Preliminary Injunctions and TROs in Commercial Litigation Strategies to Obtain or Oppose Emergency Motions

Transcription

1 presents Preliminary Injunctions and TROs in Commercial Litigation Strategies to Obtain or Oppose Emergency Motions A Live 90-Minute Teleconference/Webinar with Interactive Q&A Today's panel features: Jonathan Evan Goldberg, Partner, Seyfarth Shaw, New York Craig R. Tractenberg, Partner, Nixon Peabody, New York Robert W. Capobianco, Of Counsel, Jackson Lewis, Atlanta Thursday, April 1, 2010 The conference begins at: 1 pm Eastern 12 pm Central 11 am Mountain 10 am Pacific You can access the audio portion of the conference on the telephone or by using your computer's speakers. Please refer to the dial in/ log in instructions ed to registrations. CLICK ON EACH FILE IN THE LEFT HAND COLUMN TO SEE INDIVIDUAL PRESENTATIONS. If no column is present: click Bookmarks or Pages on the left side of the window. If no icons are present: Click View, select Navigational Panels, and chose either Bookmarks or Pages. If you need assistance or to register for the audio portion, please call Strafford customer service at ext. 10

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3 Preliminary Injunctions and TROs in Commercial Litigation Strategies to Obtain or Oppose Emergency Motions April 1, 2010

4 The Panel Craig R. Tractenberg, Partner Nixon Peabody (New York office) Robert W. Capobianco, Of Counsel Jackson Lewis (Atlanta office) Jonathan Evan Goldberg, Partner Seyfarth Shaw (New York office) Seyfarth Shaw LLP

5 Standards for Emergency Injunctive Relief Presented by Jonathan Evan Goldberg, Esq. Partner Seyfarth Shaw LLP

6 About Jonathan Evan Goldberg Mr. Goldberg, an experienced trial lawyer, is a partner in the Labor & Employment Department in the New York office of Seyfarth Shaw LLP and a member of the firm s Commercial Litigation Practice Group, representing clients in complex commercial litigation, ERISA litigation, and employment litigation. Among other things, Mr. Goldberg has defended corporate and individual clients in connection with investigations by the United States Department of Labor and the United States Department of Justice (Antitrust Division), i i defended d d corporate clients in federal and state t courts for claims of discrimination and wrongful termination, and represented corporations and individuals in trade secrets and restrictive covenant litigation. Mr. Goldberg is also a leader of the firm's interdisciplinary Madoff Team, created to assist clients in understanding and addressing the various legal issues raised in connection with the alleged misconduct of Bernard Madoff. Additional areas of concentration include: executive compensation counseling, litigation, and arbitration, advancement and indemnification proceedings, civil RICO litigation, whistleblower litigation, defamation litigation, international litigation and arbitration, antitrust litigation and arbitration, products liability litigation, and environmental and toxic tort litigation. Mr. Goldberg, who is admitted in both New York and New Jersey, routinely prosecutes and defends applications for emergency injunctive relief in federal and state courts Seyfarth Shaw LLP

7 Overview of Preliminary Injunctions and Temporary Restraining Orders A Preliminary Injunction (a/k/a PI ) may be defined as an order prohibiting a party from disturbing the status quo until there is a final judgment after trial. Generally sought by motion A Temporary Restraining Order (a/k/a TRO ) may be defined as a temporary order maintaining the status quo until a preliminary injunction hearing is conducted. Generally sought by order to show cause Note that requests for PIs and TROs are often combined. Memorandum of law and affidavits can support both Seyfarth Shaw LLP

8 Federal Court Standard (Second Circuit) Preliminary Injunction and TRO: (1) irreparable harm; and either (2) likelihood of success on the merits; or (3) sufficiently serious questions going to the merits to make them a fair ground for litigation; and (4) a balance of hardships tipping decidedly in favor of the movant Seyfarth Shaw LLP

9 State Court Standard (New York) Preliminary Injunction: where it appears that the defendant threatens or is about to do, or is doing or procuring or suffering to be done, an act in violation of the plaintiff's rights respecting the subject of the action, and tending to render the judgment ineffectual, or in any action where the plaintiff has demanded and would be entitled to a judgment restraining the defendant from the commission or continuance of an act, which, if committed or continued during the pendency of the action, would produce injury to the plaintiff. CPLR 6301 (1) a likelihood lih of success on the merits; (2) the prospect of irreparable injury if the provisional remedy is not granted; and (3) a balancing of equities tipping in plaintiff s favor. TRO: where it appears that immediate and irreparable injury, loss or damage will result unless the defendant is restrained before the hearing can be had. CPLR Seyfarth Shaw LLP

