Church & Dwight Co., Inc. v. SPD Swiss Precision Diagnostics GMBH
Filing
613
OPINION & ORDER: For the foregoing reasons, the Court enters judgment in favor of Plaintiff Church & Dwight in the amount of $9,955,018. The Clerk of Court is respectfully directed to enter judgment and close the case. This Order resolves Dkt. Nos. 497, 500, 506, 509, 588, 591, 594, and 597. As explained in the concurrently led Order, this Opinion and Order will be temporarily filed under seal. After determining which, if any, portions of the Opinion and Order should be redacted, the Court will file the Opinion and Order on the public docket. (As further set forth in this Order.) (Signed by Judge Alison J. Nathan on 8/22/2018) (cf)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
Church & Dwight Co., Inc.,
Plaintiff,
14-CV-585 (AJN)
-vOPINION & ORDER
SPD Swiss Precision Diagnostics GmbH,
Defendant.
ALISON J. NATHAN, District Judge:
Plaintiff Church & Dwight Co. ("C&D") and Defendant SPD Swiss Precision
Diagnostics, GmbH ("SPD") are manufacturers of home pregnancy tests. Following a bench
trial on liability in 2015, the Court found that SPD engaged in false advertising in violation of the
Lanham Act with respect to its "Clearblue Advanced Pregnancy Test with Weeks Estimator''
(the "Product" or "Weeks Estimator"), that SPD engaged in intentional deception, and that C&D
was entitled to a permanent injunction.
Now before the Court is the issue of appropriate monetary damages, the determination of
which had been bifurcated from liability at the parties' joint request. In December 2017, the
Court presided over a three-day bench trial solely on damages. Following this trial, and with the
benefit of post-trial briefing, the Court makes the following findings of fact and conclusions of
law, which are explained below: (I) C&D has proved causation of damages; (2) C&D has proved
that its estimate of its own lost profits is fair and reasonable; (3) disgorgement of SPD' s profits is
unwarranted because the lost profits award is both adequate compensation and adequate
deterrence; (4) awarding treble damages, punitive damages, attorneys' fees and costs, or
1
prejudgment interest is not warranted because SPD's actions were not "egregious" nor is this
case "exceptional."
For the reasons that follow, the Court enters judgment for Plaintiff Church & Dwight in
the amount of$9,955,018.
I.
Procedural History
The history of the facts and prior proceedings in this matter is voluminous. For present
purposes, the Court offers the following summary.
Shortly after this action commenced in early 2014, C&D moved for a preliminary
injunction and SPD moved to dismiss; the Court denied the motion to dismiss and consolidated
the preliminary injunction with a bench trial on liability. Dkt. No. 93. At the parties' request,
the Court also bifurcated liability and damages. Dkt. No. 42.
On July 1, 2015, the Court issued its Opinion & Order on the liability phase. The
standard convention in the medical community for expressing the duration of a woman's
pregnancy is in terms of the number of weeks that have passed since a woman's last menstrual
period ("LMP"). SPD's "Weeks Estimator" test, the product at issue here, provides an estimate
of the number of weeks that have passed since a woman last ovulated, which is, on average, two
weeks after a woman's LMP. The Court found that SPD "recognized and understood that the
Weeks Estimator's result did not align with how doctors express pregnancy duration and that this
misalignment could confuse consumers. Rather than clarify its product advertising, SPD's staff
sought to exploit the confusion." Church & Dwight Co. v. SPD Swiss Precision Diagnostics,
Gmbll, No. 14-CV-585 (AJN), 2015 WL 4002468, at *12 (S.D.N.Y. July I, 2015) [hereafter,
"Liability Op."], ajf'd 843 F.3d 48 (2d Cir. 2016). Accordingly, the Court held that Plaintiff had
established its false a,dvertising claim under the Lanham Act under both literal falsity and
implied falsity theories, and with respect to the launch package, the revised package, and
2
television and other advertising. See generally id. at * 17-24. The Court also determined that
"C&D provided evidence showing a logical causal connection between SPD's false advertising
and its own sales position," thus establishing injury for the purposes of liability under the
Lanham Act. See id. at *25-28. Based on these findings and others, the Court later entered a
permanent injunction, requiring, among other things, that the Product could only be sold with
package labels containing specific language spelled out in the Court's Order. Id. at *28-32; Dkt.
No. 423. SPD filed an interlocutory appeal challenging the Court's decision on liability, and the
Second Circuit granted SPD a temporary stay of the permanent injunction pending determination
of the motion. In light of that stay, the Court also stayed the damages phase of the action. Dkt.
No. 437.
On December 14, 2016, the Second Circuit affirmed the Court's decision, finding no fault
in the Court's conclusion "that Plaintiff suffered a likelihood of loss of sales of its product,
attributable to DefendanCs false concealment that its Product gave information about the
advancement of a pregnancy that was inconsistent with the information that the medical
profession wo_uld give." Church & Dwight Co. v. SPD Swiss Precision Diagnostics, GmbH, 843
F.3d 48, 72 (2d Cir. 2016); Dkt. No. 449.
Following the Circuit's affirmance, the Court's injunction took effect immediately. Less
than three weeks later, C&D filed a motion to hold SPD in contempt for violating the injunction.
Dkt. Nos. 480-84. C&D complained that SPD had subverted the terms of the injunction through
conduct undertaken both before the injunction took final effect and conduct undertaken after the
issuance of the Court of Appeals' mandate. On July 26, 2017, the Court denied C&D's motion,
finding that "no proof has been put before this Court that demonstrates a reasonable certainty
that a violation of the Injunction occurred." Dkt. No. 475 at 12 (internal quotation and
3
alterations omitted). The Court also denied C&D's request for supplemental injunctive relief.
Id.
In advance of the damages trial, C&D moved to exclude the testimony of SPD' s expert,
Dr. Keith R. Ugone, and SPD moved to exclude the testimony ofC&D's experts, Dr. Gregory
Bell and Dr. Tulim Erdem, under the standards set forth in Daubert and Federal Rule of
Evidence 702. See Dkt. Nos. 497,500, & 506. C&D·also moved to preclude evidence about
"economic causation" that it deemed "irrelevant." See Dkt. No. 509. On December 1, 2017, the
Court reserved judgment on these four motions in limine, Dk.t. No. 555 at 1-2, and they are
resolved here. However, the Court did resolve one motion in limine prior to trial, granting
C&D's motion to preclude the introduction and use of certain evidence contained within the
direct testimony of Dr. Ugone and Cristobal Montero, SPD's Chief Financial Officer regarding
so-called "true up payments" as well as returns. See id. at 2-4. In brief, because SPD had not
produced evidence about these payments or returns to C&D, SPD's use of this information was
barred by Federal Rules of Civil Procedure 26 and 37. Id
The Court held a three-day bench trial beginning on December 11, 2017 in accordance
with its Individual Practices in Civil Cases for non-jury proceedings. Prior to trial, the parties
submitted declarations of direct and rebuttal testimony as well as copies of anticipated exhibits
and deposition designations that they intended to use at trial. The parties also submitted
proposed findings of fact and conclusions of law. At trial, the parties called only those witnesses
whom they intended to cross-examine and read into the record deposition designations and
counter-designations for all other witnesses. In all, the Court received testimony from 12
witnesses, 7 of whom provided live testimony, and admitted roughly 680 exhibits from both
4
parties. Following trial, the parties submitted post-trial memoranda of law and updated proposed
findings of fact and conclusions of law that were fully submitted on February 9, 2018. 1
Finally, on March 30, 2018, C&D moved to reopen the record of the trial to introduce
new evidence of what it deems "continued public display of advertising" for the Weeks
Estimator. See Dkt. No. 598. The motion was fully submitted on April 20, 2018, the evidence is
considered below, and the motion is resolved here.
II.
Burden of Proof
When a plaintiff establishes a violation of the Lanham Act, the plaintiff is entitled,
"subject to the principles of equity, to recover (1) defendant's profits, (2) any damages sustained
by the plaintiff, and (3) the costs of the action.» 15 U.S.C. § 11 l?(a). Accordingly, the Second
Circuit has stated that "the statute's invocation of equitable principles as guideposts in the
assessment of monetary relief vests the district court with some degree of discretion in shaping
that relief." George Basch Co., Inc. v. Blue Coral, Inc., 968 F.2d 1532, 1537 (2d Cir. 1992).
Still, that discretion "must operate within legally defined parameters." Id.
1 Both
parties submitted post-trial proposed findings of fact and were provided an opportunity to respond to
each other's proposed findings of facts with opposing record citations. See Dkt. Nos. 589,590, 592, 593, 595, 596.
The abbreviation "C&D FOF" represents Dkt. No. 589, which presents C&D's proposed findings of facts. The
abbreviation "C&D COL" represents Dkt. No. 590, which presents C&D's proposed conclusions of law. The
abbreviation "SPD FOF" represents Dkt. No. 592, which presents SPD's proposed findings of facts and responses to
C&D's findings offact. The abbreviation "SPD COL" represents Dkt. No. 593, which presents SPD's proposed
conclusions oflaw. Finally, C&D responded to SPD's proposed conclusions oflaw and findings of fact. See Dkt.
Nos. 595, 596 [hereafter respectively "Reply COL" and "Reply FOF"]. If a party did not oppose a proposed finding
offact with an appropriate record citation, and if that unopposed proposed finding of fact was supported by an
appropriate record citation, the Court deemed that fact admitted and incorporates such unopposed facts as factual
findings of the Court.
