Porous Media Corp. v. Pall Corp. ( 1997 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 96-1552
___________
Porous Media Corporation, *
*
Plaintiff - Appellee, *
* Appeal from the United States
v. * District Court for the
* District of Minnesota.
Pall Corporation, *
*
Defendant - Appellant. *
___________
Submitted: December 9, 1996
Filed: April 8, 1997
___________
Before BOWMAN and LAY, Circuit Judges, and SMITH1, District Judge.
___________
LAY, Circuit Judge.
Porous Media Corporation (Porous) and Pall Corporation (Pall) are
manufacturers of industrial filters. They produce competing products for
certain applications in various industries, including the oil and natural
gas markets (oil/gas markets) and the paper and power generation markets
(paper/power markets).
Porous claims that in 1985 and 1986 it began penetrating the market
for filters in the paper/power markets and the oil/gas markets. Porous
contends that Pall then began a concerted effort to disparage Porous’s
products and make false comparisons of Pall’s products and Porous’s
products. Among other things, Porous
1
The Honorable Ortrie D. Smith, United States District Judge
for the Western District of Missouri, sitting by designation.
suggests that Pall distributed false anecdotal statements that Porous’s
filters had collapsed in the field and caused major problems, that Pall
made false and disparaging statements about Porous’s filters which were not
supported by Pall’s own testing data, and that Pall made false comparisons
of its own filters for certain applications with Porous filters that Porous
had never recommended as interchangeable for those applications.2
Porous brought this action against Pall for common-law product
disparagement and for false misrepresentation under Lanham Act § 43(a), 15
U.S.C. § 1125(a) (1982); Pall counterclaimed for trademark and trade dress
infringement and unfair competition. Following a nearly two-month trial,
the jury returned a verdict in favor of Porous and against Pall on all of
the claims and counterclaims. The jury found that Pall made false
statements about Porous’s products, that Porous had proven special damages,
and awarded Porous $5.5 million on the common-law product disparagement
claim. On the Lanham Act claim, the jury found that Pall made false or
misleading statements about its own products in its comparative
advertising, that Pall had acted willfully and in bad faith, and awarded
$1.5 million in damages. In addition, the district court3 awarded Porous
its attorneys’ fees in the amount of $560,564 and costs in the amount of
$261,712.39.4
2
The jury, and the district court sitting as finder of fact
for Porous’s claim for injunctive relief, found that Pall made
numerous false and misleading statements about Porous’s products
and about its own products. Those findings are not directly
challenged in this appeal.
3
The Honorable Michael J. Davis, United States District Judge
for the District of Minnesota.
4
The district court also entered an injunction against Pall
which was not appealed.
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Pall filed post-trial motions for judgment as a matter of law or in
the alternative for a new trial. The district court denied the motions,
and Pall appeals. Pall challenges the judgment under both the Lanham Act
and the common-law disparagement claim. We affirm.
I. LANHAM ACT
The district court allowed Porous to proceed with its claim under
the pre-1988 version of the Lanham Act5 for relief based on false or
misleading statements made by Pall about Pall’s own products alone and in
comparison to Porous’s products. The claim encompassed statements made in
both the oil/gas and paper/power markets.
Pall argues that the judgment on the Lanham Act claim must be
reversed because the district court improperly instructed the jury
regarding causation and injury, and because Porous failed to prove an
element of the claim by failing to offer extrinsic evidence of customer
confusion to show that Pall’s statements were misleading. We reject both
arguments.
A. Jury instruction
The trial court instructed the jury as to the elements of Porous’s
Lanham Act claim:
5
The Lanham Act was substantially revised in 1988. Porous’s
claim for damages under the revised Lanham Act was dismissed by
the district court before trial, and this ruling is not appealed.
The district court held that the amendments were not retroactive.
For a thorough discussion of the relevant amendments to § 43(a)
of the Lanham Act and the question of their retroactivity, see
ALPO Petfoods, Inc. v. Ralston Purina Co., 913 F.2d 958, 963 n.6
(D.C. Cir. 1990).
-3-
To establish its claim that Pall violated the Lanham Act,
Porous Media must prove by a preponderance of the evidence the
following elements. Those elements are:
Pall made false or misleading statements of fact which
misrepresented the nature, characteristics or qualities of
Pall’s own filter products, alone or in comparison with Porous’
products;
Any such false or misleading statements actually deceived
or had the tendency to deceive a substantial segment of their
audience;
Such statements were material because they were likely to
influence buying decisions; and
Pall caused its advertised products to enter interstate
commerce; and
Porous has been injured as a result of those activities
either by direct diversion of sales to Pall or by a lessening
of its goodwill.
