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Atari Corp. v. Sega of America Inc.
869 F. Supp. 783 (N.D. Cal. 1994)

Atari brought a motion for a preliminarily injunction against the manufacture and distribution of Sega’s games on the basis of patent infringement regarding horizontal scrolling of a video game display. To obtain a preliminary injunction, the Atari had to show: (A) a reasonable likelihood that it would succeed on the merits, (B) that irreparable injury would result if the injunction was not granted, (C) that the balance of hardships weighed in Atari’s favor, and (D) that the granting of the injunction would not disserve the public interest. Hybritech Inc. v. Abbott Laboratories, 849 F.2d 1446 (Fed.Cir. 1987).

The analysis concerning a reasonable likelihood to succeed on the merits began with the scope of the patent, which hinged on the delay technology built within the horizontal scrolling. The delay means had to be positioned in the data stream between the memory and the display so as to operate on the data. On a motion for preliminary injunction, the alleged infringer had to come forward with clear and convincing evidence of defenses to the patent. If it did so, the burden then shifted to the patent owner to show that it was likely to overcome those defenses, that is, to show that the challenges to the patent lacked substantial merit. New England Braiding Co. v. AW Chesterson Co., 970 F.2d 878, 883 (Fed.Cir. 1992). Sega had only argued that the patent was not supported, but had not made a showing to overcome the presumption of validity, which was strengthened by the PTO's consideration of all prior art. The presumption was sufficient at that stage to find that the Patent was likely to be found valid. Atari provided convincing expert testimony that Sega's products performed the identical function claimed in the Patent, in that the Sega devices achieved fine scrolling by placing delay means in the data stream between the memory and the display. It was undisputed that Sega's products implement fine scrolling with a structure that was different than that disclosed in the Patent. However, there was a disputed issue of fact as to whether the structures were equivalent. Given that the function was simply to impose a delay positioned between the memory and the display, there was no apparent reason why placement of the delay before rather than after the parallel-to-serial converter was a substantial change or added anything of significance. Sega raised the equitable defense of unenforceability of the Patent due to alleged inequitable conduct, but did not make a threshold showing of intent to deceive the PTO. For the reasons stated above, the Court found that Atari was likely to succeed on the merits in this action.

If both validity of the patent and its infringement were "clearly shown," irreparable harm would be presumed. H.H. Robertson Co. v. United Steel Deck, Inc., 820 F.2d 384, 390 (Fed.Cir. 1987). However, Atari's showing, particularly with respect to whether the accused structure was equivalent to that disclosed in the Patent was not strong enough to merit a finding that infringement had been "clearly shown." Accordingly, the presumption could not be applied in this case. See Nutrition 21 v. United States, 930 F.2d 867 (Fed.Cir. 1991). Irreparable harm may be shown if failure to issue the injunction would erode the patent owner's market share. Hybritech, 849 F.2d at 1456. There were several indications that no irreparable harm would result from the denial of a preliminary injunction. First, when negotiations failed, Atari delayed more than three years before filing the action. The second indication of lack of irreparable harm was the fact that Atari had licensed Nintendo under the Patent. The third was the fact that Atari itself no longer used the Patent. The fourth was that it appeared likely that Sega would be able to satisfy any award of damages against it. Atari argued irreparable harm in Sega's dominance in the market prevented Atari from attracting independent software designers, but it made no showing that Sega's absence from the market would enable it to attract them. Sega's showing that Nintendo, rather than Atari, was Sega's relevant competitor undermined Atari's unsupported argument. Accordingly, Atari's showing was too speculative to support a finding of the likelihood of irreparable harm, particularly in light of the factors discussed above that weigh against Atari.

Concerning the balance of hardships, the certainty of harm to Sega and the non-party retailers, software developers and peripheral manufacturers outweighed the speculative possibility of irreparable harm to Atari. Thus, the balance tipped against issuance of a preliminary injunction. Atari did not make a sufficient showing of irreparable harm, especially in light of the countervailing factors, and the balance of hardships did not favor issuance of the injunction. Therefore, the motion was denied.
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