Respondent manufactured and marketed the patented prescription
drug cyclandelate to wholesalers, retail pharmacists, and hospitals
in colored capsules under the registered trademark CYCLOSPASMOL.
After respondent's patent expired, several generic drug
manufacturers, including petitioner manufacturers, began marketing
the drug, intentionally copying the appearance of the CYCLOSPASMOL
capsules. Respondent then brought an action against petitioner
manufacturers and wholesalers in Federal District Court under,
inter alia, § 32 of the Trademark Act of 1946, alleging
that some pharmacists had dispensed generic drugs mislabeled as
CYCLOSPASMOL and that petitioners' use of look-alike capsules and
catalog entries comparing prices and revealing the colors of
generic capsules contributed to the pharmacists' mislabeling.
Respondent sought injunctive relief and damages. The District Court
entered judgment for petitioners, finding that, although the
pharmacists had violated § 32, respondent had not made the
necessary factual showing that petitioners had intentionally
induced the pharmacists to mislabel generic drugs or continued to
supply cyclandelate to pharmacists who the petitioners knew or
should have known were mislabeling generic drugs. The Court of
Appeals reversed, rejecting the District Court's findings and
holding that the District Court failed to give sufficient weight to
the evidence respondent offered to show a pattern of illegal
substitution and mislabeling. After completing its own review of
the evidence, the Court of Appeals further held that the evidence
was "clearly sufficient to establish a § 32 violation."
Held: The Court of Appeals erred in setting aside the
District Court's findings of fact. Pp.
456 U. S.
853-858.
(a) In reviewing such findings, the Court of Appeals was bound
by the "clearly erroneous" standard of Federal Rule of Civil
Procedure 52(a). P.
456 U. S.
855.
(b) By rejecting the findings simply because it would have given
more weight to evidence of mislabeling than did the trial court,
the Court of
Page 456 U. S. 845
Appeals clearly erred. Determining the weight and credibility of
the evidence is the special province of the trier of fact. Because
the District Court's findings concerning the significance of the
instances of mislabeling were not clearly erroneous, they should
not have been disturbed. Pp.
456 U. S.
855-856.
(c) Moreover, each of the conclusions that the Court of Appeals
made in holding that the evidence established a § 32 violation was
contrary to the District Court's findings. An appellate court
cannot substitute its interpretation of the evidence for that of
the trial court simply because the reviewing court
"might give the facts another construction, resolve the
ambiguities differently, and find a more sinister cast to actions
which the District Court apparently deemed innocent."
United States v. Real Estate Boards, 339 U.
S. 485,
339 U. S. 495.
Pp.
456 U. S.
856-85.
638 F.2d 538, reversed and remanded.
O'CONNOR, J., delivered the opinion of the Court, in which
BURGER, C.J., and BRENNAN, BLACKMUN, POWELL, and STEVENS, JJ.,
joined. WHITE, J., filed an opinion concurring in the result, in
which MARSHALL, J., joined,
post, p.
456 U. S. 859.
REHNQUIST, J., filed an opinion concurring in the result,
post, p.
456 U. S.
864.
Page 456 U. S. 846
JUSTICE O'CONNOR delivered the opinion of the Court.
This action requires us to consider the circumstances under
which a manufacturer of a generic drug, designed to duplicate the
appearance of a similar drug marketed by a competitor under a
registered trademark, can be held vicariously liable for
infringement of that trademark by pharmacists who dispense the
generic drug.
I
In 1955, respondent Ives Laboratories, Inc. (Ives), received a
patent on the drug cyclandelate, a vasodilator used in long-term
therapy for peripheral and cerebral vascular diseases. Until its
patent expired in 1972, Ives retained the exclusive right to make
and sell the drug, which it did under the registered trademark
CYCLOSPASMOL. [
Footnote 1] Ives
marketed the drug, a white powder, to wholesalers, retail
pharmacists, and hospitals in colored gelatin capsules. Ives
arbitrarily selected
Page 456 U. S. 847
a blue capsule, imprinted with "Ives 4124," for its 200 mg
dosage and a combination blue-red capsule, imprinted with "Ives
4148," for its 400 mg dosage.
After Ives' patent expired, several generic drug manufacturers,
including petitioners Premo Pharmaceutical Laboratories, Inc.,
Inwood Laboratories, Inc., and MD Pharmaceutical Co., Inc.
(collectively the generic manufacturers), began marketing
cyclandelate. [
Footnote 2] They
intentionally copied the appearance of the CYCLOSPASMOL capsules,
selling cyclandelate in 200 mg and 400 mg capsules in colors
identical to those selected by Ives. [
Footnote 3]
The marketing methods used by Ives reflect normal industry
practice. Because cyclandelate can be obtained only by
prescription, Ives does not direct its advertising to the ultimate
consumer. Instead, Ives' representatives pay personal visits to
physicians, to whom they distribute product literature and "starter
samples." Ives initially directed these efforts toward convincing
physicians that CYCLOSPASMOL is superior to other vasodilators. Now
that its patent has expired and generic manufacturers have entered
the market, Ives concentrates on convincing physicians to indicate
on prescriptions that a generic drug cannot be substituted for
CYCLOSPASMOL. [
Footnote 4]
The generic manufacturers also follow a normal industry practice
by promoting their products primarily by distribution
Page 456 U. S. 848
of catalogs to wholesalers, hospitals, and retail pharmacies,
rather than by contacting physicians directly. The catalogs
truthfully describe generic cyclandelate as "equivalent" or
"comparable" to CYCLOSPASMOL. [
Footnote 5] In addition, some of the catalogs include
price comparisons of the generic drug and CYCLOSPASMOL, and some
refer to the color of the generic capsules. The generic products
reach wholesalers, hospitals, and pharmacists in bulk containers
which correctly indicate the manufacturer of the product contained
therein. A pharmacist, regardless of whether he is dispensing
CYCLOSPASMOL or a generic drug, removes the capsules from the
container in which he receives them and dispenses them to the
consumer in the pharmacist's own bottle with his
Page 456 U. S. 849
own label attached. Hence, the final consumer sees no
identifying marks other than those on the capsules themselves.
