The Presumption of Irreparable Harm May Be a Thing of the Past in Trademark Cases, 0514 SCBJ, SC Lawyer, May 2014, #1

• Author: Hunter Freeman

The Presumption of Irreparable Harm May Be a Thing of the Past in Trademark Cases

Vol. 25 Issue 6 Pg. 17

South Carolina Bar Journal

May, 2014

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0 Hunter Freeman

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA02014 may prove to be a difficult year for trademark owners seeking preliminary injunctions. In December 2013, the Ninth Circuit became the first federal appeals court to unequivocally reject the long established presumption of irreparable harm in trademark infringement cases.¹ Ordinarily a party seeking a preliminary injunction must show that (1) the party is likely to succeed on the merits; (2) the party is likely to suffer irreparable harm in the absence of preliminary relief; (3) the balance of equities tips in favor of the party; and (4) an injunction is in the public interest.² For decades, however, trademark owners routinely satisfied .the second factor through a presumption of irreparable harm that they enjoyed after proving a likelihood of success on the merits.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The long standing precedent in the Fourth Circuit has been that "a presumption of irreparable injury is generally applied once the plaintiff has demonstrated a likelihood of confusion, the key element in an infringement case."³ The Fourth Circuit has gone so far as to say that "irreparable injury regularly follows from trademark infringement,"⁴ thus alleviating the need for any specific evidence of irreparable harm. This presumption has generally been applied throughout the nation. Even in the Ninth Circuit, the rule had long been that "[o]nce the plaintiff in an infringement action has established a likelihood of confusion, it is ordinarily presumed that the plaintiff will suffer irreparable harm if injunctive relief does not issue."⁵ This is no longer the case, at least in the Ninth Circuit. The Ninth Circuit's decision in Herb Reed Enterprises v. Florida Entertainment Mgmt. eliminated any presumption of irreparable harm in trademark infringement cases.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The Herb Reed decision relied upon a 2006 Supreme Court decision, which altered the landscape of preliminary injunctions for intellectual property cases by rejecting the presumption of irreparable harm that had been customarily applied in the p atent context. In eBay, Inc. v. MercExchange, LLC, the Supreme Court explained that a permanent injunction should not automatically follow a patent infringement determination, but instead should only be awarded if the "four-factor test historically employed by courts of equity"⁶ warranted such relief. In its 2008 Winter v. Natural Res. Def. Council decision, the Supreme Court again emphasized the importance of the four-factor test when it overruled the Ninth Circuit's possibility of irreparable harm standard and made it clear that a party seeking an injunction must show that irreparable harm is "likely" rather than "possible."⁷ The Winter decision also changed the standard applied by the Fourth Circuit, which had been that plaintiffs need only show "the possibility of permanent loss of customer to a competitor or the loss of good will."⁸ While not an intellectual property case, the Winter decision further questioned the validity of the irreparable harm presumption in trademark cases.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The trademark cases following eBay made one thing clear—that it was unclear whether courts should apply a presumption of irreparable harm when considering requests for preliminary injunctions. Some district courts have continued to apply the presumption,⁹ while others have not.¹⁰ The district court decisions in the Fourth Circuit have suffered from a similar inconsistency. Some district courts in the Fourth Circuit have continued to apply the presumption, while others have questioned the validity of the presumption or outright rejected it. In a decision that was issued approximately three months after the eBay decision, the District of South Carolina applied the presumption of irreparable harm, and even cited cases for the proposition that "the requirement of irreparable harm carries no independent weight, as we have held that a showing of likelihood of confusion (a requirement of both trademark infringement and unfair competition claims) establishes irreparable harm."¹¹The Western District of North Carolina has applied the presumption of irreparable harm in a Lanham Act infringement case involving trade dress (a particular type of trademark which consists of the unique design of the product or its packaging— think the Coca-Cola bottle).¹²