10 Federal Versus State Court Security/Bond/Undertaking Requirement e.g., compare F.R.C.P. 65(c) ( The court may issue a preliminary i injunction or a temporary restraining i order only if the movant gives security in an amount that the court considers proper to pay the costs and damages sustained by any party found to have been wrongfully enjoined or restrained... ) with CPLR 6312(b) ( prior to the granting of a preliminary injunction, the plaintiff shall give an undertaking in an amount to be fixed by the court, that the plaintiff, if it is finally determined that he or she was not entitled to an injunction, will pay to the defendant all damages and costs which may be sustained by reason of the injunction...) and CPLR 6313(c) ( Prior to the granting of a temporary restraining order the court may, in its discretion,, require the plaintiff to give an undertaking in an amount to be fixed by the court... ). But See New York Civil Liberties Union v. New York City Transit Authority, 2009 WL , at *24 (S.D.N.Y. Dec. 23, 2009) (concluding that plaintiff is not required to provide any security pursuant to Rule 65(c) based on lack of any evidence in the record to support a finding that defendant will suffer any monetary damages as a result of the injunction); Heisman Trophy Trust v. Smack Apparel Co., 595 F. Supp.2d 320, 329 (S.D.N.Y. 2009) (finding that plaintiff is not required to post bond for preliminary injunction because defendant did not seek a bond in its papers opposing the application for a preliminary injunction or at oral argument, and it has not show that it will likely suffer harm absent the posting of [a] bond by plaintiff) Familiarity with Substantive Law e.g., securities litigation (federal court); restrictive covenant litigation (state or federal court -- if you can get there) Forum Selection Clause Judge Removal Other Considerations Seyfarth Shaw LLP

11 FRCP 65 Injunctions and Restraining Orders (a) Preliminary Injunction. (1) Notice. The court may issue a preliminary injunction only on notice to the adverse party. (2) Consolidating the Hearing with the Trial on the Merits. Before or after beginning the hearing on a motion for a preliminary injunction, the court may advance the trial on the merits and consolidate it with the hearing. Even when consolidation is not ordered, evidence that is received on the motion and that would be admissible at trial becomes part of the trial record and need not be repeated at trial. But the court must preserve any party's right to a jury trial. (b) Temporary Restraining Order. (1) Issuing Without Notice. The court may issue a temporary restraining order without written or oral notice to the adverse party or its attorney only if: (A) specific facts in an affidavit or a verified complaint clearly show that immediate and irreparable injury, loss, or damage will result to the movant before the adverse party can be heard in opposition; and (B) the movant's attorney certifies in writing any efforts made to give notice and the reasons why it should not be required Seyfarth Shaw LLP

12 FRCP 65 Injunctions and Restraining Orders cont d (2) Contents; Expiration. Every temporary restraining i order issued without t notice must state t the date and hour it was issued; describe the injury and state why it is irreparable; state why the order was issued without notice; and be promptly filed in the clerk's office and entered in the record. The order expires at the time after entry not to exceed 14 days that the court sets, unless before that time the court, for good cause, extends it for a like period or the adverse party consents to a longer extension. The reasons for an extension must be entered in the record. (3) Expediting the Preliminary-Injunction Hearing. If the order is issued without notice, the motion for a preliminary injunction must be set for hearing at the earliest possible time, taking precedence over all other matters except hearings on older matters of the same character. At the hearing, the party who obtained the order must proceed with the motion; if the party does not, the court must dissolve the order. (4) Motion to Dissolve. On 2 days' notice to the party who obtained the order without notice or on shorter notice set by the court the adverse party may appear and move to dissolve or modify the order. The court must then hear and decide the motion as promptly as justice requires. (c) Security. The court may issue a preliminary injunction or a temporary restraining order only if the movant gives security in an amount that the court considers proper to pay the costs and damages sustained by any party found to have been wrongfully enjoined or restrained. The United States, t its officers, and its agencies are not required to give security. (d) Contents and Scope of Every Injunction and Restraining Order. (1) Contents Seyfarth Shaw LLP

13 FRCP 65 Injunctions and Restraining Orders cont d Every order granting an injunction and every restraining order must: (A) state t the reasons why it issued; (B) state its terms specifically; and (C) describe in reasonable detail and not by referring to the complaint or other document the act or acts restrained or required. (2) Persons Bound. The order binds only the following who receive actual notice of it by personal service or otherwise: (A) the parties; (B) the parties' officers, agents, servants, employees, and attorneys; and (C) other persons who are in active concert or participation with anyone described in Rule 65(d)(2)(A) or (B). (e) Other Laws Not Modified. (1) any federal statute relating to temporary restraining orders or preliminary injunctions in actions affecting employer and employee; (2) 28 U.S.C. 2361, which relates to preliminary injunctions in actions of interpleader or in the nature of interpleader; or (3) 28 U.S.C. 2284, which relates to actions that must be heard and decided by a three-judge district court. (f) Copyright Impoundment. This rule applies to copyright-impoundment proceedings Seyfarth Shaw LLP

14 NY CPLR Article Grounds for preliminary injunction and temporary restraining order. A preliminary injunction nction may be granted in any action where it appears that the defendant threatens or is about to do, or is doing or procuring or suffering to be done, an act in violation of the plaintiff's rights respecting the subject of the action, and tending to render the judgment ineffectual, or in any action where the plaintiff has demanded and would be entitled to a judgment restraining the defendant from the commission or continuance of an act, which, if committed or continued during the pendency of the action, would produce injury to the plaintiff. A temporary restraining order may be granted pending a hearing for a preliminary injunction where it appears that immediate and irreparable injury, loss or damage will result unless the defendant is restrained before the hearing can be had Seyfarth Shaw LLP

