Opinion
Case No.: 2:21-cv-02843-AB-AFM
06-10-2021
MEDCURSOR INC. v. SHENZEN KLM INTERNET TRADING CO., LTD. et al.
Calvin Hsiao-Ting Chai, Hua Chen, Scienbizip PC, Los Angeles, CA, for Medcursor Inc. David Samuel Silver, Gokalp Bayramoglu, Nihat Deniz Bayramoglu, Bayramoglu Law Offices LLC, Henderson, NV, for Shenzhen KLM Internet Trading Co., Ltd., Urpower Inc., Yuqin Peng.
Calvin Hsiao-Ting Chai, Hua Chen, Scienbizip PC, Los Angeles, CA, for Medcursor Inc.
David Samuel Silver, Gokalp Bayramoglu, Nihat Deniz Bayramoglu, Bayramoglu Law Offices LLC, Henderson, NV, for Shenzhen KLM Internet Trading Co., Ltd., Urpower Inc., Yuqin Peng.
Proceedings: [In Chambers] Order Regarding Order to Show Cause Why A Preliminary Injunction Should Not Issue (Dkt. No. 25)
ANDRÉ BIROTTE JR., United States District Judge I. Introduction
Before the Court is Plaintiff Medcursor Inc.’s ("Plaintiff" or "Medcursor") request for a preliminary injunction. Initially, Plaintiff filed an Ex Parte Application for a Temporary Restraining Order and Order to Show Cause why a preliminary injunction should not issue ("Application," Dkt. Nos. 10, 11). The Court denied the requested temporary restraining order, but issued an order to show cause why a preliminary injunction should not issue. See "TRO Order," Dkt. No. 25. The Court also ordered further briefing. Plaintiff filed a Supplement (Dkt. No. 27), Defendants Shenzhen KLM Internet Trading Co., Ltd. ("Shenzhen KLM"), URPOWER INC. ("URPOWER"), and Yuqin Peng (collectively, "Defendants") filed an Opposition (Dkt. No. 31), and Plaintiff filed a Reply (Dkt. No. 33).
Plaintiff seeks a preliminary injunction ordering Defendants to retract the patent infringement notice filed with Amazon concerning Plaintiff's purported infringement of United States Patent Number D837,431 (the "D431 Patent"). Plaintiff avers that Defendants must retract the notice before Plaintiff's products can be relisted. Plaintiff also seeks to enjoin Defendants from taking other actions that would impinge upon Plaintiff's ability to sell its products, including by filing additional Amazon patent infringement notices.
The Court held a hearing concerning Plaintiff's request on May 21, 2021. For the reasons stated in this Order, the Court GRANTS Plaintiff's request for a preliminary injunction.
II. Background
The parties are familiar with the facts of this case, so the Court provides a brief summary only. After Defendants filed a patent infringement report with Amazon, resulting in Amazon terminating Plaintiff's product listings for a solar-powered LED spotlight, Plaintiff filed this declaratory relief action. Among other causes of action, Plaintiff seeks to invalidate Defendants’ design patent, U.S. Patent No. D837,431 ("the D431 Patent") for the design of an outdoor solar light. See First Amended Complaint ("FAC"), Dkt. No. 37 at ¶ 21. Defendant Shenzen KLM is also an Amazon seller. Id. ¶ 6. Shenzen KLM sells Defendant URPOWER's products on Amazon. Id. ¶ 8. Defendant Peng is the majority shareholder of Shenzen KLM and owner of URPOWER. Id. ¶¶ 9-10.
The D431 Patent, entitled "LED Spot Light," discloses an ornamental design of a solar powered lighting device, as shown below. See FAC Ex. 1.
The PTO issued the D431 Patent to Peng on January 1, 2019. Although Peng is the named inventor on the D431 Patent, Plaintiff alleges that she is not the true inventor. FAC ¶ 27. Instead, Plaintiff alleges that Peng purchased products with the D431 Patent design from Yinghao Solar and then later filed a patent application claiming that product design. Id. ¶¶ 22, 28-29. Specifically, Plaintiff alleges that the D431 Patent designs were based on Yinghao Solar's YH0502C LED spotlight product that has been commercially sold since 2015. FAC ¶¶ 34-37. Based on this, Plaintiff argues that the on-sale bar invalidates the D431 Patent. See Application at 4-5. Plaintiff also alleges inequitable conduct. FAC ¶ 77.
