Intra-Circuit Split Continues as Federal Circuit Denies Rehearing En Banc

In denying the plaintiffs’ petition for rehearing en banc, the Court of Appeals for the Federal Circuit left open an intra-circuit split as to the proper standard in assessing the likelihood of success factor when deciding preliminary injunction motions in patent infringement cases.  Kimberly-Clark Worldwide, Inc. v. First Quality Baby Products, LLC, Case No. 10-1382 (Fed. Cir., Sept. 29, 2011) (order denying rehearing en banc) (Newman, J., joined by O’Malley, J., and Reyna, J., dissenting).

At the district court, plaintiffs Kimberly-Clark won a preliminary injunction.  First Quality appealed.  On appeal, a panel comprised of Judges Dyk, Friedman and Prost reversed the district court for three of the four patents-in-suit holding that the district court abused its discretion in granting the injunction. The panel found that because First Quality’s defenses were not “substantially meritless” or did not “lack substantial merit,” Kimberly-Clark failed to establish a likelihood of success on the merits, which precluded the injunction.  The Federal Circuit subsequently denied Kimberly-Clark’s petition for rehearing en banc.

In dissent, Judge Newman, joined by Judges O’Malley and Reyna, argued that the panel applied a different standard than the traditional standard for issuing preliminary injunctions.   Instead of applying the traditional standard that plaintiffs must show they will likely succeed on the merits, the panel adopted a standard that no preliminary injunction will be granted if the defendant raises a defense that does not “lack substantial merit.”   This standard, Judge Newman argued, is inconsistent with every other circuit court of appeals.  All the other circuits require consideration of a movant’s likelihood of success on the merits considered with the other equitable factors, i.e., irreparable harm to the movant in the absence of preliminary relief, balance of harms tipping in the movant’s favor or whether an injunction is in the public interest.  Judge Newman argued that under the panel’s standard  a preliminary injunction would be denied “merely because the non-movant has raised an argument worthy of consideration.”  According to Judge Newman, the effect of the “lack substantial merit” standard is that all preliminary injunctions will likely be denied, even when the other factors weigh in the movant’s favor. 

Judge Newman also argued that the panel’s standard is inconsistent with the presumptions and burdens at trial.  Since the defendant’s burden at trial is the same as their burden during the preliminary injunction stage (clear and convincing evidence), the panel’s “lack substantial merit” is in conflict with this evidentiary standard.  As Judge Newman stated, “a defense that does not ‘lack substantial merit’ is of a different order than a defense that is likely to succeed by clear and convincing evidence.”  Judge Newman also found the panel’s opinion inconsistent with the Supreme Court’s holding in eBay Inc. v. MercExchange, LLC, in which the Court held that traditional principles of injunctions applied with equal force to patent cases.  Finally, Judge Newman argued that the panel failed to demonstrate how the district court abused its discretion in granting the preliminary injunction.

Judge O’Malley, writing separately, argued that the panel deviated from the normal standards of assessing whether to grant preliminary injunctions in three ways:  the panel’s test of whether the assertion of invalidity is “substantially meritless” is not the same test as the likelihood of success test that controlling rules and case law mandate; the panel relied on one factor rather than balancing all four factors; the panel gave no deference to the district court where deference was due. Consequently, Judge O’Malley argued that the panel’s holding “virtually mandates denial of all such [preliminary injunction] motions,” which is inconsistent with the other circuit courts of appeals and the Supreme Court’s holding in eBay.

Practice Note:   At the district court, whether attempting to defeat or obtain a preliminary injunction, both standards should be considered since the outcomes of appeals at the Federal Circuit are panel-dependent.