Monday, August 31, 2015

court rejects stay, orders recall in pregnancy test false advertising case

Church & Dwight Co., Inc. v. SPD Swiss Precision Diagnostics, GmbH, 2015 WL 5051769, No. 14–CV–585 (S.D.N.Y. Aug. 26, 2015)
The court previously found that SPD engaged in false advertising; SPD moved to stay or modify any injunction pending appeal and the court declined to do so.
An applicant for a stay of an injunction pending appeal “must establish more than a ‘mere possibility’ both of irreparable injury absent a stay and of success on the merits of the appeal” to prevail.  As for irreparable harm, it was undeniable that the injunction would cause SPD some harm.  Monetary cost alone isn’t sufficient to justify a stay.  The cost of a recall here, $3.6 million, wasn’t insignificant, but SPD didn’t explain how it would irreparably harm the company.  SPD also argued that a recall would cause loss of consumer trust and goodwill.  The court found the magnitude of any such loss to be speculative; SPD had no evidence that health care providers would change their views on the quality of the product based on a false advertising recall, or that consumers would view the product as unsafe or believe it was no longer approved by the FDA.  SPD would “certainly endeavor to communicate to customers that any recall has no bearing on safety.”  In any event, damage to consumer goodwill wouldn’t be from the injunction or recall, but because of SPD’s “intentional deception of an egregious nature.”   These speculative injuries didn’t rise to the level of irreparable harm.
SPD argued that it was likely to succeed on the merits of an appeal, because there’s a post-Pom Wonderful question of first impression in the Second Circuit on whether the FDA’s pre-approval of advertising for a medical device precludes Lanham Act false advertising claims, as well as a serious question as to whether C & D was entitled to a “presumption of consumer confusion as to all of SPD’s advertising based on ... intentional deception ... tied to only specific pieces of advertising.” 
So far, all courts to have consider Pom Wonderful have applied it equally to medical device labeling; the case only strengthens the non-preemption conclusion.  Nor did the court here rely only on a presumption of consumer confusion; it also pointed to C&D’s consumer surveys, so that undercut the seriousness of the second legal question. Ultimately, SPD didn’t show that the balance of the equities weighed heavily in favor of granting the stay, especially given its intentionally false advertising.
As for injury to C&D, SPD argued that its proposed plan to “place curative sleeves on the packaging ... would eliminate or mitigate any loss C&D might suffer from any misleading message on existing packaging.” But without an injunction in force, SPD would be under no obligation to place sleeves on the packaging and its product would remain on store shelves without corrective labeling for the duration of the stay. That would prolong C&D’s harm, especially in light of the bifurcation of the liability and damages stages of the case, which would delay C&D’s ability to obtain damages.
The public interest was also served by preventing consumer deception.
As for the content of the injunction, SPD wanted to sleeve the existing packages with a new package at their retail locations.  The essential difference was what happens between entry of the injunction and the preparation of new packaging—SPD needs FDA approval to put new packaging on the product, which SPD estimated would take two weeks, and then 5-6 more weeks to deliver the new packaging to retailers.  With sleeving, current misleadingly packaged product would remain on the shelves for at least 7-8 weeks, whereas a recall could begin immediately and be completed within 4 weeks.  SPD had already completely ceased shipping the product in its existing packaging; sleeving would allow SPD to sell out its current inventory, obviating the need for either recall or sleeving.  “Given the intentional nature of SPD’s false advertising and the interest of avoiding consumer confusion, the Product should not be allowed to remain on the shelves for weeks before steps are initiated to correct false advertising. Thus, this Court concludes that ‘sleeving’ is not an appropriate remedy.”
Thus, the court ordered a recall.
SPD also sought a stay to seek FDA approval for its new packaging. The court acknowledged the necessary delay brought on by FDA involvement, but “allowing intentionally false and misleading packaging to remain on store shelves for a longer period of time in order to accommodate SPD’s FDA approval schedule is not an appropriate solution,” especially since SPD could’ve begun seeking approval for new packaging as of the court’s July 1 opinion, but didn’t.  Nor would the court grant a temporary stay to seek a stay from the Second Circuit.

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