CHURCH & DWIGHT CO. v. MAYER LABORATORIES, INC.
868 F.Supp.2d 876 (2012)
CHURCH & DWIGHT Co., INC., Plaintiff,
v.
MAYER LABORATORIES, INC., Defendants.
No. C-10-4429 EMC.
United States District Court, N.D. California.
April 12, 2012.
Carl W. Hittinger, Lesli Esposito, Matthew A. Goldberg, John Diawon Huh, DLA Piper US LLP, Philadelphia, PA, Jarod Michael Bona, DLA Piper US LLP, Minneapolis, MN, for Plaintiff.
Neil S. Cartusciello, Cartusciello and Associates PC, Mendham, NJ, Kristin Newman De La Vega, Anne Hiaring Hocking, Vijay K. Toke, Hiaring & Smith LLP, San Rafael, CA, Christian Jeffrey Keeney, Jeff S. Westerman, Milberg LLP, Los Angeles, CA, Paul F. Novak, Milberg LLP, Detroit, MI, Gary S. Snitow, Peggy Wedgworth, Milberg LLP, New York, NY, Azra Z. Mehdi, The Mehdi Firm, San Francisco, CA, Peter G.A. Safirstein, Morgan & Morgan, New York, NY, for Defendants.
ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT
EDWARD M. CHEN, District Judge.
Plaintiff/Counterdefendant Church & Dwight, Inc. ("C & D"), the maker of Trojan brand condoms, moves for summary judgment on Defendant/Counterclaimant Mayer Labs, Inc.'s ("Mayer's") counterclaims. Docket No. 187, 198 (redacted version). Mayer is the maker of Kimono brand condoms. The parties' primary dispute surrounds C & D's use of planogram1 agreements with condom retailers, whereby C & D offers a percentage rebate off its wholesale price in exchange for a retailer's commitment to devote a certain percentage of the condom shelf space to C & D products. Mayer alleges that C & D's planogram rebate ("POG") program operates to foreclose competition from vital retail display space and hence sales. Mayer also alleges that C & D has engaged in other anticompetitive conduct, including abusing its position as category captain for certain retailers to exclude its rivals from, or at least disadvantage them in, the condom retail market. Based on this and other alleged conduct, Mayer brought twelve counterclaims against C & D for purported violations §§ 1 and 2 of the Sherman Act, the Cartwright Act, the Lanham Act, and California unfair competition laws, as well as tort claims for tortious interference with contract and economic relations. The parties have engaged in over three years of hotly contested litigation. This Court previously denied C & D's motion to dismiss Mayer's counterclaims finding that Mayer's complaint raised viable claims of anticompetitive conduct potentially violative of the Sherman Act. See Docket No. 105; Church & Dwight Co., Inc. v. Mayer Laboratories, Inc., C-10-4029 EMC, 2011 WL 1225912 (N.D.Cal. Apr. 1, 2011). The parties have conducted extensive discovery of over 15 million pages of documents and dozens of depositions. Reply at 1. Documents submitted in conjunction with the parties' summary judgment briefing total over four thousand pages.
Despite this voluminous record, Mayer has been unable to proffer any direct, admissible evidence of retailers switching or removing rival condom brands from their shelves as a result of any coercive effect of C & D's planogram program. Nor has Mayer submitted any admissible evidence that C & D misused its category captain positions to the detriment of its rivals. Surprisingly, Mayer failed to take the deposition of — or obtain other direct evidence from — any retailer's employees or other third parties who might have testified to the supposed coercive, anticompetitive effect of C & D's conduct. Indeed, the only direct (and unrebutted) evidence from third party retailers indicates just the opposite: that the planogram program has little, if any, effect on retailers' shelf space allocations, and that C & D had no undue influence over retailers' decisions as category captain. Without any such direct evidence, the Court is left largely with Mayer's (and its experts') own theory based largely on a rough correlation between C & D's moderately increasing market share and Mayer's moderately decreasing market share.
Accordingly, having considered the parties' briefs, accompanying submissions, oral argument, and all evidence of record, the Court DENIES the motion for summary
judgment as to tortious interference with contract, and GRANTS the motion as to all other claims. I. FACTUAL & PROCEDURAL BACKGROUND
1. A planogram is "essentially a diagram showing where specific products are to be positioned in the space allotted by a retail store for a particular category of products." Second Amended Counterclaim ("SAC"), Docket No. 68, ¶ 6. The Court will refer to C & D's planogram rebate program as its POG program.
