Retractable Technologies, Inc. v. Becton Di , 842 F.3d 883 ( 2016 )

Case: 14-41384 Document: 00513781379 Page: 1 Date Filed: 12/02/2016
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
December 2, 2016
No. 14-41384
Lyle W. Cayce
Clerk
RETRACTABLE TECHNOLOGIES, INCORPORATED; THOMAS J. SHAW,
Plaintiffs - Appellees
v.
BECTON DICKINSON & COMPANY,
Defendant - Appellant
Appeals from the United States District Court
for the Eastern District of Texas
Before JONES, WIENER, and HIGGINSON, Circuit Judges.
EDITH H. JONES, Circuit Judge:
This appeal is the latest chapter in the long-running legal disputes
between Becton Dickinson & Co. (“BD”) and Retractable Technologies, Inc.
(“RTI”), competitors in the market for syringes of various types and IV
catheters. It arises from a $340 million jury verdict (after trebling) entered
against BD for its alleged attempt to monopolize the United States safety
syringe market in violation of § 2 of the Sherman Antitrust Act. The jury also
found BD liable for false advertising under § 43(a) of the Lanham Act. Relying
on principles of equity, the district court held that the treble damage award
subsumed BD’s liability to disgorge profits from the false advertising, but the
court enjoined BD to stop using those ads and notify customers, employees,
distributors, and others about the false claims.
Case: 14-41384 Document: 00513781379 Page: 2 Date Filed: 12/02/2016
No. 14-41384
We affirm in part, reverse in part, and vacate and remand in part. The
§ 2 claim for attempt to monopolize is infirm as a matter of law. First, patent
infringement, which operates to increase competition, is not anticompetitive
conduct. Second, false advertising is a slim, and here nonexistent, reed for a
§ 2 claim. Third, the allegation that BD “tainted” the market for retractable
syringes while surreptitiously plotting to offer its own retractable a few years
later is unsupported and incoherent. We affirm the Lanham Act judgment of
liability for false advertising but must reverse and remand for a
redetermination of disgorgement damages, if any. Finally, in light of the
foregoing, we must vacate and remand the injunctive relief for reconsideration.
BACKGROUND
BD and RTI are two major competitors, along with Covidien Ltd.
(“Covidien”) and Smiths Medical (“Smiths”), in the U.S. product market for
safety syringes. Safety syringes are designed to prevent the transmission of
blood-borne diseases like AIDS and hepatitis C to medical professionals or
others who are accidentally pricked. The safety syringe market comprises four
main products—shielding needles, pivoting needles, sliding sleeve needles, and
retracting needles—each of which is best used in specific hospital, clinical, or
office settings. BD produced all four types of safety syringes and was the major
manufacturer of conventional syringes. RTI produced a conventional syringe
and a safety IV catheter during some parts of the relevant period, but its
principal product was the VanishPoint retractable syringe. The VanishPoint
syringe has a fixed, albeit retracting needle, which provides admirable
protection for injections but is not adaptable for a number of other hospital and
clinical uses.
The parties’ dispute began before the 2004–2010 period covered by this
lawsuit. In 1989 RTI’s founder, Thomas Shaw (“Shaw”), developed and
patented retractable syringe technology, a groundbreaking innovation in
2
Case: 14-41384 Document: 00513781379 Page: 3 Date Filed: 12/02/2016
No. 14-41384
which the needle automatically retracts into the body of the syringe after an
injection. Congress passed the Effective Needlestick and Safety Prevention
Act effective in 2001 to encourage hospitals to use devices that would minimize
needlesticks, and spurred the safety syringe industry. In 2002, approximately
five years after RTI introduced the VanishPoint, BD created its own
retractable syringe, the Integra. RTI contends that BD had to work around
RTI’s patents to design the Integra. Moreover, BD’s Integra suffered from
design flaws such as leaking and “premature plunger rod collapse,” which
prevented the syringe from delivering a full dose of medicine.
RTI outsold BD in the retractable syringe sub-market. BD sold no less
than one-third of retractable syringes during the period in question, while RTI
had a retractable syringe market share that increased to two-thirds. By 2010,
in the relevant product market for all safety syringes, BD had a market share
of 49%, Covidien a 30% share, Smiths a 10% share, and RTI a 6% share.
After it experienced initial difficulties persuading hospitals, clinics, and
pharmaceutical operators like Walmart to purchase its VanishPoint, RTI sued
BD in 2001 in the Eastern District of Texas for antitrust violations and product
disparagement (the latter claim based on the same advertising issues litigated
here). The parties settled the suit on July 2, 2004, BD paid RTI $100 million,
and the parties executed a mutual release of claims “which accrued on or at
any time prior” to the agreement’s signing.
Barely three years later, RTI filed this suit alleging patent infringement
and antitrust and Texas common law violations. The district court in the
Eastern District of Texas bifurcated the litigation, tried the patent case first,
and rendered judgment (including a mere $5 million in damages) for RTI on
claims that BD’s 1mL and 3mL versions of the Integra infringed the
VanishPoint patents. On appeal, the Federal Circuit upheld the judgment only
as to the 1mL Integra, which BD then removed from the market. Retractable
3
Case: 14-41384 Document: 00513781379 Page: 4 Date Filed: 12/02/2016
No. 14-41384
Techs., Inc. v. Becton, Dickinson & Co., 653 F.3d 1296 (Fed. Cir. 2011); see also
659 F.3d 1369, 1370 (denying reh. en banc), cert. denied, 133 S. Ct. 833 (2013).
The district court reactivated RTI’s non-patent claims in 2010. RTI
amended its complaint and asserted 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,
15 U.S.C. § 2; excluded RTI from these markets in violation of the Clayton Act
§ 3, 15 U.S.C. § 14 (later amended to include a Sherman Act § 1 exclusive
dealing claim); violated similar provisions of Texas antitrust law; engaged in
false advertising contrary to the Lanham Act § 43(a), 15 U.S.C. § 1125(a)(1)(B);
and committed Texas common law torts of product disparagement,
interference with prospective contract or business relations, and unfair
competition.
