Monday, January 24, 2011

A mouse's tale: competing rodenticide claims enjoined

Reckitt Benckiser Inc. v. Motomco Ltd., No. 10 Civ. 6228 (RJS) (S.D.N.Y. Jan. 19, 2011)

HT: Randy Miller.

Our tale begins with US and NY regulators. In its 2008 Risk Mitigation Decision for Ten Rodenticides (RMD), the EPA stated that products intended for individual consumers containing a type of active ingredient (second-generation anticoagulants) should no longer be sold to individual consumers and that all consumer-size rodenticide bait products should be sold with a bait station. The EPA asked manufacturers to comply voluntarily, and warned of possible future regulatory activity. In October 2010, the New York State Department of Environmental Conservation (NYSDEC) announced that it would no longer register new products that failed to comply with the RMD and “discontinue the registration of any rodenticide products that do not comply with the decision at their next renewal.” In February 2010, NYSDEC informed companies that it intended to not continue the registration of second-generation anticoagulant rodenticide products packaged as pelleted, loose baits and meal after June 4, 2011 “unless acceptable updated final product labeling consistent with the requirements of the [EPA’s] Risk Management Decision [was] submitted to the Department.”

Plaintiff RB makes d-CON rodenticides, and defendant Motomco makes the competing Tomcat. Motomco decided to comply with the RMD. RB, by contrast, opted to fight in court. This litigation arose from things they said about the impact of the EPA and NYSDEC actions to buyers for major retail chains.

Among other things, Motomco distributed two “White Papers” to buyers. One had the heading
“NEW YORK STATE DEPARTMENT OF ENVIRONMENTAL CONSERVATION (NYSDEC)” and contained contact information for two NYSDEC officials. The other had the heading “EPA Rodenticide Mitigation Decision” and included photocopies of two EPA officials’ business cards. Neither identified Motomco as its author. RB sued for false advertising, asking for an injunction against use of the White Papers or other statements suggesting that d-CON had been subject to adverse regulatory action or that retailers carrying d-CON would experience disrupted business or other harm.

In August, the court denied a TRO, and Motomco filed an answer and counterclaims, as well as a cross-motion for a preliminary injunction. Motomco wanted RB to stop telling people that Motomco had voluntarily cancelled its current registrations for pre-mitigation consumer rodenticide products, and that RB had a special status allowing it, uniquely, to sell its products after June 2011 or was otherwise entitled not to comply with the RMD and NYSDEC decisions. This included claims that the EPA has been or would be enjoined (unless or until an injunction issued).

The court thus turned to the cross-motions.

In a footnote, the court stated that “[t]he lawfulness of a product is clearly a material quality.”

Irreparable harm is the single most important prerequisite for a preliminary injunction. For false advertising, likely injury and causation will not generally be presumed, but must be somehow shown, except when a comparative ad is literally false. Even without identifying a competing product by name, the presumption may apply where the plaintiff is an obvious competitor. This was the case here. “[T]he allegedly false statements were made in the context of advertising campaigns directly referencing, and indeed aimed at, the opposing manufacturer’s products.” Some mentioned the opponent directly; others were clearly in a comparative context, as when a Motomco sales manager sent a White Paper to a sales rep, instructing him to send it to a buyer at a supermarket chain to demonstrate that “d-CON is on the Titanic.”

The court commented that, though neither party had argued the issue, it might be the case that this presumption of irreparable harm is no longer permissible, despite longstanding precedent, after Salinger. (I myself am attracted to the argument that presumptions shouldn’t be applied across whole categories—all copyright cases, all patent cases, etc.—but can be justified in more narrowly targeted subcategories, such as the comparative ad situation. I don’t think eBay or Salinger rejected subcategories; the law of preliminary injunctions has not been wiped blank.)

But anyway, the court found that the parties independently showed irreparable harm. Irreparable harm exists when the parties are competitors and there’s a logical causal connection between the alleged false advertising and the harm to the challenger’s sales position. The parties were competitors, taking sales from one another. “Because of the uncertain regulatory climate, the parties are also effectively in a new market, where it would be difficult to quantify either party’s lost sales.” In addition, prospective loss of goodwill is sufficient to support a finding of irreparable harm. (This, on the other hand, seems shaky post-Salinger. “Goodwill,” if it means anything at all—which I’m not sure it does—means the ability to garner future sales, which means money. It may be hard to calculate the magnitude of the harm, but the harm is economic, and goodwill will always be at risk in every Lanham Act case; I have yet to see a good explanation of how a presumption based on goodwill won’t equate to an automatic presumption of irreparable harm once plaintiff shows likely success on the merits.)