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The Middle District of North Carolina stated that "in the absence of any indication from the Fourth Circuit to the contrary, the court will not discard the commonly-applied presumption of irreparable harm in preliminary injunction proceedings involving a trademark infringement claim."¹³ Interestingly, the court applied this presumption despite the fact that (1) the defendant had already discontinued the infringing activity and declared that it would not resume such activities; and (2) the plaintiff waited six months to file suit after learning of the infringing activities.¹⁴ In so holding, the Middle District of North Carolina distinguished eBay on the grounds that it involved a permanent injunction rather than a preliminary injunction, despite the fact that the Supreme Court noted in Winter that the irreparable harm standard for preliminary and permanent injunctions is identical and that a likelihood of i rreparable harm must be shown to warrant either injunction.¹⁵ The court also reasoned that "there are distinctions between copyright and patent infringement actions, where monetary damages are often central, and trademark infringement, where confusion may have long-lasting effects."¹⁶ However, what may have swayed the court most was a decision issued by that district a year after eBay, which refused to "attempt to resolve eBay's impact [on trademark infringement cases] at the preliminary injunction stage"¹⁷ and was affirmed by the Fourth Circuit. Other district courts within the Fourth Circuit have simply applied the presumption of irreparable harm without considering its continued validity in light of eBay.^[18]

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The Eastern District of Virginia seems to have the most inconsistent view about the continued viability of the presumption. This district has applied the presumption, questioned its validity and most recently has rejected the presumption entirely. In 2008, the Eastern District of Virginia cited Scotts Co. v. United Industries for the proposition that the presumption is generally applied upon a showing of a likelihood of confusion. However, the court was only willing to "assume arguendo that applying the presumption would be appropriate if a likelihood of confusion exists,"¹⁹ and went on to deny the motion on the grounds that the balance of harms favored the defendant and that the public interest factor was neutral. In 2012, the court again recognized the presumption by citing Scotts Co. and held that since the defendant did not proffer any evidence to the contrary that the court "must presume that irreparable harm will result"²⁰ if the injunction was not granted. In October 2013, however, the court held that "it is unlikely that the presumption alleged in the context of trademark infringement remains viable after the Supreme Court's decision in Winter. Specifically, the Supreme Court held that the plaintiff bears the burden to clearly show entitlement to preliminary injunctive relief and that, to satisfy this burden, the plaintiff must show a likelihood of irreparable harm, not a possibility."²¹ The court went on to state that it must consider the plaintiff's evidence of loss of customers or goodwill.²² Thus, it appears that until the Fourth Circuit rules on this issue, there may be a split of authority among the district courts in this circuit.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0While some circuits, such as the First and 11th circuits, have questioned whether the presumption is still viable in light of eBay, they have refused to rule on that issue.²³ The Ninth Circuit's Herb Reed decision is the first to squarely address eBay's impact on the validity of the presumption of irreparable harm in trademark injunction cases. Herb Reed involved a dispute over the use of the "The Platters," the trademark and name of a famous 1950s music group.²⁴ A company owned by the estate of one of the original members of the group sued a promoter who was using the mark with his own musical group. After the plaintiff obtained a preliminary injunction in a Nevada district court, the defendant appealed the decision to the Ninth Circuit. While the Ninth Circuit affirmed the district court's finding of a likelihood of success, it found that the district court had abused its discretion when it presumed irreparable harm was likely²⁵

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0In reversing the preliminary injunction, the Ninth Circuit held that the presumption of irreparable harm in trademark injunction cases did not survive the eBay and Winter decisions. The Ninth Circuit reasoned that both the Patent Act and the Lanham Act "provide that injunctions may be granted in accordance with 'the principles of equity'"²⁶ and, therefore, if irreparable harm could not be presumed in patent injunction cases, it could not be presumed in trademark cases. The Ninth Circuit explained that instead of presenting "unsupported and conclusory statements regarding harm [the plaintiff] might suffer," parties must present evidence that irreparable harm is likely, such as evidence of a "loss of control over business reputation and damage to goodwill."²⁷

