Arborjet, Inc v. Rainbow Treecare Scientific Advancements, Inc.

Citations: 63 F. Supp. 3d 149; 2014 U.S. Dist. LEXIS 167363; 2014 WL 6792108Docket: Civil Action No. 14-14129-NMG

Court: District Court, D. Massachusetts; December 2, 2014; Federal District Court

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Arborjet, Inc. has filed a motion for a preliminary injunction against Rainbow Treecare Scientific Advancements, Inc., alleging a breach of their Sales Agency Agreement. Arborjet, a Massachusetts-based manufacturer of tree pest control products, has been in business for 15 years, with its flagship product, TREE-age, launched in 2008 to combat the emerald ash borer. Rainbow, a Minnesota corporation with 35 years of experience in the tree pesticide industry, initially collaborated with Arborjet to distribute generic products before seeking to distribute Arborjet’s full product line, including TREE-age.

Concerns were raised by Arborjet during negotiations about Rainbow potentially using its distributorship to replicate Arborjet's popular products and leverage customer relationships. The Sales Agency Agreement, effective August 1, 2008, included confidentiality and nondisclosure provisions designed to protect Arborjet’s proprietary information, as well as a non-competition clause preventing Rainbow from engaging in activities that replicate Arborjet's injection system for two years post-termination. While Arborjet claims Rainbow violated the confidentiality provisions, it does not allege a breach of the non-competition clause. The relevance of this clause to the breach of contract claim is disputed by both parties. The court has decided to grant Arborjet’s motion for a preliminary injunction.

Arborjet claims Rainbow breached Section Three of their Agreement by developing ArborMectin, a product intended to replicate Arborjet's TREE-age. Arborjet alleges this development began in 2011 while Rainbow was still a distributor, thus granting them access to confidential information. Although Arborjet does not accuse Rainbow of misappropriating this information, they argue that such proof is irrelevant to their breach of contract claim. Rainbow terminated the Agreement in February 2013 and announced plans to distribute ArborMectin in August 2014. In October 2014, Rainbow marketed ArborMectin as an improved version of TREE-age, claiming it treats trees faster and is scientifically backed.

Arborjet filed a lawsuit on November 3, 2014, seeking a preliminary injunction and asserting multiple claims, including breach of contract, breach of the implied covenant of good faith, and violations of false advertising laws under the Lanham Act and Massachusetts General Laws. Rainbow removed the case to federal court, where a hearing on the injunction was promptly held.

To secure a preliminary injunction, a plaintiff must demonstrate: (1) a substantial likelihood of success on the merits, (2) a significant risk of irreparable harm if the injunction is not granted, (3) a favorable balance of hardships, and (4) compatibility of the injunction with the public interest. The likelihood of success is typically the most crucial factor. The court can accept well-pleaded allegations as true and may consider inadmissible evidence, including hearsay, in its decision. Arborjet believes it will likely prevail on its claims based on Rainbow's alleged contractual violations and infringement of advertising laws, although Rainbow disputes these assertions.

To establish a breach of contract claim, a plaintiff must demonstrate a valid agreement, a breach by the defendant, and resultant damages. Additionally, contracts imply a covenant of good faith and fair dealing, ensuring parties adhere to their agreed expectations. Arborjet claims strong potential for success in its breach of contract allegations, citing Section 3 of their Agreement, which prohibits Rainbow from developing products replicating Arborjet’s offerings. Arborjet alleges that Rainbow's development of ArborMectin, intended as an alternative to Arborjet's TREE-age, constitutes a breach of both the contract and the implied covenant, as Rainbow was aware of the intent behind Section 3.

Rainbow contends that Section 6 of the Agreement, which pertains to a specific non-competition clause, should guide the interpretation of Section 3’s non-disclosure provision. Rainbow argues that ArborMectin does not violate this provision since it does not replicate TREE-age as defined by a dictionary. However, the court finds that Section 6 pertains to post-termination competition, while Section 3 governs actions during the Agreement's term. The court dismisses Rainbow's defense that ArborMectin is sufficiently distinct from TREE-age, asserting that the essence of the breach lies in the intent to replicate, which Arborjet is likely to prove. The marketing of ArborMectin as an "improved TREE-age" further supports Arborjet's position.

The Court deems it unreasonable to limit the contract's scope to only prohibiting exact replicas of TREE-age, given Arborjet's concerns about direct competition. This interpretation would allow minor changes to TREE-age to evade contractual obligations, leading the Court to conclude that Arborjet is likely to succeed in its breach of contract claims and implied covenant of good faith and fair dealing.

