United States: Harm To Licensees Does Not Justify Preliminary Injunction To Protect Plaintiff's Licensing Business

A California court recently denied Finjan's motion for a preliminary injunction to prevent the alleged infringer, Blue Coat Systems, LLC, from selling its accused product before trial. Although Finjan was likely to prevail in its infringement suit, and although Finjan's licensees may have competed with Blue Coat, the court nevertheless found that Finjan was not entitled to a preliminary injunction because it failed to prove that it would suffer irreparable harm if Blue Coat were allowed to continue its activities. In particular, it found that harm to Finjan's licensees did not create irreparable harm to Finjan or justify Finjan's request for a preliminary injunction.


Finjan sought a preliminary injunction to prevent Blue Coat from making, using, selling, or importing its Internet security software before trial. Finjan, a company primarily engaged in the business of licensing its computer security patents, initially sued Blue Coat for patent infringement in 2013, and asserted numerous patents in a legal battle spanning years. During an earlier litigation, Finjan won a multimillion dollar judgement against Blue Coat, 60% of which related to infringement by the same accused Blue Coat product as in the present case.

Background

When issued by a court, preliminary injunctions prevent an accused infringer from performing infringing activities until a final judgment issues after trial. As such, they are considered "drastic or extraordinary" remedies "for preserving the status quo," preventing "irreparable loss of rights before the judgment." A party seeking a preliminary injunction must prove four elements: (1) that it is likely to succeed on the merits of the case; (2) that it is likely to suffer irreparable harm if the injunction is not granted; (3) that the balance of the hardships on the parties imposed by an injunction weighs in its favor; and (4) that an injunction is in the public interest.

Based on expert testimony and the judgment that Finjan won against Blue Coat during the previous litigation, Finjan argued it would likely win the current case against Blue Coat. Citing its own expert testimony, Blue Coat argued that Finjan would not win the case because its products did not infringe Finjan's patents, and because the asserted patent was probably invalid given that the USPTO had instituted IPR proceedings against it.

The parties also disagreed about whether Finjan would be irreparably harmed without a preliminary injunction. Finjan argued that its licensees directly competed with Blue Coat, and that by not taking a license, Blue Coat was decreasing the value of Finjan's patents. Blue Coat argued that any harm caused to Finjan's licensees did not constitute irreparable harm to Finjan itself.

Order

1. Likelihood of Success on the Merits
As to whether Finjan would succeed in the suit against Blue Coat, the court found that that there was a "high likelihood" that Finjan would prevail in demonstrating infringement of at least one asserted patent claim. The court observed that the asserted claims were similar to claims that Finjan had already proven Blue Coat infringed in the earlier litigation, and that Finjan would likely succeed in proving infringement a second time. The court also determined that Blue Coat was unlikely to successfully show that the asserted patent was invalid.

2. No Irreparable Harm
But as to the second factor, the court found that Finjan would not likely suffer irreparable harm without an injunction. Finjan asserted several theories of irreparable harm, including that the parties are both direct and indirect competitors in the mobile security software market, as well as that Blue Coat's infringement harmed its goodwill and reputation in the industry.

a. Not Direct Competitors in the Industry
The court first found that the parties are not direct competitors in the mobile security software industry because Finjan's software was a free mobile app for consumers while Blue Coat's software was sold to enterprise customers who purchased its product suite. The court observed that the parties' products "seem to operate in different segments of the market," and noted that there was no evidence that Finjan's software had lost any market share because of the customers' choice to install Blue Coat's product over its own.

b. Not Direct Competitors as Technology Licensors
The court also found that the parties were not in direct competition as technology licensors, because Blue Coat sold licenses to its anti-malware engines, while Finjan sold licenses to its patents. The court observed that Finjan presented no evidence that any prospective licensees declined to license its patents because they licensed Blue Coat's services instead.

c. Indirect Competitors Through Their Licensees but No Direct Harm
The court agreed that the parties were indirect competitors through Finjan's licensees, but found that Finjan failed to show that it stood to suffer immediate irreparable harm. The court emphasized that its analysis turned on whether Finjan itself would suffer harm, and stated that whether Finjan's licensees would suffer harm was not relevant to the inquiry. Although Finjan could suffer harm based on the impact of Blue Coat's alleged infringement on its licensees, the court concluded that Finjan failed to offer specific evidence showing that the value of its patents declined as a result of Blue Coat's actions, despite Finjan's argument that Blue Coat's infringement undermined the value of its licenses.

d. Harm to Reputation and Goodwill is Speculative
The court next found that the purported harm to Finjan's reputation and goodwill as a result of infringement was speculative, as Finjan provided no evidence that Blue Coat's alleged misrepresentations actually hurt Finjan's reputation. The court concluded that Finjan's arguments regarding irreparable harm, taken together, did not justify the "extraordinary relief" of a preliminary injunction.

e. History of Granting Non-Exclusive Licenses
The court also found that other factors weighed against a finding of irreparable harm. The court noted Finjan's long history of granting non-exclusive licenses to its patents, including executing licenses with 12 companies and entering into licensing discussions with many more. The court concluded that these actions weighed against a finding of irreparable harm, because Finjan had shown itself willing to accept payment in exchange for not asserting its exclusive rights under the patents. Thus, any injury caused by infringement would be compensable in quantifiable damages, whereas a preliminary injunction is better suited to situations where money alone cannot make the plaintiff whole.

f. Delay in Moving for a Preliminary Injunction and Lack of Causal Nexus
The court also noted Finjan's delay in moving for the injunction. Finjan waited a year after it filed the suit to seek the preliminary injunction, and such a delay weighed against a finding of an immediate, irreparable injury. The court also found that Finjan did not sufficiently demonstrate the required causal nexus between the alleged harm and the alleged infringement, as it did not link Blue Coat's accused product to the alleged harm.

3. Balance of Hardships Favored Accused Infringer
For the third factor of its analysis, the court held that the balance of hardships caused by a preliminary injunction weighed in Blue Coat's favor. The asserted patent was set to expire in two months, so the harm that Finjan would suffer would simply be two more months of patent infringement (when it had already waited a year to seek the injunction). In contrast, the court noted that Blue Coat could suffer substantial hardship due to the potential disruption to its businesses if it were forced to comply with an injunction.

4. No Public Interest in Injunction
For the fourth factor, the court determined that the public's interest in an injunction did not affect the outcome of the case. While the court recognized the public's interest in protecting patent rights, it concluded that that interest alone did not justify an injunction. The court also noted that the injunction would take Blue Coat's product off the market, thereby slightly harming the public by restricting consumer choice.

Strategy and Conclusion

This case illustrates that a party seeking a preliminary injunction must be prepared to provide concrete evidence that it would be irreparably harmed if the injunction is not granted, and that merely showing possible harm to licensees arising from indirect competition is insufficient. Generalized, speculative assertions of harm, without adequate supporting evidence, will likely not convince a court to issue a preliminary injunction.

Further Information
The Finjan decision can be found here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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