Abbott Labs v. Unlimited Beverages

[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
U.S. COURT OF APPEALS
________________________ ELEVENTH CIRCUIT
JULY 14 2000
THOMAS K. KAHN
Nos. 99-4223 & No. 99-4363 CLERK
________________________
D. C. Docket No. 93-08576-CV-JLK
ABBOTT LABORATORIES,
Plaintiff-Appellee,
versus
UNLIMITED BEVERAGES, INC.,
Defendant-Appellant.
________________________
Appeals from the United States District Court
for the Southern District of Florida
_________________________
(July 14, 2000)
Before EDMONDSON, BARKETT and RONEY, Circuit Judges.
BARKETT, Circuit Judge:
Unlimited Beverages, Inc. and its successor Unico Holdings, Inc. (“UBI”)
appeal from a final judgment in favor of Abbott Laboratories (“Abbott”) imposing
sanctions against UBI after finding that it was in contempt for violating a final
consent judgment entered in 1994.
BACKGROUND
In 1992, UBI began to develop and sell an oral electrolyte maintenance
solution called Naturalyte. At the time Abbott had its own electrolyte solution,
known as Pedialyte, on the market.1 Abbott sued UBI under 15 U.S.C. § 1125,
alleging that the sale of UBI’s electrolyte solution in a square bottle with a label
that mimicked Abbot’s product constituted trade dress infringement and sought
injunctive relief. After the court granted a preliminary injunction, the parties
entered into a settlement agreement and, based thereupon, the district court entered
a consent judgment enjoining the sale, advertisement or promotion of Naturalyte in
bottles or with labels confusingly similar to those used by Abbott for Pedialyte.
Although UBI continues to sell Naturalyte as a retail product, its packaging is now
significantly different from that of Pedialyte. However, in addition to its own retail
sales, in 1998 UBI began supplying to Meijer, Inc. (“Meijer”), a mass-
merchandising retailer, electrolyte solution in the identical bottles which had been
1
Oral electrolyte maintenance solutions are given to infants and children suffering from diarrhea
or vomiting in order to prevent dehydration.
2
the subject of the infringement action.2 When Abbott discovered the sales to
Meijer, it filed a motion for an order to show cause why UBI, as supplier to Meijer,
should not be held in contempt for violating the earlier consent judgment.
At the hearing on that motion, in addition to receiving evidence from both
parties, the magistrate judge considered UBI’s stipulation to the following:
(1) UBI provided the private-label retailers and Meijer with electrolyte
solution packaged in “the same exact bottle” that UBI agreed not to
use for the sale of Naturalyte, and
(2) the electrolyte solution that UBI manufactures for the private-label
retailers has the same chemical composition as Naturalyte.
The magistrate recommended that UBI be held in contempt and the district
court affirmed. The magistrate recommended sanctions totaling $179,649.30,
comprising $109,499.30 in gross profits and $72,150.00 in attorneys’ fees. That
recommendation was adopted by the district court. UBI now challenges both the
finding of contempt and the calculation of sanctions.
We review the district court’s interpretation of the final consent judgment de novo.
Paradise v. Prescott, 767 F.2d 1514, 1525 (11th Cir. 1985). We review the district
court’s finding of contempt and the imposition of sanctions for abuse of discretion.
2
Meijer sells over 1,800 products that are manufactured specifically for Meijer and labeled with
the Meijer brand name in its 117 stores, all located in the Midwest. In 1997, Meijer asked UBI to
become its supplier of electrolyte solution. In the following two years, three private-label retailers
asked UBI to manufacture their electrolyte solutions.
3
Afro-American Patrolmen’s League v. City of Atlanta, 817 F.2d 719, 723 (11th Cir.
1987).