After Defendants filed their patent infringement report with Amazon, Amazon delisted Plaintiff's products, around March 13, 2021. See FAC Ex. 13, Dkt. No. 37-13. Plaintiff seeks a preliminary injunction because it claims these actions have "caused loss of customers and sales, loss of Amazon rankings and reviews, and loss of goodwill and reputation on the Amazon marketplace;" moreover, "[a]n extended lock on the [product] listings may even result in destruction of the Seller's inventory stored at Amazon's warehouses." Dkt. No. 10 at 9. Because Shenzen KLM's infringement reports "are directed at multiple Medcursor [product listings]," Plaintiff also worries that "an extended lock may lead to a suspension of the Amazon Seller's account." Id.
III. Legal Standards
A preliminary injunction is an "extraordinary remedy." Winter v. Nat. Res. Def. Council, Inc. , 555 U.S. 7, 22, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008). Under Winter , " ‘A plaintiff seeking a preliminary injunction must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest.’ " Am. Trucking Ass'n, Inc. v. City of Los Angeles , 559 F.3d 1046, 1052 (9th Cir. 2009) (quoting Winter , 555 U.S. at 20, 129 S.Ct. 365 ). Alternatively, " ‘serious questions going to the merits’ and a hardship balance that tips sharply toward the plaintiff can support issuance of an injunction, assuming the other two elements of the Winter test are also met." All. for the Wild Rockies v. Cottrell , 632 F.3d 1127, 1132 (9th Cir. 2011) (quoting Clear Channel Outdoor, Inc. v. City of Los Angeles , 340 F.3d 810, 813 (9th Cir. 2003) ). Serious questions are those "which cannot be resolved one way or the other at the hearing on the injunction." Bernhardt v. Los Angeles Cty. , 339 F.3d 920, 926 (9th Cir. 2003) (quoting Republic of the Philippines v. Marcos , 862 F.2d 1355, 1362 (9th Cir. 1988) ).
A preliminary injunction, moreover, may only be awarded "upon a clear showing" of evidence that supports each relevant preliminary injunction factor. Winter , 555 U.S. at 22, 129 S.Ct. 365. "This ‘clear showing’ requires factual support beyond the allegations of the complaint, but the evidence need not strictly comply with the Federal Rules of Evidence." CI Games S.A. v. Destination Films , No. 16-CV-05719 SVW (JCx), 2016 WL 9185391, at *11 (C.D. Cal. Oct. 25, 2016) (citing Flynt Distrib. Co., Inc. v. Harvey , 734 F.2d 1389, 1394 (9th Cir. 1984) ).
Regarding the second factor, conclusory affidavits are insufficient to demonstrate irreparable harm. Am. Passage Media Corp. v. Cass Commc'ns, Inc. , 750 F.2d 1470, 1473 (9th Cir. 1985). The plaintiff must show more than the "possibility" of irreparable injury; he must demonstrate that irreparable injury is "likely" and "imminent" in the absence of preliminary relief. Winter , 555 U.S. at 22, 129 S.Ct. 365 ; Am. Trucking , 559 F.3d at 1052 ; Caribbean Marine Servs. Co. v. Baldrige , 844 F.2d 668, 674 (9th Cir. 1988). IV. Discussion
A. Likelihood of Success on the Merits
In the TRO Order, the Court considered Plaintiff's patent invalidity claim concerning the on-sale bar, inequitable conduct, price fixing, patent misuse, and unfair competition. See TRO Order at 5. Because Plaintiff's antitrust, patent misuse, and unfair competition claims all depend on the conclusion that the D431 Patent is either invalid or unenforceable, the Court analyzed likelihood of success on the merits as to invalidity and unenforceability only. Id. at 8. Plaintiff did not challenge this conclusion in its Supplement or Reply. Thus, as before, when considering likelihood of success on the merits, the Court considers invalidity and unenforceability only.
1. Invalidity
Design patents are presumed to be valid. 35 U.S.C. § 282(a). A party seeking to invalidate a patent on the basis of anticipation must do so by clear and convincing evidence. See Catalina Lighting, Inc. v. Lamps Plus, Inc. , 295 F.3d 1277, 1288 (Fed. Cir. 2002). "[P]atent[s] enjoy[ ] the same presumption of validity during preliminary injunction proceedings as at other stages of litigation." Titan Tire Corp. v. Case New Holland, Inc. , 566 F.3d 1372, 1377 (Fed. Cir. 2009). The Court "does not resolve the validity question" at this stage, but instead "assess[es] [ ] the persuasiveness of the challenger's evidence," recognizing that it is a preliminary stage. Id.
