Emergency Business Litigation

Our First Post About An Injunction Issued In Another Country

Tom Patterson — Mon, 05 Sep 2011 11:10:33 -0600

Apple versus Samsung. Samsung unveiled its new Galaxy Tab 7.7, a new Android tablet, but had to remove it from a convention show and from its German website after a court in Germany issued an injunction against Samsung and in favor of Apple. Very brief details were contained in the Engadget September 4th post by Amor Toor. We are trying to locate the court papers and ruling for further comment.

Re:Exactly Which Trade Secrets Am I Enjoined From Using?

Tom Patterson — Wed, 17 Aug 2011 12:35:50 -0600

In an excellent blog post , attorney Michael R. Greco refers to case IDG USA v. Kevin Schupp and the need to be specific when requesting an injunction and when drafting an order. This often presents a quandary in trade secret litigation because a detailed description reveals the trade secret you want to conceal. In some cases, filing under seal may be the answer.

Patent Litigators: If You Need a Preliminary Injunction, Where You File Your Case Matters

Tom Patterson — Sun, 14 Aug 2011 16:08:05 -0600

LegalMetric Research reports that success rates on contested preliminary injunction motions in patent cases is 30% nationwide. But the success rate varies by district. California Central’s win rate is 38% and New Jersey’s win rate is 40%. Here is the link to LegalMetric. Its full report costs several hundred dollars.

The report includes:

District and individual judge analysis of over 1300 Preliminary Injunction rulings.
Win rates for all districts having at least one decided Preliminary Injunction Motion in patent cases.
Length of time from motion filing to decision for all decided Preliminary Injunction Motions in patent cases.
Click here to view a typical district excerpt.

Turning Defeat Into Victory

Tom Patterson — Wed, 29 Jun 2011 14:24:49 -0600

The owner of a computer school that suffered a crippling burglary of high-tech equipment came to us after losing a trial--while he was represented by a different lawyer--against his insurance company. He had immediately sought compensation from his insurance company in order to resume operations and prevent canceling classes. After a grueling eight month insurance investigation, the insurer claimed the owner was not entitled to any payment under the policy because he allegedly misrepresented or concealed material facts during the course of the investigation. The owner sued unsuccessfully, seeking compensation for replacement equipment and business income losses. Once we were retained to replace the prior lawyer, we successfully asked the judge to grant a new trial, defeated a petition for leave to appeal that decision, and then won the second jury trial, obtaining a jury verdict of $534,000. The verdict included compensation for all losses claimed: business income loss, lost equipment and software, building repairs and extra costs incurred.

Amylin Pharm. v. Eli Lilly Part II

Tom Patterson — Thu, 23 Jun 2011 08:33:15 -0600

This is Part II of a post on the Amylin v. Eil Lilly Litigation. For background on the case and to read about the original TRO see Part I of the post.

Denial of Preliminary Injunction

After granting the temporary restraining order, the parties further briefed the matter and a preliminary injunction hearing was held on June 2, 2011. As a result, the Court vacated the TRO and denied the preliminary injunction.

The main thrust of the Court’s reversal comes from a more careful analysis of the irreparable harm factor. The Court did not address the remaining elements of the preliminary injunction after determining that Amylin failed to show irreparable harm:

Under Winter, Amylin “must establish that irreparable harm is likely, not just possible, in order to obtain a preliminary injunction.” Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1131 (9th Cir. 2011). “‘Irreparable harm is the single most important prerequisite for the issuance of a preliminary injunction. . . . Accordingly, the moving party must first demonstrate that such injury is likely before other requirements for the issuance of an injunction will be considered.’” Freedom Holdings, Inc. v. Spitzer, 408 F.3d 112, 114 (2d Cir. 2005) (alteration in original) (quoting Rodriguez ex rel. Rodriguez v. DeBuono, 175 F.3d 227, 233–34 (2d Cir. 1999)).

In footnote 2 of its order, the Court repudiated the presumption of irreparable harm from the original TRO. Instead, the Court examined Amylin’s injury claims: (1) harm attributable to Defendant’s misuse of Amylin’s confidential information and (2) loss of prospective customer and goodwill.

The Court found Amylin’s claim of harm—misuse of confidential information— was too speculative. “Speculative injury does not constitute irreparable injury sufficient to warrant granting a preliminary injunction.” Carribean Marine Servs. Co. v. Baldrige, 844 F.2d 668, 674 (9th Cir. 1988). The Court does not do a great job explaining this finding. Instead, it passes the buck to the two points below.

Secondly, the Court points to Food and Drug Administration’s regulations that prohibit Lilly’s sales representatives from making any potentially misleading statement regarding Amylin’s product without adequate supporting data, including statements comparing the attributes of the other product. Amylin’s argument that the Defendant’s sales representatives would intentionally mislead consumers to the detriment of Amylin is clearly specious. The Court concluded that the sales representatives would not risk FDA sanctions to maximize sales of a competing product.

Finally, in order to prevail in a preliminary injunction, damages cannot be monetarily compensable: “[E]conomic injury alone does not support a finding of irreparable harm, because such injury can be remedied by a damage award.” Rent-A-Center, Inc. v. Canyon Television & Appliance Rental, Inc., 944 F.2d 597, 603 (9th Cir. 1991). The Court relied on Defendant’s economic expert who asserted money damages were sufficient to cover any harm arising from Defendant’s actions:

To the extent that Amylin would suffer from the alleged actions, the resulting loss would take the form of profits on lost exenatide sales. Losses of this nature are generally calculable through the use of standard economic analyses undertaken in the calculation of economic harm generally and, specifically, in antitrust actions. Amylin Pharmaceuticals, Inc. v. Eli Lilly and Company, Case No. 11-CV-1061 JLS (NLS) (S.D. Cal. June 8, 2011)

The courts do not enjoin actions that would result in a calculable economic injury. Accordingly, misappropriation of a trade secret can be remedied with money damages.

