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SurgiQuest v. Lexion Medical LLC

United States District Court, D. Delaware

May 16, 2018

SURGIQUEST Plaintiff, Counterdefendant,
v.
LEXION MEDICAL, INC. Defendant, Counterplaintiff.

          MEMORANDUM

         I. INTRODUCTION [1]

         In this false and misleading advertising and unfair competition action, Plaintiff, and counterdefendant, SurgiQuest ("SurgiQuest") alleges that Lexion Medical, Inc., and counterplaintiff, ("Lexion") participated in false and misleading advertising activities. (D.I. 1.) The court held a six-day jury trial in this matter on April 3 through April 11, 2017. (D.I. 261-66.) At trial, Plaintiff properly moved for judgment as a matter of law ("JMOL") at the end of Defendant's case pursuant to Rule 50(a) of the Federal Rules of Civil Procedure and again at the close of evidence. (D.I. 243); (D.I. 253 at 1-2); Tr. 1422:9-16.[2]

         On April 11, 2017, the jury returned a verdict in favor of Lexion on the issue of false advertising under the Lanham Act and under Delaware's Unfair Competition Law, and awarded compensatory damages in the amount of $2.2 million and punitive damages of $10 million. Tr. 1782:3-1783:24; (D.I. 253 at 2.) The court entered judgment on the verdict on April 13, 2017. (D.I. 249.)

         Presently before the court is SurgiQuest's motion for judgment as a matter of law and Lexion's motions for permanent injunction, disgorgement of profits, attorney's fees, prejudgment interest, and post-judgment interest. (D.I. 252); (D.I. 255.)[3] Having considered the entire record in this case, the substantial evidence in the record, the parties' post-trial submissions, and the applicable law, the court will deny all motions. The court's reasoning follows.

         II. STANDARD OF REVIEW

         A. Renewed JMOL Motions

         To prevail on a renewed motion for judgment as a matter of law following a jury trial and verdict, the moving party "must show that the jury's findings, presumed or express, are not supported by substantial evidence or, if they were, that the legal conclusion(s) implied [by] the jury's verdict cannot in law be supported by those findings." Pannu v. Iolab Corp., 155 F.3d 1344, 1348 (Fed. Cir. 1998) (quoting Perkin-Elmer Corp. v. Computervision Corp., 732 F.2d 888, 893 (Fed. Cir. 1984)). "Substantial evidence" is defined as "such relevant evidence from the record taken as a whole as might be accepted by a reasonable mind as adequate to support the finding under review." Perkin-Elmer Corp., 732 F.2d at 893.

         The court should only grant the motion "if, viewing the evidence in the light most favorable to the nonmovant and giving it the advantage of every fair and reasonable inference, there is insufficient evidence from which a jury reasonably could find liability." Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153, 1166 (3d Cir. 1993) (citing Wittekamp v. Gulf Western Inc., 991 F.2d 1137, 1141 (3d Cir. 1993)). "In determining whether the evidence is sufficient to sustain liability, the court may not weigh the evidence, determine the credibility of witnesses, or substitute its version of the facts for the jury's version." Lightning Lube, 4 F.3d at 1166 (citing Fineman v. Armstrong World Indus., Inc., 980 F.2d 171, 190 (3d Cir. 1992)). Rather, the court must resolve all conflicts of evidence in favor of the non-movant. Williamson v. Consol. Rail Corp., 926 F.2d 1344, 1348 (3d Cir. 1991); Perkin-Elmer Corp., 732 F.2d at 893. "The question is not whether there is literally no evidence supporting the party against whom the motion is directed but whether there is evidence upon which the jury could properly find a verdict for that party." Lightning Lube, 4 F.3d at 1166 (quoting Patzig v. O'Neil, 577 F.2d 841, 846 (3d Cir. 1978)).

         IV. DISCUSSION[4]

         Having considered the substantial evidence in the record, the parties' post-trial submissions, and the applicable law, the court will deny all of SurgiQuest's motions as well as Lexion's motions for permanent injunction, disgorgement of profits, attorneys' fees, and prejudgment interest and grant Lexion's motion for postjudgment interest. The court's reasoning follows.[5]

         A. Monetary Damages

         First, SurgiQuest moves for judgment as a matter of law on the jury's award of monetary damages. (D.I. 253.) SurgiQuest asserts that no reasonable jury could have awarded monetary damages because (1) Lexion failed to prove causation between the false advertising claims and damages; (2) the jury instructions on causation and damages were incorrect; and (3) hearsay and salesperson confusion evidence was improperly admitted. "To recover damages, a plaintiff must show that the 'falsification [or misrepresentation] actually deceives a portion of the buying public.'" U.S. Healthcare, Inc. v. Blue Cross of Greater Philadelphia, 898 F.2d 914, 922 (3d Cir. 1990) (citing Parkway Baking Co. v. Freihofer Baking Co., 255 F.2d 641, 648 (3d Cir. 1958). "This does not place upon the plaintiff a burden of proving detailed individualization of loss of sales. Such proof goes to quantum of damages and not to the very right to recover. However, there must be a showing of some customer reliance on the false advertisement[.]" Parkway Baking, 255 F.2d at 648; Warner-Lambert Co. v. Breathasure, Inc., 204 F.3d 87, 92 (3d Cir. 2000) ("we held [in Parlcway Baking, 255 F.2d at 648] that a plaintiff seeking damages under § 43(a) must establish customer reliance but need not quantify loss of sales as that goes to the measure of damages, not plaintiffs cause of action."); Larry Pitt & Assocs. v. Lundy Law LLP, 2018 WL 925011, at *4 (E.D.Pa.Feb. 15, 2018).