15 NY CPLR Article 63 - cont d Preliminary injunction. 1. A preliminary injunction may be granted only upon notice to the defendant. Notice of the motion may be served ed with the summons or at any time thereafter and prior to judgment. A preliminary injunction to restrain a public officer, board or municipal corporation of the state from performing a statutory duty may be granted only by the supreme court at a term in the department in which the officer or board is located or in which the duty is required to be performed. 2. Notice of motion for a preliminary injunction to restrain state officers or boards of state officers under the provisions of this section must be upon notice served upon the defendant or respondent, state officers or board of state officers and must be served upon the attorney general by delivery of such notice to an assistant attorney general at an office of the attorney general in the county in which venue of the action is designated or if there is no office of the attorney general in such county, at the office of the attorney general nearest such county Seyfarth Shaw LLP

16 NY CPLR Article 63 - cont d Rule Motion papers; undertaking; issues of fact. (a) Affidavit; other evidence. On a motion for a preliminary injunction the plaintiff shall show, by affidavit and such other evidence as may be submitted, that there is a cause of action, and either that the defendant threatens or is about to do, or is doing or procuring or suffering to be done, an act in violation of the plaintiff's rights respecting the subject of the action and tending to render the judgment ineffectual; or that the plaintiff has demanded and would be entitled to a judgment restraining the defendant from the commission or continuance of an act, which, if committed or continued during the pendency of the action, would produce injury to the plaintiff. (b) Undertaking. Except as provided in section 2512, prior to the granting of a preliminary injunction, the plaintiff shall give an undertaking in an amount to be fixed by the court, that the plaintiff, if it is finally determined that he or she was not entitled to an injunction, will pay to the defendant all damages and costs which may be sustained by reason of the injunction, including: 1. if the injunction is to stay proceedings in another action, on any ground other than that a report, verdict or decision was obtained by actual fraud, all damages and costs which may be, or which have been, awarded in the other action to the defendant as well as all damages and costs which may be awarded him or her in the action in which the injunction was granted; or, 2. if the injunction is to stay proceedings in an action to recover real property, or for dower, on any ground other than that a verdict, report or decision was obtained by actual fraud, all damages and costs which may be, or which have been, awarded to the defendant in the action in which the injunction was granted, including the reasonable rents and profits of, and any wastes committed upon, the real property which is sought to be recovered or which is the subject of the action for dower, after the granting of the injunction; or, 3. if the injunction is to stay proceedings upon a judgment for a sum of money on any ground other than that the judgment was obtained by actual fraud, the full amount of the judgment as well as all damages and costs which may be awarded to the defendant in the action in which the injunction was granted. (c) Issues of fact. Provided that the elements required for the issuance of a preliminary injunction are demonstrated in the plaintiff's papers, the presentation by the defendant of evidence sufficient to raise an issue of fact as to any of such elements shall not in itself be grounds for denial of the motion. In such event the court shall make a determination by hearing or otherwise whether each of the elements required for issuance of a preliminary injunction exists Seyfarth Shaw LLP

17 NY CPLR Article 63 - cont d Temporary restraining order. (a) Generally. If, on a motion for a preliminary injunction, the plaintiff shall show that immediate and irreparable injury, loss or damages will result unless the defendant is restrained before a hearing can be had, a temporary restraining order may be granted without notice. Upon granting a temporary restraining order, the court shall set the hearing for the preliminary injunction at the earliest possible time. No temporary restraining order may be granted in an action arising out of a labor dispute as defined in section eight hundred seven of the labor law, nor against a public officer, board or municipal corporation of the state to restrain the performance of statutory t t duties. (b) Service. Unless the court orders otherwise, a temporary restraining i order together th with the papers upon which it was based, and a notice of hearing for the preliminary injunction, shall be personally served in the same manner as a summons. (c) Undertaking. Prior to the granting of a temporary restraining order the court may, in its discretion, require the plaintiff to give an undertaking in an amount to be fixed by the court, containing terms similar to those set forth in subdivision (b) of rule 6312, and subject to the exception set forth therein Seyfarth Shaw LLP

18 NY CPLR Article 63 - cont d Vacating or modifying preliminary injunction or temporary restraining order. A defendant enjoined by a preliminary injunction nction may move at any time, on notice to the plaintiff, to vacate or modify it. On motion, without notice, made by a defendant enjoined by a temporary restraining order, the judge who granted it, or in his absence or disability, another judge, may vacate or modify the order. An order granted without notice and vacating or modifying a temporary restraining order shall be effective when, together with the papers upon which it is based, it is filed with the clerk and served upon the plaintiff. As a condition to granting an order vacating or modifying a preliminary injunction or a temporary restraining order, a court may require the defendant, except where the defendant is a public body or officer, to give an undertaking, in an amount to be fixed by the court, that the defendant shall pay to the plaintiff any loss sustained by reason of the vacating or modifying order Seyfarth Shaw LLP

19 NY CPLR Article 63 - cont d Ascertaining damages sustained by reason of preliminary injunction or temporary restraining order. The damages sustained stained by reason of a preliminary injunction nction or temporary restraining order may be ascertained upon motion on such notice to all interested persons as the court shall direct. Where the defendant enjoined was an officer of a corporation or joint-stock association or a representative of another person, and the amount of the undertaking exceeds the damages sustained by the defendant by reason of the preliminary injunction or temporary restraining order, the damages sustained by such corporation, association or person represented, to the amount of such excess, may also be ascertained. The amount of damages so ascertained is conclusive upon all persons who were served with notice of the motion and such amount may be recovered by the person entitled thereto in a separate action Seyfarth Shaw LLP

