Tuesday, June 14, 2022

Alcon's alleged anticompetitive shenanigans to prevent resale were not defenses to TM claims

Alcon Vision, LLC v. Lens.com, Inc., 2022 WL 1665453, No. 1:18-cv-00407-NG-RLM (E.D.N.Y. May 25, 2022)

Alcon sued Lens.com for federal and state false advertising and trademark claims. Lens.com’s answer asserted affirmative defenses and counterclaims, including seven antitrust counterclaims not relevant to this opinion.

Lens.com “sells, at a discount, Alcon lenses, in the United States, that were originally sourced from outside the United States.” Alcon alleged that Lens.com infringed its trademark rights (including rights inherited from Novartis AG) by doing so.

Lens.com responded that Alcon was engaging in various anticompetitive strategies to exclude discounting retailers like Lens.com from the market, including a group boycott, exclusive-dealing agreements, tying arrangements, and a price-fixing conspiracy.

In addition, Alcon developed U.S.-only packaging for certain lenses, allegedly solely to provide legal recourse against discounting retailers. The lenses contained within the new packaging are allegedly of identical quality to those sold in the old packaging, but provided the hook for Alcon to sue discounters for selling genuine Alcon lenses, in old packaging, that they had sourced from abroad.

The changes were:  

Alcon added, in fine print, references to a helpline and a brand-specific website, placed product instructions on the outside of the packaging, added an American flag icon in the corner of the packaging, and—for one lens type—added an additional logo and product lot number. Directly underneath the American flag icon is the statement, “For sale in USA only.”

Alcon also allegedly sells a significant number of lenses overseas that are not FDA-compliant, rendering its product packaging for such lenses false and misleading to consumers, including Lens.com. In this litigation, Alcon has taken the position that a “significant number” of lenses that Alcon sells outside of the United States have not been tested for FDA-compliance and are “non-FDA-compliant.” Despite this, its product packaging for lenses it sells overseas allegedly contain symbols and statements that convey to purchasers, including Lens.com, that the product complies “with all FDA regulations and all European Union regulations and may be lawfully sold in the United States.” For example, the “Rx Only” symbol, according to Alcon’s own product inserts, means “CAUTION: Federal (United States) law restricts this device to sale by or on the order of a licensed eye care professional.” Alcon’s “promotional and safety literature … also contain statements which inform consumers that all Alcon products are safe and meet all criteria for sale in the United States.”

The use of the U.S. flag also allegedly conveyed to consumers that all “products displaying the American flag are ‘made in America,’ which is not the case.” And it allegedly conveyed superior quality.

At the pleading stage, an implied falsity claim can be supported by consumer survey data, but also by pleading “non-conclusory facts raising a plausible inference that a statistically significant number of consumers were misled.”

As to the U.S. and EU symbols, including RX Only, Lens.com failed to plausibly allege literal falsity. One plausible meaning of RX Only was “that the products must be sold by or on the order of a licensed eye care professional.” Likewise, ® and TM symbols let “consumers and competitors know you’re claiming [a] trademark as yours.” And another reasonable interpretation of the “For USA: Request Package Insert for Clinical Details” was that United States users of the product can request a package insert if they want clinical details.  Thus, “none of these symbols and statements unambiguously convey compliance with all FDA and European Union regulations and that the products may be lawfully sold in the United States.”

The other allegations were “simply too vague and conclusory to plausibly state a claim” that Alcon misrepresented that its overseas products were legal for US sale.

The implied falsity theory also failed for want of “any non-conclusory facts that would allow [the court] to draw a plausible inference that a significant number of consumers were misled.”

Use of the US flag in US-only product packaging was also not actionable.Under Forschner Grp., Inc. v. Arrow Trading Co., 30 F.3d 348 (2d Cir. 1994), “before considering consumer survey evidence, a district court must, first, determine whether the designation of geographic origin is ‘geographically descriptive.’ If it is not, as a matter of law, it ‘cannot be deceptive as to geographic origin under § 43(a) of the Lanham Act.’”

Here, the US flag on the packaging “cannot fairly be read to say ‘made in the U.S.’ so as to be geographically descriptive. While the U.S. flag may ‘evoke’ clear geographic associations, it does not designate geographic origin.” Though the court would reach that conclusion regardless, it was further persuaded by the language directly beneath the flag: “For sale in USA only.” “Viewed in the context of that language, the U.S. flag describes where these products may be sold, not the location of origin.”

So, consumer survey evidence may be disregarded when courts disagree enough with the reasonability of consumer perceptions—another example of normative concepts of deception.

The Lanham Act false advertising counterclaim was dismissed. The GBL §§ 349 and 350 claims were also dismissed, for this reason and the additional reason that the relevant conduct wasn’t NY conduct.

The court also kicked out Lens.com’s unclean hands defense that Alcon’s “trademarks...[have] been used by Alcon as an effective tool to violate the antitrust laws of the United States.” Because unclean hands must be based on the right in suit, “when a defendant brings an unclean hands defense to a trademark infringement lawsuit based on the plaintiff’s anticompetitive conduct, the defendant must allege that the ‘mark itself has been the basic and fundamental vehicle required and used to accomplish the violation.’” This is hard to show. Indeed, McCarthy says that, in “no final reported decision involving trademark infringement has a court actually refused to enforce a trademark because it was used in violation of antitrust law.” The allegations of Alcon’s antitrust misconduct, including the alleged strategy to bring trademark infringement lawsuits after changing its product packaging, didn’t plead facts showing that Alcon’s trademark “was the basic and fundamental vehicle required and used to accomplish the alleged antitrust violations.” It was not enough to allege antitrust violations relating to the goods bearing the marks. [Then what could this defense possibly mean? Is it simply a nullity despite also appearing in the Lanham Act as a specific defense?] Defense stricken.

There was also no FDCA preemption of the claims on the arguments presented.

However, Lens.com plausibly alleged US abandonment of a mark that Alcon was allegedly only using overseas. The “use” and “nonuse” of the mark relevant to the abandonment affirmative defense is use and nonuse in the United States, not abroad, so this defense survived.

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