Thursday, April 11, 2019

Literal falsity about independence of tests/test results supports $18 million in disgorgement (incl. interest)

Dyson, Inc. v. SharkNinja Operating LLC, 2019 WL 1454509, No. 14 C 9442 (N.D. Ill. Mar. 31, 2019)

Dyson sued SharkNinja in 2014 for false advertising.  SharkNinja won summary judgment except for Dyson’s literal falsity claim for the period from August 2014 through December 2014. A jury returned a general verdict finding SharkNinja liable and that its false advertising was willful, and awarding Dyson an accounting of SharkNinja’s profits: $16,410,681. The court granted prejudgment interest, adding a couple of million to the tab, and denied SharkNinja’s various motions to get out of the verdict as well as Dyson’s motion for attorneys’ fees.

The key claims were that independent lab tests conducted under the ASTM F608 standard proved that SharkNinja’s NV650 vacuum cleaned carpets better than Dyson’s DC65 vacuum. Dyson had two theories of literal falsity: first, that the tests weren’t independent, and second, that part a SharkNinja infomercial was false in that it combined a voiceover about independent tests with a bar graph displaying data from internal tests finding that on one type of carpet, SharkNinja’s NV650 picked up 42 grams of dirt to the Dyson DC65’s 37 grams.

SharkNinja argued that the juxtaposition of two true claims couldn’t be literally false, but at worst was ambiguous.  But “[w]hen two statements are presented together, they contextualize each other and can thus communicate a different message in combination than they might in isolation.” The grams graphic appeared in the infomercial “at exactly the same time” that the narrator said, “independent lab tests prove.” The court’s excellent analogy is worth quoting at length:

[D]irect narration is not the only way to eliminate ambiguity; context works just as well. Suppose a car is approaching a traffic light. Viewed from the direction the car is traveling, the light is red, but the passenger says, “The light is green.” Taken in isolation, the statement is true: The light is green when viewed from the cross street. In context, however, the statement is unambiguously false. Just as the direction in which the car is traveling determines which side of the light the driver will understand the passenger to be referencing without the passenger’s saying so, so too does the timing of the voiceover relative to the grams graphic communicate that the graphic displays the results of independent tests without the narrator’s saying so—or so a reasonable jury could find.

[I might’ve gone further: it’s hard to see how a reasonable jury could have found otherwise.]

SharkNinja argued that “a barely visible footnote to the grams graphic attributing the data to tests performed on a ‘multi-level carpet sample’” introduced ambiguity because it contradicted the voiceover’s reference to independent tests conducted “on four of the most commonly owned carpet types in America.” But even if “a barely visible footnote contradicting a voiceover” could avoid literal falsity—about which the court was dubious—there wasn’t even a contradiction here; a reasonable viewer could think that SharkNinja tested four but displayed one.

SharkNinja next disputed materiality, which required a showing of likely influence on purchasing, not actual influence. But SharkNinja’s CEO testified that the graphic was meant to “show visually the amount of dirt that we each pick up,” “which he thought would make an impact on consumers.”  And  SharkNinja decided during the infomercial editing process to stick with the multilevel carpet results used in the graphic rather than using plush carpet results showing a slightly larger margin of victory because of the “perception of 42g vs. 37g” for the multilevel carpet test as opposed to 48.5 grams vs. 42.9 grams for the plush carpet test. As the document explained: “We like us being in the 40’s and them being in the 30’s.” Since SharkNinja thought the grams graphic would affect viewers, “the jury reasonably could have found the same. And from that finding, it reasonably follows that SharkNinja’s credibility-enhancing representation that the graphic reflected independent test results was likewise material.”

SharkNinja argued that the grams graphic was immaterial because the truth would have been just as good, as the independent testing would have shown a four-gram difference totaled across all four carpets, which was no different from the five-gram difference in the graphic.  The jury wasn’t required to agree, given the evidence above and given that “[t]he graphic used in the infomercial showed Dyson’s vacuum picking up only 88 percent (37 grams divided by 42 grams) of what SharkNinja’s vacuum did, while a graphic constructed from Intertek’s tests on all four carpets would have shown Dyson’s vacuum picking up 98 percent (166.8 grams divided by 170.9 grams) of what SharkNinja’s vacuum did, making the difference appear much less significant.”  [It would’ve wanted to use the four carpets added together because Dyson beat SharkNinja on at least one of the carpets.]

Next, SharkNinja argued that no reasonable jury could have found that the independence representation was literally false. Basically, it told the testing entity to use a particular setting when testing all four types of carpets, in contradiction to what the user manual said and what the testers initially did.  Though it was a closer question, “a reasonable jury could have found that SharkNinja effectively controlled the tests by dictating to Intertek which setting to use, thus rendering the tests not independent and the independence representation false.” [Later, it changed the user manual so that those settings were actually recommended for those carpet types; a previous decision had held that this change, once made, rendered the ad claims not literally false going forward, which is a bit weird technically—the testing was either independent or it wasn’t—but perhaps one could say the lack of independence was no longer material once the tester did what users were supposed to do.]

