United States Court of Appeals
For the First Circuit
No. 08-1911
VASCULAR SOLUTIONS, INC.,
Plaintiff, Appellee,
v.
MARINE POLYMER TECHNOLOGIES, INC.,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Rya W. Zobel, U.S. District Judge]
Before
Boudin, Stahl and Lipez,
Circuit Judges.
Peter D. Vogl with whom Todd R. Geremia and Jones Day were on
brief for appellant.
J. Thomas Vitt with whom David Y. Trevor, Clifford S. Anderson
and Dorsey & Whitney LLP were on brief for appellee.
December 23, 2009
Per Curiam. Vascular Solutions, Inc. ("VSI") and Marine
Polymer Technologies, Inc. ("MPT") sell differently designed
medical patches that are designed to stop bleeding after specific
medical procedures, including catheterizations. Each accused the
other of spreading false statements about its particular product.
Awarding nothing to MPT, the jury found VSI was entitled to damages
of $4.5 million in lost profits on its product disparagement claim,
and it is from that judgment that MPT now appeals.
The background facts can be briefly summarized, recounted
in light of the jury's verdict. Mendez-Matos v. Municipality of
Guaynabo, 557 F.3d 36, 40 (1st Cir. 2009). Both MPT's "SyvekPatch"
and VSI's "D-Stat Dry" are commonly used after cardiac
catheterization procedures, which are performed to examine blood
vessels in the heart. Applied to the skin surface like a bandage,
the patches stem blood flow at the site of a physician's puncture
of a patient's major artery in the upper thigh, which is made to
start the catheterization. The patches are intended to operate
more quickly and less invasively than older methods for halting
post-catheterization bleeding.
VSI's D-Stat Dry patch uses bovine thrombin--a compound
derived from cow's blood--as its active ingredient. The ingredient
creates the risk, which increases with multiple exposures of the
patient to the ingredient, of triggering antibodies and therefore
possible complications (which may include excessive bleeding or
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blood clots). An FDA-approved warning appears in D-Stat Dry's
written instructions for use. However, the ingredient seals wounds
rapidly and, by the time of trial, VSI had sold more than one
million D-Stat Dry patches, without reports of severe bleeding or
blood clots resulting from proper use of the device.
VSI began selling D-Stat Dry in September 2003: it sold
19,000 devices during the remainder of 2003 and 164,000 in 2004.
In early 2005, Howard Root, VSI's chief executive officer ("CEO"),
and VSI's chief financial officer developed a three-year sales
forecast, projecting that sales of VSI's patch would grow from an
estimated 282,000 in 2005 (one-third of the market) to 467,000 in
2007 (one-half of the market). VSI's sales leveled off, however,
and the company achieved about a 37 percent market share by 2007.
Several years earlier, MPT had won FDA approval for its
own clotting bandage, now named the SyvekPatch, which uses a thin
fiber produced by the diatom, a single-celled marine organism.
MPT's sales of the patch grew rapidly through 2002, but growth
declined in subsequent years. MPT concluded that its sales had
been affected by false information about its patch disseminated by
VSI starting in 2003, and it counter-attacked by providing to its
own sales agents negative information about VSI's product.
After gentler critiques of D-Stat Dry failed to stop the
decline in MPT's sales, MPT's marketing director, Peter Stevens,
prepared an informational bulletin dated March 2, 2004 (the
-3-
"marketing bulletin"), drawing on material in a scientific paper
published in 2001 (the "Ortel article"). The bulletin, in an
introductory large-type message, asserted, "YOU CAN'T USE D-STAT
AND 'DO NO HARM'"--a reference to the Hippocratic Oath--and
contained five statements later successfully challenged by VSI as
product disparagement (the first two being the two sentences
contained in the substantive paragraph that follows):
The message to communicate to all
health care providers is:
After one application of bovine
thrombin there is a 95% patient risk of
developing antibodies to it, and a 51% risk of
developing antibodies to human factor V.
After just two exposures to topical thrombin
there is a 36% risk of developing abnormal
coagulation results leading to events such as
excessive post-op bleeding, gastrointestinal
bleeding, and hemorrhagic stroke.
The other statements challenged by VSI were the first
three of five numbered points that appeared farther down on the
first page of the bulletin:
1. Bovine thrombin [e.g. D-Stat] is
extremely immunogenic; after just one exposure
to Bovine thrombin 95% of patients raise
antibodies to it.
2. Bovine thrombin carries a very high
risk of causing serious permanent bleeding
disorders in 51% of patients. Excessive post-
op bleeding, gastrointestinal bleeding, and
hemorrhagic stroke occur--after only 2
exposures to bovine thrombin.
3. After a second exposure to thrombin,
51% of patients develop antibodies to HUMAN
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Factor V and 36% have abnormal coagulation
results--the effect is irreversible for life.
The bulletin was sent electronically and presented in
training sessions to MPT's sales force for its message to be
communicated to customers without giving them the bulletin itself.
A VSI sales agent discovered the document while visiting a
customer, and Root then wrote to MPT's president asking for
correction of false and misleading statements. Root asserted, for
example, that the Ortel article rested on a study using an
"extremely impure and since-discontinued" form of bovine thrombin
rather than the purer D-Stat Dry version, and said that certain of
the data concerned patients who had undergone "massively-invasive"
surgeries rather than minimally invasive catheterization
procedures.
MPT did not respond and VSI filed the present action in
federal district court in Minnesota in May 2005; the case was later
transferred to the District of Massachusetts. The only one of
VSI's claims to survive the trial was its product disparagement
claim (we need not discuss the others or MPT's counterclaims which
also failed). Following a 10-day trial, the jury awarded VSI $4.5
million, a little more than half of the $8.4 million in damages VSI
had sought. The jury made specific findings that these five
statements were false and, in light of the jury instructions, had
to find that MPT made them with actual malice. The district court
enjoined MPT's further use of the false statements.
