Dawn of the age of the materiality survey?

LG Electronics v. Whirlpool Corp., 2010 WL 2921633 (N.D. Ill.)

I am including this opinion because I think materiality experts might be the next big thing for defendants.

LG moved to exclude the testimony of Whirlpool’s expert Dr. Ravi Dhar. Under Daubert, an expert must be qualified by knowledge, skill, experience, training, or education; the expert’s reasoning or methodology underlying the testimony must be scientifically reliable; and the testimony must assist the trier of fact to understand the evidence or to determine a fact in issue.

LG’s basic claim is that Whirlpool uses “steam” in its ads and in the name of its Duet Steam Dryer, but doesn’t truly use steam, instead using a mist of cold water sprayed into a warm dryer drum. Dr. Dhar, a professor and Director of the Yale Center for Customer Insights at the School of Management at Yale, is a witness on materiality. He teaches courses on consumer behavior, judgment and decisionmaking. He consults with large corporations on branding and consumer behavior. He’s conducted, supervised, or evaluated more than a hundred surveys, and as part of his research he tests for purchase intent and the effects of different variables on purchasing decisions. He has a lengthy publication record and serves on various editorial boards.

Dr. Dhar conducted a survey on materiality, and opined that “even if one assumes that a majority of the consumers were taking away a claim that the Whirlpool Dryer injects hot vapor onto clothes …, my survey shows no statistical difference in the intent to purchase as well as in product quality in comparison to a control ad that explicitly added the language stating that a mist of water is injected and is heated after it is sprayed into the dryer drum.”

The court found that this testimony would be relevant and helpful. Materiality is an element of an implied falsity claim. The parties disagreed about the appropriate standard for materiality. LG argued that the question was whether consumers are influenced by ads representing that the dryers have steam based on their perception of what steam is. Whirlpool argued that the relevant inquiry is how steam is created, not whether steam is created. Given LG’s expert’s opinions, Dr. Dhar’s opinions were relevant and proper rebuttal.

LG’s expert Reitter was a consultant who’d designed and supervised over 500 surveys. Here, he studied a commercial for Whirlpool’s Duet Steam Washer and Dryer, “New Way to Care for Clothes.” Reitter concluded that a “clear majority of the relevant consumers (66%) who were shown a test commercial for the Duet® Washer and Dryer rejected the notion that the dryer injects a mist of cold water that is then heated by the normal heating action of the dryer.” He further noted, “The pattern of affirmative answers among test group respondents reflects a recognition that the description with the words ‘hot vapor’ accurately described the dryer advertised in the test commercial, while the description with the words ‘mist of cold water’ did not do so......”

The court reasoned that Reitter “addressed the deception element of an implied falsity claim, namely that consumers were deceived by the impression that Whirlpool’s Duet® Steam Dryer injects a hot vapor onto clothes,” but Dr. Dhar opines that such deception is not material, which was appropriate as rebuttal. The court understood LG’s argument as one about the manner in which the Whirlpool dryer uses steam, not just about whether steam is used at all; this allowed Whirlpool to question the materiality of consumer perceptions about manner.

LG argued that Dr. Dhar wrongly assumed that the Whirlpool dryer uses steam to relax wrinkles and remove odors. However, he did so because his testimony is only applicable to the implied falsity claim. If the jury believes that Whirlpool’s dryers don’t create steam under any definition, then the implied falsity claim will be irrelevant. And Whirlpool will have to present evidence to support Dr. Dhar’s factual assumptions at trial.

The court additionally found that his survey was appropriate. Though courts typically don’t rely on surveys to show lack of materiality, the case law is limited and the lack of precedent doesn’t render use of a survey inappropriate. LG relied on IDT Telecom, Inc. v. CVT Prepaid Solutions, Inc., 2009 U.S. Dist. LEXIS 120355 (D.N.J. Dec. 28, 2009), a very interesting case, wherein the court rejected defendants’ survey showing that only 3% of consumers considered the relevant portion of a challenged ad when making purchasing decisions. The court here noted that the IDT court held that the ads went so clearly to the purpose of the product (the number of minutes of talk time) they were material as a matter of law. The court found Kraft v. FTC, 970 F.2d 311 (7th Cir. 1997), more instructive for the situation at hand.

Kraft involved false representations about the amount of calcium in Kraft Singles. The Seventh Circuit analogized FTC cases to Lanham Act cases and found that the FTC had provided substantial evidence of materiality. But the court didn’t hold that as a matter of law a party can’t use surveys to rebut materiality.

Finally, though Dr. Dhar has never conducted a materiality survey for litigation purposes, he’s conducted over a dozen surveys related to consumer behavior, and tests for purchase intent on a regular basis, which is similar to the studies here. “Given that he has conducted extensive surveys in a non-litigation context, he is certainly qualified to conduct one for litigation purposes.”