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Source link: http://archive.mises.org/11152/the-battle-of-the-bottles/

The Battle of the Bottles

December 3, 2009 by

I love a dispute where both parties are wrong for slightly different reasons. It’s especially entertaining when the dispute is between two companies that produce infant formula.

PBM Products, which makes generic, store-brand formula, has spent the past decade suing its brand-name rival, Mead Johnson & Company, for false advertising. Mead Johnson produces formula under the Enfamil label. To thwart PBM’s lower-priced formula, Mead Johnson has hyped the alleged superior nutritional benefits of its product. PBM responded with lawyers. Lots and lots of lawyers.PBM’s first lawsuit, filed in 2000, was rewarded with a restraining order. Apparently, Mead Johnson scientists admitted on the stand that they were outright lying about alleged nutritional deficiencies of their competitors’ product. Mead Johnson claimed “store brand formulas fall short of recommended intakes,” referring to the U.S. Food and Drug Administration’s standards for infant formula content. (And honestly, if you can’t trust government bureaucrats to divine the correct composition of chemicals for your baby to ingest, who can you trust?)

After the first lawsuit was settled, Mead Johnson tried again to disparage its competitor, this time claiming store brand formula lacked certain “beneficial nucleotides” found only in Enfamil. Another lawsuit ensued, which was also settled.

Mead Johnson got a bit craftier after that. They trademarked a word, “LIPIL,” and used it to describe a nutrient supplement that’s added to the regular Enfamil formula. PBM uses the exact same supplement in its store brand formula. But Mead Johnson’s subsequent advertising that “Enfamil LIPIL’s unique formulation is not available in any store brand.” That’s only true to the extent that PBM doesn’t use the actual “LIPIL” trademark.

The overall tone of Mead Johnson’s subsequent advertising was that parents shouldn’t risk their child’s nutrition by using a cheaper formula. (Ignoring the fact that human milk, which is free, is nutritionally superior to any manufactured formula.) Mead Johnson cited “clinical evidence” that LIPIL improves brain and eye function in infants, and even used a graphic purporting to compare “visual acuity” between infants that were given LIPIL versus those who weren’t. Again, LIPIL was nothing more then a marketing name for a combination of nutrients found in PBM’s formula.

PBM filed a third lawsuit to stop this advertising, and following a jury trial last month, a federal judge in Richmond, Virginia, issued an injunction yesterday. He banned Mead Johnson from making the following statements in its advertising:

  • “It may be tempting to try a less expensive store brand, but only Enfamil LIPIL is clinically proven to improve brain and eye development”;
  • “There are plenty of other ways to save on baby expenses without cutting back on nutrition”;
  • “It may be tempting to try a less expensive store brand, but only Enfamil LIPIL is clinically proven to improve brain and eye development”;
  • “There are plenty of other ways to save on baby expenses without cutting back on nutrition.”

PBM sued under the federal Lanham Act, which prohibits “false and misleading representations” about goods and services, false descriptions and representations that “is likely to cause confusion” among consumers, and “commercial disparagement” of a competitor’s products. The jury found Mead Johnson violated the Lanham Act and recommended damages of $13.5 million to compensate for PBM’s “past and/or future lost profits” and “Mead Johnson’s unjust enrichment.”

Now this is where things get messy from a libertarian viewpoint. Nobody condones false advertising, but the state-created remedies here are just as unsatisfactory. After all, if consumers were misled by the false advertising, they should be the ones with standing to sue and collect damages.

The Lanham Act itself is problematic. It doesn’t just address false advertising; it creates federal trademark rights – such as the laughable LIPIL mark – and protects against such horrors as “trademark dilution.” As Stephan Kinsella has noted,

US trademark law is unconstitutional. While the US Constitution, to the extent it is legitimate and not just the de facto result of a successful coup d’etat, unwisely authorizes Congress to enact copyright and patent law, no provision is made for trademark law. Instead, trademark law is based on an unconstitutionally expanded reading of the Interstate Commerce clause.

In the PBM case, federal law has created a statutory “right” that goes far beyond any common-law prohibition against fraud. The company is entitled to monetary damages – based on a jury’s ex post view of what the market should have done – and state censorship of its competitor’s advertising. Yes, the competing ads may contain false statements, but the question here should be whether litigation is more effective then simply responding in-kind with your own advertising.

There’s also a paternalistic, almost misogynistic aspect to PBM’s litigation in that it assumes the company’s customers are emotionally hysterical women who can’t think for themselves. Consider these statements from PBM’s complaint:

  • “Mead Johnson’s false and misleading advertising campaign causes cost-conscious parents – a subset of consumers that is vulnerable in these difficult economic times – over the health, nutrition and development of their newborn infants…”
  • “The mothers who are deceived by the falsehoods…may not buy or feed PBM Store Brand Formulas to the infants, and they will likely disseminate Mead Johnson’s falsehoods to other mothers or expectant mothers in their peer groups.”
  • “The reputational injury to PBM will ripple through the market for years, expropriating sales from PBM Store Brand Formulas to Mead Johnson’s Enfamil LIPIL and coercing anxious parents into paying millions of dollars more than necessary for infant formula.”

All of these arguments, of course, could be turned against PBM, since the company markets a product to mothers where a free substitute – human milk – is generally available. Indeed, various statist groups like the World Health Organization have campaigned for years to limit, if not outright ban, all infant formula advertising on the grounds that it “coerces” idiotic mothers into using an inferior product. (Update: The United Kingdom actually bans most advertising of infant formula.)


anitab December 3, 2009 at 2:05 pm

I want to focus on one particular point you make here. Why is it that the damages, you ask, don’t go directly to these parents? Who is to say they won’t? There is currently one class action suit being brought in the state of California. It would be no surprise, and in fact expected, for news of this suit to bring more. We are talking about a price disparity of $600 per year between store brand and national brand formulas. The California suit is alleging that particular Mom was paying for national brands for a year and a half. So we’re talking $900 x however many Moms get involved. It seems to me that this could go on for some time and get pretty expensive…

Mike John December 17, 2009 at 1:45 am

Hey nice blog I was searching for some Animals articles and stopped here by consedince

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