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The Great Infringer

By Donna Mallard | Apr. 2, 2015

Law Office Management

Apr. 2, 2015

The Great Infringer

A ruling on infringment by an R&B "tribute group" undermines traditional trademark protections.

The trademark claim by the owner of the Active mark must be one of the best examples yet of a pyrrhic victory. In 2012 Active Sports Lifestyle USA, the Rancho Cucamonga seller of skateboards and sportswear, accused Old Navy, a much larger competitor, of infringement by marketing a line of "Active by Old Navy" sportswear. A year later the case went to trial before U.S. District Judge James V. Selna in Los Angeles. The jury found Old Navy liable for infringement, but it awarded no damages. Then in 2014 Selna denied Active's motion for a permanent injunction against Old Navy's future sales. For all the efforts of Active's parent company, its victory had provided no protection. (Active Sports Lifestyle USA, LLC v. Old Navy, LLC, 2014 WL 1246497 (C.D. Cal.).)

Judge Selna based his ruling on an unrelated trademark case decided by a Ninth Circuit panel a few months earlier. (See Herb Reed Enters. v. Fla. Entm't Mgmt., Inc., 736 F.3d 1239 (9th Cir. 2013).) That cited case involved the Platters, a Los Angeles R&B group whose 1956 hit, "The Great Pretender," makes it a perfect metaphor in the trademark infringement context. The Ninth Circuit panel became the first in the federal circuits to affirmatively extend a U.S. Supreme Court standard for obtaining an injunction in patent cases to trademark disputes-ending the general presumption that a preliminary injunction is automatic after a finding that consumers would likely be confused by competing products.

Since Herb Reed, trademark owners seeking injunctive relief in the Ninth Circuit must provide evidence to establish a likelihood of irreparable harm. (See Herb Reed, 736 F.3d at 125051.)

Despite three contrary decisions that Active cited from outside the Ninth Circuit, Selna stated in his ruling that he was bound by Herb Reed. Noting the jury's finding that Active was not damaged by Old Navy's pretrial infringement, the judge declined to consider a more narrowly crafted injunction or equitable remedy. (Active Sports, 2014 WL 1246497 at *5.)

Late last year, the U.S. Supreme Court let stand the Ninth Circuit's ruling in Herb Reed. (Herb Reed, 135 S. Ct. 57 (2014).) Now lower court judges are grappling with how to assess the often elusive claims of irreparable harm that arise in trademark disputes-and this has prompted new litigation strategies.

Traditionally, if a trademark owner could show it is likely to succeed on the merits of an infringement claim, the courts would presume irreparable harm, garnering a preliminary injunction against the infringer. The presumption meant trademark owners did not have to present evidence of a tarnished reputation or lost goodwill among customers, in order to obtain the injunction.

In 2006, however, the Supreme Court raised the bar for winning injunctions in patent cases, ending a presumption that a permanent injunction should apply when courts determine infringement of a valid patent. In a case concerning online auction technology, the lower court found that eBay had infringed MercExchange's valid patent, but it refused to issue an injunction because the case involved disfavored business methods patents. The Court of Appeals for the Federal Circuit reversed, reinstating the presumption of a right to injunctive relief. The Supreme Court, in a unanimous decision, then formally eliminated the Federal Circuit's presumption that a finding of patent infringement automatically merits an injunction. (eBay, Inc. v. MercExchange, LLC, 547 U.S. 388 (2006).)

The high court relied on its earlier ruling in an environmental case that four traditional elements would be required to obtain a preliminary injunction: a likelihood of success on the merits; a likelihood of irreparable harm; a balance of equities tipping in the plaintiff's direction; and evidence that the public interest favors an injunction. (See Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7 (2008).)

In the wake of Winter and eBay, most lower courts abandoned the presumption of irreparable harm in patent and copyright cases. But left unresolved was whether those rulings apply to trademark infringement claims. And if they do apply, just how would plaintiffs prove a loss of goodwill in the minds of customers?

Enter the Platters. Herb Reed Enterprises, which manages the trademark rights for its late namesake (a founding member of the vocal group), sued Florida Entertainment in Nevada for infringement. Though lacking evidence of actual confusion by consumers, the district court assumed that a "tribute group" using the Platters' identical names, music, and clothing style would confound music fans. It ordered a preliminary injunction against performer Monroe Powell, barring him and his group from using The Platters name.

But the Ninth Circuit reversed, finding that the trial judge's findings of irreparable harm based on consumer confusion were "grounded on platitudes" rather than evidence. "Our imposition of the irreparable harm requirement for a permanent injunction in a trademark case applies with equal force in the preliminary injunction context," warned Judge Margaret McKeown, citing an earlier Ninth Circuit holding in Rodeo Collection, Ltd. v. W. Seventh (812 F.2d 1215, 1220 (9th Cir. 1987)).

In the Herb Reed ruling, however, Judge McKeown did not address how trademark owners might go about establishing such harms as confused consumers and lost reputation. This fostered its own confusion.

