In Vecco Instruments Inc. v. SGL Carbon, LLC, No. 17-CV-2217 (E.D.N.Y. Nov. 2, 2017), Judge Pamela Chen in the Eastern District of New York recently granted Vecco’s motion for a preliminary injunction enjoining SGL Carbon. The requested injunction sought to prevent SGL Carbon’s further actions related to its likely indirect infringement of Vecco’s asserted patents. Notable in this extensive and detailed 76-page decision is the Court’s discussion of how “long-term and second-order” effects of the accused infringer’s actions can satisfy the “irreparable harm” requirement of the preliminary injunction analysis.

Plaintiff Vecco designs, manufactures, and services LEDs, power electronics, hard drives, and other electronic devices.  It also owns patents related to metal-organic chemical vapor deposition (MOCVD) reactors, a technology that enables high-volume fabrication of metal-organic semiconductor wafers that can be turned into LEDs. Vecco enjoys a large share of the MOCVD market due, in large part, to a distinctive feature of its MOCVD reactors: a removable wafer carrier, typically made of graphite that is mounted on a spindle centrally positioned within the reactor. Vecco authorized SGL Carbon to manufacture these wafer carriers for Vecco and its customers, but in 2013, SGL Carbon began manufacturing wafer carrier for a new entrant into the MOCVD market. Vecco claims this constituted infringement of its MOCVD patents, and sought a preliminary injunction to stop this activity during the pendency of the patent litigation case.

In determining whether a preliminary injunction was warranted, the Court examined whether SGL Carbon infringed Vecco’s asserted patents and found that it demonstrated a clear likelihood of success with respect to its claim of indirect infringement relating to SGL’s manufacture of wafer carriers for the new market entrant. The Court also found that the balance of the hardships favored Vecco, and that no critical public interest would be injured by a preliminary injunction. Most interesting is the Court’s examination of whether Vecco will suffer irreparable harm.

As a result of SGL Carbon’s bad acts, Vecco alleged that it suffered, and will continue to suffer, irreparable harm in the form of (1) loss of customers, orders, and market share, (2) price erosion, (3) loss of business opportunities, and (4) loss of goodwill and damage to reputation. The Court first noted that each of these alleged harms are cognizable for purposes of a preliminary injunction if supported by sound evidence. SQL Carbon argued that any alleged harm to Vecco was quantifiable and thus capable of remedy by money damages. The Court rejected this argument. It found that although Vecco may be able to show with certainty its losses due to lost sales, customer, or price erosion in the past or near-term future, “the long-term and second-order effects of SGL Carbon’s infringement and Vecco’s resulting lost sales, lost customers, and price erosion are not likely to be quantifiable with a requisite degree of certainty.” The Court further explained that

Vecco’s loss of customer feedback will hamper its ability to continue innovating its MOCVD designs to remain competitive in the MOCVD market which supports a finding of irreparable harm… Vecco’s loss of revenue in the near term, combined with asset impairments and other potential losses of goodwill and market share, will impair Vecco’s ability to invest in research and development… In addition, the medium- and long-term effects of Vecco’s lost market share and other competitive harms will be especially difficult to quantify at trial because the MOCVD reactor market is entering an expansionary period, making historical market data less predictive of future results.

This examination of the irreparable harm requirement sheds light on district courts’ willingness to consider potential future harm to a patent holder where absolute numbers concerning lost sales, lost customers, and the like are difficult to quantify given, for example, the nascency of the relevant industry. This order and analysis is instructive for patent holders seeking an injunction relating to alleged infringement where the patents at issue are directed to an emerging technology, or technology that has recently begun to be employed in a new manner.

The opinion and order issued on Thursday, November 2, and SQL Carbon filed a notice of interlocutory appeal to the Federal Circuit the following Monday. It will be interesting to see how the appellate court assesses this case, and in particular the potential future harm aspect of the trial court’s analysis. We will continue to monitor how this develops.