Friday, January 25, 2019

claim to bring original formula of another's brand back wasn't nominative fair use

GlaxoSmithKline LLC v. Laclede, Inc., 2019 WL 293329, No. 18-CV-4945 (JMF) (S.D.N.Y. Jan. 23, 2019)

Judge Furman gets another TM case; in his close adherence to precedent he demonstrates some of the current weak points in TM doctrine, here the Second Circuit’s incoherent treatment of nominative fair use and its handwaving around irreparable harm.

GSK bought the rights to Biotene, a line of OTC medicines for treating dry mouth, from Laclede.  Laclede later launched Salivea, a competing line.  GSK sought an injunction on trademark and breach of contract grounds.  The court denied the motion to the extent that it was based on the contract claims and granted a limited injunction on trademark grounds.

The noncompete agreement GSK signed with Laclede provided that Laclede agreed not to compete in the dry-mouth enzyme-based-treatement market for three years, and its sole shareholders also agreed not to so compete. GSK subsequently reformulated Biotene, removing certain enzymes.  Over three years after the closing date of the agreement, Laclede introduced Salivea, sending “approximately 100,000 mailers ... to [healthcare professionals] and others based on contacts generated at conventions and rebate recipients.” In the first, a green banner announces: “Back Again! Salivary Enzymes and Components – Essential for Dry Mouth Care.” Just below that banner, the advertisement reads — in smaller typeface — “From the Creators of ORIGINAL biotene,” with “biotene” appearing in a stylized font and featuring a water droplet in the center of the “o.” Just below that, the largest text on the flyer declares: “SALIVEA utilizes the same ingredients as the ORIGINAL Biotene. The Proven and Loved Formula!” In mouseprint on the side is: “Biotene is trademark [sic] owned by GlaxoSmithKline.”

In the second flyer, a header in all capital letters reads: “DID YOU KNOW BIOTENE HAS CHANGED?” It continues: “Over 35 years ago, Laclede developed Biotene enzyme toothpaste and mouthwash that became the #1 brand for dry mouth. Biotene was acquired by the GSK Company and was reformulated. After years of perfecting formulas, we now introduce SALIVEA mouthwash and toothpaste that utilizes the Proven Enzyme Technology as in the ORIGINAL Biotene.” Highlighted in red, the flyer lists “CURRENT Biotene Changes,” including “ENYZMES (Removed),” and “PARABENS (Added),” alongside a picture of a Biotene oral rinse bottle. [One would think that this negative information would dispel likely confusion about source.]  A footer states: “Back Again! Salivary Enzymes and Components – Essential for Dry Mouth Care.” Above the footer, the flyer compares “SALIVEA Mouthwash Utilizing ORIGINAL Biotene Formula” with the “ORIGINAL Biotene Formula / The #1 Recommended Brand for Dry Mouth.” It has the same disclaimer.

On Salivea’s website, it declared: “It’s Back! The Original Formula that made Biotene #1 for Dry Mouth.” Below that: “From the Creators of biotene,” with “biotene” once against appearing in stylized script and featuring the water droplet. It continues with similar claims: “Over 35 years ago, our researchers developed an enzyme technology system that became The #1 Treatment in The World for Dry Mouth Care. Now, after years of perfecting formulas, we’re proud to introduce the New SALIVEA Dry Mouth Care Products.” Another page reads: “Proven Enzyme Technology / Over 35 years ago, Laclede developed Biotene enzyme toothpaste and mouthwash that became The #1 Brand for Dry Mouth. Biotene was later acquired by the GSK Company and was reformulated. / We Listened! We brought back salivary enzymes ....” The same disclaimer appeared.

In Mohawk Maintenance Co. v. Kessler, 419 N.E.2d 324 (N.Y. 1981), the New York Court of Appeals identified an “ ‘implied covenant’ to refrain from soliciting former customers following the sale of the ‘good will’ of a business.” This implied covenant isn’t time-limited.  It bars targeted solicitation of former customers but not advertising to the general public.  “[A]lthough the issue is a close one, the Court concludes that Defendants’ actions are nearer to the permissible public-advertising end of the spectrum than to the impermissible specific-targeting-of-former-customers end of the spectrum.” GSK didn’t identify any specific former customers that were solicited after the express noncompete clause lapsed; instead, the complaint alleged that ads were mailed “to health care professionals, including dentists, throughout the United States.” NY holds that a seller may “advertise to the public” so long as the advertisement is “general in nature ... and not specifically aimed at the seller’s former customers.” Targeting a “class” of customers isn’t enough.

