ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE
Before Hunter and Higginbotham, Circuit Judges, and Weiner, District Judge.*fn*
This appeal arises from Pennwalt Corporation's unsuccessful effort to obtain a preliminary injunction to prevent Plough, Inc., from running certain advertisements for its foot-care product, Aftate, until after those ads were reviewed by a panel of medical experts pursuant to a court-approved settlement agreement between the parties. It is Pennwalt's contention that Plough's ads constitute "efficacy representations" and, hence, are "covered claims" within the meaning of the settlement agreement. Because we have concluded that Plough's ads should have been submitted to the expert panel, we will reverse the order of the district court and remand for the entry of an order specifically enforcing the settlement agreement.
Pennwalt manufactures Desenex, an athlete's foot product, which is in competition with Plough's Aftate. Plough's 1979 advertisements for Aftate made direct comparisons to Desenex and asserted that it was a better product. In May of 1979, Pennwalt sued Plough under the Lanham Act alleging that Plough had made false, misleading and deceptive claims in its advertisements. Plough counterclaimed and, after lengthy discovery, the parties negotiated a settlement agreement. The district court, 516 F. Supp. 751, approved the agreement and dismissed the case without prejudice on April 24, 1981.
The settlement agreement establishes a procedure whereby "covered claims" are to be submitted to an expert panel for review before the claim is made in advertising. The settlement agreement defines a "covered claim" as:
any efficacy representation, verbal, visual or otherwise, in which (i) either party makes specific reference to the other party's Covered Product, either alone or with other athlete's foot products, by name or other reference, in an unfavorable comparison with the advertiser's own Covered Product, or (ii) either party states that "Nothing is better than" a Covered Product, that "Nothing is better than the medicine in" a Covered Product, or any like phrase containing "better than" or synonyms for "better than," or (iii) either party states that a Covered Product is "the best" athlete's foot product or contains "the best" medicine.
Efficacy, in turn, is defined as "(i) effectiveness in treating or relieving any sign or symptom of athlete's foot, (ii) ability to control or cure athlete's foot, (iii) effectiveness in preventing the occurrence or recurrence of athlete's foot or (iv) overall effectiveness in treating, controlling, curing, and/or preventing athlete's foot." The function of the expert panel is to determine whether a covered claim has a "substantial and reliable medical and scientific basis." If in the opinion of the expert panel the covered claim is without medical and scientific basis, the sponsoring party agrees to withdraw any advertisement containing such a claim.
Plough began its 1981 advertising campaign without submitting its claims to the expert panel and scarcely five weeks after the 1979 lawsuit was dismissed, Pennwalt filed the present action seeking to force Plough to comply with the settlement agreement. Plough's pre-settlement and post-settlement ads read as follows:
Aftate for Athlete's Foot is better than Desenex. Really better. If you've got athlete's foot and you're still using Desenex, you should know that Aftate is better. In independent studies, the medication in Aftate has been proven to be more effective in killing athlete's foot fungus than medication in Desenex. In fact, doctors recommend the medication in Aftate 14 to 1 over the medication in Desenex. 14 to 1. Aftate is better than Desenex. Really better. It's the killer. (Emphasis added)
Aftate for Athlete's foot. With the medication doctors prescribe 10 to 1 over that in Desenex. Aftate kills athlete's foot fungi on contact. It contains Tolnaftate, a most effective medication against athlete's foot, and its available without a prescription. Aftate speeds healing of raw cracked skin and helps prevent reinfection. ...