Both parties demonstrated prospective damage to their reputations. Indeed, Motomco’s sales manager explicitly challenged RB’s “credibility,” while one RB presentation was titled “[Let’s] get our facts straight!” This was irreparable harm. 

Both parties argued literal falsity.

The court found that Motomco’s use of the White Papers, statements suggesting d-CON is subject to regulatory action, and statements suggesting that retailers will experience business disruption or penalties if they stock RB’s product were literally false, absent clarification that Motomco was only expressing its opinion about future events.

First, the headings and signature blocks of the White Papers were literally false in that they purported to issue from agencies. Both lacked any identification of true authorship.

Further, it was literally false for Defendant to state that the RMD is a law, regulation, or anything else having current legal force. The EPA stated that the RMD “itself did not change the legal status of any rodenticide product, now or in the future. EPA did not cancel or suspend any rodenticide registrations, nor did it prohibit the sale of registered rodenticides that did not incorporate the specified registration measures.” It was also literally false for Motomco to state, with absolute certainty, that retailers carrying RB’s products in New York State will experience disruptions to their businesses or penalties in 2011. Motomco’s presentations stated that retailers “will be liable for seizure o[f] products, quarantines and substantial fines if product remains on shel[ves].”

RB demonstrated that “its take on the current regulatory environment is accurate.” NYSDEC had renewed its products’ registrations through June 30, 2012. “NYSDEC representatives testified that whether the department will take future regulatory actions against manufacturers and retailers who persist in selling second-generation anticoagulants is up in the air and, at the very least, a long process would be required before NYSDEC could force Plaintiff or retailers to pull the products from the market.” Motomco may express its opinions about possible future NYSDEC actions, but only if it makes clear that these are its opinions. “As currently phrased, Defendant’s pronouncements as to the imminent seizures, quarantines, and fines awaiting retailers who carry Plaintiff’s products are literally false.”

(As I read this, it’s not really enough for Motomco to rephrase to say “In our opinion, seizures are imminent,” any more than it would be enough to avoid a defamation claim by starting the defamatory statement with “in our opinion.” The opinion has to bear some relationship to possible reality, and thus can’t represent that seizures are imminent, but could say that the future of the products at issue is unclear.)

The court also found certain RB statements literally false: that (1) Motomco voluntarily cancelled its registrations for pre-mitigation consumer rodenticide products, (2) RB has a special and unique exemption from the EPA allowing it to sell pre-mitigation consumer rodenticides to retailers after June 4, 2011, and (3) the EPA is currently or will be enjoined from enforcing the RMD.

RB admitted (1) and argued that it was true, but Motomco amended its registrations, and RB’s witness admitted that these are different. RB admitted that it didn’t have a special exemption but denied making statement (2). However, the court found that the record showed that its agents said (2). One witness testified that he was told by a buyer “that d-CON told him that they were going to get ‘special treatment’ while other rodenticide manufacturers would have to comply with the law.” Likewise, it was literally false to state that the EPA is enjoined from enforcing the RMD. RB could state that it expected to receive an injunction, so long as it was clear that it was speaking only about future expectations. Though the consequences of making inaccurate predictions to customers were unclear, “as long as Plaintiff discloses the forward-looking and uncertain nature of its expectations, such statements are beyond the reach of the Lanham Act and better left to the market.” The court expected that customers would be “unforgiving” to manufacturers whose predictions were wrong.

Other statements, however, were not literally false: (1) Plaintiff’s d-CON products can be legally sold after June 4, 2011, (2) Plaintiff can continue to sell second-generation products after June 4, 2011, and (3) retailers will suffer no adverse consequences from purchasing Plaintiff’s products in 2011. NYSDEC made clear that, at minimum, it would take a long time to force RB to stop distributing its products. Thus, it was impossible to say that these claims were false.

Balancing the equities, and considering the public interest in suppressing false advertising, an injunction was proper, with contours crafted to ensure that the parties could continue to offer their opinions on regulatory issues. Thus, the injunction barred Motomco from (1) using the White Papers “without clear language or graphics attributing the statements contained within to Defendant, not the EPA or NYSDEC,” (2) claiming that the RMD was a law or regulation and (3) claiming that retailers who carry d-CON in 2011 will experience disruption to their business, fines, or penalties, without making clear that Motomco is only expressing its opinion about possible future actions by regulators. (Hunh. I thought the evidence established that nothing was going to happen in 2011, so I would have thought that either the "in 2011" or the final clause was unnecessary/underinclusive.)

RB was enjoined from making the statements found to be false (except that if it does get an injunction against the EPA, it can say so).

1 comment:

  1. hmmmmm.....explains why my Motomco rep was so quick to change the subject away from lawsuits.....