To prove its claim under the Lanham Act, any false
statements made by Pall must concern Pall’s, not Porous
Media’s, products. Pall need not produce any evidence to show
that the statements made are true.
The court then read to the jury Instruction No. 19:
If you should find that Pall made any false or misleading
statements in its representations concerning its filter
products alone or in comparison to Porous’ filter products
deliberately—that is with knowledge of their false or
misleading nature—and you find that Pall engaged in making any
such deliberately false statements as an important part of its
marketing efforts, then you may presume that customers and
prospective customers were deceived by any such statements and
that Porous has suffered damages as a result of such deception.
The effect of this instruction is, of course, to transfer the burden
of proof to Pall regarding false deception of Porous’s
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customers and the fact of harm Porous incurred by reason of the deception.
The court further instructed:
You are instructed that Pall may overcome the presumption
by proof that customers and/or prospective customers were not
deceived by any such statements and/or by evidence that Porous
has not suffered any damages as a result of any such
statements.
In Instruction 20, the district court directed the jury:
Porous Media has the burden of proving damages by a
preponderance of the evidence. Damages, for purposes of this
claim, means the amount of money which will reasonably and
fairly compensate Porous Media for any injury you find was
caused by Pall’s misrepresentations of fact concerning Pall’s
filter products or concerning Pall’s filter products as
compared to Porous’ filter products.
Porous Media may recover any damages which it proves it
sustained as a result of Pall’s false and misleading
representations of fact which misrepresented the nature,
characteristics and qualities of filters manufactured by Pall.
Porous Media may recover past and future profits lost by Porous
Media as a result of lost sales attributable to Pall’s wrongful
acts.6
This instruction also told the jury that “[i]n determining Porous’ damages,
you should not include any amounts for the purpose of punishing Pall, but
you are to fully compensate Porous for the damages, if any, that it has
sustained.” (our emphasis). Thus, the jury was instructed that upon a
finding that Pall had engaged in deliberate deception in its comparative
advertising, as a major part of its marketing effort, Porous was entitled
to a presumption
6
In this regard, the court further instructed the jury that
it could only award Porous damages in the form of lost profits
where they were shown to be the natural and probable consequence
of Pall’s unlawful conduct.
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that Pall’s statements had caused injury. However, in order to recover any
damages, Porous had the burden of proving both the loss sustained and that
it was caused by Pall’s statements. In other words, Porous still had to
prove an evidentiary basis, showing actual harm caused by Pall, for any
damages award.
Instruction No. 19 contains two separate rebuttable presumptions.
The first, which we refer to as a presumption of deception, allowed the
jury to assume actual deception, the second element of the cause of action,
upon a finding that the defendant acted deliberately to deceive. The
second, which we refer to as a presumption of causation and injury,
instructed the jury that upon a finding that the defendant deliberately
deceived the public it could assume that the defendant’s statements caused
harm to the plaintiff, satisfying the fifth element of the cause of action.
The presumption of deception, which was not objected to and not appealed
herein, has been approved by several courts. See U-Haul Int’l., Inc. v.
Jartran, Inc., 793 F.2d 1034, 1041 (9th Cir. 1986) (Jartran II) (“The
expenditure by a competitor of substantial funds in an effort to deceive
consumers and influence their purchasing decisions justifies the existence
of a presumption that consumers are, in fact, being deceived.”); Harper
House, Inc. v. Thomas Nelson, Inc., 889 F.2d 197, 209 (9th Cir. 1989)
(approving the presumption of deception from Jartran II upon a jury’s
finding that the defendants engaged in intentional deception); Resource
Developers, Inc. v. Statue of Liberty-Ellis Island, 926 F.2d 134, 140 (2d
Cir. 1991) (approving the use of the presumption of deception once
plaintiff establishes that defendant acted with intent to deceive).
At the charging conference, Pall objected to the presumption of
causation and injury arguing that it improperly collapses two separate
presumptions and that Porous must be required to prove
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that any deceptive advertising caused damage to Porous. Here, Pall argues
that the presumption of causation and injury improperly relieved Porous of
its burden to prove causation and injury, an essential element of its
Lanham Act claim.
Pall relies primarily on the Ninth Circuit opinion in Harper House.
There a producer of personal organizers sued a competitor for copyright
infringement and violation of the Lanham Act. The jury found for Harper
House on all claims and awarded substantial damages on both claims. Harper
House, 889 F.2d at 201. Harper House’s claim for deceptive advertising
under the Lanham Act was that “defendants deceived consumers by showing
Time Maker I in its promotion and advertisements and then selling Time
Maker II,” id. at 208, where “many changes” were made between the
advertised Time Maker I and the production version, Time Maker II. Id. at
200. The court approved the presumption of deception from Jartran II,
provided that the jury found that defendants engaged in intentional
deception. Id. at 209. The court noted that the district court had upheld
the jury verdict without referring to any actual injury, instead apparently
relying on a second presumption from Jartran II, that a plaintiff’s damages
equal the amount of money spent by defendants on the deceptive advertising.
