claim to bring original formula of another’s brand back wasn’t nominative fair use

GlaxoSmithKline LLC v. Laclede, Inc., 2019 WL 293329, No. 18-CV-4945
(JMF) (S.D.N.Y. Jan. 23, 2019)
Judge Furman gets another TM case; in his close adherence to
precedent he demonstrates some of the current weak points in TM doctrine, here
the Second Circuit’s incoherent treatment of nominative fair use and its
handwaving around irreparable harm.
GSK bought the rights to Biotene, a line of OTC medicines
for treating dry mouth, from Laclede. 
Laclede later launched Salivea, a competing line.  GSK sought an injunction on trademark and
breach of contract grounds.  The court
denied the motion to the extent that it was based on the contract claims and
granted a limited injunction on trademark grounds.
The noncompete agreement GSK signed with Laclede provided
that Laclede agreed not to compete in the dry-mouth enzyme-based-treatement
market for three years, and its sole shareholders also agreed not to so compete.
GSK subsequently reformulated Biotene, removing certain enzymes.  Over three years after the closing date of
the agreement, Laclede introduced Salivea, sending “approximately 100,000
mailers … to [healthcare professionals] and others based on contacts
generated at conventions and rebate recipients.” In the first, a green banner announces:
“Back Again! Salivary Enzymes and Components – Essential for Dry Mouth Care.”
Just below that banner, the advertisement reads — in smaller typeface — “From
the Creators of ORIGINAL biotene,” with “biotene” appearing in a stylized font
and featuring a water droplet in the center of the “o.” Just below that, the
largest text on the flyer declares: “SALIVEA utilizes the same ingredients as
the ORIGINAL Biotene. The Proven and Loved Formula!” In mouseprint on the side
is: “Biotene is trademark [sic] owned by GlaxoSmithKline.”

In the second flyer, a header in all capital letters reads:
“DID YOU KNOW BIOTENE HAS CHANGED?” It continues: “Over 35 years ago, Laclede
developed Biotene enzyme toothpaste and mouthwash that became the #1 brand for
dry mouth. Biotene was acquired by the GSK Company and was reformulated. After
years of perfecting formulas, we now introduce SALIVEA mouthwash and toothpaste
that utilizes the Proven Enzyme Technology as in the ORIGINAL Biotene.” Highlighted
in red, the flyer lists “CURRENT Biotene Changes,” including “ENYZMES
(Removed),” and “PARABENS (Added),” alongside a picture of a Biotene oral rinse
bottle. [One would think that this negative information would dispel likely
confusion about source.]  A footer states:
“Back Again! Salivary Enzymes and Components – Essential for Dry Mouth Care.” Above
the footer, the flyer compares “SALIVEA Mouthwash Utilizing ORIGINAL Biotene
Formula” with the “ORIGINAL Biotene Formula / The #1 Recommended Brand for Dry
Mouth.” It has the same disclaimer.

On Salivea’s website, it declared: “It’s Back! The Original
Formula that made Biotene #1 for Dry Mouth.” Below that: “From the Creators of
biotene,” with “biotene” once against appearing in stylized script and
featuring the water droplet. It continues with similar claims: “Over 35 years
ago, our researchers developed an enzyme technology system that became The #1
Treatment in The World for Dry Mouth Care. Now, after years of perfecting
formulas, we’re proud to introduce the New SALIVEA Dry Mouth Care Products.”
Another page reads: “Proven Enzyme Technology / Over 35 years ago, Laclede
developed Biotene enzyme toothpaste and mouthwash that became The #1 Brand for
Dry Mouth. Biotene was later acquired by the GSK Company and was reformulated.
/ We Listened! We brought back salivary enzymes ….” The same disclaimer
appeared.

