Duets Blog : Creativity and the Law: DuetsBlog

You may recall the Gatorade v. Powerade false advertising lawsuit filed by a Pepsico entity (Stokely-Van Camp, Inc.) against rival The Coca-Cola Company back in April, discussed here (with a copy of the complaint).

You also may recall how G scored an F in the courtroom, back in August, losing a hotly contested motion for preliminary injunctive relief, discussed here.

So, I guess it was only a matter of time before G decided the case wasn't worth breaking a sweat over any longer.

Interestingly, the Stipulation and Order ending the case, has the owner of the Gatorade brand dismissing with prejudice (meaning they can never be reasserted) all claims it had asserted in the lawsuit against Powerade brand owner Coca-Cola. 

It shows Coca-Cola only dismissing with prejudice its affirmative defenses and counterclaim, "insofar as they specifically address [Gatorade's] marketing, labeling, advertising and/or promotional claims concerning the inclusion of calcium and/or magnesium in Gatorade Endurance Formula." All other defenses and claims asserted by Coca-Cola were dismissed without prejudice (meaning they are not barred from being reasserted in the future).

Given this unequal treatment in the settlement, it would appear that Gatorade was more anxious to end the case than Powerade.

Recalling that Gatorade and Powerade battled in court over advertising claims back in 2006, any predictions on how long until these two sports drink brand rivals slug it out again in court?

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For Mead Johnson, the maker of Enfamil, $13.5 million is a small price to pay to halt the slide towards store brand formula.

Some companies just have a knack for rubbing the federal courts the wrong way.

Case in point: Baby formula brand Enfamil and its maker, Mead Johnson Nutrition.

Last week, a federal court ruled Mead Johnson must pay $13.5 million in damages to its store-brand rival PBM Products for misleading advertising.  At issue was a series of comparative advertisements illustrating Enfamil's implicit claim that its product contains "a specific set of ingredients" that its competitor does not have.  Those deficiencies - so the ads imply - would lead to poor eye and brain development.

Yikes.

It should go without saying (even for the non-jury-selection specialist) that allowing a suit to go to jury when the claims involve lying to new mothers about their baby's health is more than just bone-headed.

And that's not the first time Mead Johnson's ruffled PBM's feathers.  AdAge details a history of squabbles over misleading advertising involving the baby formula giant.  You can read all about it here.

The whole situation begs the question: If Mead Johnson keeps losing in court, why does it keep pushing the limits with its advertising? 

The judge in the most recent case remarked that Mead Johnson engaged in this campaign under pressure from lagging sales.  Apparently, the generic "store brands" were gaining ground (recession-driven, no doubt), and Mead Johnson felt it needed to up the ante to halt the decline.

Perhaps the better question is: Does the strategy work?

I decided to do a little math to try to find out. 

It's been almost a decade since I've been an active baby formula buyer, but I remember how expensive the dry stuff could get.  Boy, things haven't changed.  For my experiment, I chose the Enfamil Lipil Milk-Based Infant Formula with Iron, powdered, in the 12.9 oz can.  Very similar to what my wife and I used to buy.  The average price per container was $14.99.  Some more, some less.  Cheaper if you buy it in bulk.  You get the idea.

In the industry, baby formula is lovingly referred to as "liquid gold".  At a 40 percent profit margin, it's easy to see why.  Obviously, the liquid (and therefore more-quickly perishable) versions sport a lower margin.  Powder margins are higher.  But just for fun, let's stick with the conservative 40 percent number for our calculations.

So, using quick "street math", we can deduce that Mead Johnson makes $6.00 per 12.9 oz. can of formula.

Now let's divide the settlement amount (the original $13.5 million plus perhaps an additional $1 million in legal fees for a total of $14.5 million) by the average profit per can of $6.00.  Of course, that assumes Mead Johnson sells nothing else, but you get the idea.  When you do that, you get just over 2.4 million.

2.4 million is the number of additional cans of formula the company would need to sell to break even from the settlement.

Does that seem difficult?

I don't think so.

Mead Johnson controls about 50 percent of the market for baby formula, or better than a $1.4 billion market in the US each year.  That's over 90 million cans of formula each year.  An extra 2.4 million cans?  Not so tough.

So we come back to the first question.  Does the misleading advertising make business sense?  If the judge's comments are accurate, Mead Johnson was likely more concerned with preventing the loss of the sales for those 2.4 million cans.  Is pushing the boundaries of advertising law worth the brand positioning risk in this case?

Put another way: Will mothers look at a court ruling (essentially saying the company was wrong, and its formula is no better than a generic) or will they believe the powerful pathos advertising appeals imploring them to look after the child's health?

Tough questions all.

But sadly, I think the math answers them.

—Jason Voiovich, Principal and Co-Founder of Ecra Creative Group and Author of the State of the Brand weekly column

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There was a very interesting article in the New York Times this weekend worth reading - Best Soup Ever?  Suits Over Ads Now Seek Proof.

The article addresses several recent issues raised by companies against competitors over statements or claims being made in advertisements.  Specifically, companies are challenging the truth or implied truth in competitive ads in an attempt to get the ad withdrawn or changed.

