Examining the Circuit Split on Preliminary Injunctions in False Advertising Post-eBay

“Although the Supreme Court addressed the injunction issue in eBay, courts are still split over how to apply the four factors and whether the irreparable harm presumption in false advertising should continue.”

https://depositphotos.com/6322048/stock-photo-marketing.htmlIn responding to the unprecedented COVID-19 challenges, companies around the world are rushing to capitalize on the current crisis by advertising the effectiveness of their products in containing the virus spread. Among these ads and messages, some may be useful in building the public’s confidence and marketing effective products to consumers, but some may mislead and deceive desperate consumers into buying treatments and products without any scientific support. As fear and anxiety proliferate during this pandemic, fraudulent or false advertisements also surge and explode. Petitioners raise false advertising claims and try to stop misleading advertisements by seeking injunctions. However, the injunction standard in the false advertising context is still the subject of debate.

A preliminary injunction is an equitable remedy issued by judges to command a party to cease certain conduct. The federal courts generally apply a traditional four-part standard in ruling on preliminary injunctions: “(1) a likelihood of success on the merits; (2) that it will suffer irreparable harm if the injunction is denied; (3) that granting preliminary relief will not result in even greater harm to the nonmoving party; and (4) that the public interest favors such relief.” However, courts have split over whether irreparable harm should be presumed upon an establishment of likely success on the merits. The Supreme Court disapproved the irreparable harm presumption for patent infringement claims in eBay v. MercExchange, but has not examined the issue concerning other intellectual property claims, including false advertising. Some courts continued the irreparable harm presumption in false advertising cases; some courts refused a blanket presumption and required proving irreparable harm caused by false advertisements. This article discusses the eBay case, the split over the irreparable harm presumption, and the problems created by the split.

False Advertising

Under section 43(a) of the Lanham Act, a person “in commercial advertising or promotion, misrepresents the nature, characteristics, qualities or geographic origin of his or her … goods, services, or commercial activities” can be liable for false advertising. Section 43(a) of the Lanham Act aims to protect the commercial interests of legitimate business operation, prevent against unfair competition, and ensure the public get correct promotion information.

To establish a false advertising claim, a plaintiff must satisfy the following elements: (1) the defendant made a misleading or false advertisement; (2) the advertisement actually deceived or had the tendency to deceive a significant percentage of the potential audience; (3) the advertised product was in interstate commerce; (4) the advertisement had influenced or is likely to affect the audience’s decisions; and (5) the plaintiff had suffered or is likely to suffer injury due to the advertisement at issue. In most false advertising cases, plaintiffs will seek preliminary injunctions to enjoin defendants’ false advertisements, and courts will evaluate the above five false advertising elements to determine the probability of winning on the merits.

eBay, Inc. v. MercExchange, L.L.C.

eBay centered on the issue whether the irreparable harm factor was automatically satisfied when the plaintiff had successfully proved patent infringement. MercExchange, LLC had several patents concerning electronic commerce, but it did not practice the patents. MercExchange tried to license the patents to eBay, but they failed to reach an agreement, so MercExchange initiated a lawsuit against eBay, alleging patent infringement. A jury found eBay had infringed the patent and further found that awarding damages to MercExchange was appropriate. The district court denied MercExchange’s injunction motion based on the fact that MercExchange did not practice the patents, and the court of appeals reversed by presuming irreparable harm after establishing patent infringement, so eBay appealed.

The Supreme Court rejected the district court’s categorical rule and criticized the appellate court for not applying traditional principles of equity. The Court reasoned that a movant must meet the traditional four-factor test in injunction relief. While acknowledging patents had the nature of personal property, the Court stressed that “the creation of this right is distinct from the provisions of remedies for violations of that right.” The Court reasoned that the Patent Act expressly states that an injunction “‘may’ issue only ‘in accordance with the principles of equity.’” The Court further recognized that courts should not lightly depart from the traditional principle of equity. The Court thus rejected the irreparable harm presumption in patent cases

U.S. Courts Split Over Preliminary Injunction Determination in False Advertising Context

Before eBay in patent, trademark and false advertisement cases, if a plaintiff successfully showed its likely success on the merits, courts would typically presume the irreparable harm factor was met. However, the eBay Court rejected the presumption and held that courts must apply the four factors before issuing an injunction. Since eBay only talked about patents, courts split over whether the principle in eBay also applies to preliminary injunction analysis in false advertising cases. Accordingly, some courts have interpreted eBay broadly and rejected the presumption in false advertising cases; some courts have distinguished patent infringement from false advertising and continued the irreparable harm presumption practice.