RTI’s evidence during the multi-day trial in September 2013 emphasized
BD’s contract practices that allegedly foreclosed competition by offering
customers sole source contracts, loyalty discounts, and market share rebates.
RTI additionally complained of BD’s false advertising (in three separate
promotional claims), patent infringement, and unfair competition.
At the close of evidence, RTI dropped its claim for Lanham Act damages
and dismissed the state law claims. The court submitted twelve separate
antitrust interrogatories covering four liability theories—monopolization,
attempted monopolization, contractual restraint of trade, and exclusive
dealing—each pertinent to three products—safety syringes, conventional
syringes, and safety IV catheters. Antitrust damages were submitted on two
bases—“anticompetitive contracting damages” (for each of the three products)
and “deception damages” regarding only safety syringes. Finally, the Lanham
Act false advertising claim was submitted for representations that BD
produced the “world’s sharpest needle” and its syringes have “low waste space.”
4
Case: 14-41384 Document: 00513781379 Page: 5 Date Filed: 12/02/2016
No. 14-41384
The jury returned a verdict rejecting all but one of the twelve antitrust
claims; it held BD liable for attempted monopolization in the market for safety
syringes. While rejecting all damages for “anticompetitive contracting,” the
jury found that RTI suffered “deception damages” exceeding $113,500,000, and
it found liability on all the misrepresentations.
The district court wrote a brief opinion rejecting BD’s motion for
judgment as a matter of law. It trebled the Sherman Act damages, added
statutory attorneys’ fees, declined on equitable grounds to award disgorgement
of profits for BD’s false advertising, and enjoined BD as previously noted. BD
appealed.
DISCUSSION
Among the many grounds BD has raised, we need consider only four:
whether judgment as a matter of law was required on the Sherman Act § 2 or
Lanham Act § 43(a) claims, whether the district court abused its discretion in
ordering BD to disgorge profits for false advertising, and the propriety of
injunctive relief. We discuss each in turn. 1
I. Section 2 Attempted Monopolization Claim
BD unsuccessfully sought judgment as a matter of a law on the § 2
attempted monopolization claim. We review the denial of a JMOL de novo,
considering the facts in the light most favorable to the verdict. Abraham &
Veneklasen Joint Venture v. Am. Quarter Horse Ass’n, 776 F.3d 321, 327 (5th
Cir. 2015). “We can reverse a denial of a motion for judgment as a matter of
law only if the jury’s factual findings are not supported by substantial evidence
or if the legal conclusions implied from the jury’s verdict cannot in law be
1 In light of our conclusion that the antitrust verdict must be reversed, we do not
consider BD’s other objections to the antitrust verdict, including: the district court’s refusal
to give the jury BD’s requested “Stearns instruction,” the district court’s admission of the
patent verdict, the district court’s refusal of BD’s request for a special verdict form, or BD’s
various objections to the RTI damage model.
5
Case: 14-41384 Document: 00513781379 Page: 6 Date Filed: 12/02/2016
No. 14-41384
supported by those findings.” MM Steel, L.P. v. JSW Steel (USA) Inc.,
806 F.3d 835, 843 (5th Cir. 2015) (citation omitted). In this case, the antitrust
verdict cannot be legally supported by the jury’s findings.
Section 2 of the Sherman Antitrust Act not only prohibits the abuse of
monopoly power but also any “attempt to monopolize . . . any part of the trade
or commerce among the several States.” 15 U.S.C. § 2. 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.”
Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456, 113 S. Ct. 884, 890–91
(1993). BD does not challenge the specific intent element. For purposes of this
analysis, we also assume the hotly disputed contention that RTI has satisfied
the dangerous probability element, which assessed BD’s market power in the
relevant United States market for safety syringes. Therefore, we consider only
whether RTI has demonstrated that BD engaged in anticompetitive conduct
that violates the Sherman Act.
Critical to our analysis is that the jury verdict significantly narrowed the
factual predicate for potential antitrust liability by rejecting RTI’s case for
exclusionary contracting practices by BD. A large portion of RTI’s trial
presentation consisted of its witnesses’ claims that BD hindered competition
by engaging in exclusionary contracting with customers for safety syringes
using sole source contracts, loyalty discounts, and market share rebates. BD,
however, successfully rebutted the attempt, largely by offering the testimony
of over a dozen purchasers of safety syringes that BD’s practices did not
foreclose their ability to choose among competing products. As a result, RTI’s
verdict for anticompetitive conduct must rest upon three types of “deception”
by its rival: patent infringement by BD’s 1mL Integra syringe (but not the
3 mL syringe); two false advertising claims made persistently; and BD’s
6
Case: 14-41384 Document: 00513781379 Page: 7 Date Filed: 12/02/2016
No. 14-41384
alleged “tainting the market” for retractable syringes in which it alone
competed with RTI. Each of these theories must be separately analyzed in
light of settled principles of antitrust law.
Predatory or anticompetitive conduct, which excludes competitors from
a market, is “conduct, other than competition on the merits or restraints
reasonably necessary to competition on the merits, that reasonably appear[s]
capable of making a significant contribution to creating or maintaining
monopoly power.” Taylor Publ’g Co. v. Jostens, Inc., 216 F.3d 465, 475 (5th
Cir. 2000) (citations, brackets, and quotations omitted). Further,
“‘exclusionary’ comprehends at the most behavior that not only (1) tends to
impair the opportunities of rivals, but also (2) either does not further
competition on the merits or does so in an unnecessarily restrictive way.”
Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 605 n.32,
105 S. Ct. 2847, 2859 (1985) (quoting 3 PHILLIP E. AREEDA & DONALD TURNER,
ANTITRUST LAW 78 (1978)). To determine whether conduct is exclusionary, the
court looks to the “proffered business justification for the act.” Taylor, 216 F.3d
at 475. “If the conduct has no rational business purpose other than its adverse
effects on competitors, an inference that it is exclusionary is supported.”
Stearns Airport Equip. Co. v. FMC Corp., 170 F.3d 518, 522 (5th Cir. 1999).
