Cincinnati Sub-Zero Products v. Augustine Medical

• Decision Date: 26 February 1992
• Docket Number: No. C-1-91-832.,C-1-91-832.
• Citation: 800 F. Supp. 1549
• Parties: CINCINNATI SUB-ZERO PRODUCTS, INC., Plaintiff, v. AUGUSTINE MEDICAL, INC., et al., Defendants.
• Court: U.S. District Court — Southern District of Ohio

800 F. Supp. 1549

CINCINNATI SUB-ZERO PRODUCTS, INC., Plaintiff, v. AUGUSTINE MEDICAL, INC., et al., Defendants.

No. C-1-91-832.

United States District Court, S.D. Ohio, W.D.

February 26, 1992.

COPYRIGHT MATERIAL OMITTED

Todd Brian Portune, Cohen, Todd, Kite & Stanford, Cincinnati, Ohio, for plaintiff.

Timothy Seymour Black, Graydon, Head & Ritchey, Cincinnati, Ohio, for defendants.

ORDER

HERMAN J. WEBER, District Judge.

This controversy involves two medical equipment companies battling for greater shares of the market for their medical products. Each party seeks preliminary injunctive relief preventing the other from disseminating false, misleading, inaccurate, or disparaging information to their customers.

Plaintiff Cincinnati Sub-Zero Products, Inc. (CSZ), an Ohio corporation with its principal place of business in Cincinnati, Ohio, alleges that defendants violated the Lanham Act, 15 U.S.C. § 1125; the Sherman Anti-Trust Act, 15 U.S.C. § 1; the Clayton Act, 15 U.S.C. § 14; the Magnuson-Moss Warranty Act, 15 U.S.C. § 2302; and, the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961-64. CSZ also claims that defendants violated Ohio law namely, Ohio's Unfair Competition and Deceptive Trade Practices statutes, Ohio Rev.Code §§ 4165.01-04; Ohio's False Advertising statute, Ohio Rev.Code § 3715.68; and, Ohio's common law prohibition against tortious interference with contractual or business relationships.

Defendants are Augustine Medical, Inc. (Augustine Medical), a Minnesota corporation with its principal place of business in Eden Prairie, Minnesota; Cardinal Breathing Specialties, Inc. (Cardinal Breathing), a regional distributor of Augustine Medical products, whose principal place of business is in Louisville, Kentucky; Dr. Scott Augustine, M.D., Chief Executive Officer and Medical Director of Augustine Medical; and, Charles Smith, Vice President of Operations at Cardinal Breathing. Defendants maintain that this Court lacks personal jurisdiction over the individual defendants Dr. Augustine and Smith. Defendants assert three counterclaims: CSZ violated the Lanham Act; CSZ committed acts constituting unfair competition or deceptive trade practices in violation of Ohio Rev.Code § 4165.02; and CSZ's promotion of certain products constituted false advertising in violation of Ohio Rev.Code § 3715.68.

This matter is before the Court upon the parties' requests for preliminary injunctive relief (doc. nos. 2, 6, 9, 10, 11, 35, 36). On December 5, 1991, pursuant to the record of a preliminary conference, the Court set this matter for an evidentiary hearing, and advanced and consolidated the parties' requests for injunctive relief with a hearing on the merits of all issues, other than jury issues, pursuant to Fed.R.Civ. p. 65(a)(2). (doc. no. 4). The Court held an evidentiary hearing from December 30, 1991 to January 3, 1992. The parties have submitted proposed findings of fact and conclusions of law (doc. nos. 10, 11, 35, 36).

Findings of Fact

CSZ distributes, manufactures, and supplies a convective air patient-warming system known as the WarmAir Hyperthermia System (the WarmAir System). Augustine Medical manufactures and sells a convective air patient-warming system known as the Bair Hugger Patient Warming System (the Bair Hugger System). Health care providers use these products to combat hypothermia and to re-warm patients following surgery. The products are most often used in post-anesthesia care units (PACUs) and intensive care units (ICUs) at hospitals. There are approximately 5,000 hospitals in the United States which contain either a PACU or an ICU. The products are not available to the general public since both require a physician's order for use.

Both warming systems contain two elements: a warming unit and a disposable warming device. The disposable device is placed near a patient and is connected to the warming unit with a flexible plastic hose. The warming unit fills the disposable device with warm air and, when covered with a sheet or blanket, each system surrounds a patient with a pocket of air that is warmer than room temperature. Both CSZ and Augustine Medical claim that their products are safe and effective methods of raising a patient's body temperature.

