ALPO Petfoods, Inc. v. Ralston Purina Co.

• Decision Date: 07 September 1990
• Docket Number: Nos. 89-7181,s. 89-7181
• Citation: 913 F.2d 958
• Parties: , 59 USLW 2184, 16 U.S.P.Q.2d 1081 ALPO PETFOODS, INC., Appellee, v. RALSTON PURINA COMPANY, Appellant. & 89-7264.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 958

913 F.2d 958

286 U.S.App.D.C. 192, 59 USLW 2184,

16 U.S.P.Q.2d 1081

ALPO PETFOODS, INC., Appellee, v. RALSTON PURINA COMPANY, Appellant.

Nos. 89-7181 & 89-7264.

United States Court of Appeals District of Columbia Circuit.

Argued April 13, 1990.

Decided Sept. 7, 1990.

Appeals from the United States District Court for the District of Columbia (Civil Action No. 86-2728).

Michael L. Denger, with whom Willard K. Tom, Steuart H. Thomsen, Bruce M. Bettigole, and Lee H. Pelton, Washington, D.C., were on the brief, for appellant.

Richard J. Leighton, with whom Douglas J. Behr, Richard F. Mann, Lewis Bernstein, and Robert B. Hummel, Washington, D.C., were on the brief, for appellee.

Before EDWARDS, SENTELLE and THOMAS, Circuit Judges.

Opinion for the court filed by Circuit Judge THOMAS.

CLARENCE THOMAS, Circuit Judge:

In this case, Ralston Purina Co. and ALPO Petfoods, Inc., two of the leading dog food producers in the United States, have sued each other under section 43(a) of the Lanham Act, 15 U.S.C. Sec. 1125(a) (1982) (amended 1988), ¹ alleging false advertising. ALPO asserts that Ralston has violated section 43(a) by claiming that its Puppy Chow products can lessen the severity of canine hip dysplasia (CHD), a crippling joint condition. Ralston, for its part, attacks ALPO's claims that ALPO Puppy Food contains "the formula preferred by responding vets two to one over the leading puppy food."

After a sixty-one-day bench trial, the district court decided that Ralston's CHD-related advertising and ALPO's veterinarian preference advertising both violated section 43(a). ALPO Petfoods, Inc. v. Ralston Purina Co., 720 F.Supp. 194, 209-11 (D.D.C.1989). The court permanently enjoined both companies from making "advertising or other related claims" similar to those held false, and ordered both parties to disseminate corrective statements. Id. at 216-17. Applying section 35(a) of the Lanham Act, 15 U.S.C. Sec. 1117(a) (1982 & Supp. V 1987) (amended 1988), the court also awarded ALPO $10.4 million (plus costs and attorneys' fees). The court reached this figure by determining the amount that Ralston spent on its CHD-related advertising, using that amount as a measure of Ralston's benefit from the advertising, and then doubling the amount to capture the full harm that the advertising caused ALPO. ALPO, 720 F.Supp. at 215 (citing U-Haul Int'l, Inc. v. Jartran, Inc., 793 F.2d 1034, 1037 (9th Cir.1986)). Ralston, in contrast, was awarded only its costs and attorneys' fees. Id. at 215, 216.

Ralston appeals the district court's judgment, focusing on the court's determination that the CHD-related advertising claims were false, as well as the court's monetary award to ALPO, its refusal to award similar relief to Ralston, and its broad and expansively implemented injunction. ² Convinced that the court properly applied section 43(a) and found facts that are not clearly erroneous, we affirm the court's conclusion that both Ralston and ALPO have violated section 43(a). On several issues concerning remedies, however, we vacate and remand. The monetary award to ALPO is an award of Ralston's profits, rather than ALPO's actual damages, yet we do not see in Ralston's conduct willful, targeted wrongdoing, which is what an award of profits requires. See Foxtrap, Inc. v. Foxtrap, Inc., 671 F.2d 636, 641-42 (D.C.Cir.1982) (per curiam). ALPO is entitled to its actual damages, however, and we try below to clarify what an award of actual damages under section 35(a) can include. Because ALPO, too, has violated section 43(a), Ralston is entitled to any actual damages that it can prove; in a case involving a meritorious claim and a meritorious counterclaim, section 35(a) does not authorize a court to compensate only the party considered less blameworthy. Attorneys' fees, in contrast, are available under section 35(a) only "in exceptional cases," which this court has defined as cases involving willful or bad-faith conduct. Lanham Act Sec. 35(a), 15 U.S.C. Sec. 1117(a); see Reader's Digest Ass'n v. Conservative Digest, Inc., 821 F.2d 800, 808 (D.C.Cir.1987). This case does not fall into that category, so we reverse the district court's decision to grant attorneys' fees. Finally, we instruct the district court to enter an injunction more closely tailored to the harm posed by any repeat of Ralston's false advertising.

