SPECIAL FOCUS: The Impact of eBay on Lanham Act False Advertising Litigation
Author: Thomas Morrison
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.” 25Accordingly:
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.
1Ferring Pharmaceuticals, Inc. v. Watson Pharmaceuticals, Inc., 2014 U.S. App. LEXIS 16426 (3d Cir. Aug. 26, 2014).
2Advertising Law Newsletter, “What False Advertising and Trademark Plaintiffs Need to Know Following Landmark eBay Decision” (April 5, 2012).
3eBay Inc. v. MercExchange, LLC., 547 U.S. 388, 394 (2006).
4Winter v. National Resources Defense Council, Inc., 555 U.S. 7, 20 (2008).
5Salinger v. Colting, 607 F.3d 68 (2d Cir. 2010).
6Perfect 10, Inc. v. Google, Inc., 653 F.3d 976 (9th Cir. 2011).
7Paulsson Geophysical Services, Inc. v. Sigmar, 529 F.3d 303 (5th Cir. 2008);
Marlyn Nutraceuticals, Inc. v. Mucos Pharma GmbH & Co., 571 F.3d 873 (9th Cir. 2009);
Lorillard Tobacco Co. v. Engida, 213 Fed. App. 654 (10th Cir. 2007);
North American Medical Corp. v. Axiom Worldwide, Inc., 522 F.3d 1211 (11th Cir. 2008).
8E.g.,
GoTo.com, Inc. v. Walt Disney Co., 202 F.3d 1199 (9th Cir. 2000).
9Swarovski Aktiengesellschaft v. Bldg. # 19, Inc., 704 F.3d 44, 53-55 (1st Cir. 2013);
Paulsson Geophysical Servs., Inc. v. Sigmar, 529 F.3d 303, 313 (5th Cir. 2008);
North American Medical Corp. v. Axiom Worldwide, Inc., 522 F.3d 1211, 1226-28 (11th Cir. 2008).
10E.g.,
Flexible Lifeline Sys. v. Precision Lift, Inc., 654 F.3d 989, 998 (9th Cir. 2011).
11Herb Reed, 736 F.3d 1239, 1250 (9th Cir. 2013)..
12Herb Reed, case no. 13-1271, petition filed on April 17, 2014.
13E.g.,
S.C. Johnson & Son, Inc. v. Clorox Co., 241 F.3d 232 (2d Cir. 2001).
14 Time Warner Cable, Inc. v. DirecTV, Inc., 497 F.3d 144 (2d Cir. 2007).
15Ferring, 2014 U.S. App. LEXIS at *32.
19Id. at *11;
Winter, 555 U.S. at 20.
21Id. at *14-15;
Kos Pharmaceuticals, Inc. v. Andrx Corp., 369 F.3d 700, 726 (3d Cir. 2004).
22Id. at *23; 15 U.S.C. § 1116(a) (Lanham Act) and 35 U.S.C. § 83 (Patents).
23Id. at *24;
Monsanto Co. v. Geertson Seed Farms, 561 U.S. 139, 157 (2010).
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Yelp, Mobile App Developer Settle COPPA Charges With FTC
By paying a combined $750,000 in civil penalties, Yelp and mobile app developer TinyCo have both reached agreements with the Federal Trade Commission to settle charges that the companies violated the Children’s Online Privacy Protection Act.
According to the agency, Yelp unlawfully collected personal information from children over a four-year period beginning when the company’s mobile app launched in 2009. When users registered with the site and entered a birth date showing they were under the age of 13, Yelp collected the individual’s name, e-mail address, and location.
COPPA mandates that prior to the collection of such data, a parent or guardian must be notified and expressly consent to the collection. According to the FTC, Yelp did not take these actions with regard to several thousand registrants even though it knew from their registration that they triggered COPPA’s requirements. The agency said the company also failed to implement or adequately test its apps to ensure that the age-screening mechanism prohibited those under the age of 13 from registering.
In addition to a $450,000 penalty, Yelp agreed to delete the information it collected about child users and will comply with COPPA going forward.
As for TinyCo, the company’s mobile apps similarly collected information about users under the age of 13 without the required notice and consent, the FTC said. The agency noted that the colorful characters of the apps, described as “magical monsters” and “adorable animals” in a fairy tale setting, clearly established that the apps were directed at children.
Mobile apps such as Tiny Pets and Mermaid Resort were downloaded more than 34 million times, the agency said, but the apps contained an optional feature that collected users’ e-mail addresses, regardless of age. Some of the company’s apps even gave users extra in-game currency or sped up gameplay if an e-mail address was provided.
TinyCo’s $300,000 penalty is coupled with future compliance requirements and a promise to delete the improperly collected information.
