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By Michelle Mancino Marsh and Eric Carnevale - September 2010

This article originally appeared in the September 2010 edition of Intellectual Property Magazine.

In 2006, the Supreme Court radically changed the Federal Circuit’s practice of granting automatic injunctions in cases of patent infringement, banning the use of “general” or “categorical” rules for issuing permanent injunctions and requiring courts to use the traditional four-factored equity test.1 The effect of this holding has been slow to trickle down to other areas of intellectual property law. However, a recent copyright ruling from the Second Circuit court of appeals in Salinger v. Colting,2 may be indicative of a growing trend among the circuit courts to apply the Supreme Court’s equity test to all types of intellectual property cases.

In Salinger, the Second Circuit held that the Supreme Court’s ruling in eBay is applicable both to copyright cases and preliminary injunctions. This ruling effectively abrogated the Court’s established standard for granting preliminary injunctions, which, inter alia, permitted a presumption that the plaintiff would be irreparably harmed if an injunction did not issue upon a finding that the plaintiff was likely to succeed on the merits. Following Salinger, a copyright plaintiff seeking a preliminary injunction must satisfy a four-part test, which includes a showing that it would be irreparably harmed in the absence of an injunction, without the benefit of any presumptions in its favor.

While Salinger is likely to be the final word on the applicability of eBay to copyright actions, the impact on brand owners seeking to protect their trademarks by employing the remedy of a preliminary injunction remains to be seen. Ultimately, despite some resistance by certain trademark commentators and courts, the eBay standard should become applicable to all intellectual property related injunction questions.

THE SUPREME COURT SPEAKS: EBAY v. MERCEXCHANGE

The current state of the law arises from a dispute between eBay, Inc., an internet auction house, and MercExchange L.L.C., the holder of a patent for a method of selling goods through an electronic market. MercExchange, believing that eBay’s website infringed its patent, filed suit in the Eastern District of Virginia, alleging infringement and seeking a permanent injunction against the auction site. While the district court found in favor of MercExchange and awarded damages, it declined to issue an injunction, applying a four-factor test traditionally used to evaluate injunction requests and finding that MercExchange failed to establish that it would be irreparably harmed if the injunction did not issue. The traditional four-factor equity test asks the plaintiff to demonstrate (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction. MercExchange appealed and the Federal Circuit reversed, holding that there was a general rule in favor of issuing permanent injunctions upon a finding of patent infringement.

The Supreme Court concluded that neither court applied the correct permanent injunction standard. It strongly rebuffed the Federal Circuit, holding that the terms of the Patent Act do not justify a “general rule” in favor of injunctions, and that the traditional four-factor equity test must be applied. The Court concluded that the district court did apply the requisite test, but found that it erred in applying a similar categorical rule against a requirement of demonstrating irreparable harm where the patent owner shows a willingness to license the patent and does not practice the invention itself. While the ruling was directed at injunctions following a finding of patent infringement, the Court relied on its previous holdings related to injunctions under the Copyright Act, and strongly hinted at broad applicability by stating, “a major departure from the long tradition of equity practice should not be lightly implied.”

INJUNCTIONS IN THE WAKE OF EBAY

Application of the eBay holding by district courts has been mixed. It is undisputed that the Supreme Court’s ruling established the standard for granting permanent injunctions following a finding of patent infringement; however, some courts have declined to extend the holding beyond patent law.
In the copyright world most courts agree that the Supreme Court’s decision applies to permanent injunctions issued in copyright cases, with the First, Fourth, and Eleventh Circuits citing eBay and applying the four-factor equity test without much discussion.3 Prior to the Second Circuit’s opinion in Salinger the law with respect to preliminary injunctions was less clear. Districts courts tended to reach the conclusion that eBay effectively eliminated the presumption of irreparable harm in favor of a plaintiff who has demonstrated a likelihood of success on the merits, but the Federal Circuit, applying Ninth Circuit law, found that the pre-eBay standard still applied.4