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On appeal, MPT challenges the jury's verdict for VSI.
MPT contends that VSI failed to prove malice by clear and
convincing evidence and, alternatively, that VSI was not entitled
to the judgment because the evidence did not show specific lost
sales attributable to MPT's conduct and so was insufficient
evidence of special damages as a matter of law. The parties assume
in their briefs that Massachusetts law governs VSI's product
disparagement claim; we therefore do likewise. See Nagle v. Acton-
Boxborough Reg'l Sch. Dist., 576 F.3d 1, 3 (1st Cir. 2009).
Starting with malice, we note that neither the Supreme
Court nor this one has decided whether the First Amendment requires
in product disparagement actions the actual malice standard of New
York Times Co. v. Sullivan, 376 U.S. 254, 279-80 (1964); at least
one circuit has rejected that proposition for a similar cause of
action, see Procter & Gamble Co. v. Amway Corp., 242 F.3d 539, 552
& n.26 (5th Cir. 2001) (Lanham Act commercial disparagement), cert.
denied, 534 U.S. 945 (2001). Whether Massachusetts courts might
independently read such a requirement into its common law cause of
action is also unclear.1
1
Massachusetts courts have not decided whether malice is an
element of the tort, e.g., Dulgarian v. Stone, 652 N.E.2d 603, 609
& n.9 (Mass. 1995), but might require it if faced with the issue
again, see id. at 609 (quoting the Restatement (Second) of Torts §
623A (1977), which provides the actual malice standard for
injurious falsehood/product disparagement actions).
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The parties tried the case before us on the premise that
actual malice is required, and we accept that view solely for the
purposes of this case. Bose Corp. v. Consumers Union of the U.S.,
Inc., 692 F.2d 189, 194 (1st Cir. 1982) (accepting that the actual
malice standard applied in a product disparagement case where the
parties did not dispute it), aff'd, 466 U.S. 485 (1984); Suzuki
Motor Corp. v. Consumers Union of U.S., Inc., 330 F.3d 1110, 1133-
34 & n.11 (9th Cir.) (same), cert. denied, 540 U.S. 983 (2003).
Such a requirement might seem far afield from the concerns
animating the New York Times case--itself an innovation not known
to the common law--but this is an issue for another case.
To prove actual malice, VSI had to provide clear and
convincing evidence that MPT's marketing director made the
challenged statements "with knowledge that [they were] false or
with reckless disregard of whether [they were] false or not." New
York Times, 376 U.S. at 279-80, 287; Bose, 692 F.2d at 195. Thus
Stevens must have had a "high degree of awareness of their probable
falsity" to meet the actual malice standard, Garrison v. Louisiana,
379 U.S. 64, 74 (1964); for recklessness the evidence must permit
the conclusion that he "in fact entertained serious doubts as to
the truth of his publication," St. Amant v. Thompson, 390 U.S. 727,
731 (1968).
Subjecting the jury's malice determination to our own
independent review, as we must, see Bose, 466 U.S. at 510-11, we
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find that the evidence supports the jury's finding that the
statements were false and provides ample proof of malice for at
least the principal challenged statements; and, for reasons that
will appear, this is an ample basis for satisfying the malice
requirement, assuming it exists.
The most inflammatory of the five statements, and the
most glaringly unsupported, are the two that associated D-Stat Dry
with specific and serious outcomes in percentages that would be
remarkable for a relatively straightforward medical task--to stop
bleeding at a modest-size doctor-created incision. If believed,
they would certainly deter use of a product for a result that could
be achieved by other, long-used means or by newer products like
that of MPT. Both statements associate VSI's product "after just"
or "only" two exposures with "excessive post-op bleeding,
gastrointestinal bleeding, and hemorrhagic stroke."
Phrasing the statistics differently, the two statements
read:
After just two exposures to topical thrombin
there is a 36% risk of developing abnormal
coagulation results leading to events such as
excessive post-op bleeding, gastrointestinal
bleeding, and hemorrhagic stroke.
* * *
2. Bovine thrombin carries a very high
risk of causing serious permanent bleeding
disorders in 51% of patients. Excessive post-
op bleeding, gastrointestinal bleeding, and
hemorrhagic stroke occur--after only 2
exposures to bovine thrombin.
-8-
The Ortel article does refer to the increased risk of an
"adverse event" upon second exposure to bovine thrombin, and it
contains language and a table listing some of the possible adverse
events, including "postoperative bleeding," "gastrointestinal
bleeding," and "hemorrhagic complications." The article, however,
does not directly link a second exposure to bovine thrombin to the
complications cited by MPT and certainly does not quantify any such
risk in the percentages stated by MPT. If anything, the Ortel
article disclaims proof of such an association.2
Language in the article that comes closest to the quoted
statements was specific to exposure to bovine thrombin during
surgery where much larger dosages are employed. Nor could MPT's
prediction of "permanent" bleeding disorders be supported by the
article; as Stevens himself suggested, the time period of the study
was too short to make that determination--in fact, the study
followed the patients for only four to eight weeks. Stevens
admitted that the Ortel article "doesn't support even one person
losing the ability to clot their blood permanently" or even one
patient having a serious and permanent bleeding disorder.
2
The Ortel article states that "[a]dverse clinical
complications in the postoperative period did not appear to be
associated with the development of elevated antibody levels to
bovine or human coagulation factors" (emphasis added). One of the
experts at trial, Dr. Mann, explained that this passage "means . .
. that [the article's authors] could not identify an association
between the generation of an antibody and . . . any clinical
event."
