Nellcor Puritan Bennett LLC v. CAS Medical Systems, Inc., No. 2:11–cv–15697, 2014 WL 1304428 (E.D. Mich. Mar. 28, 2014)
The parties compete to sell cerebral oximeters, used by surgeons and anesthesiologists to monitor the oxygen saturation level of blood in a region of the brain. Nellcor alleged that CAS falsely advertised that its oximeter was more accurate than Nellcor’s, in violation of the Lanham Act and state law. CAS’s claim was based on studies that compared readings from competing cerebral oximeters to an estimate of the average oxygen saturation level of blood in the entire brain called “field saturation.” Nellcor’s main argument was that this was deceptive because field saturation is only a rough estimate about the entire brain, not a measurement of the saturation level of the relevant brain region. Nellcor submitted “strong evidence” that field saturation differed from regional saturation, while CAS submitted evidence that field saturation was sufficiently accurate; though Nellcor’s evidence was stronger, the court found that there was still an issue of fact for trial. The court did grant summary judgment (1) against CAS for its res judicata defense and (2) for CAS as to various smaller claims about the study’s unreliability, as well as claims about a page on CAS’s website that said it linked to summaries of recent studies involving CAS’s product when three of the ten studies were of Nellcor’s product. (This last misdescription was changed soon after the lawsuit was filed.)
CAS’s claim was a “tests prove” or establishment claim. It can be falsified by showing (1) that the defendant’s test or study was not sufficiently reliable to permit one to conclude with reasonable certainty that it establishes the proposition for which it was cited, or (2) that the test, while sufficiently reliable, does not establish the proposition claimed in defendant’s advertising. As noted above, Nellcor’s core argument was that field saturation wasn’t accurate or valid enough to compare the accuracy of cerebral oximeters; without a correct reference value, it’s impossible to do accurate comparative accuracy testing. CAS argued that field saturation was the best available reference value, and that the FDA used it too. Nellcor responded that the FDA accepted calculations using field saturation, but didn’t require or condone field saturation’s use as a reference.
The court found that a factfinder could find that field saturation is not an accepted or accurate reference value to compare the accuracy of cerebral oximeters; current measurements are just estimates, and in any event field saturation is different from regional saturation and oxygen levels may differ in different regions. But a factfinder could also accept CAS’s evidence that, in healthy people, field saturation would be the same as regional saturation, and that the measurement was accurate enough to rely on. CAS’s primary witness had a Ph.D. in electrical engineering, not medicine or physiology. Another CAS witness published an article in 2012 that appeared to support Nellcor’s position; the court “look[ed] forward” to hearing him explain himself at trial and undergo cross-examination. Credibility determinations were for trial, though. (Or, hint hint, settlement.)
The court did reject several of Nellcorp’s criticisms of CAS-commissioned studies. None of the alleged flaws made the studies unreliable. It was not enough that the doctor running the study dropped some participants for unknown reasons, or that CAS provided draft abstracts and reviewed data calculations, when the doctor decided the final content. Some issues of reliability could be explored at trial, such as whether studies on healthy patients could be extrapolated to the patients actually in need of oximeters.
As for the incorrect reference to studies on CAS’s webpage, the articles and their summaries all concluded that use of cerebral oximeters could improve patient outcomes; they weren’t comparative. Nellcor didn’t show that the false attribution was material to a consumer’s purchasing decisions, “given the short amount of time the material was on the web site and the fact that articles only generally relate to cerebral oximetry.”
As for res judicata, CAS argued that the claims were barred because Nellcor filed and dismissed with prejudice an earlier false advertising case. The court disagreed: the claims were based on advertising after the case was dismissed, and thus could not have been brought earlier. Though one of the studies at issue was around earlier, it didn’t make the disputed “accuracy” statements (though CAS subsequently relied on it to do so).
CAS also sought summary judgment on damages for lost profits. CAS argued that its purchasers were sophisticated buyers who didn’t rely on marketing or advertising, but rather on their own evaluations in the field. (Then why advertise?) Taking the evidence in the light most favorable to Nellcor, Nellcor submitted sufficient circumstantial evidence of lost sales: it went from 100% of the market down to 80-85%, with 10-15% now CAS’s (and another company at 2-5%). Nellcor’s evidence was that CAS’s marketing strategy was to gain market share and get doctors’ and hospitals’ attention by making comparative accuracy claims as the key selling point.
Nellcor also sought corrective advertising damages. CAS argued that Nellcor should already have engaged in corrective advertising, because a plaintiff seeking such damages must timely counteradvertise unless financially incapable of doing so. The Sixth Circuit hasn’t addressed the issue, but the Ninth Circuit hasn’t required counteradvertising around the time of the false advertising. The Sixth Circuit has allowed separate recovery of counteradvertising expenses as reasonable business responses to false advertising. Here, the court denied summary judgment. If successful, “Nellcor is entitled to recover the amount of money necessary to engage in a corrective advertising campaign to correct for any damage to Nellcor’s goodwill proved to be caused by CAS’s false advertising.”