Osmose Inc v. Viance LLC

• Decision Date: 30 July 2010
• Docket Number: No. 09-15563.,09-15563.
• Parties: OSMOSE, INC., Plaintiff-Counter Defendant-Appellee,Timber Products Inspection, Inc., Plaintiff,v.VIANCE, LLC, Rockwood Holdings, Inc., Stephen B. Ainscough, a.k.a. Steve Ainscough, Seifollah E. Ghasemi, a.k.a. Seifi Ghasemi, Christopher R. Shadday, a.k.a. Chris Shadday, Defendants-Counter-Claimants-Appellants,v.Paul Goydan, Cross-Defendant-Counter-Defendant,Stephen C. Reeder, et al., Counter-Defendants.
• Court: U.S. Court of Appeals — Eleventh Circuit

612 F.3d 1298

OSMOSE, INC., Plaintiff-Counter Defendant-Appellee,

Timber Products Inspection, Inc., Plaintiff,

v.VIANCE, LLC, Rockwood Holdings, Inc., Stephen B. Ainscough, a.k.a. Steve Ainscough, Seifollah E. Ghasemi, a.k.a. Seifi Ghasemi, Christopher R. Shadday, a.k.a. Chris Shadday, Defendants-Counter-Claimants-Appellants,

v.Paul Goydan, Cross-Defendant-Counter-Defendant,Stephen C. Reeder, et al., Counter-Defendants.

No. 09-15563.

United States Court of Appeals Eleventh Circuit.

July 30, 2010.

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Courtland L. Reichman, Russell Edward Blythe, Jill Wasserman, King & Spalding, Atlanta, GA, for Defendants-Counter-Claimants-Appellants.

Carl H. Anderson, Jr., Jack N. Sibley, Robert S. Thompson, Warner S. Fox, Hawkins & Parnell, LLP, Atlanta, GA, Anthony Gerard Hopp, Robert L. Shuftan, Wildman, Harrold, Allen & Dixon, LLP, Chicago, IL, Robert B. Gilbreath, Jenkins & Gilchrist, P.C., Dallas, TX, for Plaintiff-Counter Defendant-Appellee.

Appeal from the United States District Court for the Northern District of Georgia.

Before BLACK, HULL and ANDERSON, Circuit Judges.

ANDERSON, Circuit Judge:

This appeal concerns a preliminary injunction entered in a false advertising case under § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a). Viance, LLC (“Viance”) released several advertising statements expressing serious safety concerns regarding the use of wood treated with Osmose, Inc.'s (“Osmose”) copper-based wood preservative called MCQ.¹ In response to these advertisements, Osmose brought this suit against Viance, alleging that the advertisements constituted false advertising in violation of § 43(a) of the Lanham Act and various state laws because certain studies performed by Viance did not support the broad safety concerns raised in the advertisements. Viance responded in kind via counterclaims, alleging that Osmose had engaged in false advertising of its own by releasing advertisements that inaccurately bolstered its MCQ product. Each side moved for a preliminary injunction. After a lengthy hearing, the district court granted Osmose's motion for a preliminary injunction against Viance, but denied Viance's motion for a preliminary injunction against Osmose. Viance appeals only the entry of injunctive relief against it. After careful review, we affirm in part, vacate one provision of the injunction and remand the balance with instruction that it be modified to remove any First Amendment concerns.

I. BACKGROUND

Viance and Osmose are competitors in the wood preservative market. Each develops, manufactures, and sells preservatives used to protect wood against rot, decay, and insect attack. Both companies sell copper-based wood preservatives, but the products differ in how the copper is introduced in the wood. Viance manufactures and sells a preservative called ACQ, which stands for alkaline copper quaternary. In ACQ, copper is solubilized in a solution. Throughout the early part of this decade, ACQ was the dominant product in the market. At that time, Osmose used the technology in its own products under a license from Viance.

In the early 2000s, Osmose also began to develop a new technology that used micronized copper suspended in solution, instead of solubilized copper as used in ACQ. Osmose trademarked this technology and markets it as MicroPro. Osmose used the MicroPro technology to create a wood preservative to compete with ACQ. It called this new preservative MCQ, which stands for micronized copper quaternary. Osmose began marketing its MCQ product in early 2006. Osmose has obtained certification from the ICC Evaluation Service-an association that issues evaluation reports for building products and material to determine whether they comply with model building codes-for its MCQ product, but MCQ has not been certified by the America Wood Protection Association (AWPA). Viance's ACQ is approved by both organizations. The development of MCQ has eaten into ACQ's share of the wood preservative market.

After the introduction of MCQ into the market, Viance began testing the efficacy of MCQ.

