#1 with a bullet: Nutribullet wins false advertising claim, but its green isn't inherently distinctive

Homeland Housewares, LLC v. Euro-Pro Operating LLC, 2014 WL 4187982, No. CV 14–03954 (C.D. Cal. Aug. 22, 2014)

Homeland and Euro-Pro compete in the home blender market. Homeland sells three Nutribullet products: Classic, Sport, and Pro.  Euro-Pro sells Ninja blenders, including the Nutri Ninja Pro, which is sold near Nutribullet blenders on retailers’ shelves.  Homeland challenged a comparison chart, “Nutri Ninja v. Nutribullet,” with lists of various features: “Nutrient & Vitamin Extraction,” “900 Watts,” “21,000 RPMs,” “Finer Consistency,” “Ice Crushing,” “Pulse Technology,” “Sip & Seal Lids,” and “Fits in Cupholders.”  The chart indicates that the Nutri Ninja Pro operates at 900 Watts, produces 21,000 RPMs, has ice crushing capability, has pulse technology, has sip & seal lids, and fits in cupholders, but that the Nutribullet does not.  Homeland alleged that each of these factual assertions was false as to each product in its line.

In addition, the Nutri Ninja Pro package says “# 1 MOST POWERFUL*,” which Homeland likewise contended was false. The asterisk corresponded to a small-print disclaimer on the bottom of the box, which states: “ *Based on wattage of single serve blenders and nutrition extractors MSRP under $100.”  (Here’s a related case against Euro-Pro for making a “More Powerful” claim with a similarly hidden small print limitation.)  Homeland also argued trade dress infringement.

Homeland sought a preliminary injunction.  On false advertising, Euro-Pro argued that the comparison chart covered only the Nutribullet Classic, since it was undisputed that three statements (900 watt motor, 21,000 RPMs, and “sip and seal”) were false if applied to the Sport and Pro.  The court agreed with Homeland that the comparison chart covered each Nutribullet model.  Nutribullet is prominently displayed on the packaging of all three, and is the dominant feature.  A consumer viewing the products would “naturally consider each to be a ‘NUTRIBULLET.’”  But the chart didn’t differentiate, with the effect of lumping them all together.

Euro-Pro argued that the products were displayed near each other, and that consumers would resolve the contradiction between Euro-Pro’s chart and the statements on a Nutribullet Pro box by concluding that the statement must refer to a different model.  Shifting the burden to the consumer to investigate was inconsistent with the Lanham Act’s consumer protection function, and was also unrealistic.  The parties agreed that the products were often sold alongside many other competing brands.  “[T]here is strong reason to doubt that a typical consumer would make a one-to-one comparison between the features of the parties’ products and then have the realization Euro–Pro envisions.” Having trusted the Nutri Ninja Pro statements and concluded that it was superior, they might not bother to seek out the Nutribullet models.

Euro-Pro argued that the chart only referred to the lower-end Nutribullet because Homeland’s trade dress claim only alleged infringement of the Classic trade dress, which uses a green background, unlike the Sport and Pro.  The court disagreed—the shared background color didn’t establish that the reference to Nutribullet in the chart would cause a consumer to understand that the comparison was limited to only one model.  Nor did the price differences between the under-$100 Nutri Ninja and Classic versus the over-$100 Sport and Pro clarify matters.  The price range, from about $90 to $130, wasn’t so great that the reference could only be to the Classic.

Because the chart claimed to cover each Nutribullet model, it was literally false. The statements were plainly material.  “Indeed, that the statements relate to key factors informing consumer decisions is evidenced by the fact that Euro-Pro itself felt the features were significant enough to consumers to highlight prominently in comparing its goods to those of its competitor.” And given the direct competition, “there is little basis for doubt that Homeland is likely to be injured as a result of the false statements in the form of diverted sales or diminished goodwill.”

Thus, Homeland was likely to succeed on the merits on the wattage, RPMs, and “sip & seal” functionality claims, though the record was presently insufficient on the other allegedly false statements on the packaging.

The court then found that Homeland showed likely irreparable harm.  Damage to goodwill qualifies as irreparable harm.  (No Herb Reed citation?)  Euro-Pro effectively accused Homeland of making inferior products, which self-evidently would tend to diminish consumer goodwill.  Plus, Euro-Pro’s claim that the Pro and Sport lacked features that Homeland’s packaging specifically claims to have “carries the implication that Homeland is lying about its product’s features, an assertion with obvious reputational consequences.”

