Sour Daugh: Pizza Hut V

Sour Dough: Pizza Hut v. Papa John's Brandweek, May 21, 2001 by Jim Edwards

How risky is comparative advertising? Consider what happened when two pizza giants went to court over increasingly puffed-up claims about each other's products.

In the spring of 1997, Pizza Hut's then-president David Novak stood on the deck of a World War II aircraft carrier and declared "war" on "skimpy low- quality pizza." The act was filmed as a TV commercial by BBDO, New York, in which viewers were dared to find a better pizza than Pizza Hut's-a pretty unremarkable ad in a category that, historically has been littered with over- the-top ad strategies.

At the time, Novak probably did not imagine that his publicity stunt would become the genesis of a nearly three-year legal fight that ultimately ended up in the U.S. Supreme Court. The dispute, which came to a conclusion on March 19, ran up lawyers' bills in the millions, exposed the often unappetizing ways in which Pizza Hut's pizzas are prepared and made the company the butt of newspaper editorial jokes across the nation. Even worse, it became a distraction at a time when Pizza Hut's business needed serious attention to revive flagging sales and a stagnant store-building program.

For marketers, settling an advertising war in the courts poses some serious risks." You don't want to lose control of the information you send out to people about your brand," said John Allen, senior partner at consultancy Lippincott & Margulies, New York." A lawsuit is definitely the last resort."

WIKIPEDIA:

Papa John's Pizza (NASDAQ: PZZA) is the third largest carryout and delivery pizza restaurant in the United States behind Pizza Hut and Domino's Pizza; it is based in Louisville, Kentucky. Papa John's slogan is "Better Ingredients, Better Pizza." There are nearly 3,000 Papa John's stores in the U.S. and over 200 in the UK.

The founder of Papa John's, John Schnatter, began his pizza career as a high school student at Rocky's Sub Pub in Jeffersonville, Indiana. He continued this while in college at Ball State University, working as a delivery driver for Greek's Pizzaria in Muncie. Upon graduating, he began working for his father, who was co-owner of the bar "Mick's Lounge," in Jeffersonville. In 1984, he sold his car to buy out the other owner of the bar, knocked out a broom closet and started serving pizza to customers. Business started picking up, and soon enough Mick's Lounge was converted entirely into the first Papa John's restaurant.

The corporation credits its growth to attention to quality and menu simplicity, contrasting that with other chains' focus on low prices and menu options. Pizzas failing to garner an eight on a ten point scale are discarded. Fewer options in crust styles and side dishes simplify inventory management and are meant to allow greater focus on what options there are, though Papa John's has recently moved toward the industry marketing trend of constantly adding and advertising new menu items. To further simplify in-store operations and to provide product consistency between stores, many functions such as dough production are carried out by an off-store commissary system.

Papa John's primarily takes carryout and delivery orders although many stores have a few tables and chairs. Papa John's offers online ordering throughout the United States, automatically assigning all registered customers to the closest location.

Despite its success, Papa John's has had its share of difficulties. In 1997, Pizza Hut sued Papa John's over its "Better Ingredients, Better Pizza" slogan, based on a series of advertisements that compared the ingredients of Papa John's and its competitors. At trial, the court agreed with Pizza Hut's claims that Papa John's slogan did not constitute statements of literal fact. In other words, the district court agreed with Pizza Hut's argument that "fresher ingredients" do not necessarily account for a "better" pizza. (Papa John's did indeed prove in court that it uses fresher ingredients.) This was overturned in court in 1999 when Papa John's appealed the decision.

The motivation behind the lawsuit may have been the fact that Pizza Hut co-founder Frank Carney had become a Papa John's franchisee in 1994. By 2001 he owned 133 locations, with his franchise based in Houston, Texas.

The structure of a Papa John's restaurant is the typical one seen in many fast food outlets, with a salaried store manager presiding over day-to-day operations, with several salaried or hourly assistant managers and shift managers presiding over in-store and delivery team members. Above the store management is an area supervisor (district operator (DO) in corporate stores), who is generally supervised by a franchisee or, in corporate stores, an operational vice president (OVP).

Franchise stores can be bought and their owners pay a certain percentage of sales (5%) to Papa John's International, a portion of which are used for advertising and support. Corporate operations looks over franchisees to ensure brand consistency. As of January 26, 2003, there were 2,787 Papa John's restaurants (591 company-owned and 2,196 franchised) operating in 49 U.S. states and nine international markets. Papa John's International is a publicly traded company, with 30% of shares owned by John Schnatter.

Papa John's became one of the first major pizza chains to include a dipping sauce with every order.

