IP Law Daily, TRADEMARK—4th Cir.: Injunction lifted over mark for video game chairs, (Jun 6, 2023)

By Brian Craig, J.D.

The district court failed to analyze the appropriate preliminary injunction factors on a motion to enforce a settlement agreement with factual disputes.

In a trademark dispute over the “GTRACING” mark for video game chairs between two Asian-centered businesses, the U.S. Court of Appeals for the Fourth Circuit has lifted an injunction on a motion to enforce a settlement agreement entered by the federal district court in Virginia. Even though the district court never used the word “injunction” in the order, the Fourth Circuit held that the district court’s order possessed all of the attributes of an injunction. In a dissenting opinion, Circuit Judge Allison Rushing expressed her view that summary enforcement of a settlement agreement by specific performance does not require an analysis of the preliminary injunction factors (Wudi Industrial (Shanghai) Co. Ltd. v. Wong, June 2, 2023, Hilton, C.).

Wudi Industrial (Shanghai) Co., Ltd. (“Wudi”) and GT Omega Racing, Ltd. (“GTOR”) are both Asian-centered business entities that sell video game chairs. In 2017, Wudi registered the stylized word mark “GTRACING” with the USPTO. GTOR claimed that it already owned an earlier use of a similar word mark of “GT OMEGA RACING” and challenged Wudi’s registration of the “GTRACING.” GTOR brought an opposition and the Trademark Trial and Appeal Board sided with GTOR. Wudi initiated an action in the federal district court in Virginia seeking review of the Board’s decision. In 2021, the parties reached a global confidential settlement agreement of their trademark dispute. The settlement agreement included a European carve out over the “GTRACING” word mark. GTOR then brought a motion to enforce the settlement agreement claiming Wudi violated the settlement agreement. The district court granted an order against Wudi and Wudi appealed. On remand, the district court clarified that it considered the order a grant of specific performance under Virginia law. In a consolidated appeal, Wudi appealed the district court’s decision to the Fourth Circuit.

Injunction requirements. The Fourth Circuit first recognized that the Federal Rules of Civil Procedure require the district court to make findings of fact and conclusions of law when issuing an injunction. The court must also analyze the appropriate preliminary injunction factors. These factors include: (1) likelihood of success on the merits; (2) irreparable harm; (3) the balance of equities; and (4) the public interest. In this case, the district court failed to make findings of fact and conclusions of law with the orders. The district court also failed to analyze the four factors that a party must satisfy to obtain an injunction.

Injunction attributes. The Fourth Circuit also concluded that the district court’s order possessed the attributes of an injunction, rather than specific performance. Even though the district court never use the magic word of “injunction” in the orders, the orders included the attributes of an injunction. The appeals court adhered to the time-tested adage: “if it walks like a duck, quacks like a duck, and looks like a duck, then it’s a duck.” The first order includes enforceable directives and threatens contempt for noncompliance. The order repeatedly uses the phrase “immediately cease” with respect to specific conduct, and it directs Wudi to comply with those commands within seven days. And the first order is both mandatory and prohibitory.

The appeals court held that the orders were not specific performance to enforce a contract, in light of factual disputes between the parties. Specific performance on a contract compels the performance of a contract in the precise terms agreed upon by the parties. If there is a factual dispute over an agreement’s terms, the district court may not enforce a settlement agreement summarily. In this case, the briefs confirm factual disputes between the parties. Thus, the district court’s orders were injunctive relief rather than specific performance on a contract. Because the district court failed to conduct the appropriate analysis for injunction relief, the Fourth Circuit reversed the district court’s decision.

Dissent. Circuit Judge Allison Rushing wrote a dissenting opinion that the district court’s summary enforcement of a settlement agreement does not require an analysis of the four factors for granting a preliminary injunction. Judge Rushing argued that specific performance of a settlement agreement is not the same remedy as a judicially crafted injunction. The majority opinion weakens the stability and finality that settlement offers because it allows a party with buyer’s remorse to undermine a settlement agreement whenever a party concludes paying damages would be more palatable than keeping its end of the original bargain, according to Judge Rushing.

The Case is No. 1:20-cv-00908-CMH-TCB.

Attorneys: Dana Duane McDaniel (Spotts Fain PC) for Wudi Industrial [Shanghai] Co., Ltd. Craig Crandall Reilly (Law Office of Craig C. Reilly) for Wai L. Wong.

Companies: Wudi Industrial (Shanghai) Co., Ltd.

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