02 December 2011

Samsung v Apple – A Closer Look at the Appeal Decision

Samsung Electronics Co. Limited v Apple Inc. [2011] FCAFC 156 (30 November 2011)

Appeal from decision to grant interlocutory injunction – whether leave to appeal should be granted – principles to be applied when considering grant of interlocutory injunction – need to evaluate strength of the probability of success of applicant – need to take strength of probability into account when assessing the balance of convenience and justice – infringement – strength of prima facie case – invalidity – strength of prima facie case – balance of convenience – factors to be considered

Galaxy-Tab-MagnifierOn Wednesday we provided our initial thoughts on the decision of Justices Foster, Dowsett and Yates overturning the grant of an interlocutory injunction to Apple, barring the sale of Samsung’s Galaxy Tab 10.1 tablet in Australia.  For most readers the case will need no introduction.  Anybody needing to catch up can read back over the various articles we have posted since the dispute began.

Before looking at the decision in more depth, we have to say firstly that Patentology feels somewhat vindicated by the judgment of the Full Court.  Way back on 2 August 2011, when the Apple and Samsung juggernaut first rolled into Justice Bennett’s courtroom, we predicted that Apple would not be granted an interlocutory injunction (see It’s Apple vs Samsung Down-Under as Smartphone War Escalates).  From this, we suggested, further consequences would flow, such as an increased likelihood that Apple and Samsung would reach some form of global settlement of their ongoing disputes before the matter could make it to a full trial in Australia.

Justice Bennett put paid to that course of events, by holding a number of days of hearings and then, against all of our expectations, granting Apple its injunction.  This was, as the Full Court has now confirmed, an error on her part, meaning that – on this occasion at least – our original prediction was a correct evaluation of the relevant law.  An interlocutory injunction in a patent case – preventing sale of an allegedly infringing product prior to the patentee proving infringement – ought to be an extraordinary remedy only granted in exceptional cases. 

Yet the time taken to reach this point has clearly been to Apple’s benefit.  If Samsung now releases the Galaxy Tab 10.1 to the Australian market, it will be four months later than its original intended launch date, and less than three weeks before Christmas.  Apple’s early wins not only in Australia but elsewhere, such as Germany and the Netherlands, appeared to catch Samsung off-guard.  And while the sparring companies are starting to look more evenly-matched, Samsung has certainly had to come back from behind.  As matters have transpired, our prediction of a fairly orderly tit-for-tat leading to a truce was simply not to be.

ISSUES ADDRESSED ON APPEAL

Turning now to the actual decision, the judgment of the Full Court can essentially be divided into a series of distinct steps:
  1. the question of whether the court should grant leave to appeal;
  2. determination of the legal principles to be applied when deciding whether or not to grant an interlocutory injunction;
  3. assessment of whether Justice Bennett applied the correct principles;
  4. analysis of strength of Apple’s prima facie infringement case;
  5. analysis of strength of Samsung’s prima facie invalidity defence; and
  6. evaluation of the balance of convenience.
We will look at each of these in turn.

LEAVE TO APPEAL

In normal circumstances, a party to litigation who is dissatisfied with the judgment of a single judge of the Federal Court does not need leave (i.e. permission) to appeal to the full bench.  For most matters, an appeal is available as of right.

Interlocutory decision are an exception.  They are preliminary in nature, and they are not supposed to tie up the resources of the courts for extended periods, or unduly delay a final determination of the case.  So an appeal will only be heard by leave of the court.

The test for whether leave should be granted is well established, as set out in paragraphs [26]-[27] of the decision (citing the High Court in Bienstein v Bienstein [2003] HCA 7):
  1. whether, in all the circumstances of the case, the decision is attended by sufficient doubt to warrant its being reconsidered on appeal; and
  2. whether substantial injustice would result if leave were refused supposing the decision to be wrong.
The Full Court was particularly influenced (at [33]) by another decision of the High Court, Ex parte Bucknell [1936] HCA 67, which:

…emphasised the importance of the Court considering the practical operation or effect of the interlocutory order from which leave to appeal is sought. Leave should readily be granted if, as a practical matter, the interlocutory order has the effect of determining the whole of the proceeding or an important issue in the proceeding.