20 New Jersey Rules of Court RULE 4:52. INJUNCTIONS 4:52-1. Temporary Restraint and Interlocutory Injunction Application on Filing of Complaint (a) Order to Show Cause with Temporary Restraints. On the filing of a complaint seeking injunctive relief, the plaintiff may apply for an order requiring the defendant to show cause why an interlocutory injunction should not be granted pending the disposition of the action. The proceedings shall be recorded verbatim provided that the application is made at a time and place where a reporter or sound recording device is available. The order to show cause shall not, however, include any temporary restraints or other interim relief unless the defendant has either been given notice of the application or consents thereto or it appears from specific facts shown by affidavit or verified complaint that immediate and irreparable damage will probably result to the plaintiff before notice can be served or informally given and a hearing had thereon. If the order to show cause includes temporary restraints or other interim relief and was issued without notice to the defendant, provision shall be made therein that the defendant shall have leave to move for the dissolution or modification of the restraint on 2 days' notice or on such other notice as the court fixes in the order. The order may further provide for the continuation of the restraint until the further order of the court and shall be returnable within such time after its entry as the court fixes but not exceeding 35 days after the date of its issuance, unless within such time the court on good cause shown extends the time for a like period or unless the defendant consents to an extension for a longer period. (b) Order to Show Cause as Process; Service. If the order to show cause issues upon the filing of the complaint, no summons shall issue in the action if the order contains the name and address of plaintiff's attorney, if any, otherwise plaintiff's address; the time within which defendant shall serve and file an answer upon plaintiff or plaintiff's attorney as provided by these rules; and a notice to defendant that upon failure to so file and serve an answer, judgment tby default may be rendered dagainst tthe defendant d tfor the relief demanded d din the complaint. The order shall be served upon defendant together with a copy of the complaint and any supporting affidavits at least 10 days before the return date and in the manner prescribed by R. 4:4-3 and 4:4-4 for service of summons, unless the court orders a shorter or longer time or other manner of service. (c) Hearing; Briefs. Oral testimony may be taken in the court's discretion on the return date of the order to show cause and on the return date of defendant's motion to dissolve or modify the temporary restraint. Briefs shall be submitted in support of the application for an interlocutory injunction. 4:52-2. Temporary Restraint and Interlocutory Injunction During Pendency of Action During the pendency of an action, either a temporary restraint or an interlocutory injunction may be applied for either by motion or by order to show cause. The order to show cause shall be applied for and proceeded with in accordance with the provisions of R. 4:52-1, insofar as applicable Seyfarth Shaw LLP

21 New Jersey Rules of Court - cont d 4:52-3. Security The court, on granting a temporary retraining order or interlocutory injunction or at any time thereafter, may require security or impose such other equitable terms as it deems appropriate. 4:52-4. Form and Scope of Injunction or Restraining Order Every order granting an injunction and every restraining order shall set forth the reasons for its issuance; shall be specific in terms; shall describe in reasonable detail, and not by reference to the complaint or other document, the act or acts sought to be restrained; and is binding only upon such parties to the action and such of their officers, agents, employees, and attorneys, and upon such persons in active concert or participation with them as receive actual notice of the order by personal service or otherwise. 4:52-5. Denial of Application A statement of the denial of an application for a temporary restraining order or an interlocutory injunction shall be made on the complaint or affidavit which shall then be filed. 4:52-6. Stay of Action in Superior Court No injunction or restraint shall be granted in one action to stay proceedings in another pending action in the Superior Court, but such relief may be sought on counterclaim or otherwise in the pending action Seyfarth Shaw LLP

22 Preliminary Injunctions in Corporate Litigation Presented by Jonathan Evan Goldberg, Esq. Partner Seyfarth Shaw LLP

23 Shareholder Litigation International Banknote Co., Inc. v. Muller, 713 F. Supp. 612, 623 (S.D.N.Y. 1989) (in action seeking to enjoin enforcement of corporate by-laws limiting time period in which slates of proposed directors must be filed, the court held that frustrating shareholders in an attempt to obtain representation on board of directors constituted irreparable harm). Bank of New York Co., Inc. v. Irving Bank Corp., 139 Misc.2d 665, 669 (N.Y. Sup. 1988) (granting preliminary injunction preventing enforcement of an amendment to a rights plan adopted d by the Board of Directors shortly after a proxy contest t was commenced and explaining that [t]he harm threatened here is to the corporate electoral process, a process which carries with it the right of shareholders to a meaningful exercise of their voting franchise and to a fair proxy contest t with an informed electorate. ) t (citations ti omitted). Berkman v. Rust Craft Greeting Cards, Inc., 454 F. Supp. 787, (S.D.N.Y. 1978) (enjoining date of annual shareholder meeting) Seyfarth Shaw LLP

24 Strategic Considerations and Key Procedural Hurdles Emergency? Urgency? If seeking preliminary injunctive relief, make sure you can argue that there is an urgent need for relief as these are extraordinary remedies Timing Delay by plaintiffs is used by defendants to argue that there is no urgency On the other hand, party seeking expedited relief should make sure it has good faith basis to bring the motion; If not, consider waiting or seeking expedited discovery Expedited Discovery Document requests and depositions (e.g., FRCP 30(b)(6) deposition) Equitable Relief -- If money damages can cure, equitable relief not appropriate Unclean hands defense Notice to Other Side Offense or Defense In certain cases, either party can bring suit Insurance Is there insurance policy that might be triggered? (e.g., Directors & Officers (D&O)) Manage Client Expectations Credibility Do not lose the big C at the early stage Show all Cards? Appellate Issues Horses and Horsepower Seyfarth Shaw LLP

