Taking advantage of known consumer ignorance is deliberately false, 2d Circuit rules

Church & Dwight Co. v. SPD Swiss Precision Diagnostics,
GMBH, No. 15-2411, 2016 WL 4708179, — F.3d. – (2d Cir. Sept. 9, 2016)
Judge Leval deems this “an exceptionally well argued case,”
noting the same thing I did: Paul Clement for plaintiff Church & Dwight,
Seth Waxman for defendant SPD. (As someone else said, I guess that relative
dearth of SCt cases is really wearing on them.) I previously discussed the
district court decision finding SPD’s over-the-counter pregnancy test to be
falsely advertised here.
This decision happened fast, for the 2d Circuit—it was argued a few months ago.
SPD’s Clearblue Advanced Pregnancy Test with Weeks Estimator
is the first OTC pregnancy test to also furnish information as to how long (how
many weeks) a woman has been pregnant, which it does by measuring the amount of
hCG in her urine.  But SPD used the
number of weeks since ovulation, and for reasons both historical and practical
the medical profession universally measures weeks since last menstrual period,
not since ovulation—a two-week difference. 
They do this even when IVF is the implantation method and when ultrasound
is used to measure pregnancy duration. 
The parties agreed that “when the Defendant’s Product and the woman’s doctor
are in complete agreement in estimating how long the woman has been pregnant,
the Product would announce a number of weeks that is about two weeks lower than
what the doctor would say.”  The basic
falsity claim is that Clearblue falsely communicated that it used the same
metric and gives the same number of weeks of pregnancy as a medical
professional would.
Home pregnancy tests are Class II medical devices subject to
the requirements of § 510(k) of the FDCA. 
This requires premarket notification to the FDA in order for the FDA to
determine whether the device is “substantially equivalent” to an existing
authorized device.  The FDA may,
notwithstanding a substantial equivalence determination, require changes to the
product’s labeling or promotional materials designed to discourage potential
off-label use of the product that might cause harm to consumers.
The FDA initially issued a “hold letter” in August 2012,
expressing a concern that the “weeks indicator feature may provide misleading
information to lay population of users” because it would under-estimate
gestational age by an average of 2 weeks, which users might misinterpret. The
hold letter required SPD to remove the phrase “Also Tells you How Far Along you
Are” from the proposed box.  Ultimately,
the FDA issued a clearance letter in December 2012, but required SPD, among
other things, to include a specific “conversion chart” explaining how a doctor
would date the pregnancy compared to the product’s results, using language
provided by the FDA. It also specified that the product’s results could not be
expressed as “weeks pregnant,” but only as the number of weeks since ovulation.  In addition, the FDA required an additional
statement that “[t]his test provides a different estimate that cannot be
substituted for a doctor’s determination of gestational age.”  Finally, the clearance letter said that the
“FDA’s issuance of a substantial equivalence determination does not mean that
FDA has made a determination that your device complies with other requirements
of the [FDCA] or any Federal statutes and regulations administered by other
Federal agencies.” FDA approval is required to modify or remove anything on the
package.
 

Original package

side panel

When the product was launched, it used its name—Clearblue
Advanced Pregnancy Test with Weeks Estimator—in large font, along with four
windows, designed to appear similar to the window that appeared on the product
itself. One window showed the word “Pregnant” on the first line and “1-2 weeks”
on the second; and so on.  The front and
back of the package didn’t use the word “ovulation,” though one side panel had
the full FDA-required language.  The
initial TV ad had the dialogue:
Woman 1: I’m pregnant.
Woman 2: Really?
Woman 1: Two weeks.
Woman 2: You already went to the
doctor?
Woman 1: Not yet, but I took this
new Clearblue test. It’s like two tests in one.
Woman 2: Oh my God, I think I’m
going to cry!
SPD’s website and other advertising was similar.  After C&D complained to the FDA, the FDA
told SPD that it was marketing the product in violation of the limits imposed
by the clearance letter.  The FDA told
SPD to remove the word “weeks” from the product windows and replace it with
“weeks along” outside the windows.
 

