May 11 (Bloomberg) -- A Johnson & Johnson unit that makes the artificial sweetener Splenda settled a lawsuit by Merisant Co., maker of rival Equal, after a jury found that advertising claims that Splenda is natural were misleading.

Terms of the settlement, agreed to after the jury reached its verdict, weren't disclosed. Closely held Merisant sued Johnson & Johnson unit McNeil Nutritionals in 2004, accusing it of violating federal and state laws prohibiting unfair competition and false advertising for saying Splenda was more natural than its competitors because it contained sugar.

The award was ``substantial'' and ``varied from the suggested number,'' juror Barbara Helms, an advertising director, said after the settlement was announced. Lawyers for Merisant said they were seeking $208.5 million.

Earlier today, the jury sent U.S. District Judge Gene E. K. Pratter in Philadelphia notes requesting reports from two damages experts and a calculator. Helms said the judge recommended jurors not reveal the amount of the jury's award, which wasn't read in court.

Officials from both McNeil and Merisant wouldn't comment on details of the settlement.

A verdict against McNeil may have altered the $1.5 billion worldwide market for low-calorie sweeteners, possibly forcing it to remove the language from packaging and marketing materials.

Yesterday, a French court ruled that McNeil violated the country's consumer-protection laws by using the phrase ``because it comes from sugar, sucralose tastes like sugar,'' referring to the sweetener's main component.

The Commercial Court of Paris awarded Merisant's French subsidiary 40,000 euros ($53,892) in damages and ordered McNeil to change its packaging within 30 days. In addition, the court ordered McNeil to phase out distribution of any products bearing the Splenda trademark within four months.

Shares Rise

Johnson & Johnson's shares rose 64 cents to $62.91 at 5:06 p.m. in trading after the close of regular trading on the New York Stock Exchange.

Splenda helped New Brunswick, New Jersey-based Johnson & Johnson increase sales of its over-the-counter drug and nutritional business by 2.4 percent to $2.7 billion last year. Johnson & Johnson, which also makes the pain killer Tylenol, had total revenue of $53 billion last year, making it the world's largest health-care products company.

McNeil's slogan for Splenda, ``made from sugar,'' doesn't violate any laws prohibiting false advertising, the company's lawyers argued during a trial in Philadelphia federal court.

Splenda generated $1.2 billion in gross sales between 2003 and 2006, Merisant lawyer Gregg LoCascio told the jury yesterday. Chicago-based Merisant lost at least $25 million in sales since 2003 because of McNeil's sugar claim, and McNeil made at least $183 million in unfair profits, lawyers for Merisant said.

Focus of Trial

The Philadelphia case focused on whether Splenda's main ingredient, sucralose, contains sugar. Both sides agreed that the process of making sucralose begins with sucrose, a type of sugar. They disagreed over the final product.

Sucralose is made by substituting three atoms in sucrose with chlorine, eliminating the sugar in the process, according to court papers. Tate & Lyle Plc, the London-based owner of the sucralose patent, sells it under the name Splenda through a contract with McNeil.

Merisant claimed Splenda uses synthetic compounds unrelated to sugar and its ads should be changed to reflect that. Splenda contains only 1 percent sucralose, LoCascio said.

LoCascio cited a survey in which almost half of the respondents believed Splenda contained sugar or a sugar mixture. In another survey he cited, 39 percent of people who previously used Equal thought Splenda contained real sugar.

Claim Caused Confusion

Splenda's sugar claim ``leads to confusion,'' jury forewoman Tami Drozda said today.

``If it's an ingredient, it should be marked and it wasn't listed in the ingredients,'' Drozda, an English teacher, said after the settlement was announced.

McNeil argued that its claims about Splenda are accurate. Splenda dominates the market for artificial sweeteners because it tastes better, not because consumers were duped, Steven Zalesin, an attorney for McNeil, said yesterday in closing arguments.

The case is Merisant Co. v. McNeil Nutritionals LLC, 04- 5504, U.S. District Court, Eastern District of Pennsylvania (Philadelphia).

To contact the reporter on this story: Sophia Pearson in federal court in Philadelphia at spearson3@bloomberg.net.

Last Updated: May 11, 2007 19:50 EDT