Tag: injunction

Trademark Infringement – The Irreparable Harm and Inadequate Remedy at Law Injunction Elements

The Northern District of Illinois recently pronounced the governing standards for injunctive relief in a franchise dispute between rival auto repair shops.

SBA-TLC, LLC v. Merlin Corp., 2015 WL 6955493 (N.D.Ill. 2015) sued its former franchisee for trademark infringement after the franchisee continued using the plaintiff’s signage, logo and design plans after the franchisor declared a default and terminated the franchise.

The court granted the plaintiff’s motion for a preliminary injunction based on the following black-letter basics:

To obtain injunctive relief, the moving party must show (1) he is likely to succeed on the merits, (2) the movant is likely to suffer irreparable harm if an injunction isn’t issued, (3) the balance of harms tips in the movant’s favor, and (4) an injunction is in the public interest.

To win a trademark infringement suit, the plaintiff must show (1) a protectable trademark, and (2) a likelihood of confusion as to the origin of the defendant’s product. In the injunction context, the trademark plaintiff merely has to show a “better than negligible chance of winning on the merits.

The plaintiff here introduced evidence that it properly registered its trademarks and that the defendant continued to use them after plaintiff declared a franchise agreement default. This satisfied the likelihood of success prong.

The court next found the plaintiff satisfied the irreparable harm and inadequate remedy at law injunction elements. Irreparable harm means harm that is not fully compensable (or avoidable) by a final judgment in the plaintiff’s favor.  To show an inadequate remedy at law, the plaintiff doesn’t have to prove that a remedy is entirely worthless.  Instead, the plaintiff needs to show that a money damage award is “seriously deficient.”

Trademark cases especially lend themselves to court findings of irreparable harm and an inadequate remedy at law since it is difficult to monetize the impact trademark infringement has on a given brand. Lost profits and loss of goodwill are factors that signal irreparable harm in trademark disputes. The court further found that since it’s difficult to accurately measure economic damages in trademark cases, an inadequate remedy at law could be presumed.

Finally, the court found that the balance of harms weighed in favor of an injunction. It found the potential harm to plaintiff if an injunction did not issue would be great since the defendant franchisee could continue to use plaintiff’s marks and financially harm the plaintiff. By contrast, harm to the franchisee defendant was relatively minimal since the franchisee could easily be compensated for any lost profits sustained during the period of the injunction.

Take-away:

SBA=TLC provides a succinct summary of governing injunction standards under FRCP 65. The case stands for proposition that the irreparable harm and inadequate remedy at law prongs of injunctive relief are presumed in the trademark infringement context given the intrinsic difficulties in quantifying infringement damages.

 

 

“Will It Play in Peoria?!”: Fed. Court Casts Doubt on Continued Vitality of ‘Two – Year Rule’ to Enforce Non-Compete

Peoria

Fifield v. Premier 2013 IL App (1st) 120327 is (was?) an important case in employment law circles for cementing the “two year rule”: two years of continuous employment is the bare minimum length of at-will employment required for an employer to enforce a restrictive covenant.

From the employer’s vantage point, the rule was troubling since it gave the employee all the leverage: he could leave a job at any time before he reached the two-year mark regardless of whether he signed a non-compete.

About two years later, Prairie Rheumatology Assocs. v. Francis, 2014 IL App (3d) 140338 followed Fifield but with a twist: it considered whether an employer could elude the two-year rule if by offering am employee an additional benefit (e.g., training, marketing support, bonus payments, etc.) beyond continued employment.  Still, the court in that case nullified the non-compete since the doctor defendant decamped less than two years  of her hire date.

Enter Cumulus Radio Corporation v. Olson, 2015 WL 643345 (C.D.Ill. 2015), a Federal case that examines whether the two-year rule is inexorable in the context of a radio station’s injunction suit against a competitor in the Peoria, Illinois market.

The plaintiff sued its former account executive and his new employer, a competing station, for violating restrictive covenants contained in an employment contract signed by the executive.  The contract contained a six-month/sixty mile non-compete term and a 12 month non-solicitation and non-disclosure term.  The non-solicitation clause barred the executive from contacting certain of plaintiff’s customers (radio advertisers) for 12 months after he leaves.

The plaintiff resigned 21 months into his tenure with plaintiff and began working for the competitor just two days later.  The plaintiff sought a temporary restraining order (TRO) preventing the executive from working for the competitor for the duration of the non-compete term.  The Southern District granted in part and denied in part the plaintiff’s TRO request.