To read the complaint and stipulated order in United States v. Yelp, click here.
To read the complaint and stipulated order in United States v. TinyCo, click here.
Why it matters: The settlements provide several reminders for companies. First, COPPA applies with equal force in the mobile ecosystem. Second, a site doesn’t have to be only for kids to run afoul of the statute. And third, apps should ensure age-gating mechanisms are functioning properly. “As people – especially children – move more of their lives onto mobile devices, it’s important that they have the same consumer protections when they’re using an app that they have when they’re on a website,” Jessica Rich, director of the FTC’s Bureau of Consumer Protection, said in a press release about the actions. “Companies should take steps as they build and test their apps to make sure that children’s information won’t be collected without a parent’s consent.”
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Clock’s Ticking: Connecticut AG Wants to Talk About the Apple Watch
Barely one week after Apple unveiled its new Apple Watch, Connecticut’s Attorney General sent a letter to the company expressing concern about the potential for privacy violations.
Noting that the device was characterized as perhaps “the most personal device” ever created by the company and will double as a fitness tracker, AG George Jepsen requested a meeting with Apple CEO Tim Cook to discuss how personal information collected by the digital watch will be stored and used.
What are the specific applications and features that will be operational on Apple Watch, Jepsen wondered, and does the company plan to allow consumers to store personal and health information on Apple Watch itself or its servers, and if so, how will such information be safeguarded?
At the meeting, Jepsen said he would also like to discuss what information Apple Watch and its apps will collect from users and how Apple and app developers will obtain consent to collect and share this information with third parties.
While the AG applauded “the use of technology to encourage and facilitate personal health,” he noted that Apple’s App Store Review Guidelines provide that apps “that provide diagnoses, treatment advice, or control hardware designed to diagnose or treat medical conditions that do not provide written regulatory approval upon request will be rejected.”
Will the company request documentation of regulatory approval for every such app, the AG asked, and if not, how else does Apple intend to enforce this provision? And pursuant to a separate section of the Guidelines that states apps lacking a privacy policy will be rejected, he asked whether “Apple will review the contents of any application developer’s privacy policy to ensure that users’ health information is safeguarded?”
To read AG Jepsen’s letter to Apple, click here.
Why it matters: Connecticut’s AG stressed that the letter was “an invitation for dialogue, not an accusation against Apple.” He stated that he has had similar privacy related discussions with other technology companies (most recently, a meeting with representatives from Google to chat about the privacy protections of Google Glass).
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Data Breach Plaintiffs Lack Standing To Sue, Court Holds
The victims of a data breach lacked standing to bring suit against Neiman Marcus, a federal court judge in Illinois has ruled.
Hilary Remijas filed suit against the national retailer based on a notorious hacking incident that occurred during the 2013 holiday season. Styled as a class action on behalf of the estimated 350,000 customers whose payment card data and personally identifiable information were breached, Remijas charged Neiman Marcus with negligence, breach of implied contract, unjust enrichment, invasion of privacy, unfair and deceptive business practices, and violation of several state data breach laws.
Neiman Marcus moved to dismiss the suit based on a lack of Article III standing.
Siding with the retailer, U.S. District Court Judge James B. Zagel said the plaintiffs failed to convince him that the class had suffered an actual injury.
The plaintiffs asserted they were injured by the breach itself (such as the loss of time and money associated with resolving fraudulent charges and protecting against the risk of future identity theft) and were exposed to future harm (in the form of increased risk of identity theft or future fraudulent charges).
While allegations of potential harm may suffice to establish Article III standing, the plaintiffs did not have a “certainly impending” risk of future injury, Judge Zagel said. Although at least 9,200 customers were subject to fraudulent charges after the breach, that fact did not confer standing to the other plaintiffs on the grounds that they might also incur the same injury.
“To assert on this basis that either set of customers is also at a certainly impending risk of identity theft is, in my view, a leap too far,” the court said, noting that the fraudulent charges impacted just 2.5 percent of the customers involved in the breach.
As for a current injury, the plaintiffs did not allege that any of the actual fraudulent charges went unreimbursed, the court said, and the complaint lacked meaningful allegations as to the costs that were incurred to mitigate the risk of future fraudulent charges.
“Generally, when one sees a fraudulent charge on a credit card, one is reimbursed for the charge, and the threat of future charges is eliminated by the issuance of a new card, perhaps resulting in a brief period where one is without its use,” Judge Zagel wrote. “If the complaint is to credibly claim standing on this score, it must allege something that goes beyond such de minimis injury.”
The court gave the plaintiffs points for creativity for their final argument: that they paid a premium for retail goods purchased at Neiman Marcus, a portion of which should have been allocated to adequate data breach security measures. Therefore, Remijas contended, the class overpaid for their purchases and would not have otherwise made them. While the court recognized the theory of injury, he found it unavailing in the instant case.
“[A] vital limiting principle to this theory of injury is that the value-reducing deficiency is always intrinsic to the product at issue,” the judge said. “Under plaintiffs’ theory, however, the deficiency complained of is extrinsic to the product being purchased.”
Judge Zagel dismissed the suit in its entirety for lack of Article III standing.
To read the opinion in Remijas v. Neiman Marcus, click here.
Why it matters: Data breach plaintiffs continue to fight the standing battle for judicial recognition. The obstacle proved insurmountable for the Neiman Marcus plaintiffs, who failed to convince the judge they faced a threat of future harm or suffered anything more than de minimis actual harm, particularly as those who faced fraudulent charges had already been reimbursed.
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Big Data, Big Issues
At a recent workshop, the Federal Trade Commission turned its attention to big data.
Representatives from the Commission recognized the positives of big data but warned about its dangers. In her remarks at the “Big Data: A Tool for Inclusion or Exclusion?” workshop, FTC Chairwoman Edith Ramirez observed that “[b]ig data can have big consequences.”
Big data “has the capacity to save lives, improve education, enhance government services, increase marketplace efficiency, and boost economic productivity,” she told attendees. “But the same analytic power that makes it easier to predict the outbreak of a virus, identify who is likely to suffer a heart attack, or improve the delivery of social services, also has the capacity to reinforce disadvantages faced by low-income and underserved communities,” she told attendees.
Fellow Commissioner Julie Brill recalled the agency’s report in May calling for greater transparency in the data broker industry and discussed three challenges presented by big data: concerns about Fair Credit Reporting Act issues, the need for legislation of an unregulated industry, and the potential for the use of such data to exacerbate existing socioeconomic disparities.
“In an ideal world, a data broker’s products that identify consumers who traditionally have been underserved by the banking community can be used to help make these consumers aware of useful opportunities for credit and other services,” Brill said. “However, these same products could be used to make these consumers more vulnerable to high-interest payday loans and other products that might lead to further economic distress.”
Speakers at the workshop presented different opinions on how to deal with big data. Some advocated for providing consumers with notice of collection and the opportunity to opt out, while others noted that collection of some information (data collected by electric companies about rate of use, for example) is necessary for the greater good.
Complicating matters is the fact that big data is a relatively new phenomenon with the boundaries still being worked out, noted Danah Boyd, a principal researcher at Microsoft Research. For example, her group has found that based on Internet searches, they can reliably predict which search engine users will soon be admitted to the hospital.
But it would be “creepy” for the search engine to notify the user that he or she should head to the doctor, she added.
To read the text of Chairwoman Ramirez’s speech, click here.
To read the text of Commissioner Brill’s remarks, click here.
Why it matters: Big data can certainly have big consequences, as pointed out by FTC Chairwoman Edith Ramirez. Companies should remember that in addition to the agency’s scrutiny of the industry, Sen. Jay Rockefeller (D-W.Va.) has similarly called for oversight and legislation.
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Don’t Miss our Complimentary TCPA Webinar on October 16
One year has passed since the implementation of the Federal Communication Commission’s revised Telephone Consumer Protection Act (TCPA) rules. Are you up-to-date on the most important and trending TCPA developments and what you need to do to stay ahead of the curve in meeting TCPA challenges?
Manatt, Phelps & Phillips, LLP and Bloomberg BNA invite you to join this complimentary webinar, “TCPA Update: The Year in Review and What Lies Ahead,” led by speakers Marc Roth and Donna Wilson, co-chairs of Manatt’s TCPA Compliance and Class Action Defense Group, and moderator Katie Johnson, legal editor on Bloomberg BNA’s Privacy & Security Law Report. The program will be held on Thursday, October 16, 2014 at 3:00 – 4:30 p.m. ET.
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Most Read Stories
In case you missed any, here are our top 10 most widely read stories in September:
1. “FTC: Telemarketing Sales Rule Ripe for Review”
2. “Crumbs’ Privacy Policy Crumbles in Bankruptcy”
3. “FTC Keeps It Negative”
4. “Cramming It All In: FTC Has a Busy Week Addressing Mobile Cramming”
5. “FTC Sues ‘Yellow Pages’ Scammers”
6. “FTC Studies Mobile Shopping Apps”
7. “NAD: Drop the Fruit and Vegetable Claims for Powdered Form”
8. “FDA Needs To Build On Label Changes, Lawmakers Say”
9. “Made in the USA . . . Maybe?”
10. “3rd Circuit Agrees to Hear Wyndham’s Challenge to FTC Authority”
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