"Legal outcomes generally take quite a long time and 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," Robert Dilenschneider, a PR strategist and CEO of the Dilenschneider Group specializing in strategic communications had predicted in his interview with CE Online. Read {Brand Battle/ September Issue}. This is what has precisely happened!

The tiny Trenton NJ based organic plant food maker, TerraCycle has finally announced the settlement of legal dispute with Marysville, Ohio based industry leader Scotts Miracle-Gro.

In an interview with Chief Executive Online, Tom Szaky, CEO of the tiny upstart said that the cost of fighting the lawsuit was burgeoning and the lawsuit was a massive distraction in running the business. "I am glad it’s over and I put this experience behind me," Szaky told Chief Executive.

As against the known fiery rhetoric from the TerraCycle CEO, Tom Szaky chose to adopt a conciliatory tone in the official statement. "We recognize that Scotts filed this lawsuit based on a legitimate need to uphold the accuracy of advertising claims and protect its trademark rights. We also regret certain statements that were made about Scotts in the heat of litigation," Szaky said in the statement, a clear departure from the company’s combative stance as evidenced in its Internet-based PR battle.

According to the settlement reached last week, TerraCycle has agreed to modify its packaging pattern (TerraCycle will switch to a green and orange pattern), stop claims that its plant food products were superior to a leading synthetic plant food product and it may not claim that any independent tests or university studies were conducted to support such claims. TerraCycle also will remove the images of fruits and vegetables on its labels.

Scotts Miracle-Gro, the $2.7 billion dollar plant food company, had filed a lawsuit against its tiny counterpart TerraCycle with sales of $1.5 m last year for false advertising claims and trade dress infringement. Scotts had claimed that TerraCycle's packaging style with the distinct green yellow color combination was confusingly similar to its trade dress.

Scotts Miracle-Gro said that it was happy to end the dispute amicably. "Scotts is pleased to resolve this case and believes that the settlement serves the public’s interest in ensuring the accuracy of advertising claims, as well as protection of the valuable Miracle-Gro brand," Jim King, spokesperson for Scotts said in the statement.

Elaborating on the settlement with Scotts, Tom Szaky said that they were trying to settle the dispute for over a long period of time, but couldn’t because Scotts filed a lawsuit against them. "We’ve been trying to get over the things for quite some time. In fact we always wanted to settle the dispute, but Scotts filed a lawsuit against us and it took the things to this level. We knew that even financially it wasn’t viable, but we thought to battle it out," Tom Szaky said.

Refusing to comment on the reason behind Scotts’ decision to negotiate a settlement now, Szaky said that he was legally bound not to comment on this. "When we tried settling down, Scotts proceeded with the lawsuit, but now both of us decided to finish it off," he said.

Lessons for Entrepreneurs

Legal pundits assume that the publicity generated by TerraCycle, might have certainly helped the organic plant food manufacturer at least to some extent. Laura Lee Norris, an expert on Intellectual Property Rights based in Los Gatos, CA, says that though it is not clear if the media counter attack by TerraCycle got them the victory on Scotts, but certainly it should’ve been of some help to them.

"It isn’t clear that TerraCycle “won” by using its media counter attack, but it is possible that TerraCycle’s media campaign brought Scotts to the negotiating table," says Norris adding further: "we never know whether Scotts would have been willing to settle on similar terms in the absence of the TerraCycle’s counter media strategy.”

Tom Szaky is optimistic about the future prospects of his company and looks at this settlement with Scotts as a major victory for TerraCycle. “In the end, it was amazing how this lawsuit generated so much publicity to TerraCycle and I think that was a big win,” Szaky remarked. Szaky says that the lawsuit and the aftermath gave a lot of brand recognition to TerraCycle, which would have been otherwise impossible. "We never knew that the media and the public would respond to this lawsuit so positively and it was a big surprise for us," he says, adding that TerraCycle sales have gone up because of the fierce media campaign surrounding this lawsuit. "The sales for 2006 were $1.5 million and as of now it is $2.6 million and by the end of this year, we can probably finish off with at least $4 million in sales and that is remarkable," he says.

While this being the scenario, PR experts and analysts project a mixed response on the settlement. Some of the observers chose to declare this settlement as a clear victory for Scotts; while the other few said both the parties secured a win against each other. "Scotts clearly won. While they didn’t get the money, they did achieve just about everything else they sought. TerraCycle has to stop using the color scheme and they totally have to redo their marketing approach," Dilenschneider told CE Online.

However, Ken Makovsky, an investor relations expert and President of the Makovsky & Co, a firm specializing in investor and public relations, begs to differ and says that Scotts’ victory was mostly restricted to the legal aspect of the lawsuit, but TerraCycle managed to secure a victory in the public domain. “While Scotts won the legal battle, TerraCycle won in the court of public opinion. Though TerraCycle has to desist from certain product claims and has to change its packaging, the company has greatly expanded its awareness to an extent that "money can’t buy." Scotts is not going to gain any customers as a result of this agreement, but TerraCycle undoubtedly will," Makovsky adds.

Ken Makovsky is also of the opinion that both the parties have gained equally out of this case. "As a result of the court victory, TerraCycle will desist from making certain claims, which is what Scotts wanted. On the other hand the notoriety and awareness generated by the lawsuit certainly benefited TerraCycle, which probably the company couldn’t afford the advertising value of the publicity it received. Also, you have the "David & Goliath" storyline and people tend to sympathize with the underdog. Perhaps, TerraCycle gains some customers as a result," Makovsky reiterates.

The Scorecard

Norris says that in any instance of rapprochement, both the parties win and lose to a certain extent, mostly because of negotiations. "I am sure that is the case with the TerraCycle and Scotts’ settlement as well," she says.

When there is no confidentiality clause in the settlement, it shows that there’s nothing in the agreement which can be embarrassing to either parties, says Norris. Scotts requires TerraCycle to host the copy of the agreement on its website www.suedbyscotts.com, which was actually conceived for lampooning Scotts Miracle-Gro and its chairman James Hagedorn.

"This is telling, because often when a litigation matter settles, confidentiality is a chief concern. The party (or parties) who agree to make unfavorable settlement concessions would ordinarily insist upon confidentiality of the settlement terms. Because Scotts required TerraCycle to publicize the agreement, it is sending a message that it has nothing in the agreement to be ashamed about," Norris elaborates.

According to Norris’, though TerraCycle apparently cannot claim that its products were independently tested for superior quality, the restriction was temporary. “TerraCycle is only restrained from doing so until it has an independent scientific study conducted with statistically valid conclusions, and the full body of the resulting report is published,” explains Norris adding that Scotts must be having issues with the truthfulness of TerraCycle’s previous claims relating to “independent” or “university” studies and that might be the reason for including this clause in the agreement. “Because the issue was never vetted at trial, we won’t know whether Scotts’ position was correct. Nevertheless, as part of the settlement, TerraCycle is in effect agreeing to a temporary hiatus on making such claims until it can have another independent study conducted,” she elaborates.

For Laura Lee Norris TerraCycle’s principal gain was in the form of eliminating the risk of being shut down by an injunction or hit with a large judgment. "For a small company, this type of outcome can dictate the company’s ultimate success or failure. The orderly six month inventory depletion mechanism of the agreement is a better outcome for TerraCycle; it gives TerraCycle time to redesign its packaging and minimize interruptions in product availability," she says, however expressing fears that the cost of redesigning, repackaging and advertising will have to borne by TerraCycle, which means it's a compromise on TerraCycle’s part.

However, Tom Szaky rules out that redesigning and repackaging could ever be an issue for them. "We were planning to redo the packaging months before the lawsuit came up. We have launched some new products and we wanted the designs and the logos to be more appealing and competitive," he asserts. Szaky says that the company never ever went for advertising as such and they looked at the media to report on its products. "We are very PR centric and we don’t advertise as a company. We totally depended on the media to talk about our products. So if you look at the terms in the settlement agreement, there’s nothing that we’ve lost as such," Szaky remarked.

Role of the Blogs

However, Dilenschneider believes that the media exposure received by TerraCycle didn’t help the organic plant food company much. "The media over the Scotts/TerraCycle battle is much less important than what was achieved in the lawsuit. Through the lawsuit, Scotts took an equal footing, a significant step up in the battle of the fertilizer business. They should find a way to leverage this in terms of their public relations," he recommends.

In the blogosphere, the response on the settlement was clearly on the TerraCycle’s favor.

Inadvertent Gardener, a blog dedicated to gardening, said that it was hard to believe Tom Szaky could back off from his fiery rhetoric and tend to be as docile as was depicted in the press release about the settlement. The writer in his blog post, “quoted through clenched teeth” says: “Of course, I believe Tom Szaky said this about as much as I believe I could grow a blue rose. These quotes were never delivered at all. They were manufactured in the Scott’s Miracle-Gro Corporate Communications department, and certainly run by dozens of lawyers, and probably run by the Vice President of Hoo Ha and the Vice President of Wickety-Wack.”

Reacting to the report about the settlement, a reader with Inadvertent Gardener said that he was always suspicious about Scotts Miracle-Gro. “This is terrible. I always had my suspicions about Miracle-Gro, and this confirms them. I like that the suedbyscotts.com site has a link to where you can buy TerraCycle products. I hadn’t heard of it before, but now I’m going to buy some,” the reader remarked in his comments.

The Environmental Blog, a website exclusively reporting on clean and green environment, said that there was high demand for organic products and TerraCycle could get the required publicity. “TerraCycle will have to change some claims and product labels, but if anything they got, is some great publicity from the lawsuit. Keep up the great work guys, we need more eco friendly companies like TerraCycle,” the writer with the blog said.

A reader in his comments on the article with Environmental Blog was also of the same opinion. He said: “I think having companies like TerraCycle improve the market, by enhancing competition and creating innovation.”

PR experts also agree with the blogosphere line saying that the Scotts victory was temporary and there could be larger repercussions to its product base in the future. "While Scotts won in the courts and protected their packaging, this could be a temporary victory. The market for organic products is growing exponentially and the tide may be turning against marketers of traditional products. Scotts has its own line of organic products, a fact which didn’t seem to be communicated in the settlement. You have to be in the market or you run the risk of losing market share to upstarts such as TerraCycle," Makovsky points out.

Commenting on the future course of action, Dilenschneider feels that both the companies will fight for capturing the market. "The outcome is vigorous competition between Scotts and TerraCycle. Neither company is going to go away. Both have dug trenches and are prepared for all-out warfare in the future," Dilenschneider quips.