The US Court of Appeals for the Fourth Circuit vacated and remanded a district court ruling, finding that the district court failed to properly apply the Federal Rules of Civil Procedure (FRCP) in granting injunctive relief. Wudi Industrial (Shanghai) Co., Ltd. v. Wong et al., Case Nos. 22-1495; -1662 (4th Cir. June 5, 2023) (Gregory, King, JJ.) (Rushing, J., dissenting). The dissent argued that the district court simply entered a permissible order enforcing a settlement agreement between the parties.
The FRCP outlines the necessary criteria and steps for courts to grant injunctive relief. FRCP 52(a)(2) requires courts to state the findings and conclusions that support their actions. FRCP 65(d) requires courts to state the reasons why the injunction was issued, state the injunction’s terms specifically or describe the restrained/required act(s) in detail. Per the Supreme Court’s Ebay test, a party seeking injunctive relief must demonstrate the following:
- It has suffered an irreparable injury.
- Remedies available at law, such as monetary damages, are inadequate to compensate for that injury.
- Considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted.
- The public interest would not be disserved by an injunction.
Wudi Industrial competes with Wai L. Wong and his business entity GT Omega Racing (collectively, GTOR) in marketing video gaming chairs and other products. GTOR challenged Wudi’s GTRACING trademark registration in a cancellation proceeding at the Trademark Trial & Appeal Board, alleging that the mark encroached on GTOR’s earlier use of GT OMEGA RACING. The Board ruled in favor of GTOR, and Wudi initiated a first appeal at the district court. The parties subsequently entered into a concurrent-use agreement that assigned to Wudi the right to use the GTRACING word mark in all global markets except within a European carve-out of 53 named countries in exchange for a $4.5 million payment to GTOR. Under the agreement, Wudi was barred from purchasing ad words from search engines and shopping sites or using any social media platforms to promote GTRACING in the European carve-out countries.
In May 2022, GTOR filed a motion for enforcement in the district court, alleging breach because some of Wudi’s marketing and promotional content in the European carve-out contained the GTRACING mark. The district court granted GTOR’s motion and issued a first order. Under threat of contempt for noncompliance, Wudi was ordered to cease impermissible conduct and take down all posts accessible in the European carve-out containing GTRACING within seven days. In June 2022, the district court issued a second order stating that the first order was a grant of specific performance, not a preliminary injunction. Wudi appealed both orders.
The Fourth Circuit vacated and remanded the district court’s first and second orders because of procedural errors amounting to abuses of discretion, despite the dissent’s argument that the orders merely enforced the parties’ agreement. The Court concluded that the first order constituted a preliminary injunction, later made permanent by the second order, because “if it walks like a duck, quacks like a duck, and looks like a duck, then it’s a duck.” The Court concluded that the first order possessed all the necessary attributes and thus qualified as an injunction order: it contained “clear enforceable directives” and threatened Wudi with contempt for noncompliance. It also used the phrase “immediately cease” with respect to specific conduct and directed Wudi to comply with those commands within seven days. The Court also concluded that the district court was required to ensure that the party seeking injunctive relief made the requisite showing under relevant legal precedent governing injunctions.
Finding that the first order was a preliminary injunction that was rendered permanent by the second order, the Fourth Circuit concluded that the district court made procedural errors that amounted to abuses of its discretion. The Court explained that the district court violated FRCP 52 and 65 because it did not “state the findings and conclusions that support its action,” “state the reasons why [the preliminary injunction] issued,” “state [the injunction’s] terms specifically,” or “describe in reasonable detail . . . the act or acts restrained.” The Court, therefore, vacated and remanded for further proceedings.
Judge Rushing dissented, arguing that the district court’s order was summary enforcement of a settlement agreement and therefore permitted under Fourth Circuit law. He argued that a party seeking enforcement of a settlement agreement did not need to follow the tests for seeking preliminary or permanent injunctive relief. He also argued that the district court did not need to follow FRCP 52 because the district court’s order did not follow “an action tried on facts without a jury” or grant or refuse an “interlocutory injunction” under the Court’s precedent on summary enforcement proceedings. He also argued that the district court satisfied Rule 65 by finding that Wudi was in breach of the settlement agreement by using forbidden marks in the European carve-out.