Monday, April 01, 2013

Del Monte trademark, false advertising battle ends with damages and injunction

Fresh Del Monte Produce Inc. v. Del Monte Foods Company, 08 Civ. 8718 (S.D.N.Y. Mar. 28, 2012)

Fresh Del Monte (Fresh) mostly won a jury verdict on its breach of contract and Lanham Act false advertising claims against Del Monte (DMC). The court granted a permanent injunction, but declined to award attorneys’ fees or prejudgment interest on the Lanham Act claims, though prejudgment interest was available on the breach of contract claim.

DMC is the successor to original Del Monte, which spun off its fresh fruit division in 1989 (Fresh); DMC focused on selling preserved produce.  Original Del Monte divided the rights to use the Del Monte mark; DMC sold Fresh the rights to use the mark on certain products primarily comprising fresh fruit and vegetables.  But the parties have lengthily and litigiously disagreed about the meaning of the license agreement. One trial established that DMC licensed the mark to Fresh for exclusive use in selling fresh fruit, even if the fruit had been processed in certain ways.  A decade later, Fresh claimed that DMC breached a license provision specifying that Fresh has the right to use the mark “on an exclusive basis, [for] refrigerated pineapple products … and refrigerated [melons, berries, papayas and bananas].”  Fresh argued that this provision gave it the exclusive right to use the mark on refrigerated products containing these five fruits, even if they were preserved, and a jury agreed and found breach, awarding $5.95 million in damages.

In addition, Fresh claimed that DMC falsely advertised its Fruit Bowl (packaged in a clear plastic bowl, as fresh fruit is often packaged), Fruit Naturals, Superfruit, SunFresh, and Orchard Select product lines as containing fresh, rather than preserved, fruit, most prominently by using labels communicating the false message that refrigeration was required and by failing to communicate that the products contained preservatives or were pasteurized, and also by putting the products next to similar fresh fruit products in the refrigerated fresh produce section of supermarkets. The jury found that DMC willfully violated the Lanham Act, except for the Orchard Select line (which comes in a glass jar, as SunFresh did).  Though it found that Fresh failed to prove lost sales, it awarded $7.2 million in DMC’s profits.  The jury also found that DMC’s “Fruit Undressed” ad campaign, which showed fresh fruit while it was being peeled or cut, violated the Lanham Act, though Fresh didn’t seek damages for that.

The court applied eBay and found permanent injunctive relief appropriate, as is usually the case after a full trial finding false advertising (per McCarthy).  Likewise with breach of a trademark license.  eBay applies to the Lanham Act, which gives no indication that it departs from general equitable principles.  (However, the court discussed most of the factors after detailing the scope of the injunction, which—like the statement that Lanham Act violations usually justify injunctive relief—suggests that eBay’s spirit hasn’t necessarily penetrated Lanham Act analysis.)

DMC argued that it voluntarily ceased its violative conduct, and that the injury wasn’t irreparable and was more than adequately remedied by the award of DMC’s profits.  However, until the jury delivered its verdict, DMC continued to sell Del Monte-branded refrigerated products with the five fruits and using the advertising the jury found to willfully violate the Lanham Act.  DMC’s post-verdict steps to discontinue the production of breaching products, remove “Must be Refrigerated” from heat-treated products, and note on ingredient list when a product is “pasteurized” or contains “preservatives” didn’t moot the question of injunctive relief.  Given DMC’s longstanding continuation of the practices even through trial, there was some cognizable danger of recurrent violation.  It was within its rights to contest Fresh’s claims, but “it cannot be heard to complain when Fresh seeks to reduce the jury’s verdict to an enforceable injunction.”  The court noted that DMC’s own senior staff discussed “what we can get away with vs. Del Monte Fresh Produce” in selling refrigerated products.

There was also evidence that DMC knew that consumers might be misled—market research indicated that “it is highly likely that there is consumer confusion between Del Monte Fruit Naturals” and plaintiff’s fresh cut fruit. DMC staff also discussed another study that indicated that 72% of consumers thought that its preserved grapefruit “looked like fresh fruit.” DMC executives admitted that pasteurized products were labeled “Must be Refrigerated” despite their conceded knowledge that such products were shelf stable without refrigeration. Overall, this case differed from other non-injunction-grantic cases where defendants acted in good faith and ceased infringing as soon as they were notified of possible issues.