Courts deciding cases under the Lanham Act remain more skeptical of the applicability of eBay. In 2008, the Fifth Circuit applied the pre-eBay standard in a false advertising case seeking a permanent injunction.5 Several district courts and one Circuit Court have followed suit in both false advertising and trademark infringement cases with no mention or discussion of eBay.6 However, at least one district court found that eBay is applicable to a request for a permanent injunction in a trademark case.7 Other Circuits have acknowledged the debate regarding the presumption of irreparable harm, but ultimately punted on the issue; refusing to address whether the presumption is still valid because the facts under consideration demonstrate irreparable harm without reliance on the presumption.8 Even the Second Circuit, as little as two months before the Salinger opinion was issued, reiterated the pre-eBay preliminary injunction standard for trademark cases, in dicta, in support of a holding that proof of irreparable harm is not required for statutory injunctions under the New York Tax Code.9

SALINGER v. COLTING

On April 30, 2010, the Second Circuit issued perhaps the most in depth analysis of the eBay decision as it applies to preliminary injunctions in copyright cases. The plaintiffs, J.D. Salinger, and upon his death, his heirs, sued the defendant, Fredrick Colting, the Swedish author of the novel 60 Years Later Coming Through the Rye, arguing that the novel infringes Salinger’s copyright in Catcher in the Rye. The alleged infringing novel portrays a fictionalized version of J.D. Salinger himself who is haunted by his creation, "Mr. C" and decides to bring him back in order to kill him. The Mr. C character is a 76-year-old man who references events that happened in Catcher, has many characteristics of the well-known main character of Catcher, Holden Caulfield, and has adventures that parallel those of Holden. The story culminates with Mr. C becoming self aware and traveling to Cornish, New Hampshire to meet Salinger, who decides to set Mr. C free instead of killing him.

The primary point of contention between the parties was whether the novel was intended as an unlicensed sequel to Catcher, or instead, as a form of literary commentary which might be protected by a fair use defense. Salinger pointed to certain marketing materials for the book, including the back cover of the United Kingdom edition, which describes the book as “a marvelous sequel,” as well as an interview with Colting where he describes his work as “just like the first novel.” Colting on the other hand, argued that 60 Years Later was intended to be a critical examination, relying on two literary experts who describe the novel as “a work of meta-commentary” and a “sustained commentary on and critique of Catcher.”

The district court was not persuaded by Colting’s argument that 60 Years Later was merely a literary commentary, and determined that the defendant’s fair use defense was likely to fail. Consequently, the court concluded that Salinger had demonstrated a likelihood of success on the merits of his copyright infringement claim and applied the pre-eBay standard for granting a preliminary injunction. That standard required a preliminary injunction to issue if there is a finding of (a) irreparable harm, and (b) either (1) a likelihood of success on the merits or (2) sufficiently serious questions going to the merits to make them fair ground for litigation and a balance of the hardships tipping decidedly towards the party requesting the preliminary relief. The district court further held that in a copyright claim, where a plaintiff demonstrates a likelihood of success on the merits, irreparable harm is generally presumed. The district court then granted the preliminary injunction.

The Second Circuit reversed, holding that the eBay decision and its prohibition against presumptions of irreparable harm applies to preliminary injunction cases brought under the Copyright Act. The Court noted for example, that in a recent case, Winter v. Natural Resource Defense Council, the Supreme Court applied eBay to a preliminary injunction question outside the context of a patent case, and further stated that the eBay Court relied heavily on copyright precedent to justify its position. Then, the court adapted the traditional equity test laid out in eBay and applied it to the current case.

Specifically, the court held that the district court must consider: (1) if the plaintiff has demonstrated either (a) a likelihood of success on the merits, or (b) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of the hardships tipping decidedly in the plaintiff's favor; (2) if the plaintiff is likely to suffer irreparable injury in the absence of an injunction and whether remedies available at law, such as money damages, are inadequate to compensate for that injury; (3) whether the balance of hardships between the plaintiff and defendant tips in the plaintiff's favor; and (4) if the public interest would be served by a preliminary injunction. Under this test all four factors must be decided without a benefit of a presumption in favor of the plaintiff, even where a likelihood of success on the merits has been found. Furthermore, in dicta, the court stated that there is “no reason that eBay would not apply with equal force to any type of case.”

