claim of “improved” version of competitor’s product not likely to confuse

Arborjet, Inc. v. Rainbow Treecare Scientific Advancements,
Inc., 63 F.Supp.3d 149 (D. Mass. 2014)
 
Arborjet sued Rainbow over an alleged breach of a sales
agency agreement and won a preliminary injunction.  Arborjet makes insect and pest control
products for direct injection into trees. Rainbow makes pesticides to protect trees
and also distributes pesticides manufactured by other companies; it competes
directly with Arborjet.
 
In 2008, Arborjet began selling an emamectin benzoate
product, TREE-age, which protects trees from the emerald ash borer and other
destructive pests. TREE-age was successful, and Rainbow solicited Arborjet to
become its distributor of the full line of Arborjet’s products, including
TREE-age.  During negotiations, Arborjet
allegedly expressed concern about Rainbow’s possible copying of Arborjet’s
products, and Rainbow allegedly assured Arborjet that it had no such intention.  So they entered into a Sales Agency Agreement
and Rainbow agreed to devote its best efforts to the promotion and sale of
Arborjet’s products. 
 
The Agreement included a confidentiality and nondisclosure
provision, and said “in view of the confidential information regarding
Arborjet’s business affairs, plans, and necessities, [Rainbow] will not engage
in affairs intended to replicate the Arborjet’s products or processes.”  Plus, it had a noncompete provision that said
Rainbow wouldn’t “replicate the Arborjet system of using a plug which seals the
formulation in the xylem and a needle which injects behind the plug” for two
years after the agreement ended.  Arborjet
didn’t allege a breach of this last provision, but the parties disputed its
relevance to Arborjet’s breach of contract claim.
 
Instead, Arborjet alleged that Rainbow violated the part of
the agreement prohibiting Rainbow from “engaging in affairs intended to
replicate” its products.  Rainbow began
developing and testing ArborMectin, its competitor for TREE-age, as early as
2011, when the Agreement was still in force. 
(Rainbow terminated the Agreement in 2013.)  Arborjet didn’t allege that Rainbow used confidential
information, but said that didn’t matter. 
 
In 2014, Rainbow sent a blast marketing email to customers with
the subject line “Improved TREE-age! NEW ArborMectin Speed VIDEO.” The text said
that “Rainbow is excited to offer ArborMectin™, an improved 4% emamectin
benzoate (TREE-age) tree injection formulation. …Treat trees 30–70% faster
using ArborMectin™ versus TREE-age.”  The
email linked to a video that characterized ArborMectin as a replacement for
TREE-age and indicated that ArborMectin is “backed by science,” “proven to be
effective,” and treats trees “consistently faster than TREE-age.”
 
Arborjet argued that, while the Agreement was in effect,
Rainbow was contractually barred from engaging in “affairs intended to
replicate” Arborjet’s products, even absent misappropriation of Arborjet’s
proprietary confidential information. Moreover, Rainbow allegedly breached the
implied covenant of good faith and fair dealing given that it knew Arborjet’s
purpose in the Agreement was to stop copying.
 
Rainbow argued that it didn’t “replicate” TREE-age because
ArborMectin was not a “copy” or “duplicate.” Though the products have the same
active ingredient, ArborMectin is less toxic and has lower viscosity than
TREE-age. The court found this argument unpersuasive.  First, the fact that the final product had
differences didn’t matter, given that the contract covered activities “intended
to replicate” Arborject products. Given how Rainbow marketed the product as
“improved TREE-age,” the court found its activities covered. Plus, it was
unreasonable to read the contract as barring only exact copies “in light of
Arborjet’s particular, expressed concern about direct competition with its own
products.” Thus there was likely success on the merits of the contract claims.
 
Lanham Act false advertising: Arborjet argued that claims
that its product was “backed by science”, “proven effective” and “treats trees
30–70% faster than TREE-age” were establishment claims.  The tests Rainbow relied on were allegedly unreliable
because none of them was subject to peer review and the studies tested only
five or six trees whereas studies of TREE-age tested between 60 and 100 trees. Thus,
the study results didn’t prove the claim that ArborMectin was an improvement
over TREE-age. The court found that Arborjet hadn’t demonstrated the studies’
unreliability at this stage, without industry or regulatory standards regarding
peer review or sample size.  The claim
that ArborMectin was an “improved TREE-age” was a non-establishment claim, just
a general claim of superiority. Arborjet didn’t show actual falsity, because
ArborMectin had lower toxicity and viscosity than TREE-age and those
differences could be regarded as improvements.
 
However, the court expressed concern that the “improved
TREE-age” claim was likely to mislead customers into thinking the products came
from the same company. Rainbow indicated that it would no longer make that
claim.
 
Arborjet also argued that Rainbow’s website infringed
Arborjet’s registered trademarks “without including the symbol or any other
attribution to the owner,” which would cause customer confusion.  But, as Rainbow pointed out, none of the
other confusion factors favored Arborjet, such as the dissimilarity between TREE-age
and ArborMectin.  RT: Also, it has never
been the rule that failing to use a ® is misleading.  Unfortunately, the court also said that
Rainbow “should be more careful with its attribution of proprietary marks in
its communications,” even though Arborjet was unlikely to succeed on the
merits.  Rainbow should clearly be more
careful about suggesting that it produced an “improved version” of someone else’s
product—there are lots of ways of saying that which are nonconfusing—but
failing to use ® is not one of the ways in which it was careless.
 
Given Arborjet’s substantial likelihood of success on the
merits of the contract claim, it had less of a burden to show irreparable harm
under the First Circuit’s sliding scale. 
The court found irreparable harm because of the significant risk of
damage to Arborjet’s reputation and relationships with its consumers.  “Although plaintiff can be compensated for
lost profits by monetary damages, the effect on its goodwill and reputation are
particularly hard to quantify.”
 
The balance of equities tipped in Arborjet’s favor, but only
slightly given Rainbow’s investment in a new product.  Rainbow also argued that the public interest
favored competition and that this lawsuit would suppress competition, but “here
the parties voluntarily and knowingly contracted to limit their competition.”
Thus, it was in the public interest to enforce a limit on competition in this
case.

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