Additionally, both parties filed their post-trial submissions with certain redactions pursuant to the Court's
Rule 4.B, and as described in the parties' joint letters of January 5, 2018, January 25, 2018, and February 9, 2018.
See Dkt. Nos. 5 88, 591, 594. Having reviewed the proposed redactions pursuant to the criteria set forth in Lugosch
v. Pyramid Co. of Onondaga, 435 F.3d 110 (2006), the Court finds that the proposed redactions are "narrowly
tailored" to serve the parties' privacy interests in maintaining the confidentiality of their proprietary and
competitively sensitive information. Some of the redactions concern information provided by The Nielsen
Company that both parties are contractually obligated to treat as confidential, the redaction of which the Court also
approves. Accordingly, the Court will file the umedacted pages under seaJ.
5
First, a plaintiff who establishes liability for false advertising "will be entitled only to
such damages as were caused by the violation." Burndy Corp. v. Teledyne Indus., Inc., 748 F.2d
767, 771 (2d Cir. 1984) (emphasis added). "While the plaintiff must prove causation, it does not
have to negate every conceivable intervening factor which might have caused a decline in sales."
See 5 McCarthy on Trademarks and Unfair Competition § 30:79 (5th ed.).
Second, while "causation must first be established," a court may engage in "some degree
of speculation" in determining the amount of damages. Burndy, 748 F.2d at 771. "[T]he district
court may take into account the difficulty of proving an exact amount of damages from false
advertising, as well as the maxim that 'the wrongdoer shall bear the risk of the uncertainty which
his own wrong has created."' ALPO Petfoods, Inc. v. Ralston Purina Co., 913 F.2d 958, 969
(D.C. Cir. 1990) (quoting Otis Clapp & Son, Inc. v. Filmore Vitamin Co., 154 F.2d 738, 745 (7th
Cir. 1985) (internal quotation omitted)).
Ultimately, a plaintiff only bears the burden of showing "that its damages calculation is a
'fair and reasonable approximation' of its lost profits." MerckEprovaAG v. Brookstone Pharm.,
LLC, 920 F. Supp. 2d 404,428 (S.D.N.Y. 2013) (quoting GTFM, Inc. v. Solid Clothing, Inc., 215
F. Supp. 2d 273, 305 (S.D.N.Y. 2002)). The lost profits calculation "may be satisfied by
circumstantial evidence from which a 'probable' or 'approximate' loss may be ascertained by
'reasonable inference."' Bracco Diagnostics, Inc. v. Amersham Health, Inc., 627 F. Supp. 2d
384,490 (D.N.J. 2009) (quoting Broan Mfg. Co. v. Associated Distrib., Inc., 923 F.2d 1232,
1236 (6th Cir. 1991)); accord Skydive Ariz., Inc. v. Quattrocchi, 673 F.3d 1105, 1110 (9th Cir.
2012). Moreover, "the methodology of assessing and computing damages is committed to the
sound discretion of the district court." King Instruments Corp. v. Perego, 65 F.3d 941, 952 (Fed.
Cir. 1995) (quoting State Indus., Inc. v. Mor-Flo Indus., Inc., 883 F.2d 1573, 1576-77 (Fed. Cir.
1989)).
6
Accordingly, when the Court considers the evidence presented during the damages trial
and makes the following findings of fact, the task is framed by whether C&D has met its burden
in presenting a reasonable calculation of damages in this fundamentally equitable proceeding.
III.
Findings of Fact2
A.
The Parties and the Market
As stated in the Court's prior opinion, "C&D and SPD are direct competitors in the U.S.
Market for home pregnancy tests. C&D's leading home pregnancy test brand, First Response,
has been the market leader for many years, and SPD's leading brand, Clearblue, has been First
Response's primary competitor." Liability Op. at *3 (citations omitted).
SPD is a joint venture between Alere, Inc. ("Alere"), formerly known as Inverness
Medical Innovations, Inc. ("Inverness"), and Proctor & Gamble Co. ("P&G"). Montero DT fl 5,
7.3
-
Clearblue markets two types of pregnancy tests: "analog," which displays one or two
lines to indicate whether or not a woman is pregnant, and "digital," which displays the words
"pregnant" or "not pregnant." Wood DT ,r 7.
2 To the extent that any finding offact reflects a legal conclusion, it shall to that extef\t be deemed a
conclusion oflaw, and vice versa.
3 "DT'' refers to direct testimony of a given witness, "RT" refers to rebuttal testimony, and exhibits are
labeled "PTX" for Plaintiff's exhibit, "DTX" for Defendant's exhibit, and "JX" for joint exhibits.
7
, while First Response, the market leader, derives more dollar sales from its
analog products. See JX 32. Analog products are generally less expensive, and Clearblue digital
tests, including the Weeks Estimator, are generally priced below First Response digital tests. Tr.
(Bishop) 77:20-24; 78:24-79:2. The rest of the home pregnancy test market includes premium
brand e.p.t. and value brands, and private label products. JX 32.
B.
The Weeks Estimator and the Liability Phase
The Weeks Estimator was a digital pregnancy test launched by SPD in the United States
in August 2013. In January 2014, the original "launchH packaging was replaced at the FDA's
insistence with a revised package with changes to the labeling and advertising. Wood DT 118.
Television advertising was discontinued at that time, but the launch packaging remained on
shelves at some retailers for up to six months thereafter. Wood DT ~~ 18, 31 (a).
Unlike other pregnancy tests, which only inform a woman whether or not she is pregnant,
SPD's Weeks Estimator also provided an estimate of the number of weeks that have passed since
fertilization, which provides a proxy for the date of ovulation. The standard convention for
expressing the duration of a woman's pregnancy is to state it in terms of the number of weeks
since a woman's LMP. Liability Op. at *5. However, the Weeks Estimator provides an estimate
of how many weeks have passed since ovulation, which is, on average, two weeks after a
woman's LMP.
At the liability phase, the Court considered evidence presented at trial about the launch
package and launch advertising for the Weeks Estimator, as well as the package and advertising
as revised following feedback from the Food and Drug Administration (FDA). With respect to
both the launch phase and revised phase, the Court found that SPD advertised the Weeks
Estimator in ''ways that were intended to obfuscate the distinction between the Weeks
Estimator's result of weeks since ovulation and the estimate of pregnancy duration a doctor
8
would provide." Liability Op. at *14. The Court held that SPD's advertising was both literally
and impliedly false, that the false representations were material because the weeks estimator was
the key feature of the product, and that C&D had established "a logical causal connection
between SPD's false advertising and its market harm." Id. at *17-28.
In finding that the packaging was impliedly false-that is, that it is likely to deceive or
confuse consumers-the Court relied in part on consumer surveys presented by C&D's expert,
Hal Poret. Mr. Poret concluded that around 20% of survey participants answered both that the
product estimates the number of weeks a woman is pregnant and that the producf s estimate of
weeks is the same as a doctor's. Id. at *21.
Immediately after the Court's ruling on liability, on July 2, 2015, SPD notified retailers
that it would cease shipping the Product. See Wood DT 1 19; JX 51. However, after the Second
Circuit granted SPD's motion to stay the injunction, SPD resumed shipping the Weeks Estimator
on September 17, 2015. Wood DT 120; DTX 303. After the Second Circuit affirmed the
Court's decision, SPD again stopped shipping on September 12, 2016. Wood DT120; JX 52.
C.
The Parties' Competing Lost Profits Analyses
At its core, the damages phase of this action centers on the analyses performed by two
expert witnesses, Dr. Gregory Bell and Dr. Keith Ugone, whose respective assumptions and
calculations are supported by testimony from other witnesses, including Dr. Tulim Erdem
(C&D's marketing expert), Mr. Hal Poret (C&D's consumer survey expert), and Dr. Douglas
Schoen (SPD's consumer survey expert).
The parties offer diverging perspectives about the relationship between the at-issue false
advertising and the sales of the Weeks Estimator. This disagreement is fundamental to the larger
arguments over the proper disgorgement and lost profits awards.
9
C&D's damages expert, Dr. Bell, counted all of SPD's sales of the Product in his
damages estimates. Bell DT 1~ 19, 23; Bell RT ff 4, 29. For the calculation of lost profits, Dr.
Bell applied a so-called "market share allocation" approach in order to account for the portion of
those sales that had been diverted from C&D. He first determined how many Weeks Estimator
sticks were sold by SPD throughout the damages period. Bell DT 124. Then he determined
how many of those sales at retail would have gone to C&D's First Response brand pregnancy
test sticks if the Weeks Estimator had not been sold. Id ~ 25. Dr. Bell assumed that sales of the
Weeks Estimator impacted sales of First Response proportionally to First Response's relative
share of the pregnancy test stick market for each quarter, an assumption Dr. Bell claims was
confirmed by a regression analysis he performed. Id. at 125-27. Finally, by multiplying the
share per quarter by the number of Weeks Estimator sticks sold each quarter and by First
Response's per-stick incremental profit margin, Dr. Bell estimated C&D's total lost profits at
$9,955,018. Id 137.
Dr. Ugone agrees that a market share allocation approach is an established method to
estimate lost profits and utilizes it himself as his primary approach to estimate C&D's lost
profits. Ugone DT ~[169-71. However, he takes issue with Dr. Bell's analysis at each step-counting all of SPD's sales, the market share allocation, and the per-stick profit calculation.