A patent is invalid if the "the claimed invention was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public [more than one year] before the effective filing date of the claimed invention." 35 U.S.C. § 102(a) - (b). To show anticipation under 35 U.S.C. § 102, "[a]s with a utility patent, design patent anticipation requires a showing that a single prior art reference is identical in all material respects to the claimed invention." Door-Master Corp. v. Yorktowne, Inc. , 256 F.3d 1308, 1312 (Fed. Cir. 2001) (internal quotation marks omitted). In comparing design patent prior art with the claimed design to determine if the prior art is invalidating, the Federal Circuit has explained that, "the ordinary observer test must logically be the sole test for [design patent] anticipation." Int'l Seaway Trading Corp. v. Walgreens Corp. , 589 F.3d 1233, 1240 (Fed. Cir. 2009). That test asks whether, "in the eye of an ordinary observer, giving such attention as a purchaser usually gives, two designs are substantially the same;" designs are substantially the same when "the resemblance is such as to deceive [the ordinary] observer, inducing him to purchase one supposing it to be the other." Egyptian Goddess, Inc. v. Swisa, Inc. , 543 F.3d 665, 670 (Fed. Cir. 2008).
In the TRO Order, the Court concluded that Plaintiff failed to demonstrate a likelihood of success on the merits that the D431 Patent is invalid under the on-sale bar of 35 U.S.C. § 102(a). TRO Order at 8. Specifically, Plaintiff failed to demonstrate anticipation by comparing the prior art Yinghao Solar design to all claimed views of the patented design, as depicted in the drawings. Compare Application at 5 (comparing Figure 7 of the D431 patent only with a single view of the claimed anticipatory prior art) with Apple, Inc. v. Samsung Elecs. Co. , 678 F.3d 1314, 1326 (Fed. Cir. 2012) (finding district court's likelihood of success determination on validity erroneous for failing to consider the partial side view of the design patent when comparing the design patent to the prior art).
In its Supplement, Plaintiff acknowledges this deficiency. See Supplement at 1 & n.1. To remedy it, Plaintiff provides additional images and a supplemental declaration from Qiang Zhuo, who Plaintiff avers is the true design inventor. Id. Using those images, Plaintiff provides a side-by-side comparison to support likelihood of success on the merits that the designs are the same and therefore the prior art is invalidating. Id. at 2-3. Moreover, Plaintiff argues that the prior art spotlight is the same because, "the product Yinghao Solar (the manufacturer) sold to Defendant KLM on April 13, 2016 was manufactured according to the very design drawings that Defendants used to file the D431 application." Id. at 3 (citing Zhuo Supp. Decl., ¶ 15). Plaintiff supports this contention with the following table to illustrate copying from the design drawings into the figures of the D431 Patent.
Id. at 4.
Defendants respond that the Yinghao Solar product is not invalidating prior art because there were no public sales until September 2016, within the one-year period before filing, which began on August 29, 2016. Opposition at 6-7 & n.1. Defendants argue that, "The important distinction is that the on-sale bar is only directed at the inventor's activities and not third party activity such as Yinghao's activity," which "must be analyzed under a public use analysis." Id. at 11 (citing 35 U.S.C. § 102(b) ; ResQNet.com, Inc. v. Lansa, Inc. , 594 F.3d 860, 866 (Fed. Cir. 2010) ). Thus, Defendants contend that the Court should analyze the April 2016 Yinghao transaction with Peng under a public use analysis, not the on-sale bar. Id. at 13.
Because public use examines, "any use of [the claimed] invention by a person other than the inventor who is under no limitation, restriction or obligation of secrecy to the inventor," Petrolite Corp. v. Baker Hughes, Inc. , 96 F.3d 1423, 1425 (Fed. Cir. 1996), Defendants argue that the Yinghao Solar transaction does not qualify because it "was a private transaction between two companies that was not available to the public." Id. at 13-14. This is because, Defendants contend, "the agreement between the parties required Yinghao to be an exclusive manufacturer to Defendants and not disclose the existence of the products to others until the product was ready for launch." Id. at 14 (citing Peng Decl. ¶ 9). Accordingly, Defendants argue the public use bar does not apply because "Plaintiff produces no evidence that Yinghao prior to August 29, 2016 breached its promise to Defendants to maintain Defendants’ new invention a secret." Id. at 15.
