Friday, December 21, 2012

Consumer group claims the un-cola’s ads are un-true


By Bob Rouder and Saul Perloff


The 7UP product line is the latest food or beverage the Center for Science in the Public Interest (CSPI) has sued under its now-familiar model of private enforcement. The 7UP brand is part of the Dr. Pepper Snapple Group Inc.’s (DPSG) stable of consumer products.

The Center for Science in the Public Interest

CSPI is a consumer advocacy organization formed in the 1970s. According to the CPSI website the group’s twin missions are to “conduct innovative research and advocacy programs in health and nutrition, and to provide consumers with current, useful information about their health and well-being.”

CSPI underwrites marketing campaigns that address what it consider to be health risks inherent with some consumer foods and beverages.

The CSPI Litigation Project

In 2004, CSPI initiated what it calls its Litigation Project to privately pursue so-called “corporate misbehavior” and fill what the organization perceives as a void left by “inactive government agencies.” CSPI monitors the marketing and content of foods and beverages.

The organization then sends demand letters to companies it contends sell unhealthy products or sell products in a misleading manner. Should the demands not yield corrective action, CSPI initiates or joins litigation. 

CPSI’s current docket features demands made to Nestles, Welch’s Foods, and Amways’s Nutrilite. Current litigation involves complaints against Kellogs, Pepsico, Johnson & Johnson Nutritionals, General Mills, and now, Dr. Pepper Snapple Group, Inc.

The complaint against 7UP

Last month, CSPI acting as co-counsel, initiated a putative class action suit claiming consumers were misled about the nutritional qualities and healthfulness of certain 7UP products and that the Dr. Pepper Snapple Group Inc.’s alleged deception caused them to purchase 7UP when they ordinarily would not have done so. The products include “7UP Cherry Antioxidant,” “7UP Mixed Berry Antioxident,’ and “7UP Pomegratite Antioxident” which come in both regular and diet versions.

According to the complaint, the packaging and promotion of the products imply that they contain real fruit and that the fruit is the source of antioxidants all of which would distinguish 7UP as more healthful than other carbonated soft drinks. See Complaint.

According to the suit, 7UP products contain only fruit flavoring and its only antioxidant content arises from fortification with d-alpha tocopherol acetate, a manufactured form of Vitamin E. The complaint alleges that insofar as the amounts of Vitamin E (15% of RDA) are insufficient to “provide health benefits,” 7UP is indistinguishable from other soft drinks thought to be unhealthy because of their high fructose content, or aspartame component in the case of the diet versions. See Complaint.

The 7UP suit was brought under California's Unfair Competition Law (UCL), codified at California Business and Professions Code § 17200, et seq.

This law broadly prohibits “any unlawful, unfair, or fraudulent business act.” The State, local units of government, as well as any person on his or her own behalf or on behalf of the public generally may bring suit under a variety of theories. In the case of 7UP, the complaint claims that the labeling of 7UP is false or misleading and constitutes misbranding under California’s Sherman Law. [Ca. Health & Safety Code §§ 110660, 110765].

The suit also asserts claims for false and misleading advertising under California’s Consumers Legal Remedy Act [Cal. Civ. Code §1750] and under the advertising provisions of the UCL (§17500, et seq.).

CSPI has mixed results in similar suits.

On the one hand, several consumer products companies (including Cadburry Schwepps which previously owned the 7UP brand) have voluntary dropped or changed advertising claims CSPI has asserted were misleading.

On the other hand, CSPI has lost several notable cases including a suit against the manufacture of Arizona Rx Teas—see CSPI Website—and most recently its suit against McDonald’s over the fast food giant’s inclusion of toys in its popular “Happy Meals ”—see Apr. 4, 2012 Order on Demurrers.

Sources: David Green, on behalf of himself and all others similarly situated v. Dr. Pepper Snapple Group, Inc., Case No. 12-09567 (C.D. Cal.); Monet Parham, on behalf of herself and those similarly situated vs. McDonald’s Corp. et al., Case No. 10-506178; Superior Court of California, County of San Francisco

This article was prepared by Bob Rouder (rrouder@fulbright.com / 512 536 2491) and Saul Perloff (sperloff@fulbright.com / 210 270 7166) from Fulbright’s False Advertising Practice.

Friday, December 14, 2012

Fifth circuit cites laches as properly barring recovery of monetary damages in trademark infringement suit

By Kathy Grant


Last Thursday, a panel of the Fifth Circuit affirmed a ruling from the Northern District of Texas partially enjoining a Texas company’s sale of ceremonial paddles decorated with the unlicensed insignia of 32 fraternities and sororities.

