Third Circuit: False Statements Do Not Trigger Presumption of Irreparable Harm in Lanham Act False Comparative Advertising Cases

Practical Law Legal Update 4-579-4045 (Approx. 7 pages)

Third Circuit: False Statements Do Not Trigger Presumption of Irreparable Harm in Lanham Act False Comparative Advertising Cases

by Practical Law Commercial

Background

Section 43(a) of the Lanham Act creates a cause of action for unfair competition arising from false or misleading advertising (15 U.S.C. § 1125(a)). The US Supreme Court recently clarified the standing rule for this cause of action, which requires that plaintiffs allege an injury to a commercial interest in sales or business reputation proximately caused by the defendant's misrepresentations (Lexmark Int'l, Inc. v. Static Control Components, Inc., 134 S. Ct. 1377(2014)).

In a two-party market, as the case in Ferring (see Comparative Advertising at Issue), injury is presumed from comparative false or misleading advertising (see Legal Update, Second Circuit Clarifies the Use of Presumptions in Lanham Act False Advertising Cases). The determination of injury on the merits, however, is distinct from the preliminary injunction determinations of irreparable harm and likelihood of success on the merits.

Irreparable Harm

Generally, federal courts no longer apply a presumption of irreparable harm when considering preliminary injunctions simply because plaintiffs demonstrate a likely success on the merits after the US Supreme Court decisions in eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006) (eBay) and Winter v. Natural Resources Defense Council, 129 S.Ct. 365 (2008) (Winter) (see Box: Presuming Irreparable Harm Prior to eBay and Winter). Every Circuit Court of Appeals to consider preliminary injunctions after eBay and Winter has applied the combined rule from those decisions to a wide range of federal causes of action, notably, including causes of actions created by the Lanham, Copyright and Patent Acts.

Prior to this case, the Third Circuit had not considered whether the combined rule from eBay and Winter applied to Lanham Act comparative false advertising cases.

Comparative Advertising at Issue

Progesterone is a hormone that naturally occurs in women, supplemented in those who are seeking to become pregnant through assisted reproductive technology (such as in-vitro fertilization). Supplemental progesterone is usually administered by intramuscular injections, which are not approved by the Food and Drug Administration (FDA).

Ferring Pharmaceuticals, Inc. (Ferring) and Watson Pharmaceuticals, Inc. (Watson) are the only two companies that produce and sell supplemental progesterone products that are administered through vaginal inserts, rather than intramuscular shots. Both Ferring's product, Endometrin, and Watson's product, Crinone, are FDA-approved.

Ferring's claims arose from false and misleading statements Dr. Kaylen Silverberg, a consultant paid by Watson, made during two Watson-hosted presentations to promote Crinone. Doctors and medical professionals attended the presentations, which were simultaneously streamed online and accessible only to those who were provided a password.

Lawsuit and Appeal

Ferring filed a false advertising action against Watson under Section 43(a) of the Lanham Act in the US District Court for the District of New Jersey. Ferring subsequently made a motion for a preliminary injunction, seeking:

To enjoin Watson from making further false statements.
An order for Watson to undertake a corrective advertising campaign.

Ferring specifically challenged Silverberg's statements that:

Referenced a "Black Box" warning on Endometrin's package insert. Black box warnings signify that medical studies indicate that the drug carries a significant risk of serious life-threatening effects. Endometrin did not have a black box warning.
Discussed a patient preference survey comparing Crinone and Endometrin. The patient preference survey consisted of "yes" and "no" questions and did not have any questions comparing the two progesterone products, the only two products on the market.
Mischaracterized, allegedly, the results of certain studies of Endometrin's effectiveness in women over the age of 35.

The district court found, and Watson admitted, that each of these three statements Silverberg made were either false or misleading. However:

Watson took corrective measures immediately when it learned of the false and misleading nature of the statements.
Silverberg certified that she would not make similar statements about Endometrin in the future, in connection with the preliminary injunction determination.

The district court denied Ferring's preliminary injunction motion because it found that, despite the falsity of Silverberg's statements, Ferring was not entitled to a presumption of irreparable harm because it established likelihood of success (the falsity of the statements). Ferring did not otherwise establish irreparable harm because of Watson's immediate corrective measures and Silverberg's certification.

