Prior Bad Acts Are Admissible in Lanham Act False Advertising "Wars"

A recent Fourth Circuit decision establishes that when competitors have locked horns in prior false advertising cases, the substance of the old battle can come spilling into evidence in the new case. False Brain and Eye Development Claim On April 20, the Fourth Circuit affirmed a $13.5 million jury verdict and permanent injunction involving infant formula. In the underlying case, the district court found that Mead Johnson's direct-to-consumer "mailer" falsely claimed that Mead's brand name product, Enfamil, had superior nutritional benefits over PBM Products, which makes a less expensive "generic" store-brand infant formula (sold to Walmart, Target, Kroger and other major retailers). Mead's mailer claimed that "only Enfamil LIPIL is clinically proven to improve brain and eye development" and that "there are plenty of other ways to save on baby expenses without cutting back on nutrition." Contrary to these claims, the parties' infant formulas were shown to have equivalent active ingredients and nutritional benefits. PBM successfully positioned the case as a fear mongering campaign about infant health. PBM won a jury verdict and permanent injunction, and defeated Mead's counterclaim. Rulings on Appeal Affirming this result in toto, the appeals court addressed a laundry list of issues, including: Injunction scope applies broadly to the ad "claim". The court held that the permanent injunction was not limited to Mead's mailer itself but properly prohibited the substantive claim, in any form, whether made expressly or by implication (courts enjoin claims, not just particular ads). Voluntary cessation does not avoid injunction. The court affirmed entry of the permanent injunction notwithstanding Mead's claim that it had discontinued the mailer, and did not intend to resurrect it in the future (Mead's voluntary cessation could not un-ring the bell or undo the Lanham Act violation). Rejection of the counterclaim. The court affirmed the dismissal of Mead's counterclaim based on (a) Virginia's two-year statute of limitation, which was used to establish that Mead had committed laches (unreasonable delay in bringing suit) on the Lanham Act claim; (b) Mead's failure to prove implied falsity due to survey flaws; and (c) Mead's failure to prove causation and damages. "Lies" statement is safe. The court affirmed the rejection of a defamation counterclaim based on PBM's press release stating: "Mead Johnson Lies About Baby Formula . . . Again". The court held that the statement was "substantially true" because the word "lies" can refer to false advertising, even if that advertising is not "intentionally" false. Ruling on Prior "Bad Acts" In an interesting ruling, the appeals court affirmed the admission of evidence from prior lawsuits between the parties. Having lost injunction motions in two older cases (from 2000 and 2001) prior to settlements in those cases, Mead argued that the prior litigation was not probative to the current dispute, and its admission allowed PBM to unfairly portray Mead as a "serial lawbreaker" (i.e., arguably improper bad character or propensity evidence). The Fourth Circuit disagreed and held that the prior lawsuits could come in to show Mead's "intent." Intent is not a required element of a Lanham Act case, but it can be used by a plaintiff to establish implied falsehoods in lieu of doing a survey or in the event that a survey is disbelieved. But this kind of intent ordinarily is shown by facts in the current case, not based on prior lawsuits and settlements (although dicta in the Fourth Circuit's Scotts v. United Industries case suggested this could be accomplished by showing "defendant's history of false advertising"). The ruling seems to track FRE 404(b), which provides that evidence of a defendant's prior bad acts is not admissible to show the character of a defendant or his propensity to commit the charged offense, but such evidence may be admissible for "other purposes", such as knowledge, intent, or absence of mistake. The appeals court did not discuss or even cite Rule 404(b), but focused instead on FRE 401 (relevance) and FRE 403 (exclusion of evidence that is more prejudicial than probative). The issue did not get the marquis position in the briefs, but it appeared to be quite material, not only to the jury but also to the appeals court panel. For example, in addressing the "balance of the hardships" issue regarding injunctive relief, the court commented, "As the litigation history of the parties demonstrates, despite having twice been restrained from disseminating misleading advertising, Mead Johnson continued to do so. PBM cannot fairly compete with Mead Johnson unless and until Mead Johnson stops infecting the marketplace with misleading advertising." In closing argument, PBM's counsel invited the jury to use the prior cases in forming an opinion about Mead as a company, saying among other things: "this mailer, as you heard, is not the first time that Mead Johnson has engaged in false advertising ….I'm going to ask you to just remember the testimony here in evaluating what Mead Johnson was all about." Significance of "Bad Acts" Ruling Practitioners should take heed. Once Lanham Act false advertising litigation erupts between two competitors, there is a reasonable chance that the same competitors will jump back into the ring again. The Lanham Act landscape is littered with false advertising "wars" — that is, multiple serial lawsuits and/or NAD cases involving the same companies with similar claims. Practitioners are familiar not only with the infant formula wars, but also others involving vacuum cleaners, motor oil, razor blades, antihistamines, and pain relievers. Knowing that there is now Circuit level authority blessing admission of evidence about the prior fights in Lanham Act cases, practitioners who have suffered any lost motions should consider adding a provision to their settlement agreements that precludes use of the lawsuit in any future case. – Randy Miller

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