The balance of equities and the public interest also favored an injunction.  The injunction didn’t require immediate recall and would allow Euro-Pro four months to liquidate its inventory and phase in new packaging.

No relief was warranted on Homeland’s trade dress claim, however. Homeland failed to show inherent distinctiveness or secondary meaning.  The packaging wasn’t inherently distinctive, which required a “design, shape or combination of elements [ ] so unique, unusual or unexpected in this market that one can assume without proof that it will automatically be perceived by customers as an indicator of origin” (quoting McCarthy).

Nutri Ninja

Nutribullet Classic

Homeland alleged that Euro-Pro infringed by copying “(a) phraseology (“Nutri,” “Pro,” “Extractor,” “Watts”), (b) layout of texts and pictorial elements, (c) selected orange lettering, and (d) most conspicuously, its depiction of a blender with an inverse container against a predominantly green background, showing a cornucopia of fruits and vegetables in similar position[s].”  Setting aside the vagueness of some of this description, “Homeland’s trade dress claim fails because most of the elements it contends comprise its trade dress are not, in fact, arbitrary or unexpected given the nature of the product.”  “Nutri,” “watts,” “extractor,” and “pro” all described or implied aspects of the product.  “Nor is the presentation of an arrangement of fruits and vegetables behind the blender arbitrary given that the product’s primary function is to create drinks by blending fruits and vegetables.”  The “inverse container” was just an image of the product itself, which, like other similar products, operates with the container upside down.  The green background wasn’t arbitrary given Homeland’s emphasis in its marketing on the nutritional benefits of the product.

Nor was there convincing evidence of secondary meaning.  Homeland’s only evidence was its claim to have spent “several hundred million dollars on advertising and promoting the NUTRIBULLET line of kitchen appliances and associated trade dress to single itself [out] as the producer of the NUTRIBULLET line.” But the effectiveness of the advertising is the key, and Homeland offered no evidence that its ads effectively created a secondary meaning for its trade dress, or even that its ads were focused on the packaging trade dress instead of promoting the Nutribullet products themselves.

What does reputational harm mean? Lessons from Apple v. Samsung

Apple, Inc. v. Samsung Electronics Co., No. 12-CV-00630 (N.D. Cal. Aug. 27, 2014)

Others will doubtless have much to say about the patent-specific aspects of this case, but I want to talk about what the court said about the relationship between alleged injury to reputation from (patent) infringement and irreparable harm.  Apple won some patent infringement claims against Samsung and sought a permanent injunction, which requires a showing of irreparable harm with a “sufficiently strong causal nexus” to the infringement.  Without the causal nexus, the patentee will suffer the same harm with or without an injunction.

Apple argued that Samsung’s infringement would cause it irreparable damage to its reputation as an innovator, similar to the harm suffered by the patentee in Douglas Dynamics, LLC v. Buyers Products Co., 717 F.3d 1336 (Fed. Cir. 2013). Apple also argued that it would suffer irreparable harm from sales-based losses.

The court first brushed aside Apple’s contention that its allegations of reputation-based harm ought to excuse it from showing a causal nexus with the infringement, since irreparable harm to the patentee’s reputation “necessarily” flows from infringement. The Federal Circuit has made clear that a causal nexus is always required, since it’s actually part of establishing irreparable harm.  We want to distinguish irreparable harm caused by infringement from irreparable harm caused by “otherwise lawful competition,” with reputational harm as well as other types of harm.  “For example, it is possible that Apple’s reputation as an ‘innovator’ could be harmed if Samsung’s noninfringing features are perceived as innovative, but that would not justify an injunction.”

So, Apple argued that an injunction was necessary to avoid irreparable harm to its “reputation and brand.” Samsung’s infringement allegedly harmed Apple’s reputation “by tainting Apple’s reputation as an innovator, by leading customers and competitors to believe that Apple is not entitled to enforce its patent rights (even when it prevails on its infringement claims), and by disrupting Apple’s attempts to maintain exclusivity over its patented inventions.”  While the court found that Apple established that it had a reputation for innovation among consumers that could be the subject of damage, that wasn’t enough. 

Apple argued that the appearance of its patented innovations in “competing and allegedly inferior products” showed harm, along with its reputation for enforcing its IP rights and its general refusal to license its patents.  Douglas Dynamics involved similar factors, and the Federal Circuit found irreparable harm, but that case didn’t require a finding of irreparable harm whenever those factors were present.  Rather, Douglas Dynamics rejected a district court’s refusal to find irreparable harm where there was no consumer confusion between the patentee and the infringer.  The Federal Circuit concluded that harm to a company’s reputation can occur “even absent consumer confusion.”  But it didn’t create a per se rule in cases where the patentee is an innovative company (which would be at odds with eBay/Winter).