IMPACT OF THE SALINGER OPINION ON TRADEMARK CASES

There is no doubt that the Salinger decision is likely to have an impact on the future of trademark infringement cases where injunctions are the most common form of relief. While this ruling has no precedential effect in the Second Circuit over trademark cases, it is highly likely to be applied in light of the Circuit’s dicta and because of the natural extension of copyright law to trademark law. For instance, prior to eBay, trademark and copyright cases generally used the same pre-eBay test for determining whether to grant preliminary injunctions. The respective statutes granting authority to the courts to issue injunctions are likewise similarly worded.10

Even where commentators attempt to distinguish trademark law from copyright or patent law for eBay purposes, the arguments were strained. For instance, J. Thomas McCarthy argues that a presumption of irreparable harm should be permissible in trademark injunctions, because “once a probability of proving likelihood of confusion at trial is shown, the trademark owner’s business goodwill and reputation are at risk[,]” and that damage is often not readily measurable.11 For comparison, the Fourth Circuit has stated that “[i]rreparable injury often derives from the nature of copyright violations, which deprive the copyright holder of intangible exclusive rights”12 and the Salinger court notes that the values of many of these rights are “notoriously difficult” to quantify. The interests involved are different, but not markedly so.

McCarthy also notes that for preliminary injunctions in trademark cases, a showing of likelihood of success on the merits is an additional fifth element that goes beyond the four factors required by the traditional equity test. In that author’s opinion, the satisfaction of this fifth element justifies a presumption that the traditional first element, irreparable harm, is also satisfied. However copyright courts following eBay have largely dismissed the presumption of irreparable harm despite widely requiring the same “fifth factor” of likelihood of success on the merits.

Given the inevitable application of eBay to trademark cases, the question becomes, with the elimination of a presumption of irreparable harm, will preliminary injunctions be more difficult to obtain. The cases that decline to decide whether eBay is applicable to trademark law suggest that even in the absence of a presumption, the additional burden of proving a likelihood of irreparable harm is modest, at best, upon a showing of likelihood of success on the merits. Indeed, many courts have held that violations of trademark law or copyright law necessarily cause irreparable harm - which is, quite frankly, a presumption fashioned in other terms.13 As professor McCarthy suggests, an allegation of a potential loss to goodwill and the risk to the brand owner’s reputation should be sufficient as it has long been held that a party should not have to wait for its mark to be damaged before seeking judicial intervention. To satisfy this evidentiary hurdle, the brand owner should be able to testify through declaration, affidavit or by examination, that use of a confusingly similar or identical brand by the defendant’s own goods or services, for which it cannot control the quality, will reflect adversely on its business goodwill and reputation, and that this injury cannot be completely or adequately measured or compensated by monetary damages.

The broader proscription in eBay, that courts should not lightly deviate from the traditional four-factor equity test, may impact the way preliminary injunction cases are presented. Most trademark courts have applied this traditional test, albeit inconsistently or perhaps implicitly.14 For those courts that omit a balancing of the harms and consideration of the public interest, the Supreme Court’s mandate should not make the test significantly more rigorous. The Lanham Act is, at its core, a consumer protection statute, and the public generally has an interest in its enforcement. Furthermore, those courts which have evaluated preliminary injunctions with the traditional equity test often dispense with the balancing of harms and public interests considerations with relative ease.15 On the rare occasion that a court determines the public interest or balancing of the harms do not weigh in favor of an injunction, such a decision often follows a determination that the plaintiff has failed to show irreparable harm or a likelihood of success on the merits.16 In light of this, it seems likely that even with the adoption of a broad interpretation of eBay, the outcomes of cases with strong factual merits should largely be the same.

CONCLUSION

The Salinger opinion demonstrates how the Supreme Court’s ruling in eBay is slowly gaining acceptance – after four years - in all areas of intellectual property law. And, while trademark law has yet to fully accept the eBay holding, that result is likely inevitable. The bottom line is: if you are currently litigating a preliminary injunction motion in a trademark case, you would be wise to make sure that your motion adequately sets forth how the litigants meet or fail to demonstrate irreparable harm. 

1. eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006).
2. No. 09-2878-CV, 2010 WL 1729126 (2d Cir. Apr. 30, 2010).
3. Coxcom, Inc. v. Chaffee, 536 F.3d 101 (1st Cir. 2008); Peter Letterese & Assocs., Inc. v. World Inst. Of Scientology Enters., Int’l, 533 F.3d 1287, 1322 (11th Cir. 2008); Chirstopher Phelps & Assocs., LLC v. Galloway, 492 F.3d 532 (4th Cir. 2007).
4. See, e.g., Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 518 F. Supp. 2d 1197, 1213 (C.D. Cal. 2007); Allora, LLC v. Brownstone, Inc., No. 1:07CV87, 2007 WL 1246448 at *5 (W.D.N.C. Apr. 27, 2007). But see Jacobsen v. Katzer, 535 F.3d 1373, 1378 (Fed. Cir. 2008).
5. Schlotzsky’s, Ltd. v. Sterling Purchasing and Nat’l Distrib. Co., 520 F.3d 393 (5th Cir. 2008).
6. See, e.g., Ambercrombie & Fitch Co. v. Moose Creek, Inc., 486 F.3d 629 633 (9th Cir. 2007) (trademark); Peter Brasseler Hodlings, L.P. v. Gebr. Brasseler GmBH & Co., 516 F. Supp. 2d 1317 (S.D. Ga. 2007) (false advertising); Stokely-Van Camp, Inc. v. Coca-Cola, Co., 646 F. Supp. 2d 510, 531 (S.D.N.Y. 2009) (same).
7. See, e.g., Microsoft Corp. v. AGA solutions, Inc., 589 F. Supp. 2d 195, 204 (E.D.N.Y. 2008).
8. Paulsson Geophysical Servs., Inc. v. Sigmar, 529 F.3d 303, 312 (5th Cir. 2008). See also N. Am. Medical Corp. v. Axiom Worldwide, 522 F.3d 1211 (11th Cir. 2008).
9. City of New York v. Golden Feather Smoke Shop, Inc., Nos. 09-3942-cv (L), 09-3997-cv (CON) at *9 (2d Cir. Mar. 4, 2010).
10. Lanham Act § 34(a), 15 U.S.C. § 1116(a) (2006) (“The several courts vested with jurisdiction of civil actions arising under this Act shall have the power to grant injunctions, according to the principles of equity and upon such terms as the courts may deem reasonable . . . .”) (emphasis added); 17 U.S.C. § 502(a) (2006) (“Any court having jurisdiction of a civil action arising under this title may . . . grant temporary and final injunctions on such terms as it may deem reasonable . . . .”) (emphasis added).
11. J. THOMAS MCCARTHY, 5 MCCARTHY ON TRADEMARKS AND UNFAIR COMPETITION § 30:47.
12. Christopher Phelps & Assocs., LLC v. Galloway, 492 F.3d 532, 545 (4th Cir. 2007).
13. See, e.g., Time Warner Cable v. DirecTV, Inc., 497 F.3d 144, 163 (2d Cir. 2007) (holding that literally false advertising necessarily diminishes a product’s value in the minds of consumers).
14. See, e.g., Citibank, N.A. v. Citytrust, 756 F.2d 273, 275 (2d Cir. 1985) (two-factored test); Standard & Poor’s Corp., Inc., v. Commodity Exch., Inc., 683 F.2d 704, 711 (2d Cir. 1982) (public interest factor may be merely implied in the Second Circuit).
15. See, e.g., Miranda v. Guerrero, No. 08-22326-CIV, 2009 WL 1381250 at *8 (S.D. Fla. May 14, 2009) (disposing of the balancing of harms and public interest in two short paragraphs, and concluding that a preliminary injunction serves the public interest because the public is naturally disserved by the dissemination of untruthful information).
16. See, e.g., Dakota Indus., Inc. v. Ever Best Ltd., 944 F.2d 438, 441 (8th Cir. 1991); Golden Bear Int’l, Inc. v. Bear U.S.A., Inc., 969 F. Supp. 742, 748 (N.D. Ga. 1996).