Case Name: CIBA-GEIGY CORPORATION, Appellee, v. BOLAR PHARMACEUTICAL CO., INC., Appellant
Court: United States Court of Appeals for the Third Circuit
Jurisdiction: United States
Decision Date: 1984-11-02
Citations: 747 F.2d 844
Docket Number: Nos. 84-5056, 82-5797
Parties: CIBA-GEIGY CORPORATION, Appellee, v. BOLAR PHARMACEUTICAL CO., INC., Appellant.
Judges: 
Reporter: Federal Reporter 2d Series
Volume: 747
Pages: 844–863

Head Matter:
CIBA-GEIGY CORPORATION, Appellee, v. BOLAR PHARMACEUTICAL CO., INC., Appellant.
Nos. 84-5056, 82-5797.
United States Court of Appeals, Third Circuit.
Argued June 13, 1984.
Decided Nov. 2, 1984.
As Amended Dec. 21, 1984.
Rehearing and Rehearing In Banc Denied Jan. 8, 1985.
Giles, District Judge, sitting by designation, filed dissenting opinion.
James F. Keegan, Bendit, Weinstock & Sharbaugh, P.A., West Orange, N.J., Robert B. Jones (argued), Fitch, Even, Tabin & Flannery, Chicago, 111., John C. Dorfman, Dann, Dorfman, Herrill & Skillman, P.C., Philadelphia, Pa., for appellant/petitioner.
Frederick L. Whitmer, Pitney, Hardin, Kipp & Szuch, Morristown, N.J., Randolph S. Sherman (argued), Richard A. DeSevo, Kaye, Scholer, Fierman, Hays & Handler, New York City, for appellees/respondents.
Before HUNTER and HIGGIN-BOTHAM, Circuit Judges, and GILES, District Judge
Honorable James T. Giles, United States District Court for the Eastern District of Pennsylvania, sitting by designation.

Opinion:
OPINION OF THE COURT
A. LEON HIGGINBOTHAM, Jr., Circuit Judge.
This is an appeal from a final order of the district court granting appellee CIBA-GEIGY Corporation ("CIBA") a permanent injunction against appellant Bolar Pharmaceutical Company ("Bolar"). CIBA had previously obtained a preliminary injunction against Bolar after an evidentiary hearing before the district court. This court affirmed the preliminary injunction on appeal. After the affirmance, and based on the same record developed in the evidentiary hearing for the preliminary injunction, the district court granted a permanent injunction. The question now presented is whether the district court erred in granting a permanent injunction. Because we believe the district court properly granted CIBA a permanent injunction, we will affirm.
I.
Since our decision affirming the preliminary injunction, Bolar has been eager to take this case to the Supreme Court where Bolar believes this matter would be resolved in its favor. Unfortunately, because Bolar has repeatedly, sought a quick determination by the lower courts, this case might be a classic example of the old axiom that "haste makes waste."
Bolar petitioned the Supreme Court for a writ of certiorari after our affirmance of the preliminary injunction. CIBA-GEIGY Corp. v. Bolar Pharmaceutical Co., 719 F.2d 56 (3d Cir.1983). That petition was denied. — U.S. -, 104 S.Ct. 1444, 79 L.Ed.2d 763 (1984) Bolar returned to the district court and asked that the district court convert its hearing concerning the preliminary injunction into a final trial on the merits.
On December 23, 1983, Judge Sarokin, after reviewing the prior litigation history and this court's affirmance of his preliminary injunction, entered an order which provided, inter alia:
the parties having consented to converting the hearings held on plaintiff's motion for preliminary injunction to the final trial on . the merits; and the Court having concluded that on the present record and for the reasons set forth in its opinion of August 11, 1982, Ciba-Geigy is entitled to final relief;
It is on this 22nd day of December, 1983, ORDERED, ADJUDGED and DECREED
A. That the preliminary injunction issued on October 4, 1982 is made permanent.
CIBA-GEIGY Corp. v. Bolar Pharmaceutical Co., No. 82-788 (D.N.J. Dec. 23, 1983). Bolar, the loser below, petitioned this court for summary affirmance in order to get this case to the Supreme Court. We denied that request.