As to the presence of patented features in competing products, Apple argued that its reputation for innovation was damaged when “customers [find] the same ‘innovations’ appearing in competitors’ [products],” including products considered less prestigious and innovative, and that the harm was particularly acute for the two patents Apple practices.  Anyway, even for the unpracticed patents, Apple continued to sell products that competed with infringing Samsung products.  But Apple didn’t show irreparable reputational harm due to Samsung’s infringement.  There was “limited” evidence of actual injury. While the evidence showed Apple’s reputation for innovation and its fierce competition with “follower” Samsung, that evidence didn’t show Apple’s reputation suffered.  There was no evidence that consumers have begun to question Apple’s role as an innovator or have difficulty differentiating Samsung and Apple products due to the infringing features.  

Indeed, Samsung persuasively argued that Apple’s reputation was extremely robust (as that of many famous brands is), making it unlikely that Apple would suffer irreparable harm due to infringement of only three patents.  Other evidence indicated that Apple’s reputation derived from products and features other than the three patents at issue. In fact, “Apple executives testified that highly publicized problems with its hardware and software have had little or no effect on Apple’s reputation.”  That demonstrably robust reputation made irreparable harm less likely.  Further, Apple didn’t show harm stemming from consumer association of Apple’s patented innovations with Samsung’s allegedly “less prestigious” products. The record indicated that Samsung’s products were also reputable, in contrast to the the infringing products in Douglas Dynamics, which were of substantially inferior quality to those sold by the patentee. (I’m still confused about this patent dilution theory, by the way.) 

In addition, Apple did license [redacted] to competing smartphone companies, while the patentee in Douglas Dynamics had never licensed the infringed patents, “so it was reasonable to conclude that an injunction would prevent those features from appearing in competitors’ products and eroding the patentee’s reputation for innovation.” By contrast, Apple’s claim to harm to its reputation as an innovator would be undermined by the presence of the patented features in licensed non-Apple products even with an injunction.  These licenses were the result of litigation settlements/patent pools etc., unlike the Samsung infringements here, but “[c]onsumers are unlikely to understand that certain features appear in competing products due to licenses as opposed to unauthorized infringement.” The licensing made any consumer perception of exclusivity unlikely, regardless of its reasons.

Nor did Apple show a causal nexis between the specific patents at issue and the alleged harm.  The patents at issue covered three features in complex phones containing many different inventions.  A causal nexus requirement may more easily be satisfied with relatively simple products, but here the products were “extraordinarily complex and multi-featured.”  There was not much to show that Apple’s reputation as an innovator was related to the patented/infringing features; Apple didn’t even practice one of the patents.

Apple also argued that, without an injunction, it could lose its reputation for enforcing its IP rights.  “Apple provides no evidence that smartphone consumers make purchasing decisions based on Apple’s reputation for enforcing its intellectual property rights.”  Further, Apple is a vigorous IP enforcer across the country, and it didn’t show a causal nexus between these three patents and any perception of slack IP enforcement.  (Rather the contrary, I’d imagine.)

The court then found that lost market share and downstream sales didn’t entitle Apple to an injunction. The parties’ competition affects downstream sales because of “ecosystem” effects, where one company’s customers will continue to buy that company’s products and recommend them to others.  Being forced to compete against infringing products can be irreparable harm, so the parties’ direct competition weighed in favor of finding irreparable harm. But Apple still needed to show a causal nexus between harm and infringement.  Samsung heavily criticized Apple’s conjoint analysis purporting to show consumer demand for the patented features (e.g., its implausible conclusion that the patented word correction feature was worth $102 for a $149 phone), and pointed out that none of the patented technologies appeared in an independent review of online smartphone advertising.  So Apple didn’t meet its burden of showing a causal nexus. 

The court also addressed an issue that comes up in Lanham Act cases: if a jury ultimately awards damages, does that mean that no injunctive relief is allowed because the harm is demonstrably reparable with money damages?  No, the jury’s ability to put a number on the harm Apple suffered doesn’t necessarily mean that number captured the full extent of Apple’s harm, including irreparable harm stemming from sources other than lost sales (e.g., market share).  There is, however, an inherent tension between showing the likelihood of market harm and its incalulability.  Comment: While one approach would be to resolve that tension by finding that market harm isn’t irreparable, courts haven’t been willing to say that outright even if some cases achieve that practical result. 

