Sudden impact: falsity and trademark claims succeed

MSP Corp. v. Westech Instruments, Inc., --- F.Supp.2d ----, 2007 WL 2253473 (D. Minn.)

The parties compete in the market for impactors, devices that measure the size of aerosol particles in order to test inhalers. Pharmaceutical companies are the relevant consumers. Because of accuracy problems with older impactor technology, a consortium of 15 pharmacos, the Next Generation Impactor Consortium, funded R&D on a new impactor. The Consortium chose plaintiff MSP to develop it in 1998. In return for nearly a million dollars, MSP agreed that the new impactor design, called the Next Generation Impactor or NGI, would be published in peer-reviewed journals and/or the Pharmacopoeia, including specific design requirements and full dimension drawings. The contract also required MSP to use “its best commercial efforts to reduce the manufacturing cost and final price” of the NGI.

The contract required MSP, after selling its first 100 units “to make available all INTELLECTUAL PROPERTY resulting from [the contract] ... necessary for the manufacture of NGIs or further embodiments of the NGI for use or sale only in the pharmaceutical industry ... [and] to license upon reasonable terms and conditions [to] third parties reasonably able to manufacture NGIs to provide additional source(s) of NGIs for the [pharmaceutical] industry.” The licensing obligation survives contract termination.

In 2000, MSP introduced the Next Generation Impactor/NGI. The NGI has a puzzle-piece shape following the shape of the internal components, though MSP claimed that the shape could have been a rectangle or square without changing performance. The bottom of the NGI was royal blue, to match MSP’s company colors. MSP’s NGI now accounts for almost all sales of new impactors to pharmacos – MSP has sold more than 400 – even though there are other types of impactors on the market. Pharmacos are aware that multiple companies make and sell the same type of impactor.

Defendant Westech created its own NGI with the help of Pfizer, a consortium member. It used the consortium-approved, published specifications. Westech’s NGI was “almost identical” in shape and color. Westech and MSP engaged in licensing negotiations, but didn’t complete them. Westech referred to its product as “our new NGI,” “Westech Next Generation Impactor,” and “Westech 7-Stage Impactor with Micro-Orifice Collector.”

The court found that the word marks “NGI” and “Next Generation” were suggestive, not descriptive, since they “require imagination” to connect them to the impactor. This seems misguided; “next generation” doesn’t specify much about the impactor, but it is something, and I can’t see how it differs from “new,” a plainly descriptive albeit vague term. After finding the word marks suggestive, the conclusion that Westech infringed followed readily despite lack of evidence of marketplace strength or actual confusion and despite a high degree of consumer sophistication. The court also found that MSP had not established secondary meaning in its royal blue color or the shape of the NGI.

MSP also charged Westech with false advertising; the court found that Westech’s use of “our new NGI” and “Westech Next Generation Impactor (WNGI)” was a false use of the Next Generation marks to identify its own product, duplicating the trademark holding. (Something is making me itch here about Dastar. Since Westech is clearly identified as the source of the physical product – unless there’s confusion about licensing, which is certainly a possibility – wouldn’t Dastar apply? If not, why not?)

Relatedly, MSP argued that Westech conveyed a false impression that the consortium had approved Westech’s NGI by stating, “The fifteen pharmaceutical companies were involved with design and qualification of the new instrument called the Next Generation Cascade Impactor (NGI).” While this is true, the court found that MSP would likely succeed on the merits because, again, the Next Generation marks are MSP’s. This should mean that all Westech has to do is change the name. (Also, this really looks like a misleadingess argument; where is the evidence of likely consumer deception?)

MSP also challenged Westech’s claim that its NGI was “validated”: “As another validated instrument for inhalation drug and devices testing, the NGI fulfills many needs in evaluations with advanced features.” This was a falsity-by-lack-of-substantiation claim, because MSP argued that “validated” meant some sort of approval or confirmation. Westech argued that, in the pharmaceutical industry, a “valid” instrument need only have measurements that comply with the relevant specifications, and that it validated its own NGI by measuring the NGI’s critical components and confirming it complied with the consortium specifications. The court, without explaining why it rejected Westech’s industry meaning argument, accepted MSP’s dictionary definitions and found a likelihood of success on literal falsity: there was no evidence that the consortium or anyone else approved Westech’s impactor, or even that Westech tested the impactor itself.

Separately, MSP alleged falsity by necessary implication because Westech juxtaposed information about the consortium with its description of its impactor, and also citing a peer-reviewed article that describes test results from MSP’s NGI, thus necessarily implying that Westech’s impactor was approved by the consortium and validated by research on the MSP impactor.

The court agreed that Westech’s citation of product characteristics based on an article testing the MSP NGI necessarily implied a falsehood. Reasonable consumers would think that the article described tests of Westech’s impactor. There is a missing link here: what is the evidence that the two impactors differ? I would think MSP would have alleged false claims of equivalence if the impactors were not, in fact, equivalent. If the impactors are the same, it is not false to rely on test data of one to explain the characteristics of the other, and it is not material that the tested impactor came from one supplier rather than another. Consider this: would it be false advertising for a generic drug maker to use test results achieved by the original producer when the drug was within its patent period? Of course not. Only if there were material differences between the drugs would false advertising come into play.

The result on the trademark claims clearly drove the result on all the false advertising claims; a name change and some clarifying language should be enough to allow Westech to continue competing – setting aside any other IP rights MSP might have.

Trivia: My college debate coach's father incorporated Impact, Texas so he could sell liquor (the name Six-Pack already having been taken).