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Lg Electronics U.S.A., Inc., A Subsidiary of Lg Electronics, Inc v. Whirlpool Corporation

May 9, 2011

LG ELECTRONICS U.S.A., INC., A SUBSIDIARY OF LG ELECTRONICS, INC., A KOREAN COMPANY, PLAINTIFF,
v.
WHIRLPOOL CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Amy J. St. Eve, District Court Judge:

Hon. Amy J. St. Eve

MEMORANDUM OPINION AND ORDER

After an approximately three-week trial, a jury returned a verdict largely in favor of Defendant Whirlpool Corporation ("Whirlpool") and against Plaintiff LG Electronics U.S.A., Inc., ("LG"). Specifically, the jury found in favor of Whirlpool and against LG on LG's claim of false advertising under the Lanham Act. The jury also found in favor of Whirlpool and against LG on LG's claim under the Illinois Consumer Fraud and Deceptive Business Practices Act ("the CFA"). The jury did find in favor of LG and against Whirlpool on LG's claim under the Illinois Uniform Deceptive Trade Practices Act ("the IUDTPA"), which provides only for injunctive relief. 815 ILL. COMP. STAT. 510/3. The jury also specifically found that LG had failed to prove by a preponderance of the evidence that it was entitled to lost profits, price erosion, or to Defendant's profits. LG now seeks a nationwide injunction against Whirlpool based on the jury's verdict. For the reasons discussed below, the Court denies LG any injunctive relief.*fn1

BACKGROUND

LG brought this case against Whirlpool in connection with the latter's advertising of its steam dryers. LG sued Whirlpool for false advertising in violation of Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), regarding its steam dryers. LG's Lanham Act claim pursued three separate theories: 1) Whirlpool's advertisements are literally false; 2) Whirlpool's advertisements are literally false by necessary implication; and 3) Whirlpool's advertisements are impliedly false. In addition, LG brought a claim against Whirlpool alleging that it violated the CFA and a claim that it violated the IUDTPA. The gravamen of each of LG's claims was that Whirlpool uses the word "steam" in its advertisements and in the name of its Duet Steam Dryer, and that such use is literally false and misleading because the Duet Steam Dryer does not use steam, but instead uses a mist of cold water sprayed into a warm dryer drum. According to LG's theory at trial, this method is not "true steam" and thus Whirlpool's advertising is false and misleading. As noted above, the jury rejected all of LG's claims except its claim under the IUDTPA. Plaintiff premised its IUDTPA claim on the same evidence that the jury considered and rejected on its Lanham Act and CFA claims.

During trial, LG called 16 witnesses, including one witness via deposition testimony. Whirlpool called seven witnesses, including four witnesses by deposition testimony. LG called three expert witnesses to testify: 1) Anthony Jacobi, a thermodynamics expert; 2) Dr. MohanRao, LG's damages expert; and 3) Robert Reitter, LG's survey expert. Whirlpool called Dr. Subbaiah Malladi, a mechanical engineer, who opined that Whirlpool's dryer creates steam.

At the injunction hearing, LG submitted declarations from Dr. Rao; Dr. Jerry Wind, Professor of Marketing at the Wharton School of the University of Pennsylvania; and Mr. John Herring, Vice President of Sales for Home Appliances National Accounts who has responsibility for, among other products, LG's washer and dryer sales. (R. 641-1 at 1.) Whirlpool submitted a declaration from Pamela Klyn, who is the General Manager for Whirlpool Cooking for the North America region, but was the Product Development Director for Defendant's front-load washer and dryer platforms during the development of the Whirlpool steam dryer. (R. 644-19 at 2.) At the hearing, Mr. Herring testified for LG and Ms. Klyn testified for Whirlpool.

I. Steam Dryers

The dispute in this case focused on steam dryers and on the definition of steam. LG and Whirlpool are fierce competitors in the steam-dryer market. In fact, they are the main competitors in that market. LG asserted and argued throughout trial that Whirlpool's "steam" dryers do not actually employ steam, and thus Whirlpool's advertising of its "steam" dryer is false.