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Not surprisingly, some commentators believe that the Ninth Circuit's decision that the presumption is no longer valid is correct while others do not. Those in favor of continuing the presumption argue that since the presumption can be rebutted by the defendant, it is not an automatic rule like the one struck down in eBay.^{[28] It is also argued that trademark infringement is different than the infringement of copyrights or patents because trademark infringement can result in rep}utational injury that cannot be compensated for after the fact.²⁹ Finally trademark infringement can be difficult to prove because a trademark owner is not likely to learn of its lost customers and the reasons why those customers were lost.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Those who believe that eBay eliminated the presumption argue that the intent of the Supreme Court was to strike down any for-malistic approach to considering a preliminary injunction. It is also argued that the net worth of brands is calculated all the time and in some instances is auctioned off in bankruptcy proceedings.³⁰ These commentators argue that just because it may be difficult to calculate the damage done does not justify treating all cases of infringement the same for purposes of considering injunctive relief.³¹

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Whether right or wrong, the eBay and Herb Reed decisions are likely to affect the way that other federal courts think about injunctive relief. Neither the Fourth Circuit nor the District of South Carolina have addressed whether the presumption of irreparable harm in trademark injunction cases is still valid in light of eBay. The Fourth Circuit has, however, eliminated the presumption of irreparable harm in copyright injunction cases, stating that "the Supreme Court declared such presumptions inappropriate."³² This ruling was all but compelled by the eBay decision because the Supreme Court analogized patent infringement to copyright infringement to support its decision that a presumption of irreparable harm is inappropriate.³³Because eBay does not specifically discuss trademark infringement cases, its effect on the presumption in those cases is less clear. However, at least one district court in this circuit has refused to apply the presumption.³⁴

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0If, however, your primary goal as a trademark owner is to enjoin any further use of an infringing mark, you may want to come to court prepared to present evidence of irreparable harm. Neither the eBay nor Herb Reed decisions address what evidence would be sufficient to prove a likelihood of irreparable harm other than to state that "[e]vidence of a loss of control over business reputation or damage to goodwill could constitute irreparable harm."³⁵ The District of South Carolina similarly indicated that evidence of loss of goodwill or reputational damage may be sufficient.³⁶ Such evidence could include irate customers, frayed vendor relationships, tangible threats to market share, a lack of quality control by the infringer, or the inability of the infringer to pay damages.³⁷ While it may be difficult to obtain this evidence, you may need to gather it quickly, as one court in this circuit refused to find irreparable harm due to the plaintiff's one-year delay in moving for an injunction.³⁸ If, however, you are a defendant trying to avoid an injunction, you should rely heavily on the eBay and Herb Reed decisions and point to any evidentiary deficiencies or conclusory remarks in the plaintiff's case for an injunction.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Hunter Freeman is a shareholder in the Greenville office of McNair Law Firm.

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Notes:

[1] Herb Reed Enters, v. Fla. Entm't Mgmt., 736 F.3d 1239 (9th Cir. 2013).

[2] Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 20 (2008).

[3] Scotts Co. v. United Indus. Corp., 315 F.3d 264, 273 (4th Cir. 2002).

[4] Lone Star Steakhouse v. Alpha, 43 F.3d 922, 939 (4th Cir 1995) ("we conclude that Plaintiffs need not have offered specific evidence of irreparable injury in this case. . . . we recognize that irreparable injury regularly follows from trademark infringement.").

[5] Rodeo Collection, Ltd. v. West Seventh, 812 F.2d 1215, 1220 (9th Cir. 1987).

[6] eBay, Inc. v. Merc Exchange, LLC, 547 U.S. 388, 390-92 (2006).

[7] Winter, 555 U.S. at 22.

[8] Multi-Channel TV Cable Co. v. Charlottesville Quality Cable Operating Co., 22 F.3d 546, 552 (4th Cir. 1994) (emphasis added).

[9] Cmty of Christ Copyright Corp v. Devon Park Restoration Branch of Jesus Christ's Church, 613 F. Supp. 2d 1140 (W.D. Mo. 2009); Lifted Research Group, Inc. v. Behdad, Inc., 591 F Supp. 2d 3 (D.D.C. 2008); E. Cluck Corp. v. Rothenhaus, 585 F. Supp. 2d 505 (S.D.N.Y. 2008); Garcoa, Inc. v. PH Beauty Labs, Inc., No. CV 09-4859 AHM, 2009 WL 2489223 (C.D.Cal. Aug. 10, 2009).

