Court Opinion

ID: 2995269
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:19:23.561087+00
Date Added: 2024-06-11T11:45:24.713461
License: Public Domain

In the
United States Court of Appeals
For the Seventh Circuit

No. 00-3833

First Health Group Corp., formerly known as
Healthcare Compare Corp., doing business
as The First Health AFFORDABLE Medical
Networks,

Plaintiff-Appellant,

v.

BCE Emergis Corporation, formerly known as
United Payors & United Providers, Inc.,
doing business as UP&UP,

Defendant-Appellee.

Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 96 C 2518--James B. Moran, Judge.

Argued September 11, 2001--Decided October 16, 2001

  Before Cudahy, Easterbrook, and Williams,
Circuit Judges.

  Easterbrook, Circuit Judge. What is a
"preferred provider organization" (ppo)?
Our litigants, two intermediaries between
hospitals and insurers, disagree about
the answer. Plaintiff, which we call
First Health, believes that it is
misleading, and actionable under
sec.43(a)(1)(B) of the Lanham Act, 15
U.S.C. sec.1125(a)(1)(B), to apply the
label "ppo" or anything similar (such as
"preferred provider network") to any
business structure other than one in
which the insurer compels its clients to
use the "preferred" suppliers of medical
care. Defendant, which we call up&up,
labels First Health’s business model a
"directed ppo," to distinguish it from the
"non-directed ppo" or "silent ppo" system
that it manages. up&up negotiates price
reductions with hospitals (often in
exchange for a capital contribution as
well as a promise of extra business) and
signs up insurers at these favorable
prices. Insurers are supposed to offer
their clients some incentive to use the
participating hospitals, for example by
reducing copayments, but are not obliged
to direct the insureds exclusively to the
hospitals participating in the plan.
Hospitals typically contract with First
Health for a 40% discount from list
price, while they allow up&up only 20%
off, even though up&up offers direct
financial support that First Health does
not. Although the discrepancy in discount
rates implies that hospitals well
understand the difference in business-
generation potential between the systems,
First Health insists that it is deceptive
for up&up to refer to its business as a
form of "ppo." First Health also contends
that up&up hoodwinked hospitals by
promising that insurers would induce
patients to use participating hospitals.

  After the district court granted summary
judgment to up&up under sec.43(a)(1)(B)
and some related theories, 95 F. Supp. 2d
845 (N.D. Ill. 2000); 2000 U.S. Dist.
Lexis 5964 (N.D. Ill. Apr. 10, 2000), but
held that one claim (for trademark
infringement) requires additional factual
development, the parties entered into an
agreement under which First Health
dismissed its trademark claim and the
district court entered a judgment. The
parties’ agreement, which the district
court incorporated into its judgment,
provides that First Health will be free
to reinstate the trademark claim, but
only if we reverse at least in part with
respect to the involuntarily dismissed
theories. Both parties then briefed the
appeal as if it had been taken from a
judgment terminating the whole case. They
did not mention the reservation of right
to reinstate a claim, or address its
jurisdictional significance, until this
court noted the problem on its own and
required the parties to file supplemental
memoranda before argument.

  A series of decisions, including ITOFCA,
Inc. v. MegaTrans Logistics, Inc., 235
F.3d 360 (7th Cir. 2000); JTC Petroleum
Co. v. Piasa Motor Fuels, Inc., 190 F.3d
775 (7th Cir. 1999); and Horwitz v. Alloy
Automotive Co., 957 F.2d 1431 (7th Cir.
1992), show that the parties’ strategy
jeopardizes appellate jurisdiction. All
of these cases hold that the dismissal of
one claim or theory without prejudice,
with a right to reactivate that claim
after an appeal on the remaining
theories, makes the judgment non-final.
The parties’ dispute has not been fully
resolved, and the remaining elements are
apt to come back on a second appeal.
Sometimes a partial final judgment with
respect to particular claims is
authorized by Fed. R. Civ. P. 54(b), but
when the requirements of that rule are
not satisfied, the parties and district
judge are not at liberty to home-brew
their own approach to obtaining appellate
review while portions of the case remain
unresolved. Neither side suggested that
Rule 54(b) could have been used in this
case; there is too much overlap between
the trademark-infringement and false-
advertising theories. Another method of
obtaining interlocutory appeal, the
certification of an order under 28 U.S.C.
sec.1292(b), was tried by the district
court, but a motions panel declined to
accept the appeal. It is especially
inappropriate for the parties and
district judge to try a back-door
approach to interlocutory review after we
have turned them away at the front door.