25 The information provided herein should not be relied upon as legal advice or a definitive statement of the law in any jurisdiction. For such advice, a listener or reader should consult their own independent legal counsel. No liability is assumed by reason of the information contained herein Seyfarth Shaw LLP

26 Craig R. Tractenberg, Esq. Nixon Peabody LLP 437 Madison Avenue New York, New York (212) Injunctions In Intellectual Property Litigations

27 About Craig R. Tractenberg Craig Tractenberg is a partner in the business litigation and bankruptcy teams in the New York and Philadelphia offices of Nixon Peabody LLP. Mr. Tractenberg s representative matters include: Termination and non-renewal litigation Restrictive covenant, trade mark and trade secret litigation Acquisition of distressed companies and litigation Shareholder and board member litigation Franchise encroachment issues Arbitration and mediation of commercial disputes Temporary restraining orders and preliminary injunctions Cyberspace litigation and business counseling. Mr. Tractenberg has been recognized for exceptional standing in the legal community in Chambers USA: America s Leading Lawyers for Business 2009 for franchising work. He has also been recognized by his peers as a Super Lawyer for Franchise law ( ), the International Who s Who of Franchise Lawyers and Best Lawyers in America, and by Franchise Times as a Legal Eagle, an honor accorded the top franchise lawyers in the United States based on peer and client nominations. 2

28 Introduction Patents Trademarks Copyrights Franchise Relationships 3

29 Patents

30 Injunctions Involving Patents Preliminary injunctions where patentees seek to enjoin infringers from further infringement pending trial. May seek a recall of products. May enjoin termination of patent licenses. 5

31 Standard for Injunction against Infringement The equitable remedy of a preliminary injunction is governed by a four-factor test much like those outlined in the Supreme Court s case of ebay v. MercExchange, 547 U.S. 338 (2006). These four factors include: (1) the likelihood of the patentee s success on the merits; (2) irreparable harm if the injunction is not granted; (3) the balance of hardships between the parties; and (4) the public interest. The first two factors must each be established before preliminary relief may be granted. Thus, although identified as factors, they are more properly seen as required elements. 6

32 Success on the Merits Defendant can defeat a motion for injunction by establishing a substantial question of invalidity. One court required a higher standard of likelihood that invalidity would be established at trial. 7

33 No Presumption of Irreparable Harm The ebay case changed the law from presumption of irreparable harm based solely on infringement to potential losses which cannot be compensated by monetary damages. [L]ost sales standing alone are insufficient to prove irreparable harm because they are presumed to be compensable though damages. Lost market share and price erosion could lead to a conclusion of irreparable harm. However, those must be proven or at least substantiated with some evidence and shown to be caused by ongoing infringement. Loss of only one distributor to an infringer is insufficient to show irreparable harm. Automated Merchandising Systems, Inc. v. Crane (Fed Cir. Dec. 16, 2009). 8

34 Defense Tips for Alleged Infringers Submit affidavits of third parties which may be harmed by injunction. Ask for stay of case pending re-examination by Patent and Trademark Office. Prove that Plaintiff will not go out of business. 9

35 Trademarks

36 Regarding Trademark Infringement The Lanham Act provides, in part: (1) Any person who shall, without the consent of the registrant (a) use in commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark in connection with the sale, offering for sale, distribution, or advertising of any goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive shall be liable in a civil action by the registrant for the remedies hereinafter provided. 15 U.S. C. 1114(1) (a) (2006). 11

37 The Four Prong Test A district court may grant a preliminary injunction only if the movant establishes the following: (1) a substantial likelihood of success on the merits of the underlying case, (2) the movant will suffer irreparable harm in the absence of an injunction, (3) the harm suffered by the movant in the absence of an injunction would exceed the harm suffered by the opposing party if the injunction issued, and (4) an injunction would not disserve the public interest. 12

38 Likelihood of Success on the Merits of the Trademark Infringement Claims To prevail on a claim of trademark infringement, plaintiffs mush establish: (1) that they possess a valid mark, (2) that the defendants used the mark, (3) that the defendants use of the mark occurred in commerce, (4) that the defendants used the mark in connection with the sale or advertising of any goods, and (5) that the defendants used the mark in a manner likely to confuse consumers. See Contacts, Inc. v. WhenU.com, Inc., 414 F.3d 400, (2d Cir. 2005). 13

39 Use in Commerce Invisible meta-tags used to lure internet search engines using a trademark is a use in commerce of the trademark. North American Medical Corporation v. Axiom Worldwide, Inc. (9th Cir. April 7, 2008) 14

40 Likelihood of Confusion Seven factors are relevant when determining whether a likelihood of confusion exists: (1) the strength of the plaintiff s mark; (2) the similarity between the plaintiff s mark and the allegedly infringing mark; (3) the similarity between the products and services offered by the plaintiff and defendant; (4) the similarity of the sales methods; (5) the similarity of advertising methods; (6) the defendant s intent, e.g., does the defendant hope to gain competitive advantage by associating his product with the plaintiff s established mark; and (7) actual confusion. Alliance Metals, Inc. of Atlanta v. Hinely Indus., Inc.,, 222 F.3d 895, 907 (11th Cir. 2000). 15