I. BACKGROUND ³

A. Ralston's CHD-related Advertising

Ralston manufactures and sells Puppy Chow, which, in its two versions (dry and Chewy Morsels), is the leading puppy food sold in the United States. In September 1985, Ralston changed the formula for Puppy Chow. At the same time, it began running print ads stating that the new Puppy Chow formula could reduce the laxity of (i.e., extra space in) dogs' hip joints and improve the fit of those hip joints, thereby lessening the severity of CHD. See ALPO, 720 F.Supp. at 196 n. 2, 198, 202 (describing CHD and explaining relationship between hip joint laxity and CHD). For over a year, Ralston directed this print advertising at veterinarians, breeders, dog enthusiasts, and others interested in dog nutrition. In addition, Ralston ran a thirty-second Puppy Chow commercial on national television networks from June 1986 through October 1986, claiming that Puppy Chow "help[s] critical bone development." Id. at 200; see id. at 199-200. To at least some extent, all of the ads claimed that feeding Puppy Chow to puppies could ameliorate or prevent CHD in those puppies. See id. at 198-200 (quoting Ralston's direct and indirect claims regarding a Puppy Chow diet's effects on CHD).

Ralston's claims had a weak empirical basis. The hypothesis behind Ralston's CHD-related product change and advertising was the "anion gap theory" of Dr. Richard Kealy, a Ralston nutritionist. This theory holds that the smaller the difference between the chlorine content and the combined sodium and potassium content of a dog's diet, the more snugly the dog's hip joints will tend to fit. Beginning in 1980, Dr. Kealy conducted a series of studies exploring the effect of a low-anion-gap diet on dogs' hip joint fit. In 1984, results of Dr. Kealy's first four studies (Trials I through IV) ⁴ led Dr. Kealy to prepare a monograph that reported a connection between a low-anion-gap diet and reduced hip joint laxity. At about the same time, Dr. Kealy briefed Ralston's marketing executives on his findings, eventually leading Ralston to reformulate Puppy Chow and make its CHD-related advertising claims. In mid-1985, however, Dr. Kealy began Trial V, his first long-term study of the effects of a low-anion-gap diet. Although the parties now dispute whether the results of Trial V were statistically significant, these results undermined Ralston's CHD-related claims so much that Dr. Kealy ended the study, which he had projected would last for almost three years, after only thirty-three weeks. After reviewing Ralston's research findings and the conflicting expert opinions on those findings' statistical significance, the district court found that the anion gap theory lacked empirical support. Id. at 205 & n. 12, 208-09. It therefore held that the CHD-related advertising claims were false and deceptive. Id. at 213.

At trial, the district court also heard conflicting evidence on the market effect of Ralston's CHD-related advertising. This evidence included surveys of veterinarians and consumers, Ralston officials' own assessments of the advertising campaign, and several expert witnesses' interpretations of data on puppy food sales and market shares. The court concluded that the challenged ads materially increased Ralston's sales and profits, and that, given the vigorous interbrand competition during the period at issue, the increases came at the expense of ALPO and other competitors of Ralston. Id. at 209; see also id. at 214 (supplementing "the court's earlier finding that Ralston's claims were material in fact" with a presumption, drawn from PPX Enterprises v. Audiofidelity Enterprises, 818 F.2d 266, 272 (2d Cir.1987), that actually false claims are material).

B. ALPO's Veterinarian Preference Advertising

Over roughly the same period covered by Ralston's CHD-related advertising, ALPO claimed in several media that veterinarians preferred "the formula" of ALPO Puppy Food over that of "the leading puppy food," Puppy Chow. The district court found no basis for this assertion, or for the additional claim, appearing on ALPO Puppy Food bags and in other media, that the veterinarian preference was "2 to 1." See id. at 209-11. The court therefore held that ALPO's advertising was false, material, and aimed at Ralston. ALPO has not appealed. ⁵

C. District Court's Findings and Conclusions

Relying on its findings of fact concerning Ralston's and ALPO's advertising and the effects of that advertising, the court held that both companies had made material, false claims about goods in interstate commerce, in violation of section 43(a). The court found that the likelihood of deception and injury from each company's advertising justified a permanent injunction against each company under section 34(a) of the Lanham Act, 15 U.S.C. Sec. 1116(a) (1982 & Supp. V 1987) (amended 1988). See ALPO, 720 F.Supp. at 214-15, 215-16. On the issue of monetary relief, the court found "that ALPO Puppy Food lost sales to Puppy Chow on account of the CHD claims" and that "ALPO spent a substantial amount of money in advertising expenditures in order to counter the CHD campaign." Id. at 212. In contrast, the court found Ralston undeserving of monetary relief because it saw Ralston as the greater wrongdoer, id. at 216, because it believed that Ralston's counterclaim was "instituted only as an afterthought," id., and because it concluded that an injunction against ALPO would suffice to vindicate the public interest, id. at 212. On the issue of attorneys' fees, the opinion includes no explicit findings supporting the partially offsetting fee awards. At a postjudgment...