Utilizing the same basic approach and same data, Dr. Ugone calculated C&D's lost profits at
o n l y - . The large discrepancy from Dr. Bell's result was explained mostly by: (1) Dr.
Ugone's use of the Poret Survey as a proxy for causation, and (2) Dr. Ugone's use of a lower
per-stick profit margin for C&D's First Response brand test. Both differences are further
discussed below, along with SPD's other criticisms of Dr. Bell's analysis. For sake of clarity,
the Court discusses the three steps of Dr. Bell's analysis and SPD's relevant critiques in turn.
10
1.
Causation and the Core Assumption of Dr. Bell's Analysis
In calculating lost profits, Dr. Bell starts with the assumption that all of the sales of the
Weeks Estimator are connected to the false advertising of the product's key differentiating
feature, or, to state the inverse, that there were no sales of the Weeks Estimator that happened
independent of the false advertising. See Bell DT, 23; Tr. (Bell) 9:6-10:11. This assumption
governed Dr. Bell's analysis despite his admission that he cannot be sure that every person who
bought the Weeks Estimator bought it because of the advertising. Tr. (Bell) 11: 18-21.
Moreover, to the extent that there were any customers who bought the product with a full
understanding that the Weeks Estimator provided a measurement of pregnancy different from
what a doctor provides, these sales would be included as well. Tr. (Bell) 12:20-13:8.
C&D argues that this assumption is warranted for a number of reasons. First, they
contend that every consumer who bought the Product was exposed to at least part of SPD's
marketing campaign. The Court, in its liability opinion, found that the Produces ability to
estimate weeks "is the key feature that differentiates it from the many other home pregnancy
tests on the market," and that the key message of SPD's marketing plan was to tell women that
only this test could tell women how far along they are. Bell DT 1 17 (quoting and citing
Liability Op. at *25-26). This message was transmitted both through advertising and through
the packaging itself. Given that this was the key distinguishing feature between the Product and
the less expensive Clearblue digital pregnancy test, C&D insists that there was no other reason
for a consumer to buy the Product. Dr. Bell also notes that retailers' decisions about whether to
stock the Product, how much shelf space to give the Product, and where to place the Product on
store shelves likely were influenced by false advertising. Id., 23. Accordingly, C&D argues
that even in the possible scenario in which some purchasers were unaffected directly by the
falsity of the advertising, their purchase would still be affected indirectly through the decisions
11
of the retailers. Because Dr. Bell concludes that he is not aware of any sales of the Weeks
Estimator that took place independent of the false advertising of the key feature, he assumes that
but for that false advertising, the launch of the Weeks Estimator product ''would not have had an
incremental effect on First Response stick sales." Id.
,r 23.
Through Dr. Ugone, and as elaborated in its motion in limine, SPD criticizes Dr. Bell for
not having performed any economic analysis to support his assumptions that the Weeks
Estimator would not have had an effect on First Response sales but for the false advertising and
that the Product only gained shelf space because of the effect the false advertising had on
retailers. SPD contends that there is ample reason to reject Dr. Bell's base assumption that all
sales of the Weeks Estimator were attributable to the false advertising and should be included in
the damages calculation. See U gone DT ,r 73.
However, and as further explained below, the Court is persuaded by C&D's proof that
this is a reasonable assumption for Dr. Bell to have made. It was reasonable because this is a
competitive market in which the parties own the top two brands; and there is one key
distinguishing feature between the Product and similar test sticks-a feature that was the subject
of false advertising directed at both consumers and retailers. It was also reasonable because the
evidence suggesting that some subset of consumers were unaffected by the advertising was not
persuasive.
Dr. Ugone, SPD's damages expert, criticizes Dr. Bell's assumption that all of the sales of
Weeks Estimator are attributable to the false advertising, and points to a variety of evidence that
he contends demonstrates that consumers wanted to buy the Weeks Estimator for reasons
independent from the false advertising. Dr. U gone therefore concludes that Dr. Bell needed to
"isolate the impact of the at-issue advertising" in his calculations and did not. Ugone DT ,r 32.
12
First, Dr. Ugone points to a survey conducted for SPD by Dr. Douglas Schoen in which
prospective pregnancy test buyers were asked about their willingness to purchase two product
concepts that Dr. Ugone claims correspond to how SPD falsely advertised the Product and how
SPD could have truthfully advertised the Product. Based on this "concept survey," Dr. Schoen
found that 81 % of respondents would "definitely purchase" the product estimating pregnancy
from the last menstrual period, and 84% of respondents would "definitely purchase" the product
that estimates pregnancy from ovulation, which they understood to be different from a doctor's
estimate. Schoen DT 4U4U 18-19. According to SPD, the results of the Schoen Survey rebut
C&D's contention that no women would purchase the Weeks Estimator if they understood its
actual function. In other words, the key differentiating feature-the test's ability to estimate the
number of weeks since ovulation-would still induce purchases even in the absence of false
advertising.
C&D argues, and the Court agrees, that Dr. Schoen's survey proves nothing of the sort.
First, the Schoen Survey used statements describing how the two products measure pregnancy
duration, but not how they express that result. As discussed at length in the Court's decision at
the liability stage, it is the difference between how the Weeks Estimator expresses pregnancy
duration and the way a doctor would express it that is crucial. Second, Dr. Schoen only gave
participants two extreme options-"would definitely purchase this product" and "would not
purchase this product"-and showed each participant only one product description.
Accordingly, unlike in the real world in which test-buying consumers are faced with a variety of
choices that they can compare, the Schoen Survey simply asked whether consumers would
purchase the hypothetical product being described. See generally Poret RT 1124--48. It is not
surprising, then, that for both hypothetical products over 80% of respondents indicated they
13
would purchase them. There is no reason for them not to say they would purchase this product,
as they are not informed of their other choices.
Dr. Schoen describes the objective of his survey narrowly-"to gauge interest between
two products, not to assess whether consumers would buy these products at shelf in the
marketplace based on advertising claims"-and in light of this narrow objective, the Court
denies the portion of C&D's motion in limine aimed at excluding the Schoen Survey.
Nonetheless, given the wording and structure of the survey, the results do not plausibly measure
the extent of the impact of the false advertising, as Dr. Ugone seems to suggest, see Ugone DT
132, and the results are also not persuasive with respect to SPD's argument about the need to
distinguish the effect of the weeks estimator innovation itself from the false advertising used to
explain and sell it.
Second, Dr. Ugone points to a variety of documents and testimony that he claims reflect,
first, that international versions of the same product were successful absent the false advertising,
and second, that C&D anticipated a need to defend against the launch of the Weeks Estimator
apart from the false advertising. Ugone DT ,r 32. Regarding the commercial success of the
international version, Dr. Ugone relies on the liability phase testimony of Ryan Daly, SPD's
marketing director for the Americas, who claimed that the Product's overseas "track record
makes it apparent that there is a significant, continued and solid demand for a product that
estimates weeks since ovulation/conception." Daly DT (Liability Phase), February 17, 2015, 19.
However, while the international product was not advertised with the same packaging,
commercials, and other advertisements found to be false by this Court, the absence of a formal
finding of falsity by a court does not necessarily mean that the international advertising was not
false or misleading. In fact, Dr. Ugone admitted at trial that he had not reviewed all of the
international advertising or packaging, and that he was basing his argument on the fact that he
14
was "not aware of any claims of false advertising with the European product." Tr. (Ugone)
398:20-400:16. To be specific, while some international versions generally had more
descriptive names-principally, "Clearblue Digital Pregnancy Test with Conception
Indicator"-and/or contained a chart on the packaging that compared the product's measure of
weeks since ovulation to a doctor's estimate, see DTX 271-72, other foreign advertising touted
the product as being "As Accurate as a Doctor's Test" and featured language and imagery
similar to those found misleading by this Court. See JX 39-40. Accordingly, comparisons to the
commercial success of the product internationally only offer limited proof that the product would
have had robust sales and induced higher consumer demand absent the false advertising.
As to C&D's own concerns regarding the launch of the Weeks Estimator, Dr. Ugone
opined that internal C&D documents and the testimony of Ms. Wendy Bishop, the former Group
Brand Manager of Women's Health for C&D, confirm that the innovative nature of the product
had an impact separate and apart from the false advertising. Ugone DT ,r 32.b. C&D responds
by pointing out that C&D assumed at the time that the domestic advertising would be like the
advertising for the "Conception Indicator" abroad. See Bishop RT ,r 8. Accordingly, when
placed in context, C&D argues that its documents and internal discussions reflect its fear of the
commercial strength of the product with attendant misleading advertising. For the same abovestated reasons that the commercial strength of the product abroad offers limited support for
SPD's argument, so too does C&D's anticipation of the commercial strength of the product.
Third, and most crucially, Dr. Ugone utilizes the December 2014 survey conducted
during the liability phase by C&D's survey expert, Mr. Hal Poret, which was designed to identify
the level of consumer confusion, as a measurement of the portion ofSPD's sales of the Weeks
Estimator that is attributable to the at-issue advertising. Putting aside whether the adoption of
the exact percentages from the Poret Survey is a fair way to ''apportion" SPD's sales, which is
15
discussed below, Dr. Ugone pointed to the Poret Survey as additional proof of his general point
that the core assumption that all Weeks Estimator sales were attributable to false advertising was
incorrect. For reasons elaborated below, while Dr. Ugone is likely correct that not each and
every Weeks Estimator purchaser was misled by the false advertising, the Poret Survey is not
intended to be used and cannot fairly be used to project how many actual buyers were deceived.