Finding no irreparable harm, the Court ended its analysis.

Amylin Pharm. v. Eli Lilly Part I

Tom Patterson — Wed, 22 Jun 2011 08:29:48 -0600

By Jay Lewis

Amylin Pharmaceuticals, Inc. v. Eli Lilly and Company, Case No. 11-CV-1061 JLS (NLS) (S.D. Cal. June 8, 2011)

Background

Amylin Pharmaceuticals (“Amylin”) and Eli Lilly (“Defendant”) entered into a business relationship in 2002 to develop and commercialize exenatide, a drug used for treatment of type-2 diabetes. In early 2011, Defendant announced that it was entering a similar alliance with Boehringer Ingelheim GmbH (“Boehringer”) to develop and commercialize linagliptin, also a drug used for treatment of type-2 diabetes. Amylin and Boehringer are direct competitors so needless to say, Amylin was opposed to Defendant’s entering into the second agreement.

Amylin and Defendant held private negotiations regarding the Boehringer alliance. The parties were unable to resolve the matter so Amylin filed for a temporary restraining order (“TRO”) and preliminary injunction. Amylin requested the Court to restrain and enjoin Defendant and others acting in concert from 1) disclosing any of Amylin’s confidential information; 2) using the same sales force used for Amylin’s drug; and 3) falsely describing Amylin’s products.

Legal Standard

The Court applied the appropriate legal standard, citing Winter v. Natural Res. Def. Council, 555 U.S. 7 (2008) for the general factors a plaintiff must show to obtain a preliminary injunction:

A likelihood of success on the merits of the legal claim,
Irreparable harm in the absence of preliminary relief,
The balance of equities tips in the favor plaintiff’s favor, and
The relief is in the public interest.

The Court further applied the 9th Circuit’s sliding scale balancing test as articulated in Alliance for Wild Rockies v. Cottrell, 622 F.3d 1045 (9^th Cir. 2010). Under this test, a stronger application of one factor may offset a weaker application of another. Alliance, 1049-53.

Original TRO

The Court granted Amylin’s request for a TRO but would later deny all of Amylin’s requests in a subsequent hearing. The Court’s analysis in the original TRO decision was focused on Amylin’s likelihood of success on the merits. Specifically, the Court found that Amylin would likely prove that the Defendant-Boehringer alliance would violate the confidentiality clause in Defendant-Amylin’s existing agreement. The Court reasoned that the sales force for Defendant was already privy to Amylin’s confidential information and to task that same individuals with the sale of the Boehringer drug ostensibly puts Amylin’s confidential information in the hands of its competitor.

After finding a likely success on the merits, the Court briefly discussed irreparable harm by reiterating the risk of loss of confidential information to a competitor. The Court quoted TMX Funding, Inc., v. Impero Technologies, Inc., 2010 WL 1028254, at *8 (N.D. Cal. March 18, 2010), “California courts have presumed irreparable harm when proprietary information is misappropriated.” The Court was similarly brief in discussing the balance of equities and public interest and held in favor of preventing the sales force from promoting Boehringer’s products.

Part II will discuss the subsequent denial of the preliminary injunction.

Emergency Litigation Wrap-up

Tom Patterson — Mon, 20 Jun 2011 08:40:09 -0600

By Jay Lewis

The following are links to several current emergency litigation matters:

Apple escalates patent war claiming Samsung is slavishly copying Apple's products. Apple claims Samsung is violating iPad and iPhone hardware and software patents.

Court of Appeals in Manila denies motion to lift preliminary injunction. "The Court of Appeals has denied the plea of the Banco Filipino Savings and Mortgage Bank for the lifting of the writ of preliminary injunction that had stopped what could have been a P25-billion assistance package for the beleaguered bank." The Court wrote, "[A]llowing the case a quo to proceed will prevent the [Monetary Board] from, or hamper their functions in, exercising regulatory functions over private respondent, which in turn, would work great injustice and cause irreparable injury to the general public,”

Vermilion cancels single-sex classes. "A second attempt at getting a preliminary injunction to halt single-sex classes at Rene Rost Middle School in Kaplan is now moot because of the Vermilion Parish School Board's decision to discontinue the classes."

Medical marijuana injunction hearing starts Monday in Helena. Montana Cannabis Industry Association filed for an injunction to stop a new law that would make it more difficult for users of medical marijuana to obtain the drug. In 2004, Montana voters passed a law allowing its use, but in 2011, the legislature attempted to implement stringent restrictions. Hearing is scheduled for the next two days. "Those seeking the injunction contend the new law violates the plaintiffs' constitutional rights to equal protection, privacy, dignity, freedom of speech and due process."

Judge grants Greensboro landfill opponents a victory. The Judge granted a preliminary injunction against the City Council, barring it from entering into a contract with a company that would open new dump areas.

Rhode Island Supreme Court upholds eviction of homeless from Providence park. The City of Providence was successful in enjoining the encampment of homeless in a city park that "was not fit for human habitation." Additionally, the camp "violated a city ordinance against camping overnight in public parks, had no clean water, no garbage facilities, no electricity, no sanitation or bathroom facilities."

