Atlas Powder Co. v. Ireco Chemicals

• Decision Date: 23 September 1985
• Docket Number: 85-2207,Nos. 85-2034,s. 85-2034
• Parties: ATLAS POWDER COMPANY, Appellee, v. IRECO CHEMICALS, Defendant-Appellant. Appeal
• Court: U.S. Court of Appeals — Federal Circuit

Page 1230

773 F.2d 1230

227 U.S.P.Q. 289

ATLAS POWDER COMPANY, Appellee, v. IRECO CHEMICALS, Defendant-Appellant.

Appeal Nos. 85-2034, 85-2207.

United States Court of Appeals Federal Circuit.

Sept. 23, 1985.

Alvin D. Shulman, Marshall, O'Toole, Gerstein, Murray & Bicknell, Chicago, Ill., argued for appellant. With him on brief was Madeline Henricks Devereux, of counsel.

Garland P. Andrews, Richards, Harris, Medlock & Andrews, Dallas, Tex., argued for appellee. With him on brief was David L. Hitchcock.

Nick Badgerow, McAnany, Van Cleave & Phillips, Kansas City, Kan., of counsel.

William M. Kircher, Kokjer, Kircher, Bradley, Wharton, Bowman & Johnson, Kansas City, Kan., of counsel.

Before RICH, Circuit Judge, NICHOLS, Senior Circuit Judge, and BALDWIN, Circuit Judge.

RICH, Circuit Judge.

The February 1, 1985 Memorandum and Order of the U.S. District Court for the District of Kansas, granting the motion of Atlas Powder Co. (Atlas) for a preliminary

injunction, and the Order of April 8, 1985, enjoining Ireco Chemicals (Ireco) from further infringement of the patent-in-suit, No. 3,447,978 ('978), entitled "Ammonium Nitrate Emulsion Blasting Agent and Method of Preparing Same," issued June 3, 1969, to Harold F. Bluhm (Bluhm), are affirmed.

Background

The Bluhm patent was before this court in Atlas Powder Co. v. E.I. du Pont de Nemours & Co., 750 F.2d 1569, 224 USPQ 409 (Fed.Cir.1984). We affirmed the Northern District of Texas district court's judgment holding the Bluhm patent not invalid and infringed by DuPont. The Kansas district court, from which this appeal is taken, stayed its proceedings pending the DuPont decision, and thereafter issued its Memorandum and Order.

Ireco argues that the district court's decision granting the preliminary injunction should be reversed because Atlas failed to meet the necessary requirements for a preliminary injunction. More specifically, Ireco argues that the injunction: (1) does not maintain the status quo; (2) is causing devastating, irreparable injury to Ireco; and (3) is based on a misapplication of the alleged "presumption" of irreparable harm applied in Smith International Inc. v. Hughes Tool Co., 718 F.2d 1573, 219 USPQ 686 (Fed.Cir.), cert. denied, --- U.S. ----, 104 S.Ct. 493, 78 L.Ed.2d 687, 220 USPQ 385 (1983). Ireco further argues that Atlas has not established likelihood of success on the merits concerning validity, infringement, and enforceability of the Bluhm patent in suit.

OPINION

Status quo

Ireco argues:

In Litton Industries [Systems], Inc. v. Sundstrand, Inc. [sic, Corp.], 750 F.2d 952, 961, 224 USPQ 252, 259 (Fed.Cir.1984), this court stated that the purpose of a preliminary injunction is to preserve "that state of affairs existing immediately before the filing of the litigation, the last uncontested status which preceded the pending controversy." [Tanner Motor Livery, Ltd. v. Avis, Inc., 316 F.2d 804, 809 (9th Cir.), cert. denied, 375 U.S. 821 [84 S.Ct. 59, 11 L.Ed.2d 55] (1963) ]."

Here the injunction does not preserve the state of affairs existing in early 1984, [Complaint filed January 1984] before the filing of the litigation, but returns the state of affairs to that existing in 1979, [when Ireco commenced manufacturing water-in-oil emulsion explosives] over four years prior to the filing of the litigation. The status quo is not preserved; it is completely changed, and that is error. [Bracketed material ours.]