II
A
Ives instituted this action in the United States District Court
for the Eastern District of New York under §§ 32 and 43(a) of the
Trademark Act of 1946 (Lanham Act), 60 Stat. 427, as amended, 15
U.S.C. § 1051
et seq., and under New York's unfair
competition law, N.Y.Gen.Bus.Law § 368-d (McKinney 1968). [
Footnote 6]
Ives' claim under § 32, 60 Stat. 437, as amended, 15 U.S.C. §
1114, [
Footnote 7] derived from
its allegation that some pharmacists had dispensed generic drugs
mislabeled as CYCLOSPASMOL. [
Footnote 8]
Page 456 U. S. 850
Ives contended that the generic manufacturers' use of look-alike
capsules and of catalog entries comparing prices and revealing the
colors of the generic capsules induced pharmacists illegally to
substitute a generic drug for CYCLOSPASMOL and to mislabel the
substitute drug CYCLOSPASMOL. Although Ives did not allege that the
petitioners themselves applied the Ives trademark to the drug
products they produced and distributed, it did allege that the
petitioners contributed to the infringing activities of pharmacists
who mislabeled generic cyclandelate.
Ives' claim under § 43(a), 60 Stat. 441, 15 U.S.C. § 1125(a),
[
Footnote 9] alleged that the
petitioners falsely designated the origin of their products by
copying the capsule colors used by Ives and by promoting the
generic products as equivalent to CYCLOSPASMOL. In support of its
claim, Ives argued that the colors of its capsules were not
functional, [
Footnote 10]
and that
Page 456 U. S. 851
they had developed a secondary meaning for the consumers.
[
Footnote 11] Contending
that pharmacists would continue to mislabel generic drugs as
CYCLOSPASMOL so long as imitative products were available, Ives
asked that the court enjoin the petitioners from marketing
cyclandelate capsules in the same colors and form as Ives uses for
CYCLOSPASMOL. In addition, Ives sought damages pursuant to § 35 of
the Lanham Act, 60 Stat. 439, as amended, 15 U.S.C. § 1117.
B
The District Court denied Ives' request for an order
preliminarily enjoining the petitioners from selling generic drugs
identical in appearance to those produced by Ives.
455 F.
Supp. 939 (1978). Referring to the claim based upon § 32, the
District Court stated that, while the "knowing and deliberate
instigation" by the petitioners of mislabeling by pharmacists would
justify holding the petitioners as well as the pharmacists liable
for trademark infringement, Ives had made no showing sufficiently
to justify preliminary relief.
Id. at 945. Ives had not
established that the petitioners conspired with the pharmacists or
suggested that they disregard physicians' prescriptions.
The Court of Appeals for the Second Circuit affirmed. 601 F.2d
631 (1979). To assist the District Court in the upcoming trial on
the merits, the appellate court defined the elements of a claim
based upon § 32 in some detail. Relying primarily upon
Coca-Cola Co. v. Snow Crest Beverage, Inc., 64 F. Supp.
980 (Mass.1946),
aff'd, 162 F.2d 280 (CA1),
cert.
denied, 332 U.S. 809 (1947), the court stated that the
petitioners would be liable under § 32 either if they suggested,
even by implication, that retailers fill bottles with generic
cyclandelate and label the bottle with Ives' trademark, or if
Page 456 U. S. 852
the petitioners continued to sell cyclandelate to retailers whom
they knew or had reason to know were engaging in infringing
practices. 601 F.2d at 636.
C
After a bench trial on remand, the District Court entered
judgment for the petitioners.
488 F.
Supp. 394 (1980). Applying the test approved by the Court of
Appeals to the claim based upon § 32, the District Court found that
the petitioners had not suggested, even by implication, that
pharmacists should dispense generic drugs incorrectly identified as
CYCLOSPASMOL. [
Footnote
12]
In reaching that conclusion, the court first looked for direct
evidence that the petitioners intentionally induced trademark
infringement. Since the petitioners' representatives do not make
personal visits to physicians and pharmacists, the petitioners were
not in a position directly to suggest improper drug substitutions.
Cf. William R. Warner & Co. v. Eli Lilly & Co.,
265 U. S. 526,
265 U. S.
530-531 (1924);
Smith, Kline & French
Laboratories v. Clark & Clark, 157 F.2d 725, 731 (CA3),
cert. denied, 329 U.S. 796 (1946). Therefore, the court
concluded, improper suggestions, if any, must have come from
catalogs and promotional materials. The court determined, however,
that those materials could not "fairly be read" to suggest
trademark infringement. 488 F. Supp. at 397.