Due to the relatively short lifespan of a product such as the galaxy Tab 10.1, and the unlikelihood of a final decision before at least the middle of 2012, the court considered that in all of the circumstances of the case, leave to appeal should be granted (at [35]-[37]).

LEGAL PRINCIPLES FOR GRANT OF INTERLOCUTORY INJUNCTIONS

The first point to be made with regard to interlocutory injunctions is that the power of the Federal Court to grant such relief is not conferred by the Patents Act 1990.  The Patents Act provides for final injunctions to be granted, however the power to grant interlocutory relief – which enables the court to control what happens pending a final judgment – is is conferred in general terms by s 23 of the Federal Court of Australia Act 1976.

The Full Court has cited High Court authority (Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia [1998] HCA 30) for the proposition that interlocutory orders may be made by the court to ‘prevent frustration of its process’ in the ongoing proceedings (at [44]).  The court thus concluded (at [49]) that:

In our view, the task facing [Justice Bennett] was not simply to grant or refuse an injunction. The task was to protect the Court’s process from frustration, as best as could be done in the circumstances, following the guidelines laid down by the High Court …. An “all or nothing” outcome was unlikely to produce that result.

Justice Bennett found that both parties’ case had some merit.  She also found that the balance of convenience was quite evenly weighted.  So, according to the Full Court, ‘an arrangement which shared the risk of loss was the best that could be done to avoid frustration of the Court’s process, at least in the absence of any conduct by either party which effectively made it the author of its own misfortune.’ 

The significance of this last phrase is that it draws attention to the questions of whether Samsung had been ‘the author of its own misfortune’ by resisting an early trial, by proceeding with preparations for launch of its products with ‘eyes wide open’ to the potential for infringement, or by infringing multiple patents (see paragraph [50]).  These were precisely the ‘balance of convenience’ factor which Justice Bennett found to favour Apple, even if only slightly (see green highlights in our earlier article Samsung’s ‘Eyes Wide Open’ Sinks Australian Galaxy Tab 10.1).

The Full Court further stated (at [51]) – again on the basis of High Court authority in Australian Broadcasting Corporation v O’Neill [2006] HCA 46 – that ‘[w]here the merits and the question of convenience are fairly evenly balanced, there will be no injustice in requiring that the party seeking relief demonstrate good prospects of success before imposing almost certain prejudice on the other side.’

It is fairly clear at this point which way the judgment is going!

At paragraphs [52]-[74] of the judgment, the Full Court reviewed a range of authorities (including a number of High Court decisions) on the grant of  interlocutory injunctions.  What the court has drawn from these authorities is that there is, in general, a requirement not only to determine whether the applicant has a prima facie case for relief, but also to evaluate the strength of the applicant’s case, and to take this into account when assessing the balance of convenience and justice in granting an interlocutory injunction.

DID JUSTICE BENNETT APPLY THE CORRECT PRINCIPLES?

Justice Bennett determined that Apple had established a prima facie case of infringement (see, e.g., paragraphs [36], [58], [75], and [125]–[127] of the first-instance decision, Apple Inc. v Samsung Electronics Co Limited [2011] FCA 1164).  However, her approach was essentially ‘all or nothing’ – she accepted that Apple would succeed in its infringement claims if the evidence in the final trial confirmed the facts as presented by Apple in the interlocutory proceedings.

The only substantive discussion of the strength of Apple’s case is to be found at paragraphs [238]–[239] of Justice Bennett’s decision, where she refers to the fact that a prima facie case exists in relation to ‘two separate, registered patents’.  However, this is not the ‘strength’ that was found by the Full Court to require evaluation.  As the court stated (at [88]-[89]):

In addition to deciding whether Apple had made out such a prima facie case, her Honour was also required to assess the strength of that case so that she could take into account her views on that matter in her assessment of the balance of convenience and justice.

