2 week difference leads to $10 million in damages in pregnancy estimator case

Church & Dwight Co. v. SPD Swiss Precision Diagnostics
GmbH, No. 14-CV-585 (AJN), 2018 WL 4253181 (S.D.N.Y. Sept. 5, 2018)
Church & Dwight won an injunction, affirmed by the Second
Circuit, against SPD’s advertising of its “Clearblue Advanced Pregnancy Test
with Weeks Estimator,” and the court here awarded nearly $1 million in damages,
but not fees, SPD’s profits, or treble damages/punitive damages under state law.
While “causation must first be established,” a court may
engage in “some degree of speculation” in determining the amount of damages.
“[T]he district court may take into account the difficulty of proving an exact
amount of damages from false advertising, as well as the maxim that ‘the
wrongdoer shall bear the risk of the uncertainty which his own wrong has
created.’ ”  Thus, the plaintiff’s burden
is to show
 “that its damages
calculation is a ‘fair and reasonable approximation’ of its lost profits.”
“C&D’s leading home pregnancy test brand, First
Response, has been the market leader for many years, and SPD’s leading brand,
Clearblue, has been First Response’s primary competitor.” C&D’s damages
expert used all of SPD’s sales of the accused product to estimate damages, then
calculated lost profits by using C&D’s market share to estimate how many of
SPD’s sales would have gone to C&D had the Weeks Estimator not been sold,
and multiplying that by C&D’s per-test stick incremental profit margin, resulting
in an estimate of $9,955,018.
SPD’s expert agreed that market share allocation was an
appropriate approach, but calculated lost profits of only [redacted, which is
annoying but not dispositive because his calculation was ultimately
rejected].  The “large” difference
between the two calculations came from SPD’s expert’s use of the consumer
reaction survey as a proxy for loss causation and his use of a lower per-stick
profit margin.
C&D’s expert assumed that all of the sales of the Weeks
Estimator were connected to the false advertising of the product’s key
differentiating feature, despite his admission that he cannot be sure that
every person who bought the Weeks Estimator bought it because of the
advertising or because they were deceived by the advertising.  C&D argued that this assumption was
warranted because: (1) Every consumer who bought the Weeks Estimator was
exposed to at least part of SPD’s marketing campaign, and weeks estimation was
both SPD’s key message and the key feature differentiating the product, which
was more expensive than C&D’s competing Clearblue product.  (2) Retailers’ decisions about whether to
stock the Weeks Estimator, how much shelf space to give it, and where to place it
on store shelves likely were influenced by false advertising, affecting
purchasers.  C&D’s expert assumed
that, but for that false advertising, the launch of the Weeks Estimator SKU “would
not have had an incremental effect on [SPD’s] First Response stick sales.”
The court found C&D’s expert’s assumptions to be
reasonable: “this is a competitive market in which the parties own the top two
brands; and there is one key distinguishing feature between the Product and
similar test sticks—a feature that was the subject of false advertising
directed at both consumers and retailers.” Also, evidence suggesting that some
subset of consumers were unaffected by the advertising wasn’t persuasive.
SPD offered a survey in which prospective pregnancy test
buyers were asked about their willingness to purchase two product concepts,
which found that 81% of respondents would “definitely purchase” the product
estimating pregnancy from the last menstrual period, and 84% of respondents
would “definitely purchase” the product that estimates pregnancy from
ovulation, which they understood to be different from a doctor’s estimate. Thus,
SPD argued, the key differentiating feature—the test’s ability to estimate the
number of weeks since ovulation—would still induce purchases even in the
absence of false advertising. But that survey used statements describing how
pregnancy duration was measured, not how that duration was expressed, which was
the key problem with Weeks Estimator. Also, the survey offered only two
extremes—would definitely purchase, and would not purchase—and showed each
participant only one product description, unlike the real world offering
options for comparison.  It isn’t
surprising that both descriptions were popular, compared to nothing else.
SPD also argued that international versions of the same
product were successful absent the false advertising, and that C&D understood
even without looking at the ads that the Weeks Estimator would take business
from it regardless of the false advertising. 
As for the different international marketing, “the absence of a formal
finding of falsity by a court does not necessarily mean that the international
advertising was not false or misleading.” While some international versions had
more descriptive names—principally, “Clearblue Digital Pregnancy Test with
Conception Indicator”—and/or contained a chart on the packaging that compared
the product’s measure of weeks since ovulation to a doctor’s estimate, other
foreign ads touted the product as being “As Accurate as a Doctor’s Test” and
featured language and imagery similar to those found misleading in the US.  As for the impact of the innovative nature of
the product itself, C&D argued that its documents and internal discussions
reflected its fear of the commercial strength of the product with attendant
misleading advertising. The court agreed.
Finally, SPD tried to use C&D’s survey, conducted by Hal
Poret, which C&D used to show an actionable level of consumer confusion, as
a measurement of how many sales were attributable to the at-issue advertising
or at least as evidence that not all sales of the product were attributable to
false advertising. But given that every purchaser and retailer was exposed to
intentionally misleading advertising about the key differentiating feature of
the product, and that the evidence about other reasons for purchase was
speculative, considering all the sales was not just reasonable, it was the most reasonable assumption.
The Poret survey wasn’t intended as a proxy for tying the
false advertising to the lost profits. It found roughly 20% net deception,
defining deception as answering both that the product estimates the number of
weeks a woman is pregnant and that the product’s estimate is the same as a
doctor’s estimate of weeks pregnant.  Poret had never taken the position that the
results of a study like this could be used to predict the percentage of actual
purchasers who were deceived.  He
contended that you can’t treat prospective purchasers as if they were actual
purchasers; it is even possible, though unlikely, that 100% of the actual
purchasers could have fallen within the subset of prospective purchasers who
were misled. He further testified that his survey didn’t account for the impact
of non-package advertising, and that survey likely understates the degree of
deception among respondents. For example, the control package he used still
identified the product as the “Clearblue Advanced Pregnancy Test with Weeks
Estimator,” which might have led some in the control group to make the same
mistake as confused people in the test cell. 
It is possible to use survey results as a proxy for damages causation,
but C&D’s market share was a better proxy in this litigation.
SPD also argued that the Weeks Estimator disproportionately
cannibalized Clearblue products rather than harming C&D’s products in
proportion to its market share.  C&D
offered a regression analysis reaching the opposite conclusion. SPD’s
criticisms were “atmospherically compelling in that they lay bare some of the
difficulties in finding a way to calculate the effect of the unlawful
activity—SPD’s false advertising—while controlling for all other forces
affecting market share.” But these criticisms were undermined by its own expert’s
reliance on a market share allocation methodology, which “inherently accounts
for a range of market factors.”  In any
event, C&D’s expert’s conclusions, backed by his regression, were
“While it is likely that some consumers bought the Weeks
Estimators for reasons disconnected from the false advertising, SPD has not
supported any one of these alternative reasons, or even the totality of these
other reasons, with evidence sufficient to overcome the evidence of the
reasonableness of [C&D]’s core market share assumption. SPD pervasively
falsely advertised the Product from its launch, never advertised it in a
truthful manner, and has not affirmatively offered any of its own data
regarding the number of purchasers who were not deceived ….” Most crucially,
the false advertising was about the key feature differentiating the Weeks
Estimator from other products, making this methodology and core assumptions that
much more reasonable.
The court denied disgorgement in addition to lost profits, because
that would be overcompensatory. Nor did the court treble the award under the
Lanham Act, even assuming that the false advertising was willful (at the
liability stage the court found that SPD knew that consumers would misunderstand
the weeks estimation claim).  “Whatever
the ‘intangible’ harm caused by SPD’s false advertising, the Court finds that
its award of nearly $10 million is both adequate compensation to C&D for
all harm done and adequate deterrence against any future false advertising by
SPD.” Punitive damages under N.Y. Gen. Bus. Law § 349 likewise require “clear,
unequivocal and convincing evidence that [the defendant’s] conduct was gross,
involved high moral culpability, and was aimed at the general public,” and SPD’s
conduct wasn’t sufficiently egregious. Nor was this an exceptional case for fee
purposes. SPD’s litigation positions were reasonable and the court previously
rejected C&D’s attempt to get sanctions for disobeying the injunction.

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