As to irreparable injury/inadequate remedies at law, the court found that the jury award of $5.95 million for breach of contract was “clearly derived from the parties’ conflicting evidence about what constituted a reasonable royalty, and the parties agree that the jury used a rate of 1.75%.”  But that wasn’t enough to compensate Fresh for harm to this good will, because there is “no question” that such injuries are difficult to measure (ed. note: because good will is magic!), especially since the license agreement says that any breach will result in irreparable harm.  The Lanham Act authorizes an accounting of profits because of the difficulty of proving lost sales; the verdict itself showed that Fresh couldn’t easily prove lost sales, let alone lost good will or market share, since the jury found Fresh lost $0 in sales.  An accounting (awarded for the false advertising) is just a rough measure of the damages.  “There is simply no way to know what the precise effects of these Lanham Act violations were, nor precisely what harm future violations would cause.” And Fresh might not be able to prove lost sales for any future violation.

Once the injunction was narrowed, the balance of hardships favored Fresh, which would have to expensively monitor DMC without an injunction.  As for the public interest, enforcing the license agreement would help consumers. DMC could continue to sell refrigerated produce, competing with Fresh, as long as it used another brand name.  And enforcing the license agreement would “add clarity by ensuring that all Del Monte-branded refrigerated produce derives from one source.”  Unh-hunh.   I’m sure consumers completely understand the refrigerated versus unrefrigerated divide.  (Not that I think that this rationale actively disfavors an injunction; I just wish the court wasn’t pretending that consumers had any idea about the artificial way in which the license agreement divides the brand.)

DMC was enjoined from using the Del Monte mark on any product containing any of the five fruits that was intended to be refrigerated or chilled at the point of sale, and ordered to notify all known retailers of the breaching products that they shouldn’t be sold under refrigeration.  (Interesting situation—the breach is committed by retailers, who don’t have direct contractual relationships with Fresh in this regard; another issue with dividing the mark up in this weird way, which consumers are unlikely to understand.)  For a certain period, DMC would be required to notify any retailers discovered to be refrigerating the products that this was not allowed.  However, DMC’s shipping and storage procedures weren’t covered by the injunction.

As for the false advertising, the court “appropriately permitted Fresh to paint with a broad brush in depicting the claimed false advertising, thereby permitting the jury to find a violation of the Lanham Act based on the totality of DMC’s marketing practices,” but not “every stroke on the canvas must be enjoined.”  The jury’s verdict indicated that many of the practices Fresh challenged didn’t mislead consumers about the freshness of DMC’s products: “the marketing of the Orchard Select product line, which the jury found did not violate the Lanham Act, shares many of those allegedly misleading features.”  Given the small differences between the offending products, especially SunFresh, and the nonoffending Orchard Select line, a narrow injunction was appropriate.  DMC was enjoined from pasteurizing or adding chemical preservatives to its fruit products without stating that fact on the label; enjoined from stating that any preserved fruit product “Must be Refrigerated” without test results that establish that the product is not shelf stable; enjoined to set forth on the ingredient list that sodium benzoate or potassium sorbate are preservatives; enjoined from disseminating the “Fruit Undressed” ads; and, given the evidence that DMC had accelerated the “best by” dates on fruit bowl products, implying a shorter shelf life than was true, enjoined from setting “best by,” “sell by,” or other similar dates on its products without substantiating test results.  However, DMC didn’t have to put “Contains Preservatives” on the front or state in future ad campaigns that the products are preserved.

The court denied Fresh an award of attorneys’ fees, despite the jury’s finding of willful false advertising; an award is discretionary even in an exceptional case. The court viewed the case as close in several respects, and Fresh didn’t win a total victory with the jury.  Overall:

The evidence showed a deliberate effort to attach to DMC’s preserved refrigerated products an aura of freshness in consumers’ minds, and to minimize the reminders that the products were preserved. But the evidence did not suggest that DMC used the “Must be Refrigerated” labels and omitted the fact that certain products were pasteurized or contained preservatives in order to trick consumers into believing the products were made by Fresh. Indeed, there was no evidence at all that the average consumer even knows that there are two different companies using the same Del Monte name and trademark. (emphasis added)

Given the jury’s split verdict, DMC’s choice to litigate the case through trial wasn’t unreasonable. For largely the same reasons, the court declined to exercise its discretion and award prejudgment interest.  And while we’re noting the Alice-in-Wonderland quality of trademark analysis, chew on this as a reason to deny prejudgment interest: “notwithstanding the difficulty in measuring Fresh’s injuries, any financial harm to Fresh has been adequately compensated by the jury award. No more is needed.”  Damages are adequate, except when they’re not, because trademark.  Got it!

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