27 September 2011

Apple and Samsung Return to Court With ‘Eyes Wide Open’

sydney-galaxyOn Monday, 26 September 2011, Apple and Samsung returned to the Australian Federal Court in Sydney for the first day of a two-day hearing which will determine whether or not the Samsung Galaxy Tab 10.1 can be released to the Australian market in the foreseeable future – or perhaps at all.  (See It’s Apple vs Samsung Down-Under as Smartphone War Escalates and Breaking News – Apple and Samsung Back in Australian Court for our previous reports of this dispute.)

The hearing, taking place before experienced patent judge Justice Annabelle Bennett, is to determine whether or not Apple should be granted a preliminary (or ‘interlocutory’) injunction, barring Samsung from selling its latest tablet device pending the outcome of a full trial on the issue of whether the Galaxy Tab 10.1 infringes certain Apple patents, and whether those patents are valid. 

Since a full trial could extend over two years or more, and any decision may be subject to an appeal, the grant of a preliminary injunction could well spell the end of Samsung’s efforts to launch this particular product in Australia, considering the likelihood that a number of further generations of tablet are likely to be developed and released in the meantime.  After all, the time between the launch of Apple’s iPad and iPad 2 devices was less than one year.

While reporting of a full day’s argument before the Federal Court is necessarily sketchy, a number of articles have appeared summarising some of the main developments on day one of the hearing, which continues on Thursday, 29 September 2011.  (See, e.g., articles in the Fairfax online media, from the BBC, and at itnews.com.au.)  These developments include:
  1. a reduction in the number of patents being asserted by Apple, from 13 to four (three raised today, and one further patent expected to be raised on Thursday);
  2. evidence from Apple, in the form of video demonstrations, along with affidavits from the marketing director of Apple Australia, and Professor Andy Cockburn of the University of Canterbury in New Zealand allegedly establishing infringement by Samsung of Apple patent claims over selective rejection of finger gestures and heuristics; and
  3. arguments put forward by Apple (and rejected by Samsung) that Samsung had made preparations to release the Galaxy Tab 10.1 to the Australian market with ‘eyes wide open’ to the risk of infringement, and that they should instead have sought to ‘clear the way in advance, not to crash through’.
These elements are all pertinent to Apple’s prospects of obtaining a preliminary injunction, as we shall attempt to explain.

BASIS FOR GRANT OF PRELIMINARY INJUNCTIONS

The grant by a court of a preliminary injunction is a fairly serious undertaking.  The process necessarily takes place in the absence of the kind of evidence that would be required to make an ultimate determination of whether a patent is infringed, and whether that patent is valid.  The preparation of such evidence is a long and costly process, that might occupy a year or more of the parties’ time and efforts.

However, if an injunction is granted pending a final outcome, it will prevent the accused infringer from selling the offending products for the duration.  If the patent holder is ultimately successful, then the grant of the injunction will be vindicated.  However, if the patent holder fails once all of the relevant facts are before the court, then the accused infringer will have been wrongly denied the opportunity to sell its products, and the public will have been denied the benefits of having the choice of a competing product.

Conversely, if an injunction is not granted, and the patentee ultimately prevails, then it will have suffered the injustice of having to share the market with the infringing product for an extended period.

Considering the potential value of the tablet market over the coming months and years, and thus the huge prospective impact on manufacturers, distributors, retailers and consumers, we would suggest that the burden of the decision upon Justice Bennett’s shoulders is a heavy one indeed!

For this reason, it was once extremely rare, and generally considered very difficult, for a patentee to obtain a preliminary injunction restraining an accused infringing from selling its allegedly infringing products (or services) pending a final determination.  However, it is widely considered that the courts have tended to adopt a more ‘patentee-friendly’ approach in recent times, being more willing to grant preliminary injunctions, especially in cases relating to pharmaceuticals.  In particular, if the accused infringer asserts invalidity of patent claims as part of its defence (as Samsung does in this case), the court may require a fairly strong case to be put forward at the preliminary stage, treating the patent as if it is entitled to at least a provisional ‘presumption of validity’.

Generally speaking, the court considers a number of factors in assessing whether the grant of a preliminary injunction is appropriate:
  1. whether there a ‘serious question to be tried,’ i.e. whether the patentee has made out a prima facie case in the sense that, if the evidence remains the same, there is a probability that a court will grant a permanent injunction at trial;
  2. whether the patentee will suffer ‘irreparable harm’ for which any damages awarded at trial would not be an adequate remedy; and
  3. whether other factors relevant to the ‘balance of convenience’ (i.e. the relative impact of the preliminary decision upon the parties) favour the grant of a preliminary injunction.
The reported events in the Federal Court hearing can all be understood in relation to these considerations.

REDUCTION IN NUMBER OF ASSERTED PATENTS

Apple’s prospects of obtaining a preliminary injunction are enhanced (under the first consideration above) if it is able to establish probable infringement of one or more probably valid patent claims within the limited time available.

