Court Opinion

ID: 3064867
Source: CourtListenerOpinion
Date Created: 2015-10-14 22:27:24.650336+00
Date Added: 2024-06-11T11:49:42.233911
License: Public Domain

FOR PUBLICATION
 UNITED STATES COURT OF APPEALS
      FOR THE NINTH CIRCUIT

MARLYN NUTRACEUTICALS, INC.,              No. 08-15101
             Plaintiff-Appellant,
             v.                             D.C. No.
                                         CV-07-00012-ROS
MUCOS PHARMA GMBH & CO.,
                                            OPINION
            Defendant-Appellee.
                                    
       Appeal from the United States District Court
                for the District of Arizona
        Roslyn O. Silver, District Judge, Presiding

                 Argued and Submitted
       October 20, 2008—San Francisco, California

                    Filed July 2, 2009

    Before: J. Clifford Wallace, Sidney R. Thomas, and
              Susan P. Graber, Circuit Judges.

           Opinion by Judge Sidney R. Thomas

                          8193
8196      MARLYN NUTRACEUTICALS v. MUCOS PHARMA

                        COUNSEL

Maria Salapska, Law Offices of Maria Salapska, PLLC, Phoe-
nix, Arizona; Paul M. Levine, McCarthy Holthus Levine,
Phoenix, Arizona; Paul F. Eckstein and Karin S. Aldama, Per-
kins Coie Brown & Bain, PA, Phoenix, Arizona, for the
appellant.

Paul F. Donahue, K&L Gates LLP, Chicago, Illinois; Jason
M. Marks, Bell, Boyd & Lloyd LLP, Chicago, Illinois; Debra
A. Winiarski, Phoenix, Arizona, for the appellee.

                        OPINION

THOMAS, Circuit Judge:

  This appeal presents the question, among others, as to the
appropriate criteria that a district court should apply in
          MARLYN NUTRACEUTICALS v. MUCOS PHARMA            8197
considering a motion to enter a preliminary injunction requir-
ing a product recall in a trademark infringement case. We join
the Third Circuit in requiring that a district court must find a
substantial risk of danger to the public or other special cir-
cumstances in order to enter an interlocutory order recalling
a product in a trademark infringement case.

                               I

   This case involves a dispute between two nutraceutical
companies concerning the enzyme-based dietary supplement
Wobenzym, originally produced and sold by the German cor-
poration Mucos Pharma GmbH & Co. (“Mucos”). Dr. Karl
Ransberger developed Wobenzym and owned Mucos until his
death in 2001. Wobenzym is federally trademarked.1 In the
late 1980s, Ransberger met Joachim Lehmann, today the CEO
of Marlyn Nutraceuticals, Inc. (“Marlyn”). Ransberger
acquired a 50% ownership interest in Marlyn in exchange for
allowing Marlyn to exclusively distribute Wobenzym in the
United States. From 1991 to 2006, Marlyn distributed Woben-
zym in the United States for Mucos. Marlyn sold Wobenzym
in labels that prominently displayed Mucos’s trademark.
Mucos sold over $25 million of Wobenzym to American cus-
tomers.

   When Ransberger died in 2001, problems arose between
Mucos and Marlyn. Mucos and Marlyn resolved these prob-
lems in a 2002 Settlement Agreement. Section 13 of the Set-
tlement Agreement contained the terms of a distributorship
arrangement (“Distributorship Provision”). The Distributor-
ship Provision provided that “[w]ithin 30 days after the Effec-
tive Date, MUCOS and Marlyn shall use their good faith
  1
   Mucos developed two distinct products: WOBENZYM® and
WOBENZYM®N. It developed WOBENZYM® in the 1960s and
WOBENZYM®N in 1991. WOBENZYM® was a formulation of seven
enzymes; WOBENZYM®N contained five enzymes. This opinion refers
to WOBENZYM®N as simply “Wobenzym.”
8198      MARLYN NUTRACEUTICALS v. MUCOS PHARMA
efforts to enter into a formal distributorship agreement con-
taining the following terms and such other terms as may be
mutually agreed to or are customary in the industry.” No such
formal agreement was ever executed.

