Opinion
04 Civ. 10213 (BSJ) (RLE).
July 20, 2005
REPORT AND RECOMMENDATION
To the HONORABLE BARBARA S. JONES, U.S.D.J.:
I. INTRODUCTION
On December 23, 2004, Novartis Animal Health US, Inc. ("Novartis") filed an action against LM Connelly Sons, Pty Ltd. ("Connelly") and National Pet Supplies d/b/a Petcaredirect.com and Petmedspharmacy.com ("National Pet Supplies") for trademark infringement, trademark dilution, and unfair competition, in violation of §§ 32 and 43(a) of the Lanham Act, 15 U.S.C. §§ 1114, 1125(a), and in violation of statutory and state common law. On January 18, 2005, Novartis filed a motion for a preliminary injunction. Connelly and National Pet Supplies did not respond to either the complaint or the motion for preliminary injunction. A pre-trial conference scheduled for March 31, 2005, was adjourned pending resolution of the pending preliminary injunction motion.For the reasons set forth below, I recommend that Novartis's motion for a preliminary injunction be GRANTED.
II. BACKGROUND
Novartis manufactures, distributes, and markets animal medicines in the United States. Memorandum of Law in Support of Plaintiff's Motion for a Preliminary Injunction ("Mem.") at 3. Novartis AG, Novartis's ultimate parent, has granted Novartis an exclusive license of the NOVARTIS trademark for use in connection with pet medicines, and of the following marks that are registered in the United States Patent and Trademark Office for use in connection with pet medicines: SENTINEL®, INTERCEPTOR®, INTERCEPTOR plus design®, PROGRAM®, CAPSTAR®, and FLAVOR TABS® ("U.S. medicines"). Id. at 3. Pursuant to 15 U.S.C. § 1065, "the right of [Novartis] to use [these] registered mark[s] . . . [is] incontestable . . ."Novartis constantly develops new products and improves existing ones. Mem. at 3. An earlier unflavored medicine for control of fleas sold under the PROGRAM brand name was replaced with PROGRAM FLAVOR TABS. Id. at 3-4. The PROGRAM FLAVOR TABS contain a beef flavor that assists dogs in ingesting the medicine. Id. at 4. Novartis has also developed an improved version of its SENTINEL medicine that adds a third active ingredient, prazinquantel, for protection against tapeworm. Id. at 4. This improved version has been approved for sale in Australia, but it has not been approved by the U.S. Food and Drug Administration ("FDA") for sale in the United States. Id. at 4.
The packaging and accompanying inserts for the SENTINEL FLAVOR TABS, INTERCEPTOR FLAVOR TABS, PROGRAM FLAVOR TABS and CAPSTAR pet medicines sold by Novartis in the United States are specifically approved by the FDA. Complaint ("Compl.") at 6. They provide consumers in the United States with information on the drugs as required or recommended by the FDA, including doses corresponding to the weight of the animal, storage temperatures, an emergency telephone number, and instructions on use. Id. at 6-7. On the SENTINEL FLAVOR TABS and INTERCEPTOR FLAVOR TABS medicines the labels indicate that the drug can be dispensed only by prescription. Id.
The Australian version of Novartis pet medicines are sold by Novartis Animal Health Australasia Pty, Ltd. ("Novartis Australia"), a corporate affiliate of Novartis. Id. at 7. The medicines sold by Novartis Australia include: SENTINEL SPECTRUM FLAVOR TABS (a new formulation not yet approved by the FDA), PROGRAM tablets (the plain, unflavored formulation), and versions of SENTINEL FLAVOR TABS, INTERCEPTOR FLAVOR TABS and CAPSTAR medicines that are sold in packages with different labels ("Australian medicines"). Id. The differences between the packaging and inserts of the U.S. medicines and the Australian medicines include: weights given in metric units rather than pounds, temperatures given only in degrees Celsius, different spellings of certain words and an emergency customer assistance that only works if dialed in Australia. Id. at 7-8. Additionally, the Australian versions and United States versions of SENTINEL FLAVOR TABS and INTERCEPTOR FLAVOR TABS differ in that the Australian versions merely advise purchasers to consult a veterinarian before use, while United States versions mandate veterinary approval. Id.