7th Circuit Preliminary Injunction to Enforce Right of First Refusal Part II

Tom Patterson — Mon, 13 Jun 2011 08:27:41 -0600

By Jay Lewis

Hold-Separate Conditions

In order to maintain Roche’s rights, the lower Court set forth conditions for MAS and Alere’s sale to move forward. The hold-separate portion of the order contained the following:

MAS survives the merger in its current form as an independent, though wholly or partially owned, corporate entity;
There are no material changes in MAS’s operations;
There are no material changes in MAS’s business plans;
Alere does not hire any current or former employees, officers, or directors of MAS;
MAS does not hire any current or former employees, officers, or directors, of Alere;
No current or former employees, officers, or directors of Alere serve as directors or board members of MAS;
No current or former employees, officers, or directors of MAS serve as directors or board members of Alere;
MAS does not share with Alere any confidential or proprietary information regarding Roche or any other company with which MAS does business;
MAS does not share with Alere any of MAS’s own confidential and proprietary information except to the extent that MAS shares such information with third parties in its normal course of business; and
MAS does not transfer or dispose of any material assets or make any material acquisitions.

The ten conditions above, however, did not address MAS and Alere’s agreement preventing MAS from incurring substantial liabilities before a completed purchase. Under the agreement, MAS could not allow its assets to become subject to liens, sell new stock or acquire new business, dispose of intellectual property, or incur debt other than in the ordinary course of business prior to close. The Appellate Court added an additional condition to appease Alere’s concerns.

If Alere acquires MAS subject to the first 10 conditions, then MAS remains bound by all promises in §7.7 of the acquisition agreement for as long as this injunction remains in force.

If MAS and Alere meet conditions one through eleven, they would be allowed to move forward with the sale. Once the arbitrator makes a final deicison as to Roche’s right of first refusal, the sale would either close or die on the vine, but either way, Roche’s rights would not be harmed prior to the completion of the arbitration.

Bond

In dicta, the Court addresses the lower court’s decision not to require Roche to post a bond. Although the Roche-MAS contract waives the parties’ entitlement to an injunction bond, the Court cautions judges to take care in setting a bond, “[P]reliminary injunctions…are more likely to be erroneous than injunction issued at the close of the litigation. A party injured by an erroneous preliminary injunction is entitled to be made whole.” The Court also stated, “Judges therefore should take care that the bond is set high enough to cover the losses that their handiwork could cause.”

The Court attempted to hedge any potential mistake in entering a conditional injunction by asking Roche to promise to pay for MAS the same amount as Alere. “[I]f Roche eventually acquires the shares it will pay the investors at least $43 million plus interest from the time the MAS-Alere deal originally was scheduled to close.”

7th Circuit Preliminary Injunction to Enforce Right of First Refusal Part I

Tom Patterson — Fri, 10 Jun 2011 08:10:25 -0600

By Jay Lewis

Roche Diagnostics Corporation v. Medical Automation Systems, Inc; Gregory A. Menke; and Kurt M. Wassenar, Case No. 11-1446 (7th Cir. May 24, 2011)

Facts

Roche Diagnostics (Roche) is a glucose monitor manufacturer. Medical Automation Systems (MAS) is a software company. Roche and MAS entered into a contract whereby MAS would supply software for Roche’s glucose monitors. During the course of the contract, MAS agreed to sell its stock and assets to Alere, Inc. (“Alere”), one of Roche’s competitors. Roche claimed a right of first refusal under the contract. MAS denied that the right of first refusal was effective because the sale was scheduled to close after the expiration of the contract. Roche filed for injunctive relief. On February 23, 2011, the Southern District Court of Indiana allowed the sale to move forward subject to hold-separate conditions. Roche appealed. The Seventh Circuit affirmed the lower court’s ruling with an additional condition.

Arbitration Clause

The Roche-MAS contract contained an arbitration clause covering any disputes over the right of first refusal. The clause allowed either party to seek equitable relief pending arbitration. The Court acknowledged this clause and refrained from discussing the merits of the contract dispute. Instead, the Court focused solely on the equitable relief. Specifically, the Court examined the potential for irreparable harm to the parties should the sale take place prior to a resolution in arbitration.

Balance of Harms

Roche’s right of first refusal would be damaged or eliminated if MAS was allowed to move forward with the sale of its assets. It would be incredibly difficult to unravel a sale if the arbitrator later decided Roche had a right to buy the company. However, enjoining the sale could harm MAS by killing the deal or diminishing its value should the arbitrator decide that Roche has no right of first refusal. The Court decided to set aside the uncertainty in the arbitrator’s decision and examine who faces the greater harm.

The Court found that Roche faced the greatest harm. Should an unbridled sale go forward, the parties would be completely unable to “unscramble the eggs.” Changes to the corporate structure and management, disclosure of intellectual property, sell-off of assets, and alterations in strategy all create a potential impossibility of restoring the status quo ante. Additionally, MAS has two potential purchasers and any uncertainty will be resolved when the arbitrator decides who gets to buy it. Ultimately, the Court decided that the sale could continue on the condition MAS and Alere were separately maintained during arbitration.

Part II will delineate the Hold-Separate Conditions.

Emergency Litigation Around the Nation

Tom Patterson — Thu, 09 Jun 2011 08:38:22 -0600

A judge issued a preliminary injunction last week in a lawsuit against the city of Enid, preventing the use of a construction manager at-risk contract for the Enid Renaissance Project.