Ultimately, Apple failed to prove that the infringing features drive consumer demand for the accused products. 

Query: How would this analysis work in a design patent case, where damages are assessed based on the entire product?  If a patentee is entitled to the profits from the entire article, is it also entitled to measure irreparable harm by the sales potential of the entire article?  If not, why not?

Turning to the other injunctive relief factors, the court considered whether Apple’s alleged harms can be quantified.  Other cases have found damages inadequate for lost reputation, but they all involved evidence.  Here, Apple didn’t offer evidence that its reputational harm couldn’t be remedied.  (I haven’t reviewed the records of the cited cases, but I wonder how truly evidentiary that evidence was.)  However, Apple did offer evidence that it couldn’t completely quantify the ecosystem effects of purchases of infringing phones. Thus, lost sales would be hard to quantify and remedy with damages. But that still didn’t show a causal nexus between infringement and harm. Irreparable harm remains an independent requirement for an injunction; thus, to award an injunction here would “ignore the Federal Circuit’s warning that a patentee may not ‘leverage its patent for competitive gain beyond that which the inventive contribution and value of the patent warrant.’”

The ease of designing around/removing the infringing features showed that the balance of hardships favored Apple. The public interest favors the enforcement of patent rights, but also product choice.  The narrowness of Apple’s proposed injunction here meant less threat to product choice, and Samsung’s design-around remedy might spur innovative alternatives to the patented features.  Thus, the public interest favored Apple.

Weighing all the factors, a permanent injunction was inappropriate.

overstating competitor's relationship with FTC target could be defamatory

Broadspring, Inc. v. Congoo, LLC, 2014 WL 4100615, No. 13–CV–1866 (S.D.N.Y. Aug. 20, 2014) (by my classmate, the Honorable Jesse Furman)

“This is a lawsuit between bitter rivals in the online advertising industry.” Broadspring sued Congoo and two of its executives, CEO Nashed and Senior VP of Business Development Cosentino, principally alleging a defamatory campaign against it. Congoo counterclaimed for false and misleading statements to Congoo’s clients.  The court dismissed the counterclaims and a tortious interference claim against Nashed, but let other claims proceed.

The parties operate online ad networks that connect advertisers with websites (publishers).  They put their advertisers’ ads on publishers’ websites, taking money from the advertisers and paying publishers for the space.  The networks pay either on a CPM basis—a fixed amount for every thousand impressions  an ad receives—or on a revenue share basis, giving the publisher a percentage of the network’s revenue.

Cosentino created a webpage in 2013 on squidoo.com, which allows users to create pages, aka “lenses,” on subjects of their choice.  Using the pseudonym “Recruiterman,” and using personal details that didn’t match Cosentino’s actual details, he created a page about online advertising and marketing businesses.  The page provided his commentary on 13 different ad networks, including Broadspring and Congoo, without disclosing his relationship to Congoo.  Initially, the page stated that “many of [Broadspring’s] advertisers appear to be continuity programs (re-bill offers) where the advertiser gets the customer to enter their credit card for a free trial and the[n] makes it tough to cancel. I’d be careful here.”  

Cosentino emailed Nashed a link to the page, generating Nashed’s response “Ingenious!”  Later, Nashed sent another email with negative statements about Broadspring: “it looks like Broadspring was formerly Mindset Interactive, a notorious spyware company. Mindset was eventually shut down by the [FTC] and Sanford Wallace, their founder, known as ‘Spamford Wallace’ was banned from online activity for 5 years.”  Nashed concluded that “[o]ur publishers should know about [Broadspring’s] background.” Cosentino performed some “Google searches of [his] own,” and then revised the Lens that same day, with text nearly identical to that of Nashed’s email:

A simple Google search shows that Broadspring was formerly Mindset Interactive, a notorious spyware company. Mindset was eventually shut down by the FTC in 2005 and Sanford Wallace, their founder, known as “Spamford Wallace” was banned from online activity for 5 years. In Nov 2006, Broadspring’s shareholders then launched the notorious ringtones company, New Motion, dba Atrinsic. Atrinsic had $17mm in financing (from various unknown investors), became public through a shady reverse-merger. They settled 3 years ago with 6 million users scammed: [link to FTC site no longer works; FTC proceeding here.]

