Tuesday, August 27, 2019

conventional pharmacy achieves limited relief against marijuana dispensary

White Hall Pharmacy LLC v. Doctor’s Orders RX Inc, No. 19-cv-00366-KGB, 2019 WL 3939357 (E.D. Ark. Aug. 20, 2019)

In this cannabis case, the court granted a preliminary injunction against a dispensary.  White Hall operates two pharmacies under the trade names “Doctor’s Orders” or “Doctor’s Orders Pharmacy” in the Pine Bluff area; the first has existed since 2009. It uses a red font, a red logo, and a white backsplash.  Its principal testified to efforts to become known in Arkansas. It website has “over 40,000 hits, 45,000 plus hits on one single ad that went out” and it has approximately 12,000 total patients It has sent prescriptions to “[a] little over 130 cities total” and that “[a]bout 12 of those are out-of-state cities.” “Not many” customers who live in Little Rock drive down to Pine Bluff to use the pharmacy, and “about 20 to 30” customers reside in the Hot Springs, Arkansas, area, while approximately 150 customers have second homes in the Hot Springs area.
plaintiff's logo
Defendants run a medical marijuana dispensary in Garland County, Arkansas, using the name “Doctors Orders,” “Doctor’s Orders Pharmacy,” and “Doctors Orders RX,” “roughly one hour away” from White Hall’s pharmacies.  White Hall’s principal testified to “seeing posts on Facebook asking ... kind of are we involved in it, asking for directions to the store.” He denied affiliation Facebook around “20 or 30 times” during the first day. He also said they’d received around 60 phone calls “[i]n the first few days” and that the pharmacies have received “probably closer to a hundred phone calls ... since then,” while they normally receive “about a hundred phone calls per pharmacy” a day for the prescription business. An affidavit from an employee also said they received 8-9 calls/day about marijuana “for a while” after the dispensary opened. An employee also asked him if he was in the medical marijuana business, as did employees at the local hospital, a city councilman, a reporter, local news stations, multiple physicians, his banker, and people at his country club. Three or four people showed up at the pharmacies trying to buy marijuana, and one job seeker looking for a job selling marijuana contacted White Hall.
defendant's sign
He testified that he hadn’t seen an immediate change in revenues, though he notes that revenue in the pharmacy business is “delayed 60 to 90 days ....” He also stated that “[n]o one said they were going to no longer use my pharmacy once I clarified the issue they wanted to know.”

Defendants’ operation allegedly used signs and advertising that contain red letters and a white backsplash similar in appearance to White Hall Pharmacy’s signs and advertising.  On defendant’s website, there was a logo in the shape of the state of Arkansas in white, with the following script: “DOCTOR’S ORDERS.” The background was dark green (though it looked blue to me when I checked).
my screenshot of defendant's site
Defendant’s owner submitted an affidavit that, at the time he filed his incorporation papers in 2017, he had “never heard of Doctor’s Orders Pharmacy” and didn’t know about Doctor’s Orders Pharmacy before he got a cease and desist letter on May 14, 2019.

White Hall presented the affidavit of Jeremy Lambert, a customer who learned that a medical marijuana dispensary named “Doctor’s Orders” was open in Hot Springs. At a hearing, he testified that learned about the dispensary from a customer who was in his office, and he also explained that he told the customer he “would assume it’s incorrect” that the dispensary was affiliated with White Hall, then confirmed that was the case. However, his affidavit averred that he was confused about the medical marijuana dispensary’s affiliation with White Hall. He testified that he was asked about the medical marijuana dispensary by three customers and “two to three employees” who worked with him, as well as other business owners and customers in Pine Bluff. He “truly believe[s] this has damaged the reputation of [ ] Doctor’s Orders Pharmacy.” Another Pine Bluff resident submitted an affidavit from a noncustomer who knew the pharmacy and who was confused, stating that “[i]t was a common belief in Pine Bluff that this dispensary was somehow affiliated with White[ ]Hall Pharmacy or [owner] Lelan Stice ....” There was other testimony in the same vein.

Highlighting the different evolution of false advertising and trademark doctrine, the court found no likelihood of success on the merits on the false advertising claim because of lack of evidence of harm.  The theory was misleadingness; though a full-blown consumer survey isn’t required at this stage of the proceedings, some sort of extrinsic evidence of deception was. And the deception must be shown to be likely to influence consumers’ purchasing decisions. There was record evidence of confusion, but not sufficient evidence of effect on purchase.  The parties don’t compete in what they sell—one sells only medical marijuana and the other legally can’t—and even if there was overlap, there was still no evidence of harm.  The argument that White Hall’s customers might abandon it because of a perceived association with defendants wasn’t supported by the record; discovery might be able to show such an impact, but it wasn’t yet apparent.  And even if marijuana is controversial, a majority of Arkansas voters voted to allow medical marijuana, so the net association might even be positive.