Ultimately, given that every purchaser and retailer was exposed to intentionally
misleading advertising about the key differentiating feature of the Product, and that SPD's
proffered evidence pointing to other reasons consumers might have purchased the Product is
speculative, Dr. Bell's decision to begin his calculation by including all sales of the Weeks
Estimator was entirely reasonable. Indeed, based on all of the evidence presented at trial
including the Court's credibility assessments, the Court finds this was the most reasonable
assumption.
2.
The Alternative Assumption Presented by Dr. Ugone
As mentioned above, in addition to criticizing Dr. Bell's analysis, Dr. Ugone offers his
own lost profits analysis. Dr. Ugone also utilizes the market share allocation approach. Ugone
DT ~ 69-71. However, although utilizing the same approach and the same data, Dr. Ugone
estimated C&D's lost profits a t _ , the discrepancy with Dr. Bell's conclusion driven
by two differences: (l) Dr. Ugone used results from the Poret Survey to attribute only 21.9% of
Product sales in the Launch Package and 17.3% of Product sales in the Revised Package to
SPD's false advertising; and (2) Dr. Ugone used a lower per-stick profit margin for First
Response. Id.
1~ 15, 86.
Dr. Ugone's application of the Poret Suvey assumes that it serves as a valid proxy for
tying false advertising to lost profits. This assumption is the single biggest driver of the
16
discrepancy between his proposed lost profits a w a r d ~ d Dr. Bell's proposed
lost profits award-$9,955,018-thus extensive analysis is warranted.
During the liability phase, the Court credited the Poret Survey in finding that both the
launch packaging and revised packaging were likely to deceive consumers. Mr. Poret had
conducted an "advertising comprehension survey" of women 18 to 49 years old who would use a
home pregnancy test it if they thought they might be pregnant-that is, of prospective
purchasers. The survey used the Product's packaging only, and not any other forms of
advertising, and simply asked respondents about the message the package they were shown
communicated to them. Respondents were classified as deceived only if they answered both that
the product estimates the number of weeks a woman is pregnant and that the product's estimate
is the same as a doctor's estimate of weeks pregnant. Liability Op. at *21.
Now in the damages phase, Dr. Ugone utilizes the minimum net deception rates from the
Poret Survey to assume that only 21.9% and 17.3% of Weeks Estimators sales during what he
described as the Launch Package period (August 2013 -June 2014) and Revised Package period
(June 2014- November 16, 2016), respectively, were attributable to SPD's false advertising.
Ugone DT 1,r 36.a, 47, 71 n.227; Tr. (Ugone) 381 :7-25.
Mr. Poret, who despite conducting hundreds of this type of survey said he has never
taken the position that the results could be used to predict the percentage of actual purchasers
who were deceived, Tr. (Poret) 181 :2-17, criticized Dr. Ugone's use of his survey for numerous
reasons. First, Poret noted that Dr. Ugone cannot treat prospective purchasers as if they were
actual purchasers. Poret RT ,r 6. For that reason, and as Dr. Ugone conceded at trial, it is
possible, however unlikely, that 100% of the actual purchasers of the Weeks Estimator could
have fallen within the 21.9% (or 17.3%) of prospective purchasers who were misled by the
packaging according to the Poret Survey. Second, Poret testified that his survey did not account
17
for the impact of non-package advertising. Poret RT ,r,r 7-8. And third, and most crucially, for a
variety of compelling reasons, Poret testified that his survey likely understates the degree of
deception among respondents. Poret RT ~,r 9-10. For example, the control package he used still
identified the product as the "Clearblue Advanced Pregnancy Test with Weeks Estimator," and
the inclusion of the term "weeks estimator" might have caused some respondents in the control
group to wrongly assume that the Product estimates the number of "weeks pregnant" as a doctor
would, even if another aspect of the control package attempted to clarify what the Product does.
Accordingly, even if it were proper to utilize his survey in the way Dr. Ugone does-which it is
not-the percentages used do not serve as a good proxy.
C&D moved to exclude SPD's use of the Peret Survey in this way through its "economic
causation" motion in limine, citing to a number of cases in which courts have rejected evidence
of infringement as evidence of damages. See, e.g., Adidas Am. Inc. v. Skechers U.S.A., Inc., No.
15-CV-l 741 (MAH), 2017 WL 3319190, at *28 (D. Or. Aug. 3, 2017) (finding no support in the
law for use of results from likelihood of confusion surveys to reduce trade dress infringer's
profits in disgorgement context); Brookstone, 920 F. Supp. 2d at 419-20, 429-30 (while not
presented with the question, court credited Poret's confusion survey but awarded lost profits
calculated based on all of infringing defendant's sales). SPD points to two decisions by Judge
Cote in which the court used survey res~lts to measure damages causation in the absence of
another reasonable estimate. But, in River Light
V. L.P. v. Lin & J International, Inc., a case in
which the defendant was found to have intentionally infringed on Tory Burch's trademark in
producing and selling counterfeit merchandise, Judge Cote accepted the plaintiffs' survey result
as a proxy for how many of the defendant's purchasers would have otherwise purchased
equivalent products from Tory Burch. No. 13-CV-3669 (DLC), 2015 WL 3916271, at *7-8
(S.D.N.Y. June 25, 2015). In this case, by contrast, Dr. Bell already offers an estimate for that
18
issue-C&D's market share. Accordingly; the survey in River Light is being put to use in a
different, and more defensible way. The opier case, Volkswagen Aktiengesellschaft v. Uptown
Motors, is inapposite because it focused solely on disgorgement, which involves a separate legal
test that places much of the burden on the defendant to argue for deductions. No. 91-CV-3447
(DLC), 1995 WL 605616 (S.D.N.Y. July 13, 1995); but see Simon & Schuster, Inc. v. Dove
Audio, Inc., 970 F. Supp. 279, 301-02 (S.D.N.Y. 1997) (awarding all of defendant's profits as
disgorgement despite plaintiff's deception survey).
In short, based on the evidence produced at trial including credibility assessments, the
Court finds that Dr. Ugone's assumption that the Poret Survey can serve as a proxy for the
impact that false advertising had on C&D's profits is not reasonable.
3.
Dr. Bell's Market Share Allocation and Criticisms
At the second step in Dr. Bell's lost profits calculation, he apportions the sales SPD made
I
of the Weeks Estimator to C&D according to its share of the market. This assumption-that
C&D would have realized this portion of the sales in the absence of the infringement-is another
aspect of his methodology criticized by Dr. Ugone. SPD argues that Dr. Bell failed to control for
a number of market factors unrelated to the Weeks Estimator, which he argues require the
conclusion that the Weeks Estimator had a bigger impact on other Clearblue products.
First, Dr. Bell and Dr. Ugone dispute whether the market share allocation approach
sufficiently controls for a number of external factors unrelated to the false advertising that might
have impacted First Response's sales. Dr. Ugone acknowledges that the market share allocation
approach does account for many factors unrelated to the advertising, and uses the same approach
himself. Nonetheless, he argues that Dr. Bell fails to adequately support his apportionment by
market share.
19
In an attempt to test his assumptioh that sales of the Weeks Estimator came at the
expense of the First Response sticks in an '.amount proportional to its market share, Dr. Bell
I
performed a regression analysis. Bell DT:126. Based on the results of his first regression
analysis, Dr. Bell concluded that the Weeks Estimator did not have a statistically significant
impact on the relative share of First Response. Id. 127. After Dr. Ugone lodged certain
criticisms of Dr. Bell's first regression analysis, Dr. Bell repeated the regression, this time
controlling for time, price, coupons, advertising, particular product withdrawals, and other
'
effects, and concluded that the Weeks Estimator sales actually took a disproportionately higher
amount of stick sales from First Response pregnancy tests than from other pregnancy tests. Id
128 & Appx. F & G. Accordingly, Dr. Bell stated that his calculations were, if anything, quite
conservative.
Dr. Ugone disputes the accuracy of the regression. He argues that other factors not
accounted for in Dr. Bell's regression, such as the instantly redeemable coupon ("IRC") SPD
implemented on the Clearblue analog product for almost the entire period over which C&D
claims damages, would have reduced First Response's market share. Ugone DT fl 65-67.
C&D's Wendy Bishop conceded that it was possible that IRC activity did impact First Response
sales. Tr. (Bishop) 93:2-22, 95:2-10, 9:f-5. And Dr. Bell conceded at trial that his regression
analysis did not have a specific control variable for Clearblue's instant redeemable coupon
("IRC") nor a specific control for the promotional activities of other market participants. Tr.
24:8-24. Nonetheless, given that pricing is reflected in the market share and that Dr. Bell's
regression began before the launch of the Weeks Estimator, any effect is largely baked into the
analysis. Id
SPD also attempts to use C&D's own expenditures, failures, and documents as proof that
a market share apportionment is unsupported. Dr. Ugone points to C&D's decreased marketing
'
20
expenses at the time of the launch of the Weeks Estimator and failed attempts at innovating its
own products as reasons that First Response sales were depressed. Ugone DT ,r 68. SPD also
points to a variety of internal C&D documents that it claims demonstrate that the Weeks
Estimator had a smaller impact on First Response than on other brands, including that it
cannibalized the sales of other Clearblue products. SPD FOF ,r 49. Dr. Ugone never attempted
to quantify the effect of these allegedly external market factors, arguing only. that an appropriate
adjustment would make "the numbers move a little bit." See Tr. (Ugone) 428:20--430:7.
