Pennwalt Corp. v. Plough, Inc.
| Decision Date | 08 April 1982 |
| Docket Number | No. 81-2071,81-2071 |
| Citation | 676 F.2d 77 |
| Parties | PENNWALT CORPORATION, Appellant, v. PLOUGH, INC., Appellee. |
| Court | U.S. Court of Appeals — Third Circuit |
Matthew J. Broderick (argued), Aaron C. F. Finkbiner, III, Jane A. Soldoveri, Dechert, Price & Rhoads, Philadelphia, Pa., Richard D. Allen, Donald F. Parsons, Jr., Morris, Nichols, Arsht & Tunnell, Wilmington, Del., for appellant.
Joseph A. Rosenthal, Morris & Rosenthal, Wilmington, Del., Donald H. Green (argued), Robert A. Skitol, John F. Daly, Wald, Harkrader & Ross, Washington, D. C., John R. Stewart, Richard E. Duerr, Jr., Memphis, Tenn., for appellee.
Before HUNTER and HIGGINBOTHAM, Circuit Judges, and WEINER, District Judge. *
This appeal arises from Pennwalt Corporation's unsuccessful effort to obtain a preliminary injunction to prevent Plough, Inc., from running certain advertisements for its foot-care product, Aftate, until after those ads were reviewed by a panel of medical experts pursuant to a court-approved settlement agreement between the parties. It is Pennwalt's contention that Plough's ads constitute "efficacy representations" and, hence, are "covered claims" within the meaning of the settlement agreement. Because we have concluded that Plough's ads should have been submitted to the expert panel, we will reverse the order of the district court and remand for the entry of an order specifically enforcing the settlement agreement.
Pennwalt manufactures Desenex, an athlete's foot product, which is in competition with Plough's Aftate. Plough's 1979 advertisements for Aftate made direct comparisons to Desenex and asserted that it was a better product. In May of 1979, Pennwalt sued Plough under the Lanham Act alleging that Plough had made false, misleading and deceptive claims in its advertisements. Plough counterclaimed and, after lengthy discovery, the parties negotiated a settlement agreement. The district court, 516 F.Supp. 751, approved the agreement and dismissed the case without prejudice on April 24, 1981.
The settlement agreement establishes a procedure whereby "covered claims" are to be submitted to an expert panel for review before the claim is made in advertising. The settlement agreement defines a "covered claim" as:
any efficacy representation, verbal, visual or otherwise, in which (i) either party makes specific reference to the other party's Covered Product, either alone or with other athlete's foot products, by name or other reference, in an unfavorable comparison with the advertiser's own Covered Product, or (ii) either party states that "Nothing is better than" a Covered Product, that "Nothing is better than the medicine in" a Covered Product, or any like phrase containing "better than" or synonyms for "better than," or (iii) either party states that a Covered Product is "the best" athlete's foot product or contains "the best" medicine.
Efficacy, in turn, is defined as "(i) effectiveness in treating or relieving any sign or symptom of athlete's foot, (ii) ability to control or cure athlete's foot, (iii) effectiveness in preventing the occurrence or recurrence of athlete's foot or (iv) overall effectiveness in treating, controlling, curing, and/or preventing athlete's foot." The function of the expert panel is to determine whether a covered claim has a "substantial and reliable medical and scientific basis." If in the opinion of the expert panel the covered claim is without medical and scientific basis, the sponsoring party agrees to withdraw any advertisement containing such a claim.
Plough began its 1981 advertising campaign without submitting its claims to the expert panel and scarcely five weeks after the 1979 lawsuit was dismissed, Pennwalt filed the present action seeking to force Plough to comply with the settlement agreement. Plough's pre-settlement and post-settlement ads read as follows:
1979 Plough Ad 1981 Plough Ad
Aftate for Athlete's Foot is better than Aftate for Athlete's foot. With the
Desenex. Really better. If you've got medication doctors prescribe 10 to
athlete's foot and you're still using 1 over that in Desenex. Aftate
Desenex, you should know that Aftate is kills athlete's foot fungi on
better. In independent studies, the contact. It contains Tolnaftate, a
medication in Aftate has been proven to most effective medication against
be more effective in killing athlete's athlete's foot, and it's available
foot fungus than medication in Desenex. without a prescription. Aftate
In fact, doctors recommend the speeds healing of raw cracked skin
medication in Aftate 14 to 1 over the and helps prevent reinfection
medication in Desenex. 14 to 1. Aftate Doctors prescribe the medication
is better than Desenex. Really better. in Aftate 10 to 1 over that in
It's the killer. (Emphasis added) Desenex. (Emphasis added)
The question then is whether Plough's statement that "Doctors prescribe the medication in Aftate 10 to 1 over that in Desenex" constitutes a covered claim within the meaning of the settlement agreement. 1
The district court properly noted that the settlement agreement is a contract and subject to the rules of contract interpretation. As such, our standard of review of the district court's interpretation of the contract is plenary. Jersey Central Power & Light Co. v. Local Unions, IBEW, 508 F.2d 687 (3d Cir. 1975), cert. denied, 425 U.S. 998, 96 S.Ct. 2215, 48 L.Ed.2d 823 (1976); Emor, Inc. v. Cyprus Mines Corp., 467 F.2d 770 (3d Cir. 1972).
The trial judge had no hesitation in determining that Plough's 1981 ad is a comparative claim and "that someone reading or hearing the claim is expected to infer from it that Aftate is more effective in treatment than Desenex." Nevertheless, the trial judge held that the parties did not intend inferences or implications to be considered as covered claims. Rather, he concluded that only "claims (making) direct representations as to comparative efficacy were intended to be covered claims." In support of this conclusion, the trial court reasoned that an ad which requires only "a slight background in statistics, rather than any medical or scientific training" would logically not be meant for an expert panel.
The trial court's interpretation of the settlement agreement is not without plausibility as this is a close case. However, after careful consideration of the briefs and oral argument, we have concluded that Plough's 1981 ad does make an efficacy representation and should have been sent to the panel as a covered claim.
The parties to this action are sophisticated corporations which have voluntarily created an...
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