My reference to the axiom "haste makes waste" concerns the confusion created when a district court converts an opinion granting a preliminary injunction into an opinion granting a permanent injunction without expressly recasting its findings accordingly. The standard for this court reversing the issuance of a preliminary injunction is different from the standard for reversing a permanent injunction. . Because the district court did not expressly recast its findings in terms of the legal standard applicable to a permanent injunction, that mechanical task is left to this court. Although we are able to so convert the district court's opinion, we would much prefer that the district court recast its own opinion in the language of the standard it is applying. This would eliminate the possibility of confusion as to what the district court intended and would, in the long run, promote judicial economy.
As tedious as the process might be for us, we believe it is necessary to ensure that the district court's conversion of its preliminary injunction does not become the basis of another appeal.
When issuing the findings and opinion on the preliminary injunction, the district court used traditional preliminary injunction language. As an example, it said, "even assuming that SK & F's 'reasonable anticipation' standard does not survive Ives, CIBA-GEIGY has demonstrated a likelihood of success in establishing that Bolar copied its trade dress with the intention, at least in part, to induce or permit illegal substitution." CIBA-GEIGY Corp. v. Bolar Pharmaceutical Co., 547 F.Supp. 1095, 1116 (D.N.J.1982) (emphasis added). At other places in its opinion the district court used similar language couched in a preliminary injunction context.
When the parties agreed to "convert" the hearing on the plaintiff's motion for preliminary injunction to the final trial on the merits, the district court did not expressly change the language of its opinion preliminarily enjoining Bolar. It did so by reference, and the parties agreed to the district court disposing of the case in this manner. This reading is bolstered by the district court's order of December 16,1983 wherein it stated,
• [t]his court having held hearings on April 22, May 12 and June 15, 1982 on the motion of plaintiff Ciba-Geigy Corporation for preliminary injunction, plaintiff being satisfied with the sufficiency of its proof therein for purposes of a trial on the merits, and defendant believing it submitted sufficient evidence and made offers of proof therein to defeat plaintiff's claim at a trial of the merits, it is this 16th day of December, 1983,
ORDERED upon consent and stipulation of the parties that
(2) The hearing held on April 22, May 12 and June 15,1982 on plaintiff's motion for preliminary injunction shall constitute the trial on the merits in this action.
CIBA-GEIGY Corp. v. Bolar Pharmaceutical Co., No. 82-788 (D.N.J. Dec. 16, 1983) (emphasis added).
It is almost absurd to believe that the parties did not realize that the district court had implicitly converted its findings of a "likelihood of success" on the merits to findings of "success" on the merits. Moreover, none of the parties made any suggestion in their briefs or at oral argument on the appeal from the permanent injunction that the findings of the district court should be construed in any fashion different from the manner in which we have construed them. The parties in this case were concerned primarily with the sufficiency of the evidence and with the significance of Inwood Laboratories v. Ives Laboratories ("Ives"), 456 U.S. 844, 102 S.Ct. 2182, 72 L.Ed.2d 606 (1982) to their case.
CIBA believed it had met its burden of proof under any reading of Ives while Bolar believed that it had presented sufficient evidence to defeat CIBA's claim for the preliminary and final injunction. Indeed both parties were so convinced that they felt little need to alter in any significant respect the briefs they had filed in the appeal of the preliminary injunction. For example, Bolar stated,
[ejxcept for minor changes which reflect the conversion of the preliminary injunction into a permanent injunction, its present brief is substantially identical to [its earlier brief.]
Bolar Motion to Consolidate at 3.
For the above reasons, in analyzing this case we have treated the district court's findings that plaintiff has demonstrated "likelihood of success" on the merits as findings that the plaintiff "succeeded" on the merits.
II.
In 1970 CIBA received a patent on the drug hydrazaline hydroehloride/hydrochlorothiazide, an anti-hypertensive composed of hydralazine hydrochloride, a vasodilator, and hydrochlorothiazide, a diuretic. Until its patent was dedicated to the public in 1981, CIBA retained the exclusive right to produce and market the drug, which it sold under the registered trademark APRESA-ZIDE. CIBA chose to market its 25 mg./25 mg. dosage in a blue and white capsule, its 50 mg./50 mg. in a pink and white capsule, and its 100 mg./50 mg. dosage in a pink flesh and white capsule.