Cosentino disseminated the page, and similar statements, in various ways: he posted links to it in discussion threads on other sites under false names; he emailed links directly to publishers, including Intermarkets.net, the New Hampshire Union Leader, the New York Daily News, and Geology.com; and he pseudonymously reposted many of the statements on the page in a discussion thread on another website (concluding that “Publishers who work with these guys simply have zero critical thinking or care[ ] about their audience”) even though Squidoo “locked” the page, making it inaccessible to the public.

Previously, Congoo and Geology.com had agreed that Congoo had the exclusive right to serve ads “with a thumbnail image and/or a title and/or a description and/or a call to action” on Geology.com, terminable on 90 days notice. But in early 2013, without either party terminating the agreement, Geology.com began to run Broadspring ads as well as the Congoo advertisements. Cosentino called Geology.com’s principal Hobart King and told him that he could “get in trouble running those ads,” that Broadspring had “gotten in trouble for spyware” and that it had been “in court over something.” Cosentino emailed King a link to the Squidoo page, which he told King he could read to “get a review on Broadspring ads and other ad networks.”  Geology.com then terminated its dealings with Broadspring; King testified that this was “mainly” because he was “concerned about what he had read [on Squidoo, and [because he] was concerned about spyware.”

The court first found that, under relevant choice of law principles, California’s law supplied the rule of decision for Broadspring’s defamation claim, given Broadspring’s California domicile and New York’s relative lack of interest in the case; though NY has an interest in protecting its citizens’ First Amendment rights, no defendant was a citizen or resident of that state. (There was an actual conflict because NY protects opinions more strongly than California.)

Defendants argued that the Squidoo Lens was constitutionally protected opinion, and that they were protected by the “substantial truth” defense. This was not enough to merit summary judgment in their favor. For fact versus opinion, California courts ask “whether a reasonable fact finder could conclude the published statement declares or implies a provably false assertion of fact.”  The court found no question that the statements at issue imply provable statements: “Broadspring was formerly Mindset Interactive,” which was “shut down by the FTC in 2005.” Prefacing this claim with a statement that this fact was revealed by “[a] simple Google search” did not render it constitutionally protected opinion.  (The court doesn’t ask whether providing a citation matters, though other courts have suggested that links to sources can matter for defamation purposes.)  Likewise, the statement that  “Sanford Wallace, their founder, known as ‘Spamford Wallace’ was banned from online activity for 5 years,” implies the provable assertion that Wallace founded either Broadspring or Mindset Interactive.  The Squidoo Lens was more than a non-actionable ranking.

The substantial truth defense fared no better.  The burden of pleading and proving truth is on the defendant, and not changed on the theory that Broadspring was a limited purpose public figure—it didn’t become such merely because Congoo itself created a controversy about Broadspring.  Congoo didn’t show truth; the evidence instead suggested falsity.  Neither Broadspring nor Mindset was ever sued or “shut down” by the FTC; Wallace was investigated for his marketing and software distribution practices, and Wallace was a third-party software distributor of Mindset’s. The investigation resulted in a default judgment against Wallace and his corporation, but neither Broadspring nor Mindset was named as a defendant. Broadspring exited the software distribution business voluntarily, motivated by the difficulty of policing the behavior of third-party distributors such as Wallace.  “Even further from the truth” was the claim that Wallace was the “founder” of Broadspring or Mindset.  Defendants argued that they were “connected” as “business partners.”  But the difference between that and being a founder is far greater than the slight inaccuracy in details permitted by California law.

Though Nashed and Congoo didn’t author the Squidoo Lens, a reasonable jury could conclude that Nashed took a “responsible part” in the Lens’s publication based on the e-mail exchange between Cosentino and Nashed and the updated version of the Lens.  And “given the nature of the statements, Cosentino’s and Nashed’s senior roles at Congoo, and the fact that the two communicated about the Lens using their company e-mail addresses, a reasonable jury could hold Congoo liable for the allegedly defamatory statements on a respondeat superior theory.”

On to the Lanham Act claim: Is this “commercial advertising or promotion”? The court used a formulation of the Gordon & Breach test that, consistent with Lexmark, didn’t require competition, but only “(1) commercial speech, (2) made for the purpose of influencing consumers to buy defendant’s goods or services, and (3) … disseminated sufficiently to the relevant purchasing public.”  Defendants contested (3), but the court disagreed. The key to sufficient dissemination is whether the challenged representations “are part of an organized campaign to penetrate the relevant market.”  Isolated disparaging statements aren’t enough, but the breadth of dissemination isn’t dispositive; “the primary focus is the degree to which the representations in question explicitly target relevant consumers.”  Cosentino admitted that he emailed links to the Lens to four publishers, and he continued to send those and other publishers links to similar statements even after the Lens was locked.  Based on that, plus Nashed’s statement that “[o]ur publishers should know about [Broadspring’s] background,” a reasonable jury could conclude that the challenged statements were part of an organized campaign to penetrate the market.

The court also declined to find a failure to show causation or damages. At a minimum, there was a factual issue on Geology.com’s termination of its relationship with Broadspring.  Plus, Broadspring doesn’t have to prove actual sales diversion in order to obtain injunctive relief.  (Citing Johnson & Johnson v. Carter–Wallace, Inc., 631 F.2d 186, 191 (2d Cir.1980) (“Likelihood of competitive injury sufficient to warrant a § 43(a) injunction has been found in the absence of proof of actual sales diversion in numerous cases.”). How does that work with irreparable harm, these days?)

Tortious interference: There wasn’t evidence that Nashed had any contact with Geology.com, so he was kicked out of that claim.  But a reasonable jury could find Cosentino and Congoo liable for using wrongful means (defamation) to interfere with the relationship. What about defendants’ legitimate economic interest, given Congoo’s exclusive contract with Geology.com?  “The means with which Congoo was permitted to protect its economic interest … were limited to those not otherwise illegal, and here a reasonable jury could conclude that Defendants’ authorship and dissemination of the Lens—the very acts that allegedly caused Geology.com to terminate its relationship with Broadspring—constituted defamation and Lanham Act false advertising.”

Congoo’s counterclaims for tortious interference and unfair competition alleged that Broadspring made false and misleading statements to Reader’s Digest and Geology.com. Broadspring allegedly told these publishers that its ads (“creatives”) were much “cleaner” than Congoo’s, and failed to disclose—as required by FTC guidelines—that they were ads, and thus no “cleaner.” It also allegedly told the publishers that Broadspring offered a higher CPM than Congoo, when it often didn’t.  As a result, the publishers allegedly sold Broadspring space on their sites, breaching Congoo’s exclusivity agreements.

The court ruled that Congoo failed to offer evidence that Broadspring’s conduct was “improper,” as required for tortious interference, or that it acted in “bad faith,” as required for unfair competition.  The phrase “cleaner creatives” has a broad definition that could mean many things, including lack of visual clutter or respectability of advertisers, and there was no evidence that the publishers understood it as Congoo interpreted it.  Broadspring’s statements about CPM were “at most, non-specific, boastful statements regarding the superiority of its product, statements that are non-actionable under unfair competition law.”

Presumed irreparable: 3d Circuit applies eBay to all Lanham Act claims

Ferring Pharmaceuticals, Inc. v. Watson Pharmaceuticals, Inc., --- F.3d ----, 2014 WL 4194094, No. 13–2290 (3d Cir. Aug. 26, 2014)

This case had an INTA amicus brief making the trademark bar’s strongest arguments for Lanham Act exceptionalism, which here means not applying eBay/Winter to Lanham Act cases and presuming irreparable harm upon a showing of likely success on the merits.  The Third Circuit here rejects that position, entrenching the lack of a circuit split—though there’s still a cert petition pending in Herb Reed (the INTA amicus here is similar in its argument).  I’m inclined to think trademark expansionists are hoist on their own petard here (dragging false advertising along with)—having emptied the concept of “goodwill” of any meaning other than “I own it,” the story that likely harm to goodwill is inherently irreparable/unmeasurable makes much less intuitive sense.  You have to know what goodwill really is before you can see irreparable harm to it.

Ferring appealed from the denial of a preliminary injunction against Watson, with whom it competes in the market for prescription progesterone, a hormone that helps women become pregnant and maintain pregnancies and that is useful in assisted reproduction (ART).  Historically, progesterone is injected intramuscularly, which is painful and not FDA-approved.  (Actually the court says “patients consider [the shot] painful”—really?  Shouldn’t we take their word for it?)  Ferring and Watson developed vaginal inserts to deliver progesterone.  Ferring’s Endrometrin is in capsule form, applied 2 or 3 times a day.  Watson’s Crinone is a gel delivered by an applicator, applied once daily.  They’re the only vaginal progesterone inserts for ART that are currently FDA-approved.

Ferring sued Watson based on two presentations made by Watson in September 2012.  Watson hosted presentations about Crinone by Dr. Silverberg, a paid consultant. The presentations were streamed online.  Ferring objected to (1) Silverberg’s reference to a “Black Box” warning on Endometrin’s package insert (“a black box warning showing the efficacy has not been demonstrated with ... patients 35 years of age and older”); (2) his discussion of a patient preference survey comparing Crinone and Endometrin; and (3) his alleged mischaracterization of the results of certain studies of Endometrin’s effectiveness in women over the age of thirty-five.