Also, the false advertising claim was really a false association trademark claim, to which the court turned.  White Hall relied on common-law rights, which are limited by the territory in which a trademark claimant has operated. Under Tea Rose/Rectanus, “the first user of a common law trademark may not oust a later user’s good faith use of an infringing mark in a market where the first user’s products or services are not sold.” There was no evidence of bad faith here.

Doctor’s Orders/Doctor’s Orders Pharmacy was descriptive.  White Hall presented evidence of continuous use since 2009 as well as of actual consumer confusion: “multiple individuals immediately thought of White Hall Pharmacy when they heard the name of defendants’ dispensary.” “Although this record evidence is not overwhelming, … White Hall Pharmacy has a fair chance to prevail on its argument that, due to its efforts and exclusive use, the phrases ‘Doctor’s Orders,’ ‘Doctor’s Orders Pharmacy,’ and ‘Rx’ when used in conjunction with “Doctor’s Orders” acquired secondary meaning by May 2019, at least for certain customers in certain markets.”

Geographic scope: White Hall argued that its market “includes the entire State of Arkansas and then some.” The record gave White Hall a fair chance of showing some competition, even though the competition wasn’t for the same goods. “[B]oth parties ostensibly offer medicinal services and products to the public.”  [How that bears on geographical scope is not super clear to me.]  White Hall didn’t show rights outside of the Pine Bluff area on this record. The court relied on the principle that, “[w]here the first user’s activities in a remote area are ‘so small, sporadic, and inconsequential’ that its market penetration is de minimis, the first user is not entitled to protection against a later user’s good faith adoption of the mark in that area.” About 20 to 30 patients living in Hot Springs (only five lived in Hot Springs at the time they were White Hall customers), and 150 with second homes there, out of 12,000 total wasn’t good enough, nor was having advertising and a website and belonging to some statewide organizations (as well as some in Pine Bluff, but not in Hot Springs).  There wasn’t sufficient market penetration outside Pine Bluff; the “possibility of potential sales” wasn’t enough on its own to establish rights. However, given that defendants’ dispensary was one of only two in the state, and given the evidence of confusion, it seemed likely that both parties served customers in the Pine Bluff area.

LOC: White Hall’s mark was somewhat distinctive; the marks were similar; the services were related enough to favor confusion; there was no evidence of intent to pass off; and the evidence of actual confusion favored White Hall. The amount of actual confusion has to be weighed against the number of opportunities for confusion. There was evidence of a lot of inquiries, though much of this evidence was “hearsay of a particularly unreliable nature given the lack of an opportunity for cross-examination of the caller or sender regarding the reason for the ‘confusion.’ ” The only evidence of marijuana seekers actually showing up at White Hall was hearsay—someone saying they’d heard of it happening.

Moreover, “many of the alleged incidents of actual confusion may be interpreted as proof that consumers note a distinction between White Hall Pharmacy and defendants’ dispensary”—the fact that the consumers knew they needed to ask, because they didn’t have enough information to be sure, can indicate lack of confusion rather than confusion. Some of the incidents reported clearly had that character, such as the customer who “assume[d]” that it was incorrect to associate the parties.

Still, there were “unambiguous incidents of actual confusion documented in the record,” such as the message from the job seeker and an instance in which someone “tagged” White Hall Pharmacy in a Facebook post related to defendants’ dispensary.  Considered in toto, actual confusion weighed in favor of White Hall.

Degree of care: it’s hard to buy medical marijuana in Arkansas; it requires a registry identification card. Medical marijuana is also not cheap. These aren’t impulse purchases, weighing against confusion.

Though it was a “difficult determination,” the court found that the test favored White Hall at this stage.

White Hall failed to show it was likely to succeed on its tortious interference claims.  The C&D letter wasn’t enough to show that defendants knew about any particular business expectancy of White Hall or that they intentionally sought to interfere with it. Nor was there record evidence of any loss of sales, revenue, or customers. Likewise, as to unjust enrichment claims, there was no record evidence that defendants have benefitted from White Hall Pharmacy’s advertising or customer goodwill.

Because it’s a trademark case, it’s not that surprising that the court then found irreparable harm despite what it said about the absence of harm above.  “Loss of intangible assets such as reputation and goodwill can constitute irreparable injury.” And because the Eighth Circuit hasn’t clearly abandoned the presumption of irreparable harm in trademark cases post-eBay, the court applied that presumption here. Without that presumption, the court noted, the case would be more difficult, given the absence of record evidence of competition and the differences in the parties’ geographic footprints. There was no record evidence of harm to reputation or goodwill.

Scope of relief:  White Hall was granted a preliminary injunction only in the Pine Bluff area (Jefferson County). Defendants were enjoined from holding themselves out using any combination of words that included “Doctor’s Orders” to the public within Jefferson County, including any signage and “any advertising that can be viewed by consumers within Jefferson County, Arkansas.” [Does this mean that they can’t advertise online unless they can geoblock? That seems … extreme. The court says the injunction shouldn’t interfere with other regulations on defendants’ advertising, but that doesn’t really answer the “can they have a website that doesn’t target Jefferson County but can be accessed from Jefferson County” question.]

No comments: