Church & Dwight Co. v. Mayer Labs., Inc.

• Decision Date: 12 April 2012
• Docket Number: No. C–10–4429 EMC.,C–10–4429 EMC.
• Citation: 868 F.Supp.2d 876
• Court: U.S. District Court — Eastern District of California
• Parties: CHURCH & DWIGHT CO., INC., Plaintiff, v. MAYER LABORATORIES, INC., Defendants.

868 F.Supp.2d 876

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 planogram ¹ 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 summaryjudgment as to tortious interference with contract, and GRANTS the motion as to all other claims.

I. FACTUAL & PROCEDURAL BACKGROUND

The evidence submitted by the parties reflects as follows. Where there are factual disputes, they are so noted.

A. The Parties

Mayer Labs markets, distributes and sells latex male condoms. Second Amended Counterclaim (“SAC”) ¶¶ 15, 19. Mayer's business involves the marketing and sale of, inter alia, its Kimono brand of ultra-thin latex condoms. Id. ¶ 15. Kimono condoms have a retail market share in the United States of less than one-half of 1%. Silberman Report Ex. 1. Between 2001 and 2007, Mayer's market share increased from .31 % to .46%. Id. Starting in 2008, market share decreased to a low of .27% in 2009, and remained at .29% in 2010. Id. Its 2010 market share corresponds to annual revenue of $819,876.

Counterdefendant C & D manufactures and distributes, inter alia, Trojan and other brand-name condoms. C & D branded condoms now account for over 75% of all retail condom sales in the United States. Silberman Report Ex. 1. C & D's market share has steadily increased from its 2001 share of 67.2% (or $143,630,000 in annual revenues) to its 2010 share of 75.43% (or $210,086,934 in annual revenues). Id. Its market share has been over 50% since 1985. Wright Report Attachment 4.

The next largest condom brand is Durex, marketed by Reckitt Benckiser Group, with approximately 14% of sales as of 2010. Id. Attachment 8. Durex has maintained a steady market share of 14–15% since at least 2004. Id. The third largest brand is Lifestyles, marketed by Ansell Healthcare, with just under 10% market share as of 2012. Id. Its market share has ranged from a high of over 12% in 2004 to a low of 8% in 2008. Id. Together, condoms sold by the three largest companies account for over 99% of the nationwide market. Wright Report Attachment 8. Globally, Durex/Reckitt is the largest condom manufacturer with a 34% share of the global market, Lifestyles/Ansell is second with a 17% share, and Trojan/C & D is third with 11%. Wright Report at 35.

B. The U.S. Condom Industry

The vast majority of condoms in the United States are sold in one of three channels. First, the food, drug, and mass merchandiser channel, absent Wal–Mart (“FDMx”),² accounts for about 49% of the unit sales in the retail market. Wright Report Attachment 1. Second, Wal–Mart alone accounts for 33%. Id. Third, convenience stores (“c-stores”) account for 14.9%. Id. The remaining sales occur in club stores ( e.g., Costco) and dollar stores ( e.g., Dollar General). Id.

These channels differ somewhat in their pricing and sales structure. For example, drug stores tend to carry the largest variety of condom brands, and their retail prices are on average twice as high as the mass merchandiser channel. Martineau Federal Trade Commission (“FTC”) Depo., Mayer Ex. 1, at 38–40. C-stores tend to carry only one or two brands of condoms in three-unit packs due to limited shelf-space, and typically seek exclusive contract bids from manufacturers. Baseman Report at 18; Wright Report at 4. Club stores and dollar stores may also use exclusive contracts, and club stores tend to sell bulk packs only. Wright Report 55–56.

The parties dispute the extent to which there are barriers to entry in the retail condom market. Mayer claims that there are considerable barriers, including costs of FDA and state regulatory approval and compliance, production minimums, and retailer program participation fees. See, e.g., Baseman Report at 22–23; Wedel Decl. ¶¶ 15–19; Mayer Ex. 61. C & D argues that the FDA approval process is not overly rigorous and that the barriers to entry are not substantial. See Wright FTC Report at 14.

According to both parties, condoms are unique products that rely heavily on point of sale advertising because manufacturers face constraints in television and print advertising. In that respect, condoms are generally displayed on, and sold from, pegboards and shelves in one area of a store where consumers can quickly glance at them at once. The number and visibility of products available from a particular brand are therefore important in condom sales because of the private nature of the transaction and the speed by which buying decisions are made. Brand loyalty also plays a strong role in the industry, as 52% of customers will leave a store to find their preferred brand, while 48% will choose an alternative brand if their preferred brand is not available. Baseman Report at 6 n. 13.

At the point of sale, condom manufacturers compete for retail space and sales marketing in a variety of ways. For example, they may pay retailer slotting fees for each condom “facing” on the shelf.³ Baseman Report at 7–8; Wright Report at 58, 89. Manufacturers may front the costs of a certain amount of new product so that they, rather than the retailer, carry the risk of meager sales. Wright Report at 176. Retailers may require certain promotional budgets at manufacturer expense, including temporary price reductions ( i.e., short-term sales of a product in order to move inventory). Baseman Report at 7–8. Manufacturers can also offer promotional packages in order to secure premium shelf space at eye-level and/or on the left-hand side of the planogram. ⁴ Wright Report at 88–89. Besides placement in the primary condom section, manufacturers may negotiate for promotional or ongoing placement in endcaps (the shelves located at the end of each aisle) and sidecaps, as well as other locations within the store. Wright Report at 85–88. Manufacturers might also negotiate volume discounts, whereby retailers benefit from lower wholesale prices the more they purchase of that manufacturer's brand. Wright Report at 188. As noted above, some retailers also negotiate exclusive deals with condom manufacturers whereby the retailer carries only one brand....