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In considering malice, the jury was also entitled to
weigh MPT's motive. Harte-Hanks Commc'ns, Inc. v. Connaughton, 491
U.S. 657, 668 (1989); Bose, 692 F.2d at 196. MPT's own sales began
to fall after D-Stat Dry was introduced, and chronology shows that
MPT developed the bulletin after MPT's early and more temperate
criticisms of D-Stat Dry seemingly went unheeded by customers. The
scare phrasing of the document and the indication that it was to be
used to persuade customers, but not to be left with them, could
also be considered by the jury--the latter as reflecting a concern
that the bulletin could otherwise be discovered by VSI and
challenged as false.
The other three statements are a closer call as to
malice. Two of them charge that bovine thrombin causes 95 percent
of patients to raise antibodies to it after one exposure; two that
it causes 51 percent of patients to raise antibodies to human
factor V after at least one exposure; and one that a second
exposure to bovine thrombin causes 36 percent of patients to have
abnormal coagulation results--"the effect is irreversible for
life."3 The Ortel article uses these exact percentages with
3
The claim that 36 percent of patients have abnormal
coagulation results that are "irreversible for life" is
significantly different, and better supported by the Ortel article
in combination with Stevens' probable understanding of immune
memory, than the stronger statement that linked two bovine thrombin
exposures to a substantial (impliedly 36% or higher) risk of
particular bleeding disorders, which we have decided was
unsupported by the Ortel article and made with actual malice.
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respect to the claimed risks of antibodies and abnormal coagulation
results in speaking generically about bovine thrombin; and while at
trial VSI offered expert medical data suggesting much lower
antibody production in response to exposure to its form of bovine
thrombin, Stevens could have been unaware of that other data and
could have made these three challenged statements without actual
malice.
But this possibility makes no difference to the damages
verdict. The most inflammatory statements were recklessly false--
or so the jury permissibly found--and it is a fair inference that
the damages verdict rested primarily on them: their assertion of
high percentage risks of lurid complications would have alarmed any
doctor considering D-Stat Dry. As for injunctive relief directed
at future repetition of the statements, MPT's request for relief
from the injunction rests on the premise that no violation was
proved as to any of them and does not seriously attempt to show
that any of the statements is true but only that they were all made
without malice--a position the jury permissibly rejected.
The hard questions on this appeal concern damages. MPT's
main claim is that VSI failed to provide a particular form of proof
of "special damages"--namely, lost sales to specific named
customers as opposed to expert evidence and general data from which
aggregate loss of sales might be inferred. In most fields of tort
law, a plaintiff having established wrongdoing may prove damages in
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any reasonable way, e.g., Graves v. R.M. Packer Co., 702 N.E.2d 21,
28 (Mass. App. Ct. 1998) (stating that the damages evidence need
only "afford a 'basis for a reasonable judgment'" (quoting Linkage
Corp. v. Trs. of Boston Univ., 679 N.E.2d 191, 210 n.38 (Mass.
1997))); but for peculiar reasons, probably more historical than
prudential, a number of jurisdictions following the Restatement
(Second) of Torts require in product disparagement cases proof of
specific lost sales to identifiable customers unless it is
infeasible to provide such proof.4
Massachusetts has no authoritative case cited to us that
is directly on point, but it has followed the Restatement on other
aspects of product disparagement, e.g., Dulgarian, 652 N.E.2d at
609 (citing a different Restatement section on liability for
injurious falsehood, which includes product disparagement), and we
will assume arguendo that it would likely do so here. This is
merely an assumption:
4
The phrase "special damages"--common in defamation law--means
nothing more than actual damages (as opposed to damages--e.g., to
reputation--that are presumed for certain libelous statements),
Peckham v. Holman, 28 Mass. (1 Pick.) 484, 486 (1831); the
Restatement, followed in a number of jurisdictions, goes even
further--in certain but not all cases--by demanding proof of
specific lost sales. Restatement (Second) of Torts § 633 (1977)
(special damages "may be established by (a) proof of the conduct of
specific persons, or (b) proof that the loss has resulted from the
conduct of a number of persons whom it is impossible to identify");
e.g., Fashion Boutique of Short Hills, Inc. v. Fendi USA, Inc., 75
F. Supp. 2d 235, 240-41 (S.D.N.Y. 1999) (rejecting suit because the
plaintiff did not identify specific lost customers when it was
possible to do so), aff'd, 314 F.3d 48 (2d Cir. 2002).
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Under the impact of more detailed statistical
and expert proof, courts have shown increasing
willingness in recent years to award a loss of
profit in other kinds of cases, and it may be
expected that this will carry over into the
injurious falsehood [which includes product
disparagement] cases where the loss is shown
with reasonable certainty.
Prosser and Keeton on Torts § 128, at 972 (5th ed. 1984) (footnote
omitted).
Furthermore, the Restatement proof requirement applies
only where it is feasible to identify specific lost sales. But our
case is not one of falsehoods about a product sold to a limited
list of named regular purchasers. MPT had a number of
representatives who dealt with hundreds of "cath labs" at
hospitals. So one could postulate that it would hardly be easy to
determine in most cases to whom MPT sales agents spoke,5 who or
what group or committee made purchasing decisions, and the precise
connection (if any) between the dissemination of falsehood and the
absence of a set of purchases of VSI's product.
Had MPT asserted this special proof rule in the district
court, we would presumably have some developed information on the
relevant facts and a ruling from the district judge as to whether
the facts added up to the "wide dissemination" exception, under
5
However, because MPT had only about 25 sales representatives
in addition to a few executives who made sales calls, it should
have been feasible to identify for at least some of those agents
the customers and potential customers to whom they spoke during the
relevant time period and so to follow the trail to at least some
lost sales.
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which even the Restatement does not require proof of individual
lost sales. Restatement, supra, § 633 cmt. h; see also Sack on
Defamation § 13.1.4.6 (3d ed. 2007) (stating that generalized
evidence of lost profits is "probably enough" to prove special
damages, "particularly where it is impractical to establish
specific lost sales"). But MPT made no such objection in the
district court prior to or during trial, so the need for an
instruction on proof of special damages was never established.
