Church & Dwight Co., Inc. v. SPD Swiss Precision Diagnostics GMBH
Filing
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MEMORANDUM AND ORDER. For the foregoing reasons, the Court denies Defendant's motion in its entirety. This resolves Dkt. No. 398. re: 398 MOTION to Stay SPD Swiss Precision Diagnostics GmbH's Notice Of Motion To Stay Or Modify Injunction Pending Appeal filed by SPD Swiss Precision Diagnostics GMBH. (Signed by Judge Alison J. Nathan on 8/26/2015) (rjm)
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DOCUMENT
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DATE FILED:
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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
iAUG 2 201
CHURCH & DWIGHT CO., INC.,
Plaintiff,
14-CV-585 (AJN)
-vMEMORANDUM AND
ORDER
SPD SWISS PRECISION DIAGNOSTICS,
GMBH,
Defendant.
ALISON J. NATHAN, District Judge:
On July 1, 2015, this Court issued an Opinion and Order finding, inter alia, that
Defendant SPD Swiss Precision Diagnostics, GmbH ("SPD") had engaged in false advertising
under the Lanham Act and indicating it would enter a permanent injunction at a later date. Dkt.
No. 397 ("July 1 Opinion"). On July 10, 2015, the Court received from SPD a motion to stay or
modify any future injunction pending appeal. Dkt. No. 399. For the reasons explained below,
the Court DENIES SPD's motion and enters its permanent injunction order simultaneously with
this Memorandum and Order.
I.
BACKGROUND
In 2014, C&D filed a complaint against SPD alleging false advertising of the Clearblue
Advanced Pregnancy Test with Weeks Estimator (the "Product"). Dkt. No. 2. Pursuant to the
parties' request, the Court agreed to bifurcate the issues ofliability and damages. Dkt. No. 42.
After an eight-day bench trial on liability, the Court found that "SPD's advertising conveys the
false message that the product provides an estimate of weeks that is consistent with a doctor's
estimate of weeks pregnant." July 1 Opinion at 27. The Court further found that the false
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advertising was the result of "intentional deception." Id. at 1. As a result, the Court ordered both
parties to meet and confer to try to reach an agreement on the specific language of a pennanent
injunction order. Id. at 49. In the event that the parties could not agree, the Court ordered each
party to submit a letter setting forth its positions on the wording of a permanent injunction. Id. at
50-51. At a minimum, the Court suggested that any injunction would require SPD to recall the
Product currently on store shelves and begin a corrective advertising campaign. Id. at 50. In
anticipation of its eventual appeal, SPD filed a motion to stay or modify the injunction pending
appeal on July 10, 2015. Dkt. No. 398. SPD filed its actual Notice of Appeal on July 30, 2015.
Dkt. No. 419.
II.
MOTION TO STAY INJUNCTION
Rule 62(c) of the Federal Rules of Civil Procedure provides: "While an appeal is pending
from an interlocutory order or final judgment that grants ... an injunction, the [district] court
may suspend [or] modify... an injunction on tenns for bond or other terms that secure the
opposing party's rights." A stay of injunction is an "intrusion into the ordinary processes of
administration and judicial review, and accordingly is not a matter of right." Nken v. Holder,
556 U.S. 418, 427 (2009) (citation omitted). In deciding whether to grant a motion to stay an
injunction pending appeal, a court should consider four factors:
(1) whether the movant will suffer irreparable injury absent a stay, (2) whether a
party will suffer substantial injury if a stay is issued, (3) whether the movant has
demonstrated 'a substantial possibility, although less than a likelihood, of success'
on appeal, and (4) the public interests that may be affected."
LaRouche v. Kezer, 20 F.3d 68, 72 (2d Cir. 1994) (quoting Hirscl~feld v. Bd. ofElections, 984
F.2d 35, 39 (2d Cir. 1993)). Of these factors, irreparable injury and likelihood of success on the
merits "are the most critical." Nken, 556 U.S. at 434. While the factors are evaluated on a
"sliding scale" where "[t]he probability of success that must be demonstrated is inversely
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proportional to the amount of irreparable injury plaintiff will suffer absent the stay," Thapa v.
Gonzales, 460 F.3d 323, 334 (2d Cir. 2006), 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. Chevron Corp. v. Danziger, 37 F. Supp. 3d
653, 657 (S.D.N.Y. 2014).
A.
Irreparable Injury to SPD
Irreparable harm is "perhaps the single most important prerequisite" before a stay of a
permanent injunction pending appeal can be issued. Bell & Howell: Mamiya Co. v. Mase!
Supply Co. Corp., 719 F.2d 42, 45 (2d Cir. 1983). Irreparable harm justifying a stay of an
injunction must be "actual and imminent" as opposed to "speculative" harm, Dexter 345 Inc. v.
