Vascular Solutions, Inc. v. Marine Polymer Technologies, Inc.

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)).

-21-
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-