VSI has failed to point out that the special damages
proof rule was not properly invoked in the district court. But
because the parties tried the case below on the assumption that
ordinary rules of damages proof applied, MPT's objection is
forfeit, subject to plain error, Davila v. Corporacion de Puerto
Rico para la Difusion Publica, 498 F.3d 9, 14-15 (1st Cir. 2007);
the judicial system has an ample interest in not wasting resources
with unnecessary retrials. See Harden v. United States, 688 F.2d
1025, 1032 n.7 (5th Cir. Unit B 1982). Plain error is rarely found
in civil cases in this circuit, Nat'l Ass'n of Chain Drug Stores v.
New England Carpenters Health Benefits Fund, 582 F.3d 30, 43 (1st
Cir. 2009); and here, given the difficulty of proving specific
lost sales, it is far from plain that any error occurred.
MPT spends much less time arguing that damages were not
established even under ordinary standards, but this argument does
require attention. For reasons already noted it might be
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impossible to identify most, let alone all, of the various
individuals exposed to the false statements, or to identify many of
those involved in purchasing the products, let alone to connect
specific statements to specific failures to buy; but this does not
mean that no such instances could be located--assuming that the
falsehoods had effect. While VSI initially indicated to the
district court that it would seek to present at least some specific
lost sales, in the end it identified no such instance. No legal
rule requires such exemplars but they could well have strengthened
VSI's case.
Instead, VSI's central evidence was its three-year
projection estimating expected growth of sales for its new and
initially successful product. Admittedly, this was made before
MPT's false statements were disseminated and before litigation in
this case commenced; and Root testified that the projections were
well-founded on market research including third-party reports,
public company reports, and available information on competitive
developments, pricing, and VSI's own sales experience. He also
said that he knew of no reason that could explain the unrealized
sales growth other than the false statements disseminated by MPT.
VSI also provided an expert damages witness, Donald
Nicholson, a certified public accountant, who analyzed VSI's
estimate and concluded that based upon the projected sales figures,
it had fallen short by $13.6 million in sales--$8.4 million in
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profits. It was this loss in profits that VSI attributed to MPT's
defamatory statements. Nicholson said that his calculations
accounted for new entrants during the relevant period but not for
other true information in the market place about bovine thrombin
risks. MPT introduced no evidence of its own--expert or otherwise-
-to refute VSI's damages showing.
Yet even as Nicholson stated that Root's projection was
reasonable, he reiterated that they were "really Mr. Root's
estimate[s]" and confessed that they would be too high if one were
to accept a third-party report's estimates of the market size. VSI
also provided lower estimates of sales growth to its investors,
although there are reasons why a company's executives might provide
more conservative estimates to shareholders. It is not surprising
that the jury did not entirely accept the projection, awarding VSI
only about half of what it sought for conduct that the jury itself
deemed malicious.
Massachusetts cases have relied upon expert testimony by
outside experts or company executives to uphold a jury's
determination that a defendant's conduct caused a loss of profits.6
This is perhaps an easier inference where existing sales fall after
the defendant's wrongdoing; VSI's damages require the further step
6
See, e.g., Herbert A. Sullivan, Inc. v. Utica Mut. Ins. Co.,
788 N.E.2d 522, 544 (Mass. 2003); Brewster Wallcovering Co. v. Blue
Mountain Wallcoverings, Inc., 864 N.E.2d 518, 529-30, 541-43 (Mass.
App. Ct. 2007); Ricky Smith Pontiac, Inc. v. Subaru of New England,
Inc., 440 N.E.2d 29, 46-47 (Mass. App. Ct. 1982).
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of giving credence to Root's projected growth in sales over and
above the inference that the defendant's conduct caused harm.
Massachusetts courts have not foreclosed the use of growth
estimates but are prepared to reject individual calculations as
unsupported. See Augat, Inc. v. Aegis, Inc., 631 N.E.2d 995, 998
(Mass. 1994) (rejecting a specific high growth rate, admittedly
calculated after the litigation, as "implausib[le]," but not
rejecting the method).
In this case, the evidence surely permitted the jury to
infer that MPT's malicious false statements--inflammatory and
widely deployed--had a negative causal effect on VSI's otherwise
climbing sales and profits. As to the amount of damages, lost
profits inherently involve estimation and courts are often inclined
to think that the wrongdoer created the problem and must accept the
jury's judgment within a range of uncertainty. Herbert A.
Sullivan, Inc., 788 N.E.2d at 543 ; Lowrie v. Castle, 113 N.E. 206,
210 (Mass. 1916); Ricky Smith Pontiac, 440 N.E.2d at 48. The
question is whether the amount in this case went beyond reasonable
limits.
On this, the panel is divided even as between the two
judges who believe liability has been established and vote to
uphold an award of damages in favor of VSI. One member of the
panel, recognizing that causation must be inferred and that any
amount of damages is an estimate, thinks that the jury verdict is
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still within reasonable bounds; the other, that it is excessive--
given the lack of proof of any specific lost sales and that its
support is almost entirely a projection by the plaintiff as to what
it hoped to earn--and that a sua sponte remittitur is essential.
The verdict most favorable to the judgment that two
judges will support is an affirmance subject to a remittitur
limiting VSI's recovery to $2.7 million apart from interest, costs
and other incidentals. See Alvira v. F.W. Woolworth Co., No. 92-
2255, 1993 U.S. App. LEXIS 7145, at *8-11 (1st Cir. Apr. 7, 1993);
Catullo v. Metzner, 834 F.2d 1075, 1083 (1st Cir. 1987); Kolb v.
Goldring, Inc., 694 F.2d 869, 874-75 (1st Cir. 1982). On remand,
which we now order, VSI can accept this figure or insist upon a new
trial as to damages. In all remaining respects the judgment is
affirmed. Each side will bear its own costs.
It is so ordered.