In the lower court, a jury found the college organizations were lax in seeking to enforce their trademark rights against the manufacturer, and were thus barred from recovering money damages in an infringement suit. See Thomas Kenneth Abraham d/b/a Paddle Tramps Manufacturing Co. v. Alpha Chi Omega et al., Case No. 12-10525 (5th Cir. Dec. 6, 2012) Opinion.

The case concerns wooden paddles that Thomas Kenneth Abraham designed and sold through his business, Paddle Tramps Manufacturing Co. Paddle Tramps was founded in 1961, and began selling its products through the Internet in 2001.

Originally, Abraham marketed his products — long, flat wood paddles decorated with Greek letters and insignia — directly to college sororities and fraternities. Later he began wholesaling component parts to college bookstores or craft stores for customers to buy and assemble.

The Greek organizations first contacted Abraham in 1990 complaining of licensing infringement. Over the next 17 years, Abraham received numerous cease and desist letters requesting that he stop manufacturing the paddles. Abraham ignored these letters or responded by refusing to enter a licensing agreement.

Finally, in 2007, 32 sororities and fraternities sued Abraham in the Southern District of Florida. This suit was dismissed for improper venue. In 2008 Abraham brought a declaratory judgment action against the sororities and fraternities in Texas seeking a ruling that he was not infringing on the fraternities’ and sororities’ trademarks.

The Greek organizations counterclaimed for trademark infringement, unfair competition and trademark dilution under federal and state law, seeking both monetary and injunctive relief.

On summary judgment, the district court determined that Abraham had violated the Greek organization’s trademarks.

However, the court allowed a jury to consider Abraham’s laches and acquiescence defenses, which absolve an infringer of wrongdoing if the trademark owner waits so long to assert its trademark rights that it causes prejudice to the infringer.

The jury found that the Greek societies had no excuse for their 17 year delay in taking action. The court held that laches precluded an award of money damages, but permanently enjoined Abraham’s future use of the organizations’ marks.

On appeal, the Greek organizations argued that Abraham should have been barred from asserting laches because he had unclean hands. They alleged that Abraham had acted in bad faith by trying to capitalize on the fraternities’ and sororities’ good will and to deceive or at least confuse potential paddle buyers.

In affirming the district court’s judgment, the Fifth Circuit noted that just because an infringer is made aware of the trademark owner’s claim to the mark does not mean he abused the trademark to the point of having unclean hands; rather, the Greek organizations had to show Abraham knowingly and intentionally infringed upon the marks with a bad faith intent to benefit from or capitalize on the Greek organizations’ good will by confusing or deceiving buyers.

The Fifth Circuit noted that Abraham had introduced evidence showing a lack of bad faith, specifically, that he had helped to create a market for fraternity and sorority paddles decades before the Greek organizations had created a licensing program.

The Fifth Circuit also found sufficient evidence to support the jury’s finding that the Greek organizations had no excuse for their 17 year delay in bringing suit, and that Abraham was unduly prejudiced by the delay. The sororities and fraternities had argued that a trademark owner is excused from delay in taking action against de minimis infringements, and that Abraham’s infringement was always de minimus.

The Fifth Circuit, however, noted that Abraham had presented evidence that he would not have made certain business decisions if he knew the Greek Organizations would later sue him to enforce their trademarks. Abraham also presented evidence that the infringing products sales, while small, were important to the sale of his non-infringing products because without them, customers might choose to purchase the parts to make their paddles from another source.

Sources: Thomas Kenneth Abraham d/b/a Paddle Tramps Manufacturing Co. v. Alpha Chi Omega et al., Case No. 12-10525 (5th Cir. Dec. 6, 2012)


This article was prepared by Kathy Grant (kgrant@fulbright.com / 210 270 7182) of Fulbright’s’ Intellectual Property and Technology Practice.

Friday, December 7, 2012

Court of Appeals invokes First Amendment to reverse conviction of sales rep for off-label promotion


By Frederick Robinson and Julie Hardin


On Monday, December 3, the United States Court of Appeals for the Second Circuit, in a 2-1 decision, reversed the conviction of a pharmaceutical sales representative for conspiring to introduce a mis-branded
drug into interstate commerce solely on the basis of off-label promotion. United States v. Caronia, No. 09-5006-cr (2nd Cir., Dec. 3, 2012).