The trial court next considered evidence of actual instances of
mislabeling by pharmacists, since frequent improper substitutions
of a generic drug for CYCLOSPASMOL could provide circumstantial
evidence that the petitioners, merely by making available imitative
drugs in conjunction with comparative price advertising, implicitly
had suggested that pharmacists substitute improperly. After
reviewing the evidence
Page 456 U. S. 853
of incidents of mislabeling, the District Court concluded that
such incidents occurred too infrequently to justify the inference
that the petitioners' catalogs and use of imitative colors had
"impliedly invited" druggists to mislabel.
Ibid. Moreover,
to the extent mislabeling had occurred, the court found it resulted
from pharmacists' misunderstanding of the requirements of the New
York Drug Substitution Law, rather than from deliberate attempts to
pass off generic cyclandelate as CYCLOSPASMOL.
Ibid.
The District Court also found that Ives failed to establish its
claim based upon § 43(a). In reaching its conclusion, the court
found that the blue and blue-red colors were functional to
patients, as well as to doctors and hospitals: many elderly
patients associate color with therapeutic effect; some patients
commingle medications in a container and rely on color to
differentiate one from another; colors are of some, if limited,
help in identifying drugs in emergency situations; and use of the
same color for brand name drugs and their generic equivalents helps
avoid confusion on the part of those responsible for dispensing
drugs.
Id. at 398-399. In addition, because Ives had
failed to show that the colors indicated the drug's origin, the
court found that the colors had not acquired a secondary meaning.
Id. at 399.
Without expressly stating that the District Court's findings
were clearly erroneous, and for reasons which we discuss below, the
Court of Appeals concluded that the petitioners violated § 32. 638
F.2d 538 (1981). The Court of Appeals did not reach Ives' other
claims. We granted certiorari, 454 U.S. 891 (1981), and now reverse
the judgment of the Court of Appeals.
III
A
As the lower courts correctly discerned, liability for trademark
infringement can extend beyond those who actually mislabel goods
with the mark of another. Even if a manufacturer does not directly
control others in the chain of distribution,
Page 456 U. S. 854
it can be held responsible for their infringing activities under
certain circumstances. Thus, if a manufacturer or distributor
intentionally induces another to infringe a trademark, or if it
continues to supply its product to one whom it knows or has reason
to know is engaging in trademark infringement, the manufacturer or
distributor is contributorily responsible for any harm done as a
result of the deceit. [
Footnote
13]
See William R. Warner & Co. v. Eli Lilly & Co.,
supra; Coca-Cola Co. v. Snow Crest Beverages, Inc., supra.
It is undisputed that those pharmacists who mislabeled generic
drugs with Ives' registered trademark violated § 32. [
Footnote 14]
Page 456 U. S. 855
However, whether these petitioners were liable for the
pharmacists' infringing acts depended upon whether, in fact, the
petitioners intentionally induced the pharmacists to mislabel
generic drugs or, in fact, continued to supply cyclandelate to
pharmacists whom the petitioners knew were mislabeling generic
drugs. The District Court concluded that Ives made neither of those
factual showings.
B
In reviewing the factual findings of the District Court, the
Court of Appeals was bound by the "clearly erroneous" standard of
Rule 52(a), Federal Rules of Civil Procedure.
Pullman-Standard
v. Swint, ante p.
456 U. S. 273.
That Rule recognizes and rests upon the unique opportunity afforded
the trial court judge to evaluate the credibility of witnesses and
to weigh the evidence.
Zenith Radio Corp. v. Hazeltine
Research, Inc., 395 U. S. 100,
395 U. S. 123
(1969). Because of the deference due the trial judge, unless an
appellate court is left with the "definite and firm conviction that
a mistake has been committed,"
United States v. United States
Gypsum Co., 333 U. S. 364,
333 U. S. 395
(1948), it must accept the trial court's findings. [
Footnote 15]
IV
In reversing the District Court's judgment, the Court of Appeals
initially held that the trial court failed to give sufficient
weight to the evidence Ives offered to show a "pattern of illegal
substitution and mislabeling in New York. . . ." [
Footnote 16]
Page 456 U. S. 856
638 F.2d at 543. By rejecting the District Court's findings
simply because it would have given more weight to evidence of
mislabeling than did the trial court, the Court of Appeals clearly
erred. Determining the weight and credibility of the evidence is
the special province of the trier of fact. Because the trial
court's findings concerning the significance of the instances of
mislabeling were not clearly erroneous, they should not have been
disturbed.
Next, after completing its own review of the evidence, the Court
of Appeals concluded that the evidence was "clearly sufficient to
establish a § 32 violation."
Ibid. In reaching its
conclusion, the Court of Appeals was influenced by several factors.
First, it thought the petitioners reasonably could have anticipated
misconduct by a substantial number of the pharmacists who were
provided imitative, lower priced products which, if substituted for
the higher priced brand name without passing on savings to
consumers, could provide an economic advantage to the pharmacists.
Ibid. [
Footnote 17]
Second, it
Page 456 U. S. 857
disagreed with the trial court's finding that the mislabeling
which did occur reflected confusion about state law requirements.
Id. at 44. [
Footnote
18] Third, it concluded that illegal substitution and
mislabeling in New York are neither
de minimis nor
inadvertent.
