Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—10th Cir.: Denial of preliminary injunction in trademark infringement suit reversed, (Dec 10, 2014)

By Linda O’Brien, J.D., LL.M.

In an action by a domestic skin needling product distributor against a foreign supplier for trademark infringement and Lanham Act unfair competition, the federal district court in Salt Lake City erred in denying the distributor’s motion for preliminary injunction on the ground that it was not likely to prevail on the merits, the U.S. Court of Appeals in Denver has ruled. Thus, the district court order was reversed and remanded for reconsideration of the elements of irreparable injury, balancing of the equities, and public interest (Derma Pen, LLC v. 4EverYoung Limited, December 9, 2014, Bacharach, R.).

In August 2011, Derma Pen and 4EverYoung entered into a distribution agreement for the sale of a skin micro-needling device known as Dermapen. Under the agreement Derma Pen was given the exclusive right to sell the device in the United States and acquired ownership of the U.S. trademark rights for the device. 4EverYoung would sell the device throughout the rest of the world. The agreement also provided that, upon termination, Derma Pen would offer to sell its U.S. trademark rights to 4EverYoung.

Derma Pen performed under the agreement through expiration of its two-year term and sent a letter terminating the agreement. After 4EverYoung unsuccessfully attempted to exercise the option to buy Derma Pen’s trademark rights, it started to use the trademark in the United States. Subsequently, Derma Pen filed suit against 4EverYoung, asserting claims in part for trademark infringement and unfair competition under the Lanham Act and alleging that 4EverYoung fraudulently induced Derma Pen to enter into the distribution agreement. The district court denied Derma Pen’s request for a preliminary injunction, reasoning that Derma Pen was not likely to prevail on the merits. Derma Pen appealed.

The district court abused its discretion in determining that Derma Pen was not likely to prevail on its claims of trademark infringement and unfair competition, according to the appellate court. A preliminary injunction would have been appropriate if Derma Pen showed (1) it was likely to succeed on the merits; (2) the denial of the injunction would result in irreparable harm; (3) a balancing of equities favored a preliminary injunction; and (4) a preliminary injunction was consistent with the public interest, the court explained.

In this case, the district court largely relied on the element of the likelihood of success. Derma Pen contended that it had a protectable interest in the trademark. 4EverYoung responded that, although it conceded that Derma Pen owned rights to the trademark while the agreement was in effect, those rights were extinguished upon termination of the distributor agreement.

The court noted that the agreement expressly provided that on termination Derma Pen would offer to sell the U.S. trademark to 4EverYoung. The provision made sense only if Derma Pen remained the contractual owner of the U.S. trademark rights after termination until those rights were sold. In the absence of a sale of that property interest, Derma Pen likely continued to enjoy a protectable interest in the trademark.

Furthermore, the district court’s consideration of the elements of irreparable injury, balancing of the equities, and public interest was colored by its erroneous view on the likelihood of success. Without the error, it was unclear how the district court would have ruled on the equitable elements, in the appellate court’s view. Thus, the district court’s denial of the motion for preliminary injunction was reversed and remanded for reconsideration of the three equitable elements based on Derma Pen’s likelihood of success on the merits.

The case is No. 13-4157.

Attorneys: Samuel F. Miller, Maia T. Woodhouse, and Nicholas L. Vescovo (Baker, Donelson, Bearman, Caldwell & Berkowitz) for Derma Pen, LLC. James E. Magleby, Christine T. Greenwood, Christopher M. Von Maack (Magleby & Greenwood, P.C.) for 4EverYoung Limited.

Companies: Derma Pen, LLC; 4EverYoung Limited

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