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IP Lawsuit Becomes Brand Battle on the Web: Lessons for Upstart Market Entrants

“What’s the doughboy afraid of?” This was the famous retort coined by Ben & Jerry’s, when Pillsbury, parent company of …

“What’s the doughboy afraid of?” This was the famous retort coined by Ben & Jerry’s, when Pillsbury, parent company of Haagen Dazs, gave an ultimatum to distributors: sell Hagen-Dazs or sell Ben & Jerry’s, but not both.

Tiny Trenton, NJ-based TerraCycle, an upstart maker of organic fertilizer for the lawn and garden market, sees a parallel in its fight with Marysville, Ohio-based industry leader Scotts Miracle-Gro. Scotts with annual revenues of $2.7 billion is suing TerraCycle with revenues of just $1.5 million and has yet to show a profit.

TerraCycle’s green media strategy is actually fundamental to the company’s marketing position and a cheap way to obtain empty 2 litre cola bottles which TerraCycle cleans and repackages with its product. See “Talking Trash

In a 177-page lawsuit filed with the District Court of NJ, Scotts is seeking unspecified monetary damages and an order to stop allegedly deceptive advertising and misleading claims. Scotts claims that TerraCycle intentionally chose to harm Scotts’ business interest by advertising that their products were far more superior to a “leading synthetic plant food product.”

Scotts also claims that TerraCycle’s packaging with its yellow-and-green color pattern, with brand name in the center and pictures of flowers and vegetables at the bottom is the infringement on trade dress of Scotts€˜Miracle-Gro brand.

Denying the allegation, TerraCycle reiterates that the market is flooded with plant food products, which are packaged, in predominantly green and yellow color. “We are surprised by your claim to distinctiveness of green and yellow color. A survey of the market place indicates the green and yellow is the norm for garden products, especially all-purpose plant food,” Rick Ober, attorney and vice president with TerraCycle, said in a response to Scotts’ allegation on the TerraCycle’s trade dress infringement.

In its defense, TerraCycle has put forward a list of about 120 other plant food products, which have similar packaging much in congruence with the design and pattern of Scotts Miracle-Gro products’.

However, Scotts which doesn’t seem to be buying this argument, maintains that TerraCycle products were the closest match. Scotts says: “not only is its Miracle-Gro brand name one of the most recognizable in the consumer lawn and care industry, but the trade dress that accompanies the Miracle-Gro mark, in particular the famous and distinctive green and yellow packaging, has also become associated in the minds of the consuming public with Scotts and its high-quality products”.

Brand Battle Becomes Blog Battle

Brand and design strategist are of the opinion that, for a product to be confusingly similar to another product there are a number of elements that need to work in combination. The important part is the combination of more elements — such as the proportion of green and yellow, depictions of flowers extraordinarily similar and the use of flower graphics typical to their design– not just one or two that can lead to confusion,” says Suzanne Hogan, Chief Operating Officer, Lippincott Mercer, a brand and design consultancy firm.

She further says that TerraCycle’s configuration appears to be unique to the category. Packaging configuration can be a trade dress element of its own-“breakthrough examples from the past include Taster’s Choice jar, the Quaker Oatmeal box, Orangina’s bottle–and, of course, the Coca-Cola bottle,” she adds.

Tom Szaky, CEO of the scrappy start-up a 25-year old Princeton University drop out has been unusually clever in capturing sympathetic media attention since he founded his company in 2001. Thanks to his novel idea of making money out of the garbage-waste, leading and local news dailies and magazines have given him and his outfit generous coverage. What’s not to love about a charming Canadian of Hungarian ancestry who becomes a green entrepreneur by bottling “worm poop” processed into a chemical-free fertilizer in recycled soda bottles?

Outgunned in the legal department TerraCycle has cleverly courted the media in airing the dispute in order to win over public opinion. “We tried to make it (the allegations) go away for six months, we even went to Ohio to try and negotiate with them but they blew us off. After everything failed, we realized they were going to take this all the way and we pushed the button to make this a public relations tool. We are very PR-centric, we don’t advertise and we rely on the media to get the word out about our product,” Szaky told Internationalist, a website about global issues and ideas. “If we are to fight this lawsuit, the company would be bankrupt,” says Szaky in an interview to BBC Worldwide.

