Rebecca Tushnet

Retractable Technologies, Incorporated v. Becton Dickinson
& Co., — F.3d —-, 2019 WL 1346002, No. 17-40960 (5th Cir. Mar. 26,
2019)

“A jury found that Becton Dickinson & Co. falsely
advertised its products for years. The district court determined that neither
disgorgement of profits nor further injunctive relief would be equitable under
the circumstances. It did not abuse its discretion.”

Retractable syringes are designed to reduce risk of
accidental needlesticks; they compete with other varieties of safety syringes
and with “conventional” syringes. They provide significant protection against
accidents but their needles prevent use for some hospital and clinical
purposes.  RTI and BD compete in the safety
syringe market along with two other major safety syringe manufacturers. RTI dominates
the retractable syringe sub-market; BD produces retractable syringes, but
conventional and non-retractable safety products that account for the bulk of
its revenue.

BD falsely advertised the “world’s sharpest needle,” which
is important because consumers see needle sharpness as a proxy for patient
comfort, and persisted in doing so after its internal tests indicated
otherwise. It also falsely promoted its retractable syringes as having seven
times less “waste space” than RTI’s product, meaning that the syringes would
waste less medicine.  BD’s testing initially
supported this claim, but not after 2003.

RTI sued BD for antitrust violations and false advertising
under the Lanham Act and won a jury verdict on one of its antitrust claims and
all of its Lanham Act false advertising claims. The jury found that RTI was due
more than $113.5 million in antitrust damages ($352 million with trebling +
attorneys’ fees), but the court of appeals kicked that out because it’s an antitrust
case and sent the case back to see if there were Lanham Act damages. RTI had
requested disgorgement of BD’s profits and injunctive relief; the district
court had concluded that equity favored disgorgement, but that any relevant
profits were subsumed by the trebled antitrust damages award. The district
court also enjoined BD to cease certain advertising claims for several years,
post a notice on its website, notify various entities of the false claims
(stayed as to end users pending appeal), and implement a training program for
employees and distributors.

The court of appeals specifically approved of some of the
district court’s findings on false advertising: “at least some portion of BD’s
profits were attributable to the false advertising,” BD intended to confuse or
deceive consumers, and RTI did not unreasonably delay in seeking relief. On
remand, the district court declined to disgorge profits or reinstate any
portion of the vacated injunction.

On injunctive relief, this result was foretold by the
remand, which emphasized that, though a further need for injunctive relief was
“theoretically possible,” “[a] plaintiff seeking injunctive relief must show a
real and immediate threat of future or continuing injury apart from any past
injury,” and that any injunction should be “no broader than reasonably
necessary to prevent the deception.”  BD
took multiple steps to comply with the non-stayed aspects of the injunction for
two years before the court of appeals reversed.  It notified “over 750 distributors, over
10,000 employees, and all the major Group Purchasing Organizations, stating
that its needle sharpness and waste space claims were inaccurate.” Further, “BD
removed the false advertising from its marketing materials … and posted a
notice on its website.” It also implemented a training program for employees
and distributors. This was enough, the district court reasonably deemed, to
remedy any injury or threat of injury RTI had suffered from the false
advertising.

RTI argued that all this still didn’t provide notification
to end users, who play a significant role in medical decisions to purchase
syringes. But the district court found no “real and immediate threat of future
or continuing injury.”

Disgorgement as a remedy requires weighing (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.  A district court can consider other
factors.  It must also consider whether
the defendant’s profits are attributable to the Lanham Act violation. When the
plaintiff doesn’t show the defendant benefited from the false advertising,
disgorgement isn’t allowed even if the rest of the test favors disgorgement. However,
it was the law of the case that “at least some portion of BD’s profits were
attributable to the false advertising” and that the “intent to confuse or
deceive” and “unreasonable delay” factors favored disgorgement. The public
interest also favored disgorgement.

