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The Fact That Plaintiff Most Likely Breached Agreement to Sell Trademark to Defendant Not Grounds to Deny Plaintiff’s Request for Injunction Against Frustrated Defendant

 

PRACTICE POINTER

The case of Derma Pen, LLC v. 4EverYoung Ltd., 773 F.3d 1117 (10th Cir. 2014) illustrates the need for counsel representing either party to an agreement allowing for the joint use, or licensing, of intellectual property to think through what remedies are necessary should one party terminate the agreement and one party desire a transfer of the trademark (or other intellectual property right).  Specifically, a contractual specific performance clause, or valuation mechanism may have helped the frustrated buyer under the first option clause in Derma Pen.  Instead, they found themselves on the receiving end of a protracted and costly trademark infringement lawsuit.  Adding insult to injury, the suit was coupled with a request for an injunction prohibiting their use of the mark.

 

FACTS

Plaintiff Derma Pen, LLC and 4EverYoung Ltd. entered into a sales distribution agreement for micro-needling devices.  Under the agreement, Derma Pen had the exclusive right to use the Derma Pen mark in the US.  4EverYoung had the rights throughout the rest of the world. The two companies anticipated that one of them might terminate the agreement at some point.  Thus, the distribution agreement provided that Derma Pen, LLC would offer to sell its trademark rights to 4EverYoung.  Eventually, Derm Pen terminated the agreement and 4EverYoung sought to exercise the right of first refusal.  After no deal came to fruition, 4EverYoung started using the Derma Pen mark in the US.  This triggered Derma Pen to launch a lawsuit for, inter alia, trademark infringement and unfair competition claims.  Derma Pen also moved for a preliminary injunction based on 4EverYoung’s trademark infringement.  The District Court denied the request for an injunction hinging on its analysis on the finding that Derma Pen would not be able to show a likelihood of prevailing on the merits.  The Tenth Circuit reversed and remanded.

TENTH CIRCUIT’S ANALYSIS

The Tenth Circuit reversed the District Court’s denial of Derma Pen’s request for a preliminary injunction, concluding that the District Court erroneously determined that 4EverYoung was likely to succeed on the merits of Derma Pen’s trademark infringement claim.  In it analysis, the Tenth Circuit clearly iterated that contract rights and contractually created property rights are different concepts.  Even though 4EverYoung might have a valid breach of contract claim against Derma Pen, until a sale under the agreement took place, Derma Pen still owned the mark.

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