--Concurring and Dissenting Opinion Follows--
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LIPEZ, Circuit Judge, concurring in part and dissenting
in part. I agree with the majority that the evidence permitted the
jury to find that MPT made the two most inflammatory statements
about the dangers of the D-Stat Dry with actual malice. I
disagree, however, that the jury's damages verdict is sustainable,
even with the proposed reduction, on the record before us. The
majority treads lightly over VSI's failure to show the loss of even
one specific customer as a result of MPT's statements. In my view,
the adequacy of VSI's proof of damages depends on whether it is
entitled to the widespread dissemination exception to the special
damages rule for product disparagement claims. If not, its failure
to show any specific lost sales would be fatal to the product
disparagement cause of action, and damages would be unavailable as
a matter of law. I would therefore remand the case to the district
court for consideration of the exception and, hence, respectfully
dissent from the damages portion of the majority's decision.
I.
Product disparagement is a species of business tort that
is often grouped with similar claims, such as trade libel or
"slander of title," as a form of "injurious falsehood." Rodney A.
Smolla, 2 Law of Defamation § 11:34 (2d ed. 2009). It is well
established that special damages are "an essential part of [a]
cause of action for injurious falsehood," W. Page Keeton et al.,
Prosser & Keeton on Torts § 128, at 970-71 (5th ed. 1984), and
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"must always be proved," Restatement (Second) of Torts § 623A cmt.
g.; Dooling v. Budget Pub. Co., 10 N.E. 809, 811 (Mass. 1887);
Restatement (Second) of Torts § 651 cmt. b; Arlen W. Langvardt,
Section 43(A), Commercial Falsehood, and the First Amendment: A
Proposed Framework, 78 Minn. L. Rev. 309, 337 (1993).
To prove special damages in a product disparagement case,
a plaintiff usually must show a loss of particular sales to
specific customers. Prosser & Keeton on Torts § 128, at 972
(stating that the plaintiff ordinarily "must identify the
particular purchasers who have refrained from dealing with him, and
specify the transactions of which he claims to have been
deprived"); Robert D. Sack, 2 Sack on Defamation[:] Libel, Slander,
and Related Problems § 13.1.4.6, at 13-22 (3d ed. 2009);
Restatement (Second) of Torts § 633 cmt. c; see also Amerinet, Inc.
v. Xerox, 972 F.2d 1483, 1504 (8th Cir. 1992) (dismissing
disparagement claims on motion for summary judgment where "[t]he
record contains no evidence of specific lost sales or of losses
directly attributable to particular false statements by [the
defendant]"). The strict requirement to prove lost sales ensures
that the actual pecuniary harm the tort is designed to remedy did,
in fact, occur. See Arlen W. Langvardt, Free Speech Versus
Economic Harm: Accommodating Defamation, Commercial Speech, and
Unfair Competition Considerations in the Law of Injurious
Falsehood, 62 Temp. L. Rev. 903, 918 (1989) (observing that the
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strict special damages requirement "appears to be based on a
sensible notion: the economic interests with which injurious
falsehood law is concerned necessarily carry a pecuniary value").
There is an exception to this specific lost-sales
requirement where the false statement has been widely disseminated
and it would be impossible to establish that the challenged
statements caused specific lost sales. The Restatement explains
the exception as follows:
Widely disseminated injurious falsehood may
. . . cause serious and genuine pecuniary loss
by affecting the conduct of a number of
persons whom the plaintiff is unable to
identify and so depriving him of a market that
he would otherwise have found. When this can
be shown with reasonable certainty, the rule
requiring the identification of specific
purchasers is relaxed and recovery is
permitted for the loss of the market.
Restatement (Second) of Torts § 633 cmt. h7; see also Prosser &
Keeton on Torts § 128, at 972-73; Amerinet, 972 F.2d at 1503-04
(noting that, where a plaintiff is unable to show loss of specific
sales, "'the modern view allows plaintiff to prove a general
7
Restatement 633 provides that the asserted pecuniary loss
must "result[] directly and immediately from the effect of the
conduct of third persons" and that such loss "may be established by
(a) proof of the conduct of specific persons, or
(b) proof that the loss has resulted from the
conduct of a number of persons whom it is impossible to
identify.
The pecuniary loss thus must be caused by the impact of the
challenged statements on the conduct of third parties, who may be
identifiable ((2)(a)) or not ((2)(b)).
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decline of business, so long as this is shown to be the result of
defendant's disparaging statements and other possible causes are
eliminated'" (quoting Advanced Training Sys., Inc. v. Caswell
Equip. Co., 352 N.W.2d 1, 7 (Minn. 1984))); Fashion Boutique v.
Fendi USA, Inc., 75 F. Supp. 2d 235, 240 (S.D.N.Y. 1999), aff'd,
314 F.3d 48 (2d Cir. 2002); Charles Atlas, Ltd. v. Time-Life Books,
Inc., 570 F. Supp. 150, 156 (S.D.N.Y. 1983).
The exception is most plainly applicable when disparaging
remarks appear in a publication that is distributed to a general
audience, leaving the plaintiff unable to identify specific
customers who were lost or specific individuals who might have
become customers, but did not, because of the negative information
communicated by the defendant. The Bose case, which ultimately
reached the Supreme Court on another issue, is illustrative. See
Bose Corp. v. Consumers Union of U.S., Inc., 529 F. Supp. 357 (D.
Mass. 1981), rev'd on other grounds, 692 F.2d 189 (1st Cir. 1982),
aff'd, 466 U.S. 485 (1984). The Bose Corporation had alleged that
its loudspeaker system was disparaged in an article published in
Consumer Reports magazine, which was distributed to "millions of
readers." Id. at 363. It was impossible for Bose to identify the
customers it had lost, and the district court permitted it to prove
damages with evidence showing a decline in the rate of sales
-22-
following publication of the article. Id. at 3648; see also
Charles Atlas, Ltd. 570 F. Supp. at 156 (involving a product
disparagement claim against the publisher of a book that was sold
only through mail order). The more flexible approach to damages
also has been applied where the challenged statements were
disseminated by means of sales literature. See Porous Media Corp.
v. Pall Corp., 110 F.3d 1329, 1338-39 (8th Cir. 1997).