On the Lanham Act claims, Arborjet argues a strong likelihood of success due to Rainbow’s allegedly false and misleading advertisements for ArborMectin, which infringe on Arborjet's trademark. To succeed under 15 U.S.C. 1125(a)(1)(B), Arborjet must prove that Rainbow made a misleading description in commercial advertisements, the misrepresentation is material, it deceives a substantial audience, it was placed in interstate commerce, and Arborjet suffered injury from it.

The Court distinguishes between establishment claims (which assert superiority based on studies) and non-establishment claims (general claims of superiority). Arborjet contends that Rainbow's claims about ArborMectin being “backed by science” and “treats trees 30-70% faster than TREE-age” are establishment claims, which are supported by unreliable studies that lack peer review and tested far fewer trees than TREE-age studies. The Court finds Arborjet's arguments unconvincing, highlighting that Arborjet has not demonstrated the unreliability of Rainbow's studies. Additionally, the claim that ArborMectin is an “improved TREE-age” is classified as a non-establishment claim. The Court agrees with Rainbow that Arborjet has not proven actual falsity since ArborMectin's lower toxicity and viscosity could be viewed as improvements.

Plaintiff has failed to demonstrate a likelihood of success on its Lanham Act claim regarding false or misleading advertising, as it did not satisfy its burden for both establishment and non-establishment claims. The Court noted concerns about the potential for customer confusion stemming from the "improved TREE-age" claim. Following a November 2014 hearing, Rainbow submitted a letter indicating it would cease advertising ArborMectin as "improved TREE-age," which the Court accepts as a binding stipulation. 

Additionally, the plaintiff argues that the defendant's misleading advertisements breach Massachusetts state law under M.G.L. c. 266, § 91, which allows individuals harmed by such advertisements to seek injunctions. However, this claim is contingent upon the federal claim's success. Since the Court has determined that Arborjet is unlikely to succeed on its Lanham Act claim, it reaches the same conclusion regarding the state law claim.

For trademark infringement under the Lanham Act, the plaintiff must demonstrate ownership of a distinctive mark, its use in interstate commerce, and that the defendant's use is likely to cause customer confusion. The First Circuit evaluates eight factors to assess confusion, including mark similarity, goods similarity, trade channels, advertising relationships, prospective purchaser classes, actual confusion evidence, defendant’s intent, and the strength of the plaintiff's mark. The plaintiff argues that Rainbow’s website improperly uses Arborjet’s trademarks without appropriate attribution, leading to confusion over the origin of TREE-age. Rainbow contends that while TREE-age and ArborMectin are similar, other confusion factors favor its position, including the dissimilarity of the marks and the sophistication of purchasers. The Court concurs that these factors weigh against a finding of likely confusion, concluding that while Rainbow should improve its attribution practices, the plaintiff is unlikely to succeed on its claim of false designation of origin under the Lanham Act.

Irreparable harm refers to significant injuries that cannot be precisely measured or compensated with monetary damages. A plaintiff must demonstrate more than speculative harm to establish irreparable injury, with examples including loss of substantial revenue and damage to goodwill or reputation. The First Circuit assesses irreparable harm on a sliding scale, considering the moving party’s likelihood of success on the merits; a stronger likelihood of success lowers the burden of proving irreparable harm. The court has determined the plaintiff has a substantial chance of succeeding in its contract claim, allowing Arborjet to more easily demonstrate irreparable harm. Arborjet argues that failing to grant a preliminary injunction poses a significant risk to its reputation and customer relationships due to Rainbow's competitive actions against its product, TREE-age. Although monetary damages could compensate for lost profits, the impact on goodwill and reputation is difficult to quantify. 

The defendant's agreement to avoid misleading marketing claims about ArborMectin may mitigate some harm, but the court finds Arborjet sufficiently likely to suffer irreparable harm without an injunction. Regarding the balance of equities, Arborjet claims to have invested significantly in TREE-age compared to Rainbow's minimal investment in ArborMectin. The court finds that while the balance tips slightly in Arborjet's favor, it is not decisive. 

Arborjet also asserts that granting the injunction aligns with the public interest in upholding contractual obligations and preventing false advertising, while Rainbow contends it hinders market competition. The court, however, notes that the parties voluntarily limited their competition through contract, and enforcement of this contract serves the public interest.

Under Federal Rule of Civil Procedure 65(c), a party seeking a preliminary injunction must post security for potential damages incurred by a party wrongfully enjoined. Given Rainbow's reported sales and projections for ArborMectin, the court sets the security bond at $500,000. Consequently, the court grants Arborjet's request for injunctive relief, allowing its motion for a preliminary injunction.