SAN FRANCISCO (CN) - A federal judge split the difference, so to speak, in a fight over markets, distribution and pricing of condoms, especially microthin condoms.
In a 34-page ruling in Church & Dwight C. v. Mayer Laboratories, U.S. District Judge Edward Chen dismissed with leave to amend just one of defendant's 12 counterclaims.
Counterclaimant Mayer claims it was "'instrumental in establishing the ultra-thin condom segment in the United States market,'" which now 'comprises approximately 22% of the overall retail market.'" (All quotations are from Judge Chen's ruling.)
Mayer's Kimono ultra-thin condoms have less than 1 percent market share nationwide, but about 5 percent of the market in California, which accounts for half of the company's total sales.
"Mayer touts that it pioneered the ultra-thin condoms in the United States by introducing 'Kimono' and 'Kimono MicroThin' made by Sagami Rubber Industries, a Japanese manufacturer. Mayer began using the term 'MicroThin' for its Japanese-made, ultra-thin latex condom products in 1992. In June 2009, Mayer registered the mark 'MICROTHIN' for condoms with the U.S. Patent and Trade Office," Chen wrote. (Citations omitted.)
Counterdefendant Dwight & Church is a heavyweight in the condom game, dominating the market with its Trojan and other brand name rubbers.
"Mayer claims that C&D branded condoms account for over 75% of all retail condom sales in the United States, such that it holds a monopoly position in the nationwide condom market as well as in California. The vast majority of condoms are sold in drug stores, grocery stores, and mass merchandisers. Notably, Mayer claims there is an 'extreme concentration of ownership of nationwide drug store chains: the three largest chains - Walgreens, Rite-Aid, and CVS - account for approximately 86% of all condom sales at drugstores. Mayer also claims that there are considerable barriers to entry in the condom market, including costs of FDA and state regulatory approval and compliance, production minimums, and retailer program participation fees.
"Most formidable among the barriers to entry is the 'difficulty in acquiring display in major retailers' condom retailing sections.' Mayer claims this problem is exacerbated by the concentration of ownership of large chains, which decide what products to carry on a chain-wide basis. According to both parties, condoms are a unique product that rely heavily on point of sale advertising because they have minimal 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. Because of how condoms are displayed in retail stores, the competition for selling condoms depends heavily on acquiring space in retailers' display sections. Display is of critical importance in marketing because of the private nature of the transaction and the speed by which buying decisions are made.
"In this context, Mayer alleges that C&D engages in several [five] distinct but related anticompetitive activities that have the combined effect of 'greatly diminishing and in some cases eliminating competition in the relevant markets.'"
Mayer claims C&D offers "'Condom Planogram Agreements' to large chain retailers, which together account for nearly 100% of condom sales nationwide."
(Footnote: "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.' Mayer also alleges that C&D does not offer Planogram Agreements to small independent retailers or small retail chains.")
"Such agreements give the chain the opportunity to receive a substantial kickback or rebate on its purchases of C&D condoms. Rebates are given if the retailer accepts and follows a planogram designed by C&D and guarantees that C&D's condoms occupy a specified minimum percentage of the available facings on its in-store display."
Second, Mayer says, "Retailers allegedly have agreed to give C&D the 'ability to decide and influence which brands of condoms are included in a chain's stores, where individual condom [products] are placed in the store displays, which condom
[products] are discontinued, and which new condom [products] are added.'
C&D purportedly uses this position 'to obtain preferential display locations for its products, to recommend replacement of competing brands with [C&D] products, and to reduce visibility for (or exclude altogether) competing brands, including Mayer Labs' products.'
"Third, Mayer alleges that C&D has exclusive dealing arrangements with some retail chains, including 7-Eleven, obligating them to sell only C&D condoms.
"Fourth, Mayer asserts that in 2006, C&D began targeting the Japanese-made, ultra-thin condom market segment. Initially C&D distributed 'Trojan Ultrathin' condoms. Mayer asserts C&D began using the term 'ultra-thin' which had previously associated with Mayer's products. C&D allegedly began using the term 'microthin' for its Trojan brand Ultrathin condoms in 2007, and for its Thintensity condoms in 2008. As a result, Mayer alleges that its sales of Kimono Microthin condoms declined 33% (from $1,167,000 in 2006 to $1,120,000 in 2007 due to C&D's anticompetitive conduct. ... Mayer also claims that in 2007, C&D tortiously induced Sagami to begin supplying it with condoms in violation of an exclusive contract Mayer had with Sagami."
Church & Dwight sued Mayer in November 2008, in New Jersey Federal Court, seeking declaratory judgment that its behavior is legal.
Mayer filed an answer with 12 counterclaims in February 2009, including violations of the Sherman Act, California professional and business codes, violations of California laws on exclusive dealing and secret rebates, tortious interference, unfair competition and trademark violations.
"In terms of relief, the counterclaim requests (1) a declaratory judgment that C&D's Condom Planogram Agreements are unenforceable, (2) a comprehensive permanent injunction, (3) punitive and treble damages, (4) restitution and disgorgement of profits with interest, and (5) attorneys' fees and costs."
Chen granted, with leave to amend, defendant's fifth counterclaim. He denies the requests to dismiss the others.
For the record: "According to Mayer, Trojan is the largest selling brand of condom in the United States. C&D's condoms account for over 75% of all retail condom sales. The next most popular brand is Durex, marketed by SSL Americas, Inc., with approximately 15.3% of sales, and the third is Lifestyle, marketed by Ansell Healthcare, with approximately 7.7%. Together, condoms sold by these three companies account for over 98% of the nationwide market." (Citations omitted.)
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