In August 1976, two months before CIBA first marketed APRESAZIDE, another company, Pfizer, Inc., first marketed another anti-hypertensive, Minipress. Minipress is sold in two dosages, one in pink and white capsules, the other in blue and white capsules. Due to the differences in size, the blue and white Minipress capsule does not resemble the blue and white APRESAZIDE capsule. Although the pink and white Minipress capsule is similar in appearance to the pink and white APRESA- ZIDE capsule, the drugs are chemically distinct and prescribed to distinct groups of patients.
After CIBA's patents were dedicated to the public, Bolar began to manufacture hydrazaline hydrochloride/hydrochlorothiazide capsules the same size, shape and col- or as the 25 mg./25 mg. and 50 mg./50 mg. APRESAZIDE capsules. Bolar produced the capsules with the intention that they would resemble APRESAZIDE capsules. Bolar capsules are identical to APRESAZIDE capsules except that each is imprinted with the name of its respective manufacturer.
CIBA, in marketing APRESAZIDE, followed normal industry practice. As APRE-SAZIDE can be obtained only with a prescription, CIBA directed advertising to pharmacists and physicians rather than directly to purchasers of anti-hypertensives. Bolar, in marketing its generic drug, has also followed industry practice by directing its advertising to wholesalers who sell to pharmacists who, in turn, may substitute the generic drug for APRESAZIDE on the advice of the prescribing physician and with the consent of the patient.
A pharmacist, when dispensing APRE-SAZIDE or its generic equivalent, removes the capsules from their original container and places them in another container bearing the pharmacist's label. As a consequence, the consumer sees no identifying marks other than the small imprints on the capsules themselves. %
III.
CIBA brought this action in the United States District Court for the District of New Jersey under section 43(a) of the Trademark Act of 1946 ("Lanham Act" or the "Act"), 15 U.S.C. § 1125(a) (1982), and under New Jersey's unfair competition law, N.J.S.A. 56:4-1 (1964 and Supp. 1984). CIBA asserted two violations of § 43(a), one derived from allegations that Bolar falsely designated the origin of its generic drug by manufacturing it in capsules identical to those CIBA used for APRESA-ZIDE. The other derived from allegations that Bolar's manufacture and distribution of hydralazine hydrochloride/hydrochlorothiazide capsules identical to CIBA's APRESAZIDE capsules, with reasonable anticipation or the intent that they would be' illegally substituted for CIBA's APRE-SAZIDE capsules, would constitute contributory trademark infringement (passing off) within the meaning of the federal statute.
The district court granted CIBA's initial request for a preliminary injunction and later granted CIBA's request for a permanent injunction. Bolar is thus prevented from advertising, distributing, or marketing its present generic version of APRESA-ZIDE. 547 F.Supp. at 1118.
CIBA proved (1) that the trade dress of APRESAZIDE was non-functional; (2) that APRESAZIDE had acquired secondary meaning with an identifiable group of users of anti-hypertensives; (3) that Bolar could reasonably anticipate that some pharmacists provided with Bolar's generic hydralazine hydroehloride/hydroehlorothiazide would attempt to illegally substitute it for CIBA's APRESAZIDE; and (4) that Bolar copied CIBA's APRESAZIDE trade dress with the intent, at least in part, to facilitate the illegal substitution of Bolar's generic drug for CIBA's brand name drug. Bolar initially moved this court for a summary affirmance so it could hurry to the Supreme Court. We denied Bolar's motion because this appeal involves a permanent injunction, which requires us to examine anew evidence that we found sufficient to uphold a preliminary injunction and which requires us to apply a different legal standard.
IV.
In deciding whether a permanent injunction should be issued, the court must determine if the plaintiff has actually succeeded on the merits (i.e. met its burden of proof). If so, the court must then consider the appropriate remedy. See Evans v. Buchanan, 555 F.2d 373 (3d Cir.1977).
Because this case involves claimed violations of federal law (§ 43(a) of the Trademark Act of 1946 (Lanham Act)) and New Jersey law (N.J.S.A. 56:4-1) as support for the grant of a permanent injunction, we must review both the state and federal claim in order to determine the proper scope of the injunction. If the district court correctly found that CIBA succeeded on the merits in its state claim, the district court's grant of a permanent injunction can only prevent Bolar's activity as it relates to New Jersey. That is, Bolar cannot necessarily be prevented from manufacturing and selling its product in California simply because its activity is unlawful in New Jersey. If, however, the district court correctly found CIBA succeeded on its federal claims, we must uphold the permanent injunction in its entirety so long as the balance of equities favors injunctive relief. We will consider first the claimed violations of New Jersey law, then the claimed violations of federal law.