   The Distributorship Provision provided that, under the
future distributorship agreement, Marlyn was to be the exclu-
sive distributor of Wobenzym and two other supplements in
the United States for a period of ten years, with a five-year
extension option. The Distributorship Provision stated that if
Mucos ceased production of Wobenzym, Marlyn would have
“an exclusive . . . non-transferable, non-sublicensable license
. . . to manufacture [Wobenzym] within the United States”
and sell the Wobenzym it manufactures.

   In 2006, Marlyn submitted purchase orders to Mucos but
refused to take delivery because it believed that Mucos had
changed the product. Marlyn had requested and received a
batch weighing sheet from Mucos which revealed a difference
between the actual amount of certain active ingredients and
the amount listed on Wobenzym’s product label.

   Marlyn construed the discrepancy between the actual
amounts of the ingredients and the stated amounts as indica-
tion that Mucos had ceased producing Wobenzym. Marlyn
believed that, according to the Distributorship Provision, it
had the right to begin manufacturing Wobenzym and selling
it under the Wobenzym label. In March of 2007 it began
doing just that. Mucos claims that Marlyn’s Wobenzym for-
mula differed from Mucos’s formula, causing confusion and
infringing on Mucos’s trademark.

  Mucos brought this action for trademark infringement and
requested a preliminary injunction to stop Marlyn from selling
Wobenzym with the Wobernzym mark. The district court
heard testimony from Marlyn’s and Mucos’s experts as well
as their executive officers.
           MARLYN NUTRACEUTICALS v. MUCOS PHARMA            8199
   On November 13, 2007, the district court granted Mucos’s
motion for a preliminary injunction. It ordered Marlyn to stop
selling Wobenzym, recall the Wobenzym that it had already
sold, and provide restitution to those customers who had
bought Marlyn’s Wobenzym.

   On November 16, three days after the district court issued
the preliminary injunction and seven days after the hearing
ended, Marlyn moved to introduce three new pieces of evi-
dence and requested that the court reconsider its decision. The
district court declined to admit the evidence or reconsider its
decision.

   Marlyn appeals the preliminary injunction, the scope of the
injunction, and the court’s decision not to reconsider its deci-
sion in light of new evidence.

                               II

   We review a district court’s grant of a preliminary injunc-
tion for an abuse of discretion. Freecycle Network, Inc. v.
Oey, 505 F.3d 898, 901 (9th Cir. 2007). “[O]ur inquiry is at
an end once we determine that the district court employed the
appropriate legal standards which govern the issuance of a
preliminary injunction, and . . . correctly apprehended the law
with respect to the underlying issues in litigation.” Harris v.
Bd. of Supervisors, 366 F.3d 754, 760 (9th Cir. 2004) (inter-
nal quotation marks omitted). We review the scope of a pre-
liminary injunction for an abuse of discretion. United States
v. Schiff, 379 F.3d 621, 625 (9th Cir. 2004). We affirm the
issuance of the preliminary injunction but vacate the injunc-
tion because of its scope and remand for further proceedings.

   We emphasize that this case comes before us on review of
a preliminary injunction. Because our review of a preliminary
injunction is limited to “the law applied by the district court
and because the fully developed factual record may be materi-
ally different from that initially before the district court, our
8200       MARLYN NUTRACEUTICALS v. MUCOS PHARMA
disposition of appeals from most preliminary injunctions may
provide little guidance as to the appropriate disposition on the
merits.” Sports Form, Inc. v. United Press Int’l, Inc., 686 F.2d
750, 753 (9th Cir. 1982).