41 False Advertising Section 43(a) of the Lanham Act provides in part: (1) Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, of any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which (B) in commercial advertising or promotion, misrepresents the nature, characteristics, ti qualities, or geographic origin of his or her or another person s goods, services, or commercial activities, shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act. 15 U.S.C. 1125(a) (2006). 16

42 Elements of False Advertising (1) the ads of the opposing party were false or misleading, (2) the ads deceived, or had the capacity to deceive, consumers, (3) the deception had a material effect on purchasing decisions, (4) the misrepresented product or service affects interstate commerce, and (5) the movant has been or is likely to be inured as a result of the false advertising. 17

43 Irreparable Harm Irreparable Harm in False Advertising Case Where the challenged advertising makes a misleading comparison to a competitor s product, irreparable harm is presumed. But if the false advertising is noncomparative and makes no direct reference to a competitor s product, irreparable harm is not presumed. Irreparable Harm in Trademark Infringement Cases It is generally recognized in trademark infringement cases that (1) there is not an adequate remedy at law to redress infringement and (2) infringement by its nature causes irreparable harm. Is Irreparable Harm Presumed After the ebay case even in Lanham Act Cases? Perhaps not, North American Medical Corp. v. Axiom Worldwide (9th Cir., 2008). 18

44 Copyrights

45 Injunctions in Copyright Cases The Copyright Act of 1976 authorizes courts to grant "temporary and final injunctions on such terms as [they] may deem reasonable to prevent or restrain infringement of a copyright." 17 U.S.C. 101 et. seq. Preliminary injunctive relief in non-copyright cases is governed by the traditional four-factor factor preliminary injunction test, which asks: (1) whether the plaintiff is likely to succeed on the merits; (2) whether the plaintiff will suffer irreparable injury if the injunction is not granted; (3) whether the balance of hardships tips in the plaintiff's favor; and (4) whether granting the injunction would be in the public interest. 20

46 If the copyright owner demonstrates a likelihood of success, courts are virtually unanimous in dispensing with the need to show irreparable injury. The presumption has even been applied to telephone white pages and the page numbers of West's court reporters. Various courts have found both the defendant's solvency and the defendant's insolvency to favor the plaintiff. 21

47 Courts always weigh the balance of the hardships in favor of the copyright plaintiff if it has demonstrated a likelihood of success on the merits. The Second and Ninth Circuits, the most important in copyright cases because together they are resident to the publishing, music, software and acting community rarely require hardship to the defendant to be balanced at all if the plaintiff can show that it is likely to succeed on the merits of its claim. Even the remaining circuits, which nominally consider this factor in all cases, generally "tip the balance of hardships in the plaintiff's favor to the extent that it has shown a likelihood of success on the merits. Courts hold that it is "virtually axiomatic that the public interest can only be served by upholding copyright protections." Courts reaching the four-factor test generally find a showing of probable success on the merits to be virtually conclusive in favor of granting an injunction. 22

48 A prima facie case of copyright infringement requires that the plaintiff prove that it owns a valid copyright and that the defendant has infringed the copyright by violating one of the exclusive rights enumerated in the Act. Plaintiff is entitled to rely on the presumption of validity that attaches to its copyright registration. The requirement that the plaintiff prove infringement can be satisfied by sufficient similarities between the two works to raise an inference of copying (and therefore of infringement). Where plaintiffs have made a prima facie showing of likelihood of success, in fact, some courts hold that it is reversible error to deny a preliminary injunction. 23

49 Defendants can rebut the plaintiff's prima facie case at the preliminary injunction hearing by raising the validity of the plaintiff's copyright and the scope of the protection it should receive. Defendants can contest the inference of copying, or argue that the portions copied were not themselves protectable; and statutory defenses such as fair use. Other provisional remedies available to copyright plaintiffs besides preliminary injunctions include ex parte temporary restraining orders pursuant Rule 65 of the Federal Rules of Civil Procedure and pretrial seizure of infringing goods before trial, which have the same effect as an injunction prohibiting distribution or sale. This is a common practice to prevent sales of unauthorized T-shirts, for example, before rock concerts. 24

50 Franchise Relationships

51 Injunction in Franchise Relationships May be to enjoin franchisee from operating or from not observing standards. May be to enjoin franchisor from terminating or not renewing franchise agreement or underlying lease. 26

52 Injunction By Franchisor A franchise agreement licenses a trademark. Posttermination operation of a franchise under the formerly licensed marks is trademark infringement. A franchise agreement may also contain an in-term or post-termination non-compete agreement. Absent a state statute prohibiting the enforcement of those covenants, both may be enforced by injunction. 27

53 Franchisors generally argue that the status quo, as the last peaceable status of the parties, should be defined as the time before the franchisee engaged in the conduct that allegedly violated the non-compete covenant. If successful in making this argument, the franchisor likely will have much more success in obtaining a preliminary injunction because courts look more favorably upon prohibitive injunctions. A former franchisee defending against a preliminary injunction, on the other hand, generally wants to preserve the status quo by preventing termination of its business and will argue that the status quo includes continuing to engage in the conduct that the franchisor seeks to prevent. 28

54 When a court decides whether or not to issue a preliminary injunction, it does not conduct a full trial on the merits. Findings made by a court at the preliminary injunction stage are not binding on the trial court. Additionally, an agreement to submit disputes to arbitration does not prevent a court from issuing a preliminary injunction prior to the initiation of arbitration proceedings in order to preserve or restore the status quo. The most difficult franchise case for the court is where the franchisee changes its image and name, but remains in the same location in a similar business. 29

