Court Opinion

ID: 165090
Source: CourtListenerOpinion
Date Created: 2010-08-14 08:44:10+00
Date Added: 2024-06-11T17:24:46.707838
License: Public Domain

F I L E D
                                                                   United States Court of Appeals
                                                                           Tenth Circuit
                     UNITED STATES COURT OF APPEALS
                                                                          OCT 12 2004
                            FOR THE TENTH CIRCUIT
                                                                      PATRICK FISHER
                                                                               Clerk

    ZOLLER LABORATORIES, LLC,
    a Utah limited liability company,

                Plaintiff-Counter-
                Defendant-Appellant,

    v.                                                   No. 03-4252
                                                  (D.C. No. 2:03-CV-578-TC)
    NBTY, INC., a New York corporation;                    (D. Utah)
    NATURE’S BOUNTY, INC.,
    a New York corporation,

                Defendants-Counter-
                Claimants-Appellees.

                            ORDER AND JUDGMENT            *

Before McCONNELL , HOLLOWAY , and PORFILIO , Circuit Judges.

         After examining the briefs and appellate record, this panel has determined

unanimously that oral argument would not materially assist in the determination

*
      This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
of this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). This case is

therefore submitted without oral argument.

      Plaintiff Zoller Laboratories, L.L.C., appeals the district court’s denial of

its request for a preliminary injunction against defendants NBTY, Inc. and

Nature’s Bounty, Inc. (collectively, NBTY). Zoller, which markets a weight-loss

dietary supplement called Zantrex™-3 (Zantrex-3), filed a trademark infringement

and false advertising complaint under 15 U.S.C. §§ 1114 and 1125(a) of the

Lanham Act against NBTY, which markets a competing weight-loss dietary

supplement called Xtreme Lean™ ZN-3 (ZN-3). We have jurisdiction under 28

U.S.C. § 1292(a)(1). We conclude that the district court did not abuse its

discretion in denying Zoller’s request for a preliminary injunction.

                                I. BACKGROUND

      NBTY’s advertising for its ZN-3 product includes the statement, “Compare

to the Ingredients of Zantrex-3.” Aplt. App. at 25-27. This statement is printed

in a starburst design on all bottles of ZN-3, and on NBTY’s promotional

advertising, point-of-purchase display cases, and internet website. Zoller

contends this “Compare to the Ingredients” statement has only one possible,

plainly-obvious meaning: that the two products are identical, and that ZN-3 is a

cheaper equivalent to Zantrex-3. Zoller contends the two products are not the

same, and therefore, the “compare to” statement is false.

                                         -2-
       A comparison of the two products’ labels indicates that there are some

similarities between the products.   1
                                         Both claim to be ephreda-free dietary

supplements that promote increased energy levels and facilitate weight loss. The

description of ingredients on both products list the same principal ingredients:

Niacin, Yerba Mate, Guarana, Damiana, Schizonepeta, Green Tea, White Pepper,

Tibetan Ginseng, Panax Ginseng, Maca Root, Cocoa Nut, Kola Nut, Thea

Sinensis, and Caffeine. (The order and spelling of some ingredients differ

slightly.) See Aplt. App. at 124, 125; Supp. Aplee. App., Ex. B and C. Neither

product lists the actual amounts of these ingredients on its label, except for

caffeine and niacin.

       A comparison of the labels also indicates that there are differences in

the two products. The products differ in the amount of caffeine and niacin:

Zantrex-3 has 30 mg of niacin and 300 mg of caffeine per two-capsule serving,

whereas ZN-3 has 25 mg of niacin and 160 mg of caffeine per one-capsule

serving. Zantrex-3 lists rice flour as its other ingredient; ZN-3 lists gelatin,

rice powder, vegetable magnesium stearate, silica, and titanium dioxide color

as its other ingredients. The label on Zantrex-3 recommends the consumer take

1
       Zoller’s opening brief includes a copy of its product’s label that is slightly
different from the label of its product bottle introduced into evidence during the
district court proceedings. We refer to, and rely upon, only the evidence before
the district court.