Id. The court found that Harper House had “presented no evidence of any
injury causally related to the defendants’ deception,” and reversed the
judgment on the Lanham Act claim for insufficient evidence of injury. Id.
at 210. Pall urges that Harper House should govern here. However, as will
be discussed, we find the facts and law of Harper House distinguishable and
therefore not controlling.
In the present case, the evidence established that Pall made false
or misleading statements involving Pall’s product in comparison to
Porous’s. For example, one of the documents which Porous urges violates
the Lanham Act is a publication by Pall
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entitled “Competitive Filter Evaluation For Optimizing Gas Operations: Pall
versus Porous Media.” Porous submits that this document, which purports
to compare the performance of a Pall filter with a Porous filter, includes
both false comparisons and false statements about the performance of a Pall
filter. Moreover, Porous urges in order to trigger the presumption of
deception and the presumption of causation and injury, the jury had to
find, and did so find, that Pall made the false or misleading statements
deliberately, “that is with knowledge of their false or misleading nature.”
In fact, here the jury found in its special verdict that Pall’s actions
were “willful and done in bad faith.”
In Harper House, the defendant made false statements about its own
product with no reference to another’s product. Under the circumstances,
the court required specific proof of causation and damage. This is in
contrast to a case of comparative advertising where the plaintiff’s product
is specifically targeted. Judge Goodwin noted the factual difference when
he stated that Harper House differed from Jartran II, a comparative
advertising case, in that “[Harper House] involves not a deceptive
comparison of plaintiff’s and defendants’ products, but deception regarding
defendants’ product with little overt reference to plaintiff or plaintiff’s
product.” Harper House, 889 F.2d at 209.
As Judge Goodwin points out, where a defendant is guilty of
misrepresenting its own product without targeting any other specific
product, it is erroneous to apply a rebuttable presumption of harm in favor
of a competitor. Otherwise, a plaintiff might enjoy a windfall from a
speculative award of damages by simply being a competitor in the same
market. Thus, in cases where there is no comparative advertising involved,
the plaintiff must shoulder
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the full burden of proof of both cause in fact and injury.7 The issue we
face in the present case is whether the rule applied by Harper House should
govern in a false comparative advertising case. In other words, the
question we must resolve is whether the district court correctly instructed
the jury to presume causation and harm from Pall’s deceptive comparative
advertising.
In applying the presumption of harm in cases where injunctive relief
is sought under the Lanham Act, the Second Circuit has specifically
contrasted the rules to be applied where false comparative advertising is
involved from the rules governing where a defendant simply misrepresents
its own product. In McNeilab, Inc. v. American Home Products Corp., 848
F.2d 34 (2d Cir. 1988), the defendant advertised that its pain reliever,
Advil, was as safe as Tylenol, a pain reliever manufactured by the
plaintiff. The district court had reasoned that where false or misleading
advertising is shown, irreparable harm was to be presumed and injunctive
relief was granted. The Second Circuit affirmed, limiting the presumption
to cases of comparative advertising. It stated that “an important
distinction must be drawn” between cases applying the general rule, that
causation and injury must be proved, and cases of false advertising where
the plaintiff-competitor’s product is specifically compared or referenced.
The court observed:
This case, by contrast, presents a false comparative
advertising claim. Thus, the concerns voiced in Coca-Cola and
Johnson & Johnson regarding speculative injury do not arise.
A misleading comparison to a specific competing product
necessarily diminishes that product’s value in the minds of the
consumer. By falsely implying
7
Pall has not cited any other case of comparative
advertising which holds the presumption of harm to be error.
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that Advil is as safe as Tylenol in all respects, AHP deprived
McNeil of a legitimate competitive advantage and reduced
consumers’ incentive to select Tylenol rather than Advil. This
is analogous to a Lanham Act trademark dispute. An infringing
mark, by its nature, detracts from the value of the mark with
which it is confused. In that context, we recently confirmed
that irreparable harm will be presumed. See Home Box Office,
Inc. v. Showtime/The Movie Channel Inc., 832 F.2d 1311, 1314
(2d Cir. 1987); Charles of the Ritz Group, 832 F.2d at 1321;
Standard & Poor’s Corp. v. Commodity Exchange, Inc., 683 F.2d
704, 708 (2d Cir. 1982). Consequently, the district court did
not err in presuming harm from a finding of false or misleading
advertising.
