Monday, May 01, 2017

US companies can be enjoined from false advertising in China

Primo Broodstock, Inc. v. American Mariculture, Inc., No. 17-cv-9, 2017 WL 1502714 (M.D. Fla. Apr. 27, 2017)

Primo is a Texas corporation that breeds and sells “highly disease-resistant” shrimp from the Ecuadorian litopenaeus vannamei strain. Defendant Robin Pearl has an extensive background in shrimp farming and is the co-founder of defendants AMI and API.  AMI supplies fresh and frozen shrimp, which is produced at AMI’s large shrimp farming facility in Florida, while API is AMI’s wholly-owned subsidiary.  (I mention the geographic origins because the alleged false advertising here took place in China and was aimed at Chinese customers, but the court doesn’t explicitly discuss why it is applying Florida law and the Lanham Act to this conduct.)

In 2015, Primo and AMI agreed “to use a defined portion of AMI grow-out capacity to produce broodstock for Primo for sale to third parties.” AMI agreed to grow young, post-larval shrimp - supplied by Primo - to large adult size at the AMI facility, and AMI would then either sell the live adult shrimp back to Primo at fixed prices based on the animal’s weight, or “harvest” (kill) the animals to sell as fresh or frozen dead shrimp, with the proceeds belonging exclusively to AMI. The agreement barred AMI from selling or transferring any live Primo Shrimp to others without Primo’s permission. The business arrangement quickly soured, among other things because defendants claimed that Primo was not repurchasing the live adult shrimp, causing defendants to incur significant costs to maintain the large animals.  A year after the agreement began, defendants threatened to harvest all live Primo shrimp of a certain size that Primo did not buy back within ten days. Primo filed suit in state court seeking to block this “shrimp-ocide.” The parties resolved the dispute out of court by giving Primo a few months to remove all its live shrimp from the AMI facility; Primo ultimately left about 46,000 live adult shrimp at the facility, which it could not afford to repurchase, as well as 650,000 shrimp that were too young to buy back.

The court refused to grant a preliminary injunction based on Primo’s trade secret claim (which asserted, among other things, that the shrimp themselves were Primo’s “intellectual property”).  But it did grant a preliminary injunction based on unfair competition/false advertising under state and federal law.

Plaintiffs alleged a “scheme to obfuscate the market in China – and ultimately the world – regarding the genuineness of Plaintiff’s proprietary shrimp broodstock.” Rather than clarify that the breeders they supply to Chinese companies are merely hybrids derived from pure Primo stock, defendants claimed that the live shrimp they sell are “the real Primo.” While defendants agreed “that the use of [the Primo] name is improper,” they asserted that the name was being used by their Chinese customers, over whom they had no direct control.  They didn’t “necessarily oppose” an injunction preventing use of the “Primo” name and claimed to have already requested their distributors “cease using the name ‘Primo’ in any capacity while marketing [Defendants’] products.”

Plaintiff pointed to evidence including a translated article from a Chinese trade magazine titled “API: Who is the real ‘Primo?’ This question is left to the Chinese farmer to answer.” This article was also posted on the website of a company named Primo (China) Broodstock Co. It featured a Q & A with Mr. Pearl, who discussed the history of API’s shrimp and stated that API “selected Primo (China) Broodstock Co., Ltd. to be [API’s] official recognized partner” in China.  Primo (China) claimed to be “the officially designated partner [ ] of high-resistance ‘Primo’ shrimp breeding by API in China” and “welcome[s] the customers who are confident and full of intention about the ‘Primo’ to join us to make the shrimp better together.”

Primo also introduced a transcription of video recordings taken at a November 3, 2016 “Primo shrimp” sales presentation held in China before approximately 55 to 60 people, where Charles Tuan, a former defendant here, introduced Mr. Pearl, and then a Mr. Huang from Primo (China) spoke. Mr. Tuan asked: “If it’s the real Primo, then why need change the name? ...[A]ll breeder sources are written in black and white on the paper and establish for you that these are the real Primo.” He also said that “the breeder source of Haimao” – which the court thought was a reference to Primo – “is fake.”  Pearl thanked his “agents who are helping [API] promote Primo Broodstock here in China” and then discussed the failed business relationship between Primo and AMI. He claimed that Primo had removed only one family of broodstock from AMI’s facility, leaving defendants with “the full bank of genetics at [their] farm.” Mr. Pearl also said that defendants were “spending a lot of time and a lot of money taking the Primo APE animal[ ] the next level.”  (APE means all pathogens exposed, that is, proven hardy.) During his speech, Mr. Huang asserted that “Primo does not have breeder shrimp” and discusses how he set up a new company - Primo China - “for purposes of importing the Primo shrimp” to China.

The third document was  a brochure allegedly given to those who attended the presentation, which states that “Primo abandoned over 650,000 animals and all its genetic material” at the AMI Facility. Other evidence was similar.

Defendants argued that their statements were “entirely truthful” and that they “studiously avoided giving any impression of association with Primo” and had “no direct control over [Mr. Huang],” who “formed his company prior to any affiliation with... Defendants.”

The court found that Primo showed a substantial likelihood of success on the merits.  The statement that API possessed Primo’s “full genetic bank” was likely false, since Primo presented evidence that it never provided defendants with breeders from more than six of Primo’s family lines, out of twenty-four families. Defendants’ own DNA genetic analysis showed only fourteen different groups of animals. Also, at least in China – “the world’s largest shrimp farming country” – using the name “Primo” in connection with shrimp provided goodwill.  API chose to work with Mr. Huang after he had already formed a company called “Primo China,” and allowed Mr. Pearl to attend events designed to tout the “realness” of the “Primo” shrimp API shipped.

Failure to grant an injunction would likely result in continued – and irreparable - harm to Primo’s reputation and goodwill, “at least in China.” “[T]he public has an interest in ensuring that American businesses compete fairly with each other, both at home and abroad, and refrain from engaging in trade practices that confuse and deceive consumers.”

Thus, defendants were enjoined from referring to their shrimp as “Primo” anything, including “Primo shrimp,” “Primo animals,” “Primo breeders,” or “Primo broodstock”; stating that their shrimp were created by breeding a male shrimp and a female shrimp from the same Primo family line; stating that they had Primo’s “genetic bank” or “full genetic bank” or that Primo left or abandoned its “genetic bank” or “full genetic bank” at the AMI facility; and appearing at any Primo China or Dingda (another similar Chinese company) promotional event.  They were not, however, enjoined from stating that certain of their animals were derived from pure Primo stock, whose genetic makeup was unknown to defendants at the time. “Indeed, to fail to mention Primo at all could constitute grounds for a ‘reverse passing off’ claim under the Lanham Act,” citing Dastar (even though API would be the physical source of the shrimp, sigh). 

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