Connelly and National Pet Supplies are related Australian-based companies that sell Novartis products through their websites, and by fascimiles, telephone and other remote means. Mem. at 5. Although the medicines sold are Australian, the websites "post prices in U.S. dollars, they provide a U.S. toll free number for inquiries, and they post testimonials from U.S. customers." Id. at 5-6.
On December 23, 2004, Novartis filed the instant complaint. It alleges illegal importation into the United States of pet medicines made for the Australian market that differ in material ways from the medicines Novartis sells in the United States. Id. at 1-2. The complaint alleges that National Pet Supplies had sold SENTINEL SPECTRUM FLAVOR TABS medicine, a product that has not been approved by the FDA for sale in the United States, to consumers in the United States; that it had sold PROGRAM TABLETS, which were withdrawn by Novartis from the United States market several years ago; and that it had sold SENTINEL SPECTRUM FLAVOR TABS and INTERCEPTOR FLAVOR TABS medicines to United States consumers without obtaining the required prescription. Compl. at 7.
Novartis served Connelly and National Pet Supplies on January 12, 2005. They have failed to respond to the complaint. On January 18, 2005, Novartis filed a motion for a preliminary injunction to enjoin Connelly and National Pet Supplies from selling pet medicines made for sale in Australia to United States customers. Mem. at 1. Connelly and National Pet Supplies also did not respond to the preliminary injunction motion. Although the website began posting statements that Australian medicines "will not be shipped to USA" and that INTERCEPTOR and SENTINEL products "can not be purchased by customers from the USA," United States customers were still able to purchase the products. See Declaration of David Frizell in Support re: Motion for Preliminary Injunction Filed by Plaintiff at 2-3.
III. DISCUSSION
In order to obtain a preliminary injunction, the movant must demonstrate a probability of irreparable harm in the absence of injunctive relief, and either a likelihood that it will succeed on the merits of its claim, or a serious question going to the merits and a balance of hardships tipping decidedly in its favor. Virgin Enters. Ltd. v. Nawab, 335 F.3d 141, 145 (2d Cir. 2003); Jackson Dairy, Inc. v. H.P. Hood Sons, Inc., 596 F.2d 70, 72 (2d Cir. 1979) ( per curiam ); Bristol-Myers Squibb Co. v. McNeil-P.P.C., Inc., 973 F.2d 1033, 1038 (2d Cir. 1992).
In an action for trademark infringement, where a mark merits protection, a showing that a significant number of consumers are likely to be confused about the source of the goods identified by the allegedly infringing mark is generally sufficient to demonstrate both irreparable harm and a likelihood of success on the merits. Virgin Enters., 335 F.3d at 146; see also Bristol-Myers, 973 F.2d at 1038; W. Publ'g Co. v. Rose Art Indus., Inc., 910 F.2d 57, 59 (2d Cir. 1990). A claim for trademark infringement, whether brought under 15 U.S.C. § 1114(1) or 15 U.S.C. § 1125(a), is analyzed under a two-pronged test that "looks first to whether the plaintiff's mark is entitled to protection, and second to whether defendant's use of the mark is likely to cause consumers confusion as to the origin or sponsorship of the defendant's goods." Virgin Enters., 335 F.3d at 146; see also Gruner + Jahr USA Publ'g v. Meredith Corp., 991 F.2d 1072, 1074 (2d Cir. 1993). "[I]f no such confusion is found, a defendant will generally not be held to have infringed plaintiff's mark." Gruner + Jahr USA Publ'g, 991 F.2d at 1074.
Novartis has successfully established both elements of the two-pronged test. As exclusive licensee of the NOVARTIS, SENTINEL, INTERCEPTOR, PROGRAM and FLAVOR TABS trademarks for use in connection with pet medicines, Novartis USA has valid marks entitled to protection. See Original Appalachian Artworks, Inc. v. Granada Elecs., Inc., 816 F.2d 68, 71 (2d Cir. 1987), cert. denied, 484 U.S. 847 (1987) (finding that registration of a trademark is prima facie evidence of its validity). Additionally, Novartis has demonstrated that sale of the Australian medicines in the United States would cause customer confusion. See id. at 73.
