Case: 5:12-cv JRA Doc #: 33 Filed: 12/19/12 1 of 11. PageID #: 503 UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF OHIO

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1 Case: 5:12-cv JRA Doc #: 33 Filed: 12/19/12 1 of 11. PageID #: 503 UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF OHIO STERLING JEWELERS INC., Civil Action No. 5:12-cv Plaintiff, vs. ZALE CORPORATION, Defendant. PLAINTIFF STERLING JEWELERS INC. S POST-HEARING BRIEF IN SUPPORT OF ITS MOTION FOR PRELIMINARY INJUNCTION Plaintiff Sterling Jewelers Inc. ( Sterling ) submits this Post-Hearing Brief in Support of its Motion for a Preliminary Injunction under Section 43(a) of the Lanham Act, 15 U.S.C. 1125(a), and the Ohio Deceptive Trade Practices Act, Ohio Rev. Code 4165 et. seq. Defendant Zale Corporation s ( Zales ) advertising claims concerning the Celebration Fire diamonds are false, deceptive, and substantiated only by Zales s personal conviction that they are the most brilliant diamonds in the world. 1 Injunctive relief is warranted for the reasons that follow. I. THERE IS NO INDUSTRY STANDARD OR GENERALLY ACCEPTED DEFINITION OR MEASUREMENT OF A DIAMOND S BRILLIANCE All evidence and testimony agreed that there is no industry standard for measuring brilliance, although each entity that claims to measure brilliance is able to measure what it defines as brilliance within a range of repeatability. Sterling s diamond brilliance expert, 1 All evidentiary references in this brief are to Plaintiff s Exhibits ( Pl. Ex. ) or Defendant s Exhibits ( Def. Ex. ) admitted into evidence following the December 17-18, 2012, preliminary injunction hearing, or to witness testimony given at that hearing to the best of Sterling s recollection, as Sterling does not yet have a hearing transcript. NY01\HorvA\

2 Case: 5:12-cv JRA Doc #: 33 Filed: 12/19/12 2 of 11. PageID #: 504 Randall Wagner, and Zales diamond brilliance expert, Dr. Jose Sasian, both testified that no governing body exists in the jewelry industry to set a standard for defining or measuring brilliance. Def. Ex. 8 [Wagner deposition transcript] at 26; Sasian testimony, Dec. 18, Dr. Lalit Aggarwal, President of ImaGem, agrees. Pl. Ex at 5 Mr. Wagner also testified that none of his competitors measures brilliance as he defines it. Def. Ex. 8 [Wagner deposition transcript] at 131; Wagner testimony, Dec. 17, Professor Sasian conceded that there is no single standard or methodology widely accepted in the jewelry industry to measure brilliance. Pl. Ex at 20. Dr. Sasian concluded his hearing testimony by stating that neither the GemEx system, despite being the industry s most widely used, nor the ImaGem system met his criteria for being generally accepted across the entire diamond industry. Sasian testimony (redirect exam), Dec. 18, The measurements of brilliance produced by industry participants GemEx, ImaGem/PGGL, and other firms that test and certify diamond brilliance for the industry are incompatible and embody differing definitions of brilliance, so results of tests run at different laboratories are apples and oranges. Not only do their inventors insist that they do not measure the same concept, but there is no way to translate a brilliance score from one of these laboratories (e.g., ImagGem s 0-to-255 scale) to the other (e.g., GemEx s 0-to-100 scale). Zales expert witness, Dr. Sasian, wrote and testified that the measurements of these and all other laboratories in the industry do not necessarily correlate. Pl. Ex at 21. II. ZALES FALSELY ADVERTISES THAT ITS CLAIM OF MOST BRILLIANT DIAMOND IN THE WORLD CAN BE AND HAS BEEN PROVEN The absence of an industry standard or general definition of a term, however, does not mean that a claim centered on that term need not be proven especially when it is deceptively advertised as if it were provable and proven under an industry standard or generally accepted NY01\HorvA\