The primary judge did not undertake either of these evaluative tasks. Her Honour’s failure to do so constituted important errors which led her to grant interlocutory injunctive relief in circumstances where … she should not have done so. In our view, her decision was clearly wrong and should be set aside. The discretion falls to be re-exercised by this Court.

Here, the Full Court is essentially saying that, because Justice Bennett failed to apply the correct legal principles, it is going to go back and re-evaluate her findings of fact, as well as her application of the law.  Apple disputed this approach, arguing that the Full Court should send the case back down to Justice Bennett to reconsider her decision in light of the court’s explanation of the correct legal principles.  This is not an uncommon approach – typically the primary judge has better access to the original evidence presented in the case, and is therefore in a superior position to apply the law to the particular circumstances.  In this case, however, the Full Court disagreed (at [90]):

The appeal has been brought on urgently. The underlying dispute has been regarded by both parties as urgent. The subject matter of the dispute is of great significance to both parties. We are not persuaded that there is any material of importance relevant to the exercise of discretion which has not been drawn to our attention. We will, therefore, proceed to exercise the discretion ourselves.

In professional wrestling, they have a word for this.  The word is ‘smackdown’!

APPLE’S PRIMA FACIE INFRINGEMENT CASE

In the interlocutory proceedings, Apple relied on just two of its patents, identified as the ‘Touch Screen patent’ and the ‘Heuristics patent’ respectively.  We have previously provided brief summaries of each of these patents (see Back in Court, Apple Blames Samsung for Failure to Reach a Deal).

In both cases, whether or not Samsung is ultimately found to infringe will depend strongly upon the interpretation (or ‘construction’) of the patent claims – the numbered clauses appearing at the end of the description which define the extent of the patent monopoly.  Apple – naturally – argues for a construction under which Samsung would infringe the claims.  Samsung – equally understandably – argues for one under which it would not.

Justice Bennett considered that because Apple’s arguments were plausible, it had established a prima facie case for infringement.  The Full Court, however, was less than convinced.

With regard to the Touch Screen patent, the Full Court found (at [121]) that:

…on the present state of the evidence, there is a real and substantial prospect that the importation into and supply in Australia of the Galaxy Tab 10.1 will not infringe … the Touch Screen Patent. We have referred to a number of difficulties that confront Apple in making good its case on infringement. It may well be that, on a final hearing, Apple will meet these difficulties. But difficulties they are. Whilst we would not be prepared to say that Apple’s case on infringement is not open to be argued, the difficulties to which we have referred do affect the assessment at the present time of the probability that, if on a final hearing the evidence remains the same, Apple will be found to be entitled to final injunctive relief for infringement of that claim. If Apple has established a prima facie case at all (which we doubt), it is founded upon a construction argument which, if the evidence remains as it is, is unlikely to succeed at trial.

With regard to the Heuristics patent, the Full Court similarly found (at [160]) that:

On the present state of the evidence we are unable to see that Apple has established a prima facie case of infringement of … the Heuristics Patent

We note the emphasis in both of these findings on ‘the present state of the evidence’.  The point here is that the evidence available at the interlocutory stage is inevitably incomplete.  The court therefore cannot be certain, but it can only work with what it has available.

SAMSUNG’S CASE FOR INVALIDITY

Samsung had argued that the relevant claims of the Touch Screen patent lack novelty in view of certain prior art documents.  Justice Bennett found (at [74]-[75] of the original decision) that while Apple has a plausible defence to this attack, Samsung’s arguments were equally plausible, and therefore that Samsung had made out a prima facie case of invalidity.

The Full Court again adopted a more nuanced approach to the assessment of Samsung’s case, finding (at [140] and [150]) that, on the basis of the available evidence, Samsung had not made out a prima facie case of invalidity.