A. New Jersey Law
CIBA claims two violations of New Jersey law by Bolar: unprivileged imitation and passing off.
Unprivileged Imitation
To establish unprivileged imitation under New Jersey law, a plaintiff must show (1) that an imitated feature of its product is non-functional, (2) that the imitation is likely to cause confusion as to the product's origin, and (3) that the product has acquired secondary meaning. French American Reeds Manufacturing Co. v. Park Plastics Co., 20 N.J.Super. 325, 333-34, 90 A.2d 50, 54-55 (1952), Press Publishing Co. v. Atlantic County Advertiser, 108 N.J.Super. 75, 81, 260 A.2d 6, 9 (1969).
We begin our analysis with consideration of the district court's finding that the features imitated by Bolar are non-functional.
In SK&F, Co. v. Premo Pharmaceutical Laboratories, 625 F.2d 1055 (3d Cir.1980), this court applied the correct standard for making a finding of nonfunctionality under New Jersey law. We stated:
Proof of nonfunctionality generally requires a showing that the element of the product serves no purpose other than identification. In the case of a drug, for example, the allegedly, nonfunctional element must not enhance efficacy.
Id. at 1063.
Judge Sarokin's finding of non-functionality is a finding of fact. A finding of fact is clearly erroneous when the reviewing court is left with the " 'definite and firm conviction that a mistake has been committed.' " Inwood, 102 S.Ct. at 2189 (quoting United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948)). We believe in this case appellant Bolar failed to prove that the district court's finding was clearly erroneous.
Regarding the issue of nonfunctionality, the district court found that CIBA had arbitrarily chosen to manufacture APRE-SAZIDE in blue & white and pink & white capsules and that no medical or business considerations compelled its choice. The district court noted that Reid-Provident Laboratories, Inc., a third corporation, was successfully producing the same drug in a different color. Similarly, the district court found that no medical or business considerations compelled the size and shape of CIBA's APRESAZIDE capsule. As CIBA had asserted, the district court found that APRESAZIDE's capsule color, size and shape serve no purpose other than to identify APRESAZIDE as CIBA's product. The district court rejected Bolar's arguments concerning the alleged functionality of APRESAZIDE's trade dress,, stating, "[t]he fact that a manufacturer uses different colors to distinguish between its own products does not make those particular colors functional as to other manufacturers." .547 F.Supp. at 1111. The district court also rejected Bolar's other functionality arguments, which were premised primarily on the assumption that physicians and pharmacists would prescribe a drug based on its appearance only. Based on this evidence we cannot say that the district court's finding of non-functionality was clearly erroneous.
We turn to the second necessary element of a successful claim of unprivileged imitation under New Jersey law— that is, proving that the imitation is likely to cause confusion as to the product's origin in the eyes of the consuming public. Our standard of review on this issue is again the clearly erroneous standard. After carefully reviewing the record, we do not consider the district court's finding on this issue to be clearly erroneous.
The district court found that CIBA's APRESAZIDE capsules could not be distinguished from Bolar's generic imitation by the typical patient utilizing such medication. The district court reasoned as follows:
Realistically, the likelihood of confusion cannot be assessed by a side-by-side comparison of the plaintiff's and defendant's products. It is the overall physical appearance of defendant's trade dress which is critical. The vast majority of patients who take this type of medication do not or cannot identify their medication, or its source, by reference to the matter imprinted on the drug capsule or tablet. Most of such patients are over the age of 60 years and it is unlikely that they will have sufficiently acute eyesight to detect the difference between their usual medication and Bolar's products based on the imprintations on Bolar's capsules.
547 F.Supp. at 1103.
We do not find any error in the district court's finding that Bolar's imitation of CIBA's APRESAZIDE capsules is likely to confuse the relevant consuming public as to the product's origin.