Aspen Skiing provides an example of conduct taken without a rational business
purpose other than to exclude rivals. There, the dominant ski company
“fail[ed] to offer any efficiency justification whatever” for its decisions, 472 U.S.
at 608, 105 S. Ct. at 2860, and “was willing to sacrifice short-run benefits and
consumer goodwill in exchange for a perceived long-run impact on its smaller
rival.” Id. at 610-11, 105 S. Ct. at 2861.
Taylor, however, added the important explanation that “[not] all ‘unfair’
conduct—even by a monopolist and a fortiori by one who is not—fits within the
prohibition of § 2.” 216 F.3d at 475-76, (quoting 3A PHILLIP E. AREEDA &
7
Case: 14-41384 Document: 00513781379 Page: 8 Date Filed: 12/02/2016
No. 14-41384
HERBERT HOVENKAMP, ANTITRUST LAW ¶ 806d, at 331 (1996)). Indeed,
“[a]ntitrust law is rife with similar examples of what competitors find to be
disreputable business practices that do not qualify as predatory behavior.” Id.
at 476. Taylor accordingly rejected a § 2 claim based almost exclusively on
disreputable but not predatory conduct. See also City of Groton v. Conn. Light
& Power, 662 F.2d 921, 928 (2d Cir. 1981) (holding alleged instances of
misconduct, none of which is anticompetitive, cannot be cumulatively
anticompetitive). RTI contends that unfair competitive practices can be
aggregated into legally predatory conduct, citing in support Associated Radio
Services Co. v. Page Airways, Inc., 624 F.2d 1342 (5th Cir. 1980). In Page
Airways, a competitor was held liable under § 2 after it stole the plaintiff
company’s employees, bribed employees, arranged for the theft of documents,
and filed sham lawsuits, all to put the plaintiff out of business and facilitate
its own competition without bearing startup costs. This court upheld the
judgment while voicing extreme reluctance to allow a treble damage verdict to
rest upon business torts alone. 624 F.2d at 1350. Significantly, this court
cautioned that Page Airways “should not be read to encourage all who suffer
injury to business or property through an alleged business tort to bring suit
under section 1 or 2 of the Sherman Act.” 624 F.2d at 1358. There has been
no Fifth Circuit case since Page Airways in which a congeries of business torts
was found so egregious as to constitute actionable predatory or exclusionary
conduct. See Taylor, 216 F.3d at 484 (explaining that alleged misdeeds of
competitor reflected no more than individual competitive decisions rather than
anticompetitive conduct).
This distinction between unfair conduct and anticompetitive conduct is
critical to maintain because the antitrust 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.’” Brooke Grp. Ltd. v. Brown
8
Case: 14-41384 Document: 00513781379 Page: 9 Date Filed: 12/02/2016
No. 14-41384
& Williamson Tobacco Corp., 509 U.S. 209, 225, 113 S. Ct. 2578, 2589 (1993)
(internal quotation omitted). Instead, the antitrust laws were designed to
protect “competition, not competitors.” Id. (citation omitted) (emphasis
original). Brooke Grp., of course, postdates Page Airways. The Supreme Court
put this distinction even more emphatically, for present purposes, in stating
that “[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.’” Id. at 225, 113 S. Ct. at 2589 (quoting Hunt v. Crumboch, 325 U.S.
821, 826 (1945)).
A. Patent Infringement
This court long ago held that a defendant’s patent infringement cannot
serve as a basis for imposing antitrust liability because the patent laws and
antitrust laws serve two different and incongruent purposes that “to an extent
. . . conflict.” Kinnear-Weed Corp. v. Humble Oil & Ref. Co., 214 F.2d 891, 894
(5th Cir. 1954). Patent laws are designed to secure for patent holders a time-
limited exclusive right to exploit their discoveries, but this is “not the kind of
public purpose protected by the antitrust laws,” which seek to “protect the free
flow of interstate commerce.” Id. That a patentee may anticompetitively
extend its market power to products other than those covered by a patent, and
thus violate the antitrust laws, is well settled. See United States v. Line
Material Co., 333 U.S. 287, 308, 68 S. Ct. 550, 561 (1948). RTI, however, cites
no case holding the converse: that antitrust liability may be founded in whole
or in part upon patent infringement. By definition, patent infringement
invades the patentee’s monopoly rights, causes competing products to enter the
market, and thereby increases competition. RTI, in fact, persuaded another
jury of exactly this procompetitive result when it proved patent infringement
9
Case: 14-41384 Document: 00513781379 Page: 10 Date Filed: 12/02/2016
No. 14-41384
by BD’s 1mL Integra safety syringe. The judgment against BD, which was
then forced to remove the competing product from the market, diminished
competition but enforced RTI’s patent rights. We reaffirm what has been
evident and unchallenged since Kinnear-Weed: “patent infringement is not an
injury cognizable under the Sherman Act.” Northwest Power Prods., Inc. v.
Omark Indus., Inc., 576 F.2d 83, 88-89 (5th Cir. 1976) (citing Kinnear-Weed,
214 F.2d at 894). The jury’s verdict cannot be legally supported by BD’s
infringement on RTI patents.
B. False Advertising
The jury found, and BD does not appeal the finding, that BD falsely
advertised throughout the period under litigation that BD needles are the
“world’s sharpest” (a proxy for patient comfort) and have “low waste space”
(allowing more medicine to be dispensed from the syringe), and BD’s data prove
the claims. 2 On the first claim, BD conducted periodic tests of needle
sharpness from the early 1990s, but by about 2003, the tests began to indicate
that competitors’ needles were equaling or surpassing BD needles to some
extent. BD’s “world’s sharpest” advertising continued unabated. Likewise, BD
advertised that its Integra needles, which competed only with RTI’s
VanishPoint, have as much as seven times “lower waste space.” Although the
claim was true when initially made, BD’s tests in 2003, 2005, and 2008
revealed that the waste space measurement was no longer accurate. BD
removed the inaccurate measurement from some advertising and marketing
materials but its own website and other materials still displayed erroneous
waste space comparisons. BD applied the false claim to customer-specific
comparative spreadsheets, and imbedded it in a “cost calculator” that sales
2RTI also alleged that BD falsely promoted its safety syringes as “safe,” but the court
found insufficient evidence to support sending this claim to the jury, and RTI has not
appealed.
