Ives Laboratories, Inc. v. Darby Drug Co.

Decision Date08 January 1981
Docket NumberNo. 80-7314,80-7314
Citation638 F.2d 538
PartiesIVES LABORATORIES, INC., Plaintiff-Appellant, v. DARBY DRUG CO., Inwood Laboratories Incorporated, MD Pharmaceutical Company, Inc., Premo Pharmaceutical Laboratories, Inc., Rugby Laboratories, Inc., and Sherry Pharmaceutical Co., Inc., Defendants-Appellees.
CourtU.S. Court of Appeals — Second Circuit

Marie V. Driscoll, New York City (David C. Stimson, Egon E. Berg, Steven Baron, Rogers Hoge & Hills, New York City, of counsel), for plaintiff-appellant.

Peter T. Cobrin, New York City (Martin W. Schiffmiller, Kirschstein, Kirschstein, Ottinger & Cobrin, New York City, of counsel), for defendant-appellee Premo Pharmaceutical Laboratories, Inc.

Steven R. Trost, New York City (Bass, Ullman & Lustigman, New York City, of counsel), for defendant-appellee Inwood Laboratories Incorporated.

Robert V. Marrow, New York City (Salon, Marrow & Dyckman, New York City, of counsel), for defendants-appellees Darby Drug Co., MD Pharmaceutical Company, Inc., and Sherry Pharmaceutical Co., Inc.

Before LUMBARD, MANSFIELD and MULLIGAN, Circuit Judges.

MANSFIELD, Circuit Judge:

Ives Laboratories, Inc. ("Ives") brought suit in the District Court for the Eastern District of New York against appellees, who are drug manufacturers and wholesalers, claiming that their manufacture and distribution of a generic drug using capsules identical in color, shape, and size to those long used by Ives in its equivalent trademarked product violated §§ 32 and 43(a) of the Lanham Act, 15 U.S.C. §§ 1114 and 1125(a), and New York State unfair competition laws. 1 The district court, Nickerson Ives has for some years manufactured a prescription drug called CYCLOSPASMOL. CYCLOSPASMOL is a peripheral vasodilator designed to produce an increase in blood flow; it is most commonly prescribed for ingestion by elderly patients who are experiencing progressive circulatory difficulties. Until 1972 Ives held a patent on CYCLOSPASMOL. Since that time it has continued to hold a trademark to the name CYCLOSPASMOL, but several generic drug manufacturers (including some of the appellees) have begun selling bioequivalents of CYCLOSPASMOL under the generic name "cyclandelate."

J., denied Ives' motion for a preliminary injunction, 455 F.Supp. 939. Upon appeal we affirmed, noting that "we find the case more difficult than did the district judge." 601 F.2d 631, 634 (2nd Cir.). On remand the district court, after a bench trial, found for the appellees. 2 488 F.Supp. 394. We reverse on the ground that the undisputed evidence establishes a violation of § 32 and remand for further proceedings not inconsistent with this opinion. 3 In view of our holding in favor of Ives on the § 32 issue we express no views on the other issues raised by it on this appeal.

Ever since it began manufacturing CYCLOSPASMOL, Ives has used distinctive, colorful gelatin capsules as containers for the CYCLOSPASMOL powder. The 200 mg. capsule is pale blue; the 400 mg. capsule is red and blue. When appellees Premo Pharmaceutical Laboratories, Inc. ("Premo"), Inwood Laboratories, Incorporated ("Inwood"), and MD Pharmaceutical Company, Inc. ("MD") (collectively "the defendant manufacturers") began marketing cyclandelate, they intentionally chose to use gelatin capsules which were identical in color, shape, and size to those used by Ives even though scores of other colors, color combinations, and sizes were available. 4

Because CYCLOSPASMOL may only be dispensed by prescription, Ives has directed its CYCLOSPASMOL promotional efforts toward physicians, not patients. Some 230 "detail" men make periodic visits to physicians' offices on Ives' behalf, distributing samples and promotional material. Ives Ives contends that appellees violated § 32 of the Lanham Act because their deliberate use of look-alike capsules and pro-substitution catalogs encouraged retail druggists to substitute generic cyclandelate illegally for CYCLOSPASMOL. In his first opinion, which denied plaintiff's motion for a preliminary injunction, Judge Nickerson reasoned that Ives' § 32 claim would only be viable if it could show "that defendants have conspired with the pharmacists or counseled or suggested that they disregard the doctors' orders." 5 455 F.Supp. at 945. Finding that no such showing had been made, he rejected Ives' § 32 argument.