Courts Supporting the Irreparable Harm Presumption

After eBay, some courts continue to apply the presumption and find the harm caused by false advertisements is inherently irreparable since it is practically impossible to calculate the potential effect of false advertisements on consumers’ perception of the brand and decisions in the marketplace.The fourth circuit, the seventh circuit, and the eighth circuit have explicitly limited the presumption to certain conditions, one of which requires the advertisements involve literally false comparison.

In Irwin Industrial Tool Co. v. Worthington Cylinders Wisconsin, LLC, a buyer sued its supplier for unfair and deceptive trade practices, breach of contract and false advertising. The court found that the advertisement at issue was literally false and further found that the defendant had discontinued its false advertisement about two years before the hearing. For the rule of law, although the court reiterated the injunction standard in eBay, the court continued to apply the irreparable harm presumption practice and stated that “once the plaintiff establishes a likelihood of confusion, it is ordinarily presumed that the plaintiff will suffer irreparable harm if injunctive relief is not granted” without giving any explanation about why the irreparable harm presumption was proper after eBay.

The court reasoned that, as the advertisement was literally false, the irreparable harm presumption arose. The defendant contended that the irreparable harm presumption was unreasonable because it discontinued the false advertisements. The court rejected the argument and reasoned that the defendant could restart the false advertisements at any time. The court further reasoned that the balance of hardship and the public interest factor favored the plaintiff because of the need to protect the plaintiff’s goodwill and fair competition in the market. The court thus granted the preliminary injunction.

Courts Opposing the Irreparable Harm Presumption

Some courts refuse to apply the irreparable harm presumption, as the Lanham Act’s injunctive relief is based on equitable principles. The third circuit and the eleventh circuit hold that courts should balance the possible injuries on both parties, examine the public interest, and may grant the injunction remedy only after a clear showing that irreparable harm will occur in the absence of an injunction.

For example, the Third Circuit in Ferring Pharmaceuticals, Inc. v. Watson Pharmaceuticals, Inc.determined whether the irreparable harm presumption was applicable in false advertising context. The consultant hired by Watson Pharmaceuticals, Inc. (“Watson”) made misleading statements in a webcast during a medical professional conference. After being reminded of the inaccuracy in his statements, the consultant removed the inaccurate part in his second webcast and promised not to repeat the statement in the future. Ferring Pharmaceuticals, Inc. (“Ferring”) sued Watson for the misleading statements of the consultant and sought a preliminary injunction.

The court found that eBay was applicable to different types of cases and reiterated the eBay opinion that “a major departure from the long tradition of equity practice” is permissible only under clear Congressional intent. Moreover, the Lanham Act’s text “clearly evinces congressional intent to require courts to grant or deny injunctions according to traditional principles of equity.” Accordingly, the court reasoned that Ferring needed to prove irreparable harm through competent evidence and refused Ferring’s argument about irreparable harm presumption. The court found it significant that the consultant removed his statement in the second presentation and promised not to make the statement anymore. The court also deemed the declaration from a doctor stating that “she ‘would be less likely’ to prescribe the medication” was inadequate and merely speculative. The court concluded that, as preliminary injunction was extraordinary for changing the status quo, the proof burden of showing its necessity must be heavy. Considering this heavy burden and the inadequate evidence here, the court held that Ferring could not clearly show its likelihood of irreparable harm and denied its injunction motion.

Although the Supreme Court addressed the injunction issue in eBay, courts are still split over how to apply the four factors and whether the irreparable harm presumption in false advertising should continue. The absence of a uniform standard leads to forum shopping, inequitable outcomes, and inconsistent decisions; thus, a uniform standard is necessary to solve this discrepancy.

Image Source: Deposit Photos
Author: olly18
Image ID: 6322048  


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