10
Case: 14-41384 Document: 00513781379 Page: 11 Date Filed: 12/02/2016
No. 14-41384
representatives could use to demonstrate how much money customers would
allegedly save with Integra syringes. The cost calculator appeared on BD’s
website. Some distributors and resellers of the defendant’s products continue
to use BD’s false claims in their promotional materials.
This court’s decision in Stearns Airport Equipment Co. v. FMC Corp. sets
an extremely high bar for a claim that false advertising, without more, can
support an antitrust claim. In Stearns, this court held that the aggressive sales
pitches by an airline boarding bridge manufacturer to municipal airport buyers
was not actionable anticompetitive conduct as a matter of law. Summarizing
the defendant’s several challenged tactics as attempts “to persuade buyers to
favor their product,” we reasoned that the sales pitches “may have been wrong,
misleading, or debatable,” but they were all “arguments on the merits,
indicative of competition on the merits.” 170 F.3d at 523–25; cf. Page Airways,
624 F.2d at 1354 (distinguishing “bribes and similar practices” from “mere
misrepresentations of one’s own or a rival’s product”).
RTI contends that unlike Stearns, this case involves “sustained lying
about objectively measurable facts,” but Stearns did not draw distinctions
among touts when concluding that “wrong, misleading, or debatable”
arguments relating to the merits of a product do not raise antitrust concerns.
Id. BD’s false comparative advertising, sanctionable though it may be as a
business tort, was plainly “on the merits.” The Stearns court went on to say
that:
To the extent [such representations] were successful, they were
successful because the consumer was convinced by either FMC’s
product or FMC’s salesmanship. . . . Without a showing of some
other factor, we can assume that a consumer will make his decision
only on the merits. To the extent a competitor loses out in such a
debate, the natural remedy would seem to be an increase in the
losing party’s sales efforts on future potential bids, not an antitrust
suit.
11
Case: 14-41384 Document: 00513781379 Page: 12 Date Filed: 12/02/2016
No. 14-41384
Id. at 524–25. Stearns has not been limited as RTI would have it. See, e.g.,
Santana Prods, Inc. v. Bobrick Washroom, Inc., 401 F.3d 123,133 (3d Cir. 2005)
(quoting above passage).
The Seventh Circuit does not recognize Sherman Act claims based on
false advertising. Mercatus Grp., LLC v. Lake Forest Hosp., 641 F.3d 834, 851
(7th Cir. 2011) (“As a general matter, such statements are outside the reach of
the antitrust laws, however critical they may be of a competitor’s product or
business model [unless false statements were accompanied by a “coercive
enforcement mechanism”]. . . . This analysis holds true even if the Hospital’s
statements about Mercatus were false.”); see also Sanderson v. Culligan Int’l.
Co., 415 F.3d 620, 624 (7th Cir. 2005) (“Commercial speech is not actionable
under the antitrust laws. . . . There can be no restraint of trade without a
restraint.”) (internal quotation marks omitted). The Seventh Circuit’s basic
reasoning adheres to 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.” Schachar v. Am. Acad. of Opthalmology, Inc., 870 F.2d
397, 400 (7th Cir. 1989).
The broader point underlying Stearns is the distinction embodied in our
precedents between business torts, which harm competitors, and truly
anticompetitive activities, which harm the market. As we have explained,
“[t]he thrust of antitrust law is to prevent restraints on competition. Unfair
competition is still competition and the purpose of the law of unfair competition
is to impose restraints on that competition.” Nw. Power Prods., 576 F.2d at 88.
Thus, absent a demonstration that a competitor’s false advertisements had the
potential to eliminate, or did in fact eliminate, competition, an antitrust
12
Case: 14-41384 Document: 00513781379 Page: 13 Date Filed: 12/02/2016
No. 14-41384
lawsuit will not lie. 3 See id.; cf. Phototron Corp. v. Eastman Kodak Co.,
842 F.2d 95, 100 (5th Cir. 1988) (“Advertising that creates barriers to entry in
a market constitutes predatory behavior of the type the antitrust laws are
designed to prevent.”). RTI 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.
That false advertising alone hardly ever operates in practice to threaten
competition is confirmed not only by a dearth of Fifth Circuit precedent but by
two additional considerations. First, false advertising simply “set[s] the stage
for competition in a different venue: the advertising market.” Sanderson v.
Culligan Int’l Co, 415 F.3d 620, 623 (7th Cir. 2005). In such a setting, a
business that is maligned by a competitor’s false advertising may counter with
its own advertising to expose the dishonest competitor and turn the tables
competitively against the malefactor. See Mercatus Grp., 641 F.3d at 852. Far
from restricting competition, then, false or misleading advertising generally
sets competition into motion. Second, it will often be difficult to determine
whether such false statements induced reliance by consumers and produced
anticompetitive effects, or whether the buyer attached little weight to the
statements and instead regarded them as biased and self-serving. See id. The
3 Our decision in Multiflex, Inc. v. Samuel Moore & Co., 709 F.2d 980 (5th Cir. 1983)
is not to the contrary. The conduct in Multiflex involved a conspiracy by Samuel Moore with
three industry manufacturer-distributors to prevent Multiflex from accessing the channels
of distribution. Id. at 988. This conduct would have excluded Multiflex—Samuel Moore’s
only other competitor—from the market by preventing Multiflex from reaching the end-users
of its product because the end-users made their purchases of hydraulic hoses exclusively
through the three manufacturer-distributors. Id. at 984, 988. The false and disparaging
statements made by Samuel Moore to Multiflex’s bankers and customers about the firm’s
solvency and product quality, id. at 991–92, 994 n.14, were anticompetitive because these
statements were part and parcel of the conspiracy that threatened to cut off Multiflex—its
only other competitor—from the channels of distribution. In this case, BD’s false advertising
had no comparable potential to eliminate competition.
