Wednesday, April 09, 2008

False advertising without irreparable harm

North American Medical Corp. v. Axiom Worldwide, Inc., --- F.3d ----, 2008 WL 918411 (11th Cir.)

Eric Goldman summarizes the trademark aspects of the case, which involve another finding of “use in commerce” of keywords in metatags, though here the trademarked terms apparently appeared to consumers as part of Google’s short description of the site. I agree with him that the decision is not compellingly clear about the technology or the limits of the decision.

The parties make spinal devices to treat lower back pain, sold to doctors. Defendant’s device is known as the DRX 9000. The district court found that defendant falsely represented that there was an affiliation between NASA and it or its products, and that the DRX 9000 was FDA “approved.” (Defendant didn’t challenge the district court’s finding of falsity on defendant’s claim to have patented the DRX 9000 or some portion thereof.)

The court of appeals could sustain the preliminary injunction only as applied to literally false statements, because there was no evidence of actual consumer deception. But the court upheld the finding of literal falsity. Though one engineer with a NASA background helped develop the DRX 9000, that’s not an affiliation or collaboration with NASA, nor did that support claims that NASA engineers developed or discovered the technology. Likewise, though the DRX 9000 uses some components that NASA also uses, that doesn’t mean the device contains or embodies NASA technology. The court of appeals noted that these statements could also be construed as misleading, but the district court’s determination of literal falsity was not clearly erroneous.

Likewise, there was no clear error in the finding that the claim of FDA “approval” was literally false. As a Class II medical device, the DRX 9000 is only eligible for FDA “clearance,” not approval, which is a separate procedure for Class III devices. Moreover, FDA regulations state that it is misleading and constitutes misbranding to claim FDA approval for a device that is merely FDA cleared. The FDA’s use of “misleading” is not controlling; the court noted that “it is often a matter of degree whether a statement is literally false or merely misleading.” Nor was the district court required to interpret FDA regulations to rule on this; the court wasn’t making an approval determination, but rather recognizing what the FDA had already done.

The court also upheld the finding of materiality. Claims of NASA affiliation and FDA approval “logically” would influence a doctor’s decision to choose the DRX 9000 over its competitors. They don’t just show quality; “they provide marketing opportunities to the purchasing doctor when he or she in turn is advertising to prospective patients.” Indeed, after suit was filed, several of defendant’s clients complained about the possibility that they wouldn’t be able to use its claims to attract patients.

But there was a surprise waiting on irreparable harm, leading the court of appeals to vacate the preliminary injunction on both the trademark and false advertising claims. First, the district court erred in presuming irreparable harm merely because of Axiom’s literally false statements. Literal falsity is generally sufficient only in comparative advertising cases. (Or in near-duopoly markets, I would add, where false claims are the functional equivalent of comparative claims.) On remand, plaintiffs may be able to demonstrate irreparable harm, but it was an abuse of discretion to rely solely on this presumption. The court of appeals didn’t determine whether eBay v. MercExchange also applied to the false advertising claims.

By contrast, prior Eleventh Circuit cases did provide a presumption of irreparable harm once a plaintiff established a likelihood of success on trademark infringement. But eBay required the court to revisit that rule. “[N]o obvious distinction exists between permanent and preliminary injunctive relief to suggest that eBay should not apply to the latter. Because the language of the Lanham Act--granting federal courts the power to grant injunctions ‘according to the principles of equity and upon such terms as the court may deem reasonable’--is so similar to the language of the Patent Act, we conclude that the Supreme Court’s eBay case is applicable to the instant case.”

However, the court refused to decide whether a presumption of irreparable injury would be appropriate—that is, it did not decide that a presumption was equivalent to the categorical rules rejected in eBay. It punted to the district court on remand; that court could reach an appropriate decision under eBay without relying on any presumption, or it could decide “that the particular circumstances of the instant case bear substantial parallels to previous cases such that a presumption of irreparable injury is an appropriate exercise of its discretion in light of the historical traditions.”

Comment: I’m not entirely sure what makes the historical traditions of trademark different from those of patent for eBay’s purposes, but okay.

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