         1. False Advertising[6]

         SurgiQuest asserts that Lexion failed to provide sufficient evidence that the false statements had a causal link to Lexion's lost sales. (D.I. 253 at 4-6.) SurgiQuest further contends that marketplace competition does not provide a nexus for false advertising damages and argues that is the only basis for which Lexion tried to show any lost sales. (D.I. 253 at 12.) In contrast, Lexion asserts that SurgiQuest did not, and cannot, prove a lack of sufficient evidence because the statements were literally false, consumers purchased the AirSeal product and stopped purchasing Lexion's product. Additionally, Lexion contends that evidence of confusion demonstrated that the false advertising actually deceived a portion of the buying public. (D.I. 257 at 4-7.) The court agrees for two main reasons.

         First, Lexion presented more than enough evidence that consumers stopped purchasing Lexion's products as a result of SurgiQuest's false statements. Lexion's witness, Dr. Paul Kobza, stated that as a result of being "misled" by SurgiQuest's false statements, he stopped using Lexion's Insuflow product and switched to SurgiQuest's AirSeal product. Tr. 807:6-808:9, 812:16-23. While Dr. Kobza stopped using AirSeal "[i]mmediately[]" when he learned it could draw operating room air into the abdomen, Lexion never got the account back. Tr. 808:10-809:4, 815:16-816. Similarly, Tiffany Brenton, a robotic coordinator at Peace Health Hospital, testified she was told AirSeal did not suck air into the abdomen, which partially impacted the hospital's purchasing decision. Tr. 580:25-581:15. Ms. Brenton explained AirSeal's smoke evacuation capability "for the surgeon to be able to see while they operate" was a key reason why the hospital wanted the AirSeal system. Tr. 581:6-583:25.

         Second, the jury heard evidence relevant to establish the fact of damage and whether "confused" buyers purchased AirSeal or failed to purchase Lexion's products as a result. The jury heard the testimony of: (1) Bridget Moriarty who identified multiple consumer accounts that believed AirSeal heated and humidified, and stopped buying or reduced their purchases from Lexion as a result (Tr. 502:7-504:7); (2) Brett Emery who testified that his hospital system purchased fewer Insuflow devices because they were using AirSeal, which did the exact same thing as Lexion's products (Tr. 620-21); and (3) Robert Fadem, a SurgiQuest sales representative who testified SurgiQuest targeted Lexion's customers by telling them AirSeal performed identically to Insuflow, and that they could justify the cost of their purchase by getting rid of Insuflow. Tr. 290-93. This strategy proved successful at Northside Hospital where Lexion lost an account that produced revenue of $100, 000 per year. Tr. 290-93, 722-23.

         Because evidence at trial demonstrated that SurgiQuest's false advertising actually deceived customers purchasing the device and Lexion lost sales and customers as a result, the court concludes that the evidence at trial was sufficient to support a verdict that the false advertising had a causal connection to Lexion's loss. Tr. 574-81, 610-15, 1313-12.

         2. The Jury Instructions Were Proper [7]

         Next, SurgiQuest's post-trial motion asserts that absent incorrect jury instructions, no reasonable jury could have awarded damages. (D.I. 253 at 16.) SurgiQuest argues that the "errors in the jury instructions directly contributed to the insufficiency of the evidence[]" and can, therefore, be raised at JMOL. (D.I. 268 at 8.) The court disagrees. "[J]udgment as a matter of law is not the appropriate remedy for [jury instruction] errors. Rather, prejudicial errors in jury instructions are remedied by a new trial." Power Integrations, Inc. v. Fairchild Semiconductor Int'l, Inc., 585 F.Supp.2d 562, 567 (D. Del. 2008) (Farnan, J.), affd, 711 F.3d 1348 (Fed. Cir. 2013). While disputes over jury instructions occur, "the precise wording of jury instructions is left to the discretion of the [c]ourt." Power Integrations, 585 F.Supp.2d at 567 (citing United States v. Flores, 454 F.3d 149, 161 (3d Cir. 2006)). In its brief, SurgiQuest asserts that "[a] new trial is not warranted[]" in this case and it, therefore, only seeks a new trial if Lexion does. (D.I. 253 at 25.) Because Lexion did not move for a new trial, the court need not address this issue. However, even if the complaint about jury instructions were not waived, the court will deny the motion on its substantive merits for the reasons that follow.