McNeilab, 848 F.2d at 38; see also Ortho Pharmaceutical Corp. v.
Cosprophar, Inc., 32 F.3d 690, 694 (2d Cir. 1994); Castrol, Inc. v. Quaker
State Corp., 977 F.2d 57, 62 (2d Cir. 1992); McNeil-P.C.C., Inc. v.
Bristol-Myers Squibb Co., 938 F.2d 1544, 1549 (2d Cir. 1991).
In Ortho Pharmaceutical, the court emphasized:
While there may be room for such a presumption in cases where
there is a question of false designation of goods, our circuit
has expressly disfavored presumptions of harm in cases where
the products are not obviously in competition or where the
defendant’s advertisements make no direct reference to any
competitor’s products. See McNeilab, Inc., 848 F.2d at 38;
Coca-Cola Co., 690 F.2d at 316; Johnson & Johnson, 631 F.2d at
190.
Ortho Pharmaceutical Corp. v. Cosprophar, Inc., 32 F.3d 690, 696 (2d Cir.
1994).
We are cognizant, however, that cases involving injunctive relief and
those seeking monetary damages under the Lanham Act have different
standards of proof. A plaintiff suing to enjoin conduct that violates the
Lanham Act need not prove specific damage. In
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contrast, courts require a heightened level of proof of injury in order to
recover money damages. See, e.g., Black Hills Jewelry Mfg. v. Gold Rush,
Inc., 633 F.2d 746, 753 n.7 (8th Cir. 1980).8 In a suit for money damages
where a defendant misrepresented its own product but did not specifically
target a competing product, plaintiff may be only one of many competitors,
and without proof of causation and specific injury each competitor might
receive a windfall unrelated to its own damage. See Harper House, 889 F.2d
at 209 n.8. In addition, we note that the statutory language regarding
damages, § 35(a) of the Lanham Act, provides that recovery for violation
of the Act “shall constitute compensation and not a penalty.” Lanham Act
§ 35(a), 15 U.S.C. § 1117(a) (1984).
We find that in comparative advertising cases where money damages are
sought and where there exists proof of willful
8
A leading commentator demonstrates the fundamental
difference in cases dealing with injunctions and those dealing
with money damages:
Since § 43(a) was passed to protect consumers as
well as competitors, the courts are not and should not
be reluctant to allow a commercial plaintiff to obtain
an injunction even where the likelihood of provable
impact on the plaintiff may be subtle and slight.
Congressional policy appears to encourage commercial
firms to act as the fabled “vicarious avenger” of
consumer rights. An injunction, as opposed to money
damages, is no windfall to the commercial plaintiff.
An injunction protects both consumers and the
commercial plaintiff from continuing acts of false
advertising. Money damages, on the other hand,
primarily aid only the competitor, and he is required
to satisfy a much higher standard of proof as to injury
in order to recover damages.
3 J. Thomas McCarthy, McCarthy on Trademarks and Unfair
Competition § 27.04(3)(d), at 27-48 (3rd ed. 1996) (footnotes
omitted).
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deception, as here, the reasoning of the injunction cases set forth
primarily in the Second Circuit cases is applicable. What little case law
exists supports the district court’s use of the presumption of causation
and harm to the plaintiff.
In PPX Enterprises v. Audiofidelity Enterprises, Inc., 818 F.2d 266
(2d Cir. 1987), the district court had granted defendant’s motion for
judgment notwithstanding the verdict on plaintiff’s claim for damages under
the Lanham Act, reasoning that plaintiff was not entitled to damages
because it had failed to present evidence of actual consumer confusion.
The Second Circuit reversed, holding that a plaintiff need not provide
evidence of actual consumer confusion “in order to prove entitlement to
damages.” Id. at 272. The court reasoned that the plaintiff had provided
sufficient evidence to establish its claim, but noted that on remand the
plaintiff would “of course, be required to provide ‘an evidentiary basis
on which to rest’” an award of damages. Id. at 273 (citation omitted).9
The requisite evidentiary basis for an award of damages was described
in ALPO. In ALPO, the D.C. Circuit affirmed the district court’s holding
that Ralston Purina had violated § 43(a) of the Lanham Act through its
false advertising, but vacated the district court’s choice of remedies.
The court summarized the district court’s task on remand:
9
The court recited this statement of a commentator: “Having
established falsity, the plaintiff should be entitled to both
injunctive and monetary relief, regardless of the extent of
impact on consumer purchasing decisions.” Id. at 272-73 (citing
Joseph P. Bauer, A Federal Law of Unfair Competition: What Should
Be the Reach of Section 43(a) of the Lanham Act?, 31 UCLA L.Rev.
671, 744 n. 277 (1984)).