During trial, the evidence showed that Whirlpool announced its intention to launch its steam dryer in the fall of 2007. Whirlpool then introduced its steam dryer in the fall of 2007 and was the first company in the industry to market a steam dryer. (Trial Transcript "Tr." at 313; R. 641 at 30; R. 644 at 15.) Whirlpool developed the dryer to serve the needs of its laundry customers who wanted the benefits of wrinkle reduction and odor removal in the clothing placed in the dryer. (Id. at 2459.) Whirlpool also demonstrated that it began researching the use of steam in its laundry products as early as March of 2005. (Id. at 2460-61.) In fact, as of October 2006, Whirlpool had eight engineers committed to the steam project. (Id. at 2465-66.)

LG introduced its steam washer into the marketplace in early 2006. (Injunction Hearing Transcript ("Inj. Hr'g") at 7.) LG did not introduce its steam dryer into the marketplace until December 2007 -- two months after Whirlpool. (Id. at 14.)

II. The Dryers

The evidence at trial revealed that LG's and Whirlpool's respective steam dryers use different methods of creating steam. LG's dryer makes steam through an external boiler that boils water and then injects hot vapor into the dryer drum. As Professor Jacobi testified:

That steam goes through a tube and it's injected into the dryer drum. It enters the dryer drum, which is a cooler environment full of air, and it forms that kind of billowy white cloud that's something like what the teapot makes. (Tr. at 454.) The steam is injected into the dryer drum for a seven-minute cycle. (Id. at 458.)

Whirlpool designed its dryer to create steam through a system that injects a mist of water into a hot dryer drum, where the mist combines with the heated air and tumbling clothes to create steam. (Tr. at 328, 333, 364-65, 390-93, 641-42, 766-67, 2471-73). Ms. Klyn explained:

Water was automatically delivered to the dryer through the nozzle in the back, and the mist was combined with the heat from the dryer and created steam. (Tr. at 2472.) Dr. Malladi testified that the Whirlpool dryer drum attains a temperature far in excess of 212-degrees Fahrenheit, and even reaches close to 300-degrees Fahrenheit at times. (Id. at 1939.) Dr. Malladi opined:

Steam is created when the spray enters in the hot region -- some of it is entering a region where it's substantially higher than 212 degrees Fahrenheit and there is an evaporation and the resulting vapor is this elevated temperature.

And steam is also created by evaporation from heated substance; that is, the drum and, then, the clothing and also by the hot air in the dryer. (Tr. at 1940.)

LG's expert, Dr. Jacobi, opined that the Whirlpool dryer does not create or use scientific or thermodynamic steam which he defined as "pure water vapor." (Tr. at 451-52.) He did acknowledge, however, that the Whirlpool dryer contains "water vapor mixed with air." (Id. at 469.)

LG did not introduce any evidence that Whirlpool ever represented that it created steam in its dryers by boiling water. Further, LG did not introduce any evidence that Whirlpool ever advertised that the creation of steam in Whirlpool's steam dryer is similar to the creation of steam in LG's steam dryer.

III. Testimony Regarding Confusion in the Marketplace

LG also called Robert Reitter, the Senior Vice President of the consultancy Guideline, as an expert in consumer surveys. Mr. Reitter testified about a consumer survey he conducted using a Whirlpool advertisement referred to as the "Blue World commercial." The commercial advertised the Whirlpool Duet Steam Dryer. Although it informed consumers that the dryer created steam to reduce wrinkles and odors, it did not explain how the dryer created that steam. It is undisputed, however, that Whirlpool has not run that commercial for the past 18 to 24 months. (Inj. Hr'g at 30.)

Mr. Reitter testified that he conducted a survey of consumers in 12 market areas.*fn2 Reitter opined at trial that he found a "very distinct deception" in the Blue World commercial "in that it conveyed to people the idea that it is a hot steam that -- that takes place in the dryer and that does its work, rather than a mist of cold water that is heated by the regular action of the dryer." (Tr. at 1622.) Reitter did not conduct any surveys regarding whether consumers associate steam inside the dryer with boiled steam. Nor did he conduct any consumer surveys with respect to Whirlpool's other advertising, its promotional materials that consumers review on Whirlpool's website, its point of purchase materials in the showrooms where the dryers are sold, or its printed advertising. He also did not conduct any surveys of Whirlpool's advertising that describes how the Whirlpool dryer creates steam. (Tr. at 1659-60.)