Plaintiffs withdraw their request for a preliminary injunction preventing the sale of Lubrizol to Berkshire Hathaway. The plaintiffs have opted to allow the shareholders to vote on whether to sell rather than seek a preliminary injunction.

Judge denies a taxicab company's request for an injunction to stop the city of Charlotte from awarding airport contracts to three different companies.

Catholic Charities filed an emergency injunction against the Illinois Attorney General and Department of Children and Family Services for threatening to enforce new policies that require Catholic Charities to accommodate unmarried couples or civil union couples who want to become foster parents.

Daytona Beach-based insurance agency, Brown & Brown, seeks to temporarily shut down a rival company formed by former executives.

Tiffany & Co. won a temporary restraining order June 7 against a Michigan jewelry store it claims is selling counterfeit Tiffany rings on eBay.

WORLDCARE Trademark Injunction Part III

Tom Patterson — Tue, 07 Jun 2011 07:28:53 -0600

Written by Jay Lewis

Irreparable Harm

The Court presumed the threat of irreparable harm to the movant based on the likelihood of confusion and success on the merits. Because trademarks are similar to “intangible assets such as reputation and goodwill, a showing of irreparable injury can be satisfied if it appears that [the movant] can demonstrate a likelihood of consumer confusion.” General Mills, 824 F.2d at 625.

Public Interest

So after finding (1) the balance of harms weighed in favor of Worldcare, (2) Worldcare was likely to demonstrate consumer confusion and therefore likely succeed on the merits and (3) Irreparable harm was presumed based on the consumer confusion; the Court found that (4) an injunction favors the public interest. “A strong public interest exists in preventing confusion as to the source of products and services included in a medical coverage insurance policy, and as to who will be providing those services.” Worldcare.

After careful examination, the Court ordered the following:

The Motion for Preliminary Injunction filed by Plaintiff WorldCare Limited Corporation is granted; and
Defendant World Insurance Company and its officers, agents, servants, employees, and all persons acting in concert with World Insurance, are enjoined from using the designation "WORLDCARE" or any other name or mark confusingly similar to "WORLDCARE," either alone or in combination with other words or symbols, as part of any trademark, service mark, trade name, product name, corporate name, assumed name, domain name, Web site name, email address or in any other manner in connection with healthcare or medical-related services during the pendency of this action.

For in-depth discussion of Trademark Infringement, see Chapter 10 of Handling the Business Emergency.

WORLDCARE Trademark Injunction Part II

Tom Patterson — Mon, 06 Jun 2011 07:23:53 -0600

Written by Jay Lewis

Probability of Success on the Merits

Worldcare established trademark infringement by proving, “it ha[d] ownership or rights in the trademark and that the defendant ha[d] used the mark in connection with goods or services in a manner [that] cause[d] consumer confusion as to the source and sponsorship of the goods or services.” Community of Christ Copyright Corp. v. Devon Park Restoration Branch of Jesus Christ’s Church, 634 F.3d 1005, 1008-09 (8^th Cir. 2011). The parties agreed that Worldcare had acquired rights in the mark. The parties disagreed that confusion existed with use of the WORLDCARE mark. The following is the six-factor test used by the Eighth Circuit to determine whether a trademark is likely to cause confusion:

Strength of the owner’s mark;
the similarity between the owner’s mark and the alleged infringer’s mark;
the degree to which the products compete with each other;
the alleged infringer’s intent to ‘pass off’ its goods as those of the trademark owner;
incidents of actual confusion;
the type of product, its cost, and conditions of purchase.

Frosty Treats v. Sony Computer Ent. Am. Inc., 426 F.3d 1001, 1008 (8th Cir. 2005). Not all factors must be satisfied. Id.

The Court determined that the WORLDCARE mark was both conceptually and commercially strong. The mark fell into the “suggestive” category under the conceptual strength test. “A suggestive mark is one that requires some measure of imagination to reach a conclusion regarding the nature of the product.” Duluth News-Tribune, a Div. Of Nw. Publ’n, Inc. v. Mesabi Pub. Co., 84 F.3d 1093, 1096 (8th Cir. 1996). According to the Court, this makes Worldcare’s mark conceptually strong. In determining the commercial strength, the Court pointed to the Worldcare’s uncontested use of the mark for nearly ten years. Other organizations’ simultaneous use of the mark in non-healthcare industries did not weaken Worldcare’s commercial strength within the healthcare industry.

The second factor, the similarity of the owner’s mark and the alleged infringer’s mark, was clearly met in this case. The United State Patent and Trademark Office (“PTO”) had rejected Defendant’s trademark application. The PTO found that the wording was identical and believed that consumers would likely be confused as to the source of the services.

The third factor compared the degree of competition between the products. Both companies operate in the insurance industry. Worldcare’s products are sold as a rider to health insurance policies. Likewise, Defendant’s product is sold as a medical insurance plan. The Court determined that the products were aligned closely enough to create confusion among consumers.

The Court found no evidence that Defendant intended to pass off its products as those of Worldcare. Although Defendant knew of the protected mark, knowledge is not equivalent to intent. General Mills, Inc. v. Kellog Co., 824 F.2d 622, 627 (8th Cir. 1987).

