Legal Applications of Marketing Theory, part 4

Legal Applications of Marketing Theory, part 4
Steve Ansolbahahere & Jacob Gersen, Harvard University,
Dept of Government & Harvard Law School, Consumer Confusion in the Law of
Food (Are People Misled?)
Pom Wonderful case: Pom Wonderful Pomegranate Blueberry 100%
juice; 85% pomegranate juice and 15% juice from concentrate.  Minute Maid made a Pomegranate Blueberry
blend of 5 juices with almost no pomegranate juice.  Kathleen Sullivan for Coca Cola said that
consumers weren’t so unintelligent not to recognize the blend; Kennedy says “I thought that this was pomegranate
So what are people thinking, and in particular what do they
want (what are their most material preferences)?  Nelson’s theory of search, experience, and credence
Survey about which drink would be sweeter: POM 19%, Minute
Maid 43%  [remainder: no difference]
Tastes better: 30% versus 28%
Costs more: 51% versus 15%
Is organic: 29% versus 7%
Is a Pomegranate drink: 54% POM, 10% minute maid
Regression: which would you buy?  Real pomegranate juice matters; taste is
important; nutrition is important
Survey about role of price versus health versus taste.  Labels affect perceptions of various
attributes; filtered through value or weight that people place on each
attribute. Health and nutrition are usually what people care about most, so
inferences about those things have very large effects.
Health claims about foods are tightly regulated; consumers
are trying to get information that they can’t get from the info so they are
making lots of cross-attribute inferences.
Halo/horn effects: inferences across all dimensions at once
come from the label GMO: people assume that it’s as bad as trans fat, as bad as
high calorie.
Q: Pom established perception of health w/juice.  Effect could be coming from the color of the
juice, even from Minute Maid.  It
wouldn’t be linear.
A: probably true.
Q: consumer preference not to be fooled?
A: there probably is—Scroogled campaign was effective in
accusing Google of malfeasance.
Q: represented Ocean Spray in similar case. It wasn’t just
the color; the labels had pomegranates all over them and not the juices that
made up the bulk of the product. 
Pomegranate was a hot ingredient! But the health point is important. The
attributes aren’t just correlated but in some sense the same; healthy is highly
regulated so sellers have found lots of other ways to say it. Any claim about
presence/absence of any nutrient is interpreted by consumers as a general
health claim.  So are you just getting at
A: there were pomegranates on both products’ labels, but
health/nutrition perceptions differed between Pom and Minute Maid.
Q: but it tracked the health conclusions.
A: mindful of what is activating those impressions—it’s not
consistent or easy.
Q: preference for truth speaks to a remedy, not necessarily
a consumer preference. If I’m misled about something not material to my choice,
maybe I don’t deserve $, but the labeler should still possibly be punished for
lying.  Distinction b/t info given to
consumer/respondent and actual label—when I rely on a label for health related
information, I actively search for it. Color isn’t something I actively search
for—I receive it passively. 
A: we varied things like calorie content, sugar, in our
Q: but drawing their attention to it may make a difference.
A: he’s skeptical that people don’t look at labels.  A lot of people do, not every single time,
but at least at purchase initiation.  If
there was no benefit to saying it, the company wouldn’t spend money to say it.
They think it matters.
RT: I would have some Qs about the role of the TM versus the
specific juice, including what they think “pomegranate drink” means.  It could be just a brand effect/people
thinking “pomegranate” means Pom Wonderful. 
If that’s true then the regulatory challenge is even greater.
A: Doesn’t seem to happen with Wesson v. Mazola oil, or Muir
Glen v. Swanson canned tomatoes.  [Which
might be perfectly consistent w/a brand effect to the extent that Minute Maid
and Pom are known for particular slices of the juice market, whereas those
brands don’t have distinctive health/nutrition profiles in their categories.]
Discussion re: harm to consumer v. harm to competitor being
different things.
David Hosp & Mark Puzella, Orrick & Orrick, Profit
Disgorgement in Trademark Litigation
Needs to be tied to the relevance of causation.  Came out of work for Wal-Mart on Wal-Mart’s
litigation over Backyard for grills (v. Backyard Barbecue for another store).  Found to have been willful infringement.  Now it’s a disgorgement case: but whatever
Wal-Mart sells, it sells $1 billion—over $1 billion of grills/grilling
accessories. The Lanham Act allows profit disgorgement. How do you fight out a
damages battle where the damages might even be trebled [but it couldn’t go over
$1 billion—it has to be compensatory and not a penalty, not like antitrust].
The judge was thinking $500 million.  We
tried it and got it down to about $35 million. 
