Wednesday, May 21, 2014

Unsubstantiated "more powerful" claim leads to more powerful recall

Groupe SEB USA, Inc v. Euro-Pro Operating LLC, 2014 WL 2002126, No. 14–137 (W.D. Pa. May 15, 2014) (magistrate judge)
Previous opinion.  Here, the court grants a preliminary injunction against certain statements found to be literally false. The parties compete in the market for steam irons.  Plaintiff’s Rowenta is the number one selling brand in the US, measured in dollars.  Euro-Pro’s Shark brand is the competitor. Two models, the 405 and 505, contain comparative statements.
The Shark 405 contains the statement “MORE POWERFUL STEAM v. Rowenta®†† at half the price” on the front of the package in the bottom right corner. The bottom has fine print: “††Based on independent comparative steam burst testing to Rowenta DW5080 (grams/shot).” The front of the package also says “# 1 MOST POWERFUL STEAM*.”  The fine print disclaimer on the bottom says: “*Offers more grams per minute (maximum steam setting while bursting before water spots appear) when compared to leading competition in the same price range, at time of printing.”  The Shark 505 contains essentially the same statements, except that the comparator is the Rowenta DW9080.  Both products have hang tags with the “MORE POWERFUL STEAM v. Rowenta®† at half the price” claim, with a disclaimer: “based on independent comparative steam burst testing” to the respective Rowenta model in “(grams/shot).”
The parties’ products are in different price ranges, but are sold alongside one another both online and in retail stores.  In addition, the court noted that the comparative advertising indicated that the parties compete.
SEB conducted internal testing at its lab in Germany related to the comparative claims.  The tests measured the variable steam rate in grams/minute and the mass of a shot of steam in grams/shot, using International Electrical Corporation protocols.  The IEC is a non-profit, non-governmental international standards organization that prepares and publishes international standards for all electrical, electronic and related technologies.  It’s the world’s leading international organization; its standards are adopted as national standards; and it has a specific protocol for steam iron testing.  The results showed that the Rowenta and the Shark 505 had the same performance in grams/minute, and the Rowenta outperformed the Shark 505 in grams/shot.
SEB thus sought independent testing, getting an outside lab in Germany to conduct tests using the IEC protocol.  The test showed that the Rowenta models outperformed the Shark 405 and 505 in grams/minute as well as grams/shot overall (the claim in the “MORE POWERFUL STEAM v. Rowenta®† at half the price” statement).  The court, noting that “a preliminary injunction is customarily granted on the basis of procedures that are less formal and evidence that is less complete than in a trial on the merits,” found the evidence appropriate even though the person who conducted the tests was unavailable for health reasons; the alternate person from the same lab was was knowledgeable and familiar with the tests she conducted, and was an appropriate witness to introduce the test report.  Defendant’s expert testified that he would normally rely on the lab’s data.
Defendant’s expert also concluded in his own independent testing that the parties’ irons were “comparable,” but he could not “say for sure that one was always operating better than the other.” Euro-Pro never provided him with an independent comparative steam burst test, and none was introduced at the hearing.  The court therefore found that  the “independent comparative steam burst testing” measured in “(grams/shot)” referred to in the disclaimers to the “MORE POWERFUL STEAM v. Rowenta®† at half the price” did not exist.
An untrue claim is literally false, though a message must be analyzed in context.  Euro-Pro argued that the “more powerful/half the price” statement was ambiguous because “power” can be “defined in a multitude of ways.”  But Euro-Pro specified the test using the disclaimer and hang tags.  The claim was unambiguous.  And it was untrue, based on both parties’ tests and based on the statement that the claim was “based on independent comparative steam burst testing.”  This provides opportunity for a rare application of the Novartis rule: “a court may find that a completely unsubstantiated advertising claim by the defendant is per se false without additional evidence from the plaintiff to that effect.”
In addition, “# 1 MOST POWERFUL STEAM*” was literally false, when considering the packaging in its entirety, because the statement was in juxtaposition to the Rowenta name, necessarily implying a direct comparison to Rowenta.  This is falsity by necessary implication.  Though the disclaimer says the the comparison is to “leading competition in the same price range, at time of printing,” and Rowenta and Shark are not in the same price range, the statement “# 1 MOST POWERFUL STEAM” appearing directly above the literally false statement “MORE POWERFUL STEAM v. Rowenta” would “necessarily and unavoidably be received by the consumer” as an assertion that the Shark steam irons are superior to the Rowenta steam irons.