  Nonetheless, the parties insist, the
right to reinstate the dismissed theories
here differs from the stratagems
disapproved in ITOFCA, JTC Petroleum, and
Horwitz, because reinstatement is
contingent on a remand of at least one
theory. If no appeal had been taken, then
the litigation would have been over; in
this sense the judgment must be final,
the parties insist. Moreover, if we
affirm the case stays over, and there can
be no succession of appeals. This shows
that First Health has taken a larger
gamble than the appellants did in our
prior cases, but does the difference
matter to jurisdiction? Sometimes it
does. Suppose, for example, that a
plaintiff is unable to obtain discovery
on which its case depends. Rather than go
through the formality of a trial, the
parties may stipulate that the defendant
would prevail on the existing record.
Then the court would enter a judgment for
the defendant based on the stipulation,
allowing the plaintiff to appeal.
Decisions such as Martin v. Franklin
Capital Corp., 251 F.3d 1284, 1288-89
(10th Cir. 2001), hold that the judgment
is final under these circumstances, even
though a reversal on the discovery matter
would reactivate the main dispute and
likely lead to another appeal down the
road. Cf. Downey v. State Farm Fire &
Casualty Co., No. 00-3473 (7th Cir. Sept.
17, 2001), slip op. 9-11.
  To decide whether we have appellate
jurisdiction given the events as they
stood in the district court, we would
have to decide whether the principle that
allows a dispositive issue to come up,
when the plaintiff is willing to stake
the entire case on its resolution,
extends to multiple claims for relief.
But events are no longer what they were.
First Health offered in its memorandum
addressing jurisdiction to dismiss its
trademark claim, if we first determined
that the existing judgment is non-final.
At oral argument the court made it clear
that First Health would not be given that
opportunity; the court is not willing to
make a decision about appellate
jurisdiction only to have the effect of
that decision manipulated after the event
by the parties. It would become an
advisory opinion. There are only two
options, we informed counsel: if the
judgment is final, we resolve the appeal
on the merits; if the judgment is not
final, we dismiss the appeal, which stays
dismissed until the litigation is wrapped
up in the district court. At that point
First Health elected to dismiss its
trademark claims unconditionally, so that
they cannot be reinstated no matter what
happens on this appeal. JTC Petroleum
held that such an election, by averting
any possibility of a future appeal on a
different claim, permits the appeal to
proceed. So on the authority of JTC
Petroleum we shall resolve this appeal,
without deciding whether the appeal would
have been dismissed had First Health
retained its right to reinstate an
additional claim following any remand.

  First Health’s claims arise out of
up&up’s description of its system as
creating a "preferred" provider
organization or network. Applying the ppo
label to a system that lacks a list of
hospitals that the insureds must use is
misleading, according to First Health--
and, although no hospital, insurer, or
patient has joined this suit, First
Health believes that its competitive
losses to up&up enable it to obtain relief
under sec.43(a)(1)(B) of the Lanham Act,
as a business harmed by up&up’s false
advertising. Section 43(a)(1) provides in
part:

Any person who, on or in connection with
any goods or services, or any container
for goods, uses in commerce any word,
term, name, symbol, or device, or any
combination thereof, or any false
designation of origin, false or
misleading description of fact, or false
or misleading representation of fact,
which . . . (B) 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, shall be liable in a civil
action by any person who believes that he
or she is or is likely to be damaged by
such act.

First Health contends that use of the
term "ppo" in connection with up&up’s
system is a "false or misleading descrip
tion of fact" that appears "in commercial
advertising or promotion" and
"misrepresents the nature . . . of
[up&up’s] services". Moreover, First
Health believes, up&up has further
deceived hospitals by promising that
insurers will provide additional business
by inducing patients to use their
services. This is false, or at least
misleading, First Health submits, because
up&up does not tell the hospitals that it
views the discounts themselves as
inducements to use the hospitals, even if
the financial benefits of these
inducements are not passed on to patients
(as by reductions in copayments), and
even if patients do not learn about the
discounts until they have used a
particular hospital for the first time.
The prospect of repeat business after a
given patient knows about the discount is
not enough to satisfy up&up’s contractual
promises to hospitals, First Health
insists. Once again it claims injury as a
competitor, this time redressable under
the common law or state consumer-fraud
statutes.