Whirlpool's promotional materials and website explain how its dryer creates steam. (R. 644 at 20 (citing the pertinent parts of the record).) Kirk Dunsbergen, who was responsible for the design and development of Whirlpool's dryer, testified that Whirlpool, in its operator's manual and in print advertising, "tells the consumers that [it] spray[s] a fine mist of cold water into the hot air inside of the drum of the Whirlpool steam dryer." (Tr. at 333.) LG did not offer any evidence of actual confusion on the part of any of Whirlpool's customers.

IV. Jury Verdict

After the Court instructed the jury on the law pertaining to LG's Lanham Act, CFA, and IUDTPA claims, the jury returned general verdicts in favor of Defendant on the first two claims.

(R. 631 at 1-2.) Specifically, the jury found for Whirlpool on LG's claim of false advertising under the Lanham Act, and for Whirlpool on LG's claim that Whirlpool violated the CFA. The jury thus rejected LG's three theories that Whirlpool's advertisements are literally false, are literally false by necessary implication, or are impliedly false for the purpose of the Lanham Act.*fn3 (R. 629 at 23.) By finding for Whirlpool on the Illinois CFA claim, the jury also found that Plaintiff had failed to prove by a preponderance of the evidence that (1) Whirlpool engaged in a deceptive act or unfair practice; (2) Whirlpool intended for the consuming public to rely on the deception; (3) the deception occurred in the course of conduct involving trade or commerce;(4) LG sustained actual damages; or that (5) such damages were proximately caused by Whirlpool's deception. (R. 629 at 33.)

In addition, the jury addressed the monetary damages LG sought in the case. It rendered a verdict that LG had failed to prove by a preponderance of evidence that it is entitled to lost profits, price erosion, or Whirlpool's profits. (R. 631 at 3.)

The jury found for LG on its IUDTPA claim against Whirlpool.*fn4 (R. 631 at 2.) In so finding, the jury determined that Plaintiff had established by a preponderance of the evidence that Whirlpool (1) represented that goods or services have characteristics, uses, or benefits that they do not have; (2) represented that goods or services are of a particular standard, quality, or grade or that goods are a particular style or model, if they are of another; or (3) engaged in any other conduct [that] similarly creates a likelihood of confusion or misunderstanding." (R. 629 at36.) The jury, however, returned a general verdict, and so the jury did not explain the basis for its finding. See, e.g., Sanchez v. Miller, 792 F.2d 694, 701 n.11 (7th Cir. 1986) (observing that juries do not explain the basis of their verdict when they render general verdicts).

VI. Injunction Hearing

Following the jury verdict, LG filed a motion seeking a permanent injunction against Whirlpool's ongoing advertising of its dryers as using steam. (R. 640.) Plaintiff argues that the jury's finding of a violation of the IUDTPA requires "an injunction to bring Whirlpool's deceptive advertising practices to an end." (R. 641 at 10.)

The Court held an injunction hearing on February 17, 2011. (R. 661.) At the hearing, Plaintiff called John Herring, who joined LG in June 2006 and whom the company made Vice President of National Accounts in August 2009. (Inj. Hr'g at 5-6.) Mr. Herring, who has responsibility for, among other products, LG's washer and dryer sales, testified that LG launched its steam washer in early 2006 which put "LG on the map in terms of a major player in the appliance business." (Id. at 8.) He testified that "consumers buy washers and dryers together frequently, and front-load washers have a higher attachment rate or a higher likelihood the customer buys the washer and dryer together. And as the price goes up on the product, the likelihood that they buy a dryer and a washer together go up dramatically." (Id. at 12.) According to Herring, the introduction of the steam washer improved LG's sales of its dryers. In fact, Herring explained that, within a year of LG's launch of its steam washer, the company's market share had "virtually doubled in excess of 9 percent." (Id.)

