A recent opinion by the United States Court of Appeals for the Third Circuit held that the Supreme Court’s landmark decision in eBay is applicable to Lanham Act false advertising litigation and that irreparable injury can no longer be presumed in such cases, even where the case involves comparative advertising.1 While this decision is undoubtedly correct, it will require an enormous change in the strategy and evidence necessary for a false advertising plaintiff to secure injunctive relief.
eBay and Its Progeny
As we noted in this newsletter over two years ago,2 the Supreme Court’s 2006 landmark decision in eBay changed the landscape regarding injunctive relief in patent cases. In eBay, the Supreme Court held that the Federal Circuit erred in ruling that injunctive relief is virtually automatic in patent cases once there is a finding of validity and infringement. Citing the language of the Patent Act that injunctions “may” issue in patent cases “in accordance with the principles of equity” (35 U.S.C. § 283), the Supreme Court held that the propriety of injunctive relief must be determined via application of the four traditional equitable factors: (1) irreparable harm, (2) inadequacy of legal remedies, (3) balance of hardships, and (4) the public interest.3
Two years later in Winter,4 the Supreme Court extended eBay to cover preliminary injunctions. Winter involved an attempt by an environmental group to halt U.S. naval exercises involving sonar systems because of the alleged harm to whales. Reversing the Ninth Circuit’s issuance of a preliminary injunction on the ground of “possible” irreparable injury, the Supreme Court held that “injunctive relief [is] an extraordinary remedy” that can be awarded only upon a “clear showing that plaintiff is entitled to such relief.” In the case of a preliminary injunction, this means showing (1) likelihood of success on the merits, (2) likelihood of irreparable harm in the absence of injunctive relief, (3) the balance of equities tip in plaintiff’s favor and (4) an injunction is in the public interest. Winter is particularly noteworthy in the false advertising context because of the regularity with which false advertising plaintiffs seek preliminary injunctions.
It was clear from the broad scope of eBay and Winter that they would be applied to other types of intellectual property litigation, and that is precisely what has happened. For example, eBay has been extended to copyright cases by both the Second5 and Ninth Circuits.6 In the J.D. Salinger case, the Second Circuit reversed a preliminary injunction against publication of a Catcher in the Rye parody. It held that eBay applies not only to copyright cases but to any federal case in which injunctive relief is sought. The court also rejected plaintiff’s argument that irreparable injury can be presumed once copyright infringement has been found; the court made it clear that a copyright plaintiff can obtain injunctive relief only by prevailing under the four-factor analysis required by eBay.
eBay and Trademark Cases
The courts were also quick to apply eBay to trademark cases brought under the Lanham Act. This was not surprising, because the Lanham Act is similar to the Patent Act in providing that injunctions may be granted “according to the principles of equity.” This principle appears in § 34(a) of the Lanham Act (which covers trademark infringement and false advertising) and § 43(c) (which covers trademark dilution). As a result, the courts readily found that a trademark infringement plaintiff must satisfy the eBay and Winter standards in order to secure injunctive relief.7
The more challenging Lanham Act question was what would happen to the various “presumptions” of irreparable injury that traditionally allowed plaintiffs to obtain injunctions once they have proven the merits of their claim. For example, in trademark cases, courts have long said that irreparable injury may be presumed once there is a finding of infringement.8 The courts appear undecided about whether this presumption survives eBay. Some courts have continued to apply the presumption, while others have called the presumption into question. Taking a middle ground, three circuit courts have acknowledged the issue but specifically refused to decide it.9
The better view is that this presumption is inconsistent with eBay. In fact, the Ninth Circuit has so held in a series of decisions.10 Its most recent decision on this issue is Herb Reed Enterprises LLC v. Florida Entertainment Management Inc., where it reversed the issuance of a preliminary injunction in a trademark case on the ground that while the District Court had not literally applied the presumption, it had required so little evidence of injury that it had effectively “reinsert[ed] the now rejected presumption.”11 A petition for certiorari in this case is now pending before the Supreme Court. In the petition, plaintiff claims that application of eBay to trademark cases is “out of line with fundamental principles of trademark law. . . .”12 It is unlikely that the Supreme Court will grant cert or that, if it does, it will hold that the presumption survives eBay.