55 The irreparable injury sought to be prevented by the preliminary injunction generally must be something more than a loss of business or customers, such as damage to goodwill or intellectual property or loss of the ability to franchise the former franchisee s territory, that will occur unless the former franchisee ceases its activities immediately. 30

56 Likelihood of Success on the Merits The franchisor should claim that the injunction it seeks is merely preservative of the status quo because the last peaceable, uncontested state was before the former franchisee took the actions that allegedly breached the restrictive covenant. The former franchisees will want to argue both that the status quo is the current state of affairs and that the franchisor is not likely to succeed on its claim that the former franchisee is operating a business in breach of the restrictive covenant in the franchise agreement, generally because the restrictive covenant is unreasonable. 31

57 Balance of Harms In the franchise context, this factor involves the consideration generally of any irreparable harm claimed by the franchisor balanced against any potential harm to the former franchisee in the event that it is forced to close down its business, and particularly of the extent of this harm to the former franchisee if it is later found not to be in breach of any restrictive covenant. Public Interest The Court reaches this issue generally when the other elements are satisfied. This element generally deals with health and safety of the customers, or its right of the customers not to be deceived as to the relationship with the franchisor. 32

58 Proving Customer Confusion and Loss of Goodwill as Irreparable Harm One way of establishing irreparable injury is to argue that a franchisee s breach results in customer confusion, thereby causing a distinct injury to the franchisor s s brand, trademark, and goodwill. For example, in Atlanta read Co. International, Inc. v. Nine Star Enterprises, Inc., the court held that a franchisor established irreparable harm resulting from customer confusion when the terminated franchisee operated a deli in the building where he had operated the franchise and continued to sell the franchisor s products. The court noted that until the former franchisee ceased operation, the franchisor lost control of its trademark and reputation. These harms, according to the court, could not be remedied d with monetary damages. 33

59 The De-identifying Franchisee In Bennigan s Franchising v. Swigonski, the court held that the franchisor failed to show irreparable harm when the former franchisee, while continuing to operate a casual dining restaurant in the location where he had operated the franchised restaurant, removed all of the franchisor s marks and substantially decharacterized the restaurant. The Bennigan s court also emphasized the fact that the former franchisee s restaurant was 210 miles from the closest franchised restaurant; it was unlikely that customers would be confused. 34

60 Irreparable Harm By Direct Interference A direct interference with customer relations does, however constitutes irreparable harm. In Certified Restoration Dry Cleaning Network, L.L.C. L v. Tenke Corp., the court held that the franchisor would suffer irreparable harm because the former franchisee directly interfered with customer relations by yproviding the same services that the franchised business provided to the same customers. Because the former franchisee s new business was based entirely on retaining customers with which it had developed relationships while a franchise, the court held that the franchisor was suffering an irreparable loss of fair competition and incalculable damages. 35

61 Inability to Refranchise and Harm to Existing Franchisee Relationships A franchisor that can demonstrate that it has been unable to establish new franchisees in the former franchisee s territory due to a breach of a restrictive covenant likely will be able to establish irreparable injury. The same can be said when a franchisor can show that a former franchisee s breach of a restrictive covenant has harmed the franchisor s relationships with other franchisees and its ability to enforce existing franchise agreements. Again, however the franchisor s allegations of harm cannot be too remote or speculative. A simple claim that a franchisor has faced difficulties refranchising a territory should be supported by specific allegations tying the difficulty to the former franchisee s alleged breach. 36

62 Likelihood of Success on the Merits Franchisors can generally establish a likelihood of success on the merits when there is no challenge to the enforceability of the restrictive covenant and the former franchisees are blatantly in breach. A court held that a franchisor established a likelihood of success on the merits where the former franchisees were operating pizza stores at the same locations that they had operated their pizza store franchises; the new stores had menus nearly identical to the menus of the franchised stores; and the former franchisees continued to use the franchisor s marks, signs, and related materials. 37

63 Balance of Harms The balance of the hardship will tip in favor of the former franchisee when the former franchisee is operating a business and has contractual obligations as a result. For example, in Athlete s Foot Brands, LLC v. Whoooahh, Inc., the balance of the hardship was in favor of the franchisee because the franchisee was operating a business and had signed a multiyear lease. The franchisor, on the other hand, was not even attempting to open a location in the area covered by the restrictive covenant. 38

64 Public Interest A franchisor has a strong argument that enforcement of a restrictive covenant is in the public interest because the public has an interest in protecting the intellectual property and business systems of the franchisor. The franchisee will argue that the public has an interest in not enforcing unreasonable restraints on competition and in ensuring that the public interest is served and not subject to franchisor-created monopolies. Franchisees also may point out that the public has a significant interest in ensuring that any restrictive covenants that are enforced are only enforced to the extent that they are reasonable. 39

65 Conclusion The case law is highly fact specific on the issue of irreparable harm. The disposition may also vary based on the state law overlay of the contracts and attitudes concerning covenants not to compete. 40

66 This presentation ti contains images used under license from Jupiterimages.com. i These images may not be re-distributed or re-used for other purposes. This presentation may be considered advertising under certain rules of professional conduct. The content should not be construed as legal advice, and readers should not act upon information in this publication without professional counsel. Copyright 2010 Nixon Peabody LLP. All rights reserved.