[10] Marks Org., Inc. v. Joles, 784 F. Supp. 2d 322 (S.D. N.Y. 2011); U.S. Polo Ass'n, Inc. v. PRE USA Holdings, Inc., 800 F. Supp. 2d 515 (S.D. N.Y. 2011); Aurora World, Inc. v. Ty, Inc., 719 F. Supp. 2d 1115 (CD. 2009); Maxim Integrated Prods., Inc. v. Quintana, 654 F. Supp. 2d 1024 (N.D.Cal. 2009).

[11] Wonder Works v. Cranium, Inc., 455 F. Supp.2d 453, 457(D.S.C. 2006).

[12] Lance Mfg., LLC v. Voortman Cookies Ltd., 617 F. Supp. 2d 424, 434 (W.D.N.C. 2009).

[13] Rebel Debutante, LLC v. Forsythe Cosmetic Group, Ltd., 799 F. Supp. 2d 558, 580 (M.D.NC. 2011).

[14] Id. at 579.

[15] Winter, 555 U.S. at 32.

[16] Rebel Debutante, 799 F. Supp. 2d at 579.

[17] Nat'l League of Junior Cotillions, Inc. v. Porter, No. 3:06-cv-508-RJC, 2007 WL 2316823, *6 (W.D.N.C. Aug. 9 2007), aff'd 280 F.App'x 322 (4th Cir. 2008).

[18] See, e.g., Lorillard Tobacco Co. v. S&M Brands, Inc., 616 F. Supp. 2d 581 (E.D.Va 2009) and High Voltage Beverages, LLC v. Coca-Cola Co., No. 3:08CV367, 2009 WL 4823366, *2 (W.D.N.C. Dec. 9, 2009).

[19] H. Jay Spiegel & Assocs. v. Spiegel, 652 F. Supp.2d 630, 634 (E.D.VA. 2008).

[20] Diamonds Direct USA, Inc. v. BFJ Holdings, Inc., 895 F. Supp. 2d 752, 762 (E.D.VA. 2012).

[21] Pro-Concepts, LLC v. Resh, No. 2:12cv573, 2013 WL 5741542 (E.D.VA. Oct. 22, 2013).

[22] Id.

[23] See, N. Am. Med. Corp. v. Axiom Worldwide, Inc., 522 F.3d 1211, 1228 (11th Cir. 2008) and Voice of the Arab World, Inc. v. MDTV Med. News Now, Inc., 645 F.3d 26, 34 (1st Cir. 2011).

[24] Herb Reed, 736 F.3d at 1242-45.

[25] Id. at 1249-50.

[26] Id. at 1249.

[27] Herb Reed, 736 F.3d. at 1250.

[28] ^[28] 5 McCarthy on Trademarks and Unfair Competition § 30:47 (4th ed. 2004).

[29] Id.

[30] Sandra L. Rierson, IP Remedies After eBay: Assessing the Impact on Trademark Law, 2 Akron Intell. Prop. L.J. 163, 174-75 (2008).

[31] Id. at 175.

[32] Bethesda Softworks, LLC v. Interplay Entm't Corp., 452 F. App'x 351, 354 (4th Cir. 2011).

[33] eBay, 547 U.S. at 392-93.

[34] See Pro-Concepts, No. 2:12cv573, 2013 WL 5741542 at *21.

[35] Herb Reed, 736 F.3d at 1250.

[36] Z-Man Fishing Prods., Inc. v. Renosky, 790 F. Supp. 2d 418, 434 (D.S.C 2011).

[37] Brenntag Int'l Chems., Inc. v. Bank of India, 175 F.3d 245, 249-50 (2nd Cir. 1999) (noting that damages caused by an insolvent defendant can constitute irreparable harm).

[38] High Voltage Beverages, LLC, No. 3:08CV367, 2009 WL 4823366 (W.D.N.C. Dec. 9, 2009).

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