It is obvious that the Scotts lawsuit has given TerraCycle a platform which it can use to its advantage and generate quite a bit of awareness for their products. This was something difficult for TerraCycle to achieve if it had to do on its own, say PR experts. “The publicity surrounding this case has helped TerraCycle to create massive awareness about its products, which they could never afford if they were to advertise,” says Ken Makovsky, president, Makovsky & Co, a firm specializing in investor and public relations

To start with, the TerraCycle has come up with a website www.suedbyscotts.com, which compares TerraCycle to the biblical David and the Scotts Miracle-Gro to Goliath. Apart from giving several interesting (and amusing) comparisons, the website also takes a swipe at Scotts CEO James Hagedorn and his flamboyant lifestyle.

Depicting TerraCycle as an underdog, the website hosts pictures of both the CEOs – with Scotts CEO clad in an expensive suit with black coat, blue shirt and a tie, the TerraCycle CEO is seen in a multi-colored lose shirt and a black vest sneaking out from the open shirt buttons. The comparative mention of executive perks for both the CEOs is all the more interesting. While the Scotts chairman has a company owned private jet to use, the TerraCycle chief has “unlimited worm poop” to boast about.

TerraCycle, – which says it draws huge inspiration from Ben & Jerry’s fight with Haagen-Dazs, – is looking to ridicule and embarrass Scotts forcing it to go in for an out of court settlement. “Small businesses have been using these guerilla tactics as an inexpensive way to wage a battle against established rivals,” says a report published in Wall Street Journal. It may be recalled that the lawsuit and the fierce media campaign launched by Ben & Jerry forced Haagen-Dazs to rush for an out of court settlement. “We draw inspiration from the erstwhile Ben & Jerry episode,” Rick Ober, points out.

“This is the classic “David and Goliath” case and it strikes me that Scotts is trying to use every device they possibly can to “squeeze” TerraCycle out of business,” says Robert Dilenschneider, principal and CEO of the Dilenschneider Group, specializing in strategic communications. According to him there is no doubt that Scotts feels threatened and is under intense pressure. “It feels pressure from TerraCycle and is trying to do everything they possibly can to ward off fair market,” Dilenschneider told CE Online.

Public Relations experts assume that the tactics employed by TerraCycle are not sufficient yet. They say TerraCycle needs to be more aggressive and provoke Scotts to break the silence. “My guess is that smart people on the TerraCycle side will not just do publicity but launch a direct mail effort and use all types of new Internet communications to tell their story. Scotts has given them the opportunity to do this,” says Dilenschneider.

According to the investor and public relations analysts it is time for TerraCycle, to make maximum out of the dispute. They say that TerraCycle needs to move its message beyond blogging into the mainstream media. “They must know what would happen if the publicity surrounding the case dies down. TerraCycle needs to think about how to sustain their new found awareness, perhaps through an ongoing visibility campaign, and a variety of other techniques that can be employed,” Makovsky further adds.

Strategy & Tactics

However, brand and design strategists opine that these tactics do not always help. Quoting a context on the use of €˜copycat’ packaging, Hogan asserts, that the standard tactic of private label manufacturers in the 1980’s waned as mass merchandisers and grocers established their own unique private label brand images. However, according to Hogan these tactics were met with extreme resentment among the masses. “In fact, research in the 1980’s indicated that this copycat practice angered consumers to the point that they would not shop in stores that utilized these tactics,” Hogan elaborates.

Dilenschneider says that TerraCycle strategy is very much in line with what the Japanese think about business – using leverage and every advantage they possibly can to make their case. “Wherever there are competing products in the marketplace, you can expect these types of disputes at a high level or at a modest level There have been many instances where the competitors were at logger heads, such as Gatorade/Sports-Aid, Crest/Colgate, Xbox/Playstation 3, Pepsi/Coke disputes to mention a few,” Dilenschneider explains.

TerraCycle being the little guy, with the ability to claim it is being picked on, usually has an obvious advantage of garnering public support. “TerraCycle has potential upside in launching a media campaign, but Scotts has only a potential of downside, says Laura Lee Norris, attorney at law and an expert on intellectual property rights based in Gatos, California.