Cuomo, 663 F.3d 59, 63 (2d Cir. 2011), that "cannot be remedied" without a stay. Grand River
Enter. Six Nations, Ltd. v. Pryor, 481 F.3d 60, 66 (2d Cir. 2007).
It is undeniable that the injunction will cause SPD some harm. SPD argues that
"immediate implementation of an injunction will cause SPD to suffer millions of dollars in lost
revenue and additional costs, erode consumer trust in the brand and damage SPD's business
goodwill." SPD Br. at 9. The Court turns first to the monetary costs of complying with the
injunction.
If the monetary cost of implementing an injunction, standing alone, were sufficient to
justify a stay of injunction pending appeal, "stays pending appeal would become routine,
conflicting with the rule that such relief should be 'extraordinary."' Nat. Res. Def Council, Inc.,
v. US Food and Drug Admin., 884 F. Supp. 2d 108, 124 (S.D.N.Y. 2012); see also Graphic
Commc'ns Union v. Chicago Tribune Co., 779 F.2d 13, 15 (7th Cir. 1985) ("[T]he fact that an
order ... imposes a cost ... does not show irreparable hann. Otherwise every order ... would
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be deemed to create irreparable harm, and it would be easy to get such orders stayed.").
Admittedly, the magnitude of the cost is undoubtedly a relevant factor in evaluating irreparable
harm; here, the cost of the recall would be about $3.6 million. Zingg Deel. ,-i 5 (Dkt. No. 401).
That cost is not insignificant. However, while SPD described this cost in detail, it made no effort
to explain what consequences such an expenditure would have on the company. In essence, SPD
lists costs and asserts they will cause "irreparable hann," but fails to explain why. This lack of
explanation is particularly troubling because the Court clearly indicated that the question of an
injunction should be addressed at trial. See Church & Dwight Co., Inc. v. SPD Swiss Precision
Diagnostics, GmbH, No. 14-CV-585 (AJN), 2014 WL 2526965, at *17 (S.D.N.Y. June 3, 2014)
(ordering consolidation of C&D' s motion for preliminary injunction with the trial on the merits).
SPD presented no evidence of the effect of an injunction during the course of the trial and has
failed to do so in the briefing here. Without evidence of the effect of the cost of complying with
the injunction, SPD has established no record from which the Court could conclude that the
enumerated monetary costs rise to the level of irreparable harm.
In addition to cost, SPD argues that the injunction, and particularly a recall, will cause
loss of consumer trust and goodwill. As an initial note, the magnitude of such a loss is
speculative. For example, SPD argues that "a recall would ... damage SPD's reputation ...
with ... health care providers," SPD Br. at 9, but provides no evidence that health care providers
would change their views on the quality of the product based on a false advertising recall.
Relatedly, SPD argues that consumers would view the product as unsafe or believe it was no
longer approved by the FDA. Id. Again, there is little reason to believe consumers would react
in this way. There is no such implication in this Court's July 1 Opinion, and SPD will certainly
endeavor to communicate to customers that any recall has no bearing on safety. Further, if
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consumer trust and goodwill are damaged, it is not necessarily a result of any injunction or recall,
but because SPD engaged in "intentional deception of an egregious nature." July 1 Opinion at 1.
In sum, SPD's alleged losses of consumer trust and goodwill are speculative and are attributable
to SPD's underlying conduct as opposed to the injunction. As a result, these injuries do not rise
to the level of irreparable hann.
B.
SPD's Likelihood of Success on the Merits
An applicant for a stay of injunction pending appeal must make "a strong showing that he
is likely to succeed on the merits." Hilton v. Braunskill, 481 U.S. 770, 776 (1987). Generally,
this requires showing "a substantial possibility, although less than a likelihood, of success."
Mohammed v. Reno, 309 F.3d 96, 101 (2d Cir. 2002); LaRouche v. Kezer, 20 F.3d 68, 72 (2d Cir.
1994). If the applicant demonstrates that a "serious legal question is involved" in the appeal, a
stay is appropriate where there is a "substantial case on the merits" and "the balance of the
equities weighs heavily in favor of granting the stay." LaRouche, 20 F.3d at 72-73.
SPD raises two issues to demonstrate "a strong showing" that it is "likely to succeed on
the merits. First, SPD argues that, after POM Wonderful LLC v. The Coca-Cola Company, 134
S. Ct. 2228 (2014), there is a 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. SPD Br. at 12. In addition, SPD argues there is 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." Id.