Ibid. [
Footnote 19] Finally, the Court of Appeals indicated it
was further influenced by the fact that the petitioners did not
offer "any persuasive evidence of a legitimate reason unrelated to
CYCLOSPASMOL" for producing an imitative product.
Ibid.
[
Footnote 20]
Each of those conclusions is contrary to the findings of the
District Court. An appellate court cannot substitute its
interpretation of the evidence for that of the trial court simply
because the reviewing court
"might give the facts another construction, resolve the
ambiguities differently, and find a
Page 456 U. S. 858
more sinister cast to actions which the District Court
apparently deemed innocent."
United States v. Real Estate Boards, 339 U.
S. 485,
339 U. S. 495
(1950).
V
The Court of Appeals erred in setting aside findings of fact
that were not clearly erroneous. Accordingly, the judgment of the
Court of Appeals that the petitioners violated § 32 of the Lanham
Act is reversed.
Although the District Court also dismissed Ives' claims alleging
that the petitioners violated § 43(a) of the Lanham Act and the
state unfair competition law, the Court of Appeals did not address
those claims. Because § 43(a) prohibits a broader range of
practices than does § 32, as may the state unfair competition law,
the District Court's decision dismissing Ives' claims based upon
those statutes must be independently
Page 456 U. S. 859
reviewed. Therefore, we remand to the Court of Appeals for
further proceedings consistent with this opinion.
Reversed and remanded.
* Together with No. 81-11,
Darby Drug Co., Inc., et al. v.
Ives Laboratories, Inc., also on certiorari to the same
court.
[
Footnote 1]
Under the Trademark Act of 1946 (Lanham Act), 60 Stat. 427, as
amended, 15 U.S.C. § 1051
et seq., the term "trade-mark"
includes
"any word, name, symbol, or device or any combination thereof
adopted and used by a manufacturer or merchant to identify his
goods and distinguish them from those manufactured or sold by
others."
15 U.S.C. § 1127. A "registered mark" is one registered in the
United States Patent and Trademark Office under the terms of the
Lanham Act "or under the Act of March 3, 1881, or the Act of
February 20, 1905, or the Act of March 19, 1920."
Ibid.
[
Footnote 2]
The generic manufacturers purchase cyclandelate and empty
capsules and assemble the product for sale to wholesalers and
hospitals. The petitioner wholesalers, Darby Drug Co., Inc., Rugby
Laboratories, Inc., and Sherry Pharmaceutical Co., Inc., in turn,
sell to other wholesalers, physicians, and pharmacies.
[
Footnote 3]
Initially, the generic manufacturers did not place any
identifying mark on their capsules. After Ives initiated this
action, Premo imprinted "Premo" on its capsules and Inwood
imprinted "Inwood 258."
[
Footnote 4]
Since the early 1970's, most States have enacted laws allowing
pharmacists to substitute generic drugs for brand name drugs under
certain conditions.
See generally Note, Consumer
Protection and Prescription Drugs: The Generic Drug Substitution
Laws, 67 Ky.L.J. 384 (1978-1979). The New York statutes involved in
this action are typical of these generic substitution laws. New
York law requires that prescription forms contain two lines, one of
which a prescribing physician must sign. N.Y.Educ.Law § 6810
(McKinney Supp.1981-1982). If the physician signs over the words
"substitution permissible," substitution is mandatory if a
substitute generic drug is on an approved list, N.Y.Educ.Law §
6816-a (McKinney Supp.1981-1982); N.Y.Pub.Health Law §
206.1(
o) (McKinney Supp.1981-1982), and permissible if
another generic drug is available. Unless the physician directs
otherwise, the pharmacist must indicate the name of the generic
manufacturer and the strength of the drug dispensed on the label.
N.Y.Educ.Law § 6816-a(1)(c). In addition, the prescription form
must specifically state that, unless the physician signs above the
line"dispense as written," the prescription will be filled
generically. § 6810(6)(a).
If a pharmacist mislabels a drug or improperly substitutes, he
is guilty of a misdemeanor, and subject to a fine, § 6811, 6815,
6816, and to revocation of his license. § 6808.
[
Footnote 5]
Ives conceded that CYCLOSPASMOL and the petitioners' generic
equivalents are bioequivalent, and have the same bioavailability.
See 455 F.
Supp. 939, 942 (EDNY 1978), and
488 F.
Supp. 394, 396 (EDNY 1980). Bioavailability is an absolute term
which measures both the rate and the amount of a drug which reaches
the general circulation from a defined dosage. Drugs are
"bioequivalent" if, when administered in equal amounts to the same
individual, they reach general circulation at the same relative
rate and to the same relative extent. Remington's Pharmaceutical
Sciences 1368 (15th ed.1975).
[
Footnote 6]
The state law claim was not discussed in the decision under
review, and no further reference will be made to it here.
[
Footnote 7]
Section 32 of the Lanham Act, 60 Stat. 437, as amended, 15
U.S.C. § 1114, provides in part:
"(1) Any person who shall, without the consent of the registrant
-- "
"(a) use in commerce any reproduction, counterfeit, copy, or
colorable imitation of a registered mark in connection with the
sale, offering for sale, distribution, or advertising of any goods
or services on or in connection with which such use is likely to
cause confusion, or to cause mistake, or to deceive; or"
"(b) reproduce, counterfeit, copy, or colorably imitate a
registered mark and apply such reproduction, counterfeit, copy, or
colorable imitation to labels, signs, prints, packages, wrappers,
receptacles or advertisements intended to be used in commerce upon
or in connection with the sale, offering for sale, distribution, or
advertising of goods or services on or in connection with which
such use is likely to cause confusion, or to cause mistake, or to
deceive,"
"shall be liable in a civil action by the registrant for the
remedies hereinafter provided. Under subsection (b) of this
section, the registrant shall not be entitled to recover profits or
damages unless the acts have been committed with knowledge that
such imitation is intended to be used to cause confusion, or to
cause mistake or to deceive."