67 Preliminary Injunctions and TROs in Commercial Litigation Strategies to Obtain or Oppose Emergency Motions

68 About the Presenter Robert W. Capobianco is Of Counsel in the Atlanta, Georgia office of Jackson Lewis LLP. At Jackson Lewis and prior firms, Mr. Capobianco has represented employers in all types of employment litigation, including trade secret, restrictive covenant, collective, and class action litigation. Mr. Capobianco has also prepared enforceable restrictive covenants for employers in states throughout the country. Mr. Capobianco has also represented management in collective bargaining and has provided counseling and assistance regarding g labor issues. Before joining i Jackson Lewis, Mr. Capobianco practiced with Elarbee Thompson and Freeman Mathis & Gary, representing management in labor and employment matters. Mr. Capobianco has been recognized for his representation of employers in restrictive covenant and employment litigation in Chambers USA. Additionally, Mr. Capobianco has been selected as a Rising Star in Georgia s Super Lawyers in 2006, 2007, 2009, and He is a frequent speaker and author regarding legal and practical issues relevant to the employment relationship, particularly regarding ways in which employers can protect their trade secrets and utilize enforceable restrictive covenants. Mr. Capobianco is the Chair of the Atlanta Bar Association s s Labor & Employment Section and a member of the Labor & Employment Section of the Georgia State Bar Association. He is admitted to practice law in the State of Georgia. 2

69 STRATEGIC CONSIDERATIONS AND KEY PROCEDURAL HURDLES

70 STRATEGIC CONSIDERATIONS TRADE SECRETS Trade secrets litigation often overlaps with other forms of litigation, particularly patent litigation. However, the standards in these two types of actions are very different, and thus each has different strategy considerations. Most importantly, the focus in trade secrets litigation is secrecy; the focus in patent litigation is diligence in asserting the owner s rights. 4

71 STRATEGIC CONSIDERATIONS TRADE SECRETS (cont.) First key task defining the trade secret Does the governing law afford trade secret protection to the interest my client seeks to protect? What is a trade secret? - Generally, a trade secret can be any information of economic value that a proprietor has used diligent efforts to keep secret. For example, California law defines a trade secret as information that (1) derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. Cal. Civ. Code

72 STRATEGIC CONSIDERATIONS TRADE SECRETS (cont.) Second key task determine the scope of the trade secret Is the trade secret a traditional subject of protection, such as a customer list? In what form or forms does the secret exist (e.g., electronic, paper, other)? Can the trade secret be reasonably defined for purpose of litigation without revealing it? Defining the trade secret too narrowly risks failing to include vital information; defining the secret too broadly risks making secrecy too difficult to prove. 6

73 STRATEGIC CONSIDERATIONS TRADE SECRETS (cont.) Second key task preserve evidence of both the trade secret and the misappropriation Review circumstances for tell-tale signs of theft: s, download, data breaches, unusual data accesses; Deletions from software or server, or damaged hardware; Falsehoods by the misappropriator; Consider using forensic expert; Control chain of custody if necessary. 7

74 STRATEGIC CONSIDERATIONS TRADE SECRETS (cont.) Third Key Task: Consider alternative or additional avenues of redress: Criminal prosecution Risks revelation of the trade secret to the general public Computer Fraud & Abuse Act ( CFAA ), 18 U.S.C et seq. Has both civil and criminal provisions Requires es proof of unauthorized access or exceeding authorized access to a computer. See American Family Mutual Ins. Co. v. Rickman, 554 F. Supp.2d 766 (N.D. Ohio 2008). 8

75 STRATEGIC CONSIDERATIONS TRADE SECRETS (cont.) Fourth Key Task: Seek appropriate injunctive relief Non-use and /or return of the trade secret; Prohibition of solicitation of customers and employees; Preservation of evidence by opposing side; Ask for expedited discovery; Ask for protective order. 9

76 STRATEGIC CONSIDERATIONS NONCOMPETE LITIGATION First key task: Determine if the noncompetition covenant is enforceable Does the agreement have reasonable geographic and temporal limitations? Can the court blue pencil the agreement? Courts in most states can; states that are exceptions include Georgia, Nebraska, and Wisconsin Generally, courts will blue pencil the agreement to effectuate the intent of the parties On the other hand, courts will decline to blue pencil if the agreement suggests overreaching by the drafter, as evidenced by such issues as a lack of geographical or temporal limits. If the court blue-pencils, will the resulting agreement effectuate the client s goals? 10

77 STRATEGIC CONSIDERATIONS NONCOMPETE LITIGATION (cont.) Key second task: Determine desired forum State vs. federal Does the agreement contain a choice of law provision? Does a valid contractual forum selection clause control? In federal court, a forum selection clause is typically deemed enforceable as a manifestation of the parties preference for a convenient forum. Jumara v. State Farm Ins.Co., 55 F.3d 873, 880 (3rd Cir. 1995). 11

78 STRATEGIC CONSIDERATIONS NONCOMPETE LITIGATION (cont.) Third key task: Deciding when to apply the brakes Settlement may be in the best interests of both sides before injunctive relief is granted or denied; Consider reaching a compromise including a new but less onerous restrictive covenant to resolve the case before fees mount. 12

79 Defending Against Motions for Emergency Injunctive Relief