In reply, Plaintiff argues that, in Helsinn Healthcare S.A. v. Teva Pharm. USA, Inc. , ––– U.S. ––––, 139 S. Ct. 628, 634, 202 L.Ed.2d 551 (2019), the Supreme Court explained that "a commercial offer for sale that is subject to confidentiality restriction can nevertheless qualify as prior art under § 102(a)." Reply at 2. Further, Plaintiff argues that even a secret sale from a supplier to the patent applicant can qualify as prior art under the on-sale bar. Id. at 3 (citing Special Devices, Inc. v. OEA, Inc. , 270 F.3d 1353 (Fed. Cir. 2001) (commercial sale for stockpiling subject to on-sale bar)). Moreover, even under In re Caveney on which Defendants rely, Plaintiff notes that "a secret sale prior to the critical date ‘is a bar if engaged in by the patentee or patent applicant, but not if engaged in by another.’ " Id. at 4 (quoting In re Caveney , 761 F.2d 671, 675 (Fed. Cir. 1985) ). In any event, Plaintiff questions Defendants’ assertion that the relevant purchase order was for "testing" because the quantity was 300 units; packing lists for shipping were requested up front; and the order required English user manuals, which suggests they would be sold to customers. Id. at 5. Based on the sales and shipping paperwork, Plaintiff also questions Defendants’ assertions that they did not commercially sell the product until September 2016. Id. at 6-7. Plaintiff also disputes that the purchase order was subject to confidentiality restrictions based on other relevant evidence, including the publication of related component Chinese design patents and the spotlight being included in a sales catalog before the relevant date. Id. at 8.
The Court concludes that Plaintiff has demonstrated a likelihood that it will be able to succeed in invalidating the D431 Patent as anticipated by the Yinghao Solar YH0502C spotlight.
First , as shown below, Plaintiff has addressed the deficiencies identified in the TRO Order by providing a side-by-side comparison of all claimed design angles with the corresponding aspects of the Yinghao Solar spotlight. See Supplement at 2-3 (comparison table with Figs. 1-8).
Defendants do not contest that an ordinary observer would likely be deceived that the products are the same. Thus, the Court finds that Plaintiff can likely succeed in showing that, in the eye of an ordinary observer, giving such attention as a purchaser usually gives, the Yinghao Solar design and the D431 Patent claimed design are substantially the same.
Second , Plaintiff can likely succeed in proving that the Yinghao Solar design, i.e. , a product embodying the claimed design, was in public use, on sale, or otherwise available to the public more than one year before August 29, 2016. Three types of evidence support this conclusion.
Shenzen KLM April 2016 Purchase
Neither party disputes that Defendant ordered the spotlights from Yinghao Solar on April 13, 2016, which falls over four months outside of the relevant on-sale bar safe harbor. See Zhuo Decl., Dkt. 14 at ¶ 10; Peng Decl., Dkt. 32 ¶ 8. The related purchase order shows a purchase of 300 units (100 units of SKU 400-500-1010 and 200 units of SKU 400-500-1010*2). See Zhuo Decl., Dkt. 14, Ex. C.
Defendants contend that this sale by Yinghao Solar to Shenzen KLM is not invalidating because, as Peng explains, this order was "for testing and eventual sale," but sales did not occur until September 2016 (i.e. , after the August 29, 2016 on-sale bar date). See Peng Decl., Dkt. 32 ¶¶ 8, 10-11. Because this sale was by Yinghao Solar rather than the patentee, Defendants argues that the transaction should be analyzed under the "public use" prong of § 102(b), rather than the on-sale prong.
Defendants observe correctly that the on-sale prong was meant to "preclude[e] an inventor from commercializing his invention for over a year before he files his application," whereas "[s]ales or offers made by others ... ‘implicate the ‘public use’ provision of 35 U.S.C. § 102(b).’ " ResQNet.com , 594 F.3d at 866 (quoting In re Caveney , 761 F.2d at 675 n.5 ). But the Federal Circuit has made clear that the on-sale bar "makes no room for a ‘supplier’ exception" when the sales in question are between an applicant and a supplier, especially when the order involves "far more than [a] ‘few sample products.’ " Special Devices, Inc. , 270 F.3d at 1355-56. The Federal Circuit rejected the proposed supplier exception because, "[b]y phrasing the statutory bar in the passive voice, Congress indicated that it does not matter who places the invention ‘on sale’; it only matters that someone—inventor, supplier or other third party—placed it on sale." Id. at 1355 ; see also Caveney , 761 F.2d at 676 ("The mere fact that a product is delivered to a distributor does not exempt the transaction from 35 U.S.C. § 102(b)."). Here, Yinghao Solar sold the product to Shenzen KLM over one year before Peng filed the design patent application.
Nothing in the record supports the contention that an order for 300 units is consistent with merely "test[ing] the product," especially where Peng admits these units were used to "prepare for product launch" and were in fact sold. See Peng Decl. Peng Decl., Dkt. 32 ¶¶ 8, 10-11. Like the transaction rejected by the Federal Circuit in Special Devices , this transaction involved far more than a few sample products.
Nor does the record support the contention that this purchase was subject to confidentiality such that public use prong of § 102(b) is not implicated. The purchase order bears no indicia of confidentiality and Defendants did not rebut this clear evidence by providing a copy of any formal or informal exclusivity or confidentiality agreement claimed by Peng. See id. at ¶ 9. The fact that Yinghao Solar had been selling this design since 2015—and had obtained published patents on some of the components —further undermines the suggestion that the 2016 purchase order was confidential and therefore not invalidating. See, e.g. , Zhuo Supp. Decl., Dkt. 35 at ¶¶ 11-12.