SEB also showed materiality.  Steam was pretty basic to the function of a steam iron, and Euro-Pro clearly intended to induce consumers to choose it over SEB, “especially considering that the two often appear next to one another on the shelves at retail stores and the Shark mentions Roewenta by name.”
As for injury, the literally false statements were likely to cause consumers to pick the Shark over the Rowenta models, causing a negative impact on SEB’s brand, reputation, and goodwill.
eBay changed the rules on irreparable injury.  SEB didn’t show a causal connection between declining sales and the Shark’s comparative advertising, since the sales decline came at stores that didn’t sell the targeted Rowenta models (I’m not sure why that would matter, since the front of package doesn’t specify which Rowenta model is under attack), and since the decline came before the false claims began appearing at retail stores.
However, irreparable injury doesn’t require actual sales diversion.  Instead, SEB “convincingly demonstrated that it is likely to suffer loss of control of reputation, loss of trade, and loss of goodwill, which are ‘[g]rounds for finding irreparable injury.’”  SEB presented “credible testimony that it has strong relationships with both its customers as well as the retailers that sell its products.”  Plus, the parties’ products compete against one another and are frequently sold next to each other on retail shelves, as demonstrated by Euro-Pro’s choice to identify Rowenta to try to divert sales.  Given the importance of steam power for consumers of steam irons, literally false claims about Rowenta were likely to cause consumers (prospective and current) to believe that the Sharks outperformed the Rowentas.  Current customers might experience “buyer’s remorse,” questioning why they spent more money on a product that is more expensive and inferior than a competing brand.  (Extra credit for anyone who can explain to me why this is not a finding of irreparable harm based on a finding of likely success on the merits—under what circumstance is a plaintiff who establishes the latter going to be unable to take advantage of the court’s reasoning here?)
SEB also showed likely harm to its relationships with retailers, which were very important; lost goodwill is nearly impossible to calculate. EuroPro’s “literally false, unsubstantiated comparative claims that identify its competitor by name … are likely to tarnish the Rowenta brand name.”  Allowing continued distribution would “necessarily” diminish SEB’s goodwill and reputation to retailers, weakening its brand and resulting in a loss of control of reputation.
Euro-Pro argued that SEB delayed excessively; the parties previously had a dispute in 2010 about similar claims. But earlier claims weren’t at issue.  SEB found out about the statements in mid-October 2013; conducted internal testing and then independent follow-up testing; received the independent report in early December 2013; and filed suit and moved for a preliminary injunction at the end of January 2014.  SEB’s marketing expert explained that SEB felt it was necessary to secure independent third party testing because Euro-Pro’s packaging stated that its claims were based on independent testing.  But these claims were unsubstantiated; Euro-Pro “contributed to the very delay of which it now complains.” Also, Euro-Pro didn’t show any prejudice from the delay.  So SEB still showed irreparable injury.
Balancing the interests: Euro-Pro argued that an injunction would harm the Shark brand as a whole.  SEB’s harm from no injunction was greater than Euro-Pro’s harm from an injunction. And Euro-Pro’s losses from its literally false statements were self-imposed. The court reiterated that Euro-Pro claimed verification from independent testing, but didn’t produce any such tests to its expert or to the court.  Thus, the court ordered Euro-Pro to remove the hang tags and put stickers over the two statements at issue, which would be faster than a full recall.
Euro-Pro worried that it could lose shelf space at retail stores, which is very difficult to get back once lost. But it could still sell other Shark models while the 405 and 505 were temporarily recalled for stickering and hang tag removal.  Other Shark models are already in many of the same retail stores that sell the Shark 405.
The public interest favored an injunction because of the interest in avoiding deception.
The court accepted SEB’s proposed million dollar bond.

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