Having decided that CIBA satisfied the first two essential elements of a successful claim of unprivileged imitation under New Jersey law, we turn to the final element — whether the district court's finding that the trade dress of APRESAZIDE capsules had acquired a secondary meaning was clearly erroneous. The district court found that CIBA met its burden. We agree.
In French American Reeds, 20 N.J.Super. 325, 90 A.2d 50 (1952) the court set forth the standard for proving secondary meaning under New Jersey law. It stated that plaintiff must show that the article in question " 'has become associated in the public mind with the first comer as manufacturer or source _'" Id. at 334, 90 A.2d at 55 (quoting Crescent Tool Co. v. Kilborn & Bishop Co., 247 Fed. 299, 300-301 (2d Cir.1917) (L. Hand, J.)). Similarly, as this court stated in SK&F, if "[t]he only value of the trade dress was in identifying the goods with their source, ;.. that value suffices in New Jersey courts to establish secondary meaning." 625 F.2d at 1064.
Thus, the district court applied the correct standard when it said, "it is no more necessary here for plaintiff to prove that APRESAZIDE patients identify those products with [CIBA] than it was for plaintiff to prove in SK&F that Dyazide patients identified that product , with SK&F." 547 F.Supp. at 1113. Because the district court applied the correct legal standard, we must decide only whether the district court's finding that APRESAZIDE patients identify those products with CIBA is clearly erroneous. If we cannot say with firm conviction that its finding was clearly erroneous, we cannot reverse on this issue.
In concluding that secondary meaning had been acquired by CIBA's APRESA-ZIDE, the district court considered the duration of CIBA's exclusive manufacturing, the marketing and selling of APRESA-ZIDE, CIBA's exclusive right to use APRESAZIDE as a trademark, the nature and extent of CIBA's advertising and promotions featuring APRESAZIDE's trade dress, the number of sales under APRESAZIDE's trade dress, and the extent of the copying of APRESAZIDE's trade dress. See generally Ideal Toy Corp. v. Plawner Toy Mfg. Corp., 685 F.2d 78 (3d Cir.1982).
Regarding these factors, the district court made the following observations:
Since October 1976, CIBA-GEIGY has continuously marketed its APRESAZIDE products in the same trade dress, and for over five years, from October 1976 to March 1982, it was the sole pharmaceutical company which marketed these combination products in the particular trade dress described.
From October 1976 to date, CIBA-GEIGY, through its CIBA Pharmaceutical Company division, has spent and continues to spend substantial sums of money advertising and promoting its APRE-SAZIDE products to physicians, pharmacists and hospitals. During the period October 1976 through 1981, CIBA-GEIGY's expenditures for the distribution of free samples and for promotional and medical literature, films, symposia and seminars promoting its APRESAZIDE products were in excess of $9 million. In addition, during this same period, the cost attributable to the efforts of the CIBA Pharmaceutical Company sales force in promoting APRESAZIDE products was over $16 million.
547 F.Supp. at 1101 (footnote omitted). Moreover, CIBA's sales of APRESAZIDE capsules have increased steadily since their market introduction. In addition to making these findings, the district court reasoned that "[a] product is generally considered to have acquired distinctiveness and secondary meaning when its trade dress has been copied." Id. at 1113. The district court "specifically [found] that Bolar's principal motivation in deliberately copying APRE-SAZIDE's trade dress was to increase sales of its hydralazine hydrochloride/hydrochlorothiazide combinations at the expense of [CIBA's] APRESAZIDE products." Id. at 1102. The district court also placed great significance in Bolar's "consistent use of hydralazine hydrochloride/hydrochlorothiazide as the generic name of the product in suit," 547 F.Supp. at 1114, in finding that patients associate APRESAZIDE with one source. See Salton Inc. v. Cornwall Corp., 477 F.Supp. 975, 986 (D.N.J.1979).
In this case, association between APRESAZIDE's trade dress and the trade name APRESAZIDE and CIBA is sufficient to prove secondary meaning. The name APRESAZIDE is more than a descriptive term. APRESAZIDE is a federally registered trademark that carries a presumption of validity. See E.I DuPont de Nemours & Co. v. Yoshida International, Inc., 393 F.Supp. 502, 516 (E.D.N.Y.1975); Coca Cola Co. v. Pace, 283 F.Supp. 291, 293 (W.D.Ky.1968). The district court rejected Bolar's claim that APRESAZIDE had become the generic appellation, thus CIBA alone is entitled tó use "APRESA-ZIDE" as the name of its product.