A. Lanham Act Violation
One of the principal functions of the Lanham Act is to protect consumers from confusion "because `[e]very product is composed of a bundle of special characteristics,' and `[t]he consumer who purchases what he believes is the same product expects to receive those special characteristics on every occasion.'" Curtis v. National Wholesale Liquidators, Inc., 890 F. Supp. 152, 158 (E.D.N.Y. 1995) ( quoting Societe des Produits Nestle, S.A. v. Casa Helvetia, Inc., 982 F.2d 633, 636 (1st Cir. 1992)). Consequently, trademark law does not generally prohibit the sale of genuine goods because such goods do not lead to customer confusion. Id. at 158. The Australian medicines sold by National Pet Supplies are not "genuine goods" because they differ from the U.S. medicines and are not authorized for sale in the United States. See Original Appalachian Artworks, 816 F.2d at 73. The fact that a single entity owns a trademark worldwide is not dispositive. Id. A valid trademark in one country does not lawfully affix wherever it goes. Id. ; Osawa Co. v. B H Photo, 589 F. Supp. 1163, 1171-74 (S.D.N.Y. 1984). Thus, even though the medicines sold by National Pet Supplies are valid for sale in Australia, it does not follow that they are valid for sale in the United States.
Grey market goods are goods made by a foreign manufacturer and validly sold abroad under a trademark, which are subsequently "imported into the United States and sold in competition with goods of the owner of [the United States] trademark rights in the identical mark." Curtis, 890 F. Supp. at 154 ( quoting Dial Corp. v. Encina Corp., 643 F. Supp. 951, 952 (S.D. Fla. 1986)). Grey market goods, by their nature, can be difficult to distinguish from genuine goods; "they are often similar in composition and appearance to their United States counterparts," and "the manufacturer of the grey market goods is often related in some manner to the United States trademark holder." Id. at 158. The Second Circuit has established certain standards to assist in drawing the line between grey goods and genuine goods. The traditional Lanham Act consumer confusion test, also referred to as the Polaroid Factors, is difficult to apply in grey goods cases. Original Appalachian Artworks, Inc., 816 F.2d at 74 (Cardamone, J. concurring) ("Because parallel goods are generally considered to be the `genuine' product of the foreign trademark owner, the traditional Lanham Act consumer confusion test becomes difficult to apply.") (citations omitted); see also Polaroid Corp. v. Polarad Elec. Corp., 287 F.2d 492 (2d Cir. 1961), cert denied, 368 U.S. 820 (1961). Under an alternate standard, the sale of grey goods violates the Lanham Act when the goods (1) are not intended to be sold in the United States, and (2) are materially different from the authentic goods that are authorized for sale in the United States market. Original Appalachian Artworks, 816 F.2d at 73; see Curtis, 890 F. Supp. at 158; Nestle, 982 F.2d 633 (1st Cir. 1992).
Another alternate, the quality control standard, does not provide much guidance when the grey market goods were validly produced for sale in a foreign country. See Curtis, 890 F. Supp. at 157-58 (applying quality control standard to sale by distributor of grey market goods).
The medicines sold by National Pet Supplies were not intended to be sold in the United States. The labels were tailored to medicines for sale in Australia, as shown by use of Australian spellings, use of the metric system, and inclusion of information pertaining to the Australian market. See Mem. at 10. The SENTINEL SPECTRUM pet medicines have not even been approved for sale in the United States and the PROGRAM tablets sold by National Pet Supplies are no longer sold in the United States after replacement by the PROGRAM FLAVOR TABS. Id.
Material differences exist between the Australian medicines and the United States versions. See Bayer Corp. v. Custom School Frames, LLC, 259 F. Supp. 2d 503, 508 (E.D. La. 2003) (enjoining defendants from importing Australian versions of Bayer pet medicines into the United States because of material differences in the products such as differences in packaging and labeling, "failure to comply with federal and state laws and regulations," and because the Australian version was not distributed through veterinarians). In an extreme instance, the differences can potentially be life threatening to dogs. Id. at 13. Nevertheless, even differences such as added flavor to a PROGRAM tablet can cause customer confusion. Additionally, National Pet Supplies is selling SENTINEL SPECTRUM medicine which has a different formula than the version approved for sale in the United States, and SENTINEL and INTERCEPTOR medicines is being sold without the required veterinarian approval. See Curtis, 890 F. Supp. at 159 (holding that material differences exist when grey good does not meet the clean air standards of certain states while the U.S. version does, and when "the products possess material compositional differences").