                                             -3-
two capsules, which contain 1312 mg of its “proprietary blend” of ingredients,

fifteen to thirty minutes before “main meals.” Supp. Aplee. App., at Ex. B.

The label on ZN-3 recommends the consumer take one capsule, which contains

656 mg of its “proprietary blend” of ingredients, up to three times a day with

meals. The price of a bottle of ZN-3 at Wal-Mart is $14.43 (for ninety capsules

of 656 mg each); the nationally advertised price for a bottle of Zantrex-3 is

$49.00 (for eighty-four capsules of 681 mg each). At the time of the district

court’s hearing and decision, ZN-3 was sold in Wal-Mart, but Zantrex-3 was not.

       Zoller claims that there are important differences in the formulation and

composition between the blend of active ingredients in the two products, though it

presented no evidence in support of its claim. NBTY admits that there are

“important differences between the formulation and composition” of Zantrex-3

and ZN-3, “including the relative per-serving concentration of caffeine,” which

can be readily learned by comparing the labels. Aplt. App. at 36-37. NBTY

states, however, that it lacks the knowledge or information to evaluate whether

there are other differences between the products, because both products contain

proprietary and confidential blends of ingredients that have not been disclosed.

Id. at 37.

       Zoller argues, however, that as a result of these differences in blend

composition, the “Compare to the Ingredients” statement on ZN-3 bottles and

                                          -4-
advertising is literally false by necessary implication, and, therefore, violates the

Lanham Act’s prohibition on false advertising. Zoller requested the district court

enter a preliminary injunction precluding NBTY from any further marketing of

ZN-3, and to order NBTY to immediately recall the entire ZN-3 product line and

order a corrective re-labeling of all the ZN-3 products and advertising materials.

                                   II. ANALYSIS

              Preliminary Injunction Criteria and Standard of Review

      The criteria for granting a preliminary injunction in a false advertising suit

are the same as for any other case: A court will grant a preliminary injunction if a

plaintiff shows:

      (1) a substantial likelihood of success on the merits of the case;
      (2) irreparable injury to the movant if the preliminary injunction is
      denied; (3) the threatened injury to the movant outweighs the injury
      to the other party under the preliminary injunction; and (4) the
      injunction is not adverse to the public interest.

Kikumura v. Hurley , 242 F.3d 950, 955 (10th Cir. 2001). Because a preliminary

injunction is an extraordinary remedy, the movant’s right to relief must be clear

and unequivocal.   Id.

      The district court denied Zoller’s preliminary injunction request. It first

concluded that Zoller was not likely to succeed on the merits, finding that the

“Compare to Ingredients” statement was not literally false by necessary

implication, because the statement does not unambiguously convey a false

                                          -5-
message. The district court then concluded that Zoller had failed to demonstrate

that it would suffer irreparable injury absent an injunction, that any injury to

Zoller absent an injunction would outweigh the harm to NBTY if it did grant the

injunction, or that public interest favored an injunction.

       On appeal, Zoller contends the district court erred in determining no

likelihood of success on the merits, and in applying the standard for injunctive

relief. “We review the district court’s decision to deny a preliminary injunction

for abuse of discretion.”   Heideman v. S. Salt Lake City , 348 F.3d 1182, 1188

(10th Cir. 2003). “In doing so, we examine the district court’s factual findings

for clear error and review its legal determinations de novo.”    Id.

