Certified Nutraceuticals, Inc. v. Avicenna Nutraceutical, LLC

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS JUL 17 2020
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
CERTIFIED NUTRACEUTICALS, INC., a No. 18-56631
California corporation,
D.C. No.
Plaintiff-Appellant, 3:16-cv-02810-BEN-BGS
v.
MEMORANDUM*
AVICENNA NUTRACEUTICAL, LLC, a
Georgia limited liability company,
Defendant-Appellee.
Appeal from the United States District Court
for the Southern District of California
Roger T. Benitez, District Judge, Presiding
Submitted April 3, 2020**
Pasadena, California
Before: PAEZ and CALLAHAN, Circuit Judges, and LYNN,*** District Judge.
Partial Dissent by Judge PAEZ
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
***
The Honorable Barbara M. G. Lynn, Chief United States District
Judge for the Northern District of Texas, sitting by designation.
Certified Nutraceuticals, Inc. (“Certified”) appeals the district court’s grant
of summary judgment for Avicenna Nutraceutical, LLC (“Avicenna”). 1 The
district court concluded that Certified’s claim under Section 43(a)(1)(B) of the
Lanham Act, 15 U.S.C. § 1125(a)(1)(B), for misstatements about the patented
nature of Avicenna’s products, was barred by the unclean hands doctrine, because
Certified had made similar false claims about its products.
We have jurisdiction under 28 U.S.C. § 1291. Summary judgment “is
proper if the pleadings and evidence submitted in support of the motion show that
there is no genuine issue as to any material fact and the moving party is entitled to
judgment as a matter of law.” Coca-Cola Co. v. Overland, Inc., 692 F.2d 1250,
1253 (9th Cir. 1982) (citing Fed. R. Civ. P. 56(c)). In our review, we view all
evidence in the light most favorable to the non-moving party. Id. The application
of the doctrine of unclean hands is reviewed for abuse of discretion. Seller Agency
Council, Inc. v. Kennedy Ctr. for Real Estate Educ., 621 F.3d 981, 986 (9th Cir.
2010).
1
Certified also challenges the district court’s order awarding attorneys’ fees to
Avicenna, but only includes a conclusory claim that an overturning of the award
would necessarily follow a reversal of the district court’s granting of summary
judgment. Given that Certified does not support its position with argument, we
find the issue waived to the extent it is dependent on anything other than reversal
of summary judgment. See Martinez-Serrano v. I.N.S., 94 F.3d 1256, 1259 (9th
Cir. 1996) (“Issues raised in a brief that are not supported by argument are deemed
abandoned.”).
2
The district court did not err by granting Avicenna summary judgment based
on its defense of unclean hands. Unclean hands “bars relief to a plaintiff who has
violated conscience, good faith or other equitable principles in his prior conduct.”
Dollar Sys., Inc. v. Avcar Leasing Sys., Inc., 890 F.2d 165, 173 (9th Cir. 1989). It
“requires balancing the alleged wrongdoing of the plaintiff against that of the
defendant.” Northbay Wellness Grp., Inc. v. Beyries, 789 F.3d 956, 960 (9th Cir.
2015). The district court weighed “the substance of [Certified’s] claims against the
evidence of [Certified’s] inequitable conduct.” Certified Nutraceuticals, Inc. v.
Avicenna Nutraceutical, LLC, No. 3:16-cv-02810, 2018 WL 3618243, at *5 (S.D.
Cal. July 30, 2018). By considering the substance of Certified’s claims, the district
court properly analyzed and weighed Avicenna’s wrongdoing. See Republic
Molding Corp. v. B. W. Photo Utils., 319 F.2d 347, 350 (9th Cir. 1963) (“[T]he
court must weigh the substance of the right asserted by plaintiff against the
transgression which, it is contended, serves to foreclose that right.”).
Unclean hands also “requires a finding of inequitableness or bad faith.”
Rent-A-Ctr., Inc. v. Canyon Television & Appliance Rental, Inc., 944 F.2d 597, 602
(9th Cir. 1991). This includes any willful act concerning the cause of action or bad
faith relative to the matter. Precision Instrument Mfg. Co. v. Auto. Maint. Mach.
Co., 324 U.S. 806, 814–15 (1945). Certified argues that this requirement must
include not only a finding of “intent to deceive the consumer” but also actual harm
3
to the public or Avicenna. Evidence of consumer deception can be “a highly
relevant consideration” in determining inequitableness, see Republic Molding
Corp., 319 F.2d at 349–50, and in trademark infringement cases, we have required
a showing that the “plaintiff used the trademark to deceive consumers.” Japan
Telecom, Inc. v. Japan Telecom Am. Inc., 287 F.3d 866, 870 (9th Cir. 2002).