Dr. Ugone's criticisms are atmospherically compelling in that they lay bare some of the
difficulties in finding a way to calculate the effect of the unlawful activity-SPD's false
advertising-while controlling for all o~er forces affecting market share. Nonetheless, these
criticisms are undermined by Dr. U gone' s own relianc~ on a market share allocation
methodology. Pricing and promotional data is accounted for in the market share data, see Tr.
(Ugone) 373:23-374:19; 378:2-13, even: if the specific Clearblue IRC was not controlled for in
Dr. Bell's regression analysis. Dr. Ugone does not quantify the alleged impact of the IRCs and
C&D's failures, nor does he make an adjustment to the market share. Tr. (Ugone) 371 :5-373:5.
Thus, while Dr. Ugone's criticisms at best demonstrate that Dr. Bell's regression is not perfect
proof that C&D would have been expected to maintain its market share in the absence of the
false advertising, the criticisms furnish no proof that C&D's market share would have declined
anyway.
Of course, the burden of defending his methodology remains on Plaintiff's expert, Dr.
I
Bell. But his regression does provide confirmation that his calculations are reasonable. In the
absence of complete information, courts have credited the application of a market share
allocation methodology because it inher~ntly accounts for a range of market factors. See BASF
Corp. v. Old World Trading Co. Inc., 41 F.3d 1081, 1094-95 (7th Cir. 1994) (crediting the
21
'
district court's market share allocation approach because it accounted for market factors
including price); Collins & Aikman Floan Coverings, Inc. v. Interface, Inc., No. 05-CV-0133HLM, 2009 WL 10669578, at *5-6 (N.D~ Ga. Jan. 8, 2009). This stands in marked contrast to
'
many of the cases SPD draws to the Co 's attention. For example, in American Home
•
I
Products Corp. v. Johnson & Johnson, artd in Pharmanetics, Inc. v. Aventis Pharmaceuticals,
l
Inc., the plaintiffs' experts were criticize~ for their reliance on the difference between the
I
projected sales and actual sales without apcounting for a number of other factors that might have
affected the straight "before and after" c~lculation. 682 F. Supp. 769, 771 (S.D.N.Y. 1988);
I
2005 WL 6000369, at *7-11 (E.D.N.C. May 4, 2005). Here, Dr. Bell did control for a number
I
I
of market factors, including pricing. Dr. .Ugone' s criticisms are insufficient in degree to
persuade the Court to reject Dr. Bell's reasonable market share apportionment. 4
4.
Dr. Bell's Per-Sti~k Profit Calculation and Criticisms
At the next step, Dr. Bell multiplled C&D's share of SPD's sales by the per-stick profits
I
of its own First Response brand test to arrive at estimated lost profits. SPD contends that Dr.
Bell used the wrong First Response per-~tick profit margin in calculating lost profits because he
'
did not deduct marketing expenses. Bo~ Dr. Bell and Dr. Ugone agreed that only incremental,
or variable, costs should be deducted wh~n calculating First Response's per stick profit margin,
Bell DT ,r 34; Ugone OT ,r 76, but they 4isagreed as to whether First Response marketing
'
expenses were incremental (and deducti?le) or fixed (and not deductible). Bell RT ,r,r 36-37;
Ugone DT ,r,r 76-82.
'
l
Dr. Bell conducted additional analysi~ to rule out that the Weeks Estimator's presence led to an overall
increase in pregnancy test sales, and to rule out the possibility that C&D would not have had sufficient
manufacturing and sales capacity to produce and sell additional sticks even if the Weeks Estimator had not existed.
Bell DT ff 29-33.
4
22
According to C&D, First Response's marketing budget is fixed annually, and would not
I
I
change because of a single-digit percentagr increase in First Response sales over the course of a
''
year or several years. Bishop DT fl 13-14; Bishop RT fl 2-3; Krall RT ,i,i 5-6. Dr. Bell
I
conceded that at a few points during the d~ages period, C&D would have set or reset its
marketing budget. Tr. (Bell) 27: 16-20. However, Dr. Bell argued that the sales increase he
I
calculated would have occurred but for th* Weeks Estimator---would not have triggered an
I
increase in marketing expenditures, given!that marketing expenses barely changed between 2012
and 2016 in spite of an
. See'.Bell RT 1137-40.
SPD insists that the fact that the marketing expenses changed at all between 2012 and
2016 suggests that the marketing expense~ are incremental, not fixed. Moreover, they cite
internal C&D analyses in which, when ev',aluating the impact of the Weeks Estimator on the First
Response market share, C&D measured lost profits in units of "marketing profit contribution,"
I
I
which Ms. Bishop confirmed were calculations that incorporated marketing expenses. See Krall
DT,I2; Tr. (Bishop) 131:1-6, 132:I0-2q.
Regardless of what the document$ and financial data show, the key issue in determining
whether marketing expenses are deducted from the lost profits calculations is whether C&D
would have spent more on advertising in,order to make the additional sales it would have made
.
absent the sales of the Weeks Estimator. 1 While the evidence offered cannot, and certainly does
I
not, definitively establish what C&D woµld have done, the relatively stagnant nature of
expenditures between 2012 and 2016 indicates that C&D would not have had to substantially
J
I
alter its marketing budget in order to sell the extra . o f First Response sticks. This stands in
r
marked contrast to a true incremental cost such as direct manufacturing costs, shipping costs, and
brokerage costs, which must increase as additional sales are made. Cf Nat'/ Presto Indus., Inc.
v. Black & Decker Inc., No. 89-CV-8978, 1992 WL 125559, at *5 (N.D. Ill. May 27, 1992)
23
(upholding the jury, s determination that advertising costs were fixed despite some evidence
I
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suggesting it was incremental). Accordi1gly, the per-stick profit margin Dr. Bell calculated and
uses in his lost profits analysis was reasohable. See Innovation Ventures, LLC v. Ultimate One
Distrib. Corp., 176 F. Supp. 3d 137, 161~62 (E.D.N.Y. 2016) (noting that testimony that
defendant's "advertising budget varies from year-to-year" does not support the position that
I
I
defendant "would have spent more adverpsing dollars to sell the amount of product lost to
counterfeiting" and endorsing Dr. Bell's ~ecision not to deduct marketing expenses).
I
5.
The Court's Findings as to the Parties' Lost Profits Arguments and
Assumptions
!
I
Ultimately, based on all evidence:presented at trial, including the Court's observations of
r
the testifying expert witnesses, and for.tlie reasons stated above, the methodology Dr. Bell
i
applies-first, including all Weeks Estimator sales as related to the false advertising, then
'
allocating those sales to C&D per its market share allocation, and finally calculating profits
''
based on the per-stick profit margin-is~ reasonable way to determine C&D's lost profits.
While it is likely that some consumers bought the Weeks Estimators for reasons
I
t
disconnected from the false advertising,~ SPD has not supported any one of these alternative
I
reasons, or even the totality of these oth~r reasons, with evidence sufficient to overcome the
evidence of the reasonableness of Dr. Bell's core market share assumption. SPD pervasively
falsely advertised the Product from its l~~nch, never advertised it in a truthful manner, and has
'I
not affirmatively offered any of its own ~ata regarding the number of purchasers who were not
I
!
I
1
5 As SPD reiterates to great effect in its1
post-trial briefing, Dr. Bell, Dr. Erdem, and Mr. Poret all conceded
that it likely the case that at least some sales of the Product were primarily motivated by a reason unconnected to the
false advertising. Tr. (Bell) 11: 18-21 (confirm~g he was not testifying "that every single person that bought the
Weeks Estimator bought it because of the adve11ising"); Tr. (Erdem) 204: 16-25 (agreeing he was "not giving the
testimony that every single person thought that tpe measurement [provided by the Weeks Estimator] was the same as
a doctor's"); Tr. (Poret) 163:9-24 (confirming ti:iat some respondents understood that the product gave a different
estimate than what a doctor provides). Dr. Bell ~lso admitted that an important part of a lost profits analysis is
figuring out to what extent the lost sales are attr,butable to the false advertising. Tr. (Bell) 16: 12-22.
I
24
deceived. Additionally, international sal~ C&D's internal documents showing concern with the
new produc~ and the Schoen Survey are tot compelling indicators that sales would have been
robust but for the false advertising, or that there would be a significant difference in the lost
I
;
profits calculation were Dr. Bell to more exactly "isolate the impact of the at-issue advertising,"
j
as Dr. Ugone put it. Ugone DT ,r 32. Th~ proxy that Dr. Ugone and SPD provide as a
,
I
I
measurement of the apportionment of C84D's lost profits that is attributable to the false
!
advertising-the percent deceived in the J>oret Survey-is too flawed an assumption for the
I
I
Court to adopt.
SPD's criticisms do not reveal
:
I
D), Bell's lost profits analysis to be mere "subjective
belief or unsupported speculation." Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 590
I
. I
(1993). Absent this degree of unreliability, any "other contentions that the assumptions are
I
unfounded go to the weight, not the adm~ssibility, of the testimony." Restivo v. Hessemann, 846
F.3d 547,577 (2d Cir. 2017) (quoting B~ucher v. US. Suzuki Motor Corp., 73 F.3d 18, 21 (2d
Cir. 1996)). For all the reasons provided· above, the Court finds Dr. Bell's testimony persuasive.