13
Case: 14-41384 Document: 00513781379 Page: 14 Date Filed: 12/02/2016
No. 14-41384
latter impact becomes more likely where, as here, the relevant consumers are
sophisticated. In this case, for instance, RTI produced market surveys that
BD’s false advertising touched interests relevant to purchasers of safety
syringes, but 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.
Other circuits have also treated skeptically antitrust claims predicated
on false advertising and therefore adopted a rebuttable presumption that false
advertising has only a de minimis effect on competition. See Am. Council of
Certified Podiatric Physicians & Surgeons v. Am. Bd. of Podiatric Surgery, Inc.,
323 F.3d 366, 370 (6th Cir. 2003); Am. Prof’l Testing Serv., Inc. v. Harcourt
Brace Jovanovich Legal & Prof’l Publ’ns, Inc., 108 F.3d 1147, 1152 (9th Cir.
1997); Nat’l Ass’n of Pharm. Mfrs. v. Ayerst Labs., 850 F.2d 904, 916 (2d Cir.
1988). Inspired by a prominent treatise, these circuits adopted the de minimis
presumption along with variations on a six-part test that a plaintiff must
satisfy to support an antitrust claim premised on false advertising: the
statements at issue must be (1) clearly false; (2) clearly material; (3) clearly
likely to induce unreasonable reliance; (4) made to unsophisticated parties;
(5) continued for long periods; and (6) not readily cured by rivals. Am. Prof’l
Testing Serv., 108 F.3d at 1152 (citing 3 PHILLIP E. AREEDA & DONALD TURNER,
ANTITRUST LAW ¶738a, at 278-79 (1978)). Each circuit seems to have tweaked
the Areeda six-factor test somewhat, but the basic intent of each court is to
create a sharp distinction between ordinary false advertising torts and a
defendant’s course of conduct that could actually exclude competition.
Three other circuits have viewed such claims critically without
announcing a particular test. See W. Penn Allegheny Health Sys., Inc. v.
UPMC, 627 F.3d 85, 109 n.14 (3d Cir. 2010); Covad Commc’ns Co. v. Bell Atl.
Corp., 398 F.3d 666, 674–75 (D.C. Cir. 2005); Spanish Broad. Sys. of Fla., Inc.
14
Case: 14-41384 Document: 00513781379 Page: 15 Date Filed: 12/02/2016
No. 14-41384
v. Clear Channel Commc’ns, Inc., 376 F.3d 1065, 1076 (11th Cir. 2004). But cf.
Lenox MacLaren Surgical Corp. v. Medtronic, Inc., 762 F.3d 1114, 1127–28
(10th Cir. 2014) (applying, without adopting, the six-factor rebuttable
presumption and holding that Lenox created a question of material fact
regarding three of the factors).
Even if we were to apply the de minimis presumption here, RTI could
not uphold a § 2 verdict for BD’s false advertising under the six-part test. BD’s
false claims were not made to unsophisticated parties (part 4), but to hospitals
and GPOs that used multidisciplinary committees who had experience with
the competing products. 4 The advertising claims were not shown to be “clearly
likely to induce unreasonable reliance” (part 3) on the part of customers. 5
Finally, there was no showing that the “world’s sharpest needle” and “lower
waste space” claims could not be readily disproved, as they were at this trial,
by rivals (part 6).
Moreover, no facts adduced at trial indicated that BD’s advertising in
fact harmed competition. RTI not only competed in but has dominated the
retractable syringe sub-market, selling up to 67% of all retractable syringes.
Indeed, competition within the overall safety syringe market—particularly
between BD, Covidien, and Smiths—has remained robust. When asked if he
could substantiate a causal connection between false advertising and BD’s
4 At oral argument RTI argued that the hospitals were averse to trying new products.
It appears, however, that most of the evidence at trial relating to this point focused on BD’s
alleged “anticompetitive contracting” practices—an argument that the jury rejected.
5 Trial testimony by Dr. Carl Vartian explained that hospitals employ
multidisciplinary committees made up of hospital administrators, specialists, and general
physicians to evaluate the safety of products like syringes. Hospital purchasing decisions
also involve extensive review of medical literature, consultation with other hospitals that
already use the product, and trial periods for new products within a ward or subdivisions of
the hospital. Both Dr. Vartian and Nurse Jeanette Akin testified that when it comes to
advertising for products like syringes, “we usually don’t even look at it” and “we don’t give
that much credibility” when making purchasing decisions.
15
Case: 14-41384 Document: 00513781379 Page: 16 Date Filed: 12/02/2016
No. 14-41384
sales numbers, the Plaintiff’s economic expert, Dr. Maness, said he could not.
RTI produced no evidence of customers being misled or confused and
purchasing BD’s syringes instead of RTI’s because of the advertisements.
Record evidence even indicates that some customers, such as Walgreens,
increased their purchases of RTI syringes after being shown BD’s erroneous
“waste space” comparisons. 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. And as the district court noted, “BD presented evidence
that many sales were made for reasons other than the false advertisements.”
RTI did not satisfy Stearns or any relevant test that circuit courts have
devised to render false advertising claims cognizable under the antitrust laws.
C. Tainting the Market
The remaining component of RTI’s antitrust verdict is its four-part
theory that BD (1) continued to market its flawed Integra retractable needles
during the years covered by this litigation, and (2) declined to make needed
engineering fixes, (3) for the purpose of persuading purchasers that all
retractable syringes, including those of RTI, are inherently unreliable, so that
(4) BD would lie in wait for RTI’s patents to expire in 2015, avail itself of RTI’s
(then-unprotected) superior technology, create and unveil a new and superior
retractable syringe, and take over the market by 2019.
The first two parts of the theory, although challenged by BD, have some
support in the record. The third part has no direct evidentiary basis, is
illogical, and is incoherent when considered with the fourth part. And the
fourth part, even if true, cannot constitute anticompetitive conduct because it
is precisely the type of activity to be expected from competitors when valuable
patent rights expire; the patentee’s monopoly is eliminated, and the free
market reigns where anybody can exploit the formerly protected technology.
