In a court battle between the makers of the nation's leading sugar substitutes -- Equal and Splenda -- a federal judge has ruled that a jury must decide whether Splenda is misleading consumers by claiming in its ads and on its packaging that the product is "made from sugar so it tastes like sugar."
In her 64-page opinion in Merisant Co. v. McNeil Nutritionals, U.S. District Judge Gene E.K. Pratter refused to dismiss the suit on summary judgment after rejecting a defense argument that Splenda's claim is literally true.
"Merisant has offered evidence that could permit a trier of fact to conclude that McNeil intended to manipulate impermissibly the public's opinion as to Splenda's characteristics," Pratter wrote.
Pratter's opinion sets the stage for a two-week trial scheduled to begin in April that promises to be a battle of the experts, including a neurobiologist who will testify about the biology of sweet tastes.
In her lengthy opinion, Pratter tackled a wide range of complex questions, often framing the issues for trial, and both sides won some significant rulings in their favor.
Most notably, Pratter denied motions from both sides that challenged expert witnesses, and rejected a defense argument that Merisant had waited too long to sue and that its claims should therefore be barred under the doctrine of laches. Because that laches defense hinges on disputed facts, Pratter said, the jury must decide the issue.
In the suit, Merisant, the maker of both Equal and NutraSweet, claims that McNeil is violating the Lanham Act with a marketing campaign that falsely suggests that Splenda is "natural" and contains sugar.
Since September 2000, the suit says, all television commercials and print advertisements for Splenda have included the tagline "made from sugar so it tastes like sugar" or "Splenda tastes like sugar because it's made from sugar."
The suit says those claims are literally false because the sugar used to make Splenda is chemically modified, and its sweet taste comes from other ingredients.
According to court papers, Splenda is made through a process that begins with sucrose, and then replaces three of eight hydroxyl groupings on the sucrose molecule with three chlorine atoms. The other ingredients in Splenda are maltodextrin and dextrose.
But McNeil insists that the statements that Splenda is "made from sugar" and "tastes like sugar" are in fact literally true, and that they cannot reasonably be perceived to mean that Splenda "contains" sugar or is a "natural" product.
In their motion to dismiss, McNeil's defense team -- attorneys Steven A. Zalesin, Jeffrey D. Rotenberg, Clay J. Pierce, Jennifer L. Higgins and Brian N. Lasky of Patterson Belknap Webb & Tyler in New York, along with Alfred W. Putnam Jr. and David J. Kessler of Drinker Biddle & Reath in Philadelphia -- waged a three-pronged attack on the suit.
First, they sought dismissal on the grounds that Merisant had waited too long to sue, arguing that McNeil has now spent more than $235 million on its marketing campaign and would suffer a serious setback if forced to abandon a tagline that is printed on all Splenda products.
The defense team also moved for a partial summary judgment, arguing that Merisant cannot prove its "implied falsity" claim, and urged Pratter to rule that Merisant is not entitled to damages in the form of disgorgement of McNeil's profits.
Merisant's lawyers not only challenged all of McNeil's arguments, but lodged a few offensives of their own, urging Pratter to bar McNeil from pursuing any defense under the doctrine of "unclean hands" and challenging McNeil's expert witnesses.
The plaintiff's team consists of attorneys Gregg F. LoCascio, Jeffrey G. Landis, Jonathan Daniel Brightbill, Karen M. Robinson and Thomas M. Monagan III of Kirkland & Ellis in Washington, D.C., along with Abraham C. Reich, Gregory B. Williams and Beth Lillian Domenick of Fox Rothschild in Philadelphia.
In its laches argument, McNeil argued that Merisant's investors and executives were aware of McNeil's "made from sugar" product positioning prior to the launch of Splenda in September 2000, yet Merisant waited until November 2004 before challenging McNeil in court.
Following Splenda's entry into the market, the defense team said, Equal's market share and profits fell steadily from 2000 to 2003, yet Merisant "did nothing whatsoever to try and stop McNeil's supposed misconduct for more than four years after the product's nationwide launch."
But Merisant insisted it had good reasons for the delay. Although it objected to Splenda's claims, it didn't yet have evidence to prove that consumers were confused. And since Splenda's marketing campaign was "in flux," it considered a lawsuit inappropriate.
