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Article: November 2018: Trademark & Copyright Litigation Update

Business Litigation Reports

Why Congress May Reset and Clarify the Standard for Litigating Preliminary Injunction Motions in Trademark Cases. A little over a decade ago, the Supreme Court issued two landmark opinions (eBay, Inc. v. MercExchange, LLC and Winter v. Natural Resources Defense Council) concerning the issue of irreparable harm in preliminary injunction proceedings. In eBay, the Supreme Court held that the requirement that a plaintiff must establish irreparable injury in seeking a permanent injunction applies in the patent context. In Winter, an environmental case concerning whether the military’s use of high decibel sonar levels may have a deafening effect on whales, the Supreme Court reversed a preliminary injunction because it was issued on the basis of a mere possibility of irreparable harm, which the Court found was too lenient of a standard.

For the past ten years, federal courts have interpreted these two decisions as having eliminated the longstanding presumption that a trademark owner seeking a preliminary injunction established irreparable harm so long as it could prove it was likely to succeed on the merits of its claim. Trademark owners have since faced the challenge of proving irreparable harm at the outset of the litigation, which is often difficult in the trademark context because typical harm such as injury to goodwill and reputation may not manifest in the form of direct evidence. Accordingly, on September 4, 2018, various intellectual property and trademark law associations sent a joint letter to Congress urging it to amend the Lanham Act in order to reestablish and codify the rebuttable presumption of irreparable harm. See https://bit.ly/2TO8CLe.

The driving impetus in favor of the rebuttable presumption is the notion that unless the alleged infringer proffers a sufficiently strong justification, an alleged infringer should not be allowed to continue the purported infringement until trial if a trademark owner is able to prove at the preliminary injunction stage that it is likely to prevail on the merits of its claim. The rebuttable presumption thereby stands in as an equitable substitute for proving actual damages given the difficulty in doing so, particularly at the early stage of a trademark dispute.

On the other side of the ledger, the rationale against the rebuttable presumption is that a trademark owner could successfully prevent an alleged infringer from competing in the market until trial, even in the absence of any articulable harm. While the grant of a preliminary injunction may cause severe economic damages to the alleged infringer and possibly even put it out of business, the trademark owner might not ever be able to identify any direct evidence of harm.

In the absence of a presumption, recent court decisions on the irreparable harm issue highlight the fine line between those facts and circumstances warranting a finding of irreparable harm, and those rejecting such a finding.

For instance, a court found that evidence of customer complaints expressing confusion and detailing the poor quality of the trademark owner’s purported products, which were actually the alleged infringer’s products, was sufficient to establish irreparable harm. Hand & Nail Harmony, Inc. v. ABC Nail & Spa Prods., 2016 WL 3545524 (C.D. Cal. 2016). Critically, the evidence that the court considered was relegated solely to statements within two declarations proffered by the trademark owner’s Vice President, demonstrating that courts may rely (and have) upon evidence that perhaps would not otherwise be considered admissible in contexts outside of a preliminary injunction proceeding. See, e.g., Herb Reed Enterprises, LLC v. Fla. Entm’t Mgmt., Inc., 736 F.3d 1239 (9th Cir. 2013). (“Due to the urgency of obtaining a preliminary injunction at a point when there has been limited factual development, the rules of evidence do not apply strictly to preliminary injunction proceedings.”)

As another example, a court found that evidence that a trademark owner spent over $11 million on advertising, marketing, and promotion using its logo was probative of irreparable harm where the allegedly infringing logo was similar and the target audiences of the two logos-at-issue were identical. Nat’l Fin. Partners Corp. v. Paycom Software, Inc., 2015 WL 3633987 (N.D. Ill. 2015).  

In contrast, the Ninth Circuit found in a seminal decision that an email from a potential customer complaining that the customer had wanted to book the trademark owner’s band rather than the alleged infringer’s band evidenced customer confusion, but did not constitute evidence of irreparable harm. Herb Reed, 736 F.3d 1239.

Likewise, a court found that evidence that a trademark owner’s 40% drop in product sales after the alleged infringer entered the market was insufficient to constitute irreparable harm because the sales history of the trademark owner’s product showed wide fluctuations from year to year. Suja Life, LLC v. Pines Int’l, Inc., 2016 WL 6157950 (S.D. Cal. 2016). The court also noted that loss of sales alone was insufficient to constitute irreparable harm given the available remedy of money damages.

To add to the murkiness, while a number of circuits (e.g., the Third, Ninth, and Eleventh) have conclusively held that a trademark owner must present sufficient evidence of likely irreparable harm for an injunction to issue, other circuits have yet to definitively weigh in.

As federal courts continue to reject the presumption of irreparable harm, trademark owners should monitor Congress’s response to this issue, in order to determine the best course of action regarding a potential trademark dispute.