Upjohn Company v. Schwartz

• Decision Date: 21 June 1957
• Docket Number: Docket 23540.,No. 288,288
• Parties: The UPJOHN COMPANY, Plaintiff-Appellant-Appellee, v. David SCHWARTZ, doing business as Bryant Pharmaceutical Company, Defendant-Appellee-Appellant.
• Court: U.S. Court of Appeals — Second Circuit

246 F.2d 254 (1957)

The UPJOHN COMPANY, Plaintiff-Appellant-Appellee, v. David SCHWARTZ, doing business as Bryant Pharmaceutical Company, Defendant-Appellee-Appellant.

No. 288, Docket 23540.

United States Court of Appeals Second Circuit.

Argued April 3 & 4, 1957.

Decided June 21, 1957.

Kenyon & Kenyon, New York City (Ralph L. Chappell and Hugh A. Chapin, New York City, of counsel), for plaintiff-appellant-appellee.

Arthur D. Herrick, New York City (Morton L. Leavy, New York City, of counsel), for defendant-appellee-appellant.

Before CLARK, Chief Judge, LUMBARD, Circuit Judge, and LEIBELL, District Judge.

LEIBELL, District Judge.

The Upjohn Company, a manufacturer and distributor of pharmaceutical products, instituted this action for unfair competition and for trademark infringement against David Schwartz, doing business as Bryant Pharmaceutical Company. Jurisdiction of the District Court over the unfair competition claims was based upon diversity of citizenship, and the Federal Trademark Statute, 15 U.S. C.A. § 1121, covered the other claims.

The complaint sets forth fifteen causes of action. Eight drug preparations of plaintiff and six registered trade-marks under which they were sold, are involved.¹ Two causes of action are pleaded as to each of the drug preparations sold under the six registered trademarks: one alleging unfair competition and the other trademark infringement. The remaining three causes of action are based upon unfair competition; one with respect to Ferrated Liver in tablet form; another, Ferrated Liver with Folic Acid, also in tablet form; and the last alleging a claim of unfair competition, collectively, as regards all of plaintiff's eight drug products.

Defendant's corresponding eight drug products are: (1) Capulets; (2) Brycaps; (3) Hi B & C; (4) Iron and Liver Capsules (Green); (5) Iron and Liver Tablets, Sugar coated Green; (6) Iron and Liver, with Folic Acid, Tablets, Sugar coated Red; (7) Syrocol; and (8) Neutrapect. A comparison of the physical appearance, size, shape and color of plaintiff's and defendant's respective products in capsule or tablet form shows a close similarity (except Unicap and Capulets) as the trial judge found.²

In each instance plaintiff had no monopoly of the formula used. It was generally known and any drug manufacturer could use it. Nor did plaintiff have any monopoly of a capsule or a tablet of a particular size, shape or color. They were functional features and could not acquire any secondary meaning. Essentially different drug preparations are put out in tablets or capsules of the same shape, size and color. The defendant could put up his drug preparations, using the same formula and even the same size and color for his capsules and tablets, if he took adequate precautions to prevent the substitution of his products for plaintiff's, a result that was likely to happen due to the close similarity of the two products, and if he did not resort to any deceitful practices.

The trial was held without a jury. The trial judge filed an opinion, in which he held for the defendant on all causes of action, except the eleventh which was for infringement of the trademark "Cheracol." As to that, the court found that 131 F.Supp. 655 "defendant's trade-name Syrocol infringes plaintiff's registered trade-mark "Cheracol," holding that "while there are differences in spelling, the two marks are strikingly similar in sound." Accordingly judgment was rendered "permanently enjoining defendant from using the trade name Syrocol for its cough syrup," and dismissing all other claims of the plaintiff.

As to the nine causes of action alleging unfair competition, the court below found that none of plaintiff's products had acquired a secondary meaning; and that plaintiff had failed to show that the "make-up" of its products constituted a mark of distinction which identified their source as plaintiff. The court also found that the products of both plaintiff and defendant "though sometimes sold pursuant to a memorandum prescription," could, under the law, be dispensed without a prescription; that "there is no doubt that as between plaintiff and defendant plaintiff is the first comer, and that the similarity between plaintiff's and defendant's products is not a coincidence but the result of defendant's deliberate copying"; and that since "defendant has not offered any valid excuse for so imitating plaintiff's products," it follows that "his purpose could only be to benefit by the demand that plaintiff has created for such products." The trial court, however, refused to grant plaintiff any injunctive relief holding as a matter of law, that in the absence of a showing that plaintiff's products had acquired "secondary meaning," the defendant could not be found to have engaged in unfair competition because there was no proof that "there were instances of actual palming-off of defendant's products for plaintiff's products by defendant or others"; and that evidence of a suggestion made by a defendant's salesman to a druggist to whom defendant sold its products that defendant's products could be substituted for plaintiff's was not sufficient for injunctive relief.