Pizza Hut v. Papa John's

March 19, 2001 Web posted at: 1940 GMT

WASHINGTON (AP) -- Papa John's says its pizza is better than Pizza Hut's because it uses superior ingredients. On Monday, the Supreme Court declined to hear Pizza Hut's argument that the claim should be considered false advertising.

The court, without comment, turned down an appeal by Pizza Hut, which won -- and then lost -- a false-advertising lawsuit against Papa John's. Pizza Hut said it should not have to prove that its rival's ads actually affected people's choices on what pizza to buy.

Papa John's officials expressed relief that the case had concluded. "We obviously feel vindicated in this," said Karen Sherman, spokeswoman for the Louisville-based Papa John's. "This battle is over now."

Pizza Hut president Mike Rawlings said, "No advertiser has ever been able to defend a campaign that is deceptive on the basis that the public doesn't care. We are disappointed the court did not seize this opportunity to clarify this matter for the benefit of consumers and responsible advertisers alike."

Pizza Hut, a division of Tricon Global Restaurants (YUM: Research, Estimates), is the nation's largest pizza chain and Papa John's is the third-largest. In 1995, Papa John's adopted a new slogan: "Better ingredients. Better pizza," and later it started a major national advertising campaign using the slogan.

One of the ads boasted that Papa John's "won big time" in taste tests against Pizza Hut. Other ads said its sauce and dough were better than Pizza Hut's because they were made with fresh tomatoes and filtered water. Pizza Hut filed a federal false-advertising lawsuit against Papa John's in Dallas in 1998, saying scientific evidence showed that Papa John's methods and ingredients made no difference in the pizza's taste.

A jury ruled that Papa John's claims of better sauce and dough were false or misleading. The judge barred the pizza chain from using the "Better ingredients. Better pizza" slogan and awarded Pizza Hut $467,619 in damages.

But a federal appeals court threw out the verdict last September and ruled for Papa John's. The 5th U.S. Circuit Court of Appeals said the jurors were asked whether the ads were likely to deceive consumers, but they were never asked whether consumers actually relied on the claims in deciding what pizza to buy.

In the appeal acted on Monday, Pizza Hut's lawyers said ads like Papa John's violate federal law even without proof that customers relied on them in deciding what product to buy.

Papa John's (PZZA: Research, Estimates) lawyers said the ads did not make false statements but instead were statements of personal taste -- "what pizza tastes like, which kinds of tastes are better."

The case is Pizza Hut v. Papa John's International, 00-995.

True Lies

Duel Between Pizza Hut and Papa John's Comes to an End

Originally published in the Los Angeles Daily Journal, Tuesday, June 26, 2001.

By Donald M. Gindy

With a resounding thud, the pizza wars ended March 19, when the U.S. Supreme Court refused to review the decision of the 5th U.S. Circuit Court of Appeals in PIzza Hut Inc. v Papa John's International Inc., 121 S.Ct. 1355 (2001). The nature of the lawsuit was a claim of false advertising under the Lanham Act allegedly committed by Papa John's when it claimed "Better Ingredients. Better Pizza."

Pizza Hut threw down the gauntlet as its president, from the deck of a World War II aircraft carrier, declared "war" on poor-quality pizza. Pizza Hut "dared" anyone to come up with a better pizza. At about the same time, Papa John's was launching a new advertising campaign proclaiming that it sold a better pizza because it used better ingredients. The matter went to trial in Dallas, resulting in a verdict in favor of Pizza Hut.

Under Section 43(a) of the Lanham Act, "a plaintiff must demonstrate that the commercial advertisement or promotion is either literally false, or that it is likely to mislead and confuse consumers." Pizza Hut relied on a theory that Papa John's ads were deceptive and were intended to mislead purchasers of pizza.

On appeal, the 5th Circuit threw out the verdict. Their decision points out that a prima facie case of false advertising under Section 43(a) (codified at 15 U.S.C. Section 1125) requires that the following occur:

 There is a false or misleading statement of fact about a product.  Such a statement either deceives of had the capacity to deceive a substantial segment of potential consumers.  The deception is material, in that it is likely to influence the consumer's purchasing decision.  The product is in interstate commerce.  The plaintiff has been or likely will be injured as a result of the statement at issue.

But was Papa John's ad mere "puffery?" That is to say, was the claim an expression of opinion on which no reasonable person would rely? The court concluded that "Better ingredients. Better Pizza," standing alone, would not mislead consumers. But Papa John's lost its bragging rights when it coupled the slogan with misleading statements of specific differences in the ingredients used.

