Irreparable injury cannot be presumed in Lanham Act false advertising cases. That was the ruling in Leatherman Tool v. Coast Cutlery, a case decided in October in the District of Oregon. In that case the court found that Leatherman made a preliminary showing that its competitor, Coast Cutlery, deliberately included in advertising literally false statements concerning the sharpness of its knife blades. The court did not issue a preliminary injunction, however, because it found Leatherman’s affidavits avowing concern that sales would be diverted were speculative, and insufficient to prove that Leatherman would be irreparably harmed by its competitor’s literally false advertising.

On the heels of cases within the past five years expressly ruling a presumption of irreparable harm does not apply in patent and copyright cases,  a recent decision from the First Circuit in a trademark case and a one from the District of Arizona concerning another Lanham Act case, it is now seems likely, to the extent it was not after the Supreme Court's decision in Ebay, that  the days in which plaintiffs can count on a presumption of irreparable harm in an IP case of any type may be numbered.

The challenge now, for intellectual property owners, scrupulous advertisers and courts, is to prevent us from sliding into a culture of infringe now, pay later. Infringers will no doubt in every case assert that irreparable harm cannot be proven because the wrongdoing can be remedied by payment of damages, in the form of a license fee or, in the case of false advertisers and trademark infringers, payments for proven diverted sales. That leaves the plaintiff with a difficult task to prove otherwise, the danger the presumption of irreparable harm was designed to prevent. And so the battle lines are re-drawn. 

Reverse Greenwashing

Good stuff on the Green Patent Blog reporting on a lawsuit between plastic bag makers and a reusable bag maker.  The plastic bag makers claimed that the reusable bag maker published false statements about the negative environmental impact of plastic bags.  GPB labels this type of claim "reverse greenwashing" because instead of allegedly falsely promoting the environmental benefits of its own products, the reusable bag maker was allegedly doing the opposite, making false statements about the detriments of the competitors' products.

I'm not sure that is actually reverse, or upside down or something else.  We won't find out in that case because it settled, but claims of that type are likely to help keep environmental claims near the vanguard of false advertising law for the near future.

Not a Satisfied Customer? Sue.

If a business advertises that your business is a satisfied customer of theirs, and it isn’t, you can sue for violation of the Lanham Act. In broad strokes, that is the Second Circuit’s recent holding in Famous Horse v. 5th Avenue Photo.

The salient facts as alleged by Famous Horse were as follows. Famous Horse operates the V.I.M. stores in New York City, retailers of discount jeans and sneakers. Famous Horse alleged that it ordered a quantity of Rocawear jeans from 5th Avenue, a wholesaler, but the jeans turned out to be counterfeit.  V.I.M. stopped selling the counterfeit jeans and stopped doing business with 5th Avenue. 5th Avenue, nevertheless, told other retailers that V.I.M. was a satisfied customer. Famous Horse brought claims for violations of Lanham Act Sections 32(a) (registered trademark infringement) and 43 (a) (false endorsement).

The Court ruled that Famous Horse sufficiently stated a false endorsement claim, and that such claims can constitute violations of section 43(a). The court rejected arguments that the Lanham Act only addresses confusion concerning the source of the goods themselves. Although 5th Avenue never affixed the V.I.M. trademark to any goods, the court held that by advertising V.I.M. as a satisfied customer, 5th Avenue wrongfully used the V.I.M. mark in connection with advertising for 5th Avenue’s services.

Famous Horse als asserted an unfair compettion claim under Section 43(a). With respect to that claim, the court ruled that, although Famous Horse is not the owner of the Rocawear trademark, and the parties are not direct competitors because one is a wholesaler and one a retailer, Famous Horse had standing to sue for 5th Avenue’s alleged counterfeiting of the Rocawear mark. The court reasoned that the counterfeit jeans sold for lower prices than even discounted Rocawear jeans. Therefore, the court reasoned, V.I.M. could be injured by the counterfeiting both because it might lose sales and because consumers might think that V.I.M. did not offers Rocawear jeans at significantly discounted prices. Although the court recognized that damages for such injury might be difficult to prove, the court declined to limit standing for such claims to direct competitors, rejecting the rule it discerned in the 7th, 9th and 10th circuits that only direct competitors have standing, and lining up with the more flexible approach it discerned in the 3rd , 5th and 11th Circuits. The Second Circuit referred to its standing test as the “reasonable interest” test, requiring (1) a reasonable interest to be protected against false advertising and (2) a reasonable basis for believing that the reasonable interest will be damaged.

more on cgl insurance policy coverage for patent disputes

Following up on my August 16 post concerning coverage for patent infringement claims under the “advertising injury” provision of a company’s Comprehensive General Liability (“CGL”) policy, Judge Kane of the U.S. District Court for the District of Colorado issued an opinion recently in which he offered a fairly bright line distinguishing what is covered from what is not.

In Dish Network v. Arch Specialty Ins. Co., Judge Kane explained:

…the fact that a patented technology is capable of advertising goods or carrying promotional messages does not transform the technology into an advertising idea. Patent infringement may, however, constitute an advertising injury where an entity uses an advertising technique that is itself patented. The crucial inquiry, therefore, focuses on whether the complained of advertisement incorporates a patented advertising techniques as an element. If so, then the alleged infringement may constitute ‘advertising injury.’ If, however, the alleged infringement concerns the method of conveyance there is no ‘misappropriation of advertising idea.’

The patents in suit addressed methods of automated telephone call processing. Claim 219 of one of the patents in suit, "Telephone interface call processing system with call selectivity" claimed “A telephone interface system according to claim 199, wherein said select interactive operating format involves advertising of a product for sale."  Claim 199 claimed a telephone interface system for individually interfacing callers at a multitude of remote terminals for voice-digital communication through a telephone communication facility….”

The Court held that the patents involved technology that was capable of advertising goods or carrying promotional methods rather than advertising techniques, and that the insurer had no duty to defend or indemnify Dish Network with respect to the patent infringement claims.

Check Your Insurance Policy, and the Case Law, Again

I’m not sure why we can’t seem to settle the question of what IP litigation is covered under the typical Comprehensive General Liability insurance policy. Whether it is because the form is continually evolving, insureds are ever-clever in their strategies for seeking coverage, or the language in the policies is just so bad, we cannot. As a result, every single time a potential coverage issue arises, insureds should check both their policy and the case law in the likely forum for litigation to see if there may be grounds to assert coverage.

A case from the Ninth Circuit, Hyundai Motor v. Nat’l Union Fire Ins. Co., is the latest reminder that it pays to re-evaluate coverage every time. Hyundai was sued for patent infringement based on its “build your own car” feature on its Website. Patent infringement is not covered under the typical CGL policy. On that basis, the insurer declined coverage and declined to defend the lawsuit.

Hyundai reasoned that its build your own car feature was a form of advertising, and should have been covered under "advertising injury" clause in the policy. It sued the insurer and won. The court reasoned that the patents-in-suit involved advertising methods, therefore the patent infringement claims involved misappropriation of advertising ideas, and the claims were covered under the advertising injury clause.

Just goes to show you don’t ever know, so it pays to check both the policy and the case law every single time.