Thursday, December 05, 2013

9th Circuit resoundingly rejects presumption of irreparable harm in Lanham Act cases

Herb Reed Enterprises, LLC v. Florida Entertainment Opinion Management, Inc., No. 12-16868 (9th Cir. Dec. 2, 2013)

Fascinating to have this case come out just as I’m teaching remedies in my trademark class.  The casebook (Ginsburg et al.) is hanging on by its fingernails to the pre-eBay world in which likely success routinely translated to irreparable injury for purposes of preliminary injunctive relief.  The Ninth Circuit gives the most explicit rejection yet of finding irreparable injury based on the theory that likely confusion inherently involves the risk that the plaintiff will lose control over its reputation. 

The Platters were one of the most successful performing groups of the 1950s.  Defendants (known here as Marshak) appealed the preliminary injunction in favor of plaintiff HRE, enjoining Marshak from using The Platters in connection with any vocal group (with narrow exceptions).  Herb Reed was one founder; others who came to be recognized as “original” members were Paul Robi, David Lynch, Zola Taylor, and Tony Williams.  The original members left one by one, but continued to perform under some version of “The Platters.”  Multiple legal disputes followed.

This mare’s nest, brutally simplified, is roughly as follows: Marshak claims rights descending from 1956 employment contracts between the original members and Five Platters, Inc. (“FPI”), the company belonging the group’s then-manager.  FPI transferred its rights to a company that then transferred rights to Marshak.  “Litigation over the validity of the contracts and ownership of the mark left a trail of conflicting decisions in various jurisdictions, which provide the backdrop for the present controversy.”  FPI sued Robi and Taylor in 1972; a 1974 California decision held that FPI was a sham.  But an analogous dispute between FPI and Williams in New York resulted in a 1982 decision that FPI had lawful exclusive ownership of the name. 

The Ninth Circuit upheld an award of compensatory and punitive damages to Robi, as well as cancellation of FPI’s registered Platters marks.  FPI sued Reed for trademark infringement in Florida, and avoided Reed’s preclusion argument based on the California judgment.  Reed then settled, assigning FPI all his rights in FPI stock but retaining the right to perform as “Herb Reed and the Platters.”  The settlement had an escape clause if a final order by a court of competent jurisdiction provided that FPI had no right to the name The Platters. A key question was whether the escape clause had been triggered.

Marshak, FPI, and others sued Reed in New York, and Reed counterclaimed.  The court ruled that the settlement barred Reed from asserting rights against FPI, and that the escape clause hadn’t been triggered because the earlier decisions didn’t count as a final judgment that FPI wasn’t entitled to use the name, leaving open a remote possibility that FPI could establish common law trademark rights.  (It was remote because the Ninth Circuit held that FPI would need to present evidence that they used the mark in a way that was not false and misleading, and noted that FPI was “unlikely” to be able to make the required showing.  FPI abandoned its trademark claim on remand and the evidentiary hearing ordered by the court of appeals never occurred.)

HRE, acting for Reed, sued FPI in Nevada.  “To get around the restrictions in the 1987 settlement, HRE creatively alleged that it owned the ‘Herb Reed and the Platters’ mark and that defendants used a confusingly similar mark, namely ‘The Platters.’”  FPI, then defunct and (according to Marshak) already having transferred its rights, defaulted, and a permanent injunction issued declaring that FPI never had common law rights to the mark and that Reed had superior rights.  Then, HRE obtained a preliminary injunction against a former performer-employee of FPI; the court in that Nevada case held that the escape clause had been triggered because the time to appeal the default judgment had expired.

HRE then sued Marshak in Nevada, alleging trademark infringement.  The district court held that HRE wasn’t precluded in asserting a right in “The Platters” either by the settlement, because the escape clause had been triggered, or by laches.  The court found that HRE established all the factors needed to support a preliminary injunction: likely success on the merits, a balance of hardships in its favor, irreparable harm, and a public interest favoring relief.