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When assessing these actual damages, the district court may
take into account the difficulty of proving an exact amount of
damages from false advertising, as well as the maxim that “the
wrongdoer shall bear the risk of the uncertainty which his own
wrong has created.” Otis Clapp & Son v. Filmore Vitamin Co.,
754 F.2d 738, 745 (7th Cir. 1985) (quoting Bigelow v. RKO Radio
Pictures, Inc., 327 U.S. 251, 265 (1946)). At the same time,
the court must ensure that the record adequately supports all
items of damages claimed and establishes a causal link between
the damages and the defendant’s conduct, lest the award become
speculative or violate [Lanham Act] section 35(a)’s prohibition
against punishment.
ALPO, 913 F.2d at 969 (citations and footnote omitted).
The court’s application of the presumption of causation and injury
to the facts of this case, in concert with the damages instructions, was
not erroneous. A predicate finding of intentional deception, as a major
part of the defendant’s marketing efforts, contained in comparative
advertising, encompasses sufficient harm to justify a rebuttable
presumption of causation and injury in fact. Once it had established its
claim, Porous still bore the burden of proving an evidentiary basis to
justify any monetary recovery. These instructions, properly reconciled,
balanced a recognition of the basic harm to a plaintiff who is targeted by
deliberately deceptive comparative advertising with the statutory
requirement that any monetary recovery under the Lanham Act must represent
compensatory damages shown to have been caused by the defendant. We have
no reason to believe that the jury failed to follow instructions in its
formulation of the $1.5 million damages award. See Forbes v. Arkansas
Educational Television Comm’n, 93 F.3d 497, 501 (8th Cir. 1996), cert.
granted, 1997 WL 114947 (March 17, 1997) (“We have great faith in juries,
and their desire and ability to follow instructions and make distinctions
among the various issues put before them.”). In addition, after presiding
over the extensive trial, the district
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court rejected Pall’s motion for judgment as a matter of law, concluding
that “there is sufficient evidence to support the jury’s verdict on the
Lanham Act claim.”
B. Evidence of Customer Perception
Pall argues that it was entitled to judgment as a matter of law on
the Lanham Act claim because Porous failed to offer extrinsic evidence of
customer perception to prove Pall’s statements were misleading. In order
to prove that a statement was misleading, “proof that the advertising
actually conveyed the implied message and thereby deceived a significant
portion of the recipients becomes critical.” William H. Morris Co. v. Group
W, Inc., 66 F.3d 255, 258 (9th Cir. 1995) (citations omitted). Pall
asserts that in proving Pall’s statements about its own products were
misleading, Porous utilized improper opinion testimony and failed to
provide the necessary market research or customer surveys to show how a
significant number of customers perceived Pall’s statements. We reject
this argument.
First, Pall’s conclusory statements that the district court permitted
improper opinion testimony are insufficient to establish that the district
court abused its discretion in admitting this testimony. Second, the case
was tried by Porous primarily, if not exclusively, on the ground that
Pall’s statements were literally
false rather than misleading.10 Third, the jury instruction,11 which
10
The only evidence cited by Pall for the assertion that
Porous attempted to prove Pall’s statements were misleading is a
demonstrative exhibit used during the testimony of Michael
Spearman. However, in response to Pall’s objection, Porous
deleted use of the term “misleading” from the exhibit.
11
Instruction No. 17 provides in relevant part: “Where, on
the other hand, Porous’ claim is that the advertising is
misleading, Porous must demonstrate, by extrinsic evidence, that
the challenged advertisement or statement tends to mislead or
confuse customers.”
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provided liability for both false and misleading statements, required
Porous to demonstrate by extrinsic evidence that any allegedly misleading
statement was confusing. This properly states the law urged by Pall.
Finally, given the facts of this case, Porous need not have been required
to present extrinsic evidence of confusion. Because the jury found that
Pall violated the Lanham Act willfully and in bad faith, “we see no need
to require [Porous] to provide consumer surveys or reaction tests in order
to prove entitlement to damages.” PPX, 818 F.2d at 272.
II. PRODUCT DISPARAGEMENT CLAIM
The district court properly instructed the jury that in order to
prevail on its claim of product disparagement, Porous had to prove that
Pall published a false or disparaging statement concerning Porous’s
products and that special damages resulted from the publication. The
product disparagement claim covered statements Pall made about Porous’s
products, and was limited to statements in the paper/power markets.
Porous’s common-law product disparagement claim is governed by
Minnesota law. Pall asserts that Porous failed to claim or prove special
damages, an essential element of a claim for product disparagement under
Minnesota law. Therefore, Pall contends that the district court erred in
failing to grant Pall judgment as a matter of law, or in the alternative,
a new trial based on the insufficiency of the evidence to support the
verdict.