                                 A

   [1] “A plaintiff seeking a preliminary injunction must
establish that he is likely to succeed on the merits, that he is
likely to suffer irreparable harm in the absence of preliminary
relief, that the balance of equities tips in his favor, and that an
injunction is in the public interest.” Winter v. Natural Res.
Def. Council, Inc., 129 S. Ct. 365, 374 (2008).

   [2] The district court properly considered each of these fac-
tors. In considering the likelihood of success on the merits,
the court correctly held that to be liable for trademark
infringement, someone must “(1) use in commerce (2) any
word, false designation of origin, false or misleading descrip-
tion, or representation of fact, which (3) is likely to cause con-
fusion or misrepresents the characteristics of his or another
person’s goods or services.” Freecycle, 505 F.3d at 902. The
court properly cited the factors listed in AMF Inc. v. Sleek-
craft Boats, 599 F.2d 341, 348-49 (9th Cir. 1979), to deter-
mine the likelihood of confusion for the Wobenzym mark.

   [3] In evaluating irreparable harm, the court cited Ninth
Circuit law holding that “[i]n a trademark infringement claim,
‘irreparable injury may be presumed from a showing of likeli-
hood of success on the merits.’ ” El Pollo Loco, Inc. v.
Hashim, 316 F.3d 1032, 1038 (9th Cir. 2003) (quoting
GoTo.com, Inc. v. Walt Disney Co., 202 F.3d 1199, 1205 n.4
(9th Cir. 2000)). Because the court found a likelihood of suc-
cess on the merits, it reasonably presumed irreparable injury.
The court similarly did not abuse its discretion when it evalu-
ated the balance of hardships or public interest.2
  2
   Marlyn claims that the district court improperly required Marlyn to
show that Mucos had ceased manufacturing its old Wobenzym formula-
            MARLYN NUTRACEUTICALS v. MUCOS PHARMA                     8201
                                    B

   As an affirmative defense to Mucos’s trademark infringe-
ment claim, Marlyn argues that its manufacture and sale of
Wobenzym using Mucos’s mark is justified because of the
terms laid out in the Distributorship Provision. Under that
provision, Marlyn would acquire a license to use Mucos’s
mark if Mucos ever ceased production of Wobenzym. To suc-
ceed in its affirmative defense, Marlyn must show first that
the Distributorship Provision was enforceable and second that
Mucos ceased production of Wobenzym. We need not deter-
mine whether the Distributorship Provision was enforceable
under Arizona law because we see no clear error in the district
court’s factual determination that Mucos never ceased pro-
duction of Wobenzym. For the sake of the cessation analysis,
we assume without deciding that the Distributorship Provision
was enforceable.

   Marlyn argues that because Mucos’s formulation of the
Wobenzym supplement in 2006 did not conform to the
Wobenzym label, Mucos constructively stopped producing
Wobenzym. Mucos counters that this discrepancy is unimpor-
tant because Mucos merely standardized the enzyme levels
around their activity level per milligram rather than their input
weight, a procedure Mucos claims is a “common practice.”
Marlyn relied on the testimony of Dr. Scavetta, its director of
laboratory operations, to argue that both enzyme activity level
and input weight are important.

tion for distribution in the United States. Mucos had the burden of proving
only the four factors that justify a preliminary injunction; that burden was
properly laid by the district court. Perfect 10, Inc. v. Amazon.com, Inc.,
508 F.3d 1146, 1158 (9th Cir. 2007). Marlyn’s argument that Mucos had
ceased production was an affirmative defense that Marlyn, not Mucos, had
the burden of showing. Id. (“[O]nce the moving party has carried its bur-
den of showing a likelihood of success on the merits, the burden shifts to
the nonmoving party to show a likelihood that its affirmative defense will
succeed.” (citing Gonzales v. O Centro Espirita Beneficente Uniao do
Vegetal, 546 U.S. 418, 429 (2006))).
8202       MARLYN NUTRACEUTICALS v. MUCOS PHARMA
   The district court held that the change in the Wobenzym
formula was not significant enough to constitute cessation of
production because the new formula maintained the desired
level of enzymatic activity per milligram. The district court
did not find Dr. Scavetta’s testimony credible and noted mul-
tiple contradictions in his testimony.