                        A. Likelihood of Success on the Merits

                        1. Elements of False Advertising Claim

       “The Lanham Act prohibits the ‘false or misleading description of fact, or

false or misleading representation of fact, which . . . in commercial advertising or

promotion, misrepresents the nature, characteristics, qualities, or geographic

origin of his or her or another person’s goods, services, or commercial

activities.’” Scotts Co. v. United Indus. Corp    ., 315 F.3d 264, 272 (4th Cir. 2002)

(quoting 15 U.S.C.A. § 1125(a)(1)(B)). To succeed on the merits, Zoller must

establish that:

       (1) [NBTY] made a false or misleading description of fact or
       representation of fact in a commercial advertisement about [its] own

                                            -6-
       or another’s product; (2) the misrepresentation is material, in that it
       is likely to influence the purchasing decision; (3) the
       misrepresentation actually deceives or has the tendency to deceive a
       substantial segment of its audience; (4) [NBTY] placed the false or
       misleading statement in interstate commerce; and (5) [Zoller] has
       been or is likely to be injured as a result of the misrepresentation,
       either by direct diversion of sales or by a lessening of goodwill
       associated with its products.

Id. (citing cases).

       “To demonstrate falsity within the meaning of the Lanham Act, a plaintiff

may show that the statement was literally false, either on its face or by necessary

implication, or that the statement was literally true but likely to mislead or

confuse consumers.”      Southland Sod Farms v. Stover Seed Co   ., 108 F.3d 1134,

1139 (9th Cir. 1997). “Where the advertisement is literally false, a violation may

be established without evidence of consumer deception.”      Scotts Co. , 315 F.3d

at 273 (quotation omitted). “If the advertising claim is literally false, the court

may enjoin the use of the claim without reference to the advertisement’s impact

on the buying public.”    C.B. Fleet Co. v. SmithKline Beecham Consumer

Healthcare, L.P. , 131 F.3d 430, 434 (4th Cir. 1997) (quotation omitted).

If, however, “a plaintiff’s theory of recovery is premised upon a claim of implied

falsehood, a plaintiff must demonstrate, by extrinsic evidence, that the challenged

[advertisements] tend to mislead or confuse consumers.”      Scotts Co. , 315 F.3d

at 273 (quotation omitted, alteration in original). Zoller has presented no

consumer survey data or other extrinsic evidence, and has explicitly stated that its

                                           -7-
only contention at the preliminary injunction stage is that NBTY’s “Compare to

the Ingredients of Zantrex-3” statement is literally false. Aplt. App. at 226-27.       2

                       2. Literally False by Necessary Implication

       “Although factfinders usually base literal falsity determinations upon the

explicit claims made by an advertisement, they may also consider any claims the

advertisement conveys by ‘necessary implication.’”         Clorox Co. P.R. v. Proctor

& Gamble Commercial Co. , 228 F.3d 24, 34-35 (1st Cir. 2000). A literally false

“claim is conveyed by necessary implication when, considering the advertisement

in its entirety, the audience would recognize the claim as readily as if it had been

explicitly stated.”   Id . at 35. “[W]hen a Court considers whether a message is

necessarily implied from the product’s name and advertising, it must determine

whether the false message will necessarily and unavoidably be received by the

consumer.” Novartis Consumer Health, Inc. v. Johnson & Johnson-Merck

Consumer Pharm. Co. , 290 F.3d 578, 588 (3d Cir. 2002)         . “Commercial claims

that are implicit, attenuated, or merely suggestive usually cannot fairly be

characterized as literally false.”   United Indus. Corp. v. Clorox Co.     , 140 F.3d
1175, 1181 (8th Cir. 1998).

2
      In many instances, Zoller cites to decisions that involve legal standards
relevant to implied falsehood claims, not to claims of literal falsity. These
decisions are not relevant to the issues in this appeal.

                                            -8-
      Zoller argues that the “Compare to the Ingredients of Zantrex-3” statement

on ZN-3’s labels and advertisements is literally false by necessary implication.

It contends a consumer seeing the “Compare to the Ingredients” statement would

necessarily and unavoidably conclude that the active ingredients in ZN-3 are

identical and are in the same amounts or concentration as the ingredients in

Zantrex-3, and that ZN-3 is a cheaper equivalent of Zantrex-3.

      “Whether an advertisement is literally false is an issue of fact.”   C.B. Fleet

Co., 131 F.3d at 434. Here, the district court rejected Zoller’s argument, and

found that, although consumers might interpret the statement as Zoller suggests,

they might also interpret it differently. NBTY argued that a consumer could

reasonably interpret the “Compare to the Ingredients” statement as meaning

simply that the two products contain the same thirteen key, or active, ingredients.