Given (1) CIBA's exclusive sale of APRE-SAZIDE; (2) the fact that "APRESAZIDE" is a registered trademark; (3) the extent of advertising and sales of APRESAZIDE; (4) Bolar's copying, exactly, of APRESA-ZIDE's trade dress; and (5) Bolar's purpose in copying, we cannot say with firm conviction that a mistake was made by the district court in finding secondary meaning in APRESAZIDE's trade dress. Because the district court's finding of secondary meaning was not clearly erroneous, it therefore must be upheld.
Passing Off
In addition to establishing its New Jersey claim for unprivileged imitation, the district court concluded that CIBA succeeded on the merits of its New Jersey claim of passing off. The requisite proofs for passing off under New Jersey law have been recently articulated. SK & F, 625 F.2d at 1062. See also Boehringer Ingelheim v. Pharmadyne Laboratories, 532 F.Supp. 1040, 1061 (D.N.J.1980) (applying New Jersey law); Merrell-National Laboratories v. Zenith Laboratories, 194 U.S.P.Q. 157, 160 (D.N.J.1977) (applying New Jersey law).
[I]t has been held that it is actionable conduct under New Jersey law for a drug manufacturer to put a product in the hands of a pharmacist in a form in which the manufacturer can reasonably anticipate that it may be passed off as another product even if the manufacturer does nothing else to encourage passing off.
As noted previously, the exact copying of APRESAZIDE's trade dress and dosage levels for the blue & white and pink & white capsules has been established. Bolar copied CIBA's APRESAZIDE 25 mg./25 mg. blue & white capsule and 50 mg./50 mg. pink & white capsule. The district court also found that Bolar's purpose in copying was to increase sales of its hydralazine hydrochloride/hydrochlorothiazide at the expense of [CIBA's] APRESA-ZIDE products. The district court found that Bolar's drug could be mistaken for APRESAZIDE. The district court took judicial notice of many convictions of pharmacists in New York for illegally substituting a generic drug for a brand name drug. 547 F.Supp. at 1108 n. 9. Finally, the district court found that Bolar's copying of APRESAZIDE was intended, at least in part, to facilitate pharmacists' illegal substitution of Bolar's look-alike for CIBA's APRESAZIDE.
It was not clearly erroneous for the district court to find, based on this evidence, that Bolar copied APRESAZIDE with the reasonable anticipation that pharmacists would illegally substitute Bolar's drug for CIBA's.
Having established that Bolar violated New Jersey's laws of unprivileged imitation and passing off, we turn to the equitable considerations to determine whether a permanent injunction was properly granted. The district court found that Bolar's look-alike drug deprives the patient of the principal means of differentiating between the drug she/he desires and that which is dispensed. The evidence supports a finding that the practice of illegal substitution occurs and that its full extent cannot be known. We agree with the district court that it may be unfair to the many ethical and honest pharmacists to predicate a rule of law upon an assumption that some pharmacists do and may illegally substitute generic drugs in order to make a greater profit, but we see very little harm to the drug manufacturers and pharmacists in this case where generic equivalents to APRESAZIDE can be manufactured in different sizes, shapes or colors without added cost.
Because of the significance of a permanent injunction, we quote the district court's reasoning regarding the public interest served by enjoining Bolar's imitation of APRESAZIDE's trade dress. The district court explained:
Even in the case of legal substitution, Bolar's conduct endangers the public interest. If Bolar's products look confusingly similar to CIBA-GEIGY's, the patient may-never learn or fully understand that they are not made by the same manufacturer as the products he had previously been taking — thereby jeopardizing his right to give his informed consent to the substitution.
A patient who has had a satisfactory experience with a drug may more readily agree to a generic substitute of the same appearance. At first blush, such conclusion may appear consistent with Bolar's arguments regarding functionality. However, such similarity may cause the patient to make the unwarranted assumption that the medication is identical and from the same manufacturer as the prior medication. In this area fraught with risks to health, no procedure should be condoned which affords to the patient anything less than all of the pertinent information and conditions which will prompt an inquiry for such information. There is no harm to the public in differ entiating between the pills; there may be great harm in not.