Under factor five, Worldcare attempted to show evidence of actual confusion in the form of alleged misdirected phone calls received in the summer of 2009. Worldcare claimed these calls were in regards to insurance products. The Court found this evidence limited and could not conclude actual confusion. However, Worldcare was not required to show incidents of actual confusion to succeed in an infringement case. Sunsient Tech. Corp. v. SensoryEffects Flavor Co., 613 F.3d 754 (8th Cir. 2010).

The sixth and final factor the Court examined was the condition of purchase and the degree of care expected of customers. “In considering this factor, [the Court] must stand in the shoes of the ordinary purchaser; buying under the normally prevalent conditions of the market and giving the attention such purchasers usually give in buying that class of goods.” Luigino's, Inc. v. Stouffer Corp., 170 F.3d 827, 831 (8th Cir.1999). The Court found this factor weighed in favor of Worldcare stating: “When selecting medical coverage and related products, a customer or potential customer may not recognize that distinct products with different WORLDCARE marks would come from different sources.” Worldcare, Case No. 8:11CV99 (D. Neb. 2011).

The Court found that customer confusion between the marks was likely in this case. The marks were identical and both companies sold their products in the insurance market. Therefore, Worldcare would likely succeed on the merits of their claim.

Part III will examine the remaining elements of the Injunction.

WORLDCARE Trademark Injunction Part I

Tom Patterson — Fri, 03 Jun 2011 09:03:25 -0600

Worldcare Limited Corporation v. World Insurance Company, Case No. 8:11CV99 (D. Neb. May 9, 2011).

Written by Jay Lewis

On May 9, 2011, WorldCare Limited Corporation (“WorldCare”) was granted a preliminary injunction against World Insurance Corporation (“Defendant”) preventing further use of the “WORLDCARE” mark or name.

WorldCare is a provider of second-opinion telemedicine services. The service allows individuals and insureds to request second opinions through WorldCare’s consortium of specialized physicians at highly regarded hospitals and universities. WorldCare sells its services through insurance policies as an additional benefit. WorldCare registered its trademark, “WORLDCARE,” in June of 1996.

Defendant provides health insurance products and services including basic medical, major medical, comprehensive major medical, short-term medical, and dental insurance. Defendant began using WORLDCARE in February 2003 as a brand name on its insurance products. Defendant applied for a registration of the WORLDCARE mark on March 28, 2005, but the application was rejected. Defendant continued to use the mark creating customer confusion in violation of the Lanham Act, 15 U.S.C. §§ 1114(a), 1125(a). WorldCare filed for a preliminary injunction against Defendant on September 21, 2010.

Defendant argued that WorldCare failed to renew its ownership in the WORLDCARE mark under 15 U.S.C. § 1059(a). The Court stated: “Nevertheless, ownership of registration is not determinative of ownership of trademark rights, and ‘the absence of federal registration does not unleash the mark to public use.’" quoting, Gilbert/Robinson, Inc. v. Carrie Beverage-Missouri, Inc., 989 F.2d 985, 992 (8th Cir. 1993).

The Court cited Dataphase Sys., Inc. v. C.L. Systems Inc., 640 F.2d 109 (8^th Cir. 1981) for the four factors of a preliminary injunction: “(1) The threat of irreparable harm to the movant; (2) the state of balance between this harm and the injury that granting the injunction will inflict on other parties litigant; (3) the probability that movant will succeed on the merits; and (4) the public interest.” Dataphase at 114.

Balance of Harms

The Court first reviewed the ‘balance of harms’ between the parties and found in favor of WorldCare. Defendant’s executive testified that the company had already started to phase out the use of the WORLDCARE mark from its products. The executive explained, however, the phase-out was only temporary. Defendant was not willing to consent to a complete termination of the mark’s use. The executive believed the company was not legally obligated to terminate the use and it could be harmed by a negative public perception if did so voluntarily. The Court found that due to Defendant’s own actions in phasing out the use of the mark, the burden of an injunction had been significantly minimized. An injunction reinforcing the phase-out would not cause significant additional harm.

Part II of this post will examine the Probability of Success on the Merits.

The Hangover II Injunction Denied

Tom Patterson — Tue, 31 May 2011 12:01:45 -0600

By Jay Lewis

S. Victor Whitmill v. Warner Bros. Entertainment, Inc., 4:11-cv-752 (E.D. Mo. 2011)

Plaintiff S. Victor Whitmill (“Whitmill”) is the tattoo artist who inked Mike Tyson’s face. Whitmill sought a preliminary injunction against Warner Brothers Entertainment (“Defendant”) to enjoin the release of “The Hangover II.” Actor Ed Helms sports an identical tattoo in the film which Whitmill believes infringes on his copyright. Missouri Eastern District Court Judge Catherine D. Perry orally denied Whitmill’s preliminary injunction at the hearing and issued a short one page order.

To obtain a preliminary injunction, the movant must show likelihood of success on the merits, irreparable harm, the balance of equities weighs in favor of the movant, and an injunction is in the public interest. Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7 (2008).

To be successful on the merits, Whitmill needed to demonstrate he had a valid copyright and the Defendant copied the protected work. See Plaintiff’s Memorandum in Support of his Motion for Preliminary Injunction, p 5, citing, Rottlund Co. v Pinnacle Corp., 452 F. 3d 726 (8^th Cir. 2006). Based on the facts set forth in the Plaintiff’s Memorandum, Whitmill demonstrated both a copyright and an unauthorized copy. Plaintiff’s Memo, p 5-7. However, according to the Memorandum in Opposition to Plaintiff’s Motion for Preliminary Injunction, seen here, “[t]here are no reported cases addressing the copyrightability of tattoos.” (Memo in Opposition, p. 12). Regardless, the Judge found a copyright, stating:

Of course tattoos can be copyrighted. I don’t think there is any reasonable dispute about that. They are not copyrighting Mr. Tyson’s face, or restricting Mr. Tyson’s use of his own face, as the defendant argues, or saying that someone who has a tattoo can’t remove the tattoo or change it, but the tattoo itself and the design itself can be copyrighted, and I think it’s entirely consistent with the copyright law.