2. FMDx refers to all retailers in the FDM channel except Wal-Mart, while FDM refers to the entire channel including Wal-Mart. There is not as much data available on Wal-Mart's sales as for other retailers because Wal-Mart does not report to certain data-gathering companies.
3. A "facing" refers to one column of product seen on a retail shelf. For example, if a customer looks at a shelf and sees five boxes of a product sitting side by side, those are five "facings." Sometimes, a popular product may be "double faced" so that two columns are dedicated to the same product, thus ensuring twice the amount of in-store stock available for purchase.
4. C & D considers the left-hand side of a planogram to be the premium space. Mayer does not dispute this assessment.
5. It is undisputed that Wal-Mart has no POG contract with C & D. See Baseman Report at 12-13. However, Mayer's expert opines that Wal-Mart may be a de facto participant, based on certain internal C & D documents indicating that Wal-Mart dedicates a certain percentage of space to C & D. Id. However, C & D employees state unequivocally that Wal-Mart does not commit to the POG program, and C & D's charts do not list Wal-Mart as receiving a POG rebate. See Wright Report Attachment 11B. Instead, C & D lists Wal-Mart as receiving a 2.1% cash promotion and 21.1% promotional discount off of gross invoice. Id. This is similar to the lump-sum discounts allotted to other non-POG retailers, like Costco. Id. Mayer's expert also notes that C & D has sometimes negotiated discounts with Wal-Mart on the basis that Wal-Mart will add new C & D SKUs without subtracting others. Baseman Report at 14. Such negotiations are more akin to the promotional tools described above and employed by all manufacturers. In addition, none of Mayer's anecdotal evidence regarding its and other small manufacturers' dealings with Wal-Mart indicates that a shelf-space agreement with C & D was responsible for their difficulty getting a Wal-Mart deal. See, e.g., [Redacted] Decl. ¶¶ 106-07 ([Redacted] condom brand pitched Wal-Mart but was turned down because it was not a national brand); Mayer Depo. at 62-64 (Mayer pitched Wal-Mart but was turned down because it was not a national brand). The Court concludes Mayer has failed to raise a genuine issue of fact as to whether Wal-Mart has a POG contract — the record evidence establishes it does not.
6. Indeed, Mayer's counterclaim lists C & D's performance within the c-store chain and its exclusive contract with 7-Eleven as part of its antitrust claims, though it now seeks to exclude c-stores from the market entirely. See SAC ¶ 11.
7. This, of course, also begs the question whether consumers could avoid a price increase in the c-store channel by purchasing their products in the food, drug, or mass channels.
8. See Mayer Depo. at 166 (stating that c-stores' "pricing structure is such that we don't choose to compete.").
9. Although the Rebel Oil court conducts this analysis in the context of a § 2 attempted monopolization claim, it explicitly adopts the same analysis with respect to a § 1 claim. Rebel Oil, 51 F.3d at 1444 ("[F]or the same reasons that we stated in our analysis of Rebel's claim under Sherman Act § 2, Rebel's evidence is insufficient for a jury reasonably to conclude that ARCO possesses market power, or is dangerously close to obtaining it, under § 1.").
10. Flexibility in defining market powers seems particularly warranted in light of the fact, discussed below, that monopoly power — which is narrower than market power — may in some instances be inferred from dominant market share. The Court must examine the economic realities of the particular situation.
11. In Reynolds, the court rejected such a theory on the basis that other entities besides defendants had successfully competed for the same merchandising space, and some had also obtained space in excess of their market share. Id. Reynolds also considered the fact that many firms made concessions to retailers in order to secure their desired merchandising agreements as evidence that weighed against a finding of market power. Id. at 382.
12. C & D argues separately that the Ninth Circuit created a safe harbor for short duration contracts such as its planogram agreements. See Reply at 18 (citing Omega, 127 F.3d at 1163) ("[T]he short duration and easy terminability of these agreements negate substantially their potential to foreclose competition."). However, while Omega, like Allied, highlighted short duration as an element in favor of a challenged contract, it does not appear to create any safe harbor as a matter of law for such contracts.
13. Indeed, given Allied's and Omega's focus on potential alternative channels of distribution, the Court's focus on existing alternatives within retail stores is conservative. For example, CVS's buyer indicated that internet sales, on which the parties do not substantially focus, are a potential alternative channel that may be uniquely suited to small rivals attempting to gain a foothold in the market. See Martineau Depo. at 82 (indicating that she sometimes puts a new item on CVS.com to monitor its sales before deciding whether to carry it in the store); id. at 91-92 (indicating that a new condom product had received placement on CVS.com to evaluate its potential in-store sales).