Public sympathy will lie with the underdog, and TerraCycle is precisely trying to achieve it. “The initiation of a publicity campaign could be TerraCycle’s way of seizing the moment to generate awareness for their products and galvanize public support for their position. “Scotts could come off looking like the “school yard bully,” says Makovsky.

Advertising Age considers the Scotts lawsuit, has come as a free marketing tool for TerraCycle in generating awareness of their products and boosting their sales. “It’s a rather novel marketing strategy: touting your company as being sued by a rival. What more one expects from a company that built a business from compost, worm droppings and old plastic bottles. With a pending lawsuit from fertilizer giant Miracle-Gro, TerraCycle has turned a legal liability into a marketing asset – and hardly spent a dime doing it,” reports Advertising Age.

Even the BBC World Wide chose to pat Tom Szaky’s back as “one of the America‘s most promising entrepreneurs with a strong social message.” The report further sets the sympathetic tone for TerraCycle by saying that “this budding green business faces a great challenge from a giant plant product company.”

The United Nations Environment Protection Agency in its feature on TerraCycle, commends the efforts put forth by the company in recycling the waste. “Their vermicomposting and package recycling efforts exemplify activities encouraged by our Resource Conservation Challenge within the national priority area of municipal solid waste and recycling,” the report says.

A cursory web search would show that there are hundreds of blogs, which paint TerraCycle as an entrepreneurial victim, unnecessarily sued by the Scotts merely because it has potential. One of the readers at Greenthinkers.com (a blog which speaks exquisitely about building a green environment) says that he is not convinced with the Scotts story of trademark infringement and dubs the whole lawsuit as frivolous. “To me the whole lawsuit is silly. Would consumers really think that Miracle-Gro would sell something labeled “Worm Poop” in what is quite obviously an old Sprite bottle,” the reader quipped.

Another popular blog Treehugger.com, which aims to be a one-stop shop for green news, solutions, and product information, terms the dispute as a battle between eco-capitalism and old-style capitalism. “Unfortunately, the progress made by TerraCycle’s eco-capitalism has been slowed a bit by a conflict with old-style capitalism,” says John Laumer, a writer with Treehugger.com.

Other sites such as SustainableIsGood.com, ApartmentTherapy.com and Consumerist (to name a few) openly take sides with TerraCycle and are very critical of Scotts’ conduct and its intriguing lull over the issue. Sustainable is Good, a blog about products, trends and developments in the green marketplace, considers the lawsuit as a big mistake. It says that the lawsuit is an attempt by Scotts Miracle-Gro to prevent TerraCycle from establishing itself in the rapidly growing market for organic non-chemical based fertilizers and plant food, which coincidentally Scotts Miracle-Gro is trying to crack into with its Organic Choice line of products. “Clearly Scotts is concerned by the fact TerraCycle is carried by Wal-Mart, Target & Home Depot as well as numerous other large retailers and that this will some how impact their business,” adds the website.

In terms of business outcome TerraCycle will benefit from the publicity surrounding the case as it will build awareness for its products, solidify the support of its current customers and may even trigger inquiries for additional distribution opportunities, Makovsky points out.

Besides, the inspiration claim, TerraCycle is also aiming to bolster its sales. “The media coverage could cause sales to increase, awareness of their products to rise, and could even potentially cause Scotts to settle early to avoid embarrassment,” explains Norris.

According to a report published in The Wall Street Journal, overall TerraCycle sales for the four weeks since the online campaign launched surged 122 percent from the immediately previous four weeks. Last year, the company’s sales increased 31 percent in the same period.

The PR Battle

While the defendants are using the media to ridicule Scotts, the plaintiff says it is undeterred by the media campaign against it. Scotts, who professes to take no notice and is seemingly PR mute, asserts that the law will take its own course. “We don’t intend to employ any of the public relation exercises that TerraCycle is primarily banking upon. We are simply going by the lawsuit,” Scotts’ spokesperson Su Lok told CE Online.

Unlike for TerraCycle, legal strategists say, it is in the interest of Scotts to keep a low profile. “The more Scotts says [publicly], the higher at risk they are of potentially contradicting or harming their ongoing legal action. Furthermore, they are the plaintiff in the lawsuit, so their statements in the media will not help the case to wind up early,” says Norris.