Under Federal Rule of Civil Procedure 65, a TRO plaintiff must show that (1) he will suffer immediate, irreparable injury; (2) a likelihood of success on the merits; and (3) lack of an adequate remedy at law.  If the plaintiff makes the required showing on elements (1)-(3), the court then balances the relative harms to the parties and the public if the TRO is granted.  *2.

On the breach of contract count – alleging the executive breached all the restrictive covenants – the court found that the executive’s 21-month tenure with the plaintiff was sufficient consideration to support the non-compete.

The court refused to rigidly apply Fifield and “predicted” that Illinois’ Supreme Court would apply a more flexible test than the dogmatic two year rule.

For support, the court pointed to two  recent Northern District decisions that rejected the two-year rule in favor of a more fact-specific and flexible test.  The reason, according to the court, was that if the two-year test is formulaically applied, restrictive covenants would be rendered illusory and voided at the “whim of the employee.” (**4-5).

In finding that employing the executive’s for a 21-month term was adequate consideration to support the restrictive covenants, the court found that the plaintiff showed a likelihood of success on the merits on its TRO claim that the executive breached the employment contract.

Takeaways

Significant in that it’s another Federal court casting doubt on the continued vitality of the two-year rule.  Practitioners who are seeking to enforce restrictive covenants where the underlying employment length didn’t reach two years, now have three District court cases – two from the Northern, one from the Southern – that show a willingness to depart from the two-year rule.

 

 

Two-Year Continuous Employment Rule to Support Non-Compete Validated by Illinois Appeals Court

Fifield v. Premier, 2013 IL App (1st) 120327 is rightly regarded as a watershed case in Illinois employment and non-compete law circles for squarely stating that two years of continuous employment is the required consideration to support a non-compete agreement in an at-will setting.

Prairie Rheumatology Associates, SC v. Francis, 2014 IL App (3d) 140338 represents an appeals court’s recent validation of the two-year rule in the context of a medical practice suing to prevent one of its former physician employees from competing against it.

The plaintiff medical company and the doctor defendant entered into an at-will employment contract (it could be terminated by either side at any time) that contained a 2-year and 14-mile non-compete term. The defendant agreed not to perform competing medical services for 2 years and within 14 miles of the plaintiff’s office measured from the date defendant’s employment ceased and the physical office location.

19 months into her tenure, defendant quit and went to work for a medical services firm located nine miles from plaintiff’s office. Plaintiff sought a preliminary injunction to enforce the non-compete. The trial court entered an injunction that prevented the defendant from treating plaintiff’s current patients but allowed defendant to treat patients that belonged to her before she started working for the plaintiff. The defendant appealed.

Held: reversed. Non-compete lacks consideration and is not enforceable.

Reasons:

In Illinois, a post-employment restrictive covenant (like a non-compete agreement) is enforceable only where it is reasonable in geographic and temporal scope (“space and time”) and necessary to protect a legitimate employer interest.  A restrictive covenant is reasonable where (1) it’s no greater than necessary to protect the employer’s legitimate business interest, (2) it doesn’t impose an undue hardship on the employee, and (3) isn’t injurious to the public. (¶ 12).  But before the court analyzes these three factors, it must first determine whether the restrictive covenant is supported by consideration.

The reason for the consideration rule is because an employer’s promise of continued employment is often illusory in an at-will relationship since the employer can fire the employee at any time without warning.  Two years or more of continued employment constitutes adequate consideration in the non-compete setting and the two-year rule applies even where the employee resigns on his own instead of where he is fired.  (¶¶ 14-15).

Here, the defendant resigned 19 months after her employment commenced – five months short of the required two-year consideration period. As a result, the court declined to enforce the non-compete.

The court rejected plaintiff’s argument that it gave the defendant “additional consideration” in the form of marketing support and facilitating defendant’s hospital privileges. Looking at the evidence, the court found plaintiff gave defendant minimal assistance in obtaining hospital privileges and failed to introduce defendant to any referral sources as was promised. At the injunction hearing, plaintiff’s principal couldn’t name a single doctor to whom she introduced defendant during defendant’s time practicing at plaintiff’s office.  (¶¶ 18-19).

Afterwords:

This case cements rule that two years of continuous employment is required for there to be adequate consideration to enforce a post-employment non-compete term.  An employer can possibly get around this by offering additional consideration (i.e., something the employee is otherwise not entitled to).  But where the employer cannot offer evidence of the additional consideration, the two-year rule controls and will bar enforcement of the non-compete.