Mikohn Gaming Corp. v. Acres Gaming, Inc.

• Decision Date: 30 December 1998
• Docket Number: Nos. 98-1216,98-1217,s. 98-1216
• Citation: 49 USPQ2d 1308,165 F.3d 891
• Parties: MIKOHN GAMING CORPORATION, Plaintiff-Appellee, v. ACRES GAMING, INC., Defendant-Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

Page 891

165 F.3d 891

49 U.S.P.Q.2d 1308

MIKOHN GAMING CORPORATION, Plaintiff-Appellee, v. ACRES GAMING, INC., Defendant-Appellant.

Nos. 98-1216, 98-1217.

United States Court of Appeals,

Federal Circuit.

Dec. 30, 1998.

Steven E. Shapiro, Mitchell, Silberberg & Knupp LLP, of Los Angeles, California, argued for plaintiff-appellee. With him on the brief was D. James Chung. Of counsel on the brief were Steve Morris and Adam P. Segal, Schreck Morris, of Las Vegas, Nevada.

Jerry A. Riedinger, Perkins Coie LLP, of Seattle, Washington, argued for defendant-appellant. Of counsel on the brief were Alan T. McCollom, and Stephen S. Ford, Marger, Johnson, McCollom & Stolowitz, of Portland, Oregon.

Before NEWMAN, RADER, and BRYSON, Circuit Judges.

PAULINE NEWMAN, Circuit Judge.

Acres Gaming, Inc. appeals the grant of a preliminary injunction by the United States District Court for the District of Nevada, ¹ prohibiting Acres from stating to customers and prospective customers of Mikohn Gaming Corporation and through the public press that Mikohn's MoneyTime System appears to infringe Acres '961 patent and pending patent applications. Since the criteria were not met for enjoining the giving of such notice, the injunction is vacated.

BACKGROUND

Both Acres and Mikohn are in the business of manufacturing and selling gaming devices such as slot machines. Acres owns United States Patent No. 5,655,961 entitled "Method for Operating Networked Gaming Devices," and several related patent applications. Acres sells a gaming system called the "Hurricane Zone," which incorporates the inventions of the '961 patent and pending applications. Mikohn sells a competing gaming system called the "MoneyTime" system. The following excerpt from a letter to the Horseshoe Casino in Robinsonville, Mississippi is representative of notices that Acres sent to several of Mikohn's customers and potential customers upon issuance of the '961 patent. Acres stated:

It appears that the MoneyTime system manufactured and sold by Mikohn Corp. infringes at least some of the claims of the There are a number of pending U.S. applications owned by Acres Gaming which have the same disclosure as the '961 patent....

enclosed patent, although this cannot be determined conclusively without a better understanding of the structure and operation of the MoneyTime system.

You should be aware that when these patents issue, Acres Gaming intends to use its patents to stop use of such systems.

Acres also issued a press release announcing the grant of the '961 patent and stating, "Mikohn is clearly suffering in the marketplace as a result of the issuance of our patent. Customers naturally hesitate to do business with a company whose products appear to infringe a patent...." The record does not show the extent of any publication of the release.

Mikohn responded by bringing suit in federal district court in Nevada, requesting a declaration that the MoneyTime System did not infringe the '961 patent. Mikohn also charged Acres with intentional interference with existing and potential business relationships, in violation of Nevada common law. The district court granted Mikohn's request that Acres be enjoined, pendente lite, from further statements to Mikohn's customers or potential customers "either orally or in writing, directly or indirectly, that Mikohn's MoneyTime System infringes on Acres '961 patent or other pending patent application submitted by Acres to the United States Patent Office."

This appeal followed.

DISCUSSION

Federal jurisdiction was based on the declaratory action filed by Mikohn on the issue of patent infringement. See 28 U.S.C. § 1338(a) ("arising under" jurisdiction in patent cases) ² and 28 U.S.C. § 2201(a) (declaratory judgment action). 28 U.S.C. § 1367 provides for pendent or supplemental jurisdiction in the federal courts for claims that "form part of the same case or controversy," thus establishing jurisdiction in the district court of the common law tort of interference with business relationships. The issue for which injunction was sought was based on this common law cause of action. However, as we shall discuss, a notice of patent rights that is protected under federal law can not be held violative of state law on a different legal standard. The propriety of the preliminary injunction depends in part on the propriety of the action enjoined, which in turn depends on whether federal patent law or state tort law applies to the notice that Acres gave to its and Mikohn's customers and potential customers and released to the press.