Scotts says it doesn’t matter if the infringer is a small company or a big market player; all it is concerned about is protecting its IP rights. “When somebody makes false claims and does false advertising, it hurts the business. We have nothing against an upstart; even we started as a small start-up company. So, we certainly welcome competition in the market place and consider it as something healthy for the industry,” says Su Lok.

However, Dilenschneider feels that employing legal means to crush your competitor is not advisable and CEOs should look for other measures to beat the competition. “Frankly, using a legal strategy here is a waste of time and money. Scotts should promote their product to end-users aggressively and demonstrate its value beyond TerraCycle. That’s the way to really make this even more successful,” he adds.

According to Makovsky an out of court settlement is in the interest of Scotts Miracle-Gro. “An out of court settlement is entirely possible as it would make the matter disappear. Even for a company with deep pockets like Scotts, the legal fees could be considerable and it might be easier and less costly for Scotts to settle this matter and move on; a protracted court fight and its attendant publicity can only help TerraCycle,” Makovsky remarks.

Countering the media bugle – that Scotts is trying to squash TerraCycle by engaging it in a ruinous lawsuit, – Scotts assert they are merely fighting for their intellectual property rights against an infringer. “We have worked very hard to earn the trust of consumers; we have a strong presence in the industry and we cannot let the trust erode because of some false product claims out there,” the spokes person Su Lok points out.

Legal pundits are of the opinion that it is essential for the holders of intellectual rights to diligently and consistently protect against any sort of infringement. “Scotts may be merely enforcing its intellectual rights against an infringer, irrespective of the infringer’s economic or market position. For example, if Scotts becomes aware of an alleged IP infringement and fails to promptly address that, a court may choose to deny it relief sometime in the future through doctrines such as Waiver, Laches or Estoppel. This becomes increasingly important as soon as an IP owner such as Scotts becomes aware of the infringement and starts communicating with the infringer,” adds IP attorney Norris.

All companies owning valuable packaged goods brands have a responsibility to monitor trade dress infringement, thinks Suzanne Hogan. However, she adds: “it’s wise to determine before filing suit, through consumer testing, whether, there is visual confusion at all.”

Scotts Claims

Scotts lament that it is being wrongly being portrayed as a villain, while TerraCycle is capturing sympathy. “There’s a lot of misinformation that is communicated in the media about us, the basic reason why we have initiated the lawsuit is because of false product claims by TerraCycle,” Su Lok fumes.

Dilenschneider recommends Scotts should do something about this dispute, instead of choosing to stay mum. “Scotts should go to the judge as soon as possible and make the point that TerraCycle is interfering in the legal process and using legal proceedings to compromise what should be handled in court. So the best thing Scotts can do – and they should move aggressively and soon – is just tell their story in as many ways as possible,” he points out.

Makovsky who believes that publicity will play a very vital role even in the case of Scotts, is also of the opinion that Scotts need to react in some or the other way because its reputation is at stake. “Publicity is a factor here as well, as the company does have a reputation to protect. In a case like this, it might be wise for Scotts to portray itself in a more eco-friendly light, if they can do it. If they can’t, it might backfire as it might call attention to the fact that their products are not environmentally friendly,” Makovsky explains.

But why Scotts chose to be tacit is probably due to advice from its attorneys not to publicize this issue. “Undoubtedly, Scotts attorneys will advise the company not to comment on the matter publicly – lawyers, for the most part, are loathe to try cases in the press and there is a fairly standard line: “We cannot comment on a matter in litigation as it will be up to the courts to decide. We intend to vigorously defend our position,” Makovsky asserts.

Blogs that have carried stories on this dispute reveal that Scotts’ strategy would backfire and wouldn’t help them in crushing TerraCycle. “The problem with this plan is it’s going to backfire. By Scotts filing suit against TerraCycle they have legitimized the company as a serious competitor and this strong arm tactic will only alienate Scotts, from the very consumer base they are trying to capture,” comments a contributor to the blog, Sustainable is Good.