The court of appeals first found that the res judicata effect of the New York cases didn’t bar HRE from bringing the underlying suit.  Then the court found that laches did not foreclose the suit, because HRE couldn’t have brought its lawsuit until there was a final ruling with all appeals exhausted that triggered the escape clause.  HRE sued less than a year after the escape clause was triggered, which was shorter than the analogous state statute of limitations, creating a strong presumption against laches.

Marshak didn’t challenge likely success on the merits except to argue that Reed abandoned “The Platters” by signing the settlement agreement in 1987. But abandonment must be strictly proved, and the district court didn’t err in concluding that Marshak failed to meet his burden of showing discontinuance plus intent not to resume use. HRE presented evidence that, despite the settlement, it continued to receive royalties from previously recorded material.  “The receipt of royalties is a genuine but limited usage of the mark that satisfies the ‘use’ requirement, especially when viewed within the totality of the circumstances—namely, that Reed was constrained by the settlement.”  (Comment: Whoa.  So abandonment is basically impossible when you've created copyrighted works with ongoing value.)  Receiving royalties “certainly qualifies” as placing the mark on goods.  The court rejected Marshak’s argument that HRE’s receipt of royalties violated the settlement agreement and thus wasn’t bona fide. The settlement focused on the right to perform and explicitly excluded commercial recordings.

However, the injunction faltered on irreparable harm.  eBay made clear that the Court “has consistently rejected . . . a rule that an injunction automatically follows a determination that a copyright has been infringed,” and emphasized that a departure from the traditional principles of equity “should not be lightly implied.” The Ninth Circuit concluded: “The same principle applies to trademark infringement under the Lanham Act.” Nothing in the Lanham Act indicates that Congress intended a departure in trademark cases; instead, like the Patent Act, the Lanham Act provides that injunctions may be granted in accordance with “the principles of equity.” A possibility of irreparable harm is too lenient; it must be likely.

This foreclosed a presumption of irreparable harm in trademark cases. The Ninth Circuit considered this consistent with other circuits’ holdings—N. Am. Med. Corp. v. Axiom Worldwide, Inc., 522 F.3d 1211 (11th Cir. 2008) and Audi AG v. D’Amato, 469 F.3d 534 (6th Cir. 2006).  But the court is about to go further.

The district court, anticipating that eBay and Winter were relevant, said that it was requiring HRE to establish irreparable harm.  “Although the district court identified the correct legal principle, we conclude that the record does not support a determination of the likelihood of irreparable harm…. The district court’s analysis of irreparable harm is cursory and conclusory, rather than being grounded in any evidence or showing offered by HRE.”  The district court stated that it couldn’t condone infringement just because it had been occurring for a long time; that could encourage wide-scale infringement by people trading on the goodwill of vintage music groups.  The court of appeals responded:

Evidence of loss of control over business reputation and damage to goodwill could constitute irreparable harm. Here, however, the court’s pronouncements are grounded in platitudes rather than evidence, and relate neither to whether “irreparable injury is likely in the absence of an injunction,” nor to whether legal remedies, such as money damages, are inadequate in this case.

HRE might be able to establish likely irreparable harm, but it hadn’t on this record.  The district court “simply cited to another district court case in Nevada ‘with a substantially similar claim’ in which the court found that ‘the harm to Reed’s reputation caused by a different unauthorized Platters group warranted a preliminary injunction.’” But “citation to a different case with a different record does not meet the standard of showing ‘likely’ irreparable harm.”  (I added the emphasis because this is really big, if the court is serious.  The “different case” here involved the same trademark and the same type of infringing conduct; if that’s not enough, general citations to other infringement cases in which “goodwill” was at risk can’t possibly be—which means that the tradition of considering infringement to cause irreparable harm has to be rethought.)

The strongest record evidence—not cited by the district court—was an email from a potential customer complaining to Marshak’s booking agent that the customer wanted Reed’s band, not another tribute band.  But that just showed confusion, not irreparable harm.  “The practical effect of the district court’s conclusions, which included no factual findings, is to reinsert the now-rejected presumption of irreparable harm based solely on a strong case of trademark infringement.”  One cannot collapse likely success and irreparable harm; evidence of irreparable harm is required. Remand for another look.

No comments: