Not the NAD: court won’t stop plaintiff from publicizing preliminary injunction

Homeland Housewares, LLC v. Euro-Pro Operating LLC, No. 14-cv-03954 (C.D. Cal. Sept. 10, 2014)

Euro-Pro sought to keep Homeland from publicizing the court’s preliminary injunction against it (granted on Lanham Act false advertising grounds). Shortly after the preliminary injunction issued, Homeland sent letters to a number of retailers carrying Euro-Pro products. It notified retailers of the injunction, stated that retailers with notice of the injunction “must also comply,” and said that Homeland would bring contempt proceedings against violators. The letters also said that the injunction was based on a “finding” of literal falsity, said that the litigation was ongoing, and asserted that “[Plaintiff] will likely be entitled to monetary damages for every sale” and that “[i]f Euro Pro is unable to pay the damages, then any company in the sales chain can be held liable for the damages.” The letters also referenced another recent case in which a federal court in Pennsylvania also issued a preliminary injunction against Euro-Pro for false advertising.

Euro-Pro wanted this stopped, as well as a court-approved corrective notice. Euro-Pro didn’t bring a separate claim (e.g., defamation), but the court considered its inherent equitable power to protect its own orders from “evasion, abuse and misuse.” Here, the court found, justice and the public interest might require some sort of order if Homeland misrepresented the content of the injunctive order, “asserting unlikely or spurious claims in terrorem in order to chill market demand for Defendant’s products.” Euro-Pro argued that this was occurring.

Tthe court found that Homeland’s letter “accords, in at least a narrow sense, with the language of the injunctive order” in that the court did find literal falsity. Taken in isolation, however, the language about the court’s “finding” could create the impression that there was a final judgment on the merits. Yet Homeland’s letter didn’t fall into this trap. Before talking about the “findings,” the letter stated correctly that the injunction at issue was a “preliminary injunction.” The language wasn’t “a model of absolute clarity on this point—it might more advisably have included words like ‘ongoing’ or ‘pending’”—but it conveyed the procedural posture of the case. There was still some danger of misleading the unsophisticated, but “the facts presented seem to show that many of the retailers who have expressed concern following the letters are represented by competent, cautious counsel,” for example a letter from Costco mentioning discussions with in-house counsel and that Costco understood that a “preliminary” finding had been made.

Euro-Pro argued that Homeland misrepresented the scope of the injunction by advising retailers that those with notice had to comply with the court’s order. Euro-Pro contended that retailers were not bound, because they were neither parties nor nonparties who have notice of the injunction and were “in active concert or participation with” the enjoined party. But whether this was so was not clear. The Ninth Circuit had no precedent on retailers who sell a party’s enjoined product, while other circuits were split. Aevoe Corp. v. AE Tech Co., 727 F.3d 1375, 1384 (Fed. Cir. 2013) (yes); Paramount Pictures Corp. v. Carol Pub. Grp., Inc., 25 F. Supp. 2d 2, 376 (S.D.N.Y. 1998) (no). But the facts also differed: Aevoe involved a retailer’s exclusive distribution agreement with the enjoined party, while in Paramount retailers completed their purchases of the enjoined products prior to the injunction. “And in general the inquiry is likely to always be fact-intensive.”

Given the fact-specificity of the cases and the unsettled state of the law, the court couldn’t say for certain that Homeland misrepresented the scope of the injunction. Its liability theory might not be sustained in an actual contempt hearing, but lots of letters warning of potential legal action have that characteristic. “This does not mean that courts should enjoin or constrain such letters, where the party’s legal theory is at least plausible and the potential action is not purely frivolous or harassing.”

Finally, congressional policy providing for injunctive relief in Lanham Act cases didn’t favor relief here. Given that the purpose of the Lanham Act is to “protect[] persons engaged in [commerce within the control of Congress] against unfair competition,” Pom Wonderful, then the finding of likely success and entitlement to a preliminary injunction allows Homeland to “aggressively assert the injunction’s protection in the marketplace in order not to be subject to unfair competition.”

However, Euro-Pro had a point. “Plaintiff’s reference in its letters to an unrelated case in the Western District of Pennsylvania, involving a different plaintiff and different facts, served no purpose in asserting its theory of nonparty liability for contempt in this case. That portion of the letter strayed far beyond what was necessary to put retailers on notice of the injunction in this case.” The court wasn’t going to order Homeland to stop referring to this case “out of deference to potential speech concerns.” But if Homeland didn’t immediately delete the reference, the court would set a hearing on whether the preliminary injunction should be vacated. (… I’m not sure that avoids free speech issues.) Other than that, the preferred remedy was more speech. The court wouldn’t approve a Euro-Pro notice calling Homeland’s characterization of the injunction “erroneous” and stating that “retailers are not subject to the injunction.” But Euro-Pro was free to explain the lawsuit, the scope of the injunction, and its own theory of “active concert or participation” to retailers.