I
Dr. Bell's "formula is consistent with thir Circuit's accepted methodology for calculating lost
profits." Innovation Ventures, 176 F. Supp. 3d at 160; see also id at 162 (endorsing Dr. Bell's
I
lost profits calculation using a market shr allocation method) (citation omitted). And, most
crucially, because the false advertising p1
ertained to "the key feature that differentiates [the
Weeks Estimator] from the many other ~ome pregnancy tests on the market," Liability Op. at
*25, Dr. Bell's methodology and core a~sumptions are rendered that much more reasonable. 6
I
Accordingly, SPD's motion in limine ~o exclude Dr. Bell's testimony is denied as to his lost profits
analysis. Moreover, to the extent not addressed above, the Court denies all the reserved motions in limine-those
with respect to Dr. Erdem, Dr. Bell, Dr. Ugone, ~nd the so-called "economic causation" evidence--with respect to
the arguments impacting the lost profits analysi~ and calculations. As a whole, while the arguments the parties made
with support from expert witnesses varied in thc;'ir persuasiveness, per the broad discretion afforded to the Court
under Daubert and its progeny, all of the testimony was at least the product ofreliable principles and methods
reliably applied. See Amorgianos v. Nat'/ R.R. fassenger Corp., 303 F.3d 256, 265-09 (2d Cir. 2002).
6
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l
2s
D.
Disgorgement
Because the Court determines belo
that awarding disgorgement in addition to lost
profits would constitute impermissible ovQr-compensation, the Court merely summarizes the
I
evidence and arguments presented regarditg disgorgement.
C&D seeks to disgorge SPD's pro,ts gained from the sale of the Weeks Estimator. In
order to calculate SPD's profits, Dr. Bell Jtilized the
1
(Bell) 283:6-8; 284:1-3. Dr. Bell first re iewed SPD's financial data to determine the net sales
from the Product's launch through February
I
2017. Bell DT ~ 19 & App'x C. Dr. Bell!then multiplied the number of sticks SPD sold in a
given quarter by the per-stick sales price tor that quarter to find SPD's total revenues. Id. Dr.
Bell then deducted costs that SPD incurrdd to gain those revenues,
Bell DT ~~ 12-13, 18, 21 &
for the Product.
App'x E. Dr. Bell also deducted incremJntal costs
Ugone DT ~ 49.a.iii; C&D FOF
disgorgement as
I
~ 27. Ul~imately, Dr. Bell calculated SPD's profits available for
C&D
FOt 132.
SPD, through Dr. Ugone, attacker Dr. Bell's
methodology on
Dr. Bell used to determine SPD's
various grounds. Dr. U gone argued that the
revenues and costs of goods sold are not suitable for use in a disgorgement analysis because
11111
Ugone DT ~ 56.
26
II
I
I
Additionally, SPD argues that disg~rgement-which requires a finding of"willful
deceptiveness" 7-would only be available/for the profits from the Launch Packaging and related
I
advertising, but not with respect to the Revised Packaging. See SPD FOF 151 (citing Wood DT
I
I
118).
I
Instead, applying so-called "mana~ement accounting," Dr. Ugone used documentary
'
evidence to construct a profit and loss statFment for the Weeks Estimator. Ugone DT Dem. 10.
I
Dr. Ugone limited his calculations to the period during which the Launch Packaging was sold,
I
again utilized the Poret Survey as a proxifor isolating the impact of the false advertising, and
I
deducted various additional costs, including direct marketing, P&G distributor costs, and Swiss
I
truces. Id.
1147-49 & Dem. 11.
Ultimately, Dr. Ugone found that SPD actually suffered a loss
I
o ~ , meaning that there were no profits to disgorge. Ugone DT 1, 48-51 & Dem. 11.
E.
Motion to Reopen
As referenced above, C&D move9 post-trial to reopen the record for the purposes of
introducing evidence of the continued pu~lic display of advertising for the Weeks Estimator.
Dkt. No. 598. According to C&D, large, 1hanging posters advertising the Weeks Estimator with
I
an image of the front panel of the launchrpackage were spotted in numerous Walgreens stores in
I
Chicago, as well as in Colorado. Additi1nally, counsel indicated that Google searches were
I
I
turning up references touting the innovative features of the Weeks Estimator. C&D argues that
I
the additional false advertising heighten~ the need to award significant money damages in order
I
to deter this behavior in the future.
I
I
SPD does not dispute the factual!accuracy of C&D's evidence, but rejects its relevance,
I
arguing, inter alia, that the evidence is Jfthe same type the Court considered in rejecting C&D's
I
, 7~0 F.3d 247,261 (2d Cir. 2014) (citation omitted).
27
January 3, 2017 motion for contempt, and ~hat the content was created by third party retailers,
I
not SPD. Dkt. No. 603. C&D does not di~pute that SPD is not responsible for the advertising,
and insists that it is not arguing that SPD i~ violating the injunction, instead arguing that SPD's
I
I
failure to control the dissemination of the false advertising underscores the need for deterrence.
For the limited purpose ofbolstertjig C&D's argument for deterrence, the Court
I
GRANTS C&D's motion to reopen the tri~l record and admit evidence of the ongoing
dissemination of enjoined advertising. S~D has presented no reason why admission would
unduly prejudice them and the Court findJ none; accordingly, despite the limited utility of the
I
I
evidence, the Court exercises its discretior to admit Plaintiffs Exhibits 690-693. See Matthew
Bender & Co. v. W. Pub. Co., 158 F.3d 674,679 (2d Cir. 1998) eA district court's decision to
I
reopen the proof to allow a party to submit additional evidence is subject to its sound
I
I
discretion."); John v. Sotheby's, Inc., 858!F. Supp. 1283, 1288 (S.D.N.Y. 1994), aff'd, 52 F.3d
I
'
312 (2d Cir. 1995) (outlining the factors {or the court's consideration).
IV.
I
Conclusions of Law
I
Having made a factual finding that Dr. Bell's lost profits methodology and calculation are
I
I
reasonable, and having been unpersuade4 by SPD's proffered evidence to the contrary, the Court
I
now applies the applicable law to the fin~ings of fact.
I
A.
Lost Profits
When a plaintiff establishes a vidlation of the Lanham Act, it may be entitled, "subject to
I
I
the principles of equity," to recover "anir damages sustained by the plaintiff," i.e., lost profits. 15
I
U.S.C. § 11 l 7(a). But a plaintiff who establishes liability for false advertising "will be entitled
I
only to such damages as were caused by!the violation." Burndy, 748 F.2d at 771 (emphasis
I
added). A court may engage in "some ~egree of speculation" in determining the amount of
I
damages, but "causation must first be es~ablished." Id.
28
I
I
Beyond the parties' agreement tha~ this generic principle-that the plaintiff must show
I
1
that damages were caused by the violatioi,-governs, C&D and SPD present different
i
understandings of the extent to which a pl~intiffmust prove this causation.
According to C&D, Burndy merelt holds that a plaintiff is not entitled to recover
:
damages if it cannot prove it sustained any losses because of the false advertising, but that if
causation had already been established, plrintiff only need provide a "fair and reasonable"
estimate of its lost profits and may draw r~asonable (even crude) inferences to arrive at that
pf proving causation, C&D argues that a plaintiff must
estimate. C&D COL ,r,r 3, 8-9. In terms
I
prove a diversion of some sales from plai~tiffto defendant, essentially establishing "a nexus
I
between a competitor's false advertising I\Uld a diversion of sales," but "need not individually
I
prove every single buyer who was diverted to the false advertising competitor." See C&D COL
!
,r 9 (quoting 5 McCarthy on Trademarks Jmd Unfair Competition § 27:42 (5th ed.)).
I
SPD concedes that Burndy allows plaintiffs to engage in speculation, but argues that it
I
I
does not allow a court to speculate that all sales were caused by the false advertising where the
evidence shows otherwise. SPD COL ,r 9. Relying on various cases discussed below, SPD
I
'
emphasizes that the record must adequat~ly support the damages calculation. SPD argues that
•
I
I
I
C&D has failed to meet this burden.
I
The parties; seemingly large disa~eements regarding the law are actually those of
'
emphasis and interpretation; in reality, bpth sides agree that in order to recover lost profits, C&D
I
must prove that the violation-false adv~rtising--caused it damages, and then provide a
i
reasonable basis for the amount of dama~es.
While C&D argues that the Cou~t' s findings at the liability phase "easily support the
conclusion that SPD's false advertising ~aused First Response sales to divert to SPD," C&D
I
COL ,i 10, the Court was clear that the s~andard at the liability phase was "whether it is likely that
I
29
[defendant's] advertising has caused or wif l cause a loss of [plaintiffs] sales, not whether
[plaintiff] has come forward with specific ~vidence that [defendant's] ads actually resulted in
'
some definite loss of sales." Liability Op.Jat *25 (quoting Johnson & Johnson v. Carter1
Wallace, Inc., 631 F.2d 186, 190 (2d Cir. 1980))(emphasis added); see also id at *27.
