Thursday, May 01, 2014

claims about conduct's legality don't violate Lanham Act



Ameritox, Ltd. v. Millennium Laboratories, Inc., No. 11–cv–775, 2014 WL 1456347 (M.D. Fla. Apr. 14, 2014)

Previously, there have been several opinions in this false advertising case between competitors in the urine testing market.  Here, Millennium won summary judgment on some parts of the case.
Ameritox alleged a number of misrepresentations by Millennium, starting with billing letters for doctors to give to patients stating a policy (1) not to collect the difference between the amount Millennium billed for its services and the amount the patients’ insurance companies agreed to pay, and (2) not to require patients to pay deductible or co-pays. Ameritox alleged that these were deceptive as to those who weren’t required to pay anything anyway (or who only had a $1 copayment).  This was an illusory benefit as to them, and also Ameritox alleged that waiving these payments was illegal under federal and some state law, so Millennium gained business by falsely representing that these actions were proper.

Second, Millennium allegedly created a press release advocating for higher Medicare reimbursement rates for doctors performing drug screening, falsely representing that Millennium had no vested interest in advocating for this change and gaining credibility for its supposed altruism. 

Millennium also allegedly engaged in various misrepresentations about billing, deceptively representing that its billing scheme was proper, when it wrongly encouraged doctors to bill multiple times or multiple ways for the same procedures.  Relatedly, it allegedly encouraged doctors to send samples to Millennium for more expensive testing than that performed in the doctor’s office.

Finally, Millennium allegedly falsely stated and implied that giving doctors free or below-market-priced products and services (testing cups, assistance for obtaining certain waivers necessary to conduct drug testing, and chemical analyzers) was legal.  The free testing cups could only be used to collect samples and then send them to Millennium, not for billable testing.  Millennium’s cup agreements enabled it to convert accounts from Ameritox.  Similarly, assistance in obtaining waivers was supposedly $50 in order to avoid antikickback laws, but Millennium didn’t actually charge the fee until this lawsuit was filed; this also helped Millennium get accounts.

The court agreed that statements about the legality of the cup agreements couldn’t found a Lanham Act claim, because no court or agency had held them illegal. Laypersons’ purported interpretations of statutes and rules are opinion, not fact, in the absence of a clear and unambiguous judicial or agency holding.  There was no clear case law on the cups, only an inquiry letter from a Florida agency that didn’t result in any action.  (However, to the extent that the conduct of giving the cups amounted to unfair competition because it was illegal, Ameritox could continue to pursue this state law claim.)

As to the below-market chemical analyzers, Millennium argued that it didn’t offer them.  Ameritox presented evidence that Millennium sought out the third-party vendors, negotiated preferential pricing for Millennium customers, and would benefit from the transactions, so summary judgment was denied. The court also rejected Millennium’s “commercial advertising or promotion” argument on this topic, since there was evidence that Millennium sales reps told doctors about the offer and told them that it was legal.

As for the representations about billing, the parties didn’t sufficiently identify the specific representations at issue or show how they were proper or improper.  Ameritox provided evidence that Millennium’s sales representatives would tell customers: (1) how the customers and Millennium could both bill for testing the same urine specimen; and (2) how the customers could bill multiple units.  But the court was still unclear on the specifics or the propriety of these practices. (I take it this uncertainty includes whether there was a definitive court or agency statement about the practices.) Summary judgment denied.

The court also found that Millennium’s marketing of assistance for obtaining waivers wasn’t improper, because it advertised that it charged $50.  Thus, it didn’t falsely advertise the legality of its assistance.  But the conduct of not collecting the fee might still be unfair competition.

Millennium argued that Ameritox couldn’t show injury entitling it to damages, but the court ruled that both damage to Ameritox and disgorgement of Millennium’s profits might be available. Because “marketplace damages and actual confusion are notoriously difficult and expensive to prove,” courts routinely presume that literally false ads deceive consumers.  And many courts presume that willfully deceptive, comparative advertisements cause financial injury to the targeted party. But none of the challenged representations here were comparative ads, so there was no presumption of causation.

Ameritox mostly pointed to evidence of harm from the cup agreements, which weren’t the proper basis for a Lanham Act claim, as well as evidence of missed financial projections.  But “change in the parties’ sales positions without a showing that the change was caused by a specific advertising representation is not sufficient evidence of causation.”  Ameritox’s analysis of customers’ proffered reasons for switching to Millennium was hearsay. Given the presence of an expert report, which was under challenge, the court deferred ruling on damages.

In order to obtain disgorgement, Ameritox wouldn’t need to show actual damages.  Disgorgement is appropriate where (1) the defendant’s conduct was willful and deliberate, (2) the defendant was unjustly enriched, or (3) it is necessary to deter future conduct. When a profits award is appropriate, the plaintiff must establish only defendant’s sales of the product at issue; “the defendant bears the burden of showing all costs and deductions, including any portion of sales that was not due to the allegedly false advertising.”  The statutory text requires the plaintiff to prove sales only, not “sales due to the false advertising” or “sales due to the violative conduct.”

This may seem like a windfall, but defendants can avoid it by apportioning their profits, and if they can’t, as violators of the Lanham Act they may fairly suffer the consequences of their own failure to do so.  Also, Ameritox would still have to prove causation, and prove sales of the falsely advertised products.  Whether Ameritox could prove causation, as noted above, wasn’t yet decided.

No comments:

Post a Comment