Watkins Incorporated v. McCormick and Company, Incorporated

Background

Watkins alleged that McCormick engaged in false advertising under the Lanham Act by reducing the amount of pepper in its black-pepper tins without changing the tins’ dimensions. McCormick reduced its small tin from two ounces to 1.5 ounces, its medium tin from four ounces to three ounces, and its large tin from eight ounces to six ounces, while keeping the tin prices and dimensions unchanged. Watkins contended that consumers relied on the tins’ size and were misled into believing that Watkins’s and McCormick’s tins contained the same amount of pepper. According to Watkins, this made McCormick’s products appear significantly cheaper and diverted sales.

Watkins tested its black pepper at about 500 Walmart stores in 2015. Walmart later removed the product, citing sales below expectations. Watkins alleged that McCormick’s pricing and packaging contributed to the poor test results and prevented Walmart from expanding Watkins’s distribution. Watkins’s remaining claims included Lanham Act claims and three state unfair-trade-practices claims. Watkins sought money damages, McCormick’s profits, and an injunction.

Motions and legal standards

McCormick moved to exclude the testimony of Watkins’s damages expert, Donald Alan Gorowsky, under Federal Rule of Evidence 702 and to obtain summary judgment under Federal Rule of Civil Procedure 56. Summary judgment is appropriate when there is no genuine dispute about a material fact and the moving party is entitled to judgment as a matter of law.

The parties focused on the injury-and-causation element of Watkins’s Lanham Act false-advertising claim. The court explained that a Lanham Act false-advertising plaintiff must show, among other things, a false commercial statement, actual or likely deception, materiality, use in interstate commerce, and injury or likely injury caused by the statement. The court noted that Watkins’s state-law claims mirrored its Lanham Act claim, so the same factual and legal issues would resolve those claims as well.

Expert testimony

Gorowsky offered three damages opinions: lost profits during the Walmart test, projected lost profits from 2015 through 2020 if Walmart had expanded distribution, and McCormick’s profits from the reduced-volume tins.

The court denied McCormick’s motion to exclude all three opinions. For the test-period lost profits, the court found that Watkins’s and Walmart’s independently prepared business projections supplied a reasonable basis because they were created in the ordinary course of business and Gorowsky reviewed documents, considered market conditions, and interviewed employees. McCormick could challenge the projections on cross-examination, but those challenges concerned credibility rather than admissibility.

For the post-test lost-profit opinion, Gorowsky used Watkins’s vanilla-extract sales as a comparison, or “yardstick,” to estimate what might have happened if Walmart had expanded the black-pepper distribution. The court found sufficient similarities between the products and their Walmart tests to allow the testimony, while recognizing that McCormick could challenge the comparison’s credibility at trial.

For the disgorgement opinion, the court held that Watkins did not need to prove that McCormick’s profits were directly diverted from Watkins’s sales or that every dollar of McCormick’s profits was attributable to the alleged deception in order to present the claim. The court concluded that Gorowsky had properly calculated McCormick’s sales during the relevant period. McCormick could contest the calculation or attempt to prove that some sales were unrelated to the alleged violation. The court also rejected McCormick’s argument under Rule 403, which permits exclusion when evidence’s probative value is substantially outweighed by risks such as unfair prejudice, confusion, or misleading the jury.

Summary judgment

The court denied summary judgment on Watkins’s money-damages theory because the evidence created factual disputes about injury and causation. Watkins relied on a consumer survey indicating that McCormick’s reduced-volume tins likely deceived consumers and that the deception was material to purchasing decisions. Watkins also relied on expert testimony about lost sales during and after the Walmart test. The court found that this evidence created a triable issue about whether Watkins suffered injury.

The court also found a factual dispute about causation. Although Walmart attributed the failed test to lower-than-expected sales and had warned Watkins that its prices were high, the court stated that McCormick’s conduct could have made Watkins’s tins appear even more expensive by comparison. Evidence that McCormick was Watkins’s primary competitor, that McCormick’s tins contained less pepper and cost less per tin, and that consumers may have been misled by the comparative prices supported Watkins’s causation theory.

For disgorgement of profits, the court held that the Lanham Act required neither proof that McCormick diverted sales from Watkins nor proof that McCormick’s profits were attributable to the alleged false advertising. Once a plaintiff with statutory standing shows injury, the plaintiff need only prove the defendant’s sales of the allegedly falsely advertised products; the defendant may then prove costs, deductions, or that some profits were not earned because of the alleged violation. The court denied summary judgment on Watkins’s disgorgement theory.

McCormick did not separately address injunctive relief, but appeared to include it in its request for summary judgment on all claims. The court found that Watkins had met its burden to show injury or likely injury and a causal link for purposes of injunctive relief, so those claims would go forward.

Disposition

Judge David S. Doty denied McCormick’s motion to exclude Donald Alan Gorowsky’s expert testimony and denied McCormick’s motion for summary judgment. The order did not enter final judgment on Watkins’s remaining claims.