The fact that the PTO considered Zhou's Chinese design patents—covering component parts of what became the YH0502C spotlight—does not change the analysis. During reexamination proceedings initiated by a third party who is not a party to this action, the PTO concluded that, although the Chinese patents raised a substantial new question of patentability, because no proper primary reference was presented that could be used in combination with the two component patents, they were not invalidating as to the whole spotlight. The YH0502C spotlight was not before the PTO.
Whether analyzed under the on-sale bar or the public use prong, Plaintiff has demonstrated a likelihood of success of showing that Shenzen KLM's April 2016 purchase is invalidating.
Other 2015 Sales
"An offer for sale, sale, or public use, if more than one year before the patent application was filed, will bar patenting of the product, even if the sale was not authorized by the patentee." ResQNet.com , 594 F.3d at 866. The record contains evidence of other sales dating to 2015. See, e.g. , Zhuo Decl., Dkt. 14 at ¶¶ 4-5 (Yinghao Solar's manufacturing and sales began in 2015); Suppl. Zhuo Decl., Dkt. No. 28 at ¶ 14 ("The design and manufacture for the YH0502C LED Spot Light product have remained essentially the same since 2015.").
Because any 2015 sales predate the D431 Patent's application date by well over one year, these sales further support Plaintiff's likelihood of success of proving invalidity.
2016 Sales Catalog
"Section 102(b) provides that a person shall be entitled to a patent unless the invention was described in a printed publication more than one year prior to the date of application for patent in the United States." GoPro, Inc. v. Contour IP Holding LLC , 908 F.3d 690, 693 (Fed. Cir. 2018). The Federal Circuit "ha[s] interpreted § 102 broadly, finding that even relatively obscure documents qualify as prior art so long as the relevant public has a means of accessing them." Id.
Plaintiff has also submitted evidence that the YH0502C Yinghao Solar spotlight appeared in a sales catalog printed in December 2015 or January 2016 and shown to customers around the same time. See Supp. Zhuo Decl., Dkt. 35 at ¶ 4, Exhibit 1 (2016 Catalog). This evidence provides further support of invalidity. See GoPro , 908 F.3d at 695-96 (testimony and catalog met burden to prove printed publication under § 102(b) ).
For the reasons explained above, on this preliminary record Plaintiff has demonstrated—based on three types of invalidity evidence—that activities beginning in 2015 and continuing into 2016, all before the relevant on-sale-bar date, support a likelihood of success that the patent is invalid.
2. Inequitable Conduct
In the TRO Order, the Court concluded that Plaintiff was likely to succeed on its inequitable conduct claim based on the April 2016 Purchase Order between Yinghao Solar and Defendant Shenzhen KLM. TRO Order at 7-8. The Court ruled that the Purchase Order would have been material to the patentability of the D431 Patent. Id. at 8. The Court also concluded that Plaintiff was likely to succeed in proving that Defendant Peng intentionally withheld the Purchase Order with intent to deceive the USPTO in order to obtain the D431 Patent, because Shenzhen KLM requested a "design source document of the ground plug-in lamp," including a "six-view line diagram" from Yinghao Solar on August 28, 2017 "to apply for a US patent with such document." Id. (citing Dkt. Nos. 12-9, 14-4 (listing Shenzhen KLM as Kanglemei Trading Co. Ltd.)).
In its Opposition, Defendants challenge these conclusions. First , as above, Defendants argue that "the April 2016 transaction between Yinghao and Defendants does not fall within an on-sale bar, and was not a public use," and therefore "cannot as a matter of law be material to the patentability of the D431 patent." Opposition at 16. Second , Defendants argue that Peng lacked the requisite specific intent to mislead or deceive because she knew that "the product had never been sold prior to the relevant date," and "she only ever had one company [Yinghao] confidentially and exclusively manufacture the product," so she believed "that the patent was fully patentable." Id. Defendants argue that Peng was involved in the design process, contrary to Zhuo's Declaration, and that she asked Yinghao if it wanted to file for a patent. Id. at 16-17. But, Peng explains, "Yinghao at the time responded that they would not be filing for a patent [since] Ms. Peng created the new design and instead asked her to apply for the patent." Id. at 17 (citing Peng Declaration ¶ 12). Peng avers that she simply asked Yinghao to provide the needed technical documents. Id. Based on these additional facts, Defendants argue that Plaintiff cannot meet the high bar of showing a likelihood of success as to inequitable conduct. Id. at 18.