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We review the district court’s interpretation of state law de novo.
Sondel v. Northwest Airlines, Inc. 56 F.3d 934, 937 (8th Cir. 1995)
(citations omitted). We also review the district court’s denial of a
motion for judgment as a matter of law de novo. Keenan v. Computer Assoc.
Int’l, Inc., 13 F.3d 1266, 1268 (8th Cir. 1994) (citation omitted). In
determining whether there exists sufficient evidence to support the jury
verdict, we must view the evidence in the light most favorable to the
prevailing party, remembering that “[j]udgment as a matter of law is
appropriate only when all of the evidence points one way and is
Id. at 1269 (citation and footnote omitted). The
district court’s denial of a motion for a new trial under Fed. R. Civ. P.
59 is reviewed for a abuse of discretion. Where the basis of the decision
is that the verdict is not against the weight of the evidence, the district
court’s denial of the motion “is virtually unassailable.” Pulla v. Amoco
Oil Co., 72 F.3d 648, 656 (8th Cir. 1995) (citing Keenan, 13 F.3d at 1269).
A. Damages Theory
Pall argues that Porous’s theory of damages to support the product
disparagement claim does not satisfy, as a matter of law, the element of
special damages. Pall asserts that Minnesota law does not allow use of a
lost growth opportunity measure of damages in a product disparagement claim
and that therefore it was entitled to judgment as a matter of law.12
12
We find merit, as indicated below, in some of Porous’s
argument that Pall failed to preserve for appeal its challenge to
the sufficiency of the evidence supporting the product
disparagement verdict. However, this legal question, whether
Porous’s theory of damages constitutes special damages cognizable
in a product disparagement case in Minnesota, was preserved for
appeal because it was argued to the district court before the
case was submitted to the jury. See Ruyle v. Continental Oil Co.,
44 F.3d 837, 841 (10th Cir. 1994) (“A party who properly raises
an issue of law before the case goes to the jury 833 F.2d 1365, 1370 (9th Cir.
1987)); Bottineau Farmers Elevator v. Woodward-Clyde Consultants,
963 F.2d 1064, 1073 (8th Cir. 1992) (holding that legal issue
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Porous’s claim for special damages was based on lost growth
opportunities and specific lost sales. Porous demonstrated that it
initially achieved sales growth in the paper/power markets but that its
sales plateaued or declined after the disparagement by Pall. In fact, the
paper/power markets were the only markets in which Porous failed to achieve
significant growth in sales. Porous introduced marketing reports from Pall
which claimed that Pall’s sales literature, which included false or
misleading information about Porous’s products, was helpful in competing
against companies like Porous and had resulted in regaining some lost sales
for Pall. One of Pall’s distributors, Bill Brown, testified that his use
of Pall’s negative literature regarding Porous was helpful in retaining
business. Steven Edwards, a salesman for one of Pall’s distributors,
testified that his use of Pall’s comparative literature influenced
customers and that a specific customer had switched back to Pall’s products
from Porous’s after reviewing the negative literature. Porous introduced
the “Will-Fit Alert,” a memo prepared by an employee of Pall, which Porous
argued contained false and deceptive comparisons between Porous’s and
Pall’s filters. The memo states that Pall’s comparison to Porous’s filters
caused Consolidated Paper to abandon Porous and use only Pall’s filters.
Patrick Spearman, a vice president of Porous in charge of marketing,
testified that Porous lost a number of specific customers because of Pall’s
disparaging statements, and
raised in motion for summary judgment did not have to be
reasserted in subsequent motions for directed verdict in order to
be preserved for appeal).
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that Porous was also unable to approach numerous other potential customers.
Spearman and his brother, Michael Spearman, another principal for Porous,
were both qualified as experts in the filter industry. They testified that
Pall’s disparagement was the cause of the harm to Porous and excluded other
potential causes for Porous’s failure to grow in the paper/power markets.
Finally, Porous’s expert economist, Dr. Michael Brookshire, testified as
to Porous’s lost growth opportunity by comparing Porous’s sales in the
paper/power markets with the geometric average growth rate of Porous’s
sales in all of its markets, and in the pneumatics and instrumentation
markets, which Porous argues are the markets most similar to the
paper/power markets.
In Advanced Training Sys. v. Caswell Equip. Co., Inc., 352 N.W.2d 1
(Minn. 1984), the trial court reversed a jury verdict for the plaintiffs
on a product disparagement claim, holding, in relevant part, that the
plaintiffs had failed to prove special damages, which are an essential
element of the cause of action. Id. at 6. The Minnesota Supreme Court
affirmed this ruling, reasoning that
plaintiff may not recover for product disparagement unless
plaintiff is able to prove special damages in the form of
pecuniary loss directly attributable to defendant’s false
statements. Where plaintiff cannot show loss of specific
sales, the modern view allows plaintiff to prove a general
decline of business, so long as this is shown to be the result
of defendant’s disparaging statements and other possible causes
are eliminated.
