Saturday, March 17, 2007

Nationwide coupon settlement upheld in cold sore case

Intervention, Inc. v. Avanir Pharmaceuticals et al., 2007 WL 772889 (Cal. App. 1 Dist.)

This was an appeal by an objector to a settlement of a false advertising class action based on the claim that Abreva, a cold sore medication, cut cold sore healing time in half. The settlement gives $1 million to independent, non-product-related cold sore research and provides 50 million vouchers combining a $3 discount coupon for Abreva with a rebate offer on the purchase price, up to $6.50, of Tums antacid. The coupons will be distributed through newspapers, valid for two years, and may not be accompanied by advertising touting Abreva’s effect on the duration of a cold sore or by phrases like “try Abreva” directed at recruiting new users. Attorneys’ fees were $1.2 million. The objector argued that certification of a nationwide plaintiff class was illegitimate, and that the settlement was inadequate. The court of appeals affirmed.

The case was aggressively litigated through multiple demurrers, motions to strike, and amended complaints. Discovery was extensive, including depositions of class representatives, nine of defendants’ key employees, and over 50,000 pages of document production. Settlement discussions took about a year.

The court of appeals found that California was a proper forum to adjudicate nationwide class claims because the product was developed in California and the challenged research was conducted by Avanir, a company incorporated and located in California. Many of the ad claims, including press releases, emanated from California. The objector argued that another defendant (GlaxoSmithKline), based in Pennsylvania, was the primary wrongdoer. But the class complaint named them both and made substantial allegations of wrongdoing against both. Avanir developed the medication and conducted the relevant clinical studies. The defendants jointly agreed on the marketing plan and press releases.

As to the substance of the settlement, the court of appeals found no abuse in discretion from the trial court’s finding that it was fair, adequate and reasonable. A presumption of fairness operated: the negotiations were conducted at arm’s length, assisted by a mediator, and concluded after extensive discovery; class counsel was experienced in class action litigation; and there was only one objector out of a nationwide class estimated to exceed one million. Moreover, the trial court found that the coupon provided a benefit to class members who’d be otherwise difficult to identify and reach. The $1 million research fund was a significant benefit to the class, given that cold sores often recur. The settlement didn’t provide injunctive relief, but the relevant ads had been off the market for years, and the court of appeals agreed that there was no reasonable basis to believe that defendants would resurrect an old campaign based on a decade-old study that had been publicly criticized in litigation.

The opposer, perhaps relying on research revealing very low rates of coupon and voucher usage, argued that direct restitution should have been provided instead. But it would have been extremely difficult to find the class members, given that Abreva sells for less than $20 and that consumers would have to have kept records back to 2001 to qualify for reimbursement. Administration costs would overwhelm direct consumer restitution, so the “modest” benefits of coupons and rebates would be more economically feasible. It’s also true that coupon settlements can work as ad campaigns for defendants, but “win-win” settlements aren’t per se unreasonable, and the settlement here seeks to minimize the promotional effect of the vouchers. In addition, the $1 million research fund benefits the class. The objector argued that the harm to the class came from advertising misrepresentations, not from cold sore outbreaks. But the misrepresentations were about scientific research, and thus independent research is related to the class claims. (Except that the settlement-fund research can’t be product-related, so … not exactly.)

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