  One preliminary question is how the
negotiations between up&up and particular
hospitals--negotiations handled in
private, among business executives and
lawyers-- could be called "commercial
advertising or promotion," an essential
ingredient of any claim under
sec.43(a)(1)(B). The district court
treated "commercial advertising or
promotion" as a synonym for all
commercial speech that the first
amendment allows the federal government
to regulate. See 1998 U.S. Dist. Lexis
3183 (N.D. Ill. Mar. 12, 1998). In
reaching this conclusion it relied on a
line of decisions by other district
courts that follow a multi-factor
approach for determining the scope of
sec.43(a). See, e.g., Gordon & Breach
Science Publishers S.A. v. American
Institute of Physics, 859 F. Supp. 1521
(S.D.N.Y. 1994) (the originator of this
four-part test). We have serious doubts
about the wisdom of displacing the
statutory text in favor of a judicial
rewrite with no roots in the language
Congress enacted. Treating sec.43(a)(1)
as filling all ground that the
Constitution allows to the legislature is
especially implausible, for when the
Lanham Act was adopted there were no
constitutional limits on the regulation
of commercial speech. See Valentine v.
Chrestensen, 316 U.S. 52 (1942),
overruled by Virginia Board of Pharmacy
v. Virginia Citizens Consumer Council,
Inc., 425 U.S. 748 (1976). Any plan to
occupy all of theconstitutionally
permitted space would have used the
phrase "commercial speech," rather than
"advertising or promotion" in
sec.43(a)(1)(B), and the variety of other
scope rules found elsewhere in the
statute. The language and structure of
sec.43(a)(1)(B) do not suggest a line
between commercial and political speech,
with the former completely covered and
the latter not. They suggest a line
between varieties of commercial speech.

  Advertising is a form of promotion to
anonymous recipients, as distinguished
from face-to-face communication. In
normal usage, an advertisement read by
millions (or even thousands in a trade
magazine) is advertising, while a person-
to-person pitch by an account executive
is not. So we have held in a series of
disputes that require a definition of
"advertising injury" under insurance
policies. See, e.g., Zurich Insurance Co.
v. Amcor Sunclipse North America, 241
F.3d 605 (7th Cir. 2001); Western States
Insurance Co. v. Wisconsin Wholesale
Tire, Inc., 184 F.3d 699 (7th Cir. 1999).
Zurich put it this way: "Advertising is a
subset of persuasion and refers to
dissemination of prefabricated
promotional material." 241 F.3d at 607.
Now this is as a matter of ordinary
usage; perhaps "commercial advertising or
promotion" in sec.43(a)(1)(B) is a term
of art. Yet First Health has not offered
any material from the time of the Lanham
Act’s adoption (either legislative
history or other examples of usage in the
legal community) implying that the
statutory phrase "commercial advertising
or promotion" means anything other than
what a user of normal English would
assume. To repeat an illustration from
Zurich: First Health’s lawyers were
engaged in persuasion when they filed
their briefs and presented oral argument
to this court, but they were not engaged
in "commercial advertising or promotion"
in any useful sense of that phrase. Their
written and oral advocacy did not become
"commercial advertising or promotion"
just because the first amendment allows
this court to regulate the practice of
law (as by sanctioning frivolous
arguments or misstatements about the
contents of the record). We held in
Zurich that statements by a firm’s sales
force could not be called "advertising";
likewise, it is hard to see how
statements of up&up’s executives and
lawyers, made over a conference table in
an effort to negotiate a contract, or
included in the contract’s language,
could be called "commercial advertising
or promotion".

  Because the district court treated
"commercial advertising or promotion" as
synonymous with all commercial speech, it
did not conduct the inquiry necessary to
determine whether any of up&up’s sales and
contracting endeavors entailed
promotional material disseminated to
anonymous recipients. We shall therefore
assume that sec.43(a)(1)(B) applies to
some of up&up’s promotional materials.
Still, this does not much help First
Health, because like the district court
we conclude that First Health has not
established that any of up&up’s statements
was false or even misleading. What First
Health wants--a judicial decree that only
businesses using a single model can
employ the term "ppo" or the phrase
"preferred provider network"--is nothing
less than an order establishing property
rights in the language. Words are not
born with meanings. They acquire meaning
with use, and as use changes so does
meaning. It may well be that all of the
initial ppos were "directed." But for many
years not only up&up but also other
similar intermediaries have been offering
what they call silent or non-directed
ppos. Both have become standard usages. To
see this, one need go no farther than the
proceedings of the Office of Personnel
Management, which conducted an inquiry
into the kinds of medical plans that
would be offered to federal employees as
fringe benefits. One of the ensuing
reports, Office of the Inspector General,
Office of Personnel Management, Rep. No.
99-00-97-054, Report on the Use of Silent
ppos in the Federal Employees Health
Benefits Program 20-23 (1998), not only
uses the phrase "silent ppo" exactly as
up&up does but also concludes that the
arrangement can produce benefits for
consumers, just as directed ppos do.
Legislative committees have used the term
just as up&up and opm do. E.g., S. Rep.
No. 257, 105th Cong., 2d Sess. 3 (1998).
We cannot imagine a court issuing an
injunction that would prohibit up&up from
using "ppo" or "silent ppo" in the same
way units of the national government use
that phrase. First Health should have
turned to an advertising agency, not to a
court, in search of a response to its
business rivals. If directed ppos are
"better" than silent ppos, then First
Health should be able to explain this to
potential customers--for recall that both
First Health and up&up deal with business
executives and lawyers, not with patients
who may miss the distinction conveyed by
"directed" versus "silent."