[
Footnote 8]
The claim involved two types of infringements. The first was
"direct" infringement, in which druggists allegedly filled
CYCLOSPASMOL prescriptions marked "dispense as written" with a
generic drug and mislabeled the product as CYCLOSPASMOL. The
second, "intermediate" infringement, occurred when pharmacists,
although authorized by the prescriptions to substitute, allegedly
mislabeled a generic drug as CYCLOSPASMOL. The one retail pharmacy
originally named as a defendant consented to entry of a decree
enjoining it from repeating such actions. 455 F. Supp. at 942.
[
Footnote 9]
Section 43(a) of the Lanham Act, 60 Stat. 441, 15 U.S.C. §
1125(a), provides:
"(a) Any person who shall affix, apply, or annex, or use in
connection with any goods or services, or any container or
containers for goods, a false designation of origin, or any false
description or representation, including words or other symbols
tending falsely to describe or represent the same, and shall cause
such goods or services to enter into commerce, and any person who
shall with knowledge of the falsity of such designation of origin
or description or representation cause or procure the same to be
transported or used in commerce or deliver the same to any carrier
to be transported or used, shall be liable to a civil action by any
person doing business in the locality falsely indicated as that of
origin or in the region in which said locality is situated, or by
any person who believes that he is or is likely to be damaged by
the use of any such false description or representation."
[
Footnote 10]
In general terms, a product feature is functional if it is
essential to the use or purpose of the article or if it affects the
cost or quality of the article.
See Sears, Roebuck & Co. v.
Stiffel Co., 376 U. S. 225,
376 U. S. 232
(1964);
Kellogg Co. v. National Biscuit Co., 305 U.
S. 111,
305 U. S. 122
(1938).
[
Footnote 11]
To establish secondary meaning, a manufacturer must show that,
in the minds of the public, the primary significance of a product
feature or term is to identify the source of the product, rather
than the product itself.
See Kellogg Co. v. National Biscuit
Co., supra, at
305 U. S.
118.
[
Footnote 12]
The District Court also found that the petitioners did not
continue to provide drugs to retailers whom they knew or should
have known were engaging in trademark infringement. 488 F. Supp. at
397. The Court of Appeals did not discuss that finding, and we do
not address it.
[
Footnote 13]
JUSTICE WHITE, in his opinion concurring in the result, voices
his concern that we may have "silently acquiesce[d] in a
significant change in the test for contributory infringement."
Post at
456 U. S. 861.
His concern derives from his perception that the Court of Appeals
abandoned the standard enunciated by Judge Friendly in its first
opinion, a standard which both we and JUSTICE WHITE approve,
post at
456 U. S.
859-860. The Court of Appeals, however, expressly
premised its second opinion on "the governing legal principles . .
. set forth in Judge Friendly's opinion upon the earlier appeal,
601 F.2d 631 (2d Cir.1979)," and explicitly claimed to have
rendered its second decision by "[a]pplying those principles. . .
." 638 F.2d 538, 542 (1981).
JUSTICE WHITE's concern is based on a comment by the Court of
Appeals that the generic manufacturers "could reasonably
anticipate" illegal substitution of their drugs.
Id. at
543. If the Court of Appeals had relied upon that statement to
define the controlling legal standard, the court indeed would have
applied a "watered down" and incorrect standard. As we read the
Court of Appeals' opinion, however, that statement was intended
merely to buttress the court's conclusion that the legal test for
contributory infringement, as earlier defined, had been met.
See infra at
456 U. S.
856-857.
[
Footnote 14]
Such blatant trademark infringement inhibits competition and
subverts both goals of the Lanham Act. By applying a trademark to
goods produced by one other than the trademark's owner, the
infringer deprives the owner of the goodwill which he spent energy,
time, and money to obtain.
See S.Rep. No. 1333, 79th
Cong., 2d Sess., 3 (1946). At the same time, the infringer deprives
consumers of their ability to distinguish among the goods of
competing manufacturers.
See H.R.Rep. No. 944, 76th Cong.,
1st Sess., 3 (1939).
[
Footnote 15]
Of course, if the trial court bases its findings upon a mistaken
impression of applicable legal principles, the reviewing court is
not bound by the clearly erroneous standard.
United States v.
Singer Manufacturing Co., 374 U. S. 174,
374 U. S. 194,
n. 9 (1963). However, in this instance, the District Court applied
correct legal principles when it adopted the precise test developed
by the Court of Appeals.
Compare 601 F.2d 631, 636 (1979),
with 488 F. Supp. at 397.
