patented fea-
    ture is the exclusive reason for consumer demand,
    [the patentee] must show some connection be-
    tween the patented feature and demand for [the
    infringer’s accused] products. There might be a
    variety of ways to make this required showing, for
    example, with evidence that a patented feature is
    one of several features that cause consumers to
    make their purchasing decisions. It might also be
    shown with evidence that the inclusion of a pa-
    tented feature makes a product significantly more
    desirable. Conversely, it might be shown with ev-
    idence that the absence of a patented feature
    would make a product significantly less desirable.
Id. at 1364; see also id. at 1367 (referring to whether “the
patented features influenced demand for [the infringer’s]
products”); id. at 1368 (stating that “evidence that a
feature significantly increases the desirability of a prod-
uct incorporating that feature” may show that the feature
“drives demand”).
    In Apple IV, the court stated that the causal-nexus
requirement “just means that there must be proof that
the infringement causes the harm” that the patentee
alleges is irreparable—in that case, “damage to [the
patentee’s] reputation as an innovator, lost market share,
and lost downstream sales.” 809 F.3d at 639. The court
reiterated the error of a “sole cause” standard, especially
where multiple features are present in the product at
issue, id. at 641, explaining that the district court in that
case had erred in requiring the patentee “to prove that
the infringing features were the exclusive or predominant
10           GENBAND US LLC   v. METASWITCH NETWORKS CORP.

reason why consumers bought [the accused] products to
find irreparable harm,” id. at 642 (emphasis added).
    Instead, the court stated, borrowing from Apple III,
“proving a causal nexus requires the patentee to show
‘some connection’ between the patented features and the
demand for the infringing products.” Id. at 641 (quoting
Apple III, 735 F.3d at 1364). The court explained this
requirement as demanding “evidence that ‘a patented
feature is one of several features that cause consumers to
make their purchasing decisions.’” Id. at 642 (quoting
Apple III, 735 F.3d at 1364). In the case before it, the
court explained, “[t]he district court should have deter-
mined whether the record established that a smartphone
feature impacts customers’ purchasing decisions.” Id. at
641; see id. at 641 n.1 (discussing various examples). And
in ruling that irreparable harm was proved in the case
before it, the court relied on its conclusion that the record
established that the patented features “do influence
consumers’ perceptions of and desire for these products.”
Id. at 642.
    In the present case, Genband specifically invoked the
standards laid out in Apple III and Apple IV that we have
just summarized. The district court, however, referred to
those standards only by stating that Genband “argue[d]”
for them. Genband, 211 F. Supp. 3d at 894. In these
circumstances, we see no sufficient basis for inferring that
the district court actually used those standards, rather
than an unduly stringent test, to interpret and apply the
“drive demand” standard.
    The clarified standards set forth in Apple III and Ap-
ple IV govern the causal-nexus inquiry, at least in a
multi-purchaser, multi-component situation in which only
a component of a larger product or system is covered by
GENBAND US LLC   v. METASWITCH NETWORKS CORP.            11

the patent in suit. 2 The formulations in those decisions
avoid a too-demanding causal-nexus requirement that
might be attributed to the “drive demand” language. The
standard prescribed by Apple III and Apple IV, as appro-
priate to the multi-purchaser, multi-component context,
lies between the unduly stringent “sole reason” standard
we rejected in Apple III and Apple IV and the unduly lax
“insubstantial connection” standard we rejected in Apple
II. The standards seek to reflect “general tort principles
of causation,” Apple III, 735 F.3d at 1361, and to make
proof of causal nexus practical “from an evidentiary
standpoint,” Apple IV, 809 F.3d at 641, in a multi-
purchaser, multi-component setting.
    Where the patentee relies on lost sales to show irrepa-
rable injury, it matters what reasons various buyers have
for making the purchases lost to the patentee. If all but
an insignificant number of purchases from the infringer
would have been made even without the infringing fea-
ture, the causal connection to the asserted lost-sale-based
injury is missing. But this court’s cases have now made
clear that, under the causation approach suitable for a
multi-feature, multi-purchaser context, the patentee may
be able to make the causal connection between infringe-
ment and the relevant lost sales through evidence of
various kinds, e.g., that the infringing features signifi-
cantly increased the product’s desirability, that soundly