This Court first rejected SPD's FDCA preclusion argument at the motion to dismiss
stage. See Church & Dwight, 2014 WL 2526965, at *7-*14 (S.D.N.Y. June 3, 2014). Shortly
thereafter, the Supreme Court reaffirmed in POM Wonderful that the "Lanham Act and the
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FDCA complement each other" and that the FDCA does not necessarily preclude Lanham Act
claims alleging false or misleading labeling. 134 S. Ct. at 2238-39. In light of this new
precedent, the Court reconsidered the preclusion issue at the motion in limine stage. See Church
& Dwight Co., Inc. v. SPD Swiss Precision Diagnostics, GmbH, No. 14-CV-585 (AJN), 2015
WL 2359467 (S.D.N.Y. Mar. 24, 2015). This Court, like other courts to consider the question,
determined that while POM Wonderful concerned food and beverage labeling, its reasoning
applied equally to medical device labelling. See id. at *6; see also Connections, Inc. v. Ivera
Med. Corp., No. 14-CV-70-TC, 2014 WL 3536573, at *4-*5 (D. Utah July 14, 2014); JHP
Pharm., LLC v. Hospira, Inc., 52 F. Supp. 3d 992, 999-1000 (C.D. Cal. 2014). Ultimately, this
Court held that POM Wonderful "only strengthen[ ed] the Court's earlier analysis" on the FDCA
preclusion point. Church & Dwight, 2015 WL 2359467, at *1 (S.D.N.Y. March 24, 2015); see
also JHP Pharm., 52 F. Supp. 3d at 999 (finding POM Wonderful to be a "strong holding in
favor of Lanham Act claims"). Additionally, after an eight-day bench trial, the Court noted that
the trial had "reinforced the Court's prior observation that the Lanham Act and the FDCA
complement each other, allowing the expertise, perspective, and resources of market competitors
[on the question of consumer confusion] to augment those of the FDA." July 1 Opinion at 45.
SPD intends to raise the preclusion issue again in its appeal. In its argument that the
preclusion question is a serious one, SPD points to the only post-POM Wonderful case where a
district court barred a Lanham Act claim as precluded by the FDCA. See Catheter Connections,
2014 WL 3536573. In that case, the allegedly false advertising was that the product did not
require FDA approval. Id. at *2. Because the false advertising claim "require[ d] direct
interpretation and application of the FDCA" (as to whether or not the device did, in fact, need
FDA approval), the district court held that the claim was precluded. Id. at *4. Here, unlike in
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Catheter Connections, C&D's false advertising claim does not "require direct interpretation and
application of the FDCA," but instead involves fact-intensive questions of consumer confusion.
In light of POM Wonderful's "strong holding in favor of Lanham Act claims," JHP Pharm., 52
F. Supp. 3d at 999, SPD does not demonstrate that there is a "serious legal question" as to the
FDCA's preclusion of C&D's particular false advertising claim.
As for SPD's other argument, this Court did not rely merely on the presumption of
consumer confusion in reaching its conclusions. Instead, the Court explained that C&D
"presented evidence that this Court found persuasive of likelihood of consumer confusion based
on Mr. Poret's surveys." July 1 Opinion at 36. This independent evidence of consumer
confusion undercuts SPD's argument that the presumption of consumer confusion is a "serious
legal question" in this case.
Even if there were a "serious legal question" for SPD's appeal, SPD has not
demonstrated that "the balance of the equities weighs heavily in favor of granting the stay."
LaRouche, 20 F.3d at 72-73. To the contrary, SPD's intentional deception in advertising weighs
against a stay of an injunction requiring correction of the intentionally false advertising.
C.
Substantial Injury to C&D
When evaluating the injury to the non-applicant of granting a stay of injunction, the
measure of injury is not irreparable harm, but substantial harm. LaRouche, 20 F.3d at 72
(quoting Hilton v. Braunskill, 481 U.S. 770, 776 (1987)). SPD argues that C&D will suffer no
harm from a stay of injunction because SPD's 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." SPD Br. at 10. Regardless of whether this Court allowed
sleeving instead of a recall, the purpose of the stay is to delay compliance with the injunction.
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As a result, 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. Keeping
the misleadingly labeled product on store shelves for a longer period prolongs the existing harm
that C&D has suffered from SPD's false advertising, another factor weighing against granting
the requested stay. This is particularly true in light of the bifurcation of the liability and damages
stages of the case, which delays C&D's ability to obtain an alternative form ofrelief. See Dkt.
No. 42.
D.
Public Interest
"The public interest is served by preventing customer confusion or deception." Reckitt
Benckiser Inc. v. Motomco Ltd., 760 F. Supp. 2d. 446, 457 (S.D.N.Y. 2011) (quoting Osmose,
Inc. v. Viance, LLC, 612 F.3d 1298, 1321 (11th Cir. 2010)). This Court's July 1 Opinion found
that SPD had engaged in intentional false advertising. As a result, the packaging for SPD's
product currently on shelves in retail locations is misleading. The public interest weighs in favor
of removing this misleading advertising as quickly as possible. SPD argues that consumers have
an interest in having the Product available to them. But keeping the Product available requires
allowing intentionally false advertising material to stay on the shelves; the interest in avoiding
consumer confusion and deception outweighs the interest in access to this particular product.