[
Footnote 16]
As the opinions from the lower courts reveal, more than one
inference can be drawn from the evidence presented. Prior to trial,
test shoppers hired by Ives gave CYCLOSPASMOL prescriptions on
which the "substitution permissible" line was signed to 83 New York
pharmacists. Forty-eight of the pharmacists dispensed CYCLOSPASMOL;
the rest dispensed a generic drug. Ten of the thirty-five
pharmacists who dispensed a generic drug included the word
CYCLOSPASMOL on the label, although 5 of those 10 also included
some form of the word "generic." Nine of the ten told the consumer
of the substitution. Only 1 of the 10 charged the brand name price
for the generic drug. 488 F. Supp. at 397.
The District Court concluded that that evidence did not justify
the inference that the petitioners' catalogs invite pharmacists to
mislabel.
Ibid. The Court of Appeals, emphasizing that 10
of the 35 druggists who dispensed a generic drug mislabeled it as
CYCLOSPASMOL, found a pattern of substitution and mislabeling. 638
F.2d at 543. The dissenting judge on the appellate panel,
emphasizing that only 1 of 83 pharmacists attempted an illegal
substitution and reaped a profit made possible by the color
imitation, concluded the facts supported the District Court's
finding that mislabeling resulted from confusion about the
substitution laws, rather than from profit considerations.
Id. at 546.
On the basis of the record before us, the inferences drawn by
the District Court are not, as a matter of law, unreasonable.
[
Footnote 17]
The Court of Appeals cited no evidence to support its
conclusion, which apparently rests upon the assumption that a
pharmacist who has been provided an imitative generic drug will be
unable to resist the temptation to profit from illegal activity. We
find no support in the record for such a far-reaching conclusion.
Moreover, the assumption is inconsistent with the District Court's
finding that only a "few instances," rather than a substantial
number, of mislabelings occurred. 488 F. Supp. at 397.
[
Footnote 18]
The Court of Appeals characterized the District Court's finding
as resting on "a short and casual exchange with a witness. . . ."
638 F.2d at 544. The District Court, however, stated that its
conclusion that pharmacists did not understand the drug
substitution law rested upon the fact that, in numerous instances,
a pharmacist told a consumer that state law prohibited filling
prescriptions with generic products, even though the consumer had
presented a prescription allowing generic substitution. 488 F.
Supp. at 397-398.
[
Footnote 19]
In reaching that conclusion, the Court of Appeals took judicial
notice of the fact that, in May, 1980, six indictments were handed
down in New York City charging pharmacists with substituting
cyclandelate for CYCLOSPASMOL. We note that the evidence of which
the Court of Appeals took judicial notice not only involved no
convictions, but also reflected knowledge that was not available
when the District Court rendered its decision. Moreover, even if
the District Court failed to consider relevant evidence, which
would have been an error of law, the Court of Appeals, rather than
make its own factual determination, should have remanded for
further proceedings to allow the trial court to consider the
evidence.
See Pullman-Standard v. Swint, ante at
456 U. S.
291-292.
[
Footnote 20]
The Court of Appeals reached that conclusion despite the
District Court's express finding that, for purposes of § 43(a), the
capsule colors were functional.
See supra at
456 U. S. 853.
As the dissent below noted, the Court of Appeals' majority either
disregarded the District Court's finding of functionality,
see 638 F.2d at 545, n. 1 (Mulligan, J., dissenting), or
implicitly rejected that finding as not "persuasive."
See
id. at 547.
While the precise basis for the Court of Appeals' ruling on this
issue is unclear, it is clear that the Court of Appeals erred. The
appellate court was not entitled simply to disregard the District
Court's finding of functionality. While the doctrine of
functionality is most directly related to the question of whether a
defendant has violated § 43(a) of the Lanham Act,
see
generally Note, The Problem of Functional Features: Trade
Dress Infringement Under Section 43(a) of the Lanham Act, 82
Colum.L.Rev. 77 (1982), a finding of functionality may also be
relevant to an action involving § 32. By establishing to the
District Court's satisfaction that uniform capsule colors served a
functional purpose, the petitioners offered a legitimate reason for
producing an imitative product.
Nor was the Court of Appeals entitled simply to dismiss the
District Court's finding of functionality as not "persuasive." If
the District Court erred as a matter of law, the Court of Appeals
should have identified the District Court's legal error. If the
Court of Appeals disagreed with the District Court's factual
findings, it should not have dismissed them without finding them
clearly erroneous.
JUSTICE WHITE, with whom JUSTICE MARSHALL joins, concurring in
the result.
We granted certiorari in these cases in order to review the
legal standard employed by the Second Circuit in finding that a
generic drug manufacturer is vicariously liable for trademark
infringement committed by pharmacists who dispense the generic
drug. The Court implicitly endorses the legal standard purportedly
employed by the Court of Appeals,
ante at
456 U. S.
853-854, but finds that the court erred in setting aside
factual findings that were not clearly erroneous. The question
whether the Court of Appeals had misapplied the clearly erroneous
rule, however, was not presented in the petitions for certiorari.
This was conceded at oral argument. [
Footnote 2/1] Tr. of Oral Arg. 69. Our Rule 21.1(a)
states that "[o]nly the questions set forth in the petition or
fairly included therein will be considered by the Court." The
majority suggests no reason for ignoring our own Rule. Furthermore,
if the issue presented in the petitions for certiorari had been
whether the clearly erroneous standard, although properly invoked,
was erroneously applied, it is doubtful in my mind that this
fact-bound issue would have warranted certiorari. I nevertheless
concur in reversal, because I believe that the Court of Appeals has
watered down to an impermissible extent the standard for finding a
violation of § 32 of the Lanham Act, 15 U.S.C. § 1114.