   2    The causal-nexus inquiry may have little work to
do in an injunction analysis when the infringing product
contains no feature relevant to consumers’ purchasing
decisions other than what the patent claims. In such a
case, causal nexus and consumer demand may be appar-
ent from the simple fact of infringing sales.
12          GENBAND US LLC   v. METASWITCH NETWORKS CORP.

supports an inference of causation of a significant number
of purchasers’ decisions. 3
    Of course, the causation requirement does not end the
injunction inquiry, even as to the irreparable-injury
requirement, let alone as to the other elements of the
eBay analysis. But here the only dispositive basis of the
district court’s denial of the injunction was the causal-
nexus requirement. And we cannot be confident that the
district court applied the current governing approach to
causation rather than an unduly demanding approach.
    We conclude that a remand is needed. We are not in a
position to conclude that applying the Apple III/Apple IV
standards would make no difference to the district court’s
finding of no causal nexus and, hence, no irreparable
injury. In its application of the “drive demand” formula-
tion, the district court included just one paragraph, mak-
ing only a summary reference to Genband’s evidence,
without explaining in that paragraph why that evidence
was deficient. See id. at 894–95. And in this court,
Genband has not only argued about the evidence the
district court mentioned in that paragraph but also point-
ed to extensive additional evidence, not discussed in that
paragraph, as relevant to the inquiry. Given the roles of
fact-finding and discretion in the inquiry, it is for the
district court, not for this court, to undertake application
of the proper causal-nexus standard to the full record in
this case.

     3  We have not had, and do not here have, occasion
to undertake further refinements, e.g., by developing rules
for proof sequencing of the sort found in other areas of
law, such as in, to cite just the most recent example,
Maslenjak v. United States, No. 16-309, 2017 WL
2674154, at *8–10 (U.S. June 22, 2017) (describing proof
scheme for causal influence of falsehood in obtaining
citizenship).
GENBAND US LLC   v. METASWITCH NETWORKS CORP.             13

     Apart from its causal-nexus determination, the dis-
trict court deemed the timing of Genband’s suit and
Genband’s choice not to seek a preliminary injunction to
weigh against a finding of irreparable injury. Genband
asks us to disapprove of the court’s analysis of those
considerations. Genband correctly points out that, when
a patent owner postpones suit and forgoes a preliminary
injunction, there may well be reasons for the patent
owner’s actions independent of any implied concession
that the infringement-caused injury is not actually irrep-
arable: for example, the competitive threat may initially
be small, or the merits may be much better presented
through full litigation than through abbreviated prelimi-
nary-injunction proceedings. See, e.g., Petrella v. Metro-
Goldwyn-Mayer, Inc., 134 S. Ct. 1962, 1976 (2014); Mytee
Prods., Inc. v. Harris Research, Inc., 439 F. App’x 882, 888
(Fed. Cir. 2011). But Genband has not justified a per se
rule making the patent owner’s choices about when to sue
and whether to seek interim relief legally irrelevant.
    In this case, the timing of Genband’s suit and Gen-
band’s decision not to ask for preliminary relief call for an
evidentiary judgment—a determination of what weight
they have in determining irreparability of the harm at
issue (under the governing legal standards) in the context
of the evidence as a whole. We are remanding for a
redetermination of the causal-nexus issue. That determi-
nation, and the findings made in making it, may affect
the need for and content of the required evidentiary
evaluation of these additional, irreparability considera-
tions. We therefore include these matters in the remand.
                             III
    For the foregoing reasons, we vacate the denial of the
motion for a permanent injunction and remand for recon-
sideration consistent with this opinion.
    Costs awarded to Genband.
             VACATED AND REMANDED