Black box: A black box warning is “of special note in the medical community, as it signifies that medical studies indicate that the drug carries a significant risk of serious or life-threatening effects.”  While Endrometrin’s package insert states that “[e]fficacy in women 35 years of age and older has not been clearly established,” it’s not a black box warning.  Dr. Silverberg was alerted to the error after the first webcast, and didn’t say it again in the second (and certified to Ferring and the district court that he wouldn’t repeat it).

Patient preference: Dr. Silverberg told the audience that “94 percent of patients thought that Crinone was easier to incorporate into their daily lifestyle, probably because it’s given once a day compared to three times a day for Endometrin, 82 percent thought that it was more convenient, or I’m sorry, that may be 88 percent, 94 percent thought that it was more comfortable to use Crinone than the Endometrin.”  (During the second webcast that last 94% on comfort became 84%.)  However, the study was not head to head; as the slide Silverberg used stated, these results were derived from a “tally of yes/no questions about whether CRINONE was easy to incorporate into a daily lifestyle, was convenient, and was comfortable to use.”  Thus the women were not actually comparing the products.  Again, Dr. Silverberg certified that he wouldn’t repeat this mistake.

Effectiveness in women over 35: Dr. Silverberg said that “efficacy has not been demonstrated with ... Endometrin for patients 35 years of age and older,” but Endometrin’s package insert actually states that “[e]fficacy in women 35 years of age and older has not been clearly established.”  Dr. Silverberg also discussed two studies on the use of the two drugs in women over 35, and said “We know that efficacy has been established for Crinone in patients under the age of 35 as well as over the age of 35. Schoolcraft’s analysis of the Doody study and also our study found the exact same thing.”  (The language in the second webcast was different but to the same effect, and also said that the Schoolcraft study “show[ed]” that Endrometrin was “not found to be efficacious for women over the age of 35.”) 

The Schoolcraft study actually concluded that “Endometrin was well tolerated and provided successful luteal support in poor prognosis patients” such as “those older than 35”; however, it also included a comparison chart indicating that Crinone had higher pregnancy rates than Endometrin for participants over 35.  The Doody study was a comparison study and found that “[n]o clinically meaningful differences were observed across the three treatment groups in pregnancy rates or live birth rates,” and that “Endometrin provides a safe, well tolerated, and effective method for providing luteal phase support in women undergoing IVF.”  Dr. Silverberg certified that, in future presentations, he will limit his statements on the efficacy of Endometrin for women over 35 in accordance with the package insert.

Because the district court found that Ferring wasn’t entitled to a presumption of irreparable harm and didn’t present sufficient evidence to show likely irreparable harm, it found that Ferring was not entitled to a preliminary injunction. The district court also addressed Ferring’s likely success on the merits, stating that it wasn’t clear that Watson’s allegedly false statements were “completely unsubstantiated” because Watson demonstrated that at least some support did exist, but the court didn’t find it necessary to make a ruling on that.

Preliminary injunctions require showing (1) likely success on the merits, (2) irreparable harm, (3) a balance of equities favoring the plaintiff, and (4) that an injunction is in the public interest.  The absence of any element makes a preliminary injunction inappropriate.  Ferring argued that irreparable harm could be presumed in Lanham Act comparative false advertising cases. Although the Third Circuit had never applied such a presumption, several other circuits had.  (Citing a 9^th Circuit case presuming actual deception and harm from deliberate falsity, not irreparable harm; this will bring trouble.  There are many reasons a court might believe that harm at some level was going to occur if consumers were confused; that it could not yet quantify that harm at an early stage of the case; and also that this harm could ultimately be measured in money damages—or, if not, a permanent injunction could be appropriate once all the evidence was in.  Thus, a presumption of harm should be distinguished from a presumption of irreparable harm; one goes to the nature of the party’s claim and its ultimate burden of proof while the other is about procedure in advance of a final disposition.)

The court of appeals began with the Second Circuit’s reasoning, which was that:

A misleading comparison to a specific competing product necessarily diminishes that product’s value in the minds of the consumer. By falsely implying that Advil is as safe as Tylenol in all respects, AHP deprived McNeil of a legitimate competitive advantage and reduced consumers’ incentive to select Tylenol rather than Advil. This is analogous to a Lanham Act trademark dispute. An infringing mark, by its nature, detracts from the value of the mark with which it is confused.

