Fifth Circuit reverses multimillion-dollar antitrust verdict based on false advertising, remands

Retractable Technologies, Inc. v. Becton Dickinson & Co.,
No. 14-41384, 2016 WL 7046601, — F.3d – (5th Cir. Dec. 2, 2016)
Regardless of the merits, courts don’t want plaintiffs
bringing false advertising claims as antitrust claims.  Thus, they have imposed a number of empirically
dubious, essentially random preconditions to treating false advertising as an
antitrust violation; it is basically impossible for any plaintiff to show that
all of the preconditions apply.  My usual
approach is to say “the antitrust claims failed because they were antitrust
claims,” but here the jury awarded RT treble damages for an antitrust claim
based mostly on BD’s false advertising, so I’m going to say more.  This judicial hostility is enough to make me
wonder whether antitrust law could be revived merely by making treble damages
optional rather than mandatory, as they are in false advertising.
BD and RT are competitors in the market for safety syringes.
A jury awarded $340 million (after trebling) against BD for its alleged attempt
to monopolize the United States safety syringe market in violation of § 2 of
the Sherman Act. The jury also found BD liable for false advertising under §
43(a).  The court of appeals reversed and
vacated on §2, necessitating a remand for redetermination of whether
disgorgement was now appropriate (given the disappearance of the antitrust
damages) and whether injunctive relief should be reconsidered.
There are four main products in the safety syringe market: shielding
needles, pivoting needles, sliding sleeve needles, and retracting needles, each
of which is appropriate in specific hospital, clinical, or office settings. BD
produced all four types and was also the major manufacturer of conventional
syringes. RT’s principal product was the VanishPoint retractable syringe, which
had a fixed, albeit retracting needle. 
This protects against accidental injections but doesn’t work for other
hospital and clinical uses.
In 2002, about five years after RT introduced the
VanishPoint, BD created its own retractable syringe, the Integra. BD’s Integra
suffered from design flaws such as leaking and failing to deliver a full dose
of medicine. RT outsold BD in the retractable syringe sub-market: BD had a 1/3
share of the market, while RT’s market share was 2/3. By 2010, in the “relevant
product market” for all safety syringes, BD’s market share was 49%, Covidien 30%,
Smiths 10%, and RT 6%.
RT sued BD in 2001 for antitrust violations and product
disparagement (based on the same advertising issues litigated here). The suit settled
in 2004 and BD paid RT $100 million, with the parties releasing claims “which
accrued on or at any time prior” to the agreement’s signing.
Three years later, RT filed the instant suit alleging patent
infringement and antitrust and Texas common law violations. The district court
tried the patent case first, and rendered judgment for RT (including “a mere $5
million in damages”) based on two BD versions of the Integra. On appeal in 2011,
the Federal Circuit upheld the judgment only as to one model, which BD then
removed from the market.
The non-patent claims continued.  RT argued that BD: monopolized and attempted
to monopolize the markets for hypodermic syringes, safety needles and syringes,
IV catheters, and safety IV catheters in violation of § 2 of the Sherman Act;
excluded RT from these markets in violation of the Clayton Act §§ 1 and 3; violated
the Lanham Act; and violated coordinate Texas law (later dismissed).
RT’s evidence “emphasized BD’s contract practices that
allegedly foreclosed competition by offering customers sole source contracts,
loyalty discounts, and market share rebates.” RT also invoked BD’s false
advertising, patent infringement, and unfair competition.  The court submitted twelve separate antitrust
interrogatories to the jury covering four liability theories—monopolization,
attempted monopolization, contractual restraint of trade, and exclusive
dealing—each relevant to three products—safety syringes, conventional syringes,
and safety IV catheters. Antitrust damages went to the jury on two
bases—“anticompetitive contracting damages” (for each product) and “deception
damages” (only safety syringes). The Lanham Act false advertising claim went to
the jury on representations that BD produced the “world’s sharpest needle” and
its syringes have “low waste space.”
The jury held BD liable only for attempted monopolization in
the market for safety syringes. It rejected all damages for “anticompetitive
contracting,” but found that RT suffered “deception damages” over $113.5
million, and it found liability on all the misrepresentations.  The district court trebled the damages, added
statutory attorneys’ fees, declined on equitable grounds to award disgorgement
of profits for BD’s false advertising, and enjoined BD.
To prevail on an attempted monopolization claim, a plaintiff
must show: “(1) that the defendant has engaged in predatory or anticompetitive
conduct with (2) a specific intent to monopolize and (3) a dangerous
probability of achieving monopoly power.”  BD didn’t challenge specific intent, and the
court of appeals assumed that (3) was satisfied, meaning that BD had market
power in the relevant US market for safety syringes.