The court agreed:

      [W]hen consumers compare the two labels, they do find that the
      thirteen ingredients in each product’s “proprietary blend” are nearly
      identical . . . . To that extent, [NBTY’s] proposed reading of the
      “compare to” language is entirely truthful. Furthermore, the idea that
      the two products are precisely the same . . . is undercut by
      differences that can be ascertained when a consumer looks to the two
      products’ labels in comparison. As discussed above, the Zantrex-3
      and ZN-3 contain different quantities of Niacin and different “other
      ingredients” . . . . More importantly, the two products list different
      dosage recommendations, and are accordingly to be     used differently.

Aplt. App. at 211-12.

                                            -9-
      The district court also found that the “Compare to the Ingredients”

statement could reasonably be interpreted as meaning that there are similarities

between the two products or could mean simply what it says: that the consumer is

invited to compare the ingredients. Given these possible different interpretations,

the district court concluded that a consumer would not necessarily and

unavoidably conclude from ZN-3’s “Compare to the Ingredients” statement that

ZN-3 and Zantrex-3 were identical. Therefore, the doctrine of literal falsity was

inapplicable and Zoller had not established likelihood of success on the merits

in order to support a preliminary injunction.

                               3. Arguments on Appeal

      Zoller asserts numerous reasons why it believes the district court erred in

rejecting its literal falsity by necessary implication theory. First, it argues the

district court erroneously created a new rule that a statement cannot be literally

false by necessary implication if there is a plausible, alternate interpretation of

the statement. Zoller is mistaken. The district court applied the correct and

well-established legal standard that a literally-false-by-necessary-implication

claim must fail if the statement can reasonably be understood as conveying

different messages.   See Scotts Co. , 315 F.3d at 275-76; see also Novartis

Consumer Health, Inc. , 290 F.3d at 586-87 (“[a] ‘literally false’ message may be

either explicit or conveyed by necessary implication . . . . Regardless, only an

                                          -10-
unambiguous message can be literally false.”) (quotation and citation omitted);

Johnson & Johnson-Merck Consumer Pharm. Co             . v. Procter & Gamble Co .,

285 F. Supp. 2d 389, 391 (S.D.N.Y. 2003) (“[A c]ourt may deem [a statement]

false by necessary implication if it is susceptible to no more than one

interpretation.”).

        Next, Zoller asserts that the alternative interpretations accepted by the

district court are so convoluted that they simply are not supportable. We

disagree. A district court’s factual finding as to whether or not a particular

statement is literally false by necessary implication is entitled to deference unless

clearly erroneous.       See Scotts Co. , 315 F.3d at 274; S.C. Johnson & Son, Inc. v.

Clorox Co. , 241 F.3d 232, 237 (2d Cir. 2001). Zoller cites to decisions in which

the district court did not find support for an alternative interpretation of the

advertisement. Here, however, the district court found that NBTY’s interpretation

of the “Compare to the Ingredients” statement was at least plausible. “[A]

factfinder might conclude that the message conveyed by a particular

advertisement remains so balanced between several plausible meanings that the

claim made by the advertisement is too uncertain to serve as the basis of a literal

falsity claim . . . .”   Clorox Co. , 228 F.3d at 35. We conclude the district court’s

finding that there is more than one reasonable interpretation of the “Compare to

Ingredients” statement is not clearly erroneous.

                                              -11-
      Zoller then contends it was error for the district court to assume that a

consumer could see the differences in the two products that are indicated on the

ingredient labels because it improperly assumed that a consumer would always be

able to make such a side-by-side comparison. We find no abuse of discretion.