Ferring appealed the district court's decision, arguing that irreparable harm can and should be presumed in Lanham Act comparative false advertising cases.

Outcome

The Third Circuit held that, when seeking preliminary injunctions, Lanham Act plaintiffs:

Are not entitled to a presumption of irreparable harm even when a plaintiff establishes likely success on the merits (by demonstrating that statements made in subject advertising are false or misleading).
Must independently demonstrate that irreparable harm is likely without the relief requested, under traditional equity-based principals.

Ferring argued that the framework under the Supreme Court's decisions in eBay and Winter governing injunctions should not apply to lawsuits under the Lanham Act because of the following differences between the Patent and the Lanham Acts:

Patents are distinctly treated as property. Patents have the attributes of personal property, including the right to exclude others from making, using, offering for sale or selling the invention. By contrast, the Lanham Act does not create a corresponding property right, especially in regards to the false advertising cause of action.
Harm is more difficult to quantify under the Lanham Act. The harm derived from patent and copyright infringement can generally be measured in monetary terms by examining the appropriation of a potential market for the patent invention or copyrighted work. In contrast, injury to goodwill or reputation under the Lanham Act (either by trademark infringement or false advertising) is difficult to measure because it is virtually impossible to ascertain the precise economic consequences of intangible harms caused by Lanham Act violations.

In rejecting Ferring's arguments, the Third Circuit reached the same conclusion as the other Circuit Courts of Appeals that have considered the applicability of the eBay rejection of an irreparable harm presumption, as extended to preliminary injunctions by Winter. According to the Third Circuit, a presumption of irreparable injury cannot be applied to false advertising lawsuits under the Lanham Act because, under the eBay and Winter decisions (see Box: Presuming Irreparable Harm Prior to eBay and Winter ), courts cannot presume irreparable harm for federal causes of action without explicit Congressional direction. As Congress has retained the traditional standards governing Lanham Act preliminary injunctions, courts cannot presume irreparable harm in Lanham Act comparative false advertising cases.

Practical Implications

With this decision, the Third Circuit joins every other Circuit Court of Appeals that has considered the applicability of the Supreme Court's decisions in eBay and Winter to situations other than injunction determinations for cases brought under the Patent Act.

This case makes clear that plaintiffs seeking preliminary injunctions in the Third Circuit, for Lanham Act cases alleging either false advertising or trademark infringement, must establish the likelihood of irreparable harm without the benefit of a presumption.

For more information on Lanham Act false advertising cases, see Practice Notes:

For more information on trademark infringement, see Practice Note, Trademark Infringement and Dilution Claims, Remedies and Defenses.

Presuming Irreparable Harm Prior to eBay and Winter

One of the four prongs a party seeking a preliminary injunction must establish is that the plaintiff will likely suffer irreparable harm unless the court grants the relief requested by the plaintiff. Prior to eBay and Winter, the Third Circuit, as with other Circuit Courts of Appeals, had previously applied a presumption of irreparable injury in preliminary injunctions if a plaintiff established that it was likely to succeed on the merits of the case.

For false advertising cases, likelihood of success can be established if a plaintiff demonstrates that statements made in the advertising at issue are false. The Third Circuit had applied an irreparable harm presumption in trademark infringement, but not false advertising, lawsuits brought under the Lanham Act.

According to the Third and other Circuit Courts of Appeals, presuming irreparable harm in certain Lanham Act cases was appropriate because false or misleading statements about a competitor's product, made in comparison to a company's own product, created the potential for damage to the competitor's product or brand reputation. This damage would constitute irreparable injury to the competitor that is difficult to quantify.

These widely used presumptions were effectively eliminated for preliminary injunctions, in other contexts, because of the Supreme Court's decisions in:

eBay. Decided in the context of a patent infringement permanent injunction determination, the Supreme Court rejected a presumption of irreparable harm even when a plaintiff establishes a likelihood of success on the merits. Absent explicit Congressional direction to the contrary, courts must use equity principles that have traditionally governed preliminary injunction determinations.
Winter. The Supreme Court extended the eBay holding to the context of preliminary injunction determinations. This decision eliminated a "possible" harm standard previously used by a number of Circuit Courts of Appeals for preliminary injunction determinations.

Third Circuit: False Statements Do Not Trigger Presumption of Irreparable Harm in Lanham Act False Comparative Advertising Cases | Practical Law