The court of appeals also cited the related rationale from the Seventh Circuit that “it is virtually impossible to ascertain the precise economic consequences of intangible harms, such as damage to reputation and loss of goodwill, caused by such violations.”  So: (1) the harm is inherent in the false comparison, as in trademark cases; and (2) the harm is irreparable because it’s virtually impossible to quantify in money damages.  The Third Circuit, before eBay and Winter, repeatedly applied a presumption of irreparable harm in trademark cases, on the same rationale (which then reduces to difficulty quantifying damages).

But then the Supreme Court spoke.  Courts of appeals have followed by rejecting the presumption of irreparable harm in copyright and patent cases, even though eBay didn’t expressly reject that particular part of the Federal Circuit’s approach.  eBay made clear that “broad classifications” and “categorical rules” were inappropriate, and that courts should use traditional principles of equity.  As the Second Circuit held, “eBay strongly indicates that the traditional principles of equity it employed are the presumptive standard for injunctions in any context.”

What does this mean for the Lanham Act?  Well, the injunctive relief provision of the statute “is premised upon traditional principles of equity, like the Patent Act’s. Accordingly, we should interpret this nearly identical wording in the same way.”  There’s no evidence from the language that Congress intended a major departure from the long tradition of equity practice.  And eBay’s reasoning doesn’t seem limited to patent cases.

Ferring argued that eBay was different because patents are property and the Lanham Act does not create property rights, especially with respect to false advertising.  Relatedly, as David Bernstein and AndrewGilden have argued, patent/copyright injury can generally be measured in monetary terms by looking at usurpation of a market, injury to goodwill and reputation “is real but difficult to measure in dollars and cents,” per McCarthy. 

Nope.  eBay did not reason that patent cases were somehow unique, but rather that equity has rules.  “It follows that a court is not free to depart from traditional principles of equity merely because it believes such a departure would further a statute’s policy goals, such as, in the case of Lanham Act claims, compensating plaintiffs for harms that may be difficult to quantify.” Given the language of the Lanham Act, there was clear congressional intent to require courts to grant or deny injunctions according to traditional principles of equity.  (I find it interesting that the court of appeals doesn’t engage directly with this property v. goodwill argument; although scholars have been investigating this topic for a while, courts are poor in language explaining what goodwill might be.)

Winter further supported this conclusion.  Winter rejected the Ninth Circuit’s possibility of harm standard; if a possibility of irreparable harm is too lenient, then a presumption of irreparable harm without any showing at all is also too lenient.  We need to remember that injunctive relief is an “extraordinary remedy” requiring a “clear showing” of entitlement to such relief.  (Random thought: this change in procedure, which is across the board and highly defendant-friendly, has the practical result of coming close to the proposals copyright/trademark restrictionists were making around fifteen years ago, when expansion looked completely unchecked, that liability should be limited to damages in many infringement cases, allowing the defendant’s speech to continue.  Politics being what it is, it turns out that it’s not speech but a general skepticism of claims brought against businesses that has done the job.)

Ultimately, “[a] presumption of irreparable harm that functions as an automatic or general grant of an injunction is inconsistent with [traditional] principles of equity”: likelihood of irreparable injury, competing claims of injury, and the public consequences of this extraordinary remedy.

The court of appeals then affirmed the district court’s finding that Ferring failed to show irreparable harm. Dr. Silverberg promised not to make the challenged statements again, and they’ve been removed from the web.  Ferring argued that it offered a declaration from a licensed reproductive endocrinologist stating that doctors would be less likely to prescribe a drug if they believed Dr. Silverberg’s statements, and that Watson was still making claims for the superiority of Crinone over Endrometrin in patient preference surveys.

The court of appeals found no clear error.  Although only Dr. Silverberg, not Watson, promised not to repeat the offending statements, “Ferring has adduced no evidence that there is any risk that any Watson representative will make such statements, especially in light of the fact that Watson has conceded that certain of these statements were inaccurate, and that all of the statements at issue here were made by Dr. Silverberg.”  Ferring’s declaration was speculative and didn’t assert that the endocrinologist or other doctors had actually prescribed Endrometrin less frequently as a result of Dr. Silverberg’s allegedly false statements.

Ferring argued that a defendant can’t moot a case simply by ending its violative conduct, but must bear the heavy burden of showing its conduct has been totally reformed.  But mootness and irreparable harm are different questions.