A Viance's Testing

1. SEM Testing

Viance's first step was to purchase commercially available MCQ-treated wood and send it to a lab to be analyzed using a scanning electron microscope (SEM). Viance theorized that, unlike the soluble copper ions found in ACQ, the suspended micronized copper particles found in MCQ might not penetrate the wood in sufficient quantities to provide the necessary protection against microorganisms that produce soft rot. It sought to verify this concern through SEM testing. According to Viance, the SEM results verified its doubts because the studies showed insufficient penetration of copper into the cell walls and a concentration of copper in the cell walls of MCQ-treated wood that was significantly lower than ACQ-treated wood. Dr. Kevin Archer of Viance presented the findings at the 2007 International Research Group on Wood Protection conference. In his presentation, Dr. Archer concluded that the copper concentration in the cell walls of MCQ-treated wood was significantly lower than in wood treated with ACQ but that the long term performance implications in ground contact were unknown. Dr. Archer did not produce a paper describing the methods and results of the SEM tests in conjunction with his presentation.

2. Field Stake Testing

Viance then undertook field stake tests on MCQ-treated wood. Field stake tests are an accepted method of testing the effectiveness of a wood preservative. In the tests, stakes are treated with preservative and placed in the soil. The stakes are then evaluated periodically for decay. Stakes treated with the preservative being tested are often measured against untreated stakes and stakes treated with a proven preservative to evaluate the tested preservative's relative performance. The tests performed by Viance began in April and May of 2007 in Hilo, Hawaii, and Tanegashima, Japan. For these particular tests, Viance bought commercially available square posts treated with either ACQ or MCQ and cut stakes from the corners of each.² Viance hired Dr. Darrel Nicholas, a wood scientist at Mississippi State University, to inspect and rate the stakes. He concluded that MCQ stakes were “performing poorly” and that “it is apparent that the MCQ formulation is not performing in ground contact as would be expected for a commercial wood preservative.” He qualified his findings, however, by noting that additional data would be required to confirm his concern about the performance of MCQ-treated products. Dr. Nicholas has not inspected the stakes since his initial inspection.

3. In-Service Testing

Viance then conducted an in-service survey of MCQ-treated wood. Viance hired a private investigation firm to search central Florida for in-use MCQ-treated posts showing signs of decay. In July 2008, that firm prepared a report noting that it had visited eighteen sites and interviewed numerous retailers and builders and that none had experienced or heard of any problems regarding premature decay in MCQ-treated products.

Viance continued to search. In November 2008, it discovered posts allegedly showing premature decay in Baton Rouge, Louisiana. Viance hired Timber Products Inspection, Inc. (“Timber Products”), an independent company that inspects and tests wood products, to test the eleven posts removed from the Baton Rouge site. Viance chose the posts to extract. Timber Products rated the posts on the AWPA's E7 scale, a 10 point scale of soundness in which 10 represents sound wood and 0 represents total failure.³ On November 14, 2008, Timber Products issued a report (“November 2008 TP Report”) in which it rated all eleven MCQ posts removed from the Louisiana site as a 9 or 9.5 on the scale. Timber Products also noted that its report should not be considered as acceptance or rejection for the grade, treatment or physical quality of the tested material.

Sometime in late 2008 or early 2009, Viance discovered posts allegedly showing signs of premature decay in Alpharetta, Georgia. The posts were allegedly installed in September or October of 2007. Viance selected forty-five posts and had Timber Products assign them a visual rating. Timber Products also took fourteen of the forty-five posts and subjected them to a more thorough investigation. On January 21, 2009, Timber Products released another report summarizing its findings (“January 2009 TP Report”). Of the forty-five posts visually inspected, twenty-six posts rated a 10, eleven rated a 9.5, five rated a 9, two rated an 8, and one rated a 7. Of the fourteen posts subjected to further examination, four posts rated a 10, five posts rated a 9.5, two posts rated a 9, two posts rated an 8, and one post rated a 7. The January 2009 TP Report contained the same disclaimer that the report should not be considered as acceptance or rejection for the grade, treatment or physical quality of the tested material.

Over the course of its search, Viance estimates that it inspected roughly 800 posts, two-thirds of which were treated with MCQ. Thus, they investigated roughly 530 MCQ-treated posts.

B. Viance's Advertisements

After receiving the Timber Products Reports, Viance issued two press releases titled: “Decaying 4x4 Posts Confirm Performance Concerns with Micronized Copper Wood Preservatives” and “Hidden Danger in Your Backyard.” The press releases contained various statements related to both its testing and safety concerns regarding the use of MCQ-treated wood. For instance, one release begins by stating: “Viance has uncovered evidence that micronized copper quaternary (MCQ™) preservative has failed to prevent decay of 4x4 wood posts at several subdivisions in the southeastern United States.” Another release begins: “Findings on 4x4 posts at residential locations reveal dramatic evidence that wood treated with micronized copper preservative (MCQ™) is decaying more rapidly than anticipated.” The releases go...