It is therefore very much in Apple’s interests to focus the proceedings on a small number of patent claims selected on the basis that likely infringement can be more easily established, and likely invalidity less easily established by Samsung.  A ‘scattergun’ approach of asserting the largest possible number of patent claims is unlikely to impress the court, considering the serious consequences of the preliminary decision.

VIDEO EVIDENCE

If a picture tells a thousand words, then a moving picture must say even more!  Apple’s patent claims contain some fairly arcane terminology (such as ‘heuristic’), and what better way to illustrate the purported meaning of such claims than by demonstration?

It is therefore not surprising that Apple would submit video evidence in its efforts to persuade Justice Bennett of the likelihood of infringement.

THE ‘EYES WIDE OPEN’ ATTACK

Apple’s contention that Samsung proceeded with its release plans with ‘eyes wide open’, and that it was obliged to ‘clear the way’ by challenging Apple’s patents before launching the Galaxy Tab 10.1 is an argument that has precedent in Australian law under the ‘balance of convenience’ factor.

The argument is generally based on the idea that commencing a potentially infringing activity in the knowledge that it is potentially infringing, and thus forcing the patentee to take action to defend its rights before launching a counter-attack, is something that should not be encouraged.  The patent system works most efficiently when rights are respected, and disputes are thus kept away from the courts.  It is inconvenient to the patentee, to the courts, and to the public, to allow companies – particularly those with the resources to ‘out-litigate’ their competitors – to simply crash on through the system.

It is this particular consideration to which Apple is appealing with its ‘eyes wide open’ attack.

However, a patentee cannot assume that it will necessarily have the best of this argument.  In a 2009 decision, an appeal to a full bench of the Federal Court (which included Justice Bennett) led to the court commenting on the relative weight to be accorded to the ‘eyes wide open’ argument (Smith & Nephew Pty Ltd v Wake Forest University Health Sciences [2009] FCAFC 142, at [52]).  The court indicated in particular that:
  1. it is generally inappropriate to impose upon an accused infringer an obligation to ‘clear the way’ by seeking revocation of the patent in advance; and
  2. the fact that a new entrant may be prepared to take the risk of being restrained with its eyes wide open is just one factor of the many that may require consideration, and should not be elevated to any higher level than this.

WILL APPLE GET ITS INJUNCTION?

We have stated previously that we consider the grant of a preliminary injunction to be unlikely in this case, and we still think that this is so.  However, Justice Bennett has indicated her intention to consider the matter seriously by allocating two days for the hearing, and so the outcome is far from certain before she has had the opportunity to consider all of the submissions made by both parties.

In our view, the following factors favour Samsung:
  1. Apple will not suffer ‘irreparable harm’ if an injunction is not granted, since it is clear that competition from the Galaxy Tab 10.1 will not threaten its survival, and a retrospective award of damages for infringing sales would be an adequate remedy if Apple is ultimately successful;
  2. however, given the short product lifecyle for these devices, the grant of an injunction has the potential to kill the Galaxy Tab 10.1 in Australia altogether, and it might be very difficult to assess adequate compensation to Samsung if Apple is then unsuccessful at trial;
  3. a reduction in competition in this particular market is inconvenient to the public (i.e. consumers), and to the economy in general, in which patents constitute a specific and narrow exception to the general policy of  free competition as a driver of efficiency;
  4. there are likely to be many complex technical issues in determining the scope of Apple’s patent claims, the infringement of those claims, and their validity, which may not be easily determined with sufficient clarity at the interlocutory stage; and
  5. Samsung has made a show of cooperating with Apple, and with the court, in a clear effort to address Apple’s concerns by modifying the proposed Australian product to avoid infringement, and refrain from launching the product until after the hearing on the preliminary injunction – this strategy has likely been calculated to support arguments by Samsung that it is not proceeding with ‘eyes wide open’ to probable infringement, and that, on the contrary, it is making efforts to design its product to be non-infringing.
The reasoning upon which preliminary injunctions have been granted more frequently in pharmaceutical cases may not translate to this dispute.  Pharmaceuticals have a long continuing commercial life after the expiry of any relevant patents, and it is part of the ‘game’ that generic manufacturers play to trigger patent litigation in the hope of invalidating a patent, or establishing non-infringement, so that they can market competing drugs sooner than would otherwise be the case.  Furthermore, the operation of the Pharmaceutical Benefits Scheme (PBS) in Australia is such that it is very difficult to adequately compensate a successful patentee once the genie has been released and one (or typically more) competing generic products launched.

In other words, in pharmaceutical cases the balance of convenience is more likely to favour the patentee.  The equation is different in the case of electronic consumer products with short lifecycles and rapid obsolescence.

It will be interesting to see how day two of the hearing unfolds, and how Justice Bennett then decides the matter.

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