Eating Liberally, a website devoted to nourishing the netroots, calls the Scotts lawsuit a ploy to retain its “monopoly.” Scotts doesn’t seem to be digesting the fact that TerraCycle products are sharing the same shelf place in one of the biggest stores such Home Depot, along with their products. “It is like trespassing on Hagedorn’s (Scotts) turquoise-tinged turf. Evidently, Scotts Miracle-Gro’s unwilling to surrender a single inch of shelf space, so they’ve gone on the attack, filing a lawsuit against TerraCycle.”

TerraCycle Rebuts

TerraCycle is striving to prove that its claims on product superiority are not superficial. “We are looking forward to the public Federal Court ruling which determines that our plant food is equal or better than a leading synthetic fertilizer in most aspects of plant growth,” says Rick Ober.

TerraCycle points to research at the Rutgers University that proves that its plant food helps promote better plant growth when compared to chemical fertilizers. “In many cases, TerraCycle plant food outperformed the leading chemical fertilizers, significantly in root growth,” according to the Rutgers report.

“But forget science and testing, says Suzy Bales, former editor of Better Homes and Gardens and author of about a dozen books on gardening. “No test is necessary, the answer is obvious. Of course worm poop is better then a chemical. Worm poop is Mother Nature’s fertilizer,” Suzy Bales adds in an interview to Newsok.com.

TerraCycle’s defense is that there are 120 other brands, with similar packaging style. Why would Scotts specifically target TerraCycle with a lawsuit? Norris says: “If Scotts is able to secure a legal win against TerraCycle (especially in such a well-publicized controversy), it may be able to use that win informally against other parties who have similar packaging patterns.”

Brand experts assume that it is risky for both brands regardless of the outcome of the case. If TerraCycle should lose, it would sound a death knell to the company. Should TerraCycle win, Scotts Miracle-Gro would end up being a villain in the eyes of consumers. “If they lose the defendants, could gain a reputation for being too ‘scrappy’ or niche to gain broader mainstream acceptance and demand,” Hogan explains, further adding that if TerraCycle is found to be legally liable, it can be forced to re-start from scratch-a possible death sentence.

“For Scotts these actions (lawsuits filed by it) at times pose stringent risks to the brand. The large firm (Scotts Miracle-Gro) will be perceived as unduly stifling competition if its claims are considered unfounded and it can inadvertently generate more positive awareness for the smaller start-up than desired, while generating negative publicity for the larger brand,” opines Hogan.

Possible Endgames

Contrary to brand strategists’ views, PR observers, say it is sort of win-win situation for TerraCycle, irrespective of the court verdict. TerraCycle has and will gain a lot of publicity because of this lawsuit. “So, if it has to lose the case, the worst that could happen to TerraCycle, is that it would be asked to change its packaging and modify its claims if these are proven to be misleading. So, for TerraCycle there is limited downside here, even if they settle the suit and have to change their packaging. They can say that they had to settle because they couldn’t afford to continue to fight, etc.,” Makovsky remarks adding that TerraCycle will still have won because of all the publicity which has boosted their sales and generated lots of awareness about their products. “And my bet is that they will win more customer loyalty as a result of all this,” Makovsky reiterates.

But for Scotts, Makovsky says, there might be more competitive challenges down the road as more companies get a sense that there is a business with products like TerraCycle’s; some of these may be well-heeled competitors who can afford to spend marketing dollars on developing the category beyond a niche market. Scotts may also want to examine the strategy of going increasingly “green.”

Dilenschneider foresees reconciliation in this dispute. He says that even before the case goes for hearing in the court, the parties will likely seek rapprochement. “Legal outcomes generally take quite a long time and the disputes are usually settled long before the case gets to trial, either from the Bench or with a jury. I’m sure that’s going to happen in this case as well. The question will be “who blinks first,” Dilenschneider quips.

TerraCycle may find solace in its forthcoming new equity partner. The major force behind them, according to sources is JH Partners, a private equity firm looking to invest in TerraCycle and is committed to go ahead with the partnership despite the lawsuit. “We remain 100 percent committed and enthusiastic about our partnership with TerraCycle,” (sic) says Julie D Bell from JH Partners.

But for now, TerraCycle says, “David slew the original Goliath, so it happens sometimes.”

About fayazuddin a. shirazi