In its first opinion in this litigation, the Court of Appeals
indicated that a
"manufacturer or wholesaler would be liable
Page 456 U. S. 860
under § 32 if he suggested, even if only by implication, that a
retailer fill a bottle with the generic capsules and apply Ives'
mark to the label, or continued to sell capsules containing the
generic drug which facilitated this to a druggist whom he knew or
had reason to know was engaging in the practices just
described."
601 F.2d 631, 636 (1979) (
Ives II). The District Court
applied this test, but concluded that no violation of § 32 had been
shown. On appeal after trial, a majority of the Second Circuit
found defendants liable for contributory infringement by revising
and expanding the doctrine of contributory trademark infringement.
638 F.2d 538 (1981) (
Ives IV):
"By using capsules of identical color, size, and shape, together
with a catalog describing their appearance and listing comparable
prices of CYCLOSPASMOL and generic cyclandelate, appellees
could reasonably anticipate that their generic drug
product would by a substantial number of druggists be substituted
illegally. . . . This amounted to a suggestion, at least by
implication, that the druggists take advantage of the opportunity
to engage in such misconduct."
Id. at 543 (emphasis added).
Ives II required
a showing that petitioners intended illegal substitution or
knowingly continued to supply pharmacists palming off generic
cyclandelate as CYCLOSPASMOL;
Ives IV was satisfied merely
by the failure to "reasonably anticipate" that illegal substitution
by some pharmacists was likely. In my view, this is an erroneous
construction of the statutory law governing trademark
protection.
William R. Warner & Co. v. Eli Lilly & Co.,
265 U. S. 526
(1924), made clear that a finding of contributory infringement
requires proof of either an intent to induce illegal substitution
or continued sales to particular customers whom the manufacturer
knows or should know are engaged in improper palming off. In that
case, it was shown that the manufacturer's salesmen actively
induced, either in direct terms or by insinuation, the filling of
requests for Coco-Quinine with
Page 456 U. S. 861
Quin-Coco. "The wrong was in designedly enabling the dealers to
palm off the preparation as that of the respondent." [
Footnote 2/2]
Id. at
265 U. S. 530.
Coca-Cola Co. v. Snow Crest Beverages,
Inc., 64 F. Supp.
980, 989 (Mass.1946),
aff'd, 162 F.2d 280 (CA1),
cert. denied, 332 U.S. 809 (1947), the case upon which the
Court of Appeals relied in
Ives II, stands for this very
proposition. There was no contributory infringement in Snow Crest's
manufacture of a product identical in appearance to that of
Coca-Cola. Judge Wyzanski observed that
"any man of common sense knows that, in any line of business, .
. . there are some unscrupulous persons who, when it is to their
financial advantage to do so, will palm off on customers a
different product from that ordered by the customer."
64 F. Supp. at 988-989. These cases reflect the general
consensus. 2 J. McCarthy, Trademarks and Unfair Competition § 25:2
(1973) ("[T]he supplier's duty does not go so far as to require him
to refuse to sell to dealers who merely
might pass off its
goods"). The mere fact that a generic drug company can anticipate
that some illegal substitution will occur to some unspecified
extent, and by some unknown pharmacists, should not, by itself, be
a predicate for contributory liability. I thus am inclined to
believe that the Court silently acquiesces in a significant change
in the test for contributory infringement.
Diluting the requirement for establishing a
prima facie
case of contributory trademark infringement is particularly
unjustified in the generic drugs field. Preventing the use of
generic drugs of the same color to which customers had become
accustomed in their prior use of the brand name product interferes
with the important state policy, expressed in New York and 47 other
States, of promoting the substitution of
Page 456 U. S. 862
generic formulations.
See Warner, Consumer Protection
and Prescription Drugs: The Generic Drug Substitution Laws, 67
Ky.L.J. 384 (1978-1979).
The Court of Appeals concluded that there was no "persuasive
evidence of a legitimate reason" for petitioners to use imitative
colors. The District Court, however, had expressly found that, for
purposes of § 43(a), the capsule colors were functional. With
respect to functionality, I fully agree with the Court that the
Court of Appeals erred in setting aside factual findings without
finding that they were clearly erroneous. The District Court found
that capsule color was functional in several respects: patient
anxiety and confusion were likely if accustomed medicine were
dispensed in a different color; capsule colors assist patients in
identifying the correct pill to take; standard colors help
physicians identify the drug involved in case of overdose.
[
Footnote 2/3] Clearly, the Court
of Appeals could not reject these findings merely because it viewed
the evidence as less persuasive than did the District Court. Rule
52(a) imposes a stricter standard.
Finally, although the Court states that a "finding of
functionality may also be relevant to an action involving § 32," it
does not explicate the relationship of functionality in a § 32
case. It is my view that a finding of functionality offers a
complete affirmative defense to a contributory infringement
Page 456 U. S. 863
claim predicated solely on the reproduction of a functional
attribute of the product. A functional characteristic is "an
important ingredient in the commercial success of the product," 601
F.2d at 643, and, after expiration of a patent, it is no more the
property of the originator than the product itself. It makes no
more sense to base contributory infringement upon the copying of
functional colors than on the petitioners' decision to use the same
formulation of the drug, or even to market the generic substitute
in the first place. To be sure, the very existence of generic drugs
"facilitates" illegal substitution. But Ives no longer has a patent
for cyclandelate, "and the defendants have a right to reproduce it
as nearly as they can."
