Monday, February 25, 2019

Misleading advertising that's already leaving the market can't support finding irreparable harm

Danone, US, LLC v. Chobani, LLC, No. 18 Civ. 11702 (CM), 2019 WL 760040 (S.D.N.Y. Jan. 23, 2019)

Danone sued Chobani for advertising that Chobani’s kids’ drinkable yogurt product, Gimmies Milkshakes, contains “33% less sugar than the leading kids’ drinkable yogurt” – which all agreed was a reference to Dannon’s Danimals Smoothies.  Although Danone was likely to succeed on the merits, it did not show irreparable harm and could not secure a preliminary injunction.

Danimals are sold in 3.1 fluid ounce bottle serving sizes which currently contain 9 grams of sugar per 3.1 oz. serving, although three of them used to contain 10 grams of sugar. (Dannon reduced the sugar content in those three flavors in mid-2018, but used up its old packaging for the new products; this packaging was available at least through January 2019 in NYC.) Chobani’s Gimmies are sold in packs of 6 4-ounce servings. Until early January 2019, each bottle of “Cookies & Cream Crush” and “Bizzy Buzzy Strawberry” contained 9 grams of sugar (now 8), while the “Chillin’ Mint Chocolate” flavor contained 7 grams of sugar. On a per ounce basis, Gimmies had less sugar (by a gram or two) than did Danimals.
front with 33% less sugar claim

back with mouseprint

On the front, top, and back of the packaging, the Gimmies packaging says that Gimmies contains “33% less sugar than the leading kids’ drinkable yogurt.” “On the front and top of the packaging, the claim appears in reasonably readable typeface and is in no way qualified.” On the back, it’s smaller and asterisked, referring the consumer to two footnotes that are found below the nutrition facts panel, “in typeface so small that it is barely legible.” Those footnotes read: “i. *chobani® Gimmies™ Milkshakes: avg. 8g sugar; leading kids’ drinkable yogurt; avg. 12 g sugar, per 4 fl oz serving; and ii. **Chobani® Gimmies™ Milkshakes: net 4 fl oz; leading kids’ drinkable yogurt: net 3.1 fl oz.”

No matter what, 7 or 8 grams of sugar is not 33% less than 9 grams of sugar, or even than 10 grams of sugar. “Put otherwise, a single serving of Gimmies does not have 33% less sugar than a single serving of Danimals, no matter the flavor.” Chobani argued that its disclaimers disclosed the necessary information, but doing so required—and the disclaimer didn’t disclose that it required—a lot of math, including averaging all three flavors of Chobani’s products (8.333) without knowing the grams of sugar in the flavors other than those in the package the consumer was looking at, rounding that number to the nearest gram, then comparing it to the sugar in Danimals, which is 9 grams per serving.  Additional calculations were required to produce a hypothetical 4-ounce serving of Danimals (11.6 grams, which Chobani rounds up to 12 grams). (“And as the Court noted at the TRO hearing, parents do not ordinarily give a child 1.33 servings of yogurt anything.”)  At that point, the 33% less claim became “true.”

Chobani offered a simpler theory in litigation: dividing the number of grams of sugar in a single serve bottle of each drink by the number of ounces in the bottle yields 2 grams of sugar per ounce for Gimmies, and 3 grams of sugar per ounce of Danimals. “However, this rather more elegant and easily comprehended ‘ounce for ounce’ comparison is not suggested by anything on the packaging – especially not Chobani’s barely legible footnotes. And that is not how Chobani calculated its claim.”

Dannon’s extrinsic evidence came from a marketing expert.  Based on his review of academic literature, which the court considered an appropriate source, he concluded that consumers were not likely to attend to Chobani’s disclaimers, primarily because of their location on the packaging. He further opined that consumers would not likely understand that Chobani’s “33% less sugar” claim required “an averaging of Chobani’s three flavors, a scaling up of Dannon’s serving size, and a rounding of fractional sugar contents to the nearest whole number[.]” He also conducted an online consumer survey and concluded that significantly more consumers would interpret Chobani’s “33% less sugar” claim as referring to the sugar content of a bottle of Gimmies versus a bottle of Danimals – not to an ounce of Gimmies versus an ounce of Danimals.

The online survey used a hypothetical involving two ice cream brands with different single-serve sizes. Consumers were asked about their understanding of a claim of “25% less fat” by the larger cup. Specifically, the survey asked if they were more likely to assume that the comparison above is made with respect to fat content per cup or per ounce; and second, if they were more likely to assume that the comparison above is made with respect to each flavor independently or the average of all three flavors. There was a “don’t know/not sure” option. Forty-four percent of respondents thought that the comparison statement “25 percent less fat than [hypo]” referred to the fat content per mini cup of ice cream, while only 28% of respondents interpreted it as a per-ounce claim. Similarly, 45% thought that the comparison statement referred only to the specific flavor in question, while 27% of respondents chose an average across flavors.  Only 10% thought both that the comparison was per ounce and across flavors.  Chobani’s expert criticized the study, but conducted none of her own.

The court found that Dannon’s evidence ruled out a literal falsity claim but proved a misleadingness claim.  Dannon proved that multiple interpretations were possible and that 10% of respondents would understand the claim completely (which doesn’t seem like enough to me, but ok).  Still, “read in the easiest and most straightforward way, the advertising on the Gimmies package is not accurate. A bottle of Gimmies has either 7 or 9 grams of sugar; a bottle of Danimials has either 9 or 10 grams of sugar. Even taking the biggest difference (7 grams to 10 grams), without any averaging, there is not 33% less sugar in a serving of Gimmies over a serving of Danimals.”

