US companies can be enjoined from false advertising in China

Primo Broodstock, Inc. v. American Mariculture, Inc., No.
17-cv-9, 2017 WL 1502714 (M.D. Fla. Apr. 27, 2017)
Primo is a Texas corporation that breeds and sells “highly
disease-resistant” shrimp from the Ecuadorian litopenaeus vannamei strain.
Defendant Robin Pearl has an extensive background in shrimp farming and is the
co-founder of defendants AMI and API. 
AMI supplies fresh and frozen shrimp, which is produced at AMI’s large
shrimp farming facility in Florida, while API is AMI’s wholly-owned subsidiary.  (I mention the geographic origins because the
alleged false advertising here took place in China and was aimed at Chinese
customers, but the court doesn’t explicitly discuss why it is applying Florida
law and the Lanham Act to this conduct.)
In 2015, Primo and AMI agreed “to use a defined portion of
AMI grow-out capacity to produce broodstock for Primo for sale to third
parties.” AMI agreed to grow young, post-larval shrimp – supplied by Primo – to
large adult size at the AMI facility, and AMI would then either sell the live
adult shrimp back to Primo at fixed prices based on the animal’s weight, or
“harvest” (kill) the animals to sell as fresh or frozen dead shrimp, with the
proceeds belonging exclusively to AMI. The agreement barred AMI from selling or
transferring any live Primo Shrimp to others without Primo’s permission. The
business arrangement quickly soured, among other things because defendants
claimed that Primo was not repurchasing the live adult shrimp, causing
defendants to incur significant costs to maintain the large animals.  A year after the agreement began, defendants
threatened to harvest all live Primo shrimp of a certain size that Primo did
not buy back within ten days. Primo filed suit in state court seeking to block this
“shrimp-ocide.” The parties resolved the dispute out of court by giving Primo a
few months to remove all its live shrimp from the AMI facility; Primo
ultimately left about 46,000 live adult shrimp at the facility, which it could
not afford to repurchase, as well as 650,000 shrimp that were too young to buy
The court refused to grant a preliminary injunction based on
Primo’s trade secret claim (which asserted, among other things, that the shrimp
themselves were Primo’s “intellectual property”).  But it did grant a preliminary injunction
based on unfair competition/false advertising under state and federal law.
Plaintiffs alleged a “scheme to obfuscate the market in
China – and ultimately the world – regarding the genuineness of Plaintiff’s
proprietary shrimp broodstock.” Rather than clarify that the breeders they
supply to Chinese companies are merely hybrids derived from pure Primo stock, defendants
claimed that the live shrimp they sell are “the real Primo.” While defendants
agreed “that the use of [the Primo] name is improper,” they asserted that the
name was being used by their Chinese customers, over whom they had no direct
control.  They didn’t “necessarily
oppose” an injunction preventing use of the “Primo” name and claimed to have
already requested their distributors “cease using the name ‘Primo’ in any
capacity while marketing [Defendants’] products.”
Plaintiff pointed to evidence including a translated article
from a Chinese trade magazine titled “API: Who is the real ‘Primo?’ This
question is left to the Chinese farmer to answer.” This article was also posted
on the website of a company named Primo (China) Broodstock Co. It featured a Q
& A with Mr. Pearl, who discussed the history of API’s shrimp and stated
that API “selected Primo (China) Broodstock Co., Ltd. to be [API’s] official
recognized partner” in China.  Primo
(China) claimed to be “the officially designated partner [ ] of high-resistance
‘Primo’ shrimp breeding by API in China” and “welcome[s] the customers who are
confident and full of intention about the ‘Primo’ to join us to make the shrimp
better together.”
Primo also introduced a transcription of video recordings
taken at a November 3, 2016 “Primo shrimp” sales presentation held in China
before approximately 55 to 60 people, where Charles Tuan, a former defendant
here, introduced Mr. Pearl, and then a Mr. Huang from Primo (China) spoke. Mr.
Tuan asked: “If it’s the real Primo, then why need change the name? …[A]ll
breeder sources are written in black and white on the paper and establish for
you that these are the real Primo.” He also said that “the breeder source of
Haimao” – which the court thought was a reference to Primo – “is fake.”  Pearl thanked his “agents who are helping
[API] promote Primo Broodstock here in China” and then discussed the failed
business relationship between Primo and AMI. He claimed that Primo had removed
only one family of broodstock from AMI’s facility, leaving defendants with “the
full bank of genetics at [their] farm.” Mr. Pearl also said that defendants were
“spending a lot of time and a lot of money taking the Primo APE animal[ ] …to
the next level.”  (APE means all
pathogens exposed, that is, proven hardy.) During his speech, Mr. Huang
asserted that “Primo does not have breeder shrimp” and discusses how he set up
a new company – Primo China – “for purposes of importing the Primo shrimp” to
The third document was  a brochure allegedly given to those who
attended the presentation, which states that “Primo abandoned over 650,000
animals and all its genetic material” at the AMI Facility. Other evidence was
Defendants argued that their statements were “entirely
truthful” and that they “studiously avoided giving any impression of
association with Primo” and had “no direct control over [Mr. Huang],” who
“formed his company prior to any affiliation with… Defendants.”
The court found that Primo showed a substantial likelihood
of success on the merits.  The statement
that API possessed Primo’s “full genetic bank” was likely false, since Primo
presented evidence that it never provided defendants with breeders from more
than six of Primo’s family lines, out of twenty-four families. Defendants’ own
DNA genetic analysis showed only fourteen different groups of animals. Also, at
least in China – “the world’s largest shrimp farming country” – using the name
“Primo” in connection with shrimp provided goodwill.  API chose to work with Mr. Huang after he had
already formed a company called “Primo China,” and allowed Mr. Pearl to attend
events designed to tout the “realness” of the “Primo” shrimp API shipped.
Failure to grant an injunction would likely result in
continued – and irreparable – harm to Primo’s reputation and goodwill, “at
least in China.” “[T]he public has an interest in ensuring that American businesses
compete fairly with each other, both at home and abroad, and refrain from
engaging in trade practices that confuse and deceive consumers.”

Thus, defendants were enjoined from referring to their shrimp as “Primo”
anything, including “Primo shrimp,” “Primo animals,” “Primo breeders,” or
“Primo broodstock”; stating that their shrimp were created by breeding a male
shrimp and a female shrimp from the same Primo family line; stating that they
had Primo’s “genetic bank” or “full genetic bank” or that Primo left or
abandoned its “genetic bank” or “full genetic bank” at the AMI facility; and
appearing at any Primo China or Dingda (another similar Chinese company)
promotional event.  They were not, however,
enjoined from stating that certain of their animals were derived from pure
Primo stock, whose genetic makeup was unknown to defendants at the time. “Indeed,
to fail to mention Primo at all could constitute grounds for a ‘reverse passing
off’ claim under the Lanham Act,” citing Dastar
(even though API would be the physical source of the shrimp, sigh). 

from Blogger

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