  No business is entitled to a trial after
which judge and jury will determine how
language ought to be used, as if usage
were a question of law or logic. It is
enough to guard against misleading
expressions that play on how language is
used. Perhaps First Health might have
some room for maneuver if it could show
that the linguistic community of hospital
executives and lawyers differs from that
of Congress and the opm--though even so it
is doubtful that the Lanham Act may be
employed to ensure that language, used in
accord with normal rules of grammar and
diction, cannot be misinterpreted. See
Mead Johnson & Co. v. Abbott
Laboratories, 201 F.3d 883 (7th Cir.
2000). But this is a subject we need not
explore, because First Health lacks
evidence that hospitals were deceived by
what up&up said. It offered "expert"
evidence that hospitals were bound to be
confused by the difference between
directed and silent ppos, but why ask an
"expert" when the hospitals can and do
speak for themselves? That First Health
receives on average twice the discount
offered to up&up shows that hospitals
understand the difference between the two
plans.

  Asked at oral argument to identify its
best evidence that hospitals were
deceived, First Health identified the
letters some hospitals sent to up&up
terminating their contracts. We have
reviewed these letters and found no
evidence of confusion at the time the
contracts were signed. None of the
hospitals professes a failure to
appreciate the difference between
directed and silent ppos. Some of the
letters show a good understanding of the
difference, but disappointment with the
economic consequences of a silent ppo
arrangement. (E.g., "In response to the
growing concerns and identification of
’Silent-ppos’, Columbia Healthcare
Corporation, South Texas Division is
amending all managed care contracts to
include appropriate language.") Other
letters express unhappiness about the
performance of insurers with which up&up
contracted to supply patients to the
hospitals. For example, the termination
letter from Upstate Carolina Medical
Center complained that some insurers,
instead of providing patients with
incentives to use the Medical Center,
were penalizing them for doing so and
refusing to pay in full on the ground
that the patients had gone "out of
network." None of this helps First
Health, let alone establishes enough
confusion to go forward. Some confusion
and misunderstanding are inevitable in
any business relation. The Lanham Act
deals only with confusion that exceeds
the norm in the human condition, see
Reed-Union Corp. v. Turtle Wax, Inc., 77
F.3d 909 (7th Cir. 1996), and First
Health has not made any effort to measure
the normal level of misunderstanding in
this business.

  Lack of actual confusion is irrelevant,
First Health insists, because (a) up&up’s
statements were "actually false" rather
than just misleading, and (b) it seeks
prospective relief in addition to
damages. For reasons we have already
given the use of "ppo" by a non-directed
network is not "actually false." But
First Health’s argument also is incorrect
as a matter of law. See B. Sanfield, Inc.
v. Finlay Fine Jewelry Corp., 258 F.3d
578 (7th Cir. 2001). Section 43(a) (1)(B)
offers relief only to one who "is or is
likely to be damaged by" the
misrepresentation. Proof of likely
confusion is essential to show injury--
actual or potential--without which there
is not even a case or controversy.

  The district judge concluded, and we
agree, that as far as this record shows
First Health never lost the business of a
single hospital because up&up’s use of
"ppo" confused that hospital. First Health
did lose to up&up the business of the
Government Employees Hospital
Association, Inc. (geha) network, but it
does not attribute this to any confusion
on geha’s part. First Health concedes that
geha understood completely the difference
between First Health’s and up&up’s
business models. Instead First Health
says that it lost geha’s business because
up&up had grown, as a result of its misuse
of "ppo," to a size where geha found it a
useful business partner. geha then called
for bids on terms that were better suited
to up&up than to First Health (which
declined to submit a bid on the terms geha
prescribed). That theory of liability is
divorced from any effort to prevent
misleading advertising; it amounts to an
effort to deprive hospitals, insurers,
and consumers of the efficiencies made
available by economies of scale.

  No rule of either state or federal law
entitles a competitor to damages from its
rival because of scattered contractual
disputes between the rival and its
customers (for example, the complaint
made by Columbia Healthcare that up&up had
not done enough to ensure that insurers
would steer patients to its facilities).
If up&up does not keep its promises, it
will lose business and may have to pay
damages. Suits by rivals are not
necessary for deterrence but could be
used to harass a competitor and stifle
the competitive process. More, it is
integral to First Health’s theory that
problems such as those at Columbia
Healthcare are uncommon; up&up has been
growing, not shrinking as trading
partners bail out. (Growth is, after all,
the method by which up&up snared geha’s
business.) This entire suit strikes us as
one designed to hamstring a competitor
whose success reflects its ability to
please its trading partners. If the
vocabulary of a business such as up&up is
to be revised, that is a job for
legislatures and regulatory agencies,
rather than for judges and juries in
suits under the Lanham Act and state
consumer-fraud statutes.

  First Health’s remaining contentions,
and theories of liability, do not require
separate discussion.

Affirmed