In sum, SPD has failed to demonstrate irreparable harm or a likelihood of success on
appeal. In addition, a stay would perpetuate false and misleading advertising, thereby harming
C&D and the public. As a result, the Court DENIES SPD's motion to stay the injunction.
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III.
OTHER REQUESTED RELIEF
A.
Sleeving in lieu of Recall
In its July 1 Opinion, this Court indicated it was inclined to order SPD to remove the
Product from stores. SPD argues that it should instead be permitted to undertake "sleeving,"
whereby the problematic packaging is covered with a cardboard sleeve of new packaging. SPD
Br. at 14. With a recall, product would have to be removed from stores, repackaged in new
boxes, and shipped back to stores. Id. With sleeving, however, "repackaging" (i.e. placing
sleeves on the boxes) would occur at the retail location. Id.
The essential difference between the recall and sleeving appears to be what happens
between entry of the injunction and the preparation of new packaging. SPD cannot place any
new packaging material on the product until that packaging is approved by the FDA, a process
which SPD estimates will take two weeks. Zingg Deel. ii 10 (Dkt. No. 401). SPD further
estimates that it will take another five to six weeks after FDA clearance to deliver the new
packaging to retailers. Id. Thus, with the sleeving method, current product would remain on the
shelves for at least seven or eight weeks in its current misleading packaging before sleeves are
made available. On the other hand, SPD estimates that a recall would begin immediately and
could be completed within four weeks with all current Product removed from stores. Id.
ii 6.
SPD points out that it has completely ceased shipping the Product in its current
packaging. Id.
ii 7.
Allowing sleeving, which would take at least seven weeks to complete,
would allow SPD to sell out its inventory currently on store shelves, 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
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weeks before steps are initiated to correct false advertising. Thus, this Court concludes that
"sleeving" is not an appropriate remedy.
"[A] district court should carefully consider the likely burden and expense of a recall
before it imposes the remedy." Perfect Fit Indus., Inc. v. Acme Quilting Co., Inc., 646 F.2d 800,
807 (2d Cir. 1981 ). The above analysis demonstrates that the main alternative, sleeving, is
inadequate in delaying the removal of intentionally false and misleading packaging from store
shelves and allowing SPD to sell out its inventory before taking corrective measures. As a result,
this Court reaffirms that a recall is appropriate in this case, despite the expense it may impose on
SPD. The specific contours of such a recall are set forth in the Court's pennanent injunction
order issued simultaneously with this Memorandum & Order.
B.
Short Stay to Seek Approval of New Packaging from the FDA
In addition to the other relief discussed above, SPD seeks a short stay to seek FDA
approval for its new packaging. Any changes to the Product packaging require FDA approval,
which SPD estimates will take approximately two weeks. SPD Rep. Br. at 8. This Court is
cognizant of the fact that SPD cannot place new packaging on shelves until it is approved by the
FDA. However, 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. This is particularly true here, where SPD could have taken the weeks
since the Court's July 1 Opinion to begin seeking FDA approval, but does not appear to have
done so. In crafting the recall timeline in its permanent injunction order, the Court has
endeavored to give SPD sufficient time to seek and receive FDA approval for its new packaging,
but it will not stay the injunction on that basis.
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C.
Temporary Stay to Seek a Stay from the Second Circuit
Finally, SPD requests a temporary stay to seek a stay from the Second Circuit. District
courts denying a motion to stay an injunction have granted temporary stays for the moving paiiy
to file a motion to stay under Rule 8(a) of the Federal Rules of Appellate Procedure. See, e.g.,
LNC Invs., Inc. v. Republic ofNicaragua, No. 96-CV-6360 (JFK), 2000 WL 729216, at *2
(S.D.N.Y. June 6, 2000). Such stays generally remain in effect until the stay motion is decided
by the appellate court. Id. Granting such an injunction is "an exercise of judicial discretion, and
the propriety of its issue is dependent upon the circumstances of the particular case." Nken v.
Holder, 556 U.S. 418, 433 (2009) (internal quotation marks omitted).
While SPD is entitled to seek a stay from the Second Circuit under Rule 8(a), this Court
will not grant a temporary stay for SPD to seek such relief. As noted above, this Court sees
SPD's likelihood of success on appeal to be minimal and is concerned with the public interest in
having intentionally false and misleading product packaging removed from shelves as quickly as
possible. In light of the delay that even a temporary stay could cause in correcting the false and
misleading packaging, this Court declines to issue one.
IV.
CONCLUSION
For the foregoing reasons, the Court denies Defendant's motion in its entirety. This
resolves Dkt. No. 398.
SO ORDERED.
Dated: August'} 'o , 2015
New York, New York
United States District Judge
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