Id. at 1109 (footnote omitted).
We believe that the district court's equitable finding concerning the public interest was not in error. We also believe that the district court did not err in finding that Bolar violated the New Jersey laws prohibiting unprivileged imitation and passing off. Consequently, we will affirm the grant of the permanent injunction based on the district court's decision concerning New Jersey law.
B. Federal Law
CIBA also asserted claims under section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), for unprivileged imitation and passing off.
Unprivileged Imitation
To establish unprivileged imitation under the Act, a plaintiff must prove the nonfunctionality of the imitated feature and must prove secondary meaning of the imitated feature. These proofs are essentially the same as those required for unprivileged imitation under New Jersey law. SK & F Co. v. Premo Pharmaceutical Laboratories, 625 F.2d at 1065. Because the district court's findings of fact with respect to the New Jersey claim were not clearly erroneous, its findings of fact necessary to the proof of CIBA's federal claim were also not clearly erroneous. Thus, because CIBA succeeded on the merits of its New Jersey unprivileged imitation claim, it also succeeded on the merits of its claim under federal law. Even if an authoritative interpretation of New Jersey law suggests that the facts established do not prove a claim for unprivileged imitation under N.J.S.A. 56:4-1, an appropriate interpretation of § 43(a) of the Lanham Act indicates that the district court did not err in granting injunctive relief on the basis of CIBA's unprivileged imitation claim under the federal statute. In upholding this claim, we rely on our discussion of the evidence in the New Jersey law section of unprivileged imitation.
Passing Off
Bolar asserts that Ives changed the standard of proof for passing off under § 43(a) of the Lanham Act. It contends that Ives, properly read, requires a showing of intent on the part of the manufacturer to induce retailers to pass off imitative products when a § 43(a) claim is asserted. While it is debatable whether Ives altered the standard of proof for passing off under § 43(a), we need not decide the standard of proof issue. The district court's factual findings make that debate unnecessary. The factual findings and our review of them in this case differ markedly from the findings and their appellate review ill Ives.
In Ives, the Court of Appeals for the Second Circuit was reversed because it "erred in setting aside findings of fact that were not clearly erroneous." 102 S.Ct. at 2190. The Supreme Court stressed that Fed.R.Civ.P. 52(a) "recognizes and rests upon the unique opportunity afforded the trial court judge to evaluate the credibility of witnesses and to weigh the evidence." Id. 102 S.Ct. at 2188-89. In evaluating the credibility of witnesses and weighing the evidence, in Ives, the district court's factual findings precluded any holding that there was a violation of section 32 of the Lanham Act. The trial judge in that case held that the materials before him could not "fairly be read" to suggest trademark infringement. Ives Laboratories v. Darby Drug Co., 488 F.Supp. 394, 397 (E.D.N.Y.1980).
In contrast to the findings made by the trial judge exculpating the generic drug manufacturer in Ives, the findings made by the trial judge in this case implicate Bolar and constitute the prerequisite predicate for holding that there was a violation of section 43(a) of the Lanham Act. Here, inter alia, the district court expressly found that Bolar's generic alternative could be mistaken for CIBA's APRESA-ZIDE, that many pharmacists had been convicted of illegal substitution in New York, that Bolar copied APRESAZIDE's trade dress with intent to increase sales of its generic alternative at the expense of CIBA, and that Bolar copied CIBA's trade dress with the intent, at least in part, to induce illegal substitution. Irrespective of the analysis by the trial court as to the significance of footnote 13 in the Ives opinion, on the basis of the record before us, we cannot say with definite and firm conviction that the trial court's finding of intent to facilitate illegal substitution was in error. Just as the trial judge should not have been reversed by the Court of Appeals in Ives, Judge Sarokin in this case, having had the opportunity to evaluate the credibility of witnesses and weigh the evidence, must be sustained on this issue because his findings are not clearly erroneous. We therefore affirm the district court's disposition of CIBA's federal passing off claim.
V.
