Sunday, June 15, 2008

HerbaQuit told to commit to quit suing

Natural Answers, Inc. v. SmithKline Beecham Corp., --- F.3d ----, 2008 WL 2390483 (11th Cir.)

Natural Answers (for a past interaction with the Lanham Act, see here) claimed that defendants (GSK, for GlaxoSmithKline) infringed its rights in the unregistered mark HerbaQuit Lozenges and falsely advertised Commit Lozenges as “the first and only stop smoking lozenge.” The district court granted GSK summary judgment, and the court of appeals affirmed.

From 2000 to 2002, Natural Answers sold HerbaQuit, which was designed to “help satisfy cravings related to the smoking habit,” particularly the “psychological and habitual aspects of smoking.” (Ah, the distinction between supplement and drug claims, how I despise you.) In March 2001, Natural Answers solicited GSK for a joint venture promoting HerbaQuit; GSK declined the next month. By early 2002, Natural Answers ceased selling the product because it lacked the ability and resources to do so, though it did unsuccessfully solicit Philip Morris for a joint venture in December 2003.

In November 2002, GSK launched Commit Lozenges as “the first and only stop smoking lozenge.” Commit is FDA-approved and, unlike HerbaQuit, contains nicotine to deal with withdrawal from smoking.

The district court granted summary judgment on the false advertising claims on the grounds that Natural Answers couldn’t show any injury, because the two lozenges were never marketed or sold at the same time. Moreover, the court found that the ads weren’t false, because under the applicable laws and regulations, Natural Answers couldn’t market HerbaQuit as a smoking cessation (“stop smoking”) product. On the trademark claims, the court held that no reasonable juror could find a likelihood of confusion between HerbaQuit and Commit.

Rather than starting the trademark analysis with the obvious lack of likely confusion, the court of appeals began with abandonment. Abandonment under the Lanham Act requires that a claimant cease use of the mark and have an intent not to resume use in the reasonably foreseeable future (which is not the same as an intent to abandon). Such intent can be inferred from circumstances. Nonuse for 3 years creates a rebuttable presumption of the requisite intent. GSK was entitled to this presumption, shifting the burden of production (though not persuasion) to Natural Answers. The court of appeals found that any reasonable factfinder would find abandonment. The assertions that Natural Answers intended to resume use if it could find funding and/or a partner were insufficient; if that was enough, “no trademark would ever be abandoned.”

The court then found that Natural Answers lacked prudential standing to bring a false advertising claim. Under the terrible Phoenix of Broward decision (as well as under more sensible rules), Natural Answers lacked a sufficient interest to justify standing. As readers may recall, there’s a 5-factor test: (1) is the injury of the type Congress sought to redress in the Lanham Act; (2) how direct/indirect is the injury; (3) how proximate is the plaintiff to the defendant’s harmful conduct; (4) how speculative is the damages claim; and (5) what are the risks of duplicative damages/complexity in apportioning damages? Because the parties weren’t ever in direct competition, this inquiry didn’t go well for Natural Answers, as one might imagine.

First, this isn’t the type of injury Congress sought to redress: commercial interests in avoiding a competitor’s false advertising and avoiding the appropriation of reputation and goodwill. Natural Answers couldn’t lose any customers or potential customers from GSK’s ads, because it didn’t have any at the relevant time. Second, there’s no direct relationship between the allegedly false claims and the claimed injury. All Natural Answers alleged was that the “first and only” claim influenced purchasing decisions, harming HerbaQuit’s brand value if and when HerbaQuit returns to the market, but that can’t have caused lost sales or market share or increased promotional costs, all of which were at zero. (It does seem to me that there’s a story to be told that the presence of Commit on the market made it difficult or even impossible for HerbaQuit to reenter—but that would probably be true no matter what the marketing slogan for Commit was. I don’t think that unique products should be able to make false claims to consumers without constraint, but the Lanham Act might not be the way to go; also, as the court suggested, companies with non-lozenge smoking cessation products actually on the market have an incentive to challenge GSK’s ads if they make false claims.)

Finally, the suit presented a risk of duplicative damages, because if Natural Answers had standing, “then any company that ever had, will have, or, possibly, may have a smoking cessation product whose associated trademark could potentially be ‘weakened’ would have prudential standing.”

This standing problem defeated the state-law claims as well. Lanham Act analysis applies to common law unfair competition claims. And the Florida Deceptive and Unfair Trade Practices Act requires that the plaintiff have been “aggrieved” by the defendant’s conduct. The court of appeals held that the same lack of injury/lack of competition doomed the FDUTPA claim.

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