Pizza Hut asserted that its competitor had placed before the public "a measurable claim, capable of being proved false or of being reasonably interpreted as a statement of objective fact." John's claimed that its "vine ripened tomatoes" were superior to the "remanufactured tomato sauce" used by Pizza Hut and that its fresh dough and filtered water created a better- tasting pizza.

By pointing to specific differences between itself and Pizza Hut and by failing to present at trial any scientific support or the results of independent surveys to substantiate its claims (such as taste tests), Papa John's had, in fact, left the arena of opinion and entered the realm of quantifiable fact. As a result, it subjected itself to a claim that it misled consumers.

However, the burden of proving false advertising falls on the shoulders of the plaintiff. It is essential to a cause of action for false advertising based on misleading ads that the plaintiff prove not how consumers would react but how they actually do react. "[T]he success of a plaintiff's implied falsity claim usually turns on the persuasiveness of consumer survey."

The test thus becomes, assuming that the ads were misleading, whether they actually influence a reasonable consumer in his or her purchasing decision. Since the court found that Pizza HUt had neglected to present such evidence, it had failed to satisfy the element of the cause of action relating to the "materiality" of Papa John's ads. In the absence of such a survey, Pizza Hut's entire action had to fail.

An actionable claim of false advertising also may proceed where a plaintiff is able to prove "literal falsity" of the claim. In S.C. Johnson v. The Clorox Co., 241 F.3d 232 (2nd Cir. 2001), which was rendered Feb. 23, Johnson, the manufacturer of Ziploc Slideloc bags, brought an action under the Lanham Act against Clorox, the manufacturer of GLAD-LOCK resealable storage bags. The suit challenged the truthfulness of a television commercial and a print advertisement. On television, Clorox presented ads of side-by-side comparisons of its bag and Johnson's. The bags were filled with water and turned upside down while an animated goldfish in a state of distress in the Ziploc bag complained of water dripping from his bag. The Slideloc bag leaks rapidly while the GLAD-LOCK bag does not leak at all. An expert hired by Johnson conducted "torture testing" on the Slideloc bags and proved that a significant number did not leak at all and that other s leaked at a substantially slower rate than depicted in the advertisement. The vice in this presentation, according to the trial court, was "no depiction in the visual images to indicate anything else than the fact that the type of fairly rapid and substantial leakage shown in the commercials is simply characteristic of that kind of bag."

The court concluded that the presentation was literally false. S.C. Johnson was, therefore, entitled to permanent injunctive relief until Clorox is able to portray in a "truthful and fair way" the differences between its product and the Slideloc product.

These cases amply demonstrate the two methods of proving false advertising claims. Literal falsity is proved by demonstrating that the tests employed "are not sufficiently reliable to permit one to conclude with reasonable certainty that they established the claim made." Procter & Gamble Co. v. Cheeseborough-Pond's Inc., 747 F.2d 114 (2nd Cir. 1984). However, there is no need to demonstrate how the particular advertisement had "impact on the buying public." PPX Enterprises Inc. v. Audiofidelity Enterprises Inc., 818 F.2nd 266 (2nd Cir.1987).

However, implied falsity requires extrinsic evidence in the form of consumer surveys that clearly reflect that consumers are misled or confused. "The question in such cases is -- what does the person to whom the advertisement is addressed find to be the message?" Johnson & Johnson v Smithkline Beecham Corp., 960 F.2d 294 (2nd Cir. 1992). It is not for a judge to decide intuitively that the consumer has been misled. Rather, it must be established that a "statistically significant" and "not insubstantial" number of consumers holds the false belief allegedly communicated in the ad. In the absence of such a showing, the claim will fail.

Accordingly, one may conclude that an action based on implied falsity is an expensive endeavor, fraught with statistical problems, conflicting expert testimony and a less-than-certain result whereas seeking relief for literal falsity presents the court with a bright line. The advertising as presented is either true or it is not. In such circumstances, plaintiffs may proceed with more assurance of the outcome of the litigation.

However, the common characteristic in most of these cases is a giant company challenging another of equal strength. Counsel for the proponent of the comparison advertising should encourage their clients to proceed with caution on these head-to-head encounters. Don't expect your opponent to sit back and accept an advertisement that disparages its product. Be circumspect, for the outcome can be costly and embarrassing.

Supreme Court refuses to hear case of 'Pizza Hut v. Papa John's' claiming false advertising (Milling & Baking News, March 27, 2001) by Lisa Buffa

DALLAS — The U.S. Supreme Court refused to review an appellate court decision that found a pizza company's advertising to be deceptive but "immaterial" to consumers. The "Pizza Hut v. Papa John's" lawsuit arose from Papa John's $300-million comparative advertising campaign claiming "better quality ingredients" than the competition.