Marlyn Nutraceuticals, Inc. v. Mucos Pharma GmbH & Co.

• Decision Date: 02 July 2009
• Docket Number: No. 08-15101.,08-15101.
• Citation: 571 F.3d 873
• Parties: MARLYN NUTRACEUTICALS, INC., Plaintiff-Appellant, v. MUCOS PHARMA GmbH & CO., Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

571 F.3d 873

MARLYN NUTRACEUTICALS, INC., Plaintiff-Appellant, v. MUCOS PHARMA GmbH & CO., Defendant-Appellee.

No. 08-15101.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted October 20, 2008.

Filed July 2, 2009.

Maria Salapska, Law Offices of Maria Salapska, PLLC, Paul M. Levine, McCarthy Holthus Levine, Paul F. Eckstein and Karin S. Aldama, Perkins Coie Brown & Bain, PA, Phoenix, AZ, for the appellant.

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

Appeal from the United States District Court for the District of Arizona, Roslyn O. Silver, District Judge, Presiding. D.C. No. CV-07-00012-ROS.

Before J. CLIFFORD WALLACE, SIDNEY R. THOMAS, and SUSAN P. GRABER, Circuit Judges.

THOMAS, Circuit Judge:

This appeal presents the question, among others, as to the appropriate criteria that a district court should apply in considering a motion to enter a preliminary injunction requiring 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 circumstances 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 corporation 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 Wobenzym 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 customers.

When Ransberger died in 2001, problems arose between Mucos and Marlyn. Mucos and Marlyn resolved these problems in a 2002 Settlement Agreement. Section 13 of the Settlement Agreement contained the terms of a distributorship arrangement ("Distributorship Provision"). The Distributorship Provision provided that "[w]ithin 30 days after the Effective Date, MUCOS and Marlyn shall use their good faith efforts to enter into a formal distributorship agreement containing 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 exclusive 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 indication 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 formula 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 Wobenzym mark. The district court heard testimony from Marlyn's and Mucos's experts as well as their executive officers.

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 evidence 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 decision in light of new evidence.

II

We review a district court's grant of a preliminary injunction 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) (internal quotation marks omitted). We review the scope of a preliminary 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 injunction 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 materially different from that initially before the district court, our 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

"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., ___ U.S. ____, 129 S.Ct. 365, 374, 172 L.Ed.2d 249 (2008).

The district court properly considered each of these factors. 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 description, or representation of fact, which (3) is likely to cause confusion 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. Sleekcraft Boats, 599 F.2d 341, 348-49 (9th Cir.1979), to determine the likelihood of confusion for the Wobenzym mark.

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 likelihood 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 success on the merits, it reasonably presumed irreparable injury. The court similarly did not abuse its discretion when it evaluated the balance of hardships or public interest.²

B

As an affirmative defense to Mucos's trademark infringement 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 succeed 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 determine 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 production 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 unimportant 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.

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 multiple 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 Aviation v. Smiths Indus. Aerospace & Def. Sys. Ltd., 268 F.3d 829, 836 (9th Cir.2001). Review for clear error is significantly deferential...