Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Injunction

What it is:

Injunctions are an alternative to monetary judgments, in which the court might order a party to pay damages to another party. In some cases, they are much better for defendants to deal with; in Jane's case, the monetary damages could have come with a much higher cost if Donuts and Company alleged that it lost business in Arizona due to Jane's knock-off. In some cases, they are better for plaintiffs as well.

How it works (Example):

In the business world, injunctions sometimes involve intellectual property. Let's say that Company XYZ is a restaurant company. It has trademarked its name ("Donuts and Company") and has decorated all of its restaurants in the same, distinct way (striped awnings in front of the stores, special light fixtures, and a particular color scheme inside the restaurants). The company is doing well and opening a lot of restaurants around the country.

Jane Smith visits a Donuts and Company store one day while she is vacationing in Miami. She thinks her small town in Arizona could use a restaurant like Donuts and Company. Instead of becoming a franchisee, she starts a knock-off. She leases a site in Arizona, puts together a very similar menu, and decorates her "Donuts and Friends" restaurant with the same colors and distinctive awning outside.

One day, Donuts and Company catches wind of Jane's venture. They send an executive out to her restaurant to take pictures and collect evidence of Jane's efforts to imitate Donuts and Company. Then they sue Jane for trademark infringement. The judge issues an injunction, ordering Jane to stop selling food under the "Donuts and Friends" name, to change her trade dress (decorative appearance), and to stop using the Donuts and Company menu.

Some injunctions are preliminary injunctions, which means that a party is prohibited from doing something until the court has made a further decision. That further decision may involve issuing a permanent injunction, which forbids a party from doing something indefinitely or until certain conditions are met. Restraining orders are a kind of injunction.

Why it Matters:

An injunction is a court order that requires a party to stop doing certain things.