In Mohawk Maintenance Co. v. Kessler, 419 N.E.2d 324 (N.Y.
1981), the New York Court of Appeals identified an “ ‘implied covenant’ to
refrain from soliciting former customers following the sale of the ‘good will’
of a business.” This implied covenant isn’t time-limited.  It bars targeted solicitation of former
customers but not advertising to the general public.  “[A]lthough the issue is a close one, the
Court concludes that Defendants’ actions are nearer to the permissible
public-advertising end of the spectrum than to the impermissible
specific-targeting-of-former-customers end of the spectrum.” GSK didn’t
identify any specific former customers that were solicited after the express
noncompete clause lapsed; instead, the complaint alleged that ads were mailed “to
health care professionals, including dentists, throughout the United States.” NY
holds that a seller may “advertise to the public” so long as the advertisement
is “general in nature … and not specifically aimed at the seller’s former
customers.” Targeting a “class” of customers isn’t enough.
The court also rejected GSK’s argument that the second part
of the express covenant—the part binding Laclede’s owners—didn’t expire after
three years.  Though the first part of
the covenant expressly had a three-year term, and the second part didn’t, that
wasn’t dispositive. First, “New York courts adhere to a strict approach to
enforcement of restrictive covenants.” Thus, a non-compete provision that is
“vague and unspecific” will be deemed unenforceable.  And the language here—that the owners “also
agree” to the noncompete—indicates that the prior provision governing Laclede
was what was supposed to apply to the owners. 
And it wouldn’t make sense for Laclede and its owners to be governed by
different non-compete durations. Anyway, “the Court has some doubts that a
time-unlimited non-compete would be enforceable under New York law.”
Trademark claims: because the Second Circuit said so,
nominative fair use is tacked onto the end of the Polaroid factors, even though (1) that makes the test an even more
incoherent mix of normative and empirical parts, and (2) the Second Circuit
acknowledged that a number of the Polaroid
factors don’t fit well with nominative fair use situations.  The court here thus runs through the list. Strength
and competitive proximity favored GSK; similarity is of course identical
because you can’t consider the “comparative purpose” of the use under the
similarity factor, and anyway the materials here prominently featured the Biotene
mark in equal or larger size/prominence to the Salivea mark, so that favored
GSK.
There was some anecdotal evidence of confusion: declarations
from GSK stated that healthcare professionals expressed confusion about the
relationship (e.g., a conversation with an oral hygienist in which the
hygienist stated “that she understood SALIVEA was a GSK product that was
replacing BIOTENE”) and declarations from healthcare professionals themselves
claiming that they were confused (e.g., declaring that, after receiving “a
total of three mailers,” a dental hygienist was “immediately confused as to
whether [SALIVEA] was made by [Plaintiffs], because the mailer referenced that
GSK had reformulated the BIOTENE formula”). The total was seven declarations
recounting around twenty instances of actual confusion.  This favored GSK, but only slightly, given
that Laclede sent approximately 100,000 mailers. “Measured against that number,
twenty reported cases of actual confusion are not a lot. And none of the
declarations address confusion stemming from SALIVEA’s website …. Nevertheless,
even a small number of declarations can be revealing.”
There was also some evidence of bad faith intent to profit
from Biotene’s goodwill.  One mailer
referenced Biotene more often than Salivea. Another said at the top: “DID YOU
KNOW BIOTENE HAS CHANGED?” The main text was “phrased in a way that leaves a
reasonable reader confused about whether Laclede or GlaxoSmithKline
manufactures SALIVEA”: “Biotene was acquired by the GSK Company and was
reformulated. After years of perfecting formulas, we now introduce SALIVEA
….” The court concluded that,
taken together, the heading and the
main text could be easily be read to suggest that GlaxoSmithKline had
reformulated BIOTENE and was repackaging it as SALIVEA. Nowhere on the
Mouthwash Mailer is it evident that SALIVEA is a Laclede, and not a
GlaxoSmithKline, product. And while the depiction of the SALIVEA bottle is
indeed larger than the depiction of the BIOTENE bottle, the overall impression
of the advertisement suggests an untruthful association between SALIVEA and
BIOTENE, on the one hand, and between Laclede and GlaxoSmithKline, on the
other.
The other mailer also “purposefully obscured” the relationship
between the parties, prominently declaring that SALIVEA is “From the Creators
of ORIGINAL biotene,” (with “biotene” in its distinctive, stylized typeface),
and states that “SALIVEA utilizes the same ingredients as the ORIGINAL Biotene
– The Proven and Loved Formula.” It didn’t clarify that Laclede and
GlaxoSmithKline are separate entities or that SALIVEA is not related to
BIOTENE. “Instead, the advertisement leaves the inevitable impression that
SALIVEA is a follow-on to, or an improved version of, BIOTENE made by the same
manufacturer as ‘the ORIGINAL Biotene.’”