16
Case: 14-41384 Document: 00513781379 Page: 17 Date Filed: 12/02/2016
No. 14-41384
Part (3), the tainting theory, must be addressed further because of the
record support for the two underlying facts concerning the Integra’s design
flaws and BD’s reluctance to redesign the product to cure them completely.
These facts alone do not, however, imply that BD deliberately continued to sell
“flawed” Integra needles to sophisticated consumers for a number of years in
order to discourage the market from buying VanishPoint safety syringes.
There is no direct evidence of BD’s intent to “taint” or stunt the retractable
syringe market. BD made money selling Integra syringes, albeit less than it
made from sales of non-safety syringes. Consumers evidently found them
satisfactory, whether flawed or not, because BD’s share of the retractable
market was no less than about 33% during the period in question. RTI’s
market share simultaneously increased to two-thirds, and its sales nearly
doubled. If BD was attempting to stunt the market for retractables in order to
limit RTI’s competition, it did a mighty poor job.
The tainting theory is entirely illogical as a vehicle to prove exclusionary
conduct. If BD set out to exclude RTI from the market by tainting its own
product, who would be the loser? Would Kellogg’s sell a “nutritional” cereal
that tastes like sawdust in order to discourage consumers from sampling
Quaker Oats’s competing product? It is the producer of defective products,
after all, who gets sued, suffers product recalls, and damages its reputation in
the eyes of the public—not its competitors, who are happy to take up the slack.
RTI might assert that this irrationality is exactly what Stearns had in mind by
condemning exclusionary practices that have “no rational business purpose
other than to exclude competitors.” Stearns, 170 F.3d at 522. 6 But as has been
noted, BD’s rational business purpose was to continue selling, and making a
6This conduct is a far cry from corporate bribery and filing sham lawsuits, see Page
Airways, 624 F.2d at 1356, or from deliberately reducing one’s own sales to harm the
competitor’s business, see Aspen Skiing, 472 U.S. at 610-11.
17
Case: 14-41384 Document: 00513781379 Page: 18 Date Filed: 12/02/2016
No. 14-41384
profit on, a product that had a receptive market. In fact, RTI’s market survey
expert not only found no evidence of tainting but found that consumers of
retractable syringes who were familiar with the VanishPoint had a very
favorable impression of it.
Finally, the fourth part of this theory, BD’s longer-term plan to compete
with a new retractable syringe after RTI’s patents expire, utterly belies the
taint theory. Tainting the current market for retractable syringes would be
both unnecessary and counterproductive to the company’s longer-term goal. It
is obviously an unnecessary means to prepare the market to accept the newly
designed product, particularly when the customary method, a new advertising
campaign, would suffice to fuel demand. It is counterproductive because if
safety syringe purchasers were deterred from using both Integra and
VanishPoint products due to the Integra’s design flaws, RTI cannot explain
why BD might think they would flock to purchase the “new and improved”
retractable after its introduction. 7
For all these reasons, RTI has not demonstrated that BD engaged in
predatory or anticompetitive conduct as a matter of law. The verdict for § 2
liability rests on “legal conclusions [that] . . . cannot in law be supported by
those findings.” MM Steel, 806 F.3d at 843.
II. Section 43(a) Lanham Act Claim
BD also moved for judgment as a matter of law on RTI’s Lanham Act
claim based on the affirmative defenses of res judicata and laches. The district
The only “evidence” for this plan is one internal BD planning document, dated 2011,
7
that evaluated the market for retractable syringes and offered various alternative
suggestions for producing a new, low-cost retractable syringe that would avoid “dissatisfiers”
in products then on the market. Even if the plan had been adopted, its cornerstone, as
hypothesized by RTI’s selective reading, was to take advantage of RTI’s technology after the
company’s patents expire. As has been noted, this course of action would be both legal and
procompetitive.
18
Case: 14-41384 Document: 00513781379 Page: 19 Date Filed: 12/02/2016
No. 14-41384
court denied this motion. We review de novo the res judicata ruling, Am
Quarter Horse Ass’n, 776 F.3d at 327, but the application of laches is reviewed
on appeal for an abuse of discretion. Am. Rice, Inc. v. Producers Rice Mill, Inc.,
518 F.3d 321, 334 (5th Cir. 2008). Under the abuse of discretion standard,
“[t]he district court’s findings of delay, inexcusability, and prejudice are
findings of fact that can be overturned only if they are clearly erroneous,” or “if
in view of the entire record [the finding] is ‘illogical or implausible.’” Geyen v.
Marsh, 775 F.2d 1303, 1310 (5th Cir. 1985) (citation omitted).
A. Res Judicata
“Under res judicata, a final judgment on the merits of an action precludes
the parties or their privies from relitigating issues that were or could have been
raised in that action.” Allen v. McCurry, 449 U.S. 90, 94, 101 S. Ct. 411, 414
(1980). A claim in a subsequent suit will be barred under res judicata
principles if: (1) the prior suit involved identical parties; (2) the prior judgment
was rendered by a court of competent jurisdiction; (3) the prior judgment was
a final judgment on the merits; and (4) the same claim or cause of action was
involved in both cases. In re Ark-La-Tex Timber Co., Inc., 482 F.3d 319, 330
(5th Cir. 2007). At issue here is only the fourth element: whether the
settlement of RTI’s first lawsuit against BD involved the same claims or causes
of action as the current lawsuit. This court applies a “transactional test” to
make this determination, focusing on whether the cases “are based on the same
nucleus of operative facts.” United States v. Davenport, 484 F.3d 321, 326 (5th
Cir. 2007) (citations omitted). The court should consider “whether the facts
are related in time, space, origin, or motivation, whether they form a
convenient trial unit, and whether their treatment as a unit conforms to the
parties’ expectations or business understanding or usage.” Petro-Hunt, L.L.C.
v. United States, 365 F.3d 385, 396 (5th Cir. 2004).