Reversed on appeal; tried to jury and got $90 million verdict, now on
appeal.  Comes down to the Q of damages
definition.  Lanham Act doesn’t define
infringer’s profits; case law is over the map. 
Damages have to be attributable to the infringement.  P’s burden: show revenues. D’s burden: show
what shouldn’t be counted, including costs of goods sold.  If you start with $1 billion, that might get
you down to $450 million—now what?
Figure out what’s attributable to the brand.  If you’re looking for a $25 grill, nobody
cares it’s called Backyard.  Different
possible surveys, regression analysis. 
Juries understand hard numbers. 
Ultimately, P’s burden of showing revenues, but attributability gives D
a chance to attack causation. The burden is on D to show lack of causation, but
that still ought to be open as an avenue for the D to show it’s not tied to the
When he was starting out, people didn’t think TM cases
involved damage awards. That’s changing, particularly as patent law is being
curtailed in its competitive uses. 
Companies are shifting to trade dress claims.  Mahindra: offroad vehicle they’ve been making
for 70 years, initially under license from the Jeep corp. Sued by Fiat/Chrysler
for trade dress infringement. Causation will get a lot of attention under the
next few years.
Q: Going to defend the jury. 
You use names in your presentation for authority—doesn’t that indicate
something about the value of names? 
Maybe that’s the role of the jury: to think about how they do their
shopping and whether it matters.
A: We want to figure out the appropriate structure for
showing that names matter.  [Or trade
dress.]  Our chapter seeks a
framework.  The jury needs instructions.
Q: Backyard v. something else. What’s the counterfactual?
Wal-Mart not selling grills, or using the name Frontyard, or Weber, or
something else?
A: Wal-Mart took Backyard off its products; used same
labels, color scheme, etc. except it had no name whatsoever.  “Grill” instead of “Backyard Grill.” No
impact on sales/sales went up slightly. 
We would view that as the counterfactual.
Q: would you advise your client next time to roll out
different styles in different places to establish the counterfactual?
A: we deal with that a lot. 
W/a large corporation, you have to assume that the profit margin on
white label is so much higher than national brands that companies are moving
more and more into white label. They like having a brand name; they want it to
be descriptive; inevitably someone has a registration for something that’s at
least borderline close. [See Barton Beebe & Jeanne Fromer’s empirical work
proving this.] That is a recipe for getting sued.
Q: why isn’t a company as big as Wal-Mart doing small
experiments to measure possible damages?
A: this is a newer issue; we’ll see more companies hit with
large verdicts.  There are also internal
pressures from marketing folks who fell in love with a name and got it
cleared.  Legal knows it can’t be the
department that always says no.
Q: (1) what survey form/controls did you end up using that
are public? (2) hypothesis: causation is important and underthought at this
stage b/c modern TM lacks a materiality requirement in the first place, which
it should have preserved from the old common law. (3) Also, be interested to
have you speak to relationship b/t irreparable harm and difficulty calculating
damages—does showing that it’s really hard to trace damages support the
pre-eBay practice of having injunctive relief be standard?
A: survey asked people their motivations for purchase. Need
more work on surveys about causal relationships with sales—may see more of
those in survey world.
Q: survey world can definitely produce! Why did Wal-Mart
choose a name if it can sell grills w/o?
A: consumers expect to see a name. Marketers want something
that actually fits w/the product category, doesn’t turn the consumer off.
Doesn’t have to drive sales, just make sense to the consumer.  Interesting Q whether it is actually
Q: causality argument on disgorgement makes it a mirror
image of a lost profits claim. If the P can seek either form of remedy, is
there a concern that by pushing causality into disgorgement we’re taking away
one of the remedies the legislator thought was important?
A: depends on the case. 
Maybe there is a name that really does drive sales.  Reverse confusion case.  Damages and profits are related, for sure.
They should relate to one another.
Q: how much is a conceptual challenge v. challenge of
proof?  Conceptually it’s clear that the
damages are either lost profits or disgorgement of d’s profits.
A: there is a conceptual challenge b/c the language of the
Lanham Act allows for both [if not duplicative].  There were instructions on both and awards for
both in our case.  Notion of causation is
not very well explored in the case law.
August Horvath, Foley Hoag, Damages Estimation in Consumer
Deception Class Actions:  Legal and Methodological Issues
Chapter is about consumer class action damages: there’s a
lot of blame to be spread around on judges, litigators, expert witnesses,
system of litigation structure.  It’s
unrealistic to say there’s no such thing as a model that can estimate classwide
damages—judges will reject it because it will remove the remedy [I’m not so
sure about that]. 
In most jurisdictions, the only way to show damage is to
show price premium; the other possible ways to show harm don’t work in American
courts.  What happened hypothetically in
a world without the false claim? 