3 Case: 5:12-cv JRA Doc #: 33 Filed: 12/19/12 3 of 11. PageID #: 505 definition. If a claim is communicated to consumers as provable and indeed as proven, it subjects the advertiser to liability even if the lack of a generally accepted definition of testing method makes proof of the claim problematic. In W.L Gore & Assocs., Inc. v. Totes Inc., 788 F. Supp. 800 (D. Del. 1992), the court held that the defendant s use of the term waterproof in advertising the protective characteristics of its golf suit was false on its face even though there was no industry standard definition of waterproof, where testing demonstrated that the suits were only partially waterproof. 788 F. Supp. at The defendant countered by arguing that there was no accepted test for measuring waterproofness, and that there is not a commonly accepted industry definition of waterproofness from which to judge whether its claims are true or false. Id. at 807 ( from the lack of an industry standard, [defendant] argues that waterproof means different things to different people ). The court, issuing a preliminary injunction, explained that technical industry standards are often irrelevant to consumer expectations and, at the very least, golfing consumers will expect that they will not get wet. The lack of an industry standard makes the claim no less false. Id. at 807. Similarly, in X-IT Prods., LLC v. Walter Kidde Portable Equip., Inc., 155 F. Supp. 2d 577, 628 (E.D. Va. 2001), the court found that the defendant s claim that its emergency escape ladder was flame resistant was false even though no established industry testing standard existed. 155 F. Supp. 2d at 628 (also rejecting argument that flame resistant was puffery). See also J. D Addario & Co. v. Dronge & Rapoport Assocs., No. 95 Civ. 8089, 1997 WL , at *2-3 (S.D.N.Y. Jan. 7, 1997) (enjoining defendant from advertising that its metal strings for musical instruments are hand-made where there was no industry standard for the designation of hand-made strings). NY01\HorvA\

4 Case: 5:12-cv JRA Doc #: 33 Filed: 12/19/12 4 of 11. PageID #: 506 The ultimate authority on whether an advertising claim has meaning and requires substantiation is consumers. Section 43(a) of the Lanham Act applies with equal force to (1) statements which are literally false and (2) statements which, while literally true or ambiguous, convey a false impression or are misleading in context, as demonstrated by actual consumer confusion. Abbott Labs. v. Mead Johnson & Co., 971 F.2d 6 (7th Cir. 1992) (overturning denial of preliminary injunction of implied claim). Sterling has produced evidence that, regardless of what Zales now asserts it intended its claim to mean, a huge segment of consumers 25 percent believes the claim to mean that the Celebration Fire diamonds are more brilliant than any other diamond in the world. Consumer perception expert Dr. Michael Rappeport found that a substantial number of consumers understand Zales claim to mean that their Celebration Fire diamonds are more brilliant than all other diamonds that are available, not that they are just among the more brilliant diamonds. Pl. Ex. 1-11; Rappeport testimony, Dec. 17, Zales has not provided any consumer perception evidence in support of any alternative interpretation, e.g., that the claim refers to the most brilliant cut diamond in the world or that it is based on the average brilliance of Celebration Fire diamonds. III. ZALES TOOK ON THE BURDEN OF PROVING ITS MOST BRILLIANT DIAMOND IN THE WORLD CLAIM Zales claim that its Celebration Fire diamonds are the most brilliant in the world communicates to consumers that the brilliance of diamonds is a substantive, objectively measurable property of diamonds and that Zales has a basis for claiming each individual Celebration Fire diamond to be more brilliant than any diamond from a competitor. Moreover, Zales claim is accompanied by an assertion that it is proven by independent laboratory testing. Pl. Ex at This converts the most-brilliant claim into what courts call an establishment claim, which alters the burdens of proof among the parties. NY01\HorvA\

5 Case: 5:12-cv JRA Doc #: 33 Filed: 12/19/12 5 of 11. PageID #: 507 A plaintiff s burden in proving literal falsity thus varies depending on the nature of the challenged advertisement. Where the defendant s advertisement claims that its product is superior, plaintiff must affirmatively prove defendant s product equal or inferior. Where, as in the current case, defendant s ad explicitly or implicitly represents that tests or studies prove its product superior, plaintiff satisfies its burden by showing that the tests did not establish the proposition for which they were cited. We have held that a plaintiff can meet this burden by demonstrating that the tests were not sufficiently reliable to permit a conclusion that the product is superior. Castrol, Inc. v. Quaker State Corp., 977 F.2d 57, 63 (2d Cir. 1992) (citations omitted); Procter & Gamble Co. v. Chesebrough-Pond's, Inc., 747 F.2d 114, 119 (2d Cir. 1984); Fed. Express Corp. v. Utd. Parcel Serv., Inc., 765 F. Supp. 2d 1011, 1018 (W.D. Tenn. 2010) (citing cases); Alpo Petfoods, Inc. v. Ralston Purina Co., 720 F. Supp. 194, 213 (D.D.C. 1989), aff d in part and rev d in part on other grounds, 913 F.2d 958 (D.C. Cir. 1990); Am. Home Prods. Corp. v. Johnson & Johnson, 654 F. Supp. 568, 590 (S.D.N.Y. 1987); Thompson Med. Co. v. Ciba-Geigy Corp., 643 F. Supp. 1190, (S.D.N.Y. 1986). The issue in the case, thus, because whether Zales has proof that it can show proof that its Celebration Fire diamonds are the most brilliant in the world. Zales counsel promised this proof to the Court in his opening statement. During the hearing, however, no credible evidence to this effect was introduced (see infra Part IV.C). IV. ZALES CANNOT PROVE ITS CLAIM A. To Substantiate Zales Claim, Every One of Its Own and Competing Diamonds Must be Tested It is necessary for Zales to test each individual Celebration Fire diamond to substantiate its claim because of the meaning of its claim and the way its diamonds are marketed. Zales claims that each diamond is the most brilliant available, not that the average brilliance of the Celebration Fire line is the highest (which has not been established either). The consumer who NY01\HorvA\