NY Times, quoting Judge Perry.

The Defendant, in its Memorandum, offered several defenses to Whitmill’s copyright infringement claim. (Memo in Opposition, pp. 18-19). The Defendant argued that displaying Tyson’s tattoo on a character in the film constituted Fair Use:

[T]he fair use of a copyrighted work…for purposes such as criticism, comment…is not an infringement of copyright. In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include —

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;

(2) the nature of the copyrighted work;

(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and

(4) the effect of the use upon the potential market for or value of the copyrighted work.

17 U.S.C. § 107.

Judge Perry rejected the Fair Use argument, stating, “This use of the tattoo did not comment on the artist’s work or have any critical bearing on the original composition. There was no change to this tattoo or any parody of the tattoo itself. Any other facial tattoo would have worked as well to serve the plot device.” NY Times.

The next factor, irreparable harm, is presumed if movant has established the likelihood of success on the merits in a copyright infringement case according to Plaintiff’s Memorandum which cites West Pub. Co. v. Mead Data Central, Inc., 799 F.2d 1219, 1229 (8^th Cir. 1986); DF Inst. Inc. v. Marketshare EDS, 84 USPQ 2d 1206, 1212 (D. Minn. 2007). (Plaintiff’s Memo, page 8). Based upon the Judge’s statements that a copyright exists and the Defendant infringed upon it, supra, irreparable harm was presumed in this case.

Although Whitmill showed a likelihood of success on the merits and irreparable harm, the balance of harms and public interest tipped too sharply in favor of the Defendant. The Defendant and its partners had invested hundreds of millions of dollars into producing, marketing and distributing the film. An injunction preventing the opening would have cost the Defendant millions in box office revenues over the Memorial Day weekend. Additionally, the Defendant argued that a substantial likelihood existed that a delay in the release of the film would create a black market of pirated DVDs based upon the prints that already had been shipped to theaters around the country. (Memo in Opposition, pp. 36-40).

Judge Perry agreed with the Defendant:

The public interest does favor protecting the thousands of other business people in the country as well as Warner Brothers, and not causing those nonparties to lose money, and I think it would be significant, and I think it would be disruptive. I think that tilts the public interest in favor of Warner Brothers on this because all over the country people would be losing money if I were to enjoin this movie.

NY Times.

The Hangover II was released in theaters as scheduled. It reportedly grossed $86 million over the weekend and $137 million since its release breaking previous box-office records for an R-rated comedy. LA Times.

Verizon Litigation

Tom Patterson — Thu, 26 May 2011 08:15:55 -0600

By Jay Lewis

Part III

After finding that Verizon had met all the four factors, the Court turned to the Defendants’ arguments:

Mootness of Injunctive Relief
Dormant Commerce Clause
Primary Jurisdiction Doctrine
Unclean Hands

The Court found that each of the Defendants’ arguments failed. The Defendants argued that the injunctive relief was moot because Verizon already shut them out of the network therefore an injunction was irrelevant. However, the Defendants had been shut out once before but were again on the network violating the MMA Best Practices. The Court held that if Defendants were not enjoined, they could legally attempt to regain access again and again.

The Dormant Commerce Clause invalidates state regulation if it excessively burdens interstate commerce. The Court found the Defendants did not make a showing that the ACFA discriminates against out-of-state commerce or that the burdens imposed by the ACFA are excessive in light of the local benefits.

Under the primary jurisdiction doctrine, the Defendants argued that the Court could not decide the standards to apply in this case as the industry is regulated by the Federal Communications Commission and the Federal Trade Commission. The Court countered by stating the MMA Best Practices applied because the Defendants contractually agreed to those standards.

The defense of unclean hands is an equitable remedy whereby the asserting party must prove inequitable conduct by the opposing party. Defendants alleged that Verizon misrepresented Defendants’ web pages to the Court, released false press releases, misrepresented business practices to the Texas Attorney General, and alleged that the Defendants’ corporate structure was rife with criminal conspiracy while Verizon maintained a complicated corporate structure. The Court found Verizon’s conduct did not rise to the level of fraud nor was its conduct false or misleading.

The Court granted Verizon’s request for preliminary injunction effective upon payment of a relatively token $25,000 bond.

Verizon Litigation

Tom Patterson — Thu, 26 May 2011 07:59:47 -0600

By Jay Lewis

Part II

Verizon filed a motion for preliminary injunction based on Defendants’ deceptive acts, which induced customers to purchase non-compliant premium services. Verizon also claimed that the customers, in turn, threatened to leave the Verizon network because of Defendants’ actions. The Court granted Verizon’s motion for a preliminary injunction after conducting a hearing.

The Court cited Winter v. Natural Res. Def. Council, 555 U.S. 7 (2008) for the general factors a plaintiff must show to obtain a preliminary injunction:

A likelihood of success on the merits of the legal claim,
Irreparable harm in the absence of preliminary relief,
The balance of equities tips in the favor plaintiff’s favor, and
The relief is in the public interest.