BALANCE OF CONVENIENCE AND JUSTICE

As we have noted above, and in our earlier article, the three factors in Justice Bennett’s evaluation of the balance of convenience which favoured Apple were (quoting the Full Court decision at [161]):
  1. Samsung’s unwillingness to accept an early hearing date;
  2. Samsung’s proceeding with the launch of the Galaxy Tab 10.1 with its “eyes wide open”; and
  3. the fact that Apple’s case was based upon two separate, registered patents.
The Full Court considered the first of these to be the most complex, due to the various negotiations that took place between the parties, and associated discussions in the courtroom, as outlined in paragraphs [163]-[190] of the decision. 

The upshot, however, is that the Full Court (at [190]) considered that ‘it would have been very difficult, if not impossible, for the primary judge to have sifted through the various permutations and combinations of patents and relief sought by Apple, and the various defences offered by Samsung, in order to determine whether or not it was reasonable for Samsung to refuse the offer of an early final hearing on limited issues.’  As a result, Justice Bennett ‘erred in principle by taking into account that irrelevant consideration.’

With regard to the ‘eyes wide open’ argument advanced by Apple – according to which Samsung proceeded with preparations for an Australian launch of the Galaxy Tab 10.1 even after Apple commenced patent infringement proceedings in the US on 15 April 2011 – the Full Court (at [195]) understood Justice Bennett to have accepted that ‘Samsung could not reasonably have been expected to stop preparation for the launch of the Galaxy Tab 10.1 after 15 April 2011 because, come what may, it would have then suffered the delay which it now seeks to avoid.’

The Full Court found (at [196]) that:

…the cases suggest that knowledge of the infringed right is relevant to the exercise of the discretion to enjoin conduct. …. Where, however, there is a finding that the alleged infringer should not reasonably have been expected to stop the relevant activity, knowledge seems to be irrelevant.

Finally, on the issue of there being two patents rather than one, the Full Court is unequivocal (at [197]):

…we do not see any way in which that can strengthen Apple’s case. That consideration says nothing about the construction of the patents for infringement purposes. Whether it has any relevance to the allegation of want of novelty depends upon the assessed strength of that allegation. In the circumstances of this case no weight should be given to the fact that there were two patents.

To sum up the ‘balance of convenience’ issues, that is two ‘irrelevants’ and one ‘no weight’.  In other words, Justice Bennett got it completely wrong, and the balance does not in any way favour Apple.

CONCLUSION

There appears not to be a single point upon which Justice Bennett’s decision is not overturned by this judgment on appeal.  According to the Full Court she got the fundamental legal principles wrong, she failed to evaluate the strength of Apple’s overall case, she wrongly found prima facie cases of infringement and invalidity, and she reached the wrong conclusion of the ‘balance of convenience’ by taking into account irrelevant and meaningless factors.

We believe that this decision will have great significance beyond the present case.  While it may always be best-known for its high profile litigants and subject matter, from a legal perspective it sets out clearly, and with examples, the principles to be applied in deciding whether or not to grant interlocutory relief in patent cases. 

In our view, the Full Court has handed down a good decision, which re-establishes the principle that extraordinary remedies require extraordinary circumstances.  There was nothing in Justice Bennett’s reasoning to distinguish an exceptional case, deserving of interlocutory relief, from a merely ordinary case in which a finding of infringement appears somewhat probable. 

The Full Court has set this to rights.  By requiring an evaluation of the strength of the infringement case, and the strength of the overall probability of success, and then taking this into account when assessing the balance of convenience and justice, exceptional cases can be distinguished from the merely ordinary examples of alleged patent infringement.

While the high profile of the dispute between Apple and Samsung might make the case seem ‘exceptional’, as patent infringement claims go, Apple’s is really rather conventional.  And, setting aside the identity of the litigants (Justice, it is said, is blind), an ordinary patent case does not call for extraordinary remedies.

If Apple ultimately wins at trial, it will get its remedy in the form of financial compensation, and the Full Court has ordered Samsung to keep specific records of all of its sales of hardware and software associated with the Galaxy Tab 10.1 in Australia to ensure that the basis for such compensation is readily to hand if and when the time comes.

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