Saxlehner v. Wagner, 216 U.
S. 375,
216 U. S. 380
(1910) (Holmes, J.). Reproduction of a functional attribute is
legitimate competitive activity.
I am also mindful that functionality is a defense to a suit
under § 43(a) of the Lanham Act alleging damages from a
competitor's "false designation of origin" on a good. [
Footnote 2/4] The use of a product or
package design that is so similar to that of another producer that
it is likely to confuse purchasers as to the product's source may
constitute "false designation of origin" within the meaning of the
Act. [
Footnote 2/5] As the Court of
Appeals noted in
Ives II, § 43(a) "goes beyond § 32 in
making certain types of unfair competition federal statutory
torts," 601 F.2d at 641. Section 43(a) offers the direct protection
of Ives' interest in this case, and it is not surprising that the
alleged
Page 456 U. S. 864
§ 43(a) violation was the primary claim in this litigation, as
it has been in other cases of this genre. It would be anomalous for
the imitation of a functional feature to constitute contributory
infringement for purposes of § 32, while the same activity is not a
"false designation of origin" under § 43(a). [
Footnote 2/6]
I would reverse the decision of the Court of Appeals and remand
for review of the District Court's findings consistent with the
principles stated above.
[
Footnote 2/1]
The third question in petitioner Darby Drug Co.'s petition
embraced the claim that the Court of Appeals had failed to observe
Rule 52(a) in overturning the District Judge's finding of
functionality. As discussed below, I agree with the Court's
invocation of Rule 52 with respect to this aspect of the decision
below.
[
Footnote 2/2]
Although
Warner and other cases were decided before §
32 was enacted, the purpose of the Lanham Act was to codify and
unify the common law of unfair competition and trademark
protection. S.Rep. No. 1333, 79th Cong., 2d Sess. (1946). There is
no suggestion that Congress intended to depart from
Warner
and other contemporary precedents.
[
Footnote 2/3]
"The reality is that, for every link in the distributive chain
(from producer to ultimate consumer), the color and shape of drugs
dispensed by prescription do perform a function. For each of them,
color or shape may be a convenient shorthand code by which to
identify the drug and its milligram dosage so that mistakes can be
avoided in the interests of pharmaceutical precaution and patient
safety. For the patient-user, of course, the constancy of color and
shape may be as psychologically reassuring, and therefore as
medically beneficial, as the drug itself; in addition, they also
serve to identify the drug for his ingestion. . . ."
"[I]f the generic producer is constrained by § 43(a), trademark
law, or the law of unfair competition to adopt a substantially
different color, . . . the therapeutic value of his generic drug
might be seriously impaired, and confusion at the pharmacist level
could be compounded beyond redemption."
3 R. Callmann, Unfair Competition, Trademarks and Monopolies §
82.1(m), pp. 217, 213 (Supp.1981).
[
Footnote 2/4]
See, e. g International Order of Job's Daughter v. Lindeburg
& Co., 633 F.2d 912, 917 (CA9 1980),
cert.
denied, 452 U.S. 941 (1981);
Keebler Co. v. Rovira Biscuit
Corp., 624 F.2d 366, 378 (CA1 1980).
See generally
Note, The Problem of Functional Features: Trade Dress Infringement
Under Section 43(a) of the Lanham Act, 82 Colum.L.Rev. 77, 81
(1982) ("Over the past three years, the rule that functionality of
a copied feature bars relief in section 43(a) claims for trade
dress infringement or product imitation has become the plurality
view").
[
Footnote 2/5]
See, e.g., Truck Equip. Serv. Co. v. Fruehauf Corp.,
536 F.2d 1210 (CA8),
cert. denied, 429 U.S. 861 (1976);
Warner Bros., Inc. v. Gay Toy Inc., 658 F.2d 76 (CA2
1981).
See also Note, 82 Colum.L.Rev.,
supra, at
78-80.
[
Footnote 2/6]
This is not to suggest that the copying of a functional feature
protects a defendant from § 32 liability predicated on active
inducement of trademark infringement or protects a defendant who
has also reproduced nonfunctional features.
JUSTICE REHNQUIST, concurring in the result.
I agree that the judgment of the Court of Appeals should be
reversed. That court set aside factual findings of the District
Court without having found them to be clearly erroneous, as
required by Rule 52(a) of the Federal Rules of Civil Procedure. I
disagree, however, with the Court's determining for itself that the
findings of the District Court were not clearly erroneous. I think,
in the usual case, this is a question best decided by the courts of
appeals, who have a good deal more experience with the application
of this principle than we do, and I see no reason to make an
exception in this case.
I also assume, correctly I hope, that the Court's discussion of
appellate review of trial court findings in bench trials,
ante at
456 U. S. 855,
is limited to cases in which the appellate court has not found the
trial court findings to be "clearly erroneous."
United States
v. United States Gypsum Co., 333 U. S. 364
(1948), upon which the Court relies, establishes the authority of a
reviewing court to make its own findings, contrary to those of the
trial court, where it has determined the latter to be "clearly
erroneous."
I agree with the Court that these cases should be remanded to
the Court of Appeals to review the District Court's dismissal of
respondent's claims under § 43(a) of the Lanham Act and its state
law claims.