   When a district court uses extrinsic evidence to interpret a
contract, we review its findings of fact for clear error. DP Avi-
ation v. Smiths Indus. Aerospace & Def. Sys. Ltd., 268 F.3d
829, 836 (9th Cir. 2001). Review for clear error is signifi-
cantly deferential and requires a “definite and firm conviction
that a mistake has been committed.” Easley v. Cromartie, 532
U.S. 234, 242 (2001) (internal quotation marks omitted). “[I]f
the district court’s findings are plausible in light of the record
viewed in its entirety, the appellate court cannot reverse even
if it is convinced it would have found differently.” Husain v.
Olympic Airways, 316 F.3d 829, 835 (9th Cir. 2002), aff’d,
540 U.S. 644 (2004). Additionally, we pay special deference
to a trial court’s credibility findings. Anderson v. Bessemer
City, 470 U.S. 564, 575 (1985).

   [4] We see no reason to disturb the district court’s finding.
Marlyn did not meet its burden in proving its defense because
it did not show that the change in question constituted a cessa-
tion of production. Trademark owners are permitted to make
small changes to their products without abandoning their
marks:

    A change in the type, formula or blend of a product
    sold under the same mark will probably not consti-
    tute abandonment of the rights in the old mark. For
    example, no abandonment occurred as a result of: a
    change in the blend of tobacco; in a formulation of
    paint; a change in the type of wheat used in flour; or
    even a change in the performers and nature of a
    musical performing group.
          MARLYN NUTRACEUTICALS v. MUCOS PHARMA            8203
3 J. Thomas McCarthy, McCarthy on Trademarks and Unfair
Competition § 17:24 (4th ed. 2008) (citing cases) (footnotes
omitted). The record supports the district court’s conclusion
that Mucos’s changes did not significantly alter the product
because it held nearly constant the activity levels of the
enzymes, which were the most important component of the
product.

  [5] For these reasons, we conclude that the district court did
not clearly err in finding, based on evidence and testimony
admitted thus far, that Mucos did not cease production of
Wobenzym and that Marlyn did not have the right to use
Mucos’s mark.

                               C

   Marlyn also challenges the scope of the injunctive relief
provided by the district court. The district court ordered Mar-
lyn to stop manufacturing and distributing its Wobenzym
product, recall its already-distributed products, and provide
restitution to its Wobenzym customers.

   [6] A preliminary injunction can take two forms. A prohibi-
tory injunction prohibits a party from taking action and “pre-
serve[s] the status quo pending a determination of the action
on the merits.” Chalk v. U.S. Dist. Court, 840 F.2d 701, 704
(9th Cir. 1988); see also Heckler v. Lopez, 463 U.S. 1328,
1333 (1983) (a prohibitory injunction “freezes the positions of
the parties until the court can hear the case on the merits”).
A mandatory injunction “orders a responsible party to ‘take
action.’ ” Meghrig v. KFC W., Inc., 516 U.S. 479, 484 (1996).
A mandatory injunction “ ‘goes well beyond simply maintain-
ing the status quo [p]endente lite [and] is particularly disfa-
vored.’ ” Anderson v. United States, 612 F.2d 1112, 1114 (9th
Cir. 1980) (quoting Martinez v. Mathews, 544 F.2d 1233,
1243 (5th Cir. 1976)). In general, mandatory injunctions “are
not granted unless extreme or very serious damage will result
and are not issued in doubtful cases or where the injury com-
8204       MARLYN NUTRACEUTICALS v. MUCOS PHARMA
plained of is capable of compensation in damages.” Id. at
1115 (quoting Clune v. Publishers’ Ass’n of N.Y. City, 214 F.
Supp. 520, 531 (S.D.N.Y. 1963)).