Consider: powdered infant formula with powerful brand + false claim
about preventing allergies.  Creates a
new demand curve compared to the equilibrium pre-false statement.  Doesn’t affect the supply curve at all, since
falsity is costless (unlike incorporating a patented feature into a product).
Conventionally there should be a volume increase and a price increase.  Companies don’t really know their own demand
curve (or supply curve), though, which complicates things.  Executive may choose b/t trying price
increase and looking for volume increase. 
In theory, false advertising damages to consumers are from just that
change in price and supply.
But conventional damages models for class actions look at
WTP, at consumers rather than at the consumer/producer interface. The basic
Lanham Act damages measure is profits/damages diverted.  Does conjoint analysis get us to the actual
surplus affected by shifting the demand curve? No, it doesn’t.  No conjoint analyst has ever convinced him
that it explains the interaction between supply and demand, or whether the
price produced by conjoint analysis lives anywhere on a supply/demand
curve.  In principle, a part worth is
individual to each consumer—some value an attribute negatively, positively, not
at all.  But experts assume there is a
part worth for each attribute representing WTP. 
If the distribution is normal instead of uniform, then it’s not clear the
result is the same.  If the center is the
mean, then raising the price by that amount would seem to lose half the
consumers (the attribute wouldn’t be worth paying that much for the half below
the mean), so seller won’t do it. 
The supply curve is also relevant.  Some experts then assume that they’d raise
prices so that the supply would be the same and the price would be higher. But
that’s a completely unrealistic assumption about pricing. Courts have accepted
it b/c they’re desperate.  Supply side:
the words courts use to explain constraints on manufacturer other than
demand—but it’s not quite the right words because of the presence of
retailers/middlemen.  Wal-Mart has price
requirements; the formula maker had no ability to raise prices at will.  At most it can take the increased sales at
the same price.  Need more sophistication
but at the same time learn the sloganeering that helps explain them to courts
to avoid the bad analyses that courts have accepted in the past few years.
Q: vast majority of conjoint analysis he’s seen in
litigation are crap b/c experts who produce them don’t understand it.  There are perhaps a dozen people who could do
that right; his guess is that Horvath hasn’t seen those.  The supply/demand curves presented reflect
monopolies, not competitive markets.  If
Minute Maid has a false advertising campaign changing the probability of
choice, competitors may or may not react; if you recognize a competitive
market, the best way to explain it is not by adhering to a curve like
that.  The best way to analyze it is a
market simulation with a variety of competitors. If you change an attribute in
conjoint analysis, you change a market share that is simulated by, say, 1000
respondents.  Need experts who understand
the power of the tool.
Q: Some of these could be argued as estimates of the maximum
possible change—the jury could see that simply.
Q: Conjoint is sensitive to so many small things; uniformity
in design is lacking, even before you run any simulation.
A: at the level of class certification, that’s not where we
need to focus—that’s for later in the analysis. 
That kind of objection will be dismissed by the court as weight v.
admissibility—the court just wants to know whether the model in principle can
do the job at this stage.

Michel Pham, Columbia Business School, A Consumer Psych
Perspective on Source Identification and Confusion
Consumer source identification—similar to identification of
painter of a painting.  How does it work?
Long-term memory & knowledge.  For
source identification to take place, consumer needs sufficient exposure to the
stimulus. Opportunity to process: sufficient sensory access to stimuli (size,
location, distance, movement, lighting conditions, loudness), pace (speed of
movement, rate of speech).
Attention is limited. 
Attention depends on level of involvement (greater in context of active
purchase decision, lower elsewhere as in post-sale confusion allegations).  Stimuli are more likely to attract attention,
all else equal, if they are large or intense, vivid in color, contrast
w/background, are centrally or prominently located. Not just driven by physical
characteristics; greater for familiar and recognizable stimuli.
Next, perception: the mental registration of sensory inputs
into a coherent, unitary whole. Perception is holistic and strongly oriented
towards organization and pattern matching, not compositional/feature by
feature. We group things that are proximate, we fill in missing info that seems
consistent. Subject to least noticeable variation.  Perception is subject to the principle of
just-noticeable differences. People can only perceive things that exceed a
certain threshold.  Adidas v. Payless:
three stripes v. four.  That may not be
bigger enough to be recorded.  Five
stripes may look different enough.
Perceptions of similarity of A & B are driven by degree
of overlap b/t features of A and features of B. Tversky’s theory of similarity.
Converse v. Skechers: why do the shoes look similar?  A lot of common features and few not common

Categorization: labeling and identifying objects as belonging to a
group/category we already know. (Here
is an awesome post about categorizing a “dog.”