14. For example, one could offer a 7% rebate on purchases above a certain level, rather than a 7% rebate on all purchases back to the first dollar once a retailer reaches a certain level.
15. In 2009, the lowest available tier was 70% of shelf space.
16. Meijer has a special contract to keep its 55% planogram participation, which is apparently not offered to other retailers.
17. SKU refers to a stock-keeping unit.
18. Moreover, C & D points out that in the case of Target, the reason for the aberration was its acceptance of a two brand strategy promoted by Durex, an event unconnected to the POG program.
19. Indeed, C & D supports its claim that Mayer's high prices are at least partially responsible for its limited success by offering evidence that its 2004 "buy-one-get-one-free" promotion at Longs quadrupled Mayer's sales. Wright Report at 132. In contrast, the record is replete with internal Mayer documents bemoaning the fact that buyers complain about high prices. See, e.g., Mayer Depo. at 174, C & D Exs. 44-51, 54-56.
20. Mr. Baseman seems to acknowledge the speculative nature of his foreclosure calculation, as he describes the foreclosure rate in terms of the percentage of retailers that were "likely incentivized" by the POG. Yet all discounts offered by competitors "likely incentivize" buyers to buy more of the discounted product. That is the point of discounts. The question is not whether the POG "likely incentivized" retailers to choose C & D products, but whether it foreclosed competition.
21. Indeed, the court even voiced concern that the "exclusive" contracts still did not foreclose competition because "Retailers generally carry manufacturers' products in these stores even though they do not have merchandising contracts in these stores. Furthermore, Plaintiffs are free to negotiate merchandising contracts with these stores." Id. at 390 n. 20.
22. 22% of C & D's sales derive from the c-store channel. Wright Report at 51. 28% of its sales derive from Wal-Mart. Wright Report Attachment 2. 1% of its sales derive from Sam's Club. Id. This leaves 49% of C & D revenues which derive from all other retailers, which the Court will label FDMx for simplicity's sake even though it also includes a small portion from dollar stores and club stores. Of those revenues in the FDMx channel, 90% of C & D's FDMx revenues derive from POG retailers. Thus, approximately 44.1% of C & D revenues (90 × 49) derive from POG participants. 44.1% (POG sales) + 22% (c-store sales) = 66.1% of C & D revenues that derive from some form of exclusive or semi-exclusive agreement.
23. 72% is the highest average shelf share, reflecting data from 2009. It is thus a high water mark for the POG program.
24. 60% is again a high water mark, as Mr. Wright calculates C & D's c-store market share at 50-60%.
25. 44.1% × 72% = 31.8%. 22%, × 60% = 13.2%. 31.8% + 13.2% = 45%.
26. 92% of FDMx sales are from POG retailers (Baseman Report Table 2) X 56.1% of condom market is FDMx retailers = 51.6% of the condom market that is POG retailers.
27. Wright Report Attachment 1.
28. This final method uses the data for revenue share to determine what percentage of the condom market is occupied by POG retailers and c-stores. Yet another alternative method would be to use the percentage of unit sales to calculate each segment's market share. These percentages are different because each channel uses somewhat different pricing (e.g., drugstores charge higher retail prices, so they have a greater revenue share than unit share in the condom market). Using unit share would arguably yield a more accurate rate for purposes of this case because it would calculate the total percentage of condom units sold that are attributable to the POG or c-stores. Under this method, 45% of the condom market is occupied by POG retailers. See Wright Report Attachment 1 (49% of unit sales are from FDMx retailers); Baseman Report Table 1 (92% of FDMx retailers are POG retailers). Since C & D contracts for an average shelf share of 72% in POG retailers, the foreclosure rate due to the POG would be 32.4%. In the c-store channel, c-stores account for 14.9% of condom unit sales. Wright Report Attachment 1. Since C & D has an average 60% share of the c-store channel, the foreclosure rate due to the c-store contracts would be 8.9%. Thus, the total foreclosure rate using this method would be 41.3%, lower than any of the above-calculated rates.
29. In its summary judgment papers, Mayer offered neither evidence nor argument to rebut C & D's contention that it labels its condoms "Made in Japan" because they are, in fact, made in Japan. Accordingly, the Court finds that Mayer has abandoned any claim against C & D based on the designation of certain condoms as "Made in Japan."