In reply, Plaintiff argues that Defendants fail to provide any corroborating evidence for Peng's self-serving statements that she is the true inventor of the spotlight. Reply at 10. Plaintiff contrasts this lack of evidence with documentary evidence supporting Zhuo's claim as the true inventor (e.g. , the two related 2015 Chinese design patent applications for components of the spotlight, the "last modified" metadata date showing 2015 on the design drawings later provided to Peng). Id. at 10-12. Because these documents show creation before Peng became involved, Plaintiff argues that this demonstrates intent to deceive. Id. at 12. Further, Plaintiff contends that Peng's misstatement about the prior commercial sales further support intent to deceive. Id. at 13.
"Inequitable conduct is an equitable defense to patent infringement that, if proved, bars enforcement of a patent." Therasense Inc. v. Becton Dickinson and Co. , 649 F.3d 1276, 1285 (Fed. Cir. 2011). "To prevail on a claim of inequitable conduct, the accused infringer must prove [by clear and convincing evidence] that the patentee acted with the specific intent to deceive the PTO." Id. at 1290. "[W]hen there are multiple reasonable inferences that may be drawn, intent to deceive cannot be found." Id. at 1290-91.
The parties agree that the YH0502C spotlight embodies the designs claimed in the D431 Patent. The Court agrees they are the same and sees no basis on which to conclude that the non-disclosed purchase order for the spotlight would have been immaterial to the PTO during prosecution of the D431 Patent. Thus, Plaintiff is likely to succeed on the first prong of the inequitable conduct analysis concerning materiality.
Turning to specific intent to deceive, after reviewing the evidence submitted by Defendants in their Opposition, the Court finds that, on this preliminary record, Defendants have raised a substantial question about whether Plaintiff can demonstrated a likelihood of proving that Peng acted with the specific intent to deceive the PTO. See Amazon.com, Inc. v. Barnesandnoble.com, Inc. , 239 F.3d 1343, 1350 (Fed. Cir. 2001) (where party opposing preliminary injunction raises a "substantial question" as to defense, and moving party cannot show that defense lacks substantial merit, injunction should not issue). In her sworn declaration, Peng states that she believes she came up with a new design that became the D431 Patent, Yinghao Solar led her to believe that she was the rightful inventor of such a design, and at all times she was honest with the PTO. See Peng Decl., Dkt. No. 32 at ¶¶ 4, 6-7, 12-17. Peng appears to distinguish between the 2015 Chinese design patents considered during reexamination, which covered two component parts only, and the YH0502C spotlight / D431 Patent design (i.e. , she believes she invented something beyond merely combining component parts). The competing factual disputes presented by Peng (the named inventor) and Zhuo (the claimed inventor) raise a substantial question regarding Peng's specific intent to deceive the PTO and whether that intent is the single most reasonable inference to draw from the record.
Accordingly, on this preliminary record, Plaintiff has not demonstrated a likelihood of success on the deceptive intent component of its inequitable conduct claim. Accordingly, this claim does not provide an independent basis for granting a preliminary injunction.
3. Irreparable Harm
To obtain a preliminary injunction, the movant must also show that (1) absent an injunction, it will suffer irreparable harm; and (2) a sufficiently strong causal nexus relates the alleged harm to the alleged conduct. See Apple Inc. v. Samsung Elecs. Co. , 695 F.3d 1370, 1377-1378 (Fed. Cir. 2012). A likelihood of irreparable harm means "a likelihood of substantial and immediate irreparable injury." Id. at 1325. Merely showing some lost market share is insufficient to satisfy this requirement. Id. at 1324-25. Likewise, conclusory statements and theoretical arguments are insufficient to meet the standard. Id. at 1325. Instead, the movant must support the claims of irreparable harm with concrete evidence. Id. Moreover, the alleged irreparable injury must be caused by the alleged conduct. Id. at 1324.
In the TRO Order, the Court concluded that Plaintiff failed to demonstrate that it faces irreparable harm justifying its request for injunctive relief. TRO Order at 9. Specifically, although Plaintiff claimed various harms from being delisted on Amazon, Plaintiff failed to submit any evidence (besides conclusory employee testimony) to support its claim. Id. Plaintiff also failed to explain how its loss of sales constitutes irreparable harm that cannot be compensated by damages. Additionally, Plaintiff did not show that potential harm from Amazon (e.g. , inventory destruction, seller-account suspension) was imminent. Id.
To address these deficiencies, in its Supplement, Plaintiff proffers the following alleged sources of irreparable harm:
• Plaintiff "will lose its business if its Amazon selling privilege is revoked" because its business is "almost exclusively on Amazon.com." A total loss of business is irreparable injury.
• Amazon has already notified Plaintiff that its [12,000 pieces of] inventory will be "subject to mandatory return to Plaintiff in May."
