Monday, January 25, 2016

Showing irreparable harm isn't easy

Pruvit Ventures, Inc. v. ForeverGreen International LLC, --- F.Supp.3d ----, 2015 WL 9876952 No. 15-CV-571 (E.D. Tex. Dec. 23, 2015) (magistrate judge)
Defendants moved for a preliminary injunction on their counterclaims involving dietary suppplements.  Defendant Axcess is the exclusive licensee of patented technology relating to
appetite suppression and weight loss.  Defendants alleged that a prospective sub-license to Pruvit never became effective, while Pruvit argued that it was approved.  Pruvit went to market with a supplement called KETO//OS1, allegedly using defendants’ patent and trade secrets, while defendant ForeverGreen then launched a competing supplement, KetonX.  Pruvit sued defendants for breach of contract, disparagement, and related claims.  Defendants counterclaimed for, among other things, trade secret misappropriation, patent infringement, and false advertising.  Defendants sought a preliminary injunction, and the court analyzed irreparable harm in detail, assuming arguendo that they’d shown likely success on the merits.
Speculation isn’t enough to show irreparable harm.  The movant must show that monetary damages are an insufficient remedy and that their alleged harms are not just possible, but likely. The judge reviewed six theories of harm, none of which worked.
Price erosion: Pruvit’s product allegedly caused price erosion in the relevant supplement market, and defendants might be forced to drop the price of KetonX to compete.  Further, customers would resist future price increases, so ForeverGreen wouldn’t then be able to raise the price without destroying goodwill.  Price erosion isn’t irreparable harm; money damages can compensate for it.  Plus, the testimony was merely speculative, with no economics expert or other expert testifying to it.
Reputational harm: although this can be irreparable harm, “the showing of reputational harm must be concrete and corroborated, not merely speculative.” Defendants argued that Pruvit’s supplement had negative side effects, such as headaches, diarrhea, and nervous system issues, and that such problems were likely to be attributed to KetonX or ketosis supplements generally because the products are seen as alternatives.  But they failed to show that the established negative side effects of Pruvit’s KETO//OS were causing customers to turn away from KetonX and/or the ketosis supplement market, or that KetonX didn’t also cause the side effects alleged.  The court agreed that “[i]t is difficult to imagine under what extraordinary set of circumstances the introduction of a product with a ‘lower reputation for quality’ would, instead of highlighting the higher quality of its competitors, reflect adversely upon the field as a whole.” Moreover, the Fifth Circuit previously held that “[t]he lost goodwill of a business operated over a short period of time is usually compensable in money damages,” and both products had only been on the market for about six months.
Harm to shareholder value: There were other explanations for a decline in share value, like ForeverGreen’s losses in 9 out of 12 fiscal years, and mere speculation wasn’t enough, nor was alleged temporal proximity between Pruvit’s launch and the decrease in value.
Lost market share/first-to-market advantages: Defendants argued that, in the multilevel marketing model both parties used, being first to market was extremely important, because a new product launch creates significant interest in the industry and attracts distributors excited to take the new product to market, maintaining a larger market share than would otherwise exist. Moreover, Pruvit’s presence in the market also limited the supply of raw materials necessary to manufacture KetonX, prevented defendants from making important industry contacts/acquiring important distributors, and deceived consumers through false labeling.
Lost market share/lost sales aren’t irreparable harm in themselves.  Moreover, lost market share must be substantiated, and here all defendants did was claim that they must have lost market share, without quantifying it or establishing that it had happened. “[N]either the difficulty of calculating losses in market share, nor speculation that such losses might occur, amount to proof of special circumstances justifying the extraordinary relief of an injunction prior to trial.”
Lost opportunities to obtain raw materials: there was no evidence that Pruvit’s supplier was the only supplier.  Nor did the evidence show that Pruvit was to blame for lost distributors, or that Pruvit’s labeling had turned customers away from the ketosis supplement market as a whole.
Lost profits: these are readily quantifiable and thus not irreparable.
Lost right to exclude: Also not irreparable, especially given that defendant Axcess, at least initially, voluntarily began a sublicense agreement.
Defendants’ five-month delay in seeking relief also weighed against a finding of irreparable harm; they even delayed two months after Pruvit sued them to counterclaim, weighing heavily against a finding of irreparable harm.

No comments: