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The first opinion granted PBM’s motion for judgment as a matter of law on Mead Johnson’s Lanham Act counterclaim, which challenged PBM’s comparative advertising label on its formula (“Compare to Enfamil Lipil”).  Mead Johnson contended that “PBM’s ‘compare to’ ad impliedly communicates the false message that the performance of PBM’s products has been tested and verified and is equivalent to Mead Johnson’s counterpart formulas and that the parties’ formulas are ‘identical in composition.’” 

Applying by analogy Virginia’s two-year limitations period for fraud, Judge Spencer first ruled that the statute of limitations and laches barred Mead Johnson’s claim with respect to certain PBM formulas. 

Next, Judge Spencer ruled that Mead Johnson’s evidence that the “compare to” language was impliedly false failed as a matter of law.  Mead Johnson had relied on an expert witness and consumer survey evidence.  But the survey failed to define what a key term (“the same”) meant, leading Judge Spencer to conclude that it didn’t answer “the critical question … whether consumers understand the ‘compare to’ language to make the claim that the formulas are indeed ‘identical,’ not whether the ingredients are nearly the same, substantially the same, or any other gradation one could create.”  And “[b]y failing to account for the specific allegations in this case and consider obvious alternative explanations for the results, the surveys cannot provide the required evidence needed to prove implied falsity.  And without that evidence, Mead Johnson cannot prevail on its Lanham Act claim.”

Finally, Judge Spencer held that Mead Johnson could not prove damages because its economist offered no proof of causation.  Instead, the economist “assumed that every PBM sale made was attributable to the ‘compare to’ ad on the products and that PBM would not have made any other sales but for the ad.”

In the second opinion, Judge Spencer denied both Mead Johnson’s motion for a new damages trial or for remittitur and also PBM’s motion for enhanced damages and attorney’s fees. 

In its motion, Mead Johnson found several flaws with the expert witness PBM offered on damages.  Mead Johnson also argued that the verdict was excessive when compared with similar Lanham Act claims.  Judge Spencer found that Mead Johnson “failed to carry its heavy burden of proving that the verdict in this case was against the clear weight of the evidence or based on evidence that is false” and held the size of the verdict was not a miscarriage of justice, citing other Lanham Act cases and noting that PBM did not get the full amount of damages it sought.  In particular, Judge Spencer complimented PBM’s expert on having “used a reliable regression analysis that was based on relevant and appropriate data” and “explained why certain variables were included and why others were excluded.”  Acknowledging the criticism of PBM’s expert, Judge Spencer held that criticisms of an expert witness were not enough to undermine the verdict.  “That Mead Johnson and Dr. Gering would have done it differently does not place this verdict against the weight of the evidence or show that it was based on false evidence.”

PBM’s Motion argued that enhanced damages were needed for deterrence – pointing to what it described as Mead Johnson’s recalcitrant corporate culture, untenable positions at trial, and a high public interest in truth, particularly regarding baby formula – and to fully compensate PBM.  

Judge Spencer found no reason to award enhanced damages, concluding that PBM was not undercompensated and did not show intent to distribute false advertising.  Awarding enhanced damages, according to the Court, would tip the scale from compensation to an impermissible penalty.

Finally, Judge Spencer declined to award attorney’s fees.  The Court noted that the Fourth Circuit applies a somewhat higher standard than other circuits for the award of attorney’s fees – requiring proof of “bad faith” for a prevailing plaintiff (citing Scotch Whisky Ass’n v. Majestic Distilling Co., 958 F.2d 594, 599 (4th Cir. 1991), cert. denied, 506 U.S. 862 (1992)) and “something less than bad faith” for a prevailing defendant.  The Court concluded that PBM had not shown bad faith by clear and convincing evidence and that Mead Johnson had acted aggressively, but not egregiously.

            Following the link to the 2001 opinion, also by Judge Spencer, quickly begins to clear up the confusion.  Citing an unpublished 1994 Eastern District of Virginia opinion by Judge Cacheris (1994 U.S. Dist. LEXIS 20303) and a 1993 Fairfax County Circuit Court opinion by Judge Michael P. McWeeny (32 Va. Cir. 75), the 2001 opinion reaches the conclusions quoted above.  It makes clear, however, that what is at issue is “Virginia's narrow definition of common law unfair competition.”  204 F.R.D. at 74 (emphasis added).

            Further exploration of the authorities up the chain (a 1989 E.D. Va. opinion by Judge Ellis and a 1921 Supreme Court of Virginia case) confirm that what has happened – on both the federal and state level – is that legislatures have set forth what is prohibited, thereby displacing the common law’s efforts to address deceptive trade practices and false advertising through the rubric of unfair competition.  See Monoflo Int’l, Inc. v. Sahm, 726 F. Supp. 121, 127 (E.D. Va. 1989) (“there is no federal common law of unfair competition applicable here separate or apart from the Lanham Act and the judicial decisions construing that Act”); Benj. T. Crump Co. v. J. L. Lindsay, Inc., 130 Va. 144, 164, 107 S.E. 679, 685 (1921) (“we have a statute … which expressly authorizes the adoption of a form of advertisement … provides for the registration thereof, and makes it a misdemeanor for any other to counterfeit or imitate such form of advertisement, or to circulate any such imitation thereof.  The inference from the enactment of such a statute clearly is, that one who desires a monopoly of the precise form of his advertisements should take advantage of its provisions”).

            Indeed, Virginia has more than one statute that addresses false advertising (leaving aside industry-specific statutes).

            The Virginia Consumer Protection Act contains numerous advertising and trade practices provisions, including a prohibition on any “deception, fraud, false pretense, false promise, or misrepresentation in connection with a consumer transaction.”  Va. Code § 59.1-200. 

            Virginia’s criminal code (§ 18.2-216) makes it a Class 1 misdemeanor to, with commercial intent, “publish[], disseminate[], circulate[] or place[] before the public … an advertisement of any sort regarding merchandise, securities, service, land, lot or anything so offered to the public … contain[ing] any promise, assertion, representation or statement of fact which is untrue, deceptive or misleading, or us[ing] any other method, device or practice which is fraudulent, deceptive or misleading to induce the public to enter into any obligation.” 

            The General Assembly has explicitly created a private cause of action for “[a]ny person who suffers loss as the result of a violation of” that misdemeanor false advertising statute.  See Va. Code § 59.1-68.3 (allowing an action for damages or $100, whichever is greater, plus reasonable attorney’s fees for violation of Article 8 (§ 18.2-214 et seq.), Chapter 6 of Title 18.2).

            And last but not least, there’s the Virginia Trademark and Service Mark Act.  See Va. Code § 59.1-92.12.

            In sum, Virginia law offers more than one potential cause of action for deceptive trade practices, such as false advertising, but Judge Spencer’s PBM Products opinion is a good reminder that litigants need to be cognizant of the fact that this is an area of state law that is predominantly a matter of statutes, not common law.

In this case, PBM took aim at ad claims that “Only Enfamil has LIPIL®, our blend of DHA and ARA, important nutrients found in breast milk” and that it was an “En-Fact” that “Enfamil LIPIL’s unique formulation is not available in any store brand.” (DHA and ARA are lipids, types of fatty acids highly-touted for brain development and other nutritional value. LIPIL is Mead Johnson’s registered trademark for its blend of those lipids.)

As Judge Spencer explained in his May 7, 2009 Memorandum Opinion denying a TRO and preliminary injunction, Mead Johnson’s mailer goes on to say, “It may be tempting to try a less expensive store brand, but only Enfamil LIPIL is clinically proven to improve brain and eye development.” In noticeably smaller type, the footnote to that statement reads: “vs prior formulation of the same product without DHA and ARA, measured at 12 months for eye and 18 months for brain.” The mailer also has a graphic labeled “Visual acuity at 12 months.” The graphic is divided down the middle and contains a picture of a duck. One side of the picture looks blurry, while the other appears clear. Next to the blurry side are the words “without LIPIL®,” while the caption next to the clear side reads “with LIPIL®”.

The parties agreed that PBM’s formulas use the same level of the lipids and get them from the same supplier as Mead Johnson.

PBM sued for violations of the Lanham Act (15 U.S.C. 1125(a)(1)(A) & (B)) and commercial disparagement. Mead Johnson counterclaimed for breach of the settlement agreement in a prior lawsuit; defamation, trade libel, and product disparagement; violations of the Lanham Act, 15 U.S.C. § 1125(a)(1)(B), in PBM’s advertisements for its store brand formulas (which invite comparison to Enfamil); and civil contempt for violation of the sealing order in the prior lawsuit.

In his May opinion, Judge Spencer found that the statements at issue were not literally false. Certain counts on both sides later were dismissed, and the case went to trial, leading to the $13.5 million verdict for PBM. Mead Johnson can take some solace, however, in the fact that PBM had been seeking $60 million.

Stay tuned as the big business and litigation over feeding the littlest people continues.