Given Massachusetts' consistent reliance on the
Restatement in injurious falsehood cases, see, e.g., Dulgarian v.
Stone, 652 N.E.2d 603, 609 (Mass. 1995); Powell v. Stevens, No.
2000-0089, 2004 WL 1047451, at *3 (Mass. Super. May 3, 2004), and
the broad acceptance of the product disparagement cause of action
as discussed in the treatises, a federal court applying
Massachusetts law must assume that the state's courts would follow
the Restatement's approach to the special damages rule and the
widespread dissemination exception. Thus, a plaintiff asserting
product disparagement in Massachusetts must show that the
challenged statements caused it to lose the sales of specific
customers unless wide dissemination of the statements makes it
unreasonably difficult for the plaintiff to prove its damages by
identifying particular losses.
8
The district court in Bose did not invoke the "widespread
dissemination" exception by name, but used its approach in allowing
Bose to prove a decline in sales from publication of the article.
See 529 F. Supp. at 364.
-23-
II.
A. VSI's Claim to the Widespread Dissemination Exception
VSI asserts entitlement to the widespread dissemination
exception because the challenged statements were communicated
through MPT's twenty-five sales agents and key executives to many
potential customers who would be impossible to identify. In
response, MPT emphasizes that this case does not involve a general-
circulation publication, and it argues that the limited universe of
customers potentially affected by its statements renders the
widespread dissemination exception inapplicable.9
MPT is correct that the circumstances here differ in a
significant way from those typically associated with the widespread
dissemination exception. MPT's twenty-five sales agents presumably
know which customers they visited during the relevant time period.
In addition, VSI claims that MPT's aggressive marketing wrested
away some of its existing customers in addition to discouraging new
purchases, and it would therefore seem feasible for VSI to have
contacted the customers it lost during that period to inquire
9
It alternatively claims that VSI has not proven wide
dissemination because the record shows only a single instance in
which the challenged statements were actually published to a
customer. That contention is unpersuasive. The fact that only one
known customer was given physical possession of the marketing
bulletin does not mean the statements it contained were not widely
disseminated. The marketing bulletin itself urged sales agents to
communicate its message "to all health care providers," and it is
a fair inference that they followed those instructions and verbally
disseminated the bulletin's content, at least generally, to a large
group of customers and potential customers.
-24-
whether MPT's statements were a substantial factor in their
decision. See Restatement (Second) of Torts § 632 (stating that
publication of an injurious falsehood causes pecuniary loss if "it
is a substantial factor in bringing about the loss").
VSI asserts that it is more complicated than it may at
first seem to retrieve information from specific customers. It
states that, as a general matter, information about the loss of
specific sales to catheterization labs is not reasonably obtainable
because "there are myriad individuals at each lab to whom an MPT
representative might speak" and "[t]he purchasing decisions are
sometimes made by committees." There appears to be no reason,
however, why multiple individuals in the same lab could not be
asked about their interactions with MPT's sales agents. Indeed,
VSI's CEO, Howard Root, testified that VSI's representatives "speak
to doctors every day. Anyone who is in the lab using products, we
ask them what are they using and why. We talk to them about what
information they have on that product, what they believe about that
product, what they like or don't like about the product." The
ability to question specific customers is suggested as well in the
testimony of MPT expert Eugene Ericksen, who contacted more than
thirty SyvekPatch customers who had switched, at least partially,
to the D-Stat Dry.
At the same time, it is apparent that, even if the
statements' impact on a number of specific customers should have
-25-
been ascertainable, many potential lost sales would have been
extremely difficult, if not impossible, to confirm. For example,
it would be impractical to expect VSI to contact every one of MPT's
longstanding customers in search of those who had considered
switching to VSI, but did not do so because of the statements. It
would be similarly challenging to determine whether potential
customers who ultimately purchased from a competitor other than MPT
had excluded VSI from contention based on what they heard from
MPT's sales agents.
The circumstances here thus appear to involve a cause of
action that embraces both a traditional claim that particular sales
were lost and the exceptional claim that many other impossible-to-
identify customers were likely affected by the defendant's
disparaging statements. If in fact – as VSI claims – virtually no
evidence of specific lost sales is accessible, the widespread
dissemination exception would seem fully applicable and generalized
proof of lost profits could be legally sufficient. If evidence of
a number of specific losses should exist and is reasonably
obtainable, however, the plaintiff should be required to produce
proof of such losses in conjunction with the generalized proof of
lost profits. This is so because the proof of specific losses
under such circumstances is strong evidence of the causal link
between the defendant's statements and the plaintiff's harm, and
such specific proof justifies reliance on the generalized proof of
-26-
lost profits to establish the dollar value of the loss of market.
Moreover, requiring the plaintiff to offer that customer-specific
evidence, where it is reasonably available, is consistent with both
the traditional strict standard of proof for product disparagement
claims and the policy of flexibility underlying the widespread
dissemination exception.
The widespread dissemination exception is rooted in
principles of fairness, meant to accommodate plaintiffs who lack
one-to-one contact with their own customers and are therefore
unable to identify individual recipients of the defendant's
message. In such instances, evidence of lower-than-anticipated
sales based on past performance and market conditions – where
"'other possible causes [for the decline] are eliminated,'"
Advanced Training Sys., Inc., 352 N.W.2d at 7 – is realistically
the only way the plaintiff can prove that the challenged statements
caused it to lose customers. Where the record shows that a
plaintiff has the means to prove a link between the allegedly
defamatory communication and some identifiable set of lost
customers, however, the rationale for allowing a plaintiff to rely
solely on the general, more speculative evidence of lost sales is
considerably weakened.