I
I
Furthermore, while the Second Circuit qu~ted the Court's finding that C&D "lost sales on
I
account of [Defendant's] false advertising/t when the quoted phrase is placed within its original
context, it is clear that the Court only con{luded that C&D "established a logical causal
I
connection between SPD's false advertisi~g and its market harm that is sufficient to establish
I
I
SPD's liability," not that C&D had establjshed a "definite loss of sales." See Church & Dwight,
I
843 F.3d at 72 (alteration in original); Li~ility Op. at *27-28.
t
Nonetheless, despite the fact that C&D cannot simply rely on the findings at the liability
I
l
phase, the damages trial record before thq Court easily supports a finding that C&D is able to
establish sufficient causation for damagef as well. First Response and Clearblue are the two
I
leading brands on the competitive home pregnancy test kit market. Clearblue's new product, the
I
I
Weeks Estimator, however innovative, was falsely advertised to consumers and to retailers from
I
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I
its launch. As discussed at the liability phase, SPD clearly knew that consumers would wrongly
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assume the test measured pregnancy durition in a way a doctor would. Liability Op. at * 12.
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Plaintiffs market share decreased, whil~ Defendant's share increased. Id. at *26. Defendant's
'
other explanations for why consumers ~ould have purchased the Weeks Estimator, or not
purchased the First Response brand test~, do not overcome this evidence. And SPD's own
expert, Dr. Ugone, essentially concedes ~hat some lost profits are attributable to false advertising,
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offering his own core assumption in the lform of the Poret Survey.
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Accordingly, the actual dispute centers on the parties' vociferous argument over what is
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"reasonable." See Brookstone, 920 F. S\Jpp. 2d at 428 ("A plaintiff need only show that its
30
I
damages calculation is a 'fair and reasonable approximation' ofits lost profits." (quoting GTFM,
I
215 F. Supp. 2d at 305)). As discussed atjove, the Court's task is inherently equitable, and the
1
Plaintiffs burden one of reasonableness. ~ee supra Part II.
J
As both a factual and legal matted Dr. Bell's calculation is a fair and reasonable
I
approximation. First, as discussed at lenJth above, the Court finds his assumption that all market
share sales of the Weeks Estimator are at!ibutable to the false advertising is reasonable. SPD
offers no compelling evidence that the co~plete isolation of the effect of the false advertising, if
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even possible, would have made a big difference in calculating damages. Despite the numerous
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factual differences, comparison to Merck!Eprova AG v. Brookstone Pharmaceuticals, LLC,
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/
which both parties discuss at length, is illf,tructive. In Brookstone, the district court accepted a
t
lost profits calculation based upon all of aefendant's sales. 920 F. Supp. 2d at 428-30. Despite
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recognizing that some sales might have ~een diverted by the entrance into the market of another
'
competitor, the court, noting that "any d~ubts regarding the amount of damages must be resolved
I
against the infringer," still endorsed the plaintiffs calculation. Id. at 430 (quoting Victoria
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Cruises, Inc. v. Changjiang Cruise OverSeas Travel Co., 630 F. Supp. 2d 255,262 (E.D.N.Y.
I
2008) (alteration omitted)). While the Weeks Estimator was still a product consumers might
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potentially be interested in absent the falle advertising and un1ike the product in Brookstone, and
while the pregnancy test market is more istratified than the market in Brookstone, Dr. Bell's
I
market share allocation approach is also 1a more reasonable estimation that controls for more
t
external factors. As discussed above, thr "indicators" Dr. Ugone points to as proof that Dr.
Bell's core assumption is unfounded-the Schoen Survey, international sales, and C&D's
I
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I
internal documents-are not persuasive lenough for the Court to adopt an alternative
I
measurement like the Poret Survey as a rroxy for the impact of the false advertising.
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Second, Dr. Bell's market share apportionment is reasonable. In BASF Corp. v. Old
I
World Trading Co., the Seventh Circuit upheld a damages award in which the district court
found that Plaintiffs calculations of the shortfall from lost sales did not take into account that its
I
pricing policies drove away customers, artd that there was insufficient evidence to support
I
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Plaintiffs contention that it would have rhade all of Defendant's sales to the plaintiffs former
I
customers but for the false advertising. 4jl F.3d at 1086-87. The district court had concluded
fas
that the proper fix for this overstatement
to award the plaintiff its claimed lost profits
multiplied by its share of the antifreeze ~arket, see id at 1087, and the Court of Appeals,
I
recognizing that a district court has the a~thority to make a "reasonable estimate of the damage
based on relevant data,n endorsed the co4rt's use of a market share allocation methodology, id at
i
1093-95 (quotation omitted). Here, Dr. fell used a market share analysis and conducted a
I
regression to confirm that C&D could be; expected to have had a sales boost but for the false
advertising in proportion to its share oftle market. See C&D COL ,r 60 (explaining the district
court's methodology). Similarly, while iPD relies upon Koon Chun in criticizing Dr. Bell's
I
market share apportionment, the plainti1 in Koon Chun had argued that every sale by defendants
was a sale lost by the plaintiff despite "np evidence at trial that [plaintiff's] sales volume
I
declined" and the fact that the counterfe,\ hoisin sauce at issue was priced at about 10% less than
i
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the legitimate sauce, an unaccounted-fo1 external factor. Koon Chun Hing Kee Soy & Sauce
Factory, Ltd. v. Star Mark Mgmt, Inc., No. 04-CV-2293 (SMG), 2009 WL 5185808, at *2-3
I
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(E.D.N.Y. Dec. 23, 2009). Here, Dr. Bcll's market share allocation approach did account for
I
I
pricing differentials.
In sum, the case law is clear that when a plaintiff cannot prove a diversion of sales, or
t
does not account for clearly established bxtemal factors-such as the presence of other
I
competitors, pricing differentials, etc.-lthe plaintiff cannot recover its lost profits. See, e.g.,
I
32
Burndy, 748 F.2d at 773; Koon Chun, 2009 WL 5185808, at *3-4; Verisign, Inc. v. XYZ.com
I
LLC, 848 F.3d 292, 300-01 (4th Cir. 2019) (rejecting an expert's calculation because he failed to
I
I
f
account for other factors that could have xplained the drop-off in domain registrations after the
defendant's false advertising). Again, de~pite SPD's attempt to compare this case to the Second
[.
Circuit decision in Burndy affirming the district court's finding that the prevailing plaintiff did
I
:
not merit recovery oflost profits because1its evidence was "deficient," SPD COL at 17, here
I
there is sufficient evidence that C&D would have experienced additional sales at least in
I
proportion to its market share, and there is only limited and largely speculative evidence that
consumers still would have purchased th~ Weeks Estimator in the absence of the false packaging
and advertising. Cf Burndy, 748 F.2d at1770.
I
Courts are sensitive to the difficulty plaintiffs may have in establishing actual damages
with exactitude, and recognize that the Jlculation "necessarily involves a certain degree of
I
approximation and inference." Malletiefi v. Artex Creative Int'/ Corp., 687 F. Supp. 2d 347,357
I
(S.D.N.Y. 2010). In its discretion to fasl'.iion an equitable remedy in this situation, the Court
I
finds the assumptions and methodology br. Bell employs, while potentially inexact, are "fair and
I
reasonable." Accordingly, the Court awiirds C&D damages in the amount $9,955,018, which
I
reflects C&D's lost profits as reasonably calculated by Dr. Bell.
l
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B.
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Trebling Lost Profits
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Section 35 of the Lanham Act prpvides that "the court may enter judgment, according to
I
the circumstances of the case, for any sum above the amount found as actual damage, not
I
exceeding three times such amount."
11 U.S.C. § 117(a). Damages may be enhanced (i) to
l
"compensate the plaintiff for harm that is difficult to quantify," including for loss of goodwill,
I
and (ii) to deter future violations by a ddfendant whose violation was willful. Mobius Mgmt.
Sys., Inc. v. Fourth Dimensions Softwarr', Inc., 880 F. Supp. 1005, 1025-26 (S.D.N.Y. 1994).
,
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33
C&D argues that trebling is warran ed because SPD's false advertising of an innovative
feature likely increased Clearblue's brand quity and harmed C&D's brand equity and goodwill,
a harm that is not reflected in Dr. Bell's lo t profits calculation. C&D COL 175. Additionally,
in light of SPD's intentionally false advertjsing and "bad faith conduct," C&D argues that treble
'
damages are needed to deter SPD from fufher willful deception. Id. (citing Brookstone, 920 F.
j
Supp. 2d at 431; Mobius, 880 F. Supp. at 026).
The Court disagrees and will not arard treble damages. Whatever the "intangible" harm
caused by SPD's false advertising, the Cof1 finds that its award of nearly $10 million is both
'
adequate compensation to C&D for all h $ done and adequate deterrence against any future
I
false advertising by SPD. The cases C&P cites in support of trebling are inapposite. For
I
example, in Brookstone, the defendant irrlringed the plaintiff's product directly, attempting to
I
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link its cheaper products to the plaintiffs Imo re expense products, used false advertising to enter
I
the market, and engaged in egregious liti~ation tactics. See generally 920 F. Supp. 2d 404. In
Mobius, the actual damages calculated w!re quite modest, and thus the court found it necessary
I
to award treble damages of roughly $63,~00 in order to more fully compensate the plaintiffs for
the goodwill lost when defendant disparaked them, and to provide proper deterrence. 880 F.
Supp. at I 025-26. The facts here do no+uggest a similar need to enhance the Plaintiff's
compensation nor to deter the Defendant!