Id. at 7-8 (citations omitted). Pall argues that the Minnesota Supreme
Court’s discussion of special damages in Advanced Training does not support
Porous’s award for product disparagement. We must disagree.
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First, we do not agree that Advanced Training precludes Porous’s
claim for special damages. In Advanced Training, the plaintiff failed to
prove loss of a specific sale or a general decline in business due to the
alleged disparagement, and in fact the plaintiff company had captured about
ninety-seven percent of the relevant market. Advanced Training, 352 N.W.2d
at 8. The Minnesota Supreme Court ruled that the plaintiffs’ claim that
they would have been more successful earlier but for the disparagement was
“too speculative”. Id. While recognizing that the element of special
damages is an important restriction on the product disparagement cause of
action, the logic of Advanced Training does not preclude Porous’s damages
award. See Prosser & Keeton on Torts, § 128 n.22 (5th ed. 1984 & Supp.
1988) (stating that the holding in Advanced Training that decline in
business due to disparagement was sufficient but failure to grow after the
disparagement was too speculative “is presumably an assessment of the
evidence as to loss, not a rule of law”). Porous presented evidence of
specific lost sales and lost growth opportunity, which established
pecuniary loss that the jury could reasonably believe was directly
attributable to Pall’s disparaging statements.
Second, the district court instructed the jury that Porous had to
prove special damages in order to establish its product disparagement
claim. See Instructions Nos. 25 & 26. In describing what Porous had to
prove in order to establish special damages, the jury instructions tracked
the relevant language of Advanced Training and described the necessity of
proof of special damages in a product disparagement claim. Therefore, the
district court applied the proper legal standard based on Minnesota law.
Given our holding that Porous’s theory of damages was not deficient as a
matter of law, the remaining question is whether there is sufficient
evidence to sustain the damages award.
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B. Sufficiency of the Evidence13
Under Advanced Training, Porous had the burden not only of proving
that Pall’s statements caused injury, but also of excluding other causes
for its loss. 352 N.W.2d at 8. Pall argues that Porous failed to satisfy
this method of proving special damages because the testimony of Porous’s
principals, the Spearmans, was too speculative to support special damages,
and other causes were at least in part responsible for Porous’s failure to
meet its sales projections. The district court rejected these arguments,
finding that “there is sufficient evidence to support the jury’s verdict
on the claim of common-law product disparagement.” District Court Order at
3. After reviewing the evidence in the record, viewing it in the light
most favorable to the verdict, we agree and affirm the district court’s
ruling.
First, the testimony of the Spearmans was not too speculative as a
matter of law to support the jury’s finding of exclusive causation. Pall
argues, citing several antitrust cases, that Porous cannot prove the
exclusive cause of its damages through the testimony of its principals.
However, these cases do not present a rule of law that the testimony of a
company’s principals is too speculative to establish a material fact.
Rather, they focus on the lack of proof specific to each case. See e.g.
Argus Inc. v. Eastman Kodak Co., 801 F.2d 38, 45 (2d Cir. 1986) (affirming
summary judgment for the defendant because plaintiffs failed to present a
triable issue of fact on the element of causation);
13
Although Porous urges that Pall has waived its right to
challenge the insufficiency of the evidence of the product
disparagement claim by failing to renew by post-verdict motion
under Federal Rules of Civil Procedure 50(b), we need not address
that argument in light of our finding that there was sufficient
evidence to sustain the verdict.
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Foremost-McKesson, Inc. v. Instrumentation Laboratory, Inc., 527 F.2d 417
(5th Cir. 1976) (affirming directed verdict for defendant because plaintiff
failed to present sufficient evidence of causation). Additionally, as
qualified experts in the filter industry, the Spearmans could offer
opinions regarding the industry.
Second, Porous presented competent evidence excluding causes other
than Pall’s disparagement for its lost business. Pall contends that other
factors were responsible at least in part for Porous’s losses, citing
evidence that three Porous customers stopped buying Porous products for
other reasons, that competition increased in the paper/power markets during
this time, and that Porous reduced its marketing efforts in the paper/power
markets in the spring of 1990. However, Porous presented evidence that it
was successful initially in the paper/power markets, that its sales leveled
off or fell after the disparagement by Pall, that the markets in which it
was disparaged by Pall were the only markets in which Porous failed to
achieve significant growth during this time, and that Porous enjoyed the
same competitive advantages in the paper/power markets that led to great
success in the other markets. The Spearmans testified that Pall’s
disparagement was the exclusive cause of the harm to Porous and
specifically excluded other possible factors. Porous concedes that it
reduced its marketing effort in the paper/power markets in 1990, but argues
that this was done in order to counteract Pall’s attacks in the oil/gas
markets and was therefore a way of mitigating its overall losses.