If the plaintiff shows cause-and-effect between the
defendant's statements and the loss of identifiable customers, the
jury reasonably can draw the inference that such harm happened more
-27-
widely. When such exemplar evidence should be available but is not
produced – or, put another way, if the plaintiff cannot show that
its identifiable customers were influenced by the defendant's
statements – the inference of causation becomes unduly speculative.
The plaintiff should not be able to satisfy its burden of proof by
omitting what is logically the "best evidence" of the harm it
alleges. In effect, that omission renders the plaintiff's proof of
causation insufficient as a matter of law. Cf. Verizon Directories
Corp. v. Yellow Book USA, Inc., 309 F. Supp. 2d 401, 408 (E.D.N.Y.
2004) ("Verizon makes no representation that it is in the nature of
its business not to have direct contact with its customers. . . .
It would be striking if such a large organization would be unable
to identify even one customer it had allegedly lost as a result of
[the defendant's] commercials."); Fashion Boutique, 75 F. Supp. 2d
at 240 (rejecting applicability of the widespread dissemination
exception where the plaintiff store could have interviewed
customers from its list of more than 8,000 names to determine why
they stopped shopping at the store).
Moreover, in an age of increasingly widespread
communication of information, many companies could plausibly claim
that disparaging statements about their products were widely
disseminated, with the harm extending far beyond the particular
customers they can reasonably identify. If every plaintiff that
could show some widespread dissemination were able to avoid the
-28-
requirement to prove particular losses, the exception would swallow
the traditional special damage rule. On the other hand, the
exception would be severely diminished if it were unavailable to a
plaintiff whose losses extended far beyond the specific lost
customers it could identify.
Applying the widespread dissemination exception to
plaintiffs who can identify some, but not all, of the customers who
might have reacted to the defendant's disparaging remarks is
consistent with the Restatement's description of the exception as
applicable to instances where it is "impossible to identify"
individuals affected by the disparagement. Restatement (Second) of
Torts § 633(2); see also Sack on Defamation § 13.1.4, at 13-22.
Impossibility in this context is not an all or nothing proposition.
Where the extent of a plaintiff's loss is not fairly reflected in
the evidence of specific lost customers because many other customers
are "impossible to identify," it is appropriate to allow a plaintiff
to prove its damages with generalized evidence of "loss of the
market," Restatement (Second) of Torts § 633 cmt. h, so long as the
plaintiff also produces the best available evidence of causation.
The best evidence of causation, where it is reasonably obtainable,
is the proof that specific customers rejected the plaintiff's
product because of the defendant's disparaging statements.
Certainly, that approach reflects Massachusetts' pragmatic attitude
toward proof of damages. See, e.g., Knightsbridge Mktg. Servs.,
-29-
Inc. v. Promociones Y Proyectos, S.A., 728 F.2d 572, 575-76 (1st
Cir. 1984) (noting in a breach of contract case that "[a]ll that is
required" to prove lost profits with reasonable certainty "is a
reasonable basis of computation and the best evidence obtainable")
(citing Agoos Leather Cos. v. American Foreign Ins. Co., 174 N.E.2d
652, 655 (Mass. 1961)) (emphasis added).
I would therefore construe the Restatement and
Massachusetts law to allow reliance on the widespread dissemination
exception where widely published statements were also disseminated
to customers whose identities are reasonably obtainable. In that
circumstance, however, a plaintiff asserting product disparagement
must offer evidence that the challenged statements caused the loss
of some of these identifiable customers as a prerequisite to
claiming damages based on a more generalized showing of lost
profits. This approach is in keeping with the "modern tendency" to
"requir[e] the plaintiff to be particular only where it is
reasonable to expect him to do so." See Prosser & Keeton § 128, at
972.
To apply the widespread dissemination exception as thus
construed, the trial court would need to make pretrial
determinations on whether evidence of specific customer losses is
reasonably obtainable and how much such evidence should be presented
in conjunction with the generalized proof of lost profits evidence
-30-
that the widespread dissemination exception permits.10 That
evidence must be sufficient, in the particular circumstances of the
case, to permit the jury to find causation. If the court decides
that such evidence of specific customer losses is necessary, it will
then be up to the jury to decide if the plaintiff's evidence,
including the proof of specific lost sales, shows that the
defendant's statements caused all of the plaintiff's claimed losses.
B. The Missing Evidence of Specific Lost Sales
VSI presented no evidence of any specific lost sales
resulting from MPT's statements. It argues that circumstantial
evidence of specific lost customers was presented to the jury,
however, through MPT's witnesses, who testified about meeting with
a number of identified customers and persuading some of them to
change their accounts from VSI to MPT. None of this "specific"
evidence links MPT's statements to VSI's loss of any customers. VSI
cites the testimony of MPT's marketing director, Peter Stevens, that
MPT regained business from a hospital in Virginia (Crailion) that
had been using the D-Stat Dry after he met with a cardiologist
there. Stevens' testimony, however, focused on his efforts to
persuade the doctor that the SyvekPatch had a clinical basis.
10
These determinations must be made pretrial because the nature
of the evidence that will be required at trial depends on whether
the widespread dissemination exception applies, and to what extent.
This requirement is not an innovation. The availability of the
exception would always have to be determined pretrial because of
its effect on the damages proof at trial.
-31-
Indeed, VSI presumably could have inquired of the same cardiologist
and his colleagues at Crailion about their exposure to the
statements in the marketing bulletin.
