Mislabeled Dietary Supplement Loses Trademark Priority; Drug Importation Ban Escapes Antitrust Liability
By: RICHARD J. WEGENER
April 2007
Sometimes food and drug law is the stage for some interesting cases, especially when it intersects with a different regulatory scheme.
An excellent example of this tense interplay between food and drug law and other public objectives is January’s decision from the Ninth Circuit dealing with the effects of a dietary supplement's labeling violation on the product’s trademark priority, and the Eighth Circuit's drug importation case where labeling shortcomings had implications for the court's antitrust analysis.
CreAgri, Inc. v. USANA Health Sciences, Inc.
In CreAgri, inc. v. USANA Health Sciences, Inc. (January 16, 2007), the Ninth Circuit Court of Appeals denied trademark priority where the first user of the mark failed to comply with federal labeling requirements. The facts were fairly simple.
In the spring of 2001, Appellant CreAgri, Inc. ("CreAgri") began selling Olivenol, a dietary supplement containing an apparently beneficial antioxidant found in olives called hydroxytyrosol. More than a year after CreAgri began selling Olivenol, USANA Health Sciences, Inc. ("USANA") filed an intent to use application with the Patent and Trademark Office ("PTO") asserting that it intended to begin selling a series of vitamins, minerals, and nutritional supplements containing an ingredient called Olivol, which like Olivenol, is an olive extract containing apparently beneficial polyphenols. USANA began selling these products in August 2002, the PTO granted USANA's application, and "Olivol" was listed on the principal register with a priority date of June 18, 2002. CreAgri’s attack on USANA’s registration failed, however, because its product was not labeled in compliance with the Federal Food, Drug and Cosmetic’s Act ("F, D & C Act").
By CreAgri's own admission, each tablet sold under the Olivenol name before June 18, 2002 contained, at most, 3mg of hydroxytyrosol, while Olivenol's label claimed that each tablet contained either 25mg or 5mg of this nutrient. 21 C.F.R. § 101.9(g)(4)(i), however, requires that the actual amount of a nutrient added to a product be "at least equal to the value for that nutrient declared on the label." Because the actual amount of hydroxytyrosol (at most 3mg) was less than the values for hydroxytyrosol declared on Olivenol's labels (25mg and 5mg), CreAgri's product was, at all relevant times, labeled in violation of 21 C.F.R. § 101.9(g)(4)(i).
According to the opinion:
"It has long been the policy of the PTO's Trademark Trial and Appeal Board that use in commerce only creates trademark rights when the use is lawful. [citations omitted] At least one circuit has adopted and applied this rule. See United Phosphorus, Ltd. v. Midland Fumigant, Inc., 205 F.3d 1219, 1225 (10th Cir. 2000). A question of first impression in this circuit, we also agree with the PTO's policy and hold that only lawful use in commerce can give rise to trademark priority.
The rationale for this rule is twofold. First, as a logical matter, to hold otherwise would be to put the government in the "anomalous position" of extending the benefits of trademark protection to a seller based upon actions the seller took in violation of that government's own laws. See In re Stellar, 159 U.S.P.Q. at 51. It is doubtful that the trademark statute- passed pursuant to Congress's power under the Commerce Clause 'was . . . intended to recognize . . . shipments in commerce in contravention of other regulatory acts promulgated [by Congress] under [that same constitutional provision].' Id. Second, as a policy matter, to give trademark priority to a seller who rushes to market without taking care to carefully comply with the relevant regulations would be to reward the hasty at the expense of the diligent."
In re Canadian Import Antitrust Litigation
The Eighth Circuit recently determined that prescription drug consumers in the United States cannot pursue a Sherman Act §1 claim seeking damages and injunctive relief from drug companies in connection with their alleged suppression of the importation of Canadian prescription drugs for personal use. In re Canadian Import Antitrust Litigation, 470 F.3d 785 (8th Cir. 2006).
The Eighth Circuit endorsed district court rulings that the Canadian prescription drugs at issue were “misbranded” and “unapproved” under the U.S. Federal Food, Drug and Cosmetics Act. As a result, they cannot be imported legally into the United States. The illegality of the conduct was not a “myth,” as the plaintiffs argued.
The plaintiffs' case was not aided by the alleged anticompetitive nature of the conduct, the court ruled. There was no antitrust injury. The higher prices for prescription drugs which was the basis for plaintiffs' claims were caused by the regulatory structure in the United States, not by the defendants' allegedly illegal behavior. Since the alleged injury was not an antitrust injury, the plaintiffs lacked standing to pursue this claim.
Why Are These Cases Important?
Increasingly, businesses must contend with the tense interplay between different regulatory schemes. Often, the point of intersection between competing schemes yields interesting results.
For example, the failure to comply with one pervasive regulatory scheme, such as the F, D & C Act, can have implications for trademark registration. The Ninth Circuit’s decision may also be applicable when other regulatory schemes have not been diligently followed, such as the Fair Packaging & Labeling Act, the Federal Insecticide, Fungicide and Rodenticide Act and others.
Finally, behavior consistent with one regulatory scheme, such as the F, D & C Act, cannot serve as the basis for a claim under the federal antitrust laws. The courts are rightfully reluctant to punish the competitor who complies with relevant law or reward the competitor who fails to comply.