19
Case: 14-41384 Document: 00513781379 Page: 20 Date Filed: 12/02/2016
No. 14-41384
BD argues that this issue is resolved by Oreck Direct, LLC v. Dyson, Inc.,
560 F.3d 398 (5th Cir. 2009). We disagree. In Oreck, this court dismissed
Oreck’s false advertising claim under the Lanham Act concerning two Dyson
advertisements asserting that its DC18 vacuum suffered “no loss of suction”
and that it was the “most powerful lightweight” vacuum. Id. at 400. Because
Oreck had settled a previous Lanham Act lawsuit against Dyson concerning
advertisements that its vacuums (not limited to a specific model) do not lose
suction, we held the later suit barred by res judicata. Id. at 403-04. Crucial to
this claim preclusion holding, however, was the fact that Dyson utilized the
model-specific advertisements at issue while Oreck’s first lawsuit was pending,
and information about this vacuum model was produced during discovery.
Id. The district court confirmed that the “case d[id] not present a situation in
which plaintiff’s claims are based on conduct transpiring only after the earlier
litigation had concluded.” Oreck Direct, LLC v. Dyson, Inc.¸ 544 F. Supp. 2d
502, 511 (E.D. La. 2008). Since Oreck “could have” included the model-specific
advertisements in its first lawsuit, we held that the second lawsuit was claim
precluded. Oreck, 560 F.3d at 403–04 & nn.6–7.
Oreck does not control this case. The advertisements RTI complains of
in its second lawsuit were made after the 2004 settlement of the first lawsuit.
There is no indication that RTI 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. RTI
therefore could not have brought these claims during the pendency of the first
lawsuit, and the new post-2004 advertisements and sales tactics of BD created
new causes of action that are not barred by res judicata. See Lawlor v. Nat’l
Screen Service Corp., 349 U.S. 322, 327, 75 S. Ct. 865, 868 (1955) (holding that
antitrust violations that continued after the settlement of the first lawsuit
were new causes of action not barred by res judicata even though “both suits
20
Case: 14-41384 Document: 00513781379 Page: 21 Date Filed: 12/02/2016
No. 14-41384
involved ‘essentially the same course of wrongful conduct’”); Davis v. Dallas
Area Rapid Transit, 383 F.3d 309, 314 (5th Cir. 2004) (“We have held that
‘subsequent wrongs’ by a defendant constitute new causes of action . . . . [T]he
‘subsequent wrongs’ we previously considered occurred either after the
plaintiffs had filed their prior lawsuit or after the district court had entered
judgment in the prior lawsuit”); 18 CHARLES ALAN WRIGHT & ARTHUR R.
MILLER, FEDERAL PRACTICE & PROCEDURE § 4409, at 227 (3d ed. 2008) (“A
substantially single course of activity may continue through the life of a first
suit and beyond. The basic claim-preclusion result is clear: a new claim or
cause of action is created as the conduct continues.”).
B. Laches
Laches is an affirmative defense barring suit when a plaintiff’s
inexcusable delay in bringing a cause of action has prejudiced the defendant.
Elvis Presley Enters., Inc. v. Capece, 141 F.3d 188, 205 (5th Cir. 1998). To
prevail, the defendant must demonstrate: “(1) a delay asserting a right or
claim; (2) that the delay was inexcusable; [and] (3) that undue prejudice
resulted from the delay.” Id. (internal citation omitted). “The period for laches
begins is when the plaintiff knew or should have known” of the defendant’s
injurious conduct. Id. Although laches is an equitable defense, it is usually
applied “with reference to the limitations period for the analogous action at
law,” Jarrow Formulas, Inc. v. Nutrition Now, Inc., 304 F.3d 829, 835 (9th Cir.
2002), which may be state law if no federal limitations law exists. Lopez ex rel.
Gutierrez v. Premium Auto Acceptance Corp.¸ 389 F.3d 504, 506–507 (5th Cir.
2004). Laches applies under the Lanham Act for these reasons, and Texas law
is the relevant comparator here.
BD urges this court to apply Texas’s two-year statute of limitations for
unfair competition and to join the circuits that employ a strong presumption
that any lawsuit filed outside of the statute of limitations is barred by laches.
21
Case: 14-41384 Document: 00513781379 Page: 22 Date Filed: 12/02/2016
No. 14-41384
See Jaso v. The Coca-Cola Co., 435 F. App’x 346, 356 n.10 (5th Cir. 2011)
(collecting cases). RTI, however, advocates the application of Texas’s four-year
limitations period for fraud claims. RTI filed this lawsuit in 2007, three years
after the settlement of the first lawsuit in 2004; thus, the choice of comparator
statute of limitations is potentially decisive. BD also contends that the district
court’s conclusion that it was not prejudiced by any inexcusable delay on RTI’s
part was clear error because the delay “increased BD’s exposure for no reason
other than increasing RTI’s recovery.”
We need not decide in this case the issues of the applicable statute of
limitations, the strong presumption, or whether BD proved an inexcusable
delay by RTI, because in any event, the district court neither erred nor abused
its discretion in concluding that BD suffered no undue prejudice. BD obviously
knew from the parties’ just-concluded litigation that RTI 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. The district court’s factual findings are not clearly erroneous;
as a result, the district court did not abuse its discretion in rejecting the
affirmative defense of laches. See Geyen, 775 F.2d at 1310.
III. Disgorgement Order
BD challenges the district court’s conclusion that it is required to remedy
the Lanham Act violations by disgorging a portion of its profits from sales of
Integra syringes. This determination is reviewed for an abuse of discretion.
Seatrax, Inc. v. Sonbeck Int’l, Inc., 200 F.3d 358, 369 (5th Cir. 2000).
Subject to principles of equity, a defendant’s Lanham Act violations may
entitle the plaintiff to a portion of the defendant’s profits attributable to the
false advertising. 15 U.S.C. § 1117(a). Any award of profits is “not
automatic . . . and is committed to the discretion of the district court.” Pebble
Beach Co. v. Tour 18 I Ltd., 155 F.3d 526, 554 (5th Cir. 1998). A court considers
22
Case: 14-41384 Document: 00513781379 Page: 23 Date Filed: 12/02/2016
No. 14-41384
six non-exclusive factors in determining whether an award of profits is
appropriate: “(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.” Quick Techs., Inc. v. Sage Grp. PLC, 313 F.3d 338, 349 (5th Cir.