• In addition to damages covering transportation and warehousing costs, Plaintiff's damages include unquantifiable "lost sales opportunities."
• Amazon deactivates selling accounts without advance warning and waiting until the end of the lawsuit would
At the hearing, Plaintiff explained that Amazon has granted a 30-day stay of the inventory removal dates given Plaintiff's pending request for a preliminary injunction before this Court.
result in deactivation with "certainty."
• Based on Plaintiff's prior experience, "a prolonged delisting of multiple [items] will result in deactivation of its selling account at any time."
• Plaintiff's Amazon delisting will result in "harm to its Amazon rankings and reviews, loss of goodwill and reputation." This is because "[a]ctive and frequent sales will improve sales rank." Plaintiff has already lost its "first page spot" on Amazon, which it achieved "through years of diligent sales and active marketing."
• If Plaintiff prevails on its invalidity claim only, it is unclear what basis it will have to recover damages for lost sales.
See Supplement at 5-8 & n.5.
Defendants respond that Plaintiff still cannot show irreparable harm because it merely supplemented the deficient conclusory testimony with "additional conclusory testimony." Opposition at 18. Defendants reject the purported threat of suspension of Plaintiff's Amazon seller account and loss of Amazon sales rank as "conclusory and speculative." Id. at 19. Defendants note that no Amazon notice says anything about account removal or deactivation. Id. Defendants argue that any damages flowing from the theoretical destruction of inventory can be compensated by money damages. Id. Moreover, Defendants suggest that, if Plaintiff's listings were reinstated, there is no indication they would not simply be returned to the same product rank they had pre-deactivation. Id. at 19-20.
In reply, Plaintiff argues that its "overwhelming showing of its likelihood of success of the merits of either its invalidity claim or its inequitable conduct claim or both ... compensates for any potential weaker showing of the irreparable harm factor." Reply at 13. Further, Plaintiff notes that Amazon did deactivate its seller account in 2019 after the first time Defendants filed a similar patent infringement notice. Id. at 14 (citing Dkt. No. 29 at ¶ 6). Plaintiff reiterates that, if it prevails on its equitable claims only, it will be irreparably harmed because damages are unavailable for those claims. Id. at 14.
The Court finds the supplemental evidence submitted by Plaintiff sufficient to tip this factor in Plaintiff's favor. Although irreparable harm cannot be speculative, Plaintiff has raised at least two forms of concrete irreparable harm it will likely suffer if relief is denied.
First , Plaintiff sells its products almost exclusively on Amazon and, as happened to Plaintiff in 2019 when Defendants filed their first infringement notice (see Dkt. No. 13-5), if left in place, the infringement notice will likely again result in deactivation of Plaintiff's seller's account. This will effectively put Plaintiff out of business. This is irreparable harm. See Am. Trucking , 559 F.3d at 1058 (9th Cir. 2009) (finding irreparable harm where "it is likely that all of that part of the carrier's business will evaporate, even if it does other things elsewhere," and "at the very least[,] a loss of customer goodwill" will result based on inability to transact with customers at the port).
Although American Trucking involved irreparable harm in a brick-and-mortar scenario—motor carriers who might be forced out of business because they were no longer permitted to physically pick up goods at the shipping juggernaut Port of Los Angeles—it provides an apt analogy to the online predicament presented in this case. Like the combined ports in American Trucking , which "handle[d] over 40% of the containerized goods in United States foreign commerce," id. at 1049, Amazon's online sales account for half of all online retail sales. To avoid contributory liability for infringement, understandably Amazon has provided a portal allowing intellectual property rights holders to file a report that will result in delisting and halt infringing sales. That is what Defendants did here, resulting in delisting of Plaintiff's products.
See https://www.pymnts.com/news/retail/2021/amazon-walmart-nearly-tied-in-full-year-share-of-retail-sales/. The Court takes judicial notice of this statistic provided by PYMNTS, a B2B platform that was founded by Business Wire, a wholly owned subsidiary of Berkshire Hathaway. See https://www.pymnts.com/about/.
But where an accused infringing seller comes forward with evidence undermining the efficacy of such an infringement notice, as Plaintiff has done here, and where irreparable harm in the form of account deactivation from this critical platform—which already happened once following Defendants’ prior notice—has been shown likely, this constitutes a sufficient likelihood of irreparable harm to support issuing a preliminary injunction. Like the motor carriers in American Trucking , at a minimum, Plaintiff's actual product delisting and likely account suspension will prevent it from interacting with its customers, likely resulting in a loss of goodwill. At a maximum, it will result in Plaintiff going out of business upon being suspended from Amazon, a seemingly make-or-break sales platform in the current e-commerce environment.