Both plaintiff and defendant have appealed from the judgment below. Plaintiff contends that the court below erred in misconstruing the New York law applicable to the facts of this case, and in dismissing the claims for unfair competition.³ Defendant on its cross-appeal contends that the court below was in error when it held that defendant's mark "Syrocol" infringes plaintiff's trademark "Cheracol." Defendant argues that the marks in issue are "unique and distinct and are not confusingly similar."

At the trial, defendant's deliberate copying of the drug ingredients and of the appearance of plaintiff's products was not challenged and many physical exhibits established that fact. The possibility of unauthorized substitution by druggists of defendant's products for plaintiff's products in filling prescriptions was equally apparent. There was also proof that defendant had cards printed (Exs. 16 and 62) listing its products, with a blank line alongside each, on which (Ex. 16) one of defendant's salesmen (Gottlieb) had written the name of plaintiff's corresponding products, which admittedly was an aid to a druggist in making substitutions; and that another salesman, Kass, had given another druggist a similar card (Ex. 62) for the purpose of making substitutions. Defendant's products were sold to druggists at half the price of plaintiff's products. The great difference in price would be an incentive to a druggist to substitute defendant's products for plaintiff's. On all the proof the plaintiff was entitled to some form of injunctive relief, to prevent the continuance of the unfair competition of the defendant, even though specific instances of palming-off in an actual sale by a druggist had not been shown. However, a sale by the manufacturer to a druggist, with the suggestion that the products sold could be substituted for a competitor's products, is itself a "type of palming-off." Defendant's intent to compete unfairly and his use of deceitful practices had been shown.

The confusion of defendant's products with plaintiff's products was defendant's work. His purpose was to benefit from the favorable repute which plaintiff had established for its products. The possibility of substitution had been created by defendant. The suggestion of substitution had been made by defendant's agent. To require that in addition it must be shown that the druggists did what defendant had made it possible for them to do, and had even suggested that they do, and which was to their profit to do, before a court of equity will intervene, runs counter to the inherent power of the court of equity to prevent an intended fraud from reaching its full fruition. Martin H. Smith Co. v. American Pharmaceutical Co., 270 N.Y. 184, 200 N.E. 779, is a case involving suggested as well as actual substitution of drug preparations. The court there held 270 N.Y. at page 187, 200 N.E. at page 780: "There is also proof that defendants' selling agent wrote upon their printed price list `Ergot-Apiol Capsules Similar Packages to Smith's' and delivered it to a druggist." The proof also indicated many instances of actual substitution of defendant's product for that of plaintiff. But the suggestion to the druggist of the possibility of substitution was a method of marketing adopted by the manufacturer that was itself unfair, since its purpose was to induce actual substitution by the druggist.

William R. Warner & Co. v. Eli Lilly & Co., 265 U.S. 526, 44 S.Ct. 615, 68 L.Ed. 1161, is a leading case, involving drug preparations and their substitutions. Justice Sutherland writing for a unanimous bench, stated 265 U.S. at pages 530-531, 44 S.Ct. at page 617:

"That no deception was practiced on the retail dealers, and that they knew exactly what they were getting is of no consequence. The wrong was in designedly enabling the dealers to palm off the preparation as that of the respondent. Citing cases. One who induces another to commit a fraud and furnishes the means of consummating it is equally guilty and liable for the injury."

In that case it fairly appeared "that petitioner's agents induced the substitution, either in direct terms or by suggestion or insinuation."

At the trial of the case at bar, it was developed that both the plaintiff and defendant sell their pharmaceutical products in bottles of various sizes. The small bottles, holding 50 or 100 capsules or tablets, are for direct over-the-counter sale by the druggist in the original package. Large bottles, containing 500 or 1,000 capsules or tablets, are used to supply the druggist with large quantities at somewhat lower prices and the druggist can draw on their contents in filling prescriptions or in repackaging for sale in small quantities without using any trademark or tradename for the product.

As the District...