)  Fundamental to human functioning. Identifying
a product as belonging to a particular brand is a classic example of
categorization; brands function like categories in consumers’ minds.
Categorization is often spontaneous, “automatic.” Holistic and based on overall
configurations.  Consumers may not be
able to verbalize the basis of categorization-based source identifications.
Cues used in categorization have three characteristics: they’re observable, typical
of the category, and atypical of things that aren’t in the category.
For categorization to take place, the match to typical
category cues doesn’t have to be perfect. Everything else equal, stimuli are
more likely to be categorized in categories that are highly
accessible/well-known brands: a glass of soda will be shorthanded as a “Coke.”
Comprehension: interpreting a stimulus to extract
higher-order meaning from it. Inferences based on existing knoweldge. Two
common rules: representativeness: attribute to brands that are perceived to be
most representative of, or semantically related to the stimulus. Prominence:
attribute to brands perceived to be large and prominent in the marketplace. So
if I show you a soccer/football championship and ask who’s the sponsor, people
will say Gatorade; if I show a chess championship, they guess Microsoft is the
sponsor.  Ongoing case: RBX and Reebok
shoes—does one suggest the other?
Q: seems to resemble machine learning w/images. Anything to
be learned?
Q: dual processing theory? System 1/system 2?
A: don’t like that theory; not a good division. But a little
alignment: front end looks a bit like system 1, back end more like system 2.
Q: common for products to have lots of attributes, but
consumers are limited in perceiving them.
A: the number of cues you use isn’t not necessarily taxing
mentally if you’re pattern matching. 
More of an issue: if you have competing cues.
RT: (1) Role of preference for or against cognition? [He
thinks it doesn’t mean that they categorize differently in a first pass.] (2) Special
problems of trade dress: need some extra principles to figure out what should
happen when some of the similarity is due to functional features. [You can
control for role of the functional features by changing them in controls.] But
that’s not the end of the question: one could have a rule that confusion caused
by similarity in unprotectable features must be ignored, or one could have a
rule that the defendant is required to stay further away in other ways—add
differentiating extras—if it uses those unprotectable features.  [He agrees that part is for lawyers to fight
(3) Sponsorship research on attribution of sponsorship to
prominent brands, e.g. Samsung will be more easily perceived as a sponsor of
the Olympics just b/c it’s prominent. 
But doesn’t that mean that sponsorship, association, affiliation and
approval based on similarity as
opposed to based on prominence will be difficult or impossible to detect? Is
this about what kinds of controls we should be using in sponsorship cases?
Bert Huang, Columbia Law School, Marketing Ethics Through
Effects of law on trolley problem: what if we tell subjects
(1) criminal law prohibits turning trolley, (2) there’s criminal law, but not
enforced, (3) law considers it justified, (4) duty to turn trolley, but not
enforced, (5) legal duty to turn trolley. 
Can knowing law influence moral intuitions?  People who learn it’s criminal tend not to
say it’s morally required to turn the trolley; if it’s required, they tend to
say it is.  Asked if it’s morally
prohibited to turn, they are more likely to say yes if it’s legally
Looking for: Ethical questions where ethics can go both
ways, and law can believably go both ways, and scenario is easily imagined.
For example: search engine paid results. Google Assistant
gives oral results; should it have to label ads? Is it ethical?  Ask them what if the law said there’s a need
to disclose ads versus it’s fine b/c of the First Amendment.  Or Free app sells your data to marketers,
discloses but knows nobody reads the fine print.  What if the law said that wasn’t a real
choice v. the law said it’s fine.
Dietary supplements: claims are based on junk science but
there are no negative studies showing harm. What if the law said: first, need
good science v. claim is fine until harm is proven. [I’d be interested in
checking doctor v. marketer as the speaker for this.]
Q: California’s Made in the USA high standard—95% of value
has to be made/sourced in the US. New Balance makes shoes that don’t meet that
standard: 70% of the value comes from the US. 
Expressed in its marketing.  There
was a settlement.  New Balance is the
only major manufacturer w/manufacturing in the US.
Q: Slack fill: ask if it’s ok. Product packaging: Barbara
Kahn’s work on the shape of the package influencing perception of amount.
RT: Wal-Mart’s Equate headache remedy comes in a red box
marked migraine and a green box marked headache; the green is much cheaper. The
ingredients are the same.  Is that
ethical?  Also: Ask them about parol
evidence/salesperson who lies!
Q: ask advertisers too what they think is ethical, not just
Q: why this question? What is the ultimate goal?
A: knowledge.
Q: ethics of pricing: AZT for AIDS when it first came out.
Q: difference b/t political speech and advertising: why is
lying ok in #1 and not #2?
Q: do people favor monopolists v. competitive markets?

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