The court also rejected GSK’s argument that the second part of the express covenant—the part binding Laclede’s owners—didn’t expire after three years.  Though the first part of the covenant expressly had a three-year term, and the second part didn’t, that wasn’t dispositive. First, “New York courts adhere to a strict approach to enforcement of restrictive covenants.” Thus, a non-compete provision that is “vague and unspecific” will be deemed unenforceable.  And the language here—that the owners “also agree” to the noncompete—indicates that the prior provision governing Laclede was what was supposed to apply to the owners.  And it wouldn’t make sense for Laclede and its owners to be governed by different non-compete durations. Anyway, “the Court has some doubts that a time-unlimited non-compete would be enforceable under New York law.”

Trademark claims: because the Second Circuit said so, nominative fair use is tacked onto the end of the Polaroid factors, even though (1) that makes the test an even more incoherent mix of normative and empirical parts, and (2) the Second Circuit acknowledged that a number of the Polaroid factors don’t fit well with nominative fair use situations.  The court here thus runs through the list. Strength and competitive proximity favored GSK; similarity is of course identical because you can’t consider the “comparative purpose” of the use under the similarity factor, and anyway the materials here prominently featured the Biotene mark in equal or larger size/prominence to the Salivea mark, so that favored GSK.

There was some anecdotal evidence of confusion: declarations from GSK stated that healthcare professionals expressed confusion about the relationship (e.g., a conversation with an oral hygienist in which the hygienist stated “that she understood SALIVEA was a GSK product that was replacing BIOTENE”) and declarations from healthcare professionals themselves claiming that they were confused (e.g., declaring that, after receiving “a total of three mailers,” a dental hygienist was “immediately confused as to whether [SALIVEA] was made by [Plaintiffs], because the mailer referenced that GSK had reformulated the BIOTENE formula”). The total was seven declarations recounting around twenty instances of actual confusion.  This favored GSK, but only slightly, given that Laclede sent approximately 100,000 mailers. “Measured against that number, twenty reported cases of actual confusion are not a lot. And none of the declarations address confusion stemming from SALIVEA’s website …. Nevertheless, even a small number of declarations can be revealing.”

There was also some evidence of bad faith intent to profit from Biotene’s goodwill.  One mailer referenced Biotene more often than Salivea. Another said at the top: “DID YOU KNOW BIOTENE HAS CHANGED?” The main text was “phrased in a way that leaves a reasonable reader confused about whether Laclede or GlaxoSmithKline manufactures SALIVEA”: “Biotene was acquired by the GSK Company and was reformulated. After years of perfecting formulas, we now introduce SALIVEA ....” The court concluded that,

taken together, the heading and the main text could be easily be read to suggest that GlaxoSmithKline had reformulated BIOTENE and was repackaging it as SALIVEA. Nowhere on the Mouthwash Mailer is it evident that SALIVEA is a Laclede, and not a GlaxoSmithKline, product. And while the depiction of the SALIVEA bottle is indeed larger than the depiction of the BIOTENE bottle, the overall impression of the advertisement suggests an untruthful association between SALIVEA and BIOTENE, on the one hand, and between Laclede and GlaxoSmithKline, on the other.

The other mailer also “purposefully obscured” the relationship between the parties, prominently declaring that SALIVEA is “From the Creators of ORIGINAL biotene,” (with “biotene” in its distinctive, stylized typeface), and states that “SALIVEA utilizes the same ingredients as the ORIGINAL Biotene – The Proven and Loved Formula.” It didn’t clarify that Laclede and GlaxoSmithKline are separate entities or that SALIVEA is not related to BIOTENE. “Instead, the advertisement leaves the inevitable impression that SALIVEA is a follow-on to, or an improved version of, BIOTENE made by the same manufacturer as ‘the ORIGINAL Biotene.’”

Quality favored neither side, because it is a garbage factor that should be eliminated from the current test, and consumer sophistication favored Laclede.