Pratter concluded that both sides had valid points and that the jury should therefore resolve the factual disputes on which the laches defense hinges.
A four-year delay in bringing suit, Pratter said, can be "severely prejudicial" for a company that is in the midst of positioning a new product in a competitive market. But the jury could also accept Merisant's explanation for the delay, Pratter said.
"While McNeil contends that Merisant cannot idly sit by and wait to see whether Splenda would be successful before deciding whether to sue, there is a legitimate difference between waiting to see whether an advertising campaign would be successful and waiting to see whether the same campaign would be misleading to consumers," Pratter wrote.
Both sides can take some comfort in Pratter's remarks on the laches issue.
In Merisant's favor is the judge's comment that "the court does not see that a company is bound to rush to court immediately upon becoming aware of a competitor's potentially misleading advertising claim, on the assumption that such advertising may cause injury to it or the public interest."
Pratter also said "there is some credence to Merisant's argument that before a product is launched, and even in the early stages of developing, advertising and marketing a product, it would be difficult (if not impossible) to determine whether a certain aspect of a product's advertising would engender actual confusion among consumers."
But McNeil's defense team could find encouraging Pratter's next remark: "If, on the other hand, the facts reveal that McNeil simply succeeded in creating a revolutionary, highly lucrative marketing strategy, and Merisant only chose to sue McNeil once Merisant saw that McNeil's strategy was clearly successful, then a laches defense is appropriate."
On the issue of damages, Pratter refused to rule out the possibility that Merisant may be entitled to a "disgorgement" of McNeil's profits.
Merisant claims that it will incur lost profits of $24 million as a result of McNeil's allegedly false advertising and that McNeil will realize approximately $20.1 million in profits on sales allegedly diverted from Merisant by virtue of this conduct.
The suit seeks to recover $176.1 million in profits that McNeil is alleged to have earned from all sources through 2006 as a result of its advertising.
But defense lawyers argued that an accounting of profits was neither equitable nor appropriate because it would result in a windfall to Merisant, and because it raises the risk of multiple recovery against McNeil from other lawsuits.
In the false advertising context, McNeil argued, an accounting of profits is appropriate only when the subject advertisement specifically targets the plaintiff.
But Pratter again found that the issue hinged on facts that will be decided by the jury.
"Merisant has alleged that McNeil intended to deceive the public, and that through McNeil's alleged misconduct, Merisant's sales have been diverted. These allegations, if somehow proven, would mitigate in favor of disgorging McNeil's profits," Pratter wrote.
"Of course, McNeil aggressively disputes these allegations, and none of these issues have been yet decided by a trier of fact. As such, these are highly contested disputes of material facts that preclude the court from granting summary judgment on this issue," Pratter wrote.
Both sides also lost their motions to bar the other side's expert witness.
McNeil argued that Merisant's expert in marketing strategy is an improper "expert" because he won't offer any testimony "requiring scientific, technical, or specialized knowledge," and his opinions on "brand positioning" are matters that the jury is capable of undertaking on its own.
Pratter disagreed, saying McNeil "does not cite a case where a court has excluded a 'marketing' expert on the grounds that his 'specialized knowledge' is so ordinary that it would be superfluous."
But Pratter also rejected Merisant's motion to bar the testimony of a neurobiologist who will testify for McNeil on the issue of "the interaction between the specific chemical construction of sucralose and the human sweet taste receptor."
Merisant said it intends to call an expert chemist who will testify that the phrase "made from sugar so it tastes like sugar" is scientifically inaccurate and literally false because Splenda's sweet taste does not result from its sugar origins.
McNeil's expert should be barred, Merisant said, because he will testify only about whether Splenda does taste like sugar, but cannot address some of the chemical issues.
But Pratter said the fact that the two experts view the issue from "different scientific disciplines" was no reason to bar McNeil's expert.
"Merisant approaches this issue from the standpoint of sucralose's chemical composition while McNeil focuses on the biological reaction when sucralose or sugar interacts with the tongue," Pratter wrote. "Presumably, these are intentional, strategic positions that each party has adopted. Each approach invites the opportunity for an expert to provide testimony either for or against it."
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