A

The Federal Circuit has generally viewed the grant of a preliminary injunction as a matter of procedural law not unique to the exclusive jurisdiction of the Federal Circuit, and on appellate review has applied the procedural law of the regional circuit in which the case was brought. National Presto Indus., Inc. v. West Bend Co., 76 F.3d 1185, 1188 n. 2, 37 USPQ2d 1685, 1686 n. 2 (Fed.Cir.1996) ("On procedural matters not unique to the areas that are exclusively assigned to the Federal Circuit, the law of the regional circuit shall be applied.") (citing Lummus Indus. v. D.M. & E. Corp., 862 F.2d 267, 8 USPQ2d 1983 (Fed.Cir.1988)).

While we recognize that the general considerations underlying the grant or denial of a preliminary injunction do not vary significantly among the circuits, we benefit from the wealth of Ninth Circuit precedent. We also take note that the Federal Circuit has itself built a body of precedent applying these general considerations to a large number of factually variant patent cases, and we give dominant effect to Federal Circuit precedent insofar as it reflects considerations specific to patent issues. ³

The Ninth Circuit has stated the general criteria for grant of a preliminary injunction as follows: "The moving party may meet its burden by demonstrating either (1) a combination of probable success on the merits and the possibility of irreparable injury or (2) that serious questions are raised and the balance of hardships tips sharply in its favor." Dollar Rent A Car v. Travelers Indemnity Co., 774 F.2d 1371, 1374-75 (9th Cir.1985). These are not two distinct tests, but the poles of a "continuum in which the required showing of harm varies inversely with the required showing of meritoriousness." Rodeo Collection, Ltd. v. West Seventh, 812 F.2d 1215, 1217 (9th Cir.1987). The Ninth Circuit defines "serious questions" in this context as "questions which cannot be resolved one way or the other at the hearing on the injunction and as to which the court perceives a need to preserve the status quo lest one side prevent resolution of the questions or execution of any judgment by altering the status quo." Republic of the Philippines v. Marcos, 862 F.2d 1355, 1362 (9th Cir.1988). However, the "serious questions" must carry at least a "fair chance of success on the merits" in order to warrant interim relief. National Wildlife Federation v. Coston, 773 F.2d 1513, 1517 (9th Cir.1985).

The oft-stated rule is that the grant of a preliminary injunction shall be sustained on appeal unless "the district court abused its discretion or based its decision on an erroneous legal standard or on clearly erroneous findings of facts." FDIC v. Garner, 125 F.3d 1272, 1276 (9th Cir.1997). See Hybritech Inc. v. Abbott Labs., 849 F.2d 1446, 1449, 7 USPQ2d 1191, 1194 (Fed.Cir.1988) (appellate review is "limited to determining whether, in granting the preliminary injunction, the district court abused its discretion, committed an error of law, or seriously misjudged the evidence.")

Abuse of discretion is a flexible term whose application can vary broadly. Thus the discretion of the district courts in issuing preliminary injunctions is reviewed with attention to the legal standards applied as well as the equitable considerations underlying the grant of preliminary relief. "Where the district court is alleged to have relied on erroneous legal premises, review is plenary," Does 1-5 v. Chandler, 83 F.3d 1150, 1152 (9th Cir.1996), as is review of "the correctness of the legal standards employed by the district court in evaluating the plaintiff's likelihood of success on the merits," Associated General Contractors v. Coalition for Economic Equity, 950 F.2d 1401, 1405 (9th Cir.1991). However, the district court's estimates of the balance of harms and the irreparability of injury, and any policy considerations, raise less tangible aspects whose equitable components may warrant more deferential review.

Taken together, in granting a remedy or a restraint before a matter is litigated, "[t]he exercise of a power so far-reaching ought to be subject to effective, and not merely perfunctory, appellate review." Roland Machinery Co. v. Dresser Industries, Inc., 749 F.2d 380, 389 (7th Cir.1984). When judicial discretion is exercised to restrain commercial communications, it is subject to special scrutiny.

B

The district court held that Mikohn's charge of intentional interference with present and prospective business relationships warranted preliminary injunctive relief. The court explained that "while the following statement in the letter 'it appears that the MoneyTime slot machine infringes' Acres' patent, may not be a statement of fact, all of the statements taken as a whole, including the statements made in the newspaper, the Court concludes could be construed as stating that Mikohn's product does indeed infringe Acres patents, and the jury, the trier of fact, could find that the statement was made and that it was untrue."

Mikohn argued, and the district court apparently agreed, that Acres' statements concerning its patent rights and intentions to enforce them were intended to achieve competitive advantage in an improper way, and grounded the grant of preliminary relief on the count of intentional interference with Mikohn's business relationships. The district court did not discuss the truth or falsity of the statements in Acres'...