The court rejected challenges to the disgorgement calculation. The $16,410,681 award appears to have come from starting with SharkNinja’s $18,138,000 in gross profits and deducting $1,727,319 in non-advertising expenses (commissions, deliveries, customer service call centers, warehouses and fulfillment, credit card processing fees, and bad debt) identified by SharkNinja’s economics expert. SharkNinja argued that (1) unrefuted evidence showed that, due to its substantial advertising expenses, it lost money on the relevant model during the relevant period and thus had no profits to disgorge, and (2) even if it made a profit, the jury irrationally failed to apportion the profits to award Dyson only the share attributable to false advertising.

But the various SharkNinja financial documents shown to the jury were created for the instant litigation because the company didn’t ordinarily prepare product-specific financial statements. Those documents differed from each other a bunch, including one document reporting a $30.6 million net profit versus two others reporting net losses of $14 million and $16 million, and also contained substantial errors.  Dyson provided expert testimony challenging their accuracy and reliability, e.g., noting that one SharkNinja profit-and-loss statement included data for two more months than a second document yet reflected fewer total sales. She opined that, as a result, the documents did not provide a “sufficient [basis] to subtract any amount of media expense” for the challenged model. “The jury thus was free to disbelieve SharkNinja’s fuzzy and inconsistent accounting and find that it did not prove any of its claimed advertising expenses as deductions from its gross profits, much less that its overall profit was zero.”

SharkNinja maintained that not all of its profits from that model resulted from false advertising, so that apportionment was required.  But that didn’t mean that, as it argued, the proper amount was zero, and it offered no middle ground.  At trial, SharkNinja didn’t suggest any way for the jury to apportion profits other than zero; this strategic choice couldn’t be revisited now.

Its motion for a new trial or remittitur suffered the same fate. Among other things, SharkNinja challenged the jury’s willfulness finding as against the weight of the evidence, reasoning that its witnesses testified that the grams graphic was a placeholder accidentally left in the infomercial. But the jury reasonably could have found that “when SharkNinja decided to keep the grams graphic in the infomercial because it ‘like[d] us [SharkNinja] being in the 40’s and them [Dyson] being in the 30’s,’ it was at least reckless as to the truth of the voiceover’s representation that the graphic reflected independent testing,” especially since the graphic used data from multilevel carpet, and the independent testing showed Dyson beating SharkNinja on multilevel carpet. And the willfulness finding could also have been based on the independence representation.

On disgorgement, SharkNinja made similar arguments to those above.  But once disgorgement was justified, SharkNinja had the burden to distinguish between profits attributable to its false advertising and profits attributable to legitimate business activities. The jury certainly could’ve concluded that SharkNinja’s profits didn’t result entirely from false advertising, but SharkNinja only argued that its profits were zero; even after trial, it insisted that apportionment was required without suggesting a percentage.  Even if that gives Dyson a windfall, “that result accords with Seventh Circuit precedent recognizing that the proper apportionment ‘often cannot be ascertained with any reasonable certainty’ and that the resulting windfall risk should be borne by the defendant, not the plaintiff.”

Dyson did fail to get the case deemed exceptional. A willfulness finding doesn’t inherently make a case exceptional. And this case involved challenged ads some of which were exonerated. The violation here, though willful, wasn’t “especially egregious.” The false claims “were just part of its advertising campaign,” lending credibility to otherwise true claims about lab tests that were onscreen for only about twenty-four seconds of a twenty-two-minute infomercial.  The falsity was in the details.  “This would have been a different case had SharkNinja run its advertisements without ever testing its vacuum’s performance, or had SharkNinja said that the tests showed that its vacuum cleaned carpets better than Dyson’s when in fact they showed the opposite.”

Nor did alleged litigation misconduct rise to a level justifying a fee shift.

However, Dyson did get prejudgment interest.   The Seventh Circuit has adopted a presumption in favor of awarding prejudgment interest “to victims of federal law violations” because, “[w]ithout it, compensation of the plaintiff is incomplete and the defendant has an incentive to delay.” Prejudgment interest “is simply an ingredient of full compensation that corrects judgments for the time value of money.” Letting SharkNinja keep the economic return it “made (or could have made) by investing” those funds between 2014 and the date of judgment “would leave it unjustly enriched.”

Although SharkNinja won partial summary judgment, “defended itself in good faith,” and did not engage in “outrageous, flagrant or malicious” conduct, none of that mattered.  There’s a presumption in favor of awarding prejudgment interest, and that presumption can’t be overcome by showing that this is just an ordinary case; that would be nonsensical.  The court added $2,251,202 in prejudgment interest, making the total award $18,661,883.

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