Still, the district court found that the equities weighed
against disgorgement because RTI had not shown diversion of sales or palming
off and injunctive relief was an adequate remedy.  [Why is palming off weighed separately from
intent to confuse or deceive?  They are
in essence the same thing, only trademark infringement gets double-counted,
even though one might think that materially false advertising was at least as
bad as infringement that need not be material to consumers. Along with
unjustified trademark exceptionalism, this formulation is a classic instance of
a series of considerations turning into a “balancing test,” without much thought about the
justifications.]

RTI argued (I think correctly) that palming off is irrelevant
in false advertising cases; if it should be included in the balancing test, it’s as a measure of the egregiousness of trademark infringement and not as a reason that false
advertising always has a thumb on the scale against disgorgement. The court of
appeals wasn’t fully convinced: “If a false advertising plaintiff has otherwise
shown concrete harm due to the false advertising, such as diverted sales, a
court should not heavily weigh the absence of palming off against disgorgement.”
But palming off retains its significance as a way in which RTI could have demonstrated
concrete harm, but did not.  [Hunh?  It’s
not a trademark case.  RTI also didn’t
demonstrate that BD broke in and stole its chattels.  So what?  If there had been palming off without sales diversion–if a trademark plaintiff couldn’t produce more or didn’t produce the palmed-off things at all–that just goes to the unjust enrichment of the defendant.] 
In the absence of sales diversion or palming off, disgorgement “would
grant RTI an unjustifiable windfall” and in such cases the plaintiff “faces an
uphill battle in obtaining disgorgement.”

RTI argued that the district court should have considered
loss of goodwill in lieu of palming off. In principle, that’s right, but RTI’s
evidence of lost goodwill and steps taken to combat that lost goodwill was merely
speculative, especially given that its market share in the retractable syringe
sub-market increased and its sales nearly doubled over the relevant period of
false advertising.  (The evidence was that
its employees who were worried about loss of goodwill “had to expend effort and
energy to go around and try to … tell people and convince them that it wasn’t
true” and “spent a lot of time going to customers and trying to correct the
misinformation, a lot of meetings, direct meetings, letter-writing, things like
that.”)        

Although sales diversion favored disgorgement, the district
court found that it did so only slightly because at least some of BD’s profit
from its false advertising may well have come not at RTI’s expense but at the
expense of others in the market.  [Note
that if you think of disgorgement as a deterrent, it’s not clear why that
should matter, at least as long if you think that some of BD’s profit did come
at RTI’s expense and as long as there’s no double recovery in another suit by a
different competitor.]  This finding was
not an abuse of discretion.

First, the jury’s finding of Lanham Act liability did not “conclusively”
establish sales diversion.  Injury and
actual damages are different.  So are having
profits attributable to the false advertising (law of the case) and showing
sales diversion (not law of the case). “[I]nternal BD documents suggested that
the false advertising allowed BD to command premium pricing and claim increased
market share,” but “it was not clear that every dollar BD earned came out of
RTI’s pocket,” only that some of the dollars did.

We want to avoid unjustified windfalls to plaintiffs.  The “profits attributable to the false
advertising” requirement is one protection against that, but “sales diversion”
is separate; these are related but distinct elements.  [I gotta say, it seems to me that the court is
requiring the plaintiff to quantify its damages to receive the defendant’s
profits, which is not the standard in other situations—one reason I thought we
had disgorgement was to deal with the inequitable situation in which we’re sure
the plaintiff was harmed, but not sure enough how much it was harmed to award a
dollar amount of its damages.  Disgorgement
(and injunctions) can make sure that the defendant doesn’t stay better off for
having falsely advertised, and the risk of error is appropriately on the false
advertiser especially if we’re requiring willfulness.  I can see the justification for the result
here as well—it’s largely a matter of preferences/beliefs about deterrence—but what
I really don’t like is the special treatment trademark gets.  The statutory language is the same; the
reasoning should be the same too.]

Nor did the district court clearly err in finding that RTI offered
insufficient proof of diversion. The best evidence of diversion was internal BD
correspondence boasting about the commercial impact of its “needle sharpness”
and “waste space” claims, and “the trial court was persuaded that this
correspondence did not actually prove that RTI’s customers or potential
customers chose to purchase from BD instead of RTI as a result of the false
advertising…. At least some customers expanded their purchases from RTI after
the dates they were allegedly presented with the deceptive waste space
comparisons. In contrast, BD had difficulty selling its retractable syringes
during the same period.”