         i. Literal Falsity

         First, SurgiQuest argues that the jury was improperly instructed that "[i]f literal falsity is found, Lexicon does not need to prove actual deception of consumers to recover damages for false statements made by SurgiQuest." (D.I. 253 at 16); Tr. 1712:15-20. SurgiQuest argues that "[t]his instruction contradicts the Third Circuit's holding in Warner-Lambert that a party seeking monetary damages for false advertising must show customer reliance on the false or misleading statements and thus demonstrate a causal nexus between the statements and damages. Warner-Lambert Co., 204 F.3d at 92; Labware, Inc. v. Thermo Labsystems, Inc., 2005 WL 1541028, at *9, 12 (E.D.Pa. June 29, 2005); Synygy, Inc. v. Scott-Levin, Inc., 51 F.Supp.2d 570, 575, 577 (E.D. Pa. 1999); Parkway Baking, 255 F.2d at 648; Castrol Inc. v. Pennzoil Co., 987 F.2d 939, 943 (3d Cir. 1993) ("[A] plaintiff must prove either literal falsity or consumer confusion, but not both."). Prior to finalizing the instruction on literal falsity, the court exhaustively went through the parties' objections to the jury instructions at the pre-trial conference and during trial. (D.I. 223 at 51-57); Tr. 1603:11-1615.[8] In doing so, the court "thoroughly disagree[d] with the rather hyperbolic statement from SurgiQuest" about the false or misleading statements. (D.I. 223 at 90.) After considering the case law and parties' arguments, the court decided to use Lexion's proposal for the jury instructions as to false advertisement and confusion. Id. at 91-92. Nevertheless, as previously explained, Lexion presented evidence that consumers were actually deceived by the false statements and provided ample evidence of a causal connection between the false statements and damages.

         ii. Proof of Actual Confusion

         Next, SurgiQuest takes issue with the court's instruction that "[e]vidence of actual[] confusion is difficult to find and even a. few incidents may[, ] therefore[, ] be probative." (D.I. 253 atl7);Tr. 1647, 1707. SurgiQuest maintains that the Lanham Act requires proof that a substantial number of consumers were misled by the advertisements and that the court improperly relied on trademark law. (D.I. 253 at 17); Johnson & Johnson-Merck Consumer Pharm. Co. v. Rhone-Poulenc Rorer Pharm., Inc., 19 F.3d 125, 129, 136 (3d Cir. 1994). The court recognizes that there is a dearth of case law explaining the proof of actual confusion requirement in the false advertising context. Tr. 1638. The court, therefore, determined that further evidence on the issue can be found in Circuit precedent in the area of trademark law. Tr. 1646-1647:13. The Third Circuit often refers to trademark law when deciding false advertising cases because both causes of action arise out of the same section of the Lanham Act. Ferring Pharms., Inc. v. Watson Pharms., Inc., 765 F.3d 205, 211, n.6 (3d Cir. 2014). Courts outside of the Third Circuit have taken similar positions. Cashmere & Camel, 284 F.3d at 314-315; U-Haul Int'l Inc. v. Jartran, Inc., 793 F.2d 1034, 1041 (9th Cir. 1986); Cuisinarts, Inc. v. Robot-Coupe Intern. Corp., 509 F.Supp. 1036, 1044 (S.D.N.Y 1981).[9]

         Even if the instruction was not correct, the error was harmless for at least two reasons: First, while SurgiQuest's motion for JMOL concerns damages, the challenged instruction is not a damages instruction, but was given in the context of an instruction on proof of confusion necessary if a statement was not literally false. Tr. 1706-07. SurgiQuest has not challenged the jury's liability finding and Lexion presented evidence that SurgiQuest made literally false statements. Thus, this instruction likely had no impact on the jury's determination. (D.I. 257 at 13-14.) Second, Instruction 14 stated that:

For you to find that a statement is true but misleading, the party in the position of the plaintiff must show that the statement actually deceived or had the tendency to deceive a substantial segment of the audience. Put differently, if a challenged advertising statement is not literally false, a party cannot obtain relief under the Lanham Act by arguing how consumers could react; it must show how consumers actually do react.

Tr. 1706:18-25. Therefore, SurgiQuest's contention that the instruction on actual confusion allowed the jury to improperly use a single incident as evidence of causation of harm is inconsistent with the court's instruction.

         iii. Presumptions of Intent

         Finally, SurgiQuest takes issue with the instruction that "[i]f a party demonstrates that the defendant has intentionally set out to deceive the public and its conduct in this regard is of an egregious nature, a presumption arises that consumers are, in fact, being deceived." (D.I. 253 at 17); Tr. 1707. Regardless, the instruction was given in the context of where the statement was not literally false, which is not the case here. As previously explained, Lexion presented evidence that SurgiQuest made literally false statements, which actually deceived ...


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