Mr. Caronia was a pharmaceutical sales representative who allegedly promoted the drug Xyrem for "off-label uses."

Xyrem is approved for the treatment of narcolepsy in patients who experience cataplexy (a condition associated with weak or paralyzed muscles) or who suffer from excessive daytime sleepiness.

The drug was subject to "black box" warning indicating that the drug's safety and efficacy were not established in patients under 16 years of age, and that the drug had "very limited" experience among elderly patients.

The evidence at trial indicated that the defendant had promoted the drug for unapproved indications, including muscle disorders and chronic pain, and for unapproved sub-populations, i.e., patients under age 16.

A jury found him guilty of conspiring to introduce a mis-branded drug into interstate commerce, a misdemeanor. He was sentenced to one year of probation, 100 hours of community service, and a $25 special assessment.

Second circuit analysis

On appeal, the court majority began its analysis by noting that "[t]he FDCA and its accompanying regulations do not expressly prohibit the 'promotion' or 'marketing' of drugs for off-label use." Instead, the regulations only establish that off-label promotional statements can constitute "evidence of an intended use of a drug that the FDA has not approved."

The court noted, however, that the FDA "has treated promotional speech as more than merely evidence of a drug's intended use—it has construed the FDCA to prohibit promotional speech as misbranding itself." The court rejected the FDA's position, finding that under the principle of "constitutional avoidance," it had to construe the FDCA 'as not criminalizing the simple promotion of a drug's off-label use because such a construction would raise First Amendment concerns."

The majority also found that the prosecution impermissibly infringed upon the sale representative's First Amendment free speech rights under the U.S. Constitution in two ways.

First, the court held that the government had imposed "a presumptively invalid" content-based restriction that favors speech on approved uses over speech involving off-label uses even though off-label use by a physician is lawful.

Second, the court concluded that the government had inappropriately placed speaker-based restrictions that prohibit pharmaceutical manufacturers from speaking while allowing others, such as physicians and academics, to speak freely about off-label uses. In reaching these conclusions, the panel relied heavily on the Supreme Court's recent decision in Sorrell v. IMS Health, Inc., 131 S. Ct. 2653 (2011), in which the court held that "[s]peech in aid of pharmaceutical marketing ... is a form of expression protected by ... the First Amendment."

The government attempted to preserve the conviction by arguing that it had not prosecuted the defendant for promotional speech, but the court rejected this argument, citing numerous passages from the trial record indicating that the government had repeatedly told the jury that the defendant was guilty of conspiring to introduce a mis-branded drug into interstate commerce simply because of off-label promotion.

The court also concluded that the jury instructions had improperly allowed the defendant to be convicted solely for off-label promotion.

Pharmaceutical and medical device manufacturers should proceed with caution

While the opinion appears to be a far-reaching repudiation of the FDA's efforts to prohibit off-label promotion, pharmaceutical and medical device manufacturers may be wise to proceed cautiously.

First, the impact of this decision is limited for now to the Second Circuit. Second, this is a panel decision,and the government could seek rehearing from the full Second Circuit. Likewise, the government could petition the Supreme Court to review the case.

Finally, while it is one thing for a court to tell the government that it cannot throw a sales rep in jail for engaging in truthful commercial speech, it is another thing for a court to tell the government that there is nothing it can do to keep companies from ignoring the limits of their approved product labels.

In fact, the court went out of its way to suggest that its decision might be limited to the context of criminal prosecution. For example, the court observed that the defendant's "claim to First Amendment protection is more compelling than in Sorrell because this case involves a criminal regulatory scheme...."

Likewise, the court concluded that "the government's construction of the FDCA to impose a complete and criminal ban on off-label promotion is more extensive than necessary to achieve the government's substantial interests" [Emphasis added.]

It could be telling that the court went on to state, "Numerous, less speech-restrictive alternatives are available, as are non-criminal penalties." Ultimately, the court summarized its holding as follows: "We conclude simply that the government cannot prosecute pharmaceutical manufacturers and their representatives under the FDCA for speech promoting the lawful, off-label use of an FDA-approved drug."

First Amendment limits

Certainly, one should expect the government to take the position that the Caronia decision has no application outside the context of a criminal prosecution. On the other hand, Sorrell was not a criminal case, so there clearly are First Amendment limits on what the government can do to deter off-label promotion.