Here, the district court determined that Certified “knowingly made [] false
statements” with regard to the patented nature of a product that directly competes
with Avicenna’s product. Certified Nutraceuticals, Inc., 2018 WL 3618243, at *4.
Those deceptive acts, viewed in the context of Certified’s claims alleging that
Avicenna made similar false statements about the nature of its competitor product,
satisfy the requisite bad faith and inequitable conduct necessary for an unclean
hands finding. Accordingly, the district court did not err in concluding that
Certified had unclean hands and granting Avicenna summary judgment.
Certified also argues that the district court abused its discretion by relying on
clearly erroneous findings in light of Certified’s ownership of United States Patent
No. 6,838,440 (the “’440 Patent”). However, Certified did not raise its ownership
of the ’440 Patent with the district court, and the argument is not properly before
us. See Harik v. Cal. Teachers Ass’n, 326 F.3d 1042, 1052 (9th Cir. 2003) (“[W]e
4
do not ordinarily consider on appeal issues not raised below.”). 2
Finally, we conclude that Certified’s appeal was not frivolous, and
Avicenna’s request for leave to file a motion for attorneys’ fees and costs on
appeal is denied.
AFFIRMED.
2
Accordingly, Certified’s related Request for Judicial Notice of the ’440 Patent is
denied.
5
FILED
JUL 17 2020
Certified Nutraceuticals v. Avicenna Nutraceuticals, No. 18-56631
Paez, J., concurring in part and dissenting in part. MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
I agree with the majority that Certified’s appeal is not frivolous. I disagree,
however, that the district court did not err by granting summary judgment to
Avicenna on the basis of the unclean-hands defense.
To successfully invoke the unclean-hands defense, a defendant must
demonstrate that (1) the plaintiff’s conduct is inequitable, and (2) the conduct
relates to the subject matter of the plaintiff’s claims. Japan Telecom, Inc. v. Japan
Telecom Am. Inc., 287 F.3d 866, 870 (9th Cir. 2002). The parties do not dispute
that Certified’s alleged conduct relates to the subject matter of its claims.
To establish that a plaintiff’s conduct is sufficiently inequitable, the
defendant “must show that plaintiff used the trademark to deceive consumers.” Id.In other words, the defendant must have proof of actual deception. See, e.g.,
Perfumebay.com Inc. v. eBay, Inc., 506 F.3d 1165, 1178 (9th Cir. 2007) (reversing
the district court’s application of the unclean-hands defense because “[t]he record
does not affirmatively demonstrate that [plaintiff] used the advertisements to
‘deceive consumers’”); Republic Molding Corp. v. B.W. Photo Utils., 319 F.2d
347, 349–50 (9th Cir. 1963) (stating that the “extent of actual harm caused by the
conduct in question” is “highly relevant” to whether the plaintiff’s conduct was
inequitable).
1
The district court failed to make a finding with respect to actual deception
before concluding Certified had acted with unclean hands. Citing to Pfizer, Inc. v.
International Rectifier Corp., 685 F.2d 357 (9th Cir. 1982), the court dismissed
Certified’s complaint only because Certified had “knowingly made false
statements” with respect to whether its product was patented. In Pfizer, we
affirmed the district court’s denial of the unclean-hands defense because the
defendant-appellants had failed to show by clear and convincing evidence that
Pfizer had misrepresented facts related to patentability. Id. at 359. Because the
defendant failed to establish intent, it was unnecessary to decide whether there had
been actual deception.
The majority nonetheless affirms the district court’s analysis. In doing so, it
draws a distinction between trademark-infringement and false-advertising claims
that does not exist in our caselaw. Indeed, our limited jurisprudence on the issue
indicates that the standards for an unclean-hands defense under both types of
Lanham Act suits are the same. In TrafficSchool.com, Inc. v. Edriver Inc., 653
F.3d 820 (9th Cir. 2011), a Lanham Act false-advertising and unfair-competition
case, we concluded that the defendants failed to successfully demonstrate that the
plaintiffs had acted with unclean hands where “[o]ur review of the record
reveal[ed] no evidence of actual deception caused by plaintiffs’ advertising.” Id. at
834. Similarly, in Jarrow Formulas, Inc. v. Nutrition Now, Inc., 304 F.3d 829 (9th
2
Cir. 2002), a Lanham-Act false-advertising suit, we held that the plaintiff had
failed to defeat the defendant’s laches defense because the plaintiff was unable to
demonstrate more than falsity. We stated, “[i]n a Lanham Act false advertising
suit, a plaintiff cannot ordinarily show unclean hands, and thereby defeat laches,
simply by alleging that the defendant made claims knowing that they were false.”
Id. at 841. That is what the district court did here: conclude Certified acted with
unclean hands simply because it made claims knowing that they were false.
Because the district court failed to conclude Certified’s conduct actually
deceived consumers and the record does not contain allegations of actual
deception, I respectfully dissent.
3