The Third Circuit Decision
Until the recent decision by the Third Circuit in Ferring v. Watson, no circuit court had ruled on the applicability of eBay to Lanham Act false advertising cases. As in the trademark context, the real issue is not whether eBay applies to false advertising cases (it clearly does), but whether the presumption of irreparable harm ‒ which has typically been applied in cases involving false comparative advertising13 ‒ survives eBay. Ironically, a few years ago the Second Circuit affirmed a preliminary injunction in a false advertising case but failed to even mention eBay.14
Ferring has definitively answered this question. The case involved competing prescription products ‒ Ferring’s ENDOMETRIN and Watson’s CRINONE ‒ that administer progesterone to pregnant women through vaginal inserts. Ferring’s claims arose out of three allegedly false statements made by Dr. Silverberg, a paid Watson consultant, in two webcasts to medical professionals. The false statements, and their subsequent correction/retraction, were as follows:
The first statement, relating to a so-called “Black Box” warning for ENDOMETRIN, was deleted by Dr. Silverberg after the first webcast when he learned that his statement was erroneous.15
The second statement related to the results of a consumer survey; when Dr. Silverberg learned that he had mischaracterized the survey, he filed an affidavit stating that he would not repeat the statement.16
The third statement related to what ENDOMETRIN’s package insert said about the product’s efficacy for women 35 years or older. In his affidavit, Dr. Silverberg agreed to conform his statements on this matter to the wording of the package insert.17
Given the corrective action taken by Watson and Dr. Silverberg, it is not surprising that the District Court denied the preliminary injunction motion. In doing so, it held that Ferring was not entitled to a presumption of irreparable harm and that, without the presumption, its evidence of irreparable harm was insufficient.18
The Third Circuit affirmed, and devoted virtually its entire opinion to the eBay issue. It began by stating the time-honored principle that a preliminary injunction is an “extraordinary remedy” that should be granted only once the traditional four-factor test (likelihood of success, irreparable injury, balance of equities, and public interest) has been satisfied.19 It acknowledged that numerous circuit courts, including the Second, Seventh, and Ninth Circuits, have adopted a presumption of irreparable harm in comparative false advertising cases once falsity has been found.20 It also acknowledged that the Third Circuit itself ‒ prior to eBay and Winter ‒ has long applied a presumption of irreparable injury in trademark cases once infringement has been shown.21
The Court held, however, that neither presumption survived eBay and Winter. It began by noting that the Lanham Act parallels the Patent Act in terms of remedies, viz.: both provide that the court may award injunctive relief in accordance with “the principles of equity.”22 Next, it noted that eBay is not limited to patent cases and that the Supreme Court itself has applied eBay to a case involving the National Environmental Policy Act.23 The Court then considered, but rejected, Ferring’s argument that Lanham Act claims are different from patent and copyright claims because, whereas injury in patent and copyright cases can frequently be measured in monetary terms, injury in trademark and false advertising cases typically involves injury to reputation and goodwill that is “difficult to measure in dollars and cents.”24 The Court explained that eBay was not based on the unique nature of patent cases but rather on the requirement that injunctions be issued “consistent with traditional principles of equity.” 25=
Because a presumption of irreparable harm deviates from the traditional principles of equity, which require a movant to demonstrate irreparable harm, we hold that there is no presumption of irreparable harm afforded to parties seeking injunctive relief in Lanham Act cases.26
The Court went on to discuss Winter, and concluded that its holding regarding preliminary injunctions was fully applicable to Lanham Act cases:
For these reasons, we hold that a party seeking a preliminary injunction in a Lanham Act case is not entitled to a presumption of irreparable harm but rather is required to demonstrate that she is likely to suffer irreparable harm if an injunction is not granted.27
The Court reviewed the evidence that was before the District Court and held that it was insufficient to prove irreparable harm, particularly in light of the remedial steps taken by Watson and Dr. Silverberg.28 The Court acknowledged that these remedial steps might not result in “mooting” Ferring’s complaint; it agreed that a defendant cannot moot a false advertising case unless it can “irrefutably demonstrate that the offending conduct has been totally reformed.” However, the test for mootness is different from the test for injury sufficient to warrant injunctive relief; as the Court explained, dismissal due to mootness is a “materially distinct inquiry” from the question of whether plaintiff has demonstrated irreparable injury.29
Why it matters: Unless the Supreme Court grants certiorari in the Herb Reed case and holds ‒ inexplicably ‒ that eBay and Winter are inapplicable to Lanham Act cases, Ferring will almost certainly govern future false advertising cases in all circuits. This will require a major change in how plaintiffs’ counsel approach false advertising cases. Whereas counsel have typically focused on proving (i) the message that was communicated by the advertising and (ii) the falsity of that message, counsel must now pay equal attention to proving irreparable injury. Because false advertising, like trademark infringement, generally results in injury to a brand’s reputation and goodwill, rather than a direct loss of sales, considerable thought must be given to how such injury can be demonstrated at trial or a preliminary injunction hearing.
While it may be helpful to have a brand manager or other executive testify that the brand’s reputation and goodwill are being irreparably damaged by defendant’s advertising, that is no longer sufficient. Any such testimony must be supported by other tangible evidence showing the consequences of the defendant’s advertising. That evidence could include such items as (1) data showing a decline in sales, or a decline in sales growth, since the advertising commenced; (2) letters or electronic statements by consumers stating that they are no longer buying the product because of what they have heard; (3) if it’s a product sold to commercial buyers or to medical professionals, statements or inquiries from such buyers that reflect concern about the product; (4) tracking studies showing a falloff in favorability or purchase intent ratings since the advertising commenced; (5) a specially commissioned survey of the target audience focused on its view of plaintiff’s product in light of the advertising in question; or (6) an expert witness from the industry who can explain the importance of the claim to the industry and the industry’s likely reaction to the advertiser’s message.
While some, or even many, of these types of evidence may not be available, at least some mix of them should be presented along with the usual “the sky is falling” testimony from a brand manager or marketing director. If, as in Ferring, counsel cannot marshal such evidence, then you may need to rethink the idea of a lawsuit and proceed instead with a challenge before the NAD, where the complainant’s injury is irrelevant. But above all, before choosing to pursue a Lanham Act false advertising lawsuit, you must recognize that the legal landscape has changed significantly as a result of the Supreme Court’s decision in eBay.