   [7] The status quo ante litem referenced in Chalk means
“ ‘the last, uncontested status which preceded the pending
controversy.’ ” Regents of the Univ. of Cal. v. Am. Broad.
Cos., 747 F.2d 511, 514 (9th Cir. 1984) (quoting Tanner
Motor Livery, Ltd. v. Avis, Inc., 316 F.2d 804, 809 (9th Cir.
1963)). In this case, Marlyn had distributed its own version of
Wobenzym prior to the lawsuit. The district court ordered that
Marlyn recall its product and give restitution to customers
who had bought its product. That remedy went beyond the
status quo pending litigation and instead required Marlyn to
take the affirmative step of recalling its product. Thus, the
recall order at issue did not operate simply to preserve the sta-
tus quo, or to restrain Marlyn from further acts of possible
infringement, because it involved products no longer within
Marlyn’s possession. In short, the district court’s order was
something more than a prohibitory preliminary injunction.

   [8] The Third Circuit has considered similar circumstances
and concluded that a district court considering a motion for a
preliminary injunction directing recall of a product in a trade-
mark infringement case should consider additional factors in
assessing the request. Gucci Am., Inc. v. Daffy’s, Inc., 354
F.3d 228, 233 (3d Cir. 2003); see also United States v. Spec-
tro Foods Corp., 544 F.2d 1175, 1181 (3d Cir. 1976); Theo-
dore C. Max, Total Recall: A Primer on a Drastic Form of
Equitable Relief, 84 Trademark Rep. 325, 327 (1994). Under
the Third Circuit’s formulation, to justify a recall, the
infringed company must first satisfy the traditional standard
for a prohibitory preliminary injunction. In addition, the dis-
trict court must consider three further factors:

    (1) the willful or intentional infringement by the
    defendant; (2) whether the risk of confusion to the
    public and injury to the trademark owner is greater
           MARLYN NUTRACEUTICALS v. MUCOS PHARMA              8205
    than the burden of the recall to the defendant; and (3)
    substantial risk of danger to the public due to the
    defendant’s infringing activity.

Gucci, 354 F.3d at 233.

   [9] Given the nature of the requested remedy, we conclude
that the Third Circuit’s formulation is sound, and we join it
in requiring the district court to consider these factors before
granting a preliminary injunction directing product recall in a
trademark infringement case. If the district court makes a
finding that the infringing product causes a substantial risk of
danger to the public, it should order a recall.

   As the district court did not have the benefit of this decision
when deciding this case, it did not analyze these additional
factors. It did, however, rest its recall decision in part on the
third factor—substantial risk of danger to the public due to the
defendant’s infringing activity—in concluding that there was
a public health hazard in allowing the product to remain on
the market. However, the record does not support the exis-
tence of a public health risk necessary to invoke the interlocu-
tory remedy of product recall. The only record support for the
proposition that Marlyn’s Wobenzym is unsafe for public
consumption is the testimony of Dr. Scavetta that the proteo-
lytic activity in some batches of Marlyn’s Wobenzym was
250% greater than what it should have been. However, Sca-
vetta did not testify that this formulation was unsafe for
human consumption. Moreover, the district court stated that
it did not find Dr. Scavetta’s testimony to be credible. There
was no other testimony or evidence upon which the district
court could make its conclusion that the product was hazard-
ous for public consumption.

   [10] Therefore, we must vacate the district court’s order
insofar as it requires product recall and restitution and remand
the issue for the district court’s further consideration in light
of this opinion.
8206      MARLYN NUTRACEUTICALS v. MUCOS PHARMA
                              III

   After the district court granted Mucos’s motion for prelimi-
nary injunction but before it issued its explanatory opinion,
Marlyn submitted a post-hearing motion to introduce addi-
tional evidence. The district court construed this motion as a
request to reconsider its decision in light of Marlyn’s new evi-
dence. The district court denied Marlyn’s motion. We review
the district court’s denial of Marlyn’s post-hearing motion for
reconsideration for an abuse of discretion. MacDonald v.
Grace Church Seattle, 457 F.3d 1079, 1081 (9th Cir. 2006).

