Thursday, August 04, 2016

Can functionality become nonfunctionality with new data?

C5 Medical Werks, LLC v. CeramTec GMBH, 2016 WL 4092955, No 14-cv-00643 (D. Colo. Jun. 10, 2016)

C5 competes with CeramTec in the ceramic hip implant market. In 1998 CeramTec patented a ceramic composite used in hip implants, advertising that the chromium oxide in its composite increased the hardness of its hip implant and made it pink.  CeramTec sought trademark protection for pink in hip implant components after its patent expired.  The PTO first rejected the application for failing to show acquired distinctiveness; subsequently it put the color mark and COLOR PINK on the Supplemental Register.  (Which shows that the PTO often doesn’t have the necessary information about the affected industry to find functionality.)

C5 sued CeramTec for cancellation of its mark and a declaration of no trademark infringement. CeramTec answered and counterclaimed for infringement, asserting in part that its testing once suggested that chromium increased the hardness of ceramics, but that more recent and more accurate testing demonstrates that chromium does not increase the hardness of ceramics.  This, it claimed, defeated C5’s functionality argument.  (But is chromium the reason the product works?  If so, Traffix teaches, nothing else need be tried.)  C5 responded by adding false advertising claims.

The court found that C5 lacked Article III standing to bring its false advertising claim.  The court first found that there was only a presumption of injury “in false advertising cases where the defendant’s representations are literally false or demonstrably deceptive…. ‘i.e., when the defendant has explicitly compared its product to the plaintiff’s or the plaintiff is an obvious competitor with respect to the misrepresented product.’”   But … if chromium doesn’t make ceramics harder and CeramTec said it did, that’s literal falsity.  The court doesn’t explain itself here.

Regardless, 10th Circuit precedent was only dicta, and the court therefore declined to apply a presumption of injury to obvious competitors.  The court also rejected Sunlight Saunas, Inc. v. Sundance Sauna, Inc., 427 F. Supp. 2d 1032 (D. Kan. 2006), because that case applied the presumption to the merits of the claim and not to standing.  C5’s other allegations were bare allegations of harm.  It might be enough to plead that “CeramTec’s false advertising injured C5 because it strengthened CeramTec’s market position and erected barriers to C5’s market entry,” but that’s not what the complaint said.

Anyway, C5 failed to allege a fairly traceable connection between its injury and the complained-of conduct.  In what sounds a lot like pre-Lexmark reasoning, the court said that, to find causation, it would have to infer the following speculative facts: “(1) consumers chose CeramTec’s hip implant because they believed that one of its ingredients, chromium oxide, increased the hardness of the implant; (2) consumers acquired that belief because of CeramTec’s false statements; and (3) this strengthened CeramTec’s market position and created barriers preventing C5 from entering the market.”  The court considered (2) “particularly problematic because C5 claims that the relevant industry, including industrial manufacturers of ceramic powders, scientists, and consumers such as orthopedic surgeons believed, and still do believe, that chromium oxide increases hardness.” But C5 failed to explain how it was harmed by CeramTec’s statements rather than by the beliefs of the industry as a whole.

Finally, C5 failed to properly allege redressability.  It sought disgorgement of CeramTec’s profts and injunctive relief.  First, because C5 failed to allege a specific injury as discussed above, the court couldn’t determine whether disgorgement of CeramTec’s profits would be an appropriate remedy. Second, CeramTec now claims that chromium oxide doesn’t make its products harder, so an injunction is no longer necessary.  C5’s requested corrective advertising—ordering CeramTec to advertise chromium oxide’s nonfunctionality—would be particularly odd given C5’s current advertising that chromium oxide is functional.

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