Ireco would have us maintain the status quo by allowing it to continue the alleged infringements at the rate they occurred when the suit was filed, even though the assessment of likelihood of success had shown that such acts would probably be held unlawful. Such a proposition is its own refutation and no other is necessary. The argument, for which no relevant authority is cited, is a prime example of the misuse of short quotations taken out of context to establish law in different contexts. In Litton Systems, Inc. v. Sundstrand, Corp., supra, this court applied Ninth Circuit law in a pendent jurisdiction situation involving asserted theft and misuse of trade secrets. We had already foreshadowed our intent to do this in Atari, Inc. v. JS & A Group Inc., 747 F.2d 1422, 1438, 223 USPQ 1074, 1086 (Fed.Cir.1984). This case is not therefore necessarily to be followed in cases, such as the one now before us, under our exclusive patent jurisdiction. In any event, authorizing the wrongdoer to continue the wrong, only not at an increased rate, is in no realistic sense maintaining the status quo. Needless to say, no such thing was done in Litton Systems nor in the Ninth Circuit cases cited therein. The essence of the holding is stated by the Chief Judge in one sentence as follows:

Litton's Achilles Heel on this record is its insistence on postponing identification or description of such a broad universe of thousands of unidentified trade secrets as to require an extraordinarily sweeping injunction entitling it to veto disclosures necessary to Sundstrand's conduct of its business. [Emphasis in original.]

750 F.2d at 956, 224 USPQ at 255.

That is, the only injunction actually considered by the trial court in that case, the one that had briefly been in effect as a temporary restraining order, authorized Litton to review and permit or prohibit all Sundstrand's communications to its customers relating to its efforts to generate sales of the disputed products, a potentially crippling stranglehold that risked going far beyond merely maintaining the status quo. So the result of Litton's unwillingness or inability to define its trade secrets with more precision was no injunction at all. That is an entirely different problem from the one we have before us here.

In the context of this case, we hold that a preliminary injunction preserves the status quo if it prevents future trespasses but does not undertake to assess the pecuniary or other consequences of past trespasses. If Ireco has allowed itself to become excessively dependent upon infringing sales, the status quo catchword does not necessarily allow it to continue such dependence, apart from other factors. The concept is not inconsistent with stopping trespasses "cold turkey." This does not, of course, mean that the alleged injury done by the injunction to Ireco is not to be carefully considered, only that "status quo" is not a talisman to dispose of the question by itself.

Irreparable Harm

The district court in its conclusions of law held:

22. When a holder of a patent has clearly established validity and continuing infringement, irreparable injury will be presumed. [Smith International, Inc. v. Hughes Tool Co., 718 F.2d 1573, 1581, 219 USPQ 686 692-93 (Fed.Cir.1983).]

23. ... Plaintiff has also shown irreparable injury by continued infringement and the resultant loss of business opportunity based on the characteristics of the patented product, substantial loss of profits, inequity to present licensees, and encouragement of infringement by others. A preliminary injunction is also appropriate here because the patent will expire in less than two years.

a. Prior Adjudication

Ireco argues that the district court improperly applied the presumption of irreparable harm as set forth in Smith, in which case the patent-in-suit had previously been adjudged valid in a litigation between the same parties and infringement had been admitted. Ireco attempts to distinguish Smith, arguing that this court held the patent valid in litigation involving a different defendant, DuPont, and that that previous adjudication is insufficient to support Atlas' burden of proof on likelihood of success. Ireco also argues that infringement has not been conceded or proven, and that the patent is unenforceable.

We agree with Ireco that it is not bound by the prior adjudication, as under the doctrine of res judicata. But that is not the use made of the prior adjudication. Rather, Atlas is using the prior adjudication as evidence supporting its burden of proving a likelihood of success on the merits. For this use, the patent need not be adjudicated in a prior litigation between the same parties. This evidence is relevant, especially where, as here, Ireco contests validity by rearguing references previously considered by the U.S. Patent and Trademark Office (PTO), the District Court for the Northern District of Texas, and by this court, all of which found the Bluhm invention patentable over those same references. DuPont, supra.

While this court may not have addressed the exact issues presented by Ireco, Ireco has persuaded neither the Kansas district court nor this court that the previous adjudication is insufficient evidence to establish a likelihood of success on the issue of validity.

b. Burden of Proof

Ireco attempts to further distinguish Smith by arguing that the presumption of irreparable injury is not warranted "where there has been no final, binding adjudication of validity...." Ireco also argues that it is entitled to the benefit of discovery or a full trial before likelihood of success can be determined. In essence, Ireco is arguing for a rule, said to be followed by various other circuits, that Atlas must prove validity and...