Quality favored neither side, because it is a garbage factor
that should be eliminated from the current test, and consumer sophistication
favored Laclede.
Nominative fair use factors: in the Second Circuit, the
first one is “whether the use of the plaintiff’s mark is necessary to describe
both the plaintiff’s product or service and the defendant’s product or service,
that is, whether the product or service is not readily identifiable without use
of the mark.” Here the court bobbles: “First, it is plainly not ‘necessary’ for
Defendants to use Plaintiffs’ mark to describe SALIVEA.”
This a bad result aided by the Second Circuit’s mashup of
the nominative fair use test from multiple circuits with the usual Polaroid
factors.  In the non-Third Circuit
version, the question is not (as it is with descriptive fair use) whether the
use of the mark is necessary to describe the defendant’s product; it’s whether
it’s necessary to describe the plaintiff’s product/service to identify it for
purposes of discussion. The Third Circuit limited nominative fair use to the
hybrid situation where the defendant needed to explain its genesis/experience
in order to explain the reason consumers might trust it (which, not for
nothing, seems relevant here), but that makes nominative fair use captive to a
variant of descriptive fair use.  The better
treatment, which seems acceptable under the Second Circuit standard would be to
evaluate the necessity of the reference to
the specific claim being made
(e.g., “Salivea uses the original, good
formulation that Biotene has abandoned”). 
Here, however,  the court
reasoned, because Salivea could easily describe itself as “dry mouth care”
etc., there was no need to mention plaintiff’s mark. [So if I’m an architect
who worked for another firm for three decades, there’s no need to mention that
firm because I can just describe myself as an “architect”?  That seems … restrictive, and in tension with
the First Amendment. The ultimate result here may be right, but it’s not because
of any lack of necessity—it’s because of what comes next.]
Next, Laclede used more of the Biotene mark than is
necessary to identify SALIVEA. This factor requires courts to evaluate whether
the defendant used the mark “too prominently or too often, in terms of size,
emphasis, or repetition.” As discussed above, it did.
Third, Laclede “suggest[ed] sponsorship or endorsement by
the plaintiff holder” and obscured “the true or accurate relationship between
plaintiff’s and defendant’s products.” The ads suggested that Salivea was “a
replacement for, or a follow up to,” Biotene, most evidently in the headlining
text “DID YOU KNOW BIOTENE HAS CHANGED?”  [I’m guessing that the result is different for
a headline “DID YOU KNOW BIOTENE HAS CHANGED FOR THE WORSE?”]  The ambiguous “we now introduce …” language also
hurt.
On balance, GSK showed likely confusion.
It also showed irreparable harm through showing “loss of
reputation and goodwill.” Irreparable harm “ ‘exists in a trademark case when
the party seeking the injunction shows that it will lose control over the
reputation of its trademark pending trial,’ because loss of control over one’s
reputation is neither ‘calculable nor precisely compensable.’ ”  As framed, this is equivalent to a finding
that likely confusion automatically means irreparable harm, since it would
always be true by definition.  This
result is inconsistent with eBay, and
it wrongly conflates the idea of lost control with the idea of harm from the lost control materializing,
which is (in the absence of further evidence, say of the inferiority of the
defendant’s product) not shown merely by showing the existence of the
risk.  In other words, the logic of “lost
control” is that irreparable harm is possible, but possibility is not
likelihood, which is the standard in other cases.
With that out of the way, it wouldn’t be a hardship to refrain
from overreliance on GSK’s marks in advertising, especially since Laclede
already discontinued the mailers at issue.  And a preliminary injunction limited to
enjoining trademark violations would not disserve the public interest.
However, GSK sought relief that was too broad, including “all
use of the words ‘#1 Brand for Dry Mouth, It’s Back, ‘Back Again,’ ‘Brought
Back’ or variations thereof,” and “the dissemination of any and all claims
referencing Laclede’s prior ownership of the BIOTENE brand.”  GSK’s request for a laundry list of
prohibitions was inconsistent with its focus in the likely confusion analysis
on the totality of the advertising, and the court agreed that the proper approach
was to look at the total impact of the uses. GSK’s proposed injunction could
“sweep in instances of nominative fair use.”  Thus, the preliminary injunction issued by the
court covered: all use of the registered blue-and-red Biotene logo, or any
confusingly similar variation thereof; all use of any images of the packaging
for Biotene products; and the dissemination of any advertising or packaging
materials declaring that Salivea is a successor of, or replacement for, Biotene;
and any ads substantially similar to the two prior mailers. [In many ways, the
limited scope of the injunction makes up for the narrowness of the nominative
fair use reasoning, except insofar as other claimants will cite only the narrow
reasoning against other comparative advertisers.]

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