CSZ's disposable is a U-shaped, warming tube (the Warming Tube) that connects to a Warming Unit with a cardboard "tee." The Warming Tube rests on the bed next to a patient and partially encircles the patient from the shoulder area to the feet. When the Warming Unit fills the Warming Tube with warm air, a sheet or blanket is draped over the Warming Tube and patient to trap warm air around the patient.

Augustine Medical's disposable is a warming cover (the Warming Cover), which is blanket-like on one side and plastic on the other. The Warming Cover is designed to rest on or hover slightly above a patient lying in bed when a warming unit fills it with warm air. Like a sheet or blanket, it traps warm air around the patient.

Defendants began marketing its Bair Hugger System in 1988 and have enjoyed substantial success. Defendants' system was the first convective air patient-warming product on the market in 1988. Health care providers have used the Bair Hugger System in more than two million patient-warming therapies in PACUs and ICUs at hospitals throughout the continental United States. Nine studies, published as peer-review articles, confirm the validity of defendants' system. CSZ challenges the independence of the researchers who performed these studies. At present, defendants continue to market and sell the Bair Hugger System in the United States.

Although CSZ did not market a convective-air system in 1988, CSZ did market a patient-warming system consisting of a circulating-water mattress. Leonard Berke, CSZ's president, created the WarmAir System after learning about the Bair Hugger System. Berke testified that he created the WarmAir System in response to problems experienced by health care providers who used defendants' system.

CSZ developed its WarmAir System to be sold as a complete system containing both the Warming Unit and the disposable Warming Tube. CSZ, however, also designed the Warming Tube to be compatible with defendants' Warming Unit in order to solve or circumvent the problem of convincing health care providers to pay the high cost of replacing defendants' Warming Unit with CSZ's Warming Unit. CSZ presently markets and sells its products for use in PACU's and ICU's located in clinics and hospitals across the United States.

CSZ's disposable Warming Tube can be attached to defendants' Warming Unit. CSZ has represented to health care providers that its Warming Tube, when connected to the Bair Hugger Warming Unit, is as safe and as effective as the Bair Hugger Warming Cover. Prior to selling its WarmAir System, CSZ safety tested the use of its Warming Tube with defendants' Warming Unit. Defendants challenge the safety and efficacy of attaching any device, other than its Warming Cover, to its Warming Unit.

CSZ began marketing and selling the WarmAir System in approximately May 1991. Berke testified that during the first few months sales exceeded his expectations. Sales declined dramatically, according to CSZ, around September 30, 1991 when Augustine Medical mailed a letter to approximately 1,600 current customers (def. ex. 25). The letter, written and signed by Dr. Augustine in his capacity as Chief Executive Officer of Augustine Medical, informed Augustine Medical's customers that use of other warming devices with Augustine Medical's Warming Unit was neither safe nor effective. Dr. Augustine supported this claim with a general reference to "laboratory testing" and stated, "products that inject warm air into a transverse tube at the patient's feet subject the patient to the risk of thermal injury." Id. at 1. Augustine Medical also disclaimed any liability for patient injuries caused by attaching "a competitor's warming cover" to its Warming Unit. Id. at 2. Augustine Medical emphasized that FDA approval did not exist for use of competitors' products with its Warming Unit. Augustine Medical declared its lifetime warranty "null and void if the Warming Unit is not used with the Bair Hugger Warming Covers." Id.

When they sent the letter, defendants were aware of CSZ's promotional and sales activities. Both Dr. Augustine and David Neal, Augustine Medical's Director of Marketing, admitted that the letters were one part of an overall company marketing mission at Augustine Medical to market the Bair Hugger System. Augustine Medical sent some letters to health care providers with a PACU or ICU located in the Southern District of Ohio.

On or about October 15, 1991, defendant Smith, Vice President of defendant Cardinal Breathing, one of Augustine Medical's dealers, distributed to some existing customers a notice labeled "Possible Hazard Alert and Possible Loss of Product Warranty" (the Hazard Notice) (pl. exh. 7B). The Hazard Notice related to CSZ's WarmAir System. It contained warnings about a lack of FDA approval, warnings of possible warranty revocation, statements about the risk of thermal injury to patients when using competitive products, comments regarding alleged safety concerns, and statements about "unbalancing" Augustine Medical's warming system by using competitive materials. Id. Defendant Smith, in his capacity as Vice President of Operations at Cardinal Breathing, drafted the Hazard Notice and sent it to existing CSZ customers in the Southern District of Ohio. In preparing the Hazard Notice, Smith relied upon representations received from Augustine Medical. Smith admitted that neither he nor Cardinal conducted any tests to verify or support the statements in the Hazard Notice.

On October 28, 1991, David Neal, Augustine Medical's Director of Marketing, sent a letter to Augustine Medical's customers. In the letter Neal stated:

Bair Hugger Therapy takes less time to warm patients than the

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