2002) (citing Pebble Beach, 155 F.3d at 554).
Even if disgorgement is appropriate, however, a plaintiff “is only entitled
to those profits attributable” to the false advertising. Pebble Beach, 155 F.3d
at 554. Accordingly, if a plaintiff fails to present evidence that the defendant
benefitted from the false advertising, the plaintiff may not recover any of the
defendant’s profits. Logan v. Burgers Ozark Cty. Cured Hams, Inc.,
263 F.3d 447, 465 (5th Cir. 2001); see also Tex. Pig Stands, Inc. v. Hard Rock
Cafe Int’l, Inc., 966 F.2d 956, 957 (5th Cir. 1992) (“The reason why Hard Rock
Cafe’s profits were not awarded was . . . the lack of evidence showing that any
of Defendant’s profits were the result of its infringement of the mark.”
(emphasis omitted)).
BD first argues that RTI failed to identify what portion of BD’s profits (if
any) were attributable to false advertising. Additionally, BD contends that the
district court abused its discretion in weighing three of the Pebble Beach
factors, inasmuch as the court (1) did not specify any amount of diverted sales;
(2) failed to find that BD willfully engaged in false advertising; and (3) erred
in holding that RTI did not unreasonably delay in filing suit.
We find no clear error in the district court’s conclusion that at least some
portion of BD’s profits were attributable to the false advertising. Indeed, BD
acknowledged in the district court, its 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. In Logan
23
Case: 14-41384 Document: 00513781379 Page: 24 Date Filed: 12/02/2016
No. 14-41384
or Texas Pig Stands, by contrast, there was no evidence of attribution.
Similarly unassailable is the finding that BD had the intent to confuse or
deceive by continuing to use advertisements it knew were false. That BD may
not have willfully engaged in false advertising does not change this analysis
because a finding of willfulness is not a prerequisite to remedial disgorgement.
Quick Techs., 313 F.3d at 349. Finally, we have approved the district court’s
finding that RTI did not unreasonably delay.
Nevertheless, the district court’s equitably-founded decision not to
impose disgorgement rested in large part on the premise that RTI was
adequately compensated by a $340 million antitrust award. Having
overturned the antitrust judgment, we must remand to the district court 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. In particular, when assessing the “diversion”
factor, the district court should bear in mind that speculative and attenuated
evidence of diversion of sales will not suffice. Seatrax, 200 F.3d at 372 & n.8.
Further, if disgorgement of profits is appropriate, the court must recall that
“[u]nder 15 U.S.C. § 1117(a), the plaintiff has the burden of showing the
amount of the defendant’s sales of the infringing product. The defendant has
the burden of showing all elements of cost and other deductions.” Maltina
Corp. v. Cawy Bottling Co., Inc., 613 F.2d 582, 586 (5th Cir. 1980).
IV. Injunctive Relief
BD’s final objection is to the district court’s injunction requiring BD to
“notify customers, distributors, and other market participants” that it
“wrongfully made false and misleading advertising claims” in its “needle
24
Case: 14-41384 Document: 00513781379 Page: 25 Date Filed: 12/02/2016
No. 14-41384
sharpness” and “waste space” advertisements. 8 We review the grant or denial
of injunctive relief for an abuse of discretion. Aransas Project v. Shaw,
775 F.3d 641, 663 (5th Cir. 2014). “The district court abuses its discretion if it
(1) relies on clearly erroneous factual findings when deciding to grant or deny
the permanent injunction (2) relies on erroneous conclusions of law when
deciding to grant or deny the permanent injunction, or (3) misapplies the
factual or legal conclusions when fashioning its injunctive relief.” Peaches
Entm’t Corp. v. Entm’t Repertoire Assocs., Inc., 62 F.3d 690, 693 (5th Cir. 1995).
“A plaintiff seeking injunctive relief must show a real and immediate
threat of future or continuing injury apart from any past injury.” Aransas
Project, 775 F.3d at 663. As with all injunctive relief, an equitable remedy for
false advertising under the Lanham Act should be “no broader than reasonably
necessary to prevent the deception.” Better Bus. Bureau of Metro. Hous., Inc.
v. Med. Dirs., Inc., 681 F.2d 397, 405 (5th Cir. 1982). Nonetheless, “[a] district
court has a wide range of discretion in framing an injunction in terms it deems
reasonable to prevent wrongful conduct.” Soltex Polymer Corp. v. Fortex
Indus., Inc., 832 F.2d 1325, 1329 (5th Cir. 1987) (citation omitted).
RTI sought an injunction under both the Clayton Act (in order to prevent
future antitrust violations) and the Lanham Act (to prevent future false
advertising). The district court’s order, however, suggests that injunctive relief
was granted to remedy the purported antitrust violations. To that extent, our
reversal of the antitrust verdict means that the injunction rests on an
“erroneous conclusions of law” and is an abuse of discretion. Peaches Entm’t,
62 F.3d at 693. It remains theoretically possible, while bearing in mind that
8 To the extent the court prohibited BD’s use of the “needle sharpness” and “waste
space” advertisements and required the implementation of a training program to instruct
employees and distributors not to use the old marketing materials, BD does not challenge
that injunctive relief.
25
Case: 14-41384 Document: 00513781379 Page: 26 Date Filed: 12/02/2016
No. 14-41384
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. Westchester Media v. PRL
USA Holdings, Inc., 214 F.3d 658, 675 (5th Cir. 2000). With these caveats, we
vacate and remand the injunction.
CONCLUSION
For the foregoing reasons we REVERSE the denial of BD’s motion for
Judgment as a Matter of Law concerning the attempted monopolization claim
and RENDER judgment on that claim in favor of BD. We also AFFIRM the
judgment for Lanham Act liability but REMAND to the district court to
consider whether and how much profit should be disgorged. Finally, we
VACATE and REMAND the injunctive relief ordered.
AFFIRMED IN PART, REVERSED IN PART, VACATED IN PART,
AND REMANDED.
26