Injunctive relief denied in NEWPORT cigarette counterfeiting case

In Lorillard Tobacco Co v Engida, the US Court of Appeals for the Tenth Circuit has affirmed an order denying the injunctive relief sought by major tobacco manufacturer Lorillard Tobacco Company (Lorillard) in a counterfeiting case. Lorillard, the maker of NEWPORT cigarettes, filed a complaint against I and G Liquors (IGL), a small liquor store located in Denver, Colorado, alleging trademark infringement and counterfeiting. The district court granted Lorillard's request for a temporary restraining order and issued an order allowing federal marshals to raid the IGL premises based on evidence that a Lorillard employee had purchased two packs of counterfeit NEWPORT cigarettes from IGL. The raid, however, uncovered no counterfeit cigarettes and the district court lifted the temporary restraining order. In doing so, the court held that Lorillard had failed to demonstrate that there was a sufficient risk of irreparable harm to Lorillard to justify a continuing injunction.

Not deterred by the unfavourable ruling, Lorillard appealed the district court's decision and filed a petition for rehearing before the Tenth Circuit, however, the Tenth Circuit affirmed the district court's decision noting that the "decision to deny preliminary injunctive relief was not arbitrary, capricious, whimsical, or manifestly unreasonable".

To be entitled to an injunction, a plaintiff must establish four factors:

  • It will suffer irreparable harm if the injunction is not granted;

  • Its threatened injury outweighs the harm caused to the opposing party as a result of the injunction;

  • The injunction is not adverse to the public interest; and

  • It has a substantial likelihood of success on the merits of the case.

The Tenth Circuit found that the record did "not necessarily establish that Lorillard would suffer certain and great harm in the absence of an injunction". Nor did the court accept Lorillard's argument that a prima facie case of trademark infringement establishes irreparable harm per se. The Tenth Circuit cited eBay Inc v MercExchange LLC, explaining that "the Supreme Court disapproved of the use of categorical rules in connection with injunctive relief in intellectual property actions", but did not apply the eBay decision to the facts of the case. Instead, the court held that even if it assumed that prima facie evidence of trademark infringement was per se evidence of irreparable harm, Lorillard had not established the second factor of the preliminary injunction test, namely that the balance of harm favoured Lorillard more than IGL.

The absence of any additional counterfeit NEWPORT cigarettes found in the raid on the IGL premises undermined the likelihood of future injury to Lorillard. The Tenth Circuit also noted that the lower court did not err in taking into account the small size of the defendant's business. The fact that the counterfeit packages were so similar to genuine NEWPORT packages made it likely IGL would have to stop selling any NEWPORT cigarettes while the suit was pending to avoid accidentally violating the injunction. As a result, the risk that the preliminary injunction would have an adverse effect on the liquor store's sales of genuine NEWPORT cigarettes was viewed as greater than the risk to Lorillard that the defendant would sell counterfeit cigarettes in the absence of an injunction. As a result, the Tenth Circuit affirmed the district court's decision to deny Lorillard's request for injunctive relief.

Halle B Markus, Arent Fox LLP, Washington DC

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