Finally, the district court was not prevented from granting the injunction by CIBA's unclean hands. A successful unclean hands defense to an injunction proceeding requires a showing by defendant that plaintiff's conduct is inequitable and that it involves the subject matter of the plaintiff's claim. Edelman v. Salomon, 559 F.Supp. 1178, 1187 (D.Del.1983). Bolar's assertions that CIBA marketed APRESAZIDE as a "step-two" drug when it is in fact a "step-three" drug, that CIBA sold two adulterated batches of APRESA-ZIDE in 1976, and that APRESAZIDE's markings do not conform with FDA standards do not implicate transgressions so egregious as to merit the preclusion of an injunction. Moreover, the alleged wrongdoings do not relate to the subject matter of Bolar's claim and, consequently, we cannot say the district court committed reversible error in rejecting Bolar's unclean hands defense.
VI.
For the reasons stated above, we will affirm the order of the district court granting CIBA a permanent injunction against Bolar.I. *
. In addition, the district court granted other relief not pertinent to this appeal.
. The combination of the shape, color, and size of each of CIBA's APRESAZIDE capsules constitutes its respective trade dress. CIBA seeks an injunction based on the copying of its capsules' trade dress. In this opinion, the terms "trade dress" and "color scheme" or "coloring" are used interchangeably.
. Bolar, of course, could market a generic version of APRESAZIDE if it changed any aspect of its product's trade dress so as to clearly distinguish it from CIBA's APRESAZIDE trade dress.
. The conviction of at least 93 pharmacists and pharmacies for passing off in New York in the three years preceding the filing of this suit was found probative of likelihood of illegal substitution in New Jersey. We cannot say that this inference, on the basis of the evidence presented, was improper.
. In this case, as in many others, the district court was forced to perform a balancing test to identify the greater public interest. Bolar's argument that the copying of APRESAZIDE's trade dress is in the public interest is not necessarily a frivolous assertion, but the district court could find, without being in error, that the greater damage to the public would result from production of look-alike capsules.
. If a reviewing court, in interpreting federal law, determines that CIBA did not succeed on the merits of its federal claims, but did succeed on the merits of its New Jersey claims, the injunction issued by the district court will, in accordance with the full faith and credit clause, be valid only in New Jersey. We will affirm the granting of the permanent injunction based on the New Jersey claims fully aware of this fact.
. "The federal law of unfair competition is not significantly different, as it bears upon this case, from that of New Jersey." SK&F, 625 F.2d at 1065. An assertion that Ives held that trade dress is functional as a matter of law is incorrect. Ives merely held that a circuit court cannot set aside a district court's finding of functionality simply because the reviewing court "might give the facts another construction." 102 S.Ct. at 2190 (quoting United States v. Real Estate Board, 339 U.S. 485, 495, 70 S.Ct. 711, 717, 94 L.Ed. 1007 (1950)). Indeed, in coming to its decision in Ives, the Supreme Court did not even consider the reasonableness of the district court's finding of functionality of trade dress.
. The trial judge's findings must be read in accordance with our discussion of the trial judge's conversion of the preliminary injunction to a permanent injunction. See pages 846-849 supra. In accordance with our discussion we read the trial judge's findings as follows:
CIBA has demonstrated . that Bolar copies its trade dress with the intention, at least in part, to induce or permit illegal substitution . CIBA [satisfied] its ultimate burden of proving such an intent _ [And, CIBA] proved although Bolar intended that its product would facilitiate legal substitution, it also contemplated and intended that illegal substitution would take place as well.
547 F.Supp. at 1116.
. A "step-two" drug is used in the second step of a series of treatment steps. A "step-three" drug is used in the third step of such treatment steps. CIBA's alleged motive in labelling APRESAZIDE a step-two drug was to increase the probability that it would be prescribed to patients suffering from hypertension (the number of hypertension patients reaching stage two being higher than the number reaching stage three). This allegation, as noted, does not bear upon the subject matter of the injunction proceeding and thus does not imply that the district court committed reversible error in granting the permanent injunction.
. From our view, the thoughtful dissenting opinion has two faults: first, it devotes one-third of its discussion to an issue we did not decide and therefore we need not address this interesting theoretical problem. Its second and more serious flaw is that, despite its protestations to the contrary, in reality, the dissent refuses to accept the fact that we are bound by a prior ruling of this court, SK & F, 625 F.2d at 1055. As a panel of this court, we are obligated to follow a prior panel's construction of New Jersey law and as a panel we cannot reject those views simply because we think the prior case may have been wrongly decided.