Legal Reasoning (Dyk, Prost)

Background

Basis for First CAFC Appeal Given the modular nature of Lawson’s products, ePlus asserted different patent claims against five distinct configurations of software modules (“Configurations 1–5”). […] Configurations 3 and 5 were found to infringe two system claims (claim 1 of the ’172 patent and claim 3 of the ’683 patent) and three method claims (claims 26, 28, and 29 of the ’683 patent). […] [T]he district court permanently enjoined Lawson […] The court defined the “Infringing Products and Services” to include the three software configurations (Configurations 2, 3, and 5) adjudged infringing by the jury. […] Lawson appealed. […] We affirmed only the infringement finding as to method claim 26. Only Configurations 3 and 5 were found to infringe that claim. […] We remanded “for the district court to consider what changes are required to the terms of the injunction, consistent with this opinion.” ePlus I, 700 F.3d at 523.

ePlus, Inc. at *4-5.

Basis for Second CAFC Appeal (and Initiation of Contempt Proceedings) The district court […] ordered that the injunction be “modified by deleting from its scope the product . . . colloquially known as ‘Configuration 2,’” and “remain in effect in all other respects.” J.A. 1. On remand, in addition to reconsidering the injunction, the district court also instituted contempt proceedings [as Lawson had redesigned its software]. […] The court held Lawson in contempt for violating the injunction, finding that the redesigned products were no more than colorably different and in- fringed. The court ordered Lawson to pay a compensatory fine of $18,167,950 and coercive daily fines of $62,362 until it could show compliance with the injunction. […]

Id. at *7-8 (text added).

Co-Pending Reexamination While Lawson’s appeals were pending, in another case, we affirmed the PTO’s reexamination decision invalidating claim 26 of the ’683 patent. In re ePlus, Inc., 540 Fed App’x 998 (Fed. Cir. 2013) (per curiam). Our mandate issued, and the PTO cancelled claim 26 in April 2014.

Id. at *8.

[1: Injunction] An injunction cannot continue after the PTO has cancelled the only claim on which the injunction was based.

Wheeling & Belmont Bridge Co. Precedent [In Wheeling & Belmont Bridge Co.] [t]he [Supreme] Court held that an injunction “is executory, a continuing decree . . . . If, in the mean[]time, since the decree, this right has been modified by the competent authority . . . it is quite plain the decree of the court cannot be enforced.” Id. at 431–32.

ePlus, Inc. at *9.

[Cases adopting the Wheeling Bridge reasoning reflect] “[a] continuing decree of injunction directed to events to come is subject always to adaptation as events may shape the need. . . . [A] court does not abdicate its power to revoke or modify its mandate, if satisfied that what it has been doing has been turned through changing circumstances into an instrument of wrong.” United States v. Swift & Co., 286 U.S. 106, 114–15 (1932); […]

Id. at *9-10 (some citations omitted, text added).

Our court has applied these principles to an injunction barring infringement of patents later found to be invalid. Mendenhall v. Barber-Greene Co., 26 F.3d 1573, 1584 (Fed. Cir. 1994). In Mendenhall, we reviewed injunctions based on findings of patent infringement. Id. at 1576. While those injunctions were pending on appeal, the same patents were held invalid in another case in our court. Id. at 1576–77. We held that the injunctions had to be reversed following the final judgment of patent invalidity. Id. at 1584.

Id. at *11.

No Rationale for Injunction Under these authorities, there is no longer any legal basis to enjoin Lawson’s conduct based on rights that claim 26 of the ’683 patent previously conferred as those rights have ceased to exist. The PTO found claim 26 invalid, we affirmed that decision, our mandate issued, and the PTO cancelled the claim. Claim 26 no longer confers any rights that support an injunction against infringement. During oral argument, ePlus even admitted that there could be no injunction moving forward. The PTO’s cancellation of claim 26 requires that we now vacate the injunction.

Id. at *11.

[2: Civil Contempt Remedies] Civil contempt remedies based on the violation of an injunction are not appropriate when the injunction has been overturned on direct appeal.

Distinguishing Civl and Criminal Contempt If Lawson had been found guilty of criminal contempt, that order and any resulting penalties would not be set aside simply because claim 26 had been cancelled. However, the district court found Lawson in civil, not criminal, contempt. […] The Supreme Court distinguished civil from criminal con- tempt, explaining that: It does not follow, of course, that simply because a defendant may be punished for criminal contempt for disobedience of an order later set aside on appeal, that the plaintiff in the action may profit by way of a fine imposed in a simultaneous proceeding for civil contempt based upon a violation of the same order. […] The Court explained that if the injunction had been overturned, “the conviction for civil contempt would be reversed in its entirety.” […]

ePlus, Inc. at *11-12 (internal citations omitted).

Worden Precedent Under Worden, compensatory civil contempt remedies must be set aside when the injunction on which they are based is set aside because the patent is determined to be invalid. [...] Other circuits have similarly held that civil contempt sanctions must be set aside if the underlying injunction is reversed on appeal.

Id. at *14.

Fresenius Precedent This case is not distinguishable on the ground that the injunction has been set aside as the result of the PTO proceeding rather than a court judgment. In Fresenius USA, Inc. v. Baxter International, Inc., we held that a non-final money judgment of damages for infringement must be set aside where the judgment rested on a patent claim that the PTO later cancelled. 721 F.3d 1330, 1344, 1347 (Fed. Cir. 2013). [...] We held that the cancellation of a patent requires that non-final judgments be set aside because the “cancelled claims [a]re void ab initio,” id. at 1346,

Id. at *14.

This case does not require us to decide whether civil contempt sanctions would survive if the injunction had been final at the time the district court imposed civil contempt sanctions. [...] The injunction here was not final even though claim 26 had been held infringed. We held in Fresenius that even if this court has rejected an invalidity defense to infringement, an “intervening decision invalidating the patents unquestionably applies” as long as “the judgment in [the present] litigation is not final.” […] With respect to the determination of finality, we explained that “where the scope of relief remains to be determined, there is no final judgment binding the parties (or the court).” […] This rule follows from the Supreme Court’s holding that “a final decree [is] one that finally adjudicates upon the entire merits, leaving nothing further to be done except the execution of it.’” […] There is no question here that the district court’s modified injunction was not final when the PTO cancelled claim 26. Our previous appeal did not affirm the injunction, rather it remanded the case to the district court, requiring it “to consider what changes are required to the terms of the injunction, consistent with this opinion.”

Id. at *15-17 (internal citations omitted).

Conclusion