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C.
Disgorgement
I
Section 1 l l 7(a) of the Lanham 4ct, while allowing plaintiff to recover "defendant's
profits," explicitly states that monetary clamages are "subject to the principles of equity." While
l
the Lanham Act uses the word "and" in t.etween "defendant's profits" and "damages sustained
by the plaintiff," suggesting that a preva,.ling plaintiff may recover both its damages and
I
defendant's profits, it is also well-settle1 that both should not be awarded simultaneously if it
,
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34
would result in over-compensation. See 5 McCarthy on Trademarks and Unfair Competition§
30:73 (5th ed.). This is especially true in ases, as here, in which the plaintiffs lost profits and
the defendants' profits are based upon the same sales. See Polo Fashions, Inc. v. Extra Special
Prods., Inc., 1980 WL 30287, at *8 (S.D. .Y. Mar. 5, 1980). "A plaintiff seeking compensation
f
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for the same injury under different legal eories is of course only entitled to one recovery."
Indu Craft, Inc. v. Bank ofBaroda, 41 F.id 490, 497 (2d Cir. 1995). Accordingly, courts in this
district have often followed the Ninth Cirbuit's holding in Nintendo ofAmerica, that awarding
!
the disgorgement of the defendant's profi~s and plaintiffs own lost profits based on the same
'
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sales would constitute "an impermissibleldouble recovery.,, Victoria Cruises, 630 F. Supp. 2d at
264 (citing Nintendo ofAm., Inc. v. Dragbn Pacific Int'/, 40 F.3d 1007, 1010 (9th Cir. 1994));
'l
see also Restatement (Third) of Unfair Cbmpetition § 36 cmt. c (1995) (noting that "an award of
I
both profits and damages" may thus be "brohibited under the rule precluding double recovery for
the same loss."). C&D has made clear tJat it is not seeking both disgorgement and lost profits
I
remedies, but insists that it is entitled to ~lect the greater of the two. Reply COL at 1 (citing 3
I
Gilson on Trademarks§ 14.03 (2017)). However, C&D's election is not binding on this Court,
as disgorgement is an inherently equitab e remedy.
In defining the factors courts mu t consider before awarding disgorgement under the
Lanham Act, the Second Circuit include the "availability and adequacy of other remedies."
George Basch, 968 F.2d at 1540. In speking of adequacy, the Court considers the permissible
purposes of a disgorgement award: "(1) lo deter a willful wrongdoer from doing so again; (2) to
I
prevent the defendant's unjust enrichmeht; and (3) to compensate the plaintiff for harms caused
by the infringement." Merck Eprova AJ v. Gnosis S.p.A., 901 F. Supp. 2d 436,457 (S.D.N.Y.
I
2012) (citing George Basch, 968 F.2d a{ 1537-39) [hereafter, "Merck I"], aff'd 760 F.3d 247 (2d
I
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35
Cir. 2014) [hereafter, "Merck If']. The C urt considers in tum whether disgorgement is
warranted for purposes of additional com ensation or additional deterrence.
First, disgorgement is not warrant d here for compensatory purposes. "While damages
directly measure the plaintiffs loss, defeJdant's profits measure the defendant's gain. Thus, an
accounting may overcompensate for a pl.tntift's actual iajury and create a windfall judgment at
the defendant's expense." George Basch! 968 F.2d at 1540; accord BASF, 41 F.3d at 1096
("Equity did not require the district court/to award disgorgement, particularly after it awarded
I
damages equivalent to its calculation of tlaintiff's] losses."); Bracco Diagnostics, 627 F. Supp.
2d at 485 (finding that injunctive relief jd compensatory damages were "adequate and [could]
make the Plaintiff in this case whole with'.out the exceptional remedy of disgorgement"). As the
l
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Seventh Circuit stated in BASF, "disgorg~ment is most appropriate if damages are otherwise
I
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nominal." BASF, 41 F.3d at 1096. HereJ damages are not simply nominal, but rather significant.
I
The award is sufficient compensation, ,d the Court finds that additional monetary damages
would result in impermissible overcomptnsation.
Second, while disgorg~ment mig~t have been warranted for reasons of deterrence, the
I
Court also finds that the lost profits awrujd of nearly $10 million is adequate deterrence. The
j
Second Circuit has noted that disgorgemfnt is "rarely granted" and generally is "limited to
I
situations in which the defendant's profifs represent unjust enrichment derived from diversion of
I
business that clearly would otherwise j\,e gone to the plaintiff ... rather than [situations in
which the defendant] engaged simply in 1false advertising of the defendant's own product."
Burndy, 148 F.2d at 772. Here, Dr. Belj's measure oflost profits-which itself is initially based
upon SPD's revenues-is sufficient to rtctify SPD's unjust enrichment from the diversion of
business that would have otherwise gol to C&D, and no greater award is necessary for the
purposes of deterrence. SPD has complied with the Injunction, has been penalized by the
i
36
removal of the Product from the market a d by the lost profits award, and C&D has not offered
any persuasive rationale for why a lost pr, fits award of this magnitude would not sufficiently
deter SPD and other pregnancy test make s from complying with the requirements of the
Lanham Act in the future. SPD' s actions even if sufficient for a finding of willfulness, are a far
cry from the egregious conduct of the defi ndant in Merck I, upon which C&D relies. Cf Merck
I, 901 F. Supp. 2d at 458 (noting defend , t's "appalling" disdain for the law and context in
which defendant used false advertising to gain entry into the market in awarding full
I
disgorgement).
J
In sum, the Court finds that its a 1arding of lost profits, which is the most direct
I
measurement of the harm the false adve~ising has done to Plaintiff, is both sufficient
compensation and deterrence, and, thus, ~hat an additional award of disgorgement is not
I
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appropriate.
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D.
Puni~ive Damages, Fees,! Costs, and Interest
The Court also finds the award o{punitive damages under N.Y. Gen. Bus. Law§ 349, the
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deceptive practices statute under which C&D prevailed at the liability stage, Liability Op. at * 17
I
n.14, 28, 34, is unwarranted. New York law allows punitive damages where there is "clear,
unequivocal and convincing evidence th t [the defendant's] conduct was gross, involved high
moral culpability, and was aimed at the eneral public." Koch v. Greenberg, 14 F. Supp. 3d 247,
273,279 (S.D.N.Y. 2014), ajf'd, 626 F. [pp'x 335 (2d Cir. 2015). "New York state law sets an
exceptionally high bar for awarding pun tive damages, permitting them only when 'the
defendant's wrongdoing is not simply i tentional but evince[s] a high degree of moral turpitude
and demonstrate[s] such wanton dishon sty as to imply a criminal indifference to civil
obligations."' See Tiffany & Co. v. Casto Wholesale Corp., 127 F. Supp. 3d 241,261 (S.D.N.Y.
2015) (internal citation omitted). Howl er culpable SPD is for intentionally deceiving
I
37
consumers, the Court cannot conclude tha SPD's conduct is sufficiently egregious to merit
punitive damages.
Similarly, while attorney's fees ar available to a prevailing plaintiff in a Lanham Act
suit in "exceptional cases," 15 U.S.C. § 1 17(a), and when there is "evidence of fraud or bad
faith," Gordon & Breach Sci. Publishers .A. v. Am. Inst. of Physics, 166 F.3d 438,439 (2d Cir.
1999) (citation omitted), SPD's conduct i this litigation has not been sufficiently egregious to
justify the award of attorneys' fees. See eastie Boys v. Monster Energy Co., 112 F. Supp. 3d
31, 46-47 (S.D.N.Y. 2015) (noting that f\es are typically awarded "based on extreme
misconduct during litigation"). SPD's lit gation positions have been reasonable, and despite
1
C&D's credible arguments to the contrar and the new evidence it presents with its motion to
reopen the trial record, see C&D FOF ,, ~3-90; supra Part ILE, none of SPD's actions during
I
this litigation have risen to the level requting the award offees. Cf Brook.,tone, 920 F. Supp. 2d
at 433-34 (awarding fees where the testimony of witnesses was "nothing short of deliberately
misleading"). Many of the arguments
CtD makes were considered and rejected, albeit it under
a different standard, in the Court's July 2 6, 2017 Memorandum and Order denying C&D's
1
motion to hold SPD in contempt and for ~anctions. See Dkt. No. 475. This is not an
"exceptional case" and awarding attorneL fees is not appropriate.
Because the Court does not find lis to be an "exceptional case," C&D is also not entitled
I
to prejudgment interest. Am. Honda Mo}or Co. v. Two Wheel Corp., 918 F.2d 1060, 1064 (2d
Cir. 1990) ("Although Section 11 I 7(a) ~oes not provide for prejudgment interest, such an award
is within the discretion of the trial court rnd is normally reserved for 'exceptional' cases.").
38
V. Conclusion
For the foregoing reasons, the Co rt enters judgment in favor of Plaintiff Church &
Dwight in the amount of $9,955,018. Th Clerk of Court is respectfully directed to enter
judgment and close the case.
This Order resolves Dkt. Nos. 49 , 500, 506, 509, 588,591,594, and 597.
As explained in the concurrently led Order, this Opinion and Order will be temporarily
filed under seal. After determining whic , if any, portions of the Opinion and Order should be
redacted, the Court will file the Opinion
d Order on the public docket.
SO ORDERED.
Dated: August " ' " ' , 2018
New York, New York
United States District ~udge
39
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