These findings were consistent with the court of appeals’
reasons for holding that BD’s false advertising, standing alone, could not
ground antitrust liability. The parties’ customers were sophisticated; none
testified to being driven by BD’s false claims and several testified that they
weren’t. “RTI’s evidence consisted mostly of boastful e-mail exchanges between
BD sales representatives recounting what they believed were successful sales
pitches, but notably there was no testimony from the customers themselves.”  [Again, fair enough! But if you tried that argument
in a trademark case, there’s tons of cases about how courts should presume that
bad intent is successful, and that divergence doesn’t make a lot of sense.]

Fundamentally, RTI and BD weren’t the only players in the
safety syringe market, so no presumptions about false comparative advertising
were appropriate (if they’re even allowed).

The district court also relied on “the adequacy of other remedies”
in rejecting disgorgement even as it decided not to reimpose injunctive relief,
which RTI pointed out was weird. Still, it was ok to weigh the steps BD had
already taken to comply with the injunction as a factor counseling against the
need for disgorgement, given the absence of evidence of concrete harm. However,
the court cautioned that “[w]e do not necessarily approve of a general rule
that, ex ante, injunctive relief is preferable to disgorgement.”

RTI finally argued that the court should value deterrence and
avoidance of unjust enrichment more. But those values don’t require disgorgement
where it’s not equitable to disgorge profits to a particular plaintiff. There
was no abuse of discretion.  And we get
another TM comparison! The district court distinguished a previous case approving
of disgorgement on deterrence grounds because that case was a trademark case,
and trademarks and trade dress are unique “protected property right[s].” RTI
argued that the Lanham Act also protects trade reputation and goodwill as
property interests. [Note: as a matter of history, RTI is correct that the same
property language has been used for all these things; indeed, the classic
treatment of the “trademark is property” concept was really always “the
property is the underlying goodwill; the trademark is the symbol of the
property, which only exists appurtenant to the goodwill of a business.”  It’s only casual shorthand that confused some
later courts into thinking there was some sort of property right in the trademark
as such.] But the court of appeals doesn’t wade into that because RTI failed to
show that its goodwill was harmed in a way that affected potential customers’
decisions, and thus didn’t show harm that “parallels the harm caused a
markholder whose mark is used without consent.”

Anyway, BD was not “unscathed” by its violation of the
law.  It complied with (most of) the
original injunction for nearly two years. And for deterrence, “future would-be
false advertisers” should note that a plaintiff who shows harm may be able to
get disgorgement.

In closing, the court of appeals put the denial of
disgorgement in the larger context of a “meritless” antitrust claim [interesting
word—should BD get attorneys’ fees?] made during a time in which RTI nearly
doubled its own sales and increased its share of the retractable syringe
sub-market to two-thirds. “RTI elected not to test its proof of Lanham Act
damages before the jury,” and the court wouldn’t let it wave the flag of the
public interest to get BD’s profits now. The public interest would be best
vindicated in the marketplace.

Judge Graves dissented; he would have vacated and remanded
on the theory that the district court erred in reweighing the diversion factor
and in finding insufficient evidence to support disgorgement.  He thought that the prior court of appeals
opinion’s treatment of sales diversion related to the amount to disgorge, but fixed the law of the case as to whether
sales diversion had happened, merely remanding for assessment of other factors
in light of the disappearance of the antitrust award. The district court had
clearly already found that “RTI produced evidence that on occasion BD relied on
these false advertisements to divert sales from RTI directly” and “[t]his
evidence confirms the rational conclusion that some portion of BD’s ill-gotten
sales came at RTI’s expense.”

Of the three factors that weren’t law of the case, the
public interest factor favored disgorgement. On remand, the district court “improperly
weighted the absence of diversion and palming off to the exclusion of other
factors.” In light of this reweighing “and the fact that the adequate remedies
the district court had previously found no longer exist,” the dissent thought
that the district court likewise erred in its reconsideration of the adequacy
of other remedies.