Herring testified that Whirlpool launched its steam dryer around October 2007, and that LG followed with its own steam dryer in approximately December 2007. (Id. at 14.) He explained that LG was disappointed with the modest impact of its steam dryer on the company's position and market share, the latter of which grew by slightly over half a point. (Id. at 16.) Herring opined that Whirlpool's launching its steam dryer first explained LG's negligible gain in market share. (Id. at 17.) He then stated that Whirlpool's marketing of steam both reduced LG's price premium, thus impacting its profitability, and harmed Plaintiff's competitive position, brand equity, and goodwill. (Id. at 19-23.) In his opinion, Whirlpool's "deceptive" advertising that its dryers used "steam" caused consumers to purchase Whirlpool's dryers rather than LG's dryers. He explained:

And every time a consumer, you know, purchases a so-called steam dryer from Whirlpool, it's one less steam dryer opportunity that we have to sell, which we know we have extremely positive feedback from our customer through surveys, Net Promoter Scores. Consumers have high -- very high -- likelihood of repurchasing our product and recommending our product to family and friends. (Inj. Hr'g at 23.) Herring did not do any surveys of customers or interview any customers in preparation for his testimony. (Id. at 25.) Instead, his analysis was based on figures showing that, for "Dryer Market Shares 2006," LG's market share for steam washers was approximately 4.5% for summer 2006. (Id. at 12-13.) This figure doubled to in excess of 9% in summer 2007. (Id. at 13.) At the time Whirlpool launched its stream dryer in October 2007, LG's market share for all dryers was 7.97% and Whirlpool's was 32.04%.*fn5 (Id. at 26.) By December 2007, when LG launched its steam dryer, LG's market share of the same had gone up to 10.66% and Whirlpool's had increased to 34.51%. (Id.) By November 2008, Plaintiff's market share had increased slightly over half a point to 11%. (Id. at 16.) LG's market share at the date of the hearing was 12.46%, while Whirlpool's was 40.65%. (Id. at 17-18.)

Defendant called Ms. Klyn, who is general manager of the cooking business for North America and was previously product-development director for front-load laundry and, prior to that, category director for Whirlpool brand laundry. (Id. at 28-29, 41-42; Tr. at 836-37.) She testified that Whirlpool no longer runs the "Blue World" and "Geyser" commercials on which Mr. Reitter based this survey and offered opinion, and explained that the company ceased airing them between 18 and 24 months before the February 17, 2011, hearing. (Inj. Hr'g at 29-30.) She also explained that none of Defendant's advertisements purports to convey information as to how LG's steam dryers create or use steam, and none compares the way LG and Whirlpool create steam in their respective dryers. (Id. at 31.) Ms. Klyn further opined that Whirlpool's advertising of steam benefitted all manufacturers of steam-dryer products, including LG. (Id. at 40.) In addition, she testified that, had it wanted to, LG could have put point-of-purchase materials on its retailers' floors that explained how its steam dryer operates and how it works differently from Whirlpool's. (Id. at 61-62.) She subsequently acknowledged, however, that retailers ultimately control what happens on their floors and so they could reject point-of-purchase materials if they chose. (Id. at 62-63.)

ANALYSIS

LG asks the Court to enter a nationwide injunction barring Whirlpool from using the word "steam" in describing its dryers. (R. 640.) In the alternative, LG asks the Court to enter an injunction requiring Whirlpool to "make clear each time it uses the term 'steam' in connection with its water spray dryers -- especially on the panel of the dryer itself -- that this 'steam' refers to a cold-water spray function which results in an evaporative process no different than the one used in any conventional dryer." (Id.; R. 641 at 12.) Below, the Court discusses the applicable evidence in light of the jury's verdict and reaches factual determinations consistent with that verdict. In making these factual determinations, the Court assessed the credibility of the witnesses, including their respective demeanors while testifying. For the reasons discussed below, the Court denies LG's motion.

I. LG Is Not Entitled to an Injunction Because Whirlpool's Duet Dryers Use Steam and so LG Has Failed to Establish Conduct by Whirlpool that Violates the IUDTPA and Is Likely to Damage It Section 3 of the IUDTPA provides that "[a] person likely to be damaged by a deceptive trade practice of another may be granted injunctive relief upon terms that the court considers reasonable." 815 ILL. COMP. STAT. ...


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