The FDA must approve all medicines for sale in the United States, 21 U.S.C. § 355, as well as the labeling and informational inserts accompanying the medicine. 21 U.S.C. § 352. The labeling and informational inserts must comply with FDA requirements such as "disclosure of weight and sometimes size and age of dog for which the dosage is appropriate, safe storage conditions, contact information in case a pet owner needs to contact the manufacturer with any questions, and information on indications, administration, dosage and precautions." Mem. at 4. Some medicines require approval from a licensed veterinarian before being lawfully dispensed. 21 C.F.R. 201.105. In such instances, the requirement must be prominently displayed. Id.
The labels on the Australian medicines are materially different from the United States versions: they lack certain information recommended by the FDA, they provide alternate contact information that does not apply in the United States, they use different measuring systems to specify temperature and weight, and they have different spellings for some words. See id. (holding that the lack of "certain information regarding product ingredients and weight as required by federal law" is a material difference). As held by the First Circuit, "[w]hen dealing with the importation of grey goods, a reviewing court must necessarily be concerned with subtle differences, for it is by subtle differences that consumers are most easily confused." Nestle, 982 F.2d at 641.
Furthermore, under New York State law, trademark and unfair competition claims are also evaluated according to a showing of likelihood of confusion. See Allied Maintenance Corp. v. Allied Mechanical Trades, Inc., 42 N.Y.2d 538, 543, 399 N.Y.S.2d 628, 329 N.E.2d 1162 (NY 1977). Through the internet, National Pet Supplies is selling foreign medicines to New York consumers that are materially different from the United States medicines. Such differences are likely to cause confusion to New York consumers. Thus, Novartis is entitled to injunctive relief under New York State trademark and unfair competition law in addition to its corresponding federal claims.
Accordingly, IT IS HEREBY RECOMMENDED THAT THE COURT IMPOSE AN INJUNCTION AS FOLLOWS:
LM Connelly Sons, Pty Ltd. and National Pet Supplies, d/b/a petcaredirect.com and petmedspharmacy.com ("National Pet Supplies"), their officers, directors, agents, representatives, successors and assigns (including Leigh Connelly), and all persons acting in concert or in participation with any of them are:
(1) enjoined and restrained from distributing, selling, offering for sale, advertising, or promoting, or being involved in the distribution, sale, offering for sale, advertisement, or promotion of, in the United States, Novartis pet medicines manufactured for sale outside the United States, including but not limited to SENTINEL SPECTRUM FLAVOR TABS medicines;
(2) enjoined and restrained from using any false designation of origin or false description or representation or any other thing calculated or likely to cause confusion or mistake in the mind of the trade or public or to deceive the trade or public into believing that the Novartis pet medicines sold by defendants are genuine U.S. medicines;
(3) required to file with the Court and serve on counsel for Novartis USA within thirty (30) days after entry of this preliminary injunction a sworn written statement pursuant to 15 U.S.C. § 1116(a) setting forth in detail the manner and form in which they have complied with this preliminary injunction.
It is also recommended that Novartis post a bond with the Clerk of the Court in the amount of $25,000 as security payment to Rule 65(c) of the Federal Rules of Civil Procedure within seven days of the entry of the Order.
Pursuant to Rule 72, Federal Rules of Civil Procedure, the parties shall have ten (10) days after being served with a copy of the recommended disposition to file written objections to this Report and Recommendation. Such objections shall be filed with the Clerk of the Court and served on all adversaries, with extra copies delivered to the chambers of Honorable Barbara S. Jones, 40 Centre Street, Room 2103, and to the chambers of the undersigned, 500 Pearl Street, Room 1970. Failure to file timely objections shall constitute a waiver of those objections both in the District Court and on later appeal to the United States Court of Appeals. See Thomas v. Arn, 474 U.S. 140, 150 (1985); Small v. Secretary of Health and Human Services, 892 F.2d 15, 16 (2d Cir. 1989) ( per curiam ); 28 U.S.C. § 636(b)(1) (West Supp. 1995); Fed.R.Civ.P. 72, 6(a), 6(e).