We hold there is sufficient evidence to support the element of
special damages. Accordingly, the district court did not abuse its
discretion in denying Pall’s motion for a new trial on Porous’s common-law
claim for disparagement of its product.
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III. JURY MISCONDUCT
After trial, Pall discovered, through interviews with members of the
jury, that jurors had twisted and jumped on Porous’s filters during their
deliberations. Pall motioned the district court for relief from the
judgment, and a new trial, pursuant to Rule 60(b) of the Federal Rules of
Civil Procedure, for the alleged juror misconduct. Attached to the motion
14
was an affidavit from a legal assistant employed by Pall’s counsel
stating that she had contacted some of the jurors and that they told her
that the jurors had stepped and jumped on Porous’s filters to determine if
they would collapse. The district court held that the jury’s testing of
the strength of the filters constituted extraneous evidence, but it denied
Pall’s motion. The court held that Pall had failed to establish prejudice
from the misconduct, because it failed to prove, “by a preponderance of the
evidence, that the outcome of the trial would have been different had the
extraneous evidence not been introduced into deliberations.”
We review the district court’s decision to deny a motion for a new
trial based on alleged juror misconduct for an abuse of discretion.
Banghart v. Origoverken, A.B. et al., 49 F.3d 1302, 1305 (8th Cir. 1995)
(citations omitted). In a civil case, the
14
Porous moved, pursuant to Rule 606(b) of the Federal Rules of Evidence, to strike
portions of the affidavit that attempted to relate the juror’s thoughts during the deliberation
process. The district court granted the motion, striking “those portions of the Flesher affidavit
that relate to juror statements regarding the effect the jury experiment had on the verdict.”
See also Banghart v. Origoverken, A.B., 49 F.3d 1302, 1306 n.6 (8th Cir. 1995) (“Rule
606(b) establishes very strict requirements for accepting testimony from jurors about their
deliberations, and trial courts should be hesitant to accept such testimony without strict
compliance with the rule.”) (citation omitted). This ruling is not appealed.
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exposure of extraneous evidence to the jury “mandates a new trial only upon
a showing that the materials are prejudicial to the unsuccessful party.”
Id. at 1306 (citing Peterson ex. rel. Peterson v. General Motors Corp., 904
F.2d 436, 440 (8th Cir. 1990) (other citations omitted)).
Pall argues that the district court was correct in finding that the
jurors’ “experiments” constituted extraneous evidence, but that it abused
its discretion in denying a new trial because the alleged misconduct
improperly impeached Pall’s statements about its own collapse testing of
Porous’s filters. We disagree. Porous’s filters were introduced into
evidence, and the jury was allowed to examine them in its deliberations.
We think, contrary to the district court’s reasoning, that the jury’s
examination of the filters did not constitute extraneous evidence, but was
merely part of the expected process of scrutinizing the evidence as part
of its deliberations. See Banghart, 49 F.3d at 1306-07. We find no
prejudicial error.
V. ATTORNEY FEES
The district court denied enhanced damages to Porous on the basis
that there was no evidence to support such an award under the Lanham Act.
This order was not appealed.
However, the court proceeded to award attorneys’ fees and costs under
§ 35(a) of the Lanham Act on the basis that the facts presented constituted
an exceptional case.15 The district court stated:
15
The district court found that the award of attorneys’ fees was also warranted under the
Minnesota Deceptive Trade Practices Act, Minn. Stat. § 325D.45, subd. 2(2).
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With respect to Plaintiff’s Lanham Act claim, the jury found
that Defendant acted willfully and in bad faith. This court
also finds that the record establishes Defendant intentionally
set out to deceive or confuse the public through the
publication of false statements about its product alone, and in
comparison to Plaintiff’s product, and that such conduct was
deliberate and willful.
. . .
Plaintiff submitted evidence of Defendant’s marketing reports
which established Defendant’s intent to regain clients from
what it called “willfitters.” This evidence, together with
evidence establishing Defendant published false statements
about its own products, cannot be characterized as a simple
disregard for Plaintiff’s rights.
Our review of the record supports the district court’s determination.
We hold the district court’s findings were not clearly erroneous and an
award of attorneys’ fees under the Lanham Act was fully justified.
CONCLUSION
We affirm the verdict on both the product disparagement claim and the
Lanham Act claim.
JUDGMENT AFFIRMED.
A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.
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