It should also be noted that the Caronia court made clear, albeit in a footnote, that "off-label promotion that is false or misleading is not entitled to First Amendment protection." In the case at bar, however, the government had not argued at trial or on appeal that the defendant's promotional statements were false or misleading in any way.

By contrast, in many of the major off-label cases that have been brought against manufacturers,the government has alleged that off-label promotional activity involved the dissemination of false or misleading information, such as the failure to correctly describe a drug's safety and efficacy when used for an unapproved indication.

Caronia decision recognizes FDA authority with limitations

The Caronia decision could prove to be an important case in setting boundaries on how far the government can go to punish truthful commercial speech it would prefer not to have anybody hear. Clearly, the court majority felt that the government had overreached in attempting to criminalize speech that was not alleged to be false or misleading.

On the other hand, nothing in the decision suggests that pharmaceutical and medical device manufacturers have a green light to engage in all manners of off-label promotion.

Rather, the decision can still be viewed as upholding the FDA's general authority to consider evidence of off-label promotion when determining a drug's intended use, particularly in a non-criminal enforcement context.

This article was prepared by Frederick Robinson (frobinson@fulbright.com / +1 202 662 4534) of Fulbright’s Health Law Practice and and Julie Hardin (jhardin@fulbright.com / 1+ 713 651 5137) of Fulbright's Pharmaceutical and Medical Devices Practice.

Thursday, December 6, 2012

Prior trademark suit does not bar patent suit over same products


By Charles Walker and Ashley Callahan (US)



How many different times can you sue your competitor for violating intellectual property rights involving the same product?

At least twice, according to the Court of Appeals for the Federal Circuit (CAFC) in Superior Industries, LLC v. Thor Global Enterprises, Ltd. Specifically, the CAFC held that claim preclusion (res judicata) did not bar a party from suing a competitor for patent infringement based on information learned during its previous suit for trademark infringement over the same product. See Nov. 27, 2012 Opinion.

Claim preclusion prevents a party from filing repeated suits based on the same cause of action. Suits involve the same cause of action when they arise from the same nucleus of operative fact. The policy behind claim preclusion is to prevent multiple suits based on the same underlying conduct.

Claim preclusion generally applies to issues which were or could have been raised in a prior suit. The operative facts which are involved in a claim for patent infringement are considered to be an issue of substantive patent law resolved by CAFC precedent.

Superior Industries files suit twice over same product with different claims


Superior Industries, LLC owns patented technology for a portable conveyor that transports and stockpiles rock, sand, grain and other aggregate material. Superior coined the term “fully braced” for its conveyor undercarriage and registered the trademark “FB” for the conveyors.

Superior sued Thor Global Enterprises, Ltd. for trademark infringement after Thor issued a press release for its new “FB (Fully Braced) Undercarriage technology” for its portable conveyors. See Aug. 4, 2009 Complaint, Oct. 1, 2007 Press Release. The parties settled eight months later with a consent judgment prohibiting Thor from using the FB mark. See Apr. 7, 2010 Consent Judgment.

A few months after the consent judgment, Superior sued Thor again over the same conveyor systems, this time for patent infringement based on sales offerings by Thor discovered through the trademark suit. See June 21, 2010 Complaint.

The district court dismissed the patent suit on claim preclusion grounds because Superior simply chose not to assert the patent claims in the prior trademark suit. The district court emphasized that claim preclusion is intended to prevent re-litigation of issues which were or could have been raised in the prior action. See July 22, 2011 Opinion.

Federal Circuit reverses patent suit


The CAFC reversed primarily because the two suits involved separate cases under separate laws. Specifically, Superior based its trademark suit on Thor’s use of the mark FB in advertising, not on actual sales or offers for sale for the conveyor. In contrast, Superior based its patent suit on sales, offers to sell, or importation of the infringing conveyors. See Nov. 27, 2012 Opinion.

Sources: Superior Industries, LLC v. Thor Global Enterprises, Ltd., Case No. 2011-1549, In the United States Court of Appeals for the Federal Circuit; Superior Industries, LLC v. Thor Global Enterprises, Ltd., Case No. 0:10-cv-02524 (D. Minn.); Superior Industries, LLC v. Thor Global Enterprises, Ltd., Case No. 0:09-cv-02035 (D. Minn.)


This article was prepared by Charles B. Walker, Jr. (cwalker@fulbright.com and 713 651 5203) and Charles Ashley Callahan (acallahan@fulbright.com and 512 536 5218) of Fulbright’s Intellectual Property and Technology Practice.