revised package
The revised package included a gray strip in the top right
corner with the phrase “Only Test That Estimates Weeks Since Ovulation*”. The
asterisk linked to the Indications for Use Statement on the side panel. SPD
complied with the FDA’s instructions about the windows.  SPD pulled the TV commercial, but revised the
ad for the internet to remove the discussion of a doctor and Woman 1’s
declaration of how far along she was. SPD also modified its website
accordingly.
On appeal, SPD argued FDCA preclusion, because its marketing
materials had been reviewed and approved through the § 510(k) process. Pom Wonderful was to the contrary.  The court of appeals noted that the Pom Wonderful court rejected the
government’s position as amicus that Lanham Act claims are not precluded by the
mere fact that the FDCA covers a product generally, but are precluded in
situations when the FDCA or the FDA, through its regulations, have
“specifically require[d] or authorize[d]” a challenged aspect of a label.  Instead, the Court “rejected the proposition
that the FDCA’s or FDA’s regulation of a label creates a ‘ceiling’ that
precludes any further challenges to that label under other statutes.”  Such a result would “distort Congress’s
intent to allow the Lanham Act and the FDCA to exist in tandem to serve the
distinct interests each statute protects.” 
Competitors have market expertise the FDA lacks.  And, as the court of appeals pointed out, the
FDA explicitly warned SPD in its clearance letter that its approval didn’t
constitute a determination of full compliance with the FDCA or other federal
laws.
SPD relied on PLIVA, Inc. v. Mensing, 564 U.S. 604 (2011), which
found preemption of consumer lawsuits against generic drug manufacturers under
state tort laws based on failure to warn, since FDA regulations require generic
drug labels to be the same as their brand-name equivalents. The Court found conflict
preemption even though the defendants could have requested permission from the
FDA to change their labels so as to comply with the state laws.  It’s true that SPD will have to get the FDA’s
permission to change its label, but this isn’t a preemption case, and
preclusion involves different interests. “The uniformity concerns that drive
preemption doctrine are not necessarily applicable when two federal statutes
overlap.”
On to falsity. The district court found both falsity by
necessary implication and implicit falsity. Although none of the materials
expressly equated the product’s results with a doctor’s metric, in context,
they unambiguously implied that false message. 
(In other words, when there’s a standard definition of a term, you can’t
avoid liability by redefining the word, whether that’s in mouseprint or by
using terms that consumers won’t understand are modifying the usual
meaning.  Here, it’s a bit unusual
because consumers have no reason to think about the usual definition of
pregnancy duration, and the usual definition is weird—you start out 2 weeks
pregnant.  But there are lots of things
we don’t know the details of—how MPG is calculated, for example—and just rely
on the existence of a standard for.)
SPD argued that its materials were “susceptible to more than
one reasonable interpretation” and thus not unambiguous. It claimed that a
reasonable ordinary person in the market for a home pregnancy test could
understand the claim to measure “weeks” as weeks-since-ovulation/fertilization “without
forming a belief about whether that measure is the same or different from the
convention used by doctors.”  (Because
they wouldn’t know they needed to!)  The
court of appeals was unpersuaded:
The issue is whether Defendant’s
measurement of weeks would be understood by reasonable consumers to measure by
a different metric than used by the medical profession. If an advertising
message means something different from what reasonable consumers would
understand it to mean, that message can be considered false.…The crucial point
is that a reasonable consumer would have assumed from the text of the Launch
Package, TV Commercial, and other associated advertising that the Product was
not giving a different number than a medical professional would give.
The court of appeals pointed out that the package didn’t “indicate
in any visible or clear way that the Product provides a different measurement
from a doctor’s.”  The only mention of
ovulation and of the difference in dating conventions was in the Indications
for Use Statement on the side of the box, and the district court properly found
that this “was too wordy and ‘minuscule’ to render ambiguous the Launch
Package’s message that the Product provides an estimate of weeks-pregnant that
is consistent with the measurement provided by doctors.”  So too with the other advertising.
Regardless, the district court also correctly found implied
falsity, given actual evidence of consumer confusion and evidence of SPD’s
intent to deceive.  SPD “recognized and
understood that the Weeks Estimator’s result did not align with how doctors
express pregnancy duration and that this misalignment could confuse consumers,”
as extensively detailed by the record. 
Notably, the court of appeals singled out statements by
Clearblue’s Brand Manager that, the district court found, indicated a
deliberate attempt to evade FDA limits and convey a false message.  As the FTC says, don’t be cute.  When discussing promotional materials for
CVS, the brand manager stated that “we can’t actually link together the weeks
and pregnant in the way it was on the last couple. What you can say is the only
test that estimates weeks, or the only test that also estimates weeks, then the
consumer will see Pregnant 1-2 Weeks in the windows and put it together.” In
another email, in response to a suggestion that an advertisement say “Find out
how far along you are,” she wrote, “This is a tricky one, but the FDA doesn’t
actually want us to say that. I think it can be phrased as a question …, or