Second , although inventory-related costs would be compensable by money damages (e.g. , potential shipping costs for the return of inventory, compensation for the potential destruction of inventory), the Court finds that Plaintiff's product delisting, if left unchecked, will likely result in nonquantifiable damages relating to lost business opportunities on Amazon, including product placement disadvantages such as losing Plaintiff's previously held first-page status. See, e.g., Beyond Blond Prods., LLC v. Heldman , F.Supp.3d 874 (C.D. Cal. 2020) (granting injunction requiring retraction of Amazon copyright takedown notices because "[r]eputational harm and loss of goodwill can be irreparable harm" and "[s]o can threatened loss of prospective customers").
Accordingly, on this preliminary record, Plaintiff has demonstrated that it will likely face concrete irreparable harm absent extraordinary relief.
4. Remaining Factors
Plaintiff previously had not demonstrated immediate harm warranting a temporary restraining order, so the Court declined to address the balance of equities and the public interest. TRO Order at 10. Because the Court concludes that Plaintiff's supplemental evidence suffices to demonstrate likely irreparable harm, the Court turns to the remaining factors.
a. Balance of Equities
Plaintiff argues that the balance of equities favors injunctive relief because such relief will allow Plaintiff to relist its products; and if Defendants later prove the D431 Patent is valid and enforceable, any alleged infringement would be compensable by damages. Application at 18. On the other hand, absent such relief, Plaintiff reiterates the ways in which it will be irreparably harmed. Id. at 18-19.
Defendants respond that "[g]ranting a preliminary injunction would encourage the continued infringement of Defendants’ patent[,] [whereas] [d]enying a preliminary injunction would maintain the status quo that existed prior to the case starting." Opposition at 20. Because there is no irreparable harm, Defendants assert that the balance of equities favors denying extraordinary relief. Id. The Court agrees with Plaintiff. Given the likely irreparable harm identified above, the balance of equities weighs in favor of ordering Defendants to retract their patent infringement notice so Plaintiff's products may be relisted and Plaintiff's Amazon account will not be suspended. To the extent Defendants can prevail on proving infringement and overcoming Plaintiff's invalidity evidence, Defendants’ injuries may be compensated by damages. If infringement is proven and shown to be ongoing, Plaintiff's post-notice conduct may become relevant at a later stage of the case (e.g. , relating to willfulness or an exceptional case).
The Court disagrees with Defendants’ argument that maintaining the status quo in this case would be allowing the takedown notice to stand. Plaintiff seeks declaratory relief that the patent is invalid so that it can continue to sell its products without fear of reprisal from Defendants. Preserving the status quo would be allowing Plaintiff to continue doing so during the pendency of this action. Again, to the extent Plaintiff is wrong and Defendants prevail, damages for infringing sales can be calculated easily.
b. Public Interest
Plaintiff argues that the public interest favors granting extraordinary relief in this case because, "the public has a strong interest in stopping abusive Amazon patent practices and preserving market competition, especially where, as here, the validity and enforceability of the patent at issue are exceedingly dubious." Application at 19. Further, Plaintiff argues the public has an interest in ensuring that patents are not granted following inequitable conduct. Id. at 20.
Defendants respond that the public has an interest in the enforcement of valid patents; moreover, allowing Defendants to enforce the patent would encourage innovation. Opposition at 21. Further, Defendants contend that no public interest arises from this specific product dispute because it is a private dispute and the public can buy the same products from Defendants during the pendency of this action. Id.
As with the balance of equities, the Court agrees with Plaintiff. Given the ubiquity of Amazon shopping to the general public, the public has an interest in a full and fair online marketplace. Where the moving party has demonstrated a likelihood of success on patent invalidity, and likely irreparable harm flowing from the inability to reach its customers on Amazon, the public interest favors preventing a competitor from using a seemingly innocuous intellectual property rights-protection notice to effectively shut down a competitor's business. See, e.g., Beyond Blond Prods. , 479 F. Supp. 3d at 888 (granting TRO on similar grounds).
V. Conclusion
For the foregoing reasons, Plaintiff's request for a preliminary injunction is GRANTED.
Defendants are hereby ordered to retract any patent infringement notices filed with Amazon concerning Plaintiff's purported infringement of the D431 Patent based on Plaintiff's sales of the Yinghao Solar YH0502C spotlight. In retracting their infringement notices, Defendants shall provide Amazon a copy of this order and inform Amazon that the Order invalidates the patent infringement notice and requires restoring product listings with the following ASINs: B07VL454ZM, B01E6RZZ70, B07NNZ45FN, B01I8YP9DM, and B0194CC822. Defendants are ordered not to file any further such infringement notices based on the same theory of infringement during the pendency of this case.