Monday, June 29, 2015

claim of "improved" version of competitor's product not likely to confuse

Arborjet, Inc. v. Rainbow Treecare Scientific Advancements, Inc., 63 F.Supp.3d 149 (D. Mass. 2014)
Arborjet sued Rainbow over an alleged breach of a sales agency agreement and won a preliminary injunction.  Arborjet makes insect and pest control products for direct injection into trees. Rainbow makes pesticides to protect trees and also distributes pesticides manufactured by other companies; it competes directly with Arborjet.
In 2008, Arborjet began selling an emamectin benzoate product, TREE-age, which protects trees from the emerald ash borer and other destructive pests. TREE-age was successful, and Rainbow solicited Arborjet to become its distributor of the full line of Arborjet’s products, including TREE-age.  During negotiations, Arborjet allegedly expressed concern about Rainbow’s possible copying of Arborjet’s products, and Rainbow allegedly assured Arborjet that it had no such intention.  So they entered into a Sales Agency Agreement and Rainbow agreed to devote its best efforts to the promotion and sale of Arborjet’s products. 
The Agreement included a confidentiality and nondisclosure provision, and said “in view of the confidential information regarding Arborjet’s business affairs, plans, and necessities, [Rainbow] will not engage in affairs intended to replicate the Arborjet’s products or processes.”  Plus, it had a noncompete provision that said Rainbow wouldn’t “replicate the Arborjet system of using a plug which seals the formulation in the xylem and a needle which injects behind the plug” for two years after the agreement ended.  Arborjet didn’t allege a breach of this last provision, but the parties disputed its relevance to Arborjet’s breach of contract claim.
Instead, Arborjet alleged that Rainbow violated the part of the agreement prohibiting Rainbow from “engaging in affairs intended to replicate” its products.  Rainbow began developing and testing ArborMectin, its competitor for TREE-age, as early as 2011, when the Agreement was still in force.  (Rainbow terminated the Agreement in 2013.)  Arborjet didn’t allege that Rainbow used confidential information, but said that didn’t matter. 
In 2014, Rainbow sent a blast marketing email to customers with the subject line “Improved TREE-age! NEW ArborMectin Speed VIDEO.” The text said that “Rainbow is excited to offer ArborMectin™, an improved 4% emamectin benzoate (TREE-age) tree injection formulation. ...Treat trees 30–70% faster using ArborMectin™ versus TREE-age.”  The email linked to a video that characterized ArborMectin as a replacement for TREE-age and indicated that ArborMectin is “backed by science,” “proven to be effective,” and treats trees “consistently faster than TREE-age.”
Arborjet argued that, while the Agreement was in effect, Rainbow was contractually barred from engaging in “affairs intended to replicate” Arborjet’s products, even absent misappropriation of Arborjet’s proprietary confidential information. Moreover, Rainbow allegedly breached the implied covenant of good faith and fair dealing given that it knew Arborjet’s purpose in the Agreement was to stop copying.
Rainbow argued that it didn’t “replicate” TREE-age because ArborMectin was not a “copy” or “duplicate.” Though the products have the same active ingredient, ArborMectin is less toxic and has lower viscosity than TREE-age. The court found this argument unpersuasive.  First, the fact that the final product had differences didn’t matter, given that the contract covered activities “intended to replicate” Arborject products. Given how Rainbow marketed the product as “improved TREE-age,” the court found its activities covered. Plus, it was unreasonable to read the contract as barring only exact copies “in light of Arborjet’s particular, expressed concern about direct competition with its own products.” Thus there was likely success on the merits of the contract claims.
Lanham Act false advertising: Arborjet argued that claims that its product was “backed by science”, “proven effective” and “treats trees 30–70% faster than TREE-age” were establishment claims.  The tests Rainbow relied on were allegedly unreliable because none of them was subject to peer review and the studies tested only five or six trees whereas studies of TREE-age tested between 60 and 100 trees. Thus, the study results didn’t prove the claim that ArborMectin was an improvement over TREE-age. The court found that Arborjet hadn’t demonstrated the studies’ unreliability at this stage, without industry or regulatory standards regarding peer review or sample size.  The claim that ArborMectin was an “improved TREE-age” was a non-establishment claim, just a general claim of superiority. Arborjet didn’t show actual falsity, because ArborMectin had lower toxicity and viscosity than TREE-age and those differences could be regarded as improvements.
However, the court expressed concern that the “improved TREE-age” claim was likely to mislead customers into thinking the products came from the same company. Rainbow indicated that it would no longer make that claim.
Arborjet also argued that Rainbow’s website infringed Arborjet’s registered trademarks “without including the symbol or any other attribution to the owner,” which would cause customer confusion.  But, as Rainbow pointed out, none of the other confusion factors favored Arborjet, such as the dissimilarity between TREE-age and ArborMectin.  RT: Also, it has never been the rule that failing to use a ® is misleading.  Unfortunately, the court also said that Rainbow “should be more careful with its attribution of proprietary marks in its communications,” even though Arborjet was unlikely to succeed on the merits.  Rainbow should clearly be more careful about suggesting that it produced an “improved version” of someone else’s product—there are lots of ways of saying that which are nonconfusing—but failing to use ® is not one of the ways in which it was careless.
Given Arborjet’s substantial likelihood of success on the merits of the contract claim, it had less of a burden to show irreparable harm under the First Circuit’s sliding scale.  The court found irreparable harm because of the significant risk of damage to Arborjet’s reputation and relationships with its consumers.  “Although plaintiff can be compensated for lost profits by monetary damages, the effect on its goodwill and reputation are particularly hard to quantify.”
The balance of equities tipped in Arborjet’s favor, but only slightly given Rainbow’s investment in a new product.  Rainbow also argued that the public interest favored competition and that this lawsuit would suppress competition, but “here the parties voluntarily and knowingly contracted to limit their competition.” Thus, it was in the public interest to enforce a limit on competition in this case.

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