we need to use the ‘estimate weeks’ language.”
This evidence of deceptive intent was sufficient to support
a presumption of consumer confusion supporting a finding of implied falsity.
The revised package was still subject to the implied falsity
finding, based on a consumer survey that tested the revised package and found
that “16.0% or 17.3% of participants… answered both that the [P]roduct
estimates the number of weeks a woman is pregnant and that the [P]roduct’s
estimate of weeks is the same as a doctor’s estimate of weeks-pregnant.”  SPD’s best argument was that the survey was
flawed because the survey didn’t test whether these beliefs came from respondents’
preexisting erroneous beliefs about the way pregnancy is measured.
But the truckload of evidence that SPD was “aware of this
widespread consumer ignorance and took no effective steps to guard against
misunderstanding of Defendant’s messages attributable to that ignorance” meant
that it wasn’t error to rely on the survey. 
Given such ignorance, SPD’s own messaging was deceptive insofar as it did
nothing to tell consumers that what it measuredwas a different measurement from
that used by doctors. “It makes no difference whether the widespread consumer
ignorance predated the Defendant’s Revised Package or was caused by it.”  The revised package implied that medical
professionals would measure pregnancy the same way.
Materiality: I thought the Second Circuit was well-settled
that its “inherent quality or characteristic” language was just materiality,
but SPD argued that the district court found only the former. Accepting that
the issue was somewhat unsettled, the court of appeals found that, even if it required
an additional showing that deception was “likely to influence [consumer]
purchasing decisions,” the district court’s findings of likely harm to C&D
satisfied that requirement.  “While the
materiality of the falsity and the likelihood of injury to the plaintiff
resulting from the defendant’s falsity are separate essential elements, in many
cases the evidence and the findings by the court that a plaintiff has been
injured or is likely to suffer injury will satisfy the materiality
standard—especially where the defendant and plaintiff are competitors in the
same market and the falsity of the defendant’s advertising is likely to lead
consumers to prefer the defendant’s product over the plaintiff’s.”
Here, the district court expressly found that C&D lost
sales from SPD’s false advertising.  “If
consumers, faced with the choice to purchase either the plaintiff’s product or
the defendant’s, are likely to prefer the defendant’s product by reason of the
defendant’s false advertising, the falsity of the defendant’s advertising is
material to the plaintiff’s Lanham Act claim.” 
[Query: how does this square with puffery doctrine? Can you show that a
statement isn’t puffery by showing that it’s material?]
The court of appeals found it “entirely reasonable to expect
that, for a significant number of women interested in learning whether they are
pregnant—especially those who have not previously been pregnant or are
otherwise ignorant of the details of the reproductive cycle—the information
that Defendant’s Product will tell them something different from what a doctor
would provide would make them less likely to trust Defendant’s Product, and
more likely to purchase from Plaintiff, Defendant’s closest competitor.” Indeed,
the evidence indicated that this was “precisely the risk that motivated
Defendant to avoid making clear to consumers that its Weeks Estimator gave
information different from what a doctor would give.”
SPD argued that C&D’s lost market share wasn’t due to
falsity, but rather to the important new feature SPD introduced into the market.  Even if that was somewhat true, though, the
evidence that concealing the truth improved SPD’s market share was sufficient;
the court hadn’t awarded damages, in any event. 
Also, deliberate deception in a two-player market makes a presumption of
injury appropriate, and here the parties were direct competitors in a “sparsely
populated market” in which other brands (manufactured by a co-owner of C&D)
represent only a small portion of the market.
Finally, SPD challenged the scope of the injunction.  Among other things, the injunction required
SPD to include with the test a specified forty-one-word statement clarifying
the difference in the estimates, in a particular position and font size; prohibited
SPD from using several phrases in its advertising, such as “weeks pregnant,”
“weeks along,” or “Weeks Estimator”; required SPD to deliver a corrective
notice to all retailers and distributors with a copy of the injunction; required
SPD to publish Internet banner advertising prominently displaying its logo and
stating that a federal court has determined that SPD “engaged in false
advertising”; and required SPD to produce a video explaining the difference
between its product’s and standard pregnancy length estimates and stating that
“a federal court found the manufacturer … to have engaged in false
advertising,” and to make it prominently available on Defendant’s webpages,
YouTube channels, and Facebook page.

SPD argued that the corrective notices were excessively
harsh.  But, especially given the
intentional deception findings, the court of appeals declined to say that the
injunction was more than curative.  Further, SPD argued that the district court abused
its discretion in the sweeping scope of the relief it ordered, especially in
view of such factors as the relatively brief time the public was exposed to the
deceptive materials and the time passed since their withdrawal. “Although
Defendant’s argument is not unreasonable, and less intrusive requirements might
well have sufficed, we cannot say the court’s orders constituted an abuse of
the court’s wide discretion to fashion the terms of injunctive relief.”

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