A New York federal court adopted a “market share allocation” approach to calculate the damages and awarded almost $10 million in a false advertising suit brought by one pregnancy test manufacturer against another.

In 2013, Swiss Precision Diagnostics GmbH (SPD) launched a new line of Clearblue pregnancy tests with a “Weeks Estimator.” In addition to informing a woman if she was pregnant, the test was designed to estimate the number of weeks that had passed since she last ovulated.

Competitor Church & Dwight (C&D) filed a false advertising suit alleging that in addition to statements in TV and website ads such as “It’s like two tests in one!,” “Pregnant 1–2 Weeks,” “Pregnant 2–3 Weeks” or “Pregnant 3+ Weeks,” the name of the product itself—“Advanced Pregnancy Test With Weeks Estimator”—was deceptive.

According to C&D, the claims communicated to women that the Weeks Estimator could tell them how many weeks they had been pregnant, based on their last day of ovulation. But the medical profession does not measure pregnancy by reference to the time of ovulation, C&D argued. Instead, the measurement is based on the “universally accepted convention” that pregnancy begins at the time the woman’s last menstrual period starts—typically two weeks prior to ovulation.

SPD moved to dismiss the suit on pre-emption grounds, pointing to Food and Drug Administration regulations and the Food, Drug, and Cosmetic Act. But U.S. District Court Judge Alison J. Nathan denied the motion in 2014.

Following a bench trial on liability in 2015, the court found that SPD engaged in false advertising in violation of the Lanham Act and that C&D was entitled to a permanent injunction. 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,” the court wrote. “Rather than clarify its product advertising, SPD’s staff sought to exploit the confusion.”

The U.S. Court of Appeals for the Second Circuit affirmed the court’s liability decision in 2016. A three-day bench trial on damages was conducted in December 2017, and after testimony from 12 witnesses and the entry of approximately 680 exhibits from both parties, Judge Nathan entered judgment in the amount of $9,955,018.

Both sides used a “market share allocation” approach to calculate C&D’s lost profits. The plaintiff’s expert first determined how many Weeks Estimator sticks were sold by SPD throughout the damages period and then decided how many of those sales at retail would have gone to C&D’s competing pregnancy sticks had the Weeks Estimator not been sold.

The expert assumed that sales of the Weeks Estimator impacted sales of C&D’s product proportionally to its relative share of the pregnancy test stick market for each quarter, an assumption the expert said was confirmed by a regression analysis. He then multiplied the share per quarter by the number of Weeks Estimator sticks sold each quarter and by C&D’s per-stick incremental profit margin. The total for these calculations: $9,955,018.

Judge Nathan rejected SPD’s suggested damages award (and redacted the amount in the opinion). While the defendant’s expert agreed that a market share allocation was the best approach, he criticized the plaintiff’s expert at each step of the analysis.

The court was persuaded that the assumptions made by the plaintiff’s expert were reasonable and adopted his recommended damages.

“[T]his 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,” the court wrote. “It was also reasonable because the evidence suggesting that some subset of consumers were unaffected by the advertising was not persuasive.”

While it is likely that some consumers bought the Weeks Estimator for reasons disconnected from the false advertising, “SPD has not supported any one of these alternative reasons, or even the totality of these other reasons, with evidence sufficient to overcome the evidence of the reasonableness of [the plaintiff’s expert’s] core market share assumption,” the court added. “SPD pervasively falsely advertised the Product from its launch, never advertised it in a truthful manner, and has not affirmatively offered any of its own data regarding the number of purchasers who were not deceived.”

However, Judge Nathan declined to treble C&D’s damages, finding that the “award of nearly $10 million is both adequate compensation to C&D for all harm done and adequate deterrence against any future false advertising by SPD.” Similarly, the court refused additional awards of disgorgement, punitive damages under New York law, attorneys’ fees or interest, holding that SPD’s conduct was not an “exceptional case” or “sufficiently egregious” to justify such awards.

To read the opinion and order in Church & Dwight, Co. v. SPD Swiss Precision Diagnostics GmbH, click here.

Why it matters: The decision highlights the potential costs of false advertising, which include the more than four years of litigation expenses for pretrial motions, trials and an appeal, and almost $10 million in damages.