Emergency Business Litigation : Chicago Business Crisis Lawyer & Attorney : Tom Patterson Law Firm : IL Emergency Business Litigation, Temporary Restraining Orders

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.

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 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.    

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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:

1. A likelihood of success on the merits of the legal claim,
2. Irreparable harm in the absence of preliminary relief,
3. The balance of equities tips in the favor plaintiff’s favor, and
4. 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.

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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."

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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:

1. MAS survives the merger in its current form as an independent, though wholly or partially owned, corporate entity;
2. There are no material changes in MAS’s operations;
3. There are no material changes in MAS’s business plans;
4. Alere does not hire any current or former employees, officers, or directors of MAS;
5. MAS does not hire any current or former employees, officers, or directors, of Alere;
6. No current or former employees, officers, or directors of Alere serve as directors or board members of MAS;
7. No current or former employees, officers, or directors of MAS serve as directors or board members of Alere;
8. MAS does not share with Alere any confidential or proprietary information regarding Roche or any other company with which MAS does business;
9. 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
10. 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.

11. 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.”

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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.

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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.

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 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:

1. The Motion for Preliminary Injunction filed by Plaintiff WorldCare Limited Corporation is granted; and
2. 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.

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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:

1. Strength of the owner’s mark;
2. the similarity between the owner’s mark and the alleged infringer’s mark;
3. the degree to which the products compete with each other;
4. the alleged infringer’s intent to ‘pass off’ its goods as those of the trademark owner;
5. incidents of actual confusion;
6. 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.

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 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.

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