The jury verdict “significantly narrowed the factual
predicate for potential antitrust liability” by rejecting RT’s claims about
exclusionary contracting practices by BD. BD offered the testimony of over a
dozen purchasers of safety syringes that BD’s practices did not foreclose their
ability to choose among competing products. Thus, the monopolization claim had
to rest on three types of “deception”: patent infringement; two persistent
false advertising claims; and BD’s alleged “tainting the market” for
retractable syringes in which it alone competed with RT.
Exclusionary conduct must not only impair rivals’
opportunities but also not further competition. 
“If the conduct has no rational business purpose other than its adverse
effects on competitors, an inference that it is exclusionary is supported.”  But not all unfair conduct violates §2, and
even aggregating a bunch of unfair competitive practices doesn’t turn into
legally predatory conduct for §2 purposes unless it’s especially egregious. As
the Supreme Court has said, “[e]ven an act of pure malice by one business
competitor against another does not, without more, state a claim under the
federal antitrust laws; those laws do not create a federal law of unfair
competition or ‘purport to afford remedies for all torts committed by or
against persons engaged in interstate commerce.’ ”
Patent infringement isn’t a basis for imposing antitrust
liability, since patent infringement is actually procompetitive (patent law
conflicts with antitrust law to an extent). 
False advertising: BD falsely advertised throughout the
period under litigation that BD needles were the “world’s sharpest” (a proxy
for patient comfort) and had “low waste space” (allowing more medicine to be
dispensed from the syringe), and that BD’s data proved the claims.  By about 2003, BD’s tests began to show that
competitors were equalling or surpassing BD needles on sharpness, and it didn’t
change its ads.  Likewise, while the
claim “lower waste space” than RT’s needles (the only competitor) was true when
made, BD’s tests in 2003, 2005, and 2008 showed that the waste space
measurement was no longer accurate. BD removed the inaccurate measurement from
some materials but not from all, and showed erroneous waste space comparisons
on its website. BD also applied the false claim to customer-specific
comparative spreadsheets, and imbedded it in a “cost calculator” that sales
representatives could use to demonstrate how much money customers would
allegedly save with Integra syringes. Some distributors and resellers continue
to use BD’s false claims in their promotional materials.
The bar to calling false advertising an antitrust violation
is high because—um, because courts don’t like antitrust claims.  Previously, the Fifth Circuit said that sales
pitches “may have been wrong, misleading, or debatable,” but they were all
“arguments on the merits, indicative of competition on the merits,” as opposed
to, say, bribes.  If a competitor loses
out on a debate on the merits, the “natural remedy would seem to be an increase
in the losing party’s sales efforts on future potential bids, not an antitrust
suit.”  Similarly, the Seventh Circuit
rejects Sherman Act claims based on false advertising because of what the court
here called “traditional free speech principles”: “If [a competitor’s
statements about another] should be false or misleading or incomplete or just
plain mistaken, the remedy is not antitrust litigation but more speech—the
marketplace of ideas.” False advertising “hardly ever operates in practice to
threaten competition” because it “simply ‘set[s] the stage for competition in a
different venue: the advertising market,’” and the victim can advertise right
back to expose the dishonest competitor and “turn the tables.”  “Far from restricting competition, then,
false or misleading advertising generally sets competition into motion.”  Also, it’s hard to determine whether falsity
induced reliance, “or whether the buyer attached little weight to the
statements and instead regarded them as biased and self-serving.” The latter
was more likely where, as here, the relevant consumers were sophisticated, and though
RT had surveys about materiality of sharpness & waste space, “not a single
buyer’s representative came forward to testify to a purchase motivated by the ‘world’s
sharpest needle’ and ‘lower waste space’ claims.”
Pause to note that the empirics are all against this:
corrective advertising, especially by an
inherently-less-credible-because-self-interested competitor, is unlikely to fix
all the damage of false advertising.  [Now
that we’re post-truth, is this problem worse? 
Or is it not a problem because no factual claim would be believed in the
first place?]  Also, the First Amendment
doesn’t protect false or misleading commercial speech; if it did, it would
threaten the Lanham Act even more than the Sherman Act, but the same Seventh
Circuit that said “the remedy is more speech” accepts Lanham Act false
advertising claims.  Similarly
unpersuasive are the claims about reliance and materiality, which we consider
ordinary matters capable of factual proof in the Lanham Act context (and which
the jury found were proven here).  If the
court were serious about its arguments, it wouldn’t allow Lanham Act false advertising
claims either.  This is about the remedy,
not the right, and it would be a lot more honest to admit that.