DISCUSSION
1. Did UBI Violate the Consent Judgment?
The determination of whether a defendant violated a permanent injunction
begins with a close examination of the judgment. King v. Allied Vision, Ltd., 65
F.3d 1051, 1058 (2nd Cir. 1995). As we stated in American Red Cross v. Palm
Beach Blood Bank, Inc., 143 F.3d 1407 (11th Cir. 1998):
[A] court must craft its orders so that those who seek to obey may
know precisely what the court intends to forbid. . . . Thus, Rule 65(d)
of the Federal Rules of Civil Procedure provides that "[e]very order
granting an injunction ... shall be specific in terms; [and] shall
describe in reasonable detail ... the act or acts sought to be
restrained...." Fed. R. Civ. P. 65(d). Under this rule, "an ordinary
person reading the court's order should be able to ascertain from the
document itself exactly what conduct is proscribed."
Id. at 1411 (quoting Hughey v. DMS Dev. Corp., 78 F.3d 1523, 1531 (11th Cir.
1996)). A district court may not expand the decree or impose obligations that are
not unambiguously mandated by the decree itself. See United States v. Armour &
Co., 402 U.S. 673, 681-82 (1971). However, the consent judgment is to be read in
the light of the circumstances surrounding its formation “and any other documents
expressly incorporated in the decree.” United States v. ITT Continental Banking
Co., 420 U.S. 223, 238 (1975).
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In this case the preliminary injunction was incorporated by reference into the
consent judgment, and the settlement agreement provided the contours upon which
the permanent injunction was based. Thus, the district court correctly considered
the totality of these documents to determine whether an ordinary person would be
able to ascertain exactly what conduct the consent judgment proscribes.
On appeal UBI essentially argues that the consent judgment is exclusively
limited to the sale of an electrolyte solution with the name “Naturalyte” and does
not prohibit UBI from manufacturing or supplying private-label retailers with
electrolyte solution in square bottles that those retailers sell under their own private
labels in their own stores. UBI claims that, because the order did not specifically
address whether it could manufacture or supply private-label retailers with
electrolyte solution in a square bottle sold under the retailers’ private labels, it is
not in violation, and the district court erred in expanding the language of the
consent judgment.
In the alternative, UBI argues that, since it did not violate the actual
language of the consent judgment, it was entitled to fair warning before being
sanctioned for violating the consent judgment. UBI urges that, for the purposes of
contempt proceedings, any ambiguities in the consent judgment should be resolved
in its favor. Hughes v. United States, 342 U.S. 353, 357-58 (1952); Ford v.
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Kammerer, 450 F.2d 279, 280 (3rd Cir. 1971) (stating that an injunction must be
obeyed only to the extent it reasonably specifies the conduct prohibited). UBI
contends that, since the plain language of the consent judgment prohibits UBI from
marketing Naturalyte electrolyte solution in square bottles and not Meijer
electrolyte solution in square bottles, the consent judgment is not sufficiently clear
and unambiguous to justify a finding of contempt.
We find no merit to these arguments. To focus exclusively on the word
“Naturalyte” ignores everything else in the relevant documents and myopically
distorts the common sense meaning of the documents in the context of the
injunction proceedings. UBI does not dispute that the various electrolyte solutions
that it is supplying to private-label retailers has the identical chemical composition
as its own Naturalyte. It also does not dispute that the bottles in which it is
packaging these products are identical to those that were the subject of the 1994
consent judgment. Finally, it cannot claim that it was unaware of the contents or
context of the preliminary injunction or the settlement agreement. The same
principal, Christopher Bohlman, acted for UBI at the time of the settlement
agreement and entry of the consent judgment, as well as at the time of the condut
that led to these contempt proceedings. In the settlement agreement UBI pledged
that it would “not again use square-shaped bottles for an electrolyte solution. . . or
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any other bottle and/or label confusingly similar to the square bottles and labels
used for Abbott’s Pedialyte solution.” UBI cannot simply remove the “Naturalyte”
name from the enjoined bottle and market the same solution in the same bottle
through a private retailer in order to bypass the consent judgment.
