Monday, November 16, 2015

Christmas in November: No TRO for alleged false advertising because no showing of irreparable harm

Balsam Brands Inc. v. Cinmar, LLC, 2015 WL 7015417, No. 15-cv-04829 (N.D. Cal. Nov. 12, 2015)
Balsam sought a TRO based on claimed patent rights in an invertible artificial Christmas tree, the “Flip Tree,” that includes a “pivot joint” in the trunk that separates the trunk into two parts and allows the tree to fold for simplified set up and storage. They sued Cinmar, aka Frontgate, for selling allegedly infringing artificial Christmas trees, as well as for false marking/false advertising.
Plaintiffs failed to show standing to sue for patent infringement, and also defendants raised a substantial question of whether the accused trees were infringing.  For the non-patent claims, Balsam didn’t show irreparable harm.  Balsam alleged that (1) Frontgate has marketed the accused trees as “featuring patented inversion technology,” but Frontgate lacks patent rights in the inversion technology featured in the trees; and (2) Frontgate has marketed the accused trees as featuring “exclusive inversion technology,” but the inversion technology featured in the trees is not exclusive to it, because plaintiffs also use the same technology.
The only evidence of irreparable harm came from Balsam’s CEO, whose declaration said:
Based on Frontgate’s holiday marketing promotions in past years, Balsam expects Frontgate to advertise a variety of price promotions and discounts throughout the Christmas selling season. For example, over the October 24 weekend, Frontgate is offering $50 back for every $200 spent, resulting in a 25% discount. Balsam will soon need to decide whether to lower its own prices to compete with Frontgate’s infringing products.
Frontgate’s sale of infringing invertible trees, and its false advertising claiming it’s the exclusive provider of such trees and that it even owns the patent on them, erodes Balsam Hill’s identity as an innovation leader. Frontgate’s actions also discredit our marketing campaign promoting our exclusive right to the Flip Trees.
Frontgate’s actions are also costing us sales and market share. Catalog and ecommerce businesses depend on acquiring new customers and then benefiting from the lifetime value of those customers. Typical ecommerce or catalog retailers like Frontgate may break even or even lose money on initial sales to new customers. Their strategy is to acquire customers and then build lifetime relationships that lead to downstream sales. Former Frontgate employees have told me that Frontgate in particular uses trees as its acquisition tool, and then later sells décor and many other products to those customers.
Each lifetime customer relationship Frontgate builds using infringing trees and false advertising is a lifetime relationship potentially lost to Balsam Hill. And because our brand and not just our Flip Tree is under fire, we also stand to lose downstream customers and sales across our whole product line. This includes conventional Christmas trees, wreaths, garlands, ornaments, stockings, tree skirts, and other products. These losses may last a lifetime.
Christmas trees are highly seasonal. Our business grows tremendously each week in October and November and hits a fever pitch by the Thanksgiving holiday weekend. Based on 2013 and 2014 sales data, … A single poor Christmas season could be devastating to the company.
Whether the false advertising claims actually go to anything material, you have to admit, that’s a lot better than many harm declarations do.  However, the court noted, the majority of the irreparable harm came from the fact of the allegedly infringing sales, not from the allegedly false advertising.  Without additional evidence of “eroded identity as an innovation leader,” “discredited exclusive right,” or “lost lifetime customer relationships” actually occurring, the claim of immediate irreparable harm was too speculative.
In addition, Frontgate submitted a declaration that its description of its trees as “featuring patented inversion technology” was based on its misunderstanding that the pending application on the slotted hinge technology had already issued, and that it had since removed the offending language from its website.  The only allegedly false statements in Frontgate’s catalogs were that Frontgate’s trees feature “exclusive, state-of-the-art technology guaranteed to make setup a snap,” and that Frontgate’s “exclusive new Inversion tree goes from packed-away to put-up in about a minute.” Plaintiffs didn’t show a likelihood of immediate harm from those statements that couldn’t be adequately addressed by money damages.
Finally, plaintiffs’ delay in seeking a TRO was also noticeable.  Plaintiffs allegedly learned on August 18, 2015 that Frontgate was selling the accused trees, and presumably learned of the alleged false advertising around the same time. But they didn’t file their complaint until October 20, 2015 and did not seek a TRO until October 26, 2015, just days before the start of the month when Balsam alleged that they generally earn approximately 50 percent of their annual revenue. A ten-week delay “would be of little if any concern in most circumstances, given the extent to which plaintiffs emphasize the importance of the holiday shopping season in claiming that they will suffer irreparable harm, their failure to seek injunctive relief sooner further weighs against this claim.”

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