Apparently, the number of complaints over advertisements with the National Advertising Division, as well as the number of false advertising lawsuits (under Section 43(a) of the Lanham Act) are up significantly.  Some interesting disputes from the article include:  

• AT&T sued Verizon Wireless over an ad chart, claiming it falsely implied that AT&T had no cell phone coverage in the white area (rather than no 3G coverage):

The lawsuit attacks use of the chart in several commercials.  One great example, is Verizon's Island of Misfit Toys commercial.  In this holiday commercial, out-of-date toys have been banished to an island where Verizon sends one of AT&T’s new phones, due to its allegedly inadequate coverage.  On a related note, the National Advertising Division recently recommended that Sprint discontinue its use of the claim "Most Dependable 3G Network" due to a lack of sufficient support for the claim. 

• Pantene attacked Dove’s claims that its conditioner repairs hair better.  According to the Times, Dove defended its claims with a market study and an expert to defend its use of “wet combing” versus “dry combing” technique.   Based upon a quick review of a few blogs, these two companies are in direct competition over solving the frizzies (for examples, see here and here). 

The Times article suggested defending such claims sometimes requires “delving into the minutiae” and raises the question of whether most consumers actually believe and/or rely on statements such as “no other dog food stacks up” or a hair care product that can really “repair hair better.”  Regardless, it is a great article for anyone interesting in marketing. 

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Trademark Infringement is a sticky subject online. Our first blog talked about Twitter and trademark infringement and today I want to address trademark infringement in relation to affiliate marketing. 

Affiliate Marketing is a process that rewards a blog or website for every customer that is brought to the company (the affiliate) that blog or website is promoting. The goal of the affiliate marketer is to bring visitors to the affiliate’s website in efforts to sell the affiliate’s products or services. Affiliate marketers will try numerous things in efforts to market these products or services in efforts to make money. In the past there have been lawsuits brought against marketers like this due to improper claims they were making about a product or service, who endorsed it, and if it worked. 

In August, a complaint like this was filed against not only the affiliate marketers but the affiliate as well. The claim is that the affiliate should be monitoring any and every marketing vehicle and message that is used in relation to its product.

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v.              

                        (Medline Sterillium Rub)                                          (3M Avagard Surgical Scrub)

In a very recent false advertising lawsuit, Medline Industries is all lathered up, alleging that 3M Company is playing dirty in the surgical hand antiseptic marketplace by making false and misleading statements in advertising about 3M's Avagard brand surgical scrub and Medline's competing Sterillium Rub brand surgical hand antiseptic.

Here is a copy of the complaint filed in U.S. District Court for the Northern District of Ohio. As you will see, Medline alleges that 3M has made the following false and/or misleading statements of fact in advertising, in violation of Section 43(a)(1)(B) of the Lanham Act:

1. Sterillium Rub lacks approvals and/or benefits that it should have;
2. Sterillium Rub is of a lesser standard, quality, or grade than what it is;
3. Sterillium Rub does not meet FDA scrub test criteria;
4. Sterillium Rub does not meet AORN recommendations;
5. Sterillium Rub does not meet persistency requirements of the FDA;
6. Sterillium Rub cannot meet FDA criteria for persistency or cumulative activity; and
7. Avagard is the only waterless, brushless hand antiseptic that meets FDA persistency requirements. 

Paragraph 31 of Medline's false advertising complaint appears to be the most personally and potentially infectious:

During deposition testimony given in the related litigation styled GoJo Industries, Inc. v. 3M Company, United States District Court for the Northern District of Ohio, Eastern Division, Case No. 5:09-cv-1251-DDD, [the] Regulatory Affairs Manager in the Infection Prevention Division of 3M, admitted that statements contained in the marketing literature disseminated by 3M in which 3M compares Avagard to other surgical antiseptic hand scrub products, including Sterillium Rub, misrepresented the FDA scrub test criteria for surgical antiseptic hand scrubs. [She] confirmed this deposition testimony in her testimony before the Court at the preliminary injunction hearing during which the Court characterized her efforts to explain this testimony away as not at all persuasive (citations omitted).

Not only has Medline sued 3M for this alleged unlawful conduct, but it also has taken its claims directly to health care professionals and the surgical hand antiseptic marketplace, commencing a comparative advertising campaign of its own. Presumably, 3M will be closely scrubbing each of the literal and implied claims set forth in this advertising brochure distributed by Medline and BODE Chemie GmbH & Co.

So, stay tuned for developments concerning this interesting federal false advertising case.

Hopefully, we'll eventually be able to learn who comes to court with clean hands. 

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              VS.         

Almost four months ago now, I blogged about the filing of the Gatorade v. Powerade false advertising and trademark dilution lawsuit, here. At the time, some called Gatorade's false advertising claims "dubious" and others chided Gatorade for biting Powerade's bait to file suit.

Advertising Age has now reported about the recent court ruling addressing Gatorade's request for an emergency preliminary injunction, here. For those of you who have been looking for a copy of the court's interesting 54-page decision, it is available, here.

As you will see, the Court's opening paragraph telegraphed its critical view of Gatorade's claims:

This is a case about an advertising battle between two major consumer products companies over one company's comparison of its beverage to human sweat. That company advertises its beverage by promoting its inclusion of certain electrolytes contained in sweat, and its competitor wants it to stop.

In short, G got an F in the courtroom. First, G failed to prove that any of the challenged statements were false or establish it was entitled to the requested emergency injunctive relief while the case works its way toward trial. Second, U.S. District Judge John G. Koeltl also found "frivolous" certain of G's arguments relating to alleged irreparable harm. Last, G appeared to frustrate the Court by ignoring it made similar advertising statements about its own Gatorade Endurance Formula product, as late as a week before filing suit against Powerade. The "pot calling the kettle black" never plays well in the courtroom. I wonder who is doing the sweating now.

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