Months earlier, for example, a district court in San Francisco had denied a motion for a preliminary injunction by Wells Fargo against the former owners of ABD Insurance, acquired by Wells Fargo in 2007. The former owners learned that Wells had failed to reregister the name-so they resumed using it. (Wells Fargo and Co. v. ABD Ins. and Fin. Servs., Inc., 2013 WL 898140 (N.D. Cal.).)

But after Herb Reed, the Ninth Circuit in December 2013 remanded the Wells Fargo case for reconsideration. It concluded that the bank had not abandoned the ABD mark, but continued to use it in several ways, including customer solicitation. The panel also held that "at the preliminary injunction stage, evidence of actual confusion is of diminished importance when a court examines the likelihood of confusion for a trademark infringement claim," adding that such evidence is rarely available so early in litigation.

Wells Fargo renewed its motion for a preliminary injunction last June, asserting that it had lost more than 200 customer accounts and millions of dollars in annual revenue by late 2012 due to the relaunched ABD entity. And as many as 75 former ABD employees left Wells to return to their old bosses.

But those claims proved insufficient to U.S. District Judge Phyllis Hamilton, who noted, "[I]t is likely that such harm could be remedied through monetary damages-as opposed to harm to reputation or goodwill, which is less easily quantified." Wells Fargo, Hamilton concluded, had failed to present evidence that its brand or reputation would be harmed by the alleged infringement, offering "only the type of 'platitudes' that were rejected by the Ninth Circuit in Herb Reed." (Wells Fargo, 2014 WL 4312021 at *13 (N.D. Cal.).)

Two years after the Herb Reed decision, attorneys for trademark owners in the Ninth Circuit are still hopping mad. The panel got it wrong, suggests Scott P. Shaw, a shareholder at Call & Jensen in Newport Beach who represents Active Sports. "There is a fundamental difference between trademark and patent," Shaw says, adding that this is why they have different remedies.

Patents involve money damages that can be measured. Not so with trademark, which is a harm to reputation, he argues.

"A trademark owner has the ability to control the mark-and goodwill is a crucial part of that," Shaw adds. "If you win at trial, you've shown the infringement is likely to cause confusion. You have to stop [the infringer] or you lose control and don't win anything."

Other circuits have split on the application of eBay to trademarks. Last year, the Third Circuit followed the Ninth. (Ferring Pharm., Inc. v. Watson Pharm., Inc., 765 F.3d 205 (3rd Cir. 2014).) Although the First, Second, and Eleventh Circuits have suggested in dicta that eBay may extend to trademark, they have not ruled. But the Fifth Circuit continues to recognize the presumption of irreparable harm, stating that once likely confusion by consumers is shown in an infringement case, irreparable injury is presumed. (Abraham v. Alpha Chi Omega, 708 F.3d 614 (5th Cir. 2013). The Supreme Court refused to consider that case weeks after it rejected Herb Reed. (Abraham, 134 S. Ct. 88 (2013).)

In contrast, last July Reynolds Consumer Products, maker of Reynolds Wrap aluminum foil, won a permanent injunction in a Virginia district court against Handi-Foil for copycat packaging of a Reynolds product. As Active Sports had, Reynolds won a jury verdict of trade dress infringement, but no damages, at trial. (Reynolds Consumer Prods., Inc. v. Handi-Foil Corp., 2014 WL 3615853 (E.D. Va.).)

But there the similarities ended. U.S. District Judge Liam O'Grady wrote, "While under eBay a finding of irreparable harm on its own does not automatically trigger injunctive relief, this court has continued to find that 'irreparable harm is generally applied once the plaintiff has demonstrated a likelihood of confusion, the key element of an infringement case.' " O'Grady continued, "This verdict required the jury to find that Handi-Foil had created a likelihood of confusion," which primarily represented an injury to reputation. (See 2014 WL 3615853 at *12.) That, O'Grady ruled, constituted irreparable harm properly cured by injunction. The case was appealed to the Fourth Circuit but quietly settled before a ruling.

Other circuits have not yet examined the issue.

John G. Froemming, a partner in the Washington, D.C., office of Jones Day, represented Reynolds in the Virginia case. He predicts that the split in circuit responses to the presumption of irreparable harm means many trademark owners will forum shop infringement cases.

In the aftermath of Herb Reed, Froemming cautions, "plaintiffs shouldn't base irreparable harm claims solely on their own investments in reputation. They should be based on consumers' association of the defendant's products with the plaintiff, or whether they would stop buying if they thought the product is related to something negative."

Despite warnings that the presumption of injunctive relief for trademark infringement is dead, Froemming believes injunctions can still be won in the Ninth Circuit. "Until these decisions, lawyers for trademark owners were sloppy," he says. "They assumed injunctions would follow from any showing of likely confusion. Now, after Reed, a showing of loss of control or goodwill can be the hook," he says.

Froemming advises trademark owners to consider preliminary injunctions up front, before they go forum shopping. "Ultimately, it is not just a legal argument, but also [factual] evidence to support a claim beyond the investment in the trademark."

Otherwise, Froemming warns, trademark owners "may spend millions of dollars in litigation, and be out of luck."

Pamela A. MacLean is contributing writer at California Lawyer.

Donna Mallard

Daily Journal Staff Writer

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