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Merrell-National Laboratories Inc. v. Zenith Laboratories Inc.

filed: June 13, 1978.

MERRELL-NATIONAL LABORATORIES, INC., A CORPORATION APPELLEE,
v.
ZENITH LABORATORIES, INC., A CORPORATION, PARAMOUNT SURGICAL SUPPLY CORP., A CORPORATION, S. E. NICHOLS, INC., A CORPORATION, AND DAVID G. RAPPAPORT, D/B/A DANZIS PHARMACY, AN INDIVIDUAL; ZENITH LABORATORIES, INC. AND PARAMOUNT SURGICAL SUPPLY CORP., APPELLANTS



APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY D.C. Civil No. 76-2440.

Hunter, Weis and Garth, Circuit Judges. Garth, Circuit Judge, concurring.

Author: Hunter

HUNTER, District Judge.

Zenith Laboratories, Inc. and Paramount Surgical Supply Corp. have brought this interlocutory appeal challenging a preliminary injunction issued against them and the denial of a motion requesting redetermination of that injunction. The appeal has been met with a motion to dismiss for untimeliness and for want of an appealable order. We find that our jurisdiction is limited to consideration of the motion denying redetermination of the injunction, and hold that the district court did not abuse its discretion in denying that motion.

I.

Plaintiff below, Merrell-National Laboratories, Inc. brought this diversity action in the District of New Jersey charging defendants with unfair competition and false representations. The case involves two pills manufactured and sold by plaintiff under the trademarks Tenuate and Tenuate Dospan. Both tablets are forms of diethylpropion hydrochloride (DEP).

Defendant Zenith Laboratories, Inc. and its wholly-owned subsidiary, Paramount Surgical Supply Corp., manufacture and distribute generic (non-brand name) drugs, including two forms of DEP tablets. Defendants' DEP tablets are almost identical in appearance to plaintiff's two tablets of equivalent dosage, with the exception of the lettering stamped on the face of the tablets. Zenith and Paramount describe their DEP products in promotional literature as "similar to" and "comparable to" Tenuate and Tenuate Dospan.

Plaintiff alleges in its complaint that defendants Zenith and Paramount, by imitating the appearance of plaintiff's products, placed an instrumentality of fraud in the hands of the pharmaceutical trade. In addition, the complaint contains allegations that two New Jersey pharmacists, also named as defendants, "palmed off" defendants' products in filling prescriptions which specified plaintiff's Tenuate or Tenuate Dospan. Zenith and Paramount are also charged with false advertising. Merrell-National brings its action under New Jersey common law of unfair competition, the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1 et seq., and under false advertising provisions of the Lanham Act, 15 U.S.C. ยง 1125(a).

Merrell-National sought a preliminary injunction enjoining defendants Zenith and Paramount from manufacturing, distributing and selling of its DEP tablets in a form which simulates the appearance and configuration of its Tenuate and Tenuate Dospan products, from advertising their tablets as "comparable to" or "similar to" plaintiff's, and from passing off their product as plaintiff's.*fn1

In support of the preliminary injunction, Merrell-National offered several affidavits. Included in the affidavits were evidence of nine instances, in New Jersey and elsewhere in the country, of pharmacists using defendants' products to fill prescriptions written for plaintiff's. In addition, one incident was recounted in which defendant Paramount filled an order for Tenuate and Tenuate Dospan with Zenith tablets. Affidavits from plaintiff's experts indicated that the passing off was possible only because the ultimate consumer, the patient, was confused by the similar appearance of the two companies' drugs. Defendants filed no counter-affidavits and relied solely on legal argument to oppose entry of the preliminary injunction.

The district court granted the preliminary injunction. The court found that under New Jersey law the allegations and evidence of "passing off" or "palming off" defendants' tablets as plaintiff's was actionable at least against the offending druggists as unfair competition. It further found that the manufacturer and distributor of the drug could be liable for placing into a dealer's hands a product which they could "reasonably anticipate may be easily passed off as the goods of another." Union Carbide Corp. v. Ever-Ready Inc., 531 F.2d 366, 384 (7th Cir.), cert. denied, 429 U.S. 830, 50 L. Ed. 2d 94, 97 S. Ct. 91 (1976); see Stewart Paint Manufacturing Co. v. United Hardware Distributing Co., 253 F.2d 568, 575 (8th Cir. 1958); Coca-Cola Co. v. Snow Crest Beverages, Inc., 64 F. Supp. 980 (D. Mass. 1946), aff'd, 162 F.2d 280 (1st Cir.), cert. denied, 332 U.S. 809, 92 L. Ed. 386, 68 S. Ct. 110 (1947). Although no New Jersey case had been decided on the latter ground, the judge concluded "the general tenets of New Jersey unfair competition law as well as the principles espoused in the above-cited extra-jurisdictional cases, should serve as an adequate basis for a decision herein."

After balancing the probability of plaintiff's success on merits, the irreparable harm to plaintiff from the alleged unfair competition, the interests of the defendant and of the public, see e.g. A. O. Smith Corp. v. FTC, 530 F.2d 515, 525 (3d Cir. 1976), the court concluded that a preliminary injunction was justified. The order was entered on April 7, 1977.

On May 3, 1977 defendant filed a "Motion for Re-Argument and Re-Determination of Motion for Preliminary Injunction" under Local Rule 12(I) of the District Court for the District of New Jersey.*fn2 Under Rule 12(I), such a motion is to be accompanied by a memorandum setting forth "matters or controlling decisions" which the movant believes the court overlooked. The papers in support of defendant's motions pointed to no new legal material. For the first time in the case, however, defendants submitted factual affidavits opposing the preliminary injunction. The affidavits raised two major factual issues. First, defendants challenged plaintiff's allegations that pharmacists had illegally "passed off" defendant's tablets for plaintiff's. The affidavits contained evidence that the substitutions were authorized by state laws permitting the use of generic equivalents to fill a prescription for a trademarked drug. Second, the color and shape of defendants' tablets was said to have the function of facilitating quick identification of the active component of the tablets in case of emergency. Merrell-National submitted counter-affidavits disputing these factual contentions. The motion was heard on June 13, 1977.

In an opinion filed June 15, the district court denied defendant's motion for redetermination of the injunction. The court stated that the defendants' papers had failed to show any "matters or controlling decisions which . . . the court has overlooked." The court stated: "The 'new' facts in opposition presented by the defendants at this time are facts which should have been available to them at the time of the prior hearing and which they should have utilized therein. No reason was given in their brief or at oral argument as to why these facts are now presented to this Court for the first time." As an alternate basis of decision, the district court concluded that the plaintiff's materials had "successfully disputed the accuracy and completeness of some of defendant's 'new' facts." The court's ...


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