Nominative fair use factors: in the Second Circuit, the first one is “whether the use of the plaintiff’s mark is necessary to describe both the plaintiff’s product or service and the defendant’s product or service, that is, whether the product or service is not readily identifiable without use of the mark.” Here the court bobbles: “First, it is plainly not ‘necessary’ for Defendants to use Plaintiffs’ mark to describe SALIVEA.”

This a bad result aided by the Second Circuit’s mashup of the nominative fair use test from multiple circuits with the usual Polaroid factors.  In the non-Third Circuit version, the question is not (as it is with descriptive fair use) whether the use of the mark is necessary to describe the defendant’s product; it’s whether it’s necessary to describe the plaintiff’s product/service to identify it for purposes of discussion. The Third Circuit limited nominative fair use to the hybrid situation where the defendant needed to explain its genesis/experience in order to explain the reason consumers might trust it (which, not for nothing, seems relevant here), but that makes nominative fair use captive to a variant of descriptive fair use.  The better treatment, which seems acceptable under the Second Circuit standard would be to evaluate the necessity of the reference to the specific claim being made (e.g., “Salivea uses the original, good formulation that Biotene has abandoned”).  Here, however,  the court reasoned, because Salivea could easily describe itself as “dry mouth care” etc., there was no need to mention plaintiff’s mark. [So if I’m an architect who worked for another firm for three decades, there’s no need to mention that firm because I can just describe myself as an “architect”?  That seems … restrictive, and in tension with the First Amendment. The ultimate result here may be right, but it’s not because of any lack of necessity—it’s because of what comes next.]

Next, Laclede used more of the Biotene mark than is necessary to identify SALIVEA. This factor requires courts to evaluate whether the defendant used the mark “too prominently or too often, in terms of size, emphasis, or repetition.” As discussed above, it did.

Third, Laclede “suggest[ed] sponsorship or endorsement by the plaintiff holder” and obscured “the true or accurate relationship between plaintiff’s and defendant’s products.” The ads suggested that Salivea was “a replacement for, or a follow up to,” Biotene, most evidently in the headlining text “DID YOU KNOW BIOTENE HAS CHANGED?”  [I’m guessing that the result is different for a headline “DID YOU KNOW BIOTENE HAS CHANGED FOR THE WORSE?”]  The ambiguous “we now introduce …” language also hurt.

On balance, GSK showed likely confusion.

It also showed irreparable harm through showing “loss of reputation and goodwill.” Irreparable harm “ ‘exists in a trademark case when the party seeking the injunction shows that it will lose control over the reputation of its trademark pending trial,’ because loss of control over one’s reputation is neither ‘calculable nor precisely compensable.’ ”  As framed, this is equivalent to a finding that likely confusion automatically means irreparable harm, since it would always be true by definition.  This result is inconsistent with eBay, and it wrongly conflates the idea of lost control with the idea of harm from the lost control materializing, which is (in the absence of further evidence, say of the inferiority of the defendant’s product) not shown merely by showing the existence of the risk.  In other words, the logic of “lost control” is that irreparable harm is possible, but possibility is not likelihood, which is the standard in other cases.

With that out of the way, it wouldn’t be a hardship to refrain from overreliance on GSK’s marks in advertising, especially since Laclede already discontinued the mailers at issue.  And a preliminary injunction limited to enjoining trademark violations would not disserve the public interest.

However, GSK sought relief that was too broad, including “all use of the words ‘#1 Brand for Dry Mouth, It’s Back, ‘Back Again,’ ‘Brought Back’ or variations thereof,” and “the dissemination of any and all claims referencing Laclede’s prior ownership of the BIOTENE brand.”  GSK’s request for a laundry list of prohibitions was inconsistent with its focus in the likely confusion analysis on the totality of the advertising, and the court agreed that the proper approach was to look at the total impact of the uses. GSK’s proposed injunction could “sweep in instances of nominative fair use.”  Thus, the preliminary injunction issued by the court covered: all use of the registered blue-and-red Biotene logo, or any confusingly similar variation thereof; all use of any images of the packaging for Biotene products; and the dissemination of any advertising or packaging materials declaring that Salivea is a successor of, or replacement for, Biotene; and any ads substantially similar to the two prior mailers. [In many ways, the limited scope of the injunction makes up for the narrowness of the nominative fair use reasoning, except insofar as other claimants will cite only the narrow reasoning against other comparative advertisers.]

No comments: