use of damagesSelect Comfort Corp. v. Tempur Sealy Int’l, Inc. 

An economic damages case featuring two major mattress manufacturers and claims of false advertising provides an insightful discussion of two theories of damages: disgorgement and lost profits. The court rejected one of the plaintiff expert’s two disgorgement models as not sufficiently tailored to the alleged wrongdoing and found the expert’s lost profits analysis was legally and methodologically unsound.

Select Comfort and Tempur Sealy (dba Tempur Pedic) were rivals. Both marketed products that aimed to improve on traditional innerspring mattresses. After Select Comfort had come out with its “Sleep Number” brand, Tempur Pedic entered the market with the “Tempur Choice” line of beds.

Mattress Firm was a bedding retailer that sold Tempur Pedic products and at one time had sold Select Comfort products.

Select Comfort sued Tempur Pedic and Mattress Firm, alleging both defendants made false statements about Select Comfort, specifically the Sleep Number products, which hurt Select Comfort’s sales, reputation, and goodwill. The statements appeared in a flyer Tempur Pedic had developed and distributed via Mattress Firm outlining why the Tempur Choice collection beat the Sleep Number brand. Moreover, Tempur Pedic provided Mattress Firm with training materials for employees, which contained false representations about Sleep Number beds.

Select Comfort’s expert calculated damages specific to each defendant. The defendants offered separate rebuttal testimony, and both filed separate Daubert motions to exclude the plaintiff expert’s testimony.

In terms of Tempur Pedic, Select Comfort’s expert performed a two-model disgorgement analysis. The “low-end” calculation focused on disgorgement of Tempur Pedic’s profits attributable only to the sale of Tempur Choice mattresses and related products. The Tempur Choice line competed directly with Select Comfort’s Sleep Number brand. In contrast, the “high-end” calculation included Tempur Pedic’s profits from sales of all Tempur-Pedic products.

The court explained that, in a disgorgement analysis, the plaintiff merely has to prove the defendant’s sales of allegedly falsely advertised products. The burden then shifts to the defendant to prove that sales were not the result of the alleged misconduct. The court found only the expert’s low-end calculation, which, it said, took pains to exclude sales that were not related to the false advertising, was admissible.

In terms of Mattress Firm, Select Comfort’s expert also performed a “before and after” lost profits calculation (besides the disgorgement analysis). In essence, he compared average monthly mattress sales of certain Select Comfort stores located near a Mattress Firm store (the A Stores) with sales of certain Select Comfort stores not located near a Mattress Firm store but within a certain distance of another retailer that sold Tempur Pedic bedding (the B Stores).

The comparison focused on the change in performance in the A Stores relative to the B Stores after the court had granted Select Comfort’s motion for a temporary restraining order prohibiting Mattress Firm from making negative statements about Select Comfort.

The before and after analysis showed the A Stores performed better against the B Stores after the injunction was issued, the expert found.

Mattress Firm objected that under the law the plaintiff had to prove that the false statements Mattress Firm employees allegedly made about Sleep Number beds were part of an organized campaign to penetrate the relevant market. The plaintiff failed to do this; its expert assumed there was liability based solely on the proximity of the A Stores and the B Stores, not on evidence that the false statements actually were made.

Also, the lost profits analysis did not adequately consider important market factors that could have caused the plaintiff’s losses.

The court agreed with Mattress Firm on both points. It found the plaintiff tried to meet its burden of proving liability at trial by using the expert’s damages model. Specifically, it tried to use the expert’s “before and after” data to show there was nationwide, systemic disparagement of its products. The plaintiff’s use of the expert data was “inappropriate.” Also, the lost profits model did not consider the effect of the plaintiff’s own increased advertising in the “after” period with regard to certain A Stores, nor did the calculation sufficiently account for the presence of competitors other than Tempur Pedic.

The expert’s high-end disgorgement and the lost profits analyses were inadmissible, the court said. Testimony as to the low-end disgorgement calculation was admissible.