The Court further cited Alliance for Wild Rockies v. Cottrell, 622 F.3d 1045 (9^th Cir. 2010) for the 9th Circuit sliding scale balancing test. Under this 9th Circuit test, if the balance of hardships tips sharply in the plaintiff’s favor, likelihood of success on the merits becomes less of a factor to consider. Alliance, 1049-53.

Verizon based its request for preliminary injunction on three legal bases:

Arizona Consumer Fraud Act (“ACFA”),
Tortious Interference with Contract, and
Unjust Enrichment.

ACFA, the Court decided, did not apply in this case. AFCA protects the merchant-consumer relationship. It provides a means for consumers to bring an action against merchants for deceptive or fraudulent practices. Here, Verizon was not a purchaser of Defendants services but merely a conduit to the customers. Therefore, Verizon would not likely succeed on the merits of its AFCA claim.

The Court held that Verizon would likely succeed on the merits of its claim for tortious interference with contractual relations. The Court affirmatively stated that, under Arizona law, a civil defendant can be held liable for tortious interference with contractual relations if the interference made the plaintiff’s compliance with a contract more expensive. This is an extension of Arizona precedent where the facts of previous tortious interference cases indicate the contract ended in breach or termination. In Verizon’s case, the Court applies Restatement (Second) of Torts §767 (1979) which punishes tortious actions that merely burden the plaintiff’s performance on an existing contract. The fact that Verizon paid reimbursement fees to retain customers and monitoring fees to prevent continued deception met the criteria set forth in §767.

The Court found that Verizon’s theory for unjust enrichment would not likely succeed on the merits. Specifically, Verizon did not suffer the required impoverishment. In fact, Verizon gained an estimated $24 million from Defendants’ actions.

After determining that Verizon has a likelihood of success on the merits for tortious interference, the Court found the three other factors of a preliminary injunction had been met:

Verizon would suffer irreparable harm to its business reputation if Defendants were allowed to continue deceiving customers; damage to goodwill constituted irreparable harm.
The balance of harms tipped in Verizon’s favor as Verizon has an interest in protecting its customer relationships and Defendants have no legitimate interest in accessing the network through deceptive means.
The public interest in this matter is to protect contractual relationships from exploitation through improper means.

Part III shall discuss the Defendants' arguments.

Verizon Litigation

Tom Patterson — Wed, 25 May 2011 09:07:23 -0600

Written by Jay Lewis

Cellco Partnership d/b/a Verizon Wireless v. Jason Hope, et al., CV11-0432-PHX-DGC (D. Ariz. 2011)

In the United Stated District Court for the District of Arizona, Verizon Wireless (“Verizon”) filed a complaint and motion for preliminary injunction against Jason Hope, Wayne Destefano, and Eye Level Holdings, LLC, d/b/a JAWA (“Defendants”) to prevent ongoing deceptive practices. The court granted Verizon’s motion. The facts are as follows:

Verizon operates a wireless telephone network. Defendants market and sell premium short message service (“PSMS”) on Verizon’s network. PSMS sends content to the user’s wireless device such as ring tones, horoscopes, recipes, celebrity gossip and news alerts for a standard monthly fee. The fee appears on the customer’s Verizon bill.

Verizon requires that companies who seek access to Verizon’s customers comply with guidelines for marketing practices developed by the Mobile Marketing Association (“MMA Best Practices”). Under the guidelines, content providers like the Defendants, must submit details of their marketing and sales programs to Verizon through a third-party, known as an aggregator. Once approved, the content provider can begin to provide services like PSMS on the Verizon network. After the services begin, Verizon uses a third-party auditor, Aegis, to ensure that the provider is not violating the MMA Best Practices.

Previous to this lawsuit, the Defendants had been suspended from the Verizon network for violating the MMA Best Practices. As a result of the suspension, Verizon required Defendants to identify themselves as Hope and Destefano when submitting a marketing and sales plan to the aggregator. Instead, the Defendants set up separate limited liability companies in the names of other employees with principal places of business at various UPS stores throughout the country. This was a ploy to prevent Verizon from associating the LLCs and their applications for network access with the named Defendants. The Defendants were successful in regaining access to the Verizon network and its customers.

Defendants sell their services through their websites. A customer will visit one of Defendants’ websites and enter information to sign up for the premium services. Verizon requires these websites to be MMA Best Practices compliant. This includes details on price, terms, conditions, cancellation policy, as well as requirements for font size and font color. The MMA Best Practices also requires that certain disclosures appear on the first page of the site. The third-party auditor, Aegis, monitors the sites for compliance.

At first, the Defendants operated websites that were MMA Best Practices compliant. However, they soon began dropping prices from the site, reducing font size, failing to provide termination information, and removing terms and conditions from the first page. In order to avoid detection, Defendants used either a firewall or cloaking software to prevent Aegis from viewing the non-compliant landing pages. When an Aegis auditor attempted to review the Defendants non-compliant website, the software would detect the auditor’s Internet Protocol address and redirect that auditor to a compliant site.

Aegis and Verizon eventually caught on to Defendants’ actions and barred them from the Verizon network. Verizon also took remedial steps in satisfying customer complaints by refunding subscription fees and increasing the costs of monitoring the Defendants’ actions.

PART II will discuss the legal aspects of this case.