6 Case: 5:12-cv JRA Doc #: 33 Filed: 12/19/12 6 of 11. PageID #: 508 buys each Celebration Fire diamond gets an individual brilliance score for that stone, not an average score for the Celebration Fire line. E.g. Pl. Ex To substantiate the most-brilliant claim, Zales would have to test every individual Celebration Fire against every competing diamond in the market. At the injunction hearing, Dr. Aggarwal noted with approval that Zales/PGGL grades each and every Celebration Fire for brilliance prior to purchase, stating that no claim can be made for the brilliance of a group of diamonds without testing every one. Aggarwal testimony, Dec. 18, With respect to the Shrenuj/Zales 51 competitor diamond study, Dr. Aggarwal could confirm the accuracy of the brilliance scores only as to the individual Celebration Fire diamonds that were tested by ImaGem. Pl. Ex Diamond brilliance testing expert Randall Wagner agreed. Def. Ex. 8 [Wagner deposition transcript] at 190 ( [W]e measure one diamond and we report on that one diamond. ). Because each diamond is unique, brilliance cannot be generalized there is no such thing as one brilliance for a line of diamonds, a cut of diamonds, or any other group of diamonds and Zales s assertion that its most-brilliant claim applies to every Celebration Fire is false. B. The Evidence Proffered by Zales Falls Far Short Zales only substantiation for its extraordinarily strong and broad supremacy claim turned out to be a study of 51 individual diamonds (or 57 or 46, depending on which evidence Zales cited) designed and conducted by Zales and the Celebration Fire diamond s manufacturer, a company called Shrenuj. Aggarwal testimony, Dec. 18, 2012; Pl. Ex. 35. Despite the absence of any documentation or non-hearsay testimony as to how the study was conducted, and without belaboring the record already before the Court, numerous deficiencies were shown by the evidence admitted at the hearing. NY01\HorvA\

7 Case: 5:12-cv JRA Doc #: 33 Filed: 12/19/12 7 of 11. PageID #: 509 First, the study tested only 2 to 3 diamonds from each competing line in an implicit attempt to compare average ratings (Pl. Ex to 13-8), when what was necessary to substantiate Zales claim was to prove Zales claim as to each Celebration Fire diamond. See supra Part IV.A. Thus, even had it been reliable, the Shrenuj/Zales diamond comparison tested the wrong hypothesis. See Castrol, 977 F.2d at 63 ( If the plaintiff can show that the tests, even if reliable, do not establish the proposition asserted by the defendant, the plaintiff has obviously met its burden [of proof in challenging an establishment claim]. In such a case, tests which may or may not be sufficiently reliable, are simply irrelevant. ). Second, the study s sample of 2 to 3 diamonds from each line are completely inadequate even to estimate an average for each line. This would require an adequate sample size for statistical significance. See Callaway Golf Co. v. Slazenger, 384 F. Supp. 2d 735, 742 (D. Del. 2005) (study supporting advertising claim was inadequate where, inter alia, low statistical significance due to small sample size invalidated the [results of the study] ). Accordingly, Dr. Sasian testified that the study could not support any generalization beyond the 51 individual stones tested, even if it were properly conducted. See Sasian testimony, Dec. 18, 2012; RyMed Techs., Inc. v. ICU Med., Inc., 2012 WL , at *12 (W.D. Tenn. Sept. 28, 2012) (for a study or survey to be sufficiently reliable to support an establishment claim, it must be based on, among other things, an appropriate sample size); Doctor s Assocs., Inc. v. QIP Holder LLC, No. 3:06-cv-1710, 2010 WL , at *17 (D. Conn. Feb. 19, 2010) (finding fault with study proffered in support of claim comparing amount of meat in sandwiches where the advertiser tested sandwiches from only 35 out of approximately 25,000 of competitor s stores and failed to use a geographically diverse sample). NY01\HorvA\