Still, the court here says, the broader point is that there’s
a difference between business torts, which harm competitors, and “truly
anticompetitive activities,” which harm the market. So an antitrust plaintiff
has to show that a competitor’s false advertisements had the potential to
eliminate, or did in fact eliminate, competition.  “RT may have lost some sales or market share
because of BD’s false advertising, but it remains a vigorous competitor, and it
did not contend that BD’s advertising erected barriers to entry in the safety
syringe market.”
Moreover, there were no facts showing that BD’s ads in fact
harmed competition, because RT remained dominant in the retractable syringe
sub-market, selling up to 67% of all retractable syringes. Further, competition
within the overall safety syringe market—particularly between BD, Covidien, and
Smiths—remained robust. Some customers increased their purchases of RT syringes
after being shown BD’s erroneous “waste space” comparisons.
“Tainting the market”: this theory was that BD produced
flawed Integra retractable needles during the years covered by this litigation
in order to persuade purchasers that all retractable syringes—including those
of RT—were inherently unreliable, until RT’s patent expired and BD could take
over the market.  The beginning of this
theory had some record support, but the rest was illogical and incoherent (why
would BD destroy its own future market?); even if true, the last part wasn’t
anticompetitive, because “it is precisely the type of activity to be expected
from competitors when valuable patent rights expire.”  The flaws in Integra needles, while
apparently real, didn’t prevent them from getting 33% of the market, while RT’s
market share increased and its sales nearly doubled. 
Bye-bye antitrust claim.
Lanham Act claim: BD sought judgment as a matter of law based
on the affirmative defenses of res judicata and laches. The district court was
correct that res judicata didn’t bar the claim because RT didn’t release claims
for conduct post-settlement, and there was no indication that RT was on notice before
the 2004 settlement that BD would continue to utilize the “sharpest needle” and
“waste space” comparative advertisements in sales pitches and marketing
materials.  
Laches: Without opining on the right statute of limitations
to borrow, the court of appeals found that the district court didn’t abuse its
discretion in concluding BD suffered no undue prejudice. “BD obviously knew
from the parties’ just-concluded litigation that RT objected to the needle
sharpness and waste space claims, and BD had every reason to know that its
ongoing advertisements of the same claims, which continued through 2011, were
inaccurate.”
Disgorgement under the Lanham Act: Also reviewed for abuse
of discretion.  In the Fifth Circuit,
willfulness isn’t required, but courts consider: “(1) whether the defendant had
the intent to confuse or deceive, (2) whether sales have been diverted, (3) the
adequacy of other remedies, (4) any unreasonable delay by the plaintiff in
asserting his rights, (5) the public interest in making the misconduct
unprofitable, and (6) whether it is a case of palming off.”  Even if disgorgement is appropriate, a
plaintiff “is only entitled to those profits attributable” to the false
advertising.
There was no clear error in the district court’s conclusion
that at least some portion of BD’s profits were attributable to the false
advertising. There was an expert witness’s opinion that $7.2 million in
profits—netting to $560,000 after deductions for costs and expenses—could be
attributable to the waste space advertisements. Nor was there clear error in
the finding that BD had the intent to confuse or deceive by continuing to use
advertisements it knew were false. Anyway, willfulness is not a prerequisite.
The district court declined to impose disgorgement because
RT was adequately compensated by a $340 million antitrust award. This required
remand “for a thorough re-weighing of the remaining factors and the entirety of
the record to determine whether and how much profit BD should disgorge to
compensate for the Lanham Act violations.” 
The court cautioned that, in assessing sales diversion, “speculative and
attenuated evidence of diversion of sales will not suffice.”
BD finally objected to the injunction requiring BD to
“notify customers, distributors, and other market participants” that it
“wrongfully made false and misleading advertising claims” in its “needle
sharpness” and “waste space” advertisements. BD didn’t object to bans on use of
the relevant advertisements or to required implementation of a training program
to instruct employees and distributors not to use the old marketing materials.  Given that the district court’s order
suggested that injunctive relief was granted to remedy antitrust violations, it
was an abuse of discretion.  “It remains
theoretically possible, while bearing in mind that equitable relief is normally
appropriate only in the absence of an adequate remedy at law (i.e., money
damages), that a viable injunction might still be an appropriate remedy for the
Lanham Act violations.”  So remand on
that too.

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