Chinese Telecom Wins Injunction Against Rival

Tom Patterson — Thu, 12 May 2011 09:55:23 -0600

By: Jay Lewis

On the international front, Chinese telecom equipment supplier, Huawei, has won another battle in the intellectual property war against its rivals. On May 12, 2011, a German court awarded Huawei with an injunction preventing ZTE from using a trademark designed by Huawei. The trademark was used to signify compliance with European environmental standards. Full article here. ZTE has filed patent infringement cases against Huawei and has applied to have Huawei's trademark revoked.

Back in February, Huawei had been successful in winning an injunction against Motorola who was on the verge of selling assets to Nokia Siemens. Huawei had provided competitive trade secrets to Motorola when helping develop and design communication networks. The court ruled that Huawei would suffer irreperable harm if Motorola was allowed to sell assets to Nokia. Article here. Huawei later settled the dispute for an undisclosed amount which cleared the way for the Motorola-Nokia deal.

Avisena, Inc, v. Santalo, Case No. 3D10-178 (Fla. 3d DCA 2011)

Tom Patterson — Tue, 10 May 2011 14:39:09 -0600

By: Jay Lewis

On September 15, 2008, Alberto C. Santalo was terminated by Avisena, Inc., a Florida corporation. On September 16, 2009, Santalo’s newly formed business, CareCloud, began to compete with Avisena. Santalo had been the founder, president and chief executive officer of Avisena before his termination. Avisena filed a complaint and request for a temporary injunction claiming that Santalo was violating the non-compete clause of his employment contract. The employment contract included a post-employment restrictive convenant with time restrictions dependent on how his employment was terminated. If the Santalo was terminated for cause, he could not compete for 18 months. If the he was terminated without cause, Santalo could not compete for one year. Finally, if Santalo terminated his own employment without cause, he could not compete for a period of two years. Although the parties stipulated that Santalo was terminated by the company without cause, Avisena requested that the two-year restriction be placed on Santalo.

In the preliminary hearing, Santalo testified that he formed CareCloud in January, 2009, but he did not begin to compete with Avisena until after the twelve-month restriction had expired. Avisena argued the two-year, not the twelve-month, non-compete applied. The trial court agreed with Santalo’s interpretation of the contract and refused Avisena’s request for a preliminary injunction. Avisena appealed.

Florida law requires a party seeking a temporary injunction to establish all four of the traditional elements: (1) a likelihood of irreparable harm and the unavailability of an adequate remedy at law; (2) a substantial likelihood of success on the merits; (3) the threatened injury to the petitioner outweighs any possible harm to the respondent, and (4) the granting of a temporary injunction will not disserve the public interest. The burden of persuasion rests on the applicant. See Cordis Corp. v. Prooslin, 482 So. 2d at 489, 490 (Fla. 3d DCA 1986).

The appellate court affirmed the lower court’s finding that Avisena had failed to prove a substantial likelihood of success on the merits. The appellate court interpreted the underlying employment contract to provide for a twelve-month non-competition period following a termination by the company without cause. Avisena asserted the applicable restrictive clause states, "Employee shall not for a period of two (2) years during the period of time immediately following the Employee's termination of employment with the company [compete with the company]” However, the court highlighted the language “...Employee’s termination of employment…” and interpreted it to mean that if the employee decided to terminate his own employment, only then will a two-year restriction apply. But because the Avisena had stipulated that it had terminated Santalo without cause, the court determined a one year restriction applied.

Additionally, the appellate court found no evidence that Santalo had violated the clause by soliciting Avisena’s customers or employees prior to the expiration of the one-year restriction. The court cited Harllee v. Professional Serv. Indus., Inc., 619 So.2d 298 (Fla. 3d DCA 1992) which held that “mere preparation to open a competing business, such as assisting in the opening of a bank account, the obtaining of office space and other services with respect to the future employer are insufficient to demonstrate a breach.”

The dissent argued that the majority is “read[ing] language into the parties' agreement that simply is not there.” The dissent further asserted that in the case of ambiguity in contract interpretation, extrinsic evidence should be considered so as to do justice to the contracting parties’ intent. The dissent pointed to Avisena’s testimony that it was both parties’ intent to have Santalo restricted for two years after termination. Santalo did not recall any such conversation. The dissenting justice argued that if an individual does not recall an event it does not mean that the event did not happen and therefore the majority should have looked to parole evidence to make its decision.

The Weinstein Company Crow-ing over Distribution Rights, Part II

Tom Patterson — Mon, 02 May 2011 13:48:56 -0600

A preliminary matter likely to be raised in Relativity’s Response, as was raised in Ms. Genis’ letter, is whether the Superior Court of the State of California will entertain a motion for a preliminary injunction despite an arbitration clause in the Contract. Ms. Genis states that the arbitration clause “sets forth the arbitration forum, rules, and appeal process.” But without further examination of the terms, we cannot be certain whether the clause is applicable in this situation.

However, the location of the claim can be a key indicator as to whether a Court will grant a preliminary injunction. The Ninth Circuit has held that even though a dispute is arbitrable, that does not foreclose the right of preliminary relief pending arbitration if the elements for an injunction are met. (See PMS Distrib. Co. v. Huber & Suhner, A.G., 863 F. 2d 639, (9^th Cir. 1988).

Therefore, the Court may grant a preliminary injunction to preserve the status quo if it finds that the elements are met. From Ms. Genis' letter, the underlying Contract and the possible breaches smacks of a need for full scale arbitration. As such, TWC desires an injunction to prevent Relativity from causing irrevocable harm to TWC's distribution rights while the matter is sorted out in arbitration.

We will report back when more information becomes available.