Monday, January 18, 2010

Litigating about litigation: infant formula battle continues

PBM Products, LLC v. Mead Johnson Nutrition Co., 2009 WL 5216948 (E.D. Va.)

Several earlier rulings. Of note here: PBM’s infant formula often says “Compare to Enfamil Lipil” on its label. In less than a decade, the parties have been involved in four Lanham Act actions, and various other claims/counterclaims. In 2001, PBM won a restraining order against Mead Johnson’s false advertising attacking PBM; Mead Johnson was held in contempt for not retrieving all its false ads as directed by the court. In 2002, PBM sued again over ads that stated that PBM’s products didn’t contain the beneficial nucleotide in Mead Johnson’s products; the court entered a TRO. The parties settled in 2003, agreeing that Mead Johnson denied wrongdoing, that the parties wouldn’t disclose the fact of the lawsuit, the TRO, or the existence or terms of the settlement. The court sealed the pleadings. (Was this a good idea? Would it do any good today?)

In 2006, Mead Johnson sued PBM for trade dress infringement and unfair competition, which was settled with an agreement that included a provision in which Mead Johnson agreed to the use of packaging with the “Compare to Enfamil Lipil” label, but allowed a renewed suit if PBM started selling formula in packaging that infrined the Enfamil Lipil packaging.

PBM started the current suit in 2009; the complaint, which was not filed under seal, made specific reference to the 2002 dispute. PBM issued a press release with the headline: “Mead Johnson Lies About Baby Formula ... Again; PBM Products Sues Mead Johnson for Third False Advertising Campaign.” Mead Johnson counterclaimed for breach of contract, defamation, violation of the Lanham Act, and civil contempt.

On the contract claim, Mead Johnson failed to win summary judgment in its favor because it hadn’t established damages as a matter of law. That people heard and asked about the lawsuit didn’t establish damages. Mead Johnson’s related claim for civil contempt also failed. Although the court documents were sealed, referencing them was not the same as breaking the seal.

Defamation: Mead Johnson alleged that the following statements in the press release were defamatory: (1) “Mead Johnson Lies About Baby Formula ... Again; PBM Products Sues Mead Johnson for Third False Advertising Campaign”; (2) “Mead Johnson has ignored the court’s two prior injunctions by launching yet another false and misleading advertising campaign designed to undermine public confidence in PBM's store-brand infant formulas”; (3) “‘Incredibly, this marks the third time Mead Johnson has engaged in false advertising campaigns against PBM’s competing store-brand infant formulas by distributing literally false advertising to doctors and mothers,’ said PBM CEO Paul B. Manning. ‘The two previous times we sued Mead Johnson for false and misleading advertisements, the court ruled in favor of PBM and Mead Johnson's senior executives and scientists admitted that Mead Johnson's statements were literally false....’”; (4) “Additionally, Mead Johnson intentionally maintains its false advertising campaign and the blurry-eyed baby graphic, despite adverse rulings from the National Advertising Division of the Council of Better Business Bureaus (NAD).”

PBM, naturally, argued that its statements were true, privileged, and said without actual malice. On (1): given that the court had previously enjoined Mead Johnson’s ads, “Mead Johnson Lies About Baby Formula ... Again” was substantially true, though harsh; “false advertising is substantially synonymous with lying.” What about “Third False Advertising Campaign?” Mead Johnson argued that the statement at issue in the 2002 litigation wasn’t advertising, much less a “campaign,” and both parties denied liability in resolving the lawsuit. PBM rejoined that the court had previously twice enjoined Mead Johnson’s ads. The court reasoned that the 2002 dispute involved promotional materials sent to doctors, which was sufficient to call it an advertising campaign. Thus, this portion of the statement was also substantially true. As a result, the “again” and “third false” language constituted opinion that couldn’t be reasonably interpreted to declare or imply untrue facts. They were “standard posturing statements of opinion” related to the third lawsuit PBM had just filed against Mead Johnson. As a whole, (1) was not actionable.