A consent judgment need not recite every possible way in which a violation
might occur when the proscribed conduct is readily ascertainable to an ordinary
person. As Abbot notes in its brief, to accept UBI’s position would lead to the
absurd result that simply changing the spelling of “Naturalyte” would be sufficient
to avoid the injunction. We conclude that the district court correctly interpreted the
permanent injunction order and that UBI had fair warning from the consent
judgment, the preliminary injunction incorporated by reference, and the settlement
agreement it signed. UBI did precisely what it was proscribed from doing. The
district court did not abuse its discretion when it found that UBI was in contempt.
2. The District Court’s Calculation of Contempt Sanctions
UBI next argues that, in the light of their immediate compliance with the
court’s order and Abbott’s failure to show that it had suffered any damages, the
sanctions imposed were overly harsh and penal, amounting to an abuse of
discretion. UBI further contends that the district court abused its discretion in
awarding Abbott all of the attorneys’ fees it claimed because UBI proved that some
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part of those fees were incurred as part of Abbott’s ongoing research related to any
claims that it might have against private-label retailers.
Abbott need show no actual damage in this case, since the likelihood of
confusion was already established in the 1994 consent judgment. In this case, the
infringement was established in 1994, and the only issue is UBI’s contempt of the
consent judgment. Having found UBI in contempt, the district court has broad
discretion to fashion an appropriate remedy. Howard Johnson Co., Inc. v.
Khimani, 892 F.2d 1512, 1519 (11th Cir. 1990). Notwithstanding that UBI failed
to desist when Abbott initiated this suit for contempt sanctions, UBI argues that it
should not be compelled to pay sanctions, because it complied with the consent
judgment immediately upon learning of the the magistrate judge’s determination
that it was in contempt. However, a party’s compliance with a consent judgment
after being enjoined from continuing to violate it is no defense to the contempt
charge itself. Sizzler Family Steak Houses v. Western Sizzlin Steak House, 793
F.2d 1529, 1535 n.5 (11th Cir. 1986).
Where a plaintiff’s harm is difficult to calculate, the court may disgorge the
party in contempt of any profits it may have received. Wesco Mfg. Inc. v. Tropical
Attractions of Palm Beach, Inc., 833 F.2d 1484, 1487-88 (11th Cir. 1987).
Disgorgement of profits is also the remedy under the Lanham Act, 15 U.S.C. §
8
1117(a) upon which Abbott’s original complaint was based. The district court may
award a defendant’s profits to the plaintiff in proceedings involving injunctions
arising from violations of the Lanham Act. Howard Johnson, 892 F.2d at 1519.
However, UBI argues that the district court’s calculation of its profits was deficient
in failing to deduct costs from UBI’s gross profits from the sale of the offending
solutions. UBI claims that the appropriate measure of damage to Abbott, arrived at
by deducting such costs, is $2,663. The district court refused to deduct those costs,
concluding that they would have been incurred even without the sale of the
prohibited product. We cannot say that this conclusion was an abuse of discretion.
As to attorneys fees, we note that attorneys’ fees in a civil contempt
proceeding are limited to those reasonably and necessarily incurred in the attempt
to enforce compliance. Richard V. Auto Publisher, Inc., 735 F.2d 450, 458 (11th
Cir. 1984). UBI urges that the district court abused its discretion in awarding
$72,150 because, since the facts relevant to this case were stipulated in advance,
Abbott’s attorneys could not possibly have devoted all the time they billed for this
matter to litigation directed against UBI. UBI’s argument, however, lacks any
evidentiary basis. At the evidentiary hearing to assess damages, Abbott provided a
detailed breakdown of how its attorneys billed their time in relation to this
litigation. Some of that time was spent researching issues relevant to a possible
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suit against Meijer, a suit it did not pursue once it discovered that UBI was
Meijer’s supplier. It is not an abuse of discretion to require that UBI pay for the
cost to Abbott of UBI’s attempt to conceal its identity.
For all the forgoing reasons, the decision of the district court is
AFFIRMED.
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