   “[A] motion for reconsideration should not be granted,
absent highly unusual circumstances, unless the district court
is presented with newly discovered evidence, committed clear
error, or if there is an intervening change in the controlling
law.” 389 Orange St. Partners v. Arnold, 179 F.3d 656, 665
(9th Cir. 1999). A motion for reconsideration “may not be
used to raise arguments or present evidence for the first time
when they could reasonably have been raised earlier in the lit-
igation.” Kona Enters., Inc. v. Estate of Bishop, 229 F.3d 877,
890 (9th Cir. 2000).

   Marlyn requested that the district court reconsider its pre-
liminary injunction in light of three new pieces of evidence:
(1) a draft revised production and distribution license agree-
ment with Mucos; (2) the expert declaration of Dr. Lucia
Desser; and (3) an additional declaration from Joachim Leh-
mann. Each of these pieces of evidence could have been intro-
duced earlier in the litigation.

   First, Marlyn sought to introduce a draft contract between
Mucos and Marlyn prepared by Mucos in 2005. Marlyn
argues that the draft “unambiguously establishes that Section
13 of the Settlement Agreement constitutes a valid and
enforceable distribution agreement between the parties and
has been treated as such by them since its inception.” Marlyn
claims to have discovered the draft shortly before the hearing
           MARLYN NUTRACEUTICALS v. MUCOS PHARMA               8207
but that the district court did not want to receive evidence on
the distribution agreement during the hearing.

   [11] Although the district court stated that it did not want
to consider the Settlement Agreement during the hearing, it
did not prohibit or even discourage Marlyn from submitting
the draft contract. The hearing concluded on November 9,
2007, and the district court did not grant Mucos’s motion for
preliminary injunction until November 13, 2007. Marlyn
could have submitted the draft before the court made its deci-
sion. Thus, the district court did not abuse its discretion by
denying Marlyn’s motion to introduce the draft contract after
the court had already issued its opinion.

   [12] Second, Marlyn sought to introduce the declaration of
Dr. Lucia Desser to rebut the testimony of Dr. Kreuger, a
pharmacy professor who testified about the production of
nutritional supplements. Marlyn claims that it had no opportu-
nity to rebut Krueger’s testimony because Mucos had not pre-
viously disclosed the testimony. However, Mucos had
notified Marlyn in the Joint Status Report that it intended to
call a witness who was “an expert to knowledge of one of
ordinary technical skill in the field of the production and anal-
ysis of nutritional supplements.” From this description, Mar-
lyn should have been prepared to rebut Dr. Kreuger’s
testimony during cross-examination or during its direct exam-
ination of Dr. Scavetta. The district court did not abuse its dis-
cretion in denying introduction of Dr. Desser’s declaration.

   [13] Finally, Marlyn sought to introduce a declaration of
Joachim Lehmann. Lehmann’s declaration reported on an
email he had received from an Austrian scientist “confirm-
[ing] that there is no single . . . test for total proteolytic activ-
ity of enzyme combinations.” Lehmann received the email on
November 11. The district court did not decide on the prelimi-
nary injunction until November 13. Marlyn could have intro-
duced Lehmann’s declaration before the district court made
its decision, but did not. Thus, the district court did not abuse
8208      MARLYN NUTRACEUTICALS v. MUCOS PHARMA
its discretion when it denied introduction of Mr. Lehmann’s
declaration.

                              IV

   For the foregoing reasons, we AFFIRM the district court’s
grant of a preliminary injunction and its denial of Marlyn’s
motion to reconsider. We VACATE the district court’s impo-
sition of recall and restitution and REMAND for further pro-
ceedings consistent with this opinion. Each party shall bear its
own costs on appeal.

 AFFIRMED IN PART; REVERSED IN PART;
REMANDED.