Keratindose hair products may be misleading about keratin content even without a survey

Price v. L’Oréal USA, Inc., 2020 WL 4937464, No. 17 Civ. 614
(LGS) (S.D.N.Y. Aug. 24, 2020)

Plaintiffs brought California and New York claims against L’Oréal
based on its Matrix Biolage Advanced (MBA) haircare product. This includes the
Keratindose system of three products: the Pro-Keratin + Silk Shampoo, the
Pro-Keratin + Silk Conditioner and the Pro-Keratin + Silk Renewal Spray “Keratindose”
appears on the front with the first seven letters of the word in bold. But:

Keratin is a protein that is found
in human hair and is also a treatment that customers administer to their hair.
The Products do not and have never contained keratin as an ingredient, and the
ingredients lists on the back labels of the Products do not include keratin.

The court partially granted and partially denied L’Oréal’s
motion to exclude the testimony of Bruce Silverman as a marketing, advertising
and branding expert. He opined, inter alia, that “a reasonable consumer would
fully expect a family of hair care products named Keratindose to include
keratin, just as they would expect of any product that includes a well-known
ingredient as part of its name.” L’Oréal argued that his expertise was inadequate
because his “career has provided him with no experience in in-salon hair care
products or the salon channel generally.” However, “Silverman has an impressive
fifty years of experience in advertising,” including reviewing thousands of
studies, interviewing thousands of consumers, and attending thousands of focus
group sessions, many devoted to health/beauty aids. His opinions premised on
his own experience were admissible, including that a reasonable consumer “would
expect [ ] any product that includes a well-known ingredient as part of its
name” to include that ingredient, and “consumers would see the Challenged
Claims as branded ingredient(s) that differentiate the Challenged Products from
competitive products.” However, his opinion that keratin is a well-known
ingredient in hair products, and that “many women … are already aware of (or
have ample opportunity to be aware of) the restorative properties of keratin”
in hair products was not based on his experience, nor is it based on a reliable
methodology, just on an internet search and a review of emails and testimony
from L’Oréal employees and the PTO ruling on L’Oréal’s trademark application.  Thus, his opinion on consumers’ awareness of
keratin as an ingredient in haircare products and consumers’ resulting
perception of the challenged terms were excluded as unreliable, including his
opinion that “many shampoos actually contain keratin and feature that word on
their labels,” and the subsequent conclusion that “[c]learly, keratin is a
desirable ingredient that many consumers would believe to be a valuable
component in a shampoo, and if they see that word on a label, they would expect
it to be in the product.”

The court also excluded plaintiffs’ expert’s damages
calculation. The presently unchallenged model concluded that 21% of the price
reflected keratin content claims or a price premium of 7% of the price charged.
Defendants do not seek to exclude this opinion in their current motion. But the
calculation of aggregate economic damages was excluded. The expert used the
formula:

Aggregate Economic Damages = (# bottles) × ($ price) × (%
damages)

But the actual retail price of the products was not
produced, so the expert used the low end of the range of the manufacturer
suggested retail prices (MSRP). And L’Oréal doesn’t report bottle sales by
state, so he used the percentage of conjoint survey respondents who reported
that they had purchased a Matrix Biolage Advanced Keratindose
“shampoo/conditioning product,” and who also reported that they were residents
of California or New York, to apportion bottle sales to the two states. Also,
because L’Oréal only provided wholesale data, and because in practice not all
wholesale bottle sales will be resold to consumers, he proposed either a
shrinkage rate of 5% or, alternatively, using only wholesale orders that have a
corresponding re-sale order at a later date, on the assumption that re-sale
orders occur only when customers have sold their previous inventory.

This was excluded because certain of the assumptions about
quantity and price were are unreliable. The evidence about MSRP was that, though L’Oréal believed that “the MSRP lists
represent good proxies for the prices that salons charge consumers for L’Oréal
Products,” non-salon retailers charged widely varying and unpredictable prices. Since the class here wasn’t restricted to salon purchasers, MSRP
could not be used as an accurate substitute for the actual prices paid by Class
members. 

This unreliable methodology for calculating price was exacerbated by
questionable assumptions about number of bottles. The proposed shrinkage rate
of 5%, “more than two to three times the average of reported shrinkage rates in
the United States,” wasn’t sufficiently justified; just being “conservative”
wasn’t enough. Nor was there enough information about reorders for that measure
to be accurate. In addition, the conjoint survey was initially designed to
measure consumer preferences and economic damages as a percentage of actual
price charged, and for that purpose had a sample size of one thousand
respondents. It wasn’t appropriate to retro-fit that to determine the
percentage of the total sales that occurred in California and New York,
especially given the small sample size (105) for the damages calculation, and
there was no confidence interval provided, which was significant “since the
addition or subtraction of a single survey respondent living in California or
New York stating they had purchased the shampoo could account for hundreds of
thousands of dollars in class damages, and millions in statutory damages under
the GBL.”

However, defendants weren’t entitled to summary judgment
based on the claim that reasonable consumers wouldn’t be fooled. Plaintiffs offered
an expert opinion, and there was also anecdotal evidence showing that keratin
was a known ingredient among consumers; the named plaintiffs each testified
that they believed, at the time of purchase, that the products contained
keratin based on the labeling. This was enough to go forward. (However, emails
between L’Oréal employees and the PTO ruling weren’t evidence of deception
because they didn’t show the perspective of a reasonable consumer—which would
make the PTO sad to hear, I think.)

“In essence, Defendants are arguing that, because that the
Challenged Terms are not false on their face, Plaintiffs must proffer extrinsic
evidence to show consumers’ understanding of the terms in the form of consumer
data or a survey.” But California courts have expressly rejected a survey
requirement for misleadingness, and there was no authority that an expert
opinion was insufficient under the GBL.

L’Oréal also wasn’t entitled to summary judgment for failure
to show damages. The expert formula for  calculating
aggregate class-wide damages wasn’t excluded, and non-expert evidence might be
applied to this formula to prove aggregate class-wide damages (citing precedent
that classwide damages calculations under California law are “particularly
forgiving” and require only “some reasonable basis of computation”).

Equally, plaintiffs weren’t entitled to summary judgment on
deceptiveness. The meaning of the claims was ambiguous. “ ‘Pro-Keratin’ has no
clear meaning, and consumers could understand “Keratindose” to mean that the
product is designed to deliver ‘a daily dose of keratin’ as Plaintiffs allege,
or understand it to mean that the product is designed to treat hair that has
undergone a keratin treatment as proposed by Defendants, or understand it to
mean something else entirely.” A reasonable jury could reject Silverman’s
expert testimony and agree with L’Oréal.

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