It is true that, when “assessing whether an advertisement is literally false, a court

must analyze the message conveyed within its full context.”    United Indus. Corp. ,

140 F.3d at 1180. Nothing in the district court’s opinion, however, suggests that

it failed to do so. The district court clearly understood that the products were not

always sold at the same retail locations, and that NBTY’s “Compare to

Ingredients” statement was on its internet site and other advertising materials,

and, therefore, that consumers would not always be able to make a side-by-side

comparison of the products. Nevertheless, even in such instances, the “Compare

to Ingredients” statement can still reasonably be read as simply informing the

consumer that the two products have similar ingredients, which is true. The fact

that a consumer might not make a side-by-side comparison does not mean that the

consumer would necessarily and unavoidably conclude from the “Compare to the

Ingredients” statement that the products were identical in all respects, as argued

by Zoller. Further, we find no authority, and Zoller presents no relevant

authority, for its assertion that it was somehow improper for the district court to

make a side-by-side comparison of the two products.

                                          -12-
      Zoller argues that the district court ignored NBTY’s advertising on its

internet site and promotional advertising, which states, “Compare and Save!”

Compare to the Ingredients of Zantrex-3.” Aplt. App. at 27. The additional

statement about cost saving, Zoller argues, compounds the “already obvious

message” that ZN-3 and Zantrex-3 are identical and have the same effect on the

body. Aplt. Opening Br. at 31. ZN-3 does cost less than Zantrex-3, and nothing

about this additional statement alters our conclusion that the district court did not

clearly err in finding that there are several reasonable interpretations of the

“Compare to Ingredients” phrase.

      Zoller’s final likelihood-of-success argument is that the district court

ignored undisputed evidence that the products were not the same, and that NBTY

failed to prove the products were the same. This argument is neither factually nor

legally correct. The district court accurately summarized the evidence before it,

which is that Zoller claims there are important differences in the formulation and

composition, and NBTY acknowledges differences in the per-serving

concentration of caffeine, but lacks information about other possible differences.

There is, in fact, no evidence in the record indicating what difference, if any,

exists in the composition and formulation of the products’ “proprietary blends.”

This is not NBTY’s burden to demonstrate, but Zoller’s.     See, e.g., Castrol, Inc. v.

Quaker State Corp ., 977 F.2d 57, 62 (2d Cir. 1992) (Lanham Act plaintiff seeking

                                          -13-
injunctive relief bears burden of showing challenged advertisement is literally

false to a “likelihood of success” standard).

      In summary, we find no error in the district court’s finding that NBTY’s

“Compare to the Ingredients” statement is not literally false. Because Zoller has

not demonstrated a likelihood of success on the merits, the district court did not

err in determinating Zoller had not demonstrated its entitlement to a presumption

of irreparable harm.

                        B. Preliminary Injunction Standard

      The district court determined that Zoller was required to show that the

injunctive relief factor “weigh[s] heavily and compellingly” in its favor because

the relief sought would disturb the status quo, would be mandatory, instead of

prohibitory, and would afford Zoller substantially all the relief sought at trial.

See Kikumura , 242 F.3d at 955. Zoller contends the district court erred in

applying this heightened compelling-evidence standard. Zoller argues it was not

obligated to satisfy this standard because some of the relief it requested would not

alter the status quo. It also argues that it met the compelling-evidence standard.

Zoller contends, too, that it satisfied the other elements needed to obtain an

injunction–irreparable injury, harm to plaintiff outweighs harm to defendant, and

public interest favors a stay–and, therefore, the court should have applied a lesser

standard than “likelihood of success,” requiring only a showing that Zoller raised

                                         -14-
questions going to the merits that are so serious, substantial, difficult, and

doubtful as to make them a fair ground for litigation.     Id.

       We find no error. We are satisfied that Zoller met neither the heightened

standard nor the general standard, nor did it satisfy even the relaxed “serious

questions” standard with respect to the merits. Given the failure to show a

substantial likelihood of success on the merits and the absence of irreparable

injury, the district court did not abuse its discretion in denying injunctive relief.

       We AFFIRM the district court’s denial of the requested preliminary

injunction.

                                                         Entered for the Court

                                                         Michael W. McConnell
                                                         Circuit Judge

                                            -15-