VSI also points to MPT's damages chart, claiming that it
"shows multiple customers that MPT lost and then regained,
presumably after its sales force or top executives spread 'the
message.'"11 Although the record might support an inference that,
along with touting the SyvekPatch's scientific value, Stevens
communicated false statements about the risks associated with the
D-Stat Dry, the chart is not equivalent to evidence showing that a
particular customer was swayed by one or more of the five challenged
statements. It does not contain examples of customers whose
rejection of the D-Stat Dry is explicitly linked to MPT's
disparagement or even circumstantially attributable to the
statements. The chart contains no information indicating why the
listed customers switched from one company to the other, and then
back again. It is this kind of customer-specific evidence,
describing how the disparaging statements at issue affected them,
that would support a finding that many other customers were
similarly affected. Without this customer-specific evidence, a jury
finding that the customers reacquired by MPT returned as a result
of the challenged statements, rather than for some other reason –
11
The chart, which shows sales totals in dollars for numerous
MPT customers for the years 2002 through 2007, is labeled "MPT
Accounts lost as a Result of Vascular Solutions Activities."
-32-
perhaps that the D-Stat Dry did not meet their expectations – would
rely on the same kind of speculative inference that must be rejected
as insufficient to prove lost profits where evidence concerning
specific lost sales is reasonably obtainable.
Notably, Stevens described a number of specific instances
in 2004 in which he was unable to persuade lab representatives with
whom he met to continue or resume using the SyvekPatch. He
testified to visiting "well over 100 cath labs" in 2004, seeking to
discover the reason for MPT's sales losses and to convert customers
back to the SyvekPatch. On cross-examination, he confirmed that,
in "the majority of cases," MPT lost the accounts despite his
efforts – evidence that weakens the inference that statements from
MPT executives were persuading customers to reject or abandon the
D-Stat Dry as too risky.12
The record thus contains no evidence linking MPT's
statements to particular behavior by VSI customers. Indeed, in
deposition testimony, VSI's former vice president for sales, Michael
Nagel, stated that he was not aware of the loss of any customers or
sales on account of MPT's statements. Although VSI asserts that its
CEO, Howard Root, rather than Nagel, would have received reports of
lost accounts that appeared to result from product disparagement,
12
Although not all of the customers Stevens visited had
switched to the D-Stat Dry, VSI acknowledges that at least some of
those customers were among its clientele, and that group included
some who remained VSI customers despite Stevens' efforts to woo
them back.
-33-
Root also provided no specific examples. VSI apparently did not
lose the only customer who is known to have received a copy of the
marketing bulletin containing the five statements.
In responding to interrogatories, VSI named nine hospitals
where it claimed to have lost sales because of MPT's sales tactics.
That information was not introduced at trial. The absence of
evidence concerning specific customers is particularly troubling
given that VSI's generalized evidence of damages was unimpressive
– a weakness that has prompted the majority's remittitur approach
and the proposal of a reduced award.
C. The Waivers and the Remedy
Despite the deficiency in VSI's proof of damages, MPT did
not argue in the district court that VSI's product disparagement
claim was deficient as a matter of law solely based on VSI's failure
to prove particular customer losses.13 In its motion for judgment
as a matter of law at the close of the plaintiff's case, MPT argued
more generally that VSI's claimed damages were "too speculative to
be recoverable as a matter of law." Even in its post-trial motion
for judgment as a matter of law or new trial, MPT argued that the
damages award was legally unsupported only because "the law in
Massachusetts is that a plaintiff may not establish lost profits
13
MPT did object to VSI's mid-trial change in its damages
theory from asserting lost sales at the nine specifically
identified hospitals identified in discovery to claiming a loss of
market share, but it did not raise the requirements of the product
disparagement cause of action as a basis for its objection.
-34-
simply by showing that it missed projections, which is the only
evidence of causation VSI offered." In its supporting memorandum,
MPT further argued lack of causation by pointing to the absence of
particularized evidence, asserting that VSI had failed to show "that
any customer ever even heard MPT's allegedly false statements, much
less made a purchasing decision based on them" and that a lost
profits claim could not be based solely on "a discrepancy between
the plaintiff's sales projections and its actual sales." The
memorandum did not, however, address the widespread dissemination
exception, which VSI invoked in its response.
In my view, both parties bear responsibility for the gap
in the record on damages. VSI should not have presumed that it
would be deemed entitled to the widespread dissemination exception,
given the traditional grounding of product disparagement claims in
proof of specific customer losses. Arguably, VSI should have
produced evidence of specific customer losses, or established that
such evidence was not reasonably obtainable, to avoid forfeiting its
claim. See Prosser & Keeton § 128, at 972-73 ("It is probably still
the law everywhere that [the plaintiff] must either offer the names
of those who have failed to purchase or explain why it is impossible
for him to do so . . . ."). For its part, MPT failed to object when
VSI changed its damages strategy mid-trial on the ground that the
traditional special damage rule for product disparagement actions
requires a showing of specific lost customers. MPT's failure to
-35-
argue that particularized proof of loss was required as a matter of
law arguably forecloses reliance on that contention on appeal. Yet,
oddly, VSI has not argued that MPT waived this issue.
Given the unusual circumstances and the substantial $4.5
million award, I believe the most appropriate outcome is to remand
the damages issue for further consideration by the district court.
I do not see the problem as inadequate evidentiary support for the
amount of damages; rather, I believe a preliminary issue must be
resolved before any damages may be awarded. In my view, the
district court must decide the threshold question of whether VSI is
entitled to rely on the widespread dissemination exception – i.e.,
whether evidence of specific lost sales was reasonably obtainable
by VSI. If the district court were to find that specific lost sales
would be unreasonably difficult for VSI to identify, it could
appropriately reinstate the damages award without further
proceedings. If, however, the court concluded that evidence of
specific customer impact was reasonably accessible, the most
appropriate next step would appear to be a new trial on damages in
which VSI could attempt to make the required showing.14
I would therefore vacate the judgment in favor of VSI and
remand for such further proceedings.
14
In that case, the district court also would need to decide
how much specific lost-customer evidence must be presented in
conjunction with generalized evidence of lost sales.
-36-