8 Case: 5:12-cv JRA Doc #: 33 Filed: 12/19/12 8 of 11. PageID #: 510 Third, the study tested the Celebration Fire against only a few competing lines, and it is not legitimate under advertising law to test only some of the competitors that one claims superiority against. See Callaway Golf, 384 F. Supp. 2d at 742 (upholding jury verdict that defendant s claim of the Longest Ball on Tour was literally false because, inter alia, study to validate claim tested advertiser s golf ball against less than 50% of the other golf balls on the PGA tour). Fourth, there were irregularities in the sampling, blinding, chain of custody, and data integrity that no witness could defend or explain. See Pl. Exs. 35, 36; Aggarwal testimony, Dec. 18, 2012; Hollander testimony, Dec. 18, Even the conclusion that three Celebration Fire diamonds were brighter than 40-something other diamonds, thus, was not established by the Zales/Shrenuj comparison. CONCLUSION Zales promises consumers that it has proven its diamonds to be the most brilliant in the world. Its counsel promised the same thing at the start of the preliminary injunction hearing. Yet, at the hearing, Zales could not even prove what the concept of brilliance of a diamond means. The testing with which it purported to prove its claims was invalid, and no witness could claim first-hand knowledge of the test, let alone defend its methodology and results. Zales cannot even produce a credible method for proving its extravagant yet powerful claim that each Celebration Fire diamond is more brilliant than any others that consumers can buy. In determining whether to grant a motion for preliminary injunction, a trial court must consider: (1) whether the movant has a strong or substantial likelihood of success on the merits of his underlying claim, (2) whether the movant will be irreparably harmed if the order is not granted, (3) what injury to others will be caused by the granting of the motion, and (4) whether NY01\HorvA\

9 Case: 5:12-cv JRA Doc #: 33 Filed: 12/19/12 9 of 11. PageID #: 511 the public interest will be served by the granting of the motion. See Dayton Area Visually Impaired Persons v. Fisher, 70 F.3d 1474, 1480 (6th Cir. 1995). These four considerations are factors to be balanced, not prerequisites that must be met. Id. Accordingly, the degree of likelihood of success required may depend on the strength of the other factors. Id.; see also Utd. Food & Commercial Workers Union, Local 1099 v. Southwest Ohio Reg l Transit Auth., 163 F.3d 341, 347 (6th Cir. 1998). At the conclusion of the December preliminary injunction hearing, all four factors weigh even more strongly for Sterling than they did at the outset of Sterling s motion. Absent injunctive relief, consumers will continue to be deceived by Zales false advertising and Sterling will continue to be harmed. All equities weigh in favor of injunctive relief, and Sterling requests that the Court grant its Motion for Preliminary Injunction. Dated: December 19, 2012 Respectfully submitted, NY01\HorvA\ THOMPSON HINE LLP By: /s/ Robert F. Ware Robert F. Ware THOMPSON HINE LLP 3900 Key Center 127 Public Square Cleveland, OH Rob.Ware@ThompsonHine.com August T. Horvath (admitted pro hac vice) KELLEY DRYE & WARREN LLP 101 Park Ave. New York, NY AHorvath@KelleyDrye.com Daniel S. Blynn (admitted pro hac vice) KELLEY DRYE & WARREN LLP 3050 K Street, N.W., Suite 400 Washington, DC 20007

10 Case: 5:12-cv JRA Doc #: 33 Filed: 12/19/12 10 of 11. PageID #: Attorneys for Plaintiff Sterling Jewelers Inc. NY01\HorvA\

11 Case: 5:12-cv JRA Doc #: 33 Filed: 12/19/12 11 of 11. PageID #: 513 CERTIFICATE OF SERVICE I certify that on December 19, 2012, a copy of the foregoing was filed electronically. Notice of its filing will be sent by operation of the Court's electronic filing system to all parties indicated on the electronic filing receipt. Parties may access its filing through the Court's system. /s/ Robert F. Ware, Esq. Attorney for Plaintiff Sterling Jewelers Inc. NY01\HorvA\