also places advertisements for CYCLOSPASMOL in professional journals read by physicians. The defendant manufacturers, on the other hand, have no similar network of detail men, and do not advertise routinely in professional magazines. They instead make their sales primarily through catalogs, which are distributed widely in the wholesale industry. Some of the catalogs contain charts which pair each generic product being offered with the name brand product for which it may be substituted and offer the generic product at a substantially lower price. The defendant wholesalers (Darby Drug Co., Inc. ("Darby"), Rugby Laboratories, Inc. ("Rugby"), and Sherry Pharmaceutical Co., Inc. ("Sherry")) purchase generic cyclandelate in capsules identical in appearance to those made by the defendant manufacturers and sell them at wholesale, primarily to physicians and pharmacies, at lower prices than those charged by Ives for its trademarked CYCLOSPASMOL.

On appeal from this denial of preliminary relief we recognized that, although a classic case of retailer infringement occurs where a druggist illegally substitutes a generic drug for CYCLOSPASMOL prescribed by the doctor, a violation of § 32 for infringement also arises in the "intermediate" case when "the prescription permits substitution and the druggist fills it with defendant's (generic) product but names it Cyclospasmol." 601 F.2d at 636. We went on to question whether the district court's reading of § 32 had been too rigid:

"We fear ... that his (Judge Nickerson's) approach to the issue may have been unduly narrow. He referred to 'the knowing and deliberate instigation of such a practice' ... and said that before 'passage of the Lanham Act the doctrine of contributory trademark infringement went no further than to hold one who actively shared a retailer's infringement, as in the case, for example, of one who places the infringing label on the articles before delivering them to the retailer.' ... While such cases would surely constitute contributory infringement, they do not mark the limits of the doctrine. The authorities later reviewed indicate to us that a manufacturer or wholesaler would be liable under § 32 if he suggested, even if only by implication, that a However, Judge Friendly concluded that on the record then before the court

retailer fill a bottle with the generic capsules and apply Ives' mark to the label, or continued to sell capsules containing the generic drug which facilitated this to a druggist whom he knew or had reason to know was engaging in the practices just described." 601 F.2d at 636 (emphasis supplied).

"the court was justified in concluding that Ives failed to adduce the quantum of proof necessary to require issuance of a temporary injunction for contributory infringement even on what we deem the proper standard of liability under § 32. Ives' proof was limited to 15 instances of improper substitution and defendants conceded only that the identity of color made this easier if a druggist were so inclined." Id.

On remand the district court heard Ives' evidence on the § 32 claim, and concluded that the factual showing necessary to prove plaintiff's case had once again not been made:

"The court finds that defendants did not suggest, even by implication, that pharmacists fill bottles with the generic drug cyclandelate and apply the trademark Cyclospasmol. Nor did Ives show that defendants continued to sell the generic drug to pharmacists who defendants knew or had reason to know were engaging in such a practice." 488 F.Supp. at 397.

According to the district court, the new evidence introduced at trial on this point was limited to the following instances of mislabeling:

"Some Ives test shoppers gave a prescription for Cyclospasmol signed on the line over 'substitution permissible' to forty-two pharmacists in New York selected from a list supplied by Ives and forty-one from a list of drug stores in Hayes Directory. Of the forty-two on the Ives list twenty-four dispensed Cyclospasmol, and eighteen dispensed the generic product. Six of those eighteen included the word Cyclospasmol on the label. Of the forty-one on the Hayes Directory list twenty-four dispensed Cyclospasmol and seventeen dispensed the generic product. Four of those seventeen included the word Cyclospasmol on the label.

"Of the total of ten pharmacists who dispensed generic cyclandelate and also used the word Cyclospasmol on the label, four used the term 'generic Cyclospasmol' or 'Cyclospasmol generic' and one the term 'Cyclospasmol Gen.' Nine of the ten informed the person buying the capsules that the generic product had been dispensed. ( 6 Only one appears to have charged a higher 'brand' price. This evidence hardly justifies an inference that defendants' catalogs impliedly invited druggists to mislabel." Id.

In the district court's opinion, this frequent mislabeling of cyclandelate as CYCLOSPASMOL was occurring not because appellees had suggested that pharmacists do so, but rather because pharmacists "misunderstood the precise requirements of the New York Drug Substitution Law." Id. "(A)ny mislabeling stemmed from doubt as to the requirements of the generic drug law, not from inducement by defendants." Id. at 398.

DISCUSSION

Since the governing legal principles have already been set forth in Judge Friendly's opinion upon the earlier appeal, 601 F.2d 631 (2d Cir. 1979), we need not repeat them here. Applying those principles, we believe that the district court, in considering Ives' § 32 claim, erred upon remand in declining to give any weight to additional...

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