Similar analysis followed—finding substantial truth—for the remaining statements. On (2), Mead Johnson argued that it couldn’t have “ignored the court’s two prior injunctions” because those injunctions were temporary and had expired. The court disagreed that the press release communicated that Mead Johnson was presently in violation of two injunctions. Given that the press release focused on a freshly-filed complaint and made no reference to a suit to enforce the prior injunctions, the gist was that Mead Johnson had “failed to learn its lesson.”

(3): “Incredibly, this marks the third time Mead Johnson has engaged in false advertising....” Mead Johnson argued that the prior TRO couldn’t be characterized as a ruling in favor of PBM because there had never been a final judgment. The court disagreed: getting an injunction against certain ads is enough to justify a statement that the court ruled in PBM’s favor. Also, Mead Johnson argued, the court had earlier ruled that the mailer ads at issue in this case weren’t literally false, so characterizing this dispute as a rerun of “literally false” claims was defamatory. The court didn’t address PBM’s argument that there is no defamatory sting in the difference between literal and implied falsity, though I think that’s a good point; instead, the court ruled that, at the time it was made, the statement that Mead Johnson was engaging in literally false advertising was opinion on the merits of the current suit.

(3) also included the statement that “Mead Johnson’s senior executives and scientists admitted that Mead Johnson’s statements were literally false.” Mead Johnson argued that the deposition testimony on which PBM relied for this claim was not admissible because it was parole evidence and because it occurred during settlement negotiations. The court again disagreed; the testimony was not being offered to contradict or add to a writing or to prove liability, but to evaluate allegedly defamatory statements.

(4): “Additionally, Mead Johnson intentionally maintains its false advertising campaign....” Mead Johnson argued that NAD had never prohibited Mead Johnson from making the claims at issue; its ads hadn’t been the direct subject of a NAD proceeding instituted by PBM. But the NAD decision states: “NAD is incredulous that after two compliance proceedings, with the second compliance proceedings making explicit that any noncompliant advertising would result in a referral to the appropriate government agency, that [Mead Johnson] would disseminate advertising that clearly does not comply with NAD’s decision.” The gist of the statement is that Mead Johnson has ignored NAD’s prior reprimands, which is a nonactionable mix of truth and opinion.

Mead Johnson also counterclaimed for false advertising under the Lanham Act based on “Compare to Enfamil” and “partially broken down whey protein” appearing on PBM’s store brand infant formula. PBM argued laches (starting with an analogy to Virginia’s two-year limitations period for fraud), because these statements had appeared on PBM products since 2003/2006. The court disagreed. PBM sells over forty different labels and names for its products, and a significant number began using these claims more recently; for example, PBM began placing “compare to” on its added-rice formula just this year. Moreover, PBM failed to show prejudice.

For similar reasons, PBM’s res judicata argument failed; the 2006 dispute between the parties couldn’t resolve claims that weren’t in existence when the suit was brought. Likewise, the prior agreement between the parties that PBM could use a trade dress that included those claims wasn’t dispositive; the agreement was about packaging, not ad claims, and in any event could be read to be limited to the Maker’s Mark brand shown in the exhibits to the agreement.

On the merits of the Lanham Act claim, there was no literal falsity. PBM attacked Mead Johnson’s survey as incapable of proving that consumers perceive “compare to Enfamil” as an identicality claim. On “partially broken down whey protein,” the issue was whether the claim communicated that all the protein is (partially) broken down. PBM contended that any difference in message was immaterial because Mead Johnson’s expert admitted that there was no scientific proof that the products differed in digestibility. The court found triable issues of fact. The two claims combined could imply that all of the whey protein in PBM’s formula is partially broken down and that as much or more of the whey protein in PBM’s formula is partially broken down as in Enfamil’s competing product. And the amount of protein that is broken down could be material to consumers and doctors.

ETA: see comments for update on the counterclaim.

1 comment:

Anonymous said...

On Mead Johnson's counterclaim, interestingly, after all the testimony came in, the court (in essence) reversed its ruling in this opinion and refused to allow that counterclaim to go to the jury, granting a directed verdict motion for PBM. In the trial transcript, it's promised that an opinion on that would follow, but I haven't seen that yet.