Trademark Modernization Act Could Reshape Litigation

Attorneys Adam Powell and Stephen Larson authored, “Trademark Modernization Act Could Reshape Litigation,” which was published in Law360.

Excerpt:

Title: The Impact Of The Trademark Modernization Act On Litigation In 2021

The Trademark Modernization Act resolves a circuit court split by providing a rebuttable presumption of irreparable harm upon a showing of trademark infringement.  This provides additional enforcement and protection options for trademark owners.  The provision will also affect how trademark owners litigate cases.  Trademark owners will again focus their efforts on showing customer confusion.  The provision should also reduce forum shopping that occurred when courts applied disparate standards for granting injunctive relief.

The Supreme Court’s 2006 eBay Inc. v. MercExchange LLC[1] decision held that patent owners were not entitled to a presumption of irreparable harm upon showing patent infringement.  After eBay, circuit courts split as to whether to apply eBay in trademark cases.  Some circuits continued to apply the presumption or appeared to apply a hybrid test by finding irreparable harm with little elaboration.[2]  The Ninth Circuit and others relied on eBay in holding that courts could no longer presume irreparable harm from trademark infringement.[3]  The Ninth Circuit acknowledged that “[e]vidence of loss of control over business reputation and damage to goodwill could constitute irreparable harm.”[4]  However, the court discounted evidence of confusion as being relevant to infringement, “not irreparable harm.”[5]   Such decisions led to courts denying injunctive relief even when the showing of infringement itself evidenced irreparable harm.[6]

The Trademark Modernization Act (the “Act”) resolves the circuit split and provides:

A plaintiff seeking any such injunction shall be entitled to a rebuttable presumption of irreparable harm upon a finding of a violation identified in this subsection in the case of a motion for a permanent injunction or upon a finding of likelihood of success on the merits for a violation identified in this subsection in the case of a motion for a preliminary injunction or temporary restraining order.[7]

The Act thus provides that infringement itself gives rise to a presumption that the trademark owner was irreparably harmed.  That makes sense.  Trademark law is designed to help the public identify the source of goods and services.  Consumer confusion, by its nature, is likely to irreparably harm the trademark owner who loses some degree of control over its brand.[8]  As a leading trademark scholar explained, “confused purchasers will think that defendant’s goods or services are sponsored or approved by plaintiff” and poor-quality goods will “reflect adversely upon plaintiff’s business good will and reputation.”[9]  The Act is consistent with the nature of trademark infringement and will affect trademark litigation in many ways.

First, the Act should obviously make it far easier for trademark owners to obtain injunctions, particularly against companies that do not directly compete.  As discussed, the Ninth Circuit previously held that evidence of actual confusion may be insufficient to show irreparable harm.[10]  Where the parties are not direct competitors, it can be difficult or impossible to go beyond customer confusion to show actual lost sales or actual loss of control over the brand.  As a result, it became very difficult to meet the Ninth Circuit’s requirement to show irreparable harm separate from the infringement itself.  The Act should remedy the situation by providing a rebuttable presumption of irreparable harm and allowing evidence of consumer confusion to once again show irreparable harm.  As a result, it should become easier for trademark owners to obtain an injunction against companies that do not directly compete.

Second, the provision will make it easier for large companies to protect their brand against a multitude of smaller infringers.  Such cases are not filed to garner damages.  They are filed to police the use of confusingly similar trademarks.  In these cases, it can be difficult to demonstrate that any particular infringer selling a small quantity of goods caused the larger company to lose control over its business reputation or goodwill.  The Act should make trademark enforcement actions more attractive by presuming irreparable harm and placing the burden on the infringer to show the infringement caused no irreparable harm.  As a result, trademark enforcement actions may be more attractive for larger companies pursuing smaller infringers.  The provision is consistent with a trademark owner’s duty to police its marks so that the trademark continues to identify a single source of goods or services.

Third, the provision will likely impact how trademark cases are litigated.  In addition to declining to apply the presumption, some courts had suggested that evidence of customer confusion had little relevance to requests for injunctive relief because such evidence was “nothing more than a regurgitation of consumer confusion evidence” used to show infringement and irreparable harm could not be “proven by a mere showing of consumer confusion.”[11]  As a result, litigants had to explain how the confusion affected the trademark owner’s business—even though irreparable harm to a brand logically flows from customer confusion itself.  Trademark owners can now refocus their efforts on obtaining strong evidence of customer confusion, which is often the best and most common evidence of irreparable harm.  The legislative history of the Act explained that, when there is strong evidence “demonstrating consumer confusion or loss of control over the brand,” it is “unclear what additional evidence could or should be provided to establish irreparable harm.”[12]

Fourth, the Act should reduce forum shopping.  As discussed, courts throughout the country imposed very different standards when deciding whether to grant an injunction.  The resulting disparity likely pushed trademark owners to engage in forum shopping by suing in courts that still applied the presumption.  As one commentator explained, the Ninth Circuit’s decision had “no doubt contributed to some forum shopping” and there was “little reason to file a trademark infringement case in a Ninth Circuit federal district court” if there was “another appropriate forum.”[13]  Perhaps at least in part due to the Ninth Circuit’s position, trademark filings in Ninth Circuit district courts fell more than 30% since 2013.[14]  The Act should eliminate much of the forum shopping that currently exists by providing a uniform framework for obtaining injunctive relief.

It remains to be seen exactly how courts will apply the Act’s rebuttable presumption of harm, but the Act is a welcome development for trademark owners and will significantly impact trademark litigation in the coming years.

[1] 547 U.S. 388 (2006).

[2] See, e.g., Abraham v. Alpha Chi Omega, 708 F.3d 614, 627 (5th Cir. 2013) (applying presumption); Audi AG v. D’Amato, 469 F.3d 534, 550 (6th Cir. 2006) (citing eBay while holding “Audi would be irreparably harmed”).

[3] See, e.g., Herb Reed Enters. LLC v. Florida Entm’t Mgmt., 736 F.3d 1239, 1249 (9th Cir. 2013), cert. denied, 135 S. Ct. 57 (2014); Adidas Am., Inc. v. Skechers USA, Inc.890 F.3d 747, 759 (9th Cir. 2018).

[4] Herb Reed, 736 F.3d at 1250.

[5] Id.

[6] See, e.g., Williams v. Green Valley RV, Inc., No. 8:15-cv-01010, 2015 WL 4694075, at *2 (C.D. Cal. Aug. 6, 2015).

[7] Consolidated Appropriations Act of 2021, Publ. L 116-260 § 226(a) (2020).

[8] See H. Rep. 116-645 at 17 (Dec. 14, 2020) (legislative history explaining “the damages occasioned by trademark infringement are by their very nature irreparable and not susceptible of adequate measurement for remedy at law”).

[9] J. T. McCarthy, McCarthy on Trademarks & Unfair Competition § 30:47 (2020).

[10] See Herb Reed, 736 F.3d at 1250.

[11] Williams, 2015 WL 4694075, at *2.

[12] H. Rep. 116-645 at 19 (Dec. 14, 2020).

[13] See Gekas, Jami A, Protecting Your Brand Online Through Strategic Enforcement, 2015 WL 2407522, at *11 (Aspatore 2015).

[14] According to Lex Machina (https://law.lexmachina.com), the number of trademark cases filed in Ninth Circuit district courts decreased from 1,244 in 2013 to 852 in 2020.

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