Chobani offered no persuasive evidence of consumer reception, and Dannon did. Indeed, the survey was actually favorable to Chobani by offering respondents a menu suggesting per ounce and flavor averaging options; “had the questions been open-ended, it is plausible that some respondents would not have contemplated that interpretation.”  The questions were close-ended but not therefore leading because they didn’t suggest a specific answer.  In this case, too, no control group was necessary to guard against bias or pre-existing beliefs because it wasn’t that kind of study.

Ultimately, reasonable purchasers who saw “33% less sugar than the leading brand” on the front of the box “cannot be expected to study the back of the packaging in the detail necessary to discover the cryptic, microscopic footnoted disclosures … never mind figure out what needs to be ‘averaged’ with what and perform the multiple calculations needed to make sense of that claim.” The court credited “numerous studies across different types of products reveal[ing] that consumers are unlikely to notice or pay attention to Chobani’s hard-to-find and hard-to-read ‘disclosure’ footnotes,” and these particular disclosures were also incomprehensible. No yogurt-specific study was required to show likely success on these points.

Chobani made a useless argument that it couldn’t be liable because it complied with FTC/FDA rules. Multiple problems with that: (1) Pom Wonderful says the Lanham Act is different. (2) Read carefully, the rules did not clearly authorize, much less require, Chobani’s choices here. “The relevant FTC Guideline about ‘Comparative Nutrient Content Claims’ states that comparative nutrient content claims must not contain ‘misleading implications’ in order to survive FTC scrutiny” and should also make clear the basis for the comparison, which Chobani didn’t do. And the FDA regs cited by Chobani, to the extent they governed relative claims, didn’t seem to allow Chobani to average the sugar content of its various flavors.

Ultimately, though, the court was guided by common sense:

[A] parent walking down the dairy aisle in a grocery store, possibly with a child or two in tow, is not likely to study with great diligence the contents of a complicated product package, searching for and making sense of fine-print disclosures in asterisked footnotes, and looking for flavors other the one(s) s/he wishes to buy (which may or may not be on the shelf) in order to perform multiple mathematical calculations – all in order to confirm the truth or falsity of a claim that is of dubious veracity, and that could easily have been replaced with the simple and truthful statement, “My product has less sugar per ounce than his product.” Nor does the law expect this of the reasonable consumer. With yogurt or any other product, plain vanilla ads and labels tend to work best.

As a result, Dannon also showed a likelihood of success under its NY GBL § 349(a) claims. Chobani argued that Dannon’s competitive injury was insufficiently consumer-oriented, but that’s not true. Misleading parents about the sugar content of a product intended for their children is a consumer harm: the public “has a strong interest in receiving accurate information, especially when it comes to products marketed specifically for children.”

However, Dannon failed to show irreparable harm. Though some courts have found irreparable harm with a showing of competition + “a logical causal connection between the alleged false advertising and the plaintiff’s own sales position,” that couldn’t happen here. The evidence indicates that, in the month Gimmies launched, Dannimals’ share of the yogurt product market expanded.  This wasn’t an absolute increase—sales of kids’ drinkable yogurt were generally down during the holiday season—but it did indicate lack of harm to Dannimals’ market position. “This data strongly suggests that neither Danimals’ sales position nor its brand equity has suffered irreparably.”  Danone also didn’t offer any evidence that it lost sales, or that the lost sales were attributable to the 33% less sugar claim versus the fact that Gimmies has somewhat less sugar than Dannimals and a larger serving size. It was purely conjectural to say that Danone lost sales as a result of the misleading claim.

Anyway, lost sales would be remediable at law. Danone argued that its injury was to its good reputation as a purveyor of healthy and nutritious food for children.  But such “purely conclusory testimony” proved nothing.  “[T]here is no denying the fact that Danimals has more sugar per fluid ounce than Gimmies does.”  Even if the ads were misleading, there was no evidence or other reason to think that Danone’s reputation would be more injured by the misleadingness than by the truth, and Chobani had a right to injure Danone with the truth. 

[There is an interesting set of ideas about but-for causation and appropriate baselines in here; this issue comes up a lot in various ways in advertising law, from whether a difference between the truth and the ad claim is merely puffery or is potentially actionable to materiality to harm causation, as here.  One can imagine a different legal regime where the advertiser acts at its peril in making false claims, even if it can show that the truth would also have worked. Presumably the advertiser chose falsity over truth because it thought the falsity would sell better, so we might rely on the advertiser’s own choices and not its post-hoc defenses. But that’s not the legal regime we have.]

Even worse for Danone, it developed that it had been selling Dannimals in old packaging that overstated the sugar content of its product. If Danone was willing to tolerate that because of the expense of making new packaging, it couldn’t turn around and accuse Chobani of irreparably harming it on the same metric.

In addition, prompted by the lawsuit, Chobani changed Gimmies, reducing the sugar in two flavors and changing the packaging. Flavor-specific labels now advertise that they contain “30% less sugar*” “*than the leading kids drinkable yogurt and disclose the comparison “Gimmies: 2g sugar per fl. oz.; leading kids’ drinkable yogurt: 2.9g sugar per fl. oz.” This easy to understand comparison will be on the front and the back.  The remaining old stuff will be sold or reach its expiration date by the end of March. Thus, an injunction would have nothing to redress. Although this will take a few weeks, Danone’s own use of stale packaging made its irreparable harm claim unpersuasive.

Relatedly, the balance of hardships favored Chobani because of the expense/difficulty of repackaging existing product (over 2.8 million bottles would expire before they could be relabeled) and the special harm of pulling a new product from the shelves before it’s fully established, which would damage relations with retailers.

Nor would a preliminary injunction help vindicate the public interest given the ongoing reformulation and repackaging.

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