Patents / Injunction Bond Wrongful Injunction Raises Presumption of Recovery of Bond

In a case of first impression, the U.S. Court of Appeals for the Second Circuit ruled that wrongfully enjoined parties are entitled to a presumption in favor of recovery against an injunction bond for provable damages.  However, the Court concluded that while InterDigital contention that it deserves damages associated with a stay of patent infringement action against Nokia has merit, the case record was insufficient for appellate review.  Nokia Corp. v. InterDigital Inc. et al., Case No. 10-1358 (2d Cir., May 23, 2011) (Parker, J.).

The parties’ dispute first arose at the International Trade Commission, where InterDigital alleged that Nokia had infringed its patents.  In 2007, the ITC granted Nokia’s motion to consolidate the investigation with a separate investigation filed by InterDigital against Samsung over the same patents.  In December 2007, Nokia moved to stay the consolidated investigation, arguing that a pre-existing agreement between Nokia and InterDigital required arbitration.  The ITC denied the motion, and Nokia then sued in federal district court.  The district court granted Nokia’s motion for a preliminary injunction in March 2008 and ordered InterDigital to stay or terminate the ITC proceedings against Nokia and submit to arbitration.  The court required Nokia to post a $500,000 bond as a condition of obtaining the injunction.

The 2d Circuit subsequently vacated the injunction (see IP Update, Vol. 11, No. 8), and the district court dismissed Nokia’s suit.  Thereafter, InterDigital filed a motion in the district court to recover attorneys’ fees and expenses incurred in moving to stay the ITC proceedings and preparing to arbitrate with Nokia.   It asked to be awarded attorneys’ fees and costs incurred as a result of litigating separate proceedings against Nokia and Samsung.  The district court rejected InterDigital’s request, finding that InterDigital had failed to show that the damages sought were “proximately caused” by the injunction.  InterDigital appealed.

The 2d Circuit held that a wrongfully enjoined party is entitled to a presumption in favor of recovery, finding that the existence of such a presumption was implied by the text of Fed. R. Civ. Pro. 65(c), and that the First, Seventh, Ninth, Eleventh and D.C. Circuits followed similar rules.  However, the court ruled that the improperly enjoined party must still show that any damages claimed were proximately caused by the injunction.  Based on the lack of explanation by the district court for the denial of recovery, the 2d Circuit vacated the lower court’s order and remanded the issue for reconsideration and clarification.  However, the 2d Circuit noted that certain legal expenses, such as filing a motion to stay the ITC case with respect to Nokia that were ordered by the district court in its injunction order, should be recoverable absent a compelling reason otherwise.