Friday, July 29, 2011

Shots across the bow: Energy companies lose various claims

Innovation Ventures, LLC v. Bhelliom Enterprises Corp., 2011 WL 3111961 (E.D. Mich.)

5-Hour Energy seems to be approaching Pom as a frequent flyer, which either says something about them as plaintiffs or the flux in their market segments. Innovation makes the two-ounce 5-Hour ENERGY shot, while Bhelliom makes energy pills and two-ounce energy shots using 8-HR and ENERGY on its products. The full name is Mr Energy® 8-HR MAXIMUM STRENGTH ENERGY, but "8-HR" and "ENERGY" appear in larger print. Innovation sued for trademark infringement and false advertising. Bhelliom counterclaimed for infringement and dilution of the registered Mr Energy mark.

On the infringement claim, Bhelliom argued that 5-hour ENERGY was generic, but failed to cite evidence. The court found it “apparent” that the mark was descriptive. The relatedness of the goods, marketing channels, and degree of purchaser care favored likely confusion, while likelihood of expansion and favored neither party. The strength of the mark favored nonconfusion, and similarity weighed “heavily” in defendant’s favor, “as the marks are decidedly dissimilar.” Examining pictures of the products, the mark was Mr Energy® 8-HR MAXIMUM STRENGTH ENERGY, even though 8-HR and ENERGY were larger. The 8 also contains a clock. Plus, the registered house mark Mr Energy® increased the differences.

Actual confusion also favored neither party, despite Innovation’s consumer survey and testimony from its CEO that Bhelliom received phone calls from consumers asking if it sold 5-hour ENERGY. The survey was conducted by a different expert in a different case, and the confusion between the parties’ marks was not analyzed in detail. Innovation’s expert said the survey was flawed and that if it had been properly conducted it would have found more likely confusion. The court wasn’t convinced that extrapolating from a concededly flawed survey was a good idea. As for the phone calls, mere inquiries are insufficient to demonstrate actual confusion: they didn’t show consumers’ beliefs, and the fact that consumers asked suggests that they may have been aware of different sources.

Intent also favored neither party. Bhelliom argued that it was using its registered mark with a descriptive term. Innovation argued that the court should infer bad intent from knowledge of Innovation’s mark and similarity between the marks. The court didn’t find sufficient similarity to draw that inference. (Um, why doesn’t this favor defendant?)

Based mainly on dissimilarity, Innovation failed to show likely confusion on summary judgment. “By selling its product under the descriptive name, ‘5-hour ENERGY,’ without further information as to the source of the product, Plaintiff necessarily assumed the risk of encountering competitive descriptive products in the marketplace.”

False advertising: Innovation alleged that Bhelliom falsely advertised the product as containing time-released caffeine and as being based on a 2004 study conducted by researchers at Harvard University. The Harvard study touted the superiority of ingesting low doses of caffeine over time as opposed to ingesting a large initial dose of caffeine. Bhelliom wanted to offer an 8-hour energy proposition, and asked a leading supplement manufacturer for quotes on two products, one containing timed-released caffeine and one containing conventional caffeine. Bhelliom decided to purchase a formulation containing conventional caffeine, but advertised its product as a “time released energy pill” based on a Harvard study finding that time-released caffeine was more effective at achieving sustained energy levels than single doses of caffeine. “Bhelliom also advertised on its website that its energy pill slowly released energy over time, as opposed to bombarding the consumer's system with caffeine in one large serving.”

Innovation also challenged a graph on Bhelliom’s website claming (1) to provide energy for 8 hours; (2) that “other shots” crash after two hours; and (3) that Bhelliom’s shot has the ability to provide consumers with energy for up to 10 hours as making false establishment claims. Innovation’s expert stated that there was no clinical research to support the claim of 8 hours of energy. Bhelliom argued that the graph didn’t purport to rely on data or studies, and that it is simply “a visual depiction of 8 hours.” (I don’t find this to pass the laugh test.)

The court found that Innovation failed to demonstrate a causal link between the alleged false advertising and its own harm. Claims seeking monetary damages require a higher level of proof, and Innovation had no proof of specific damages through lost sales or otherwise. Innovation sells more 5-hour ENERGY in one day than Bhelliom sold in six years. Moreover, the allegedly false statements appeared solely in press releases and websites, not product packaging, which affected the likelihood of harm, given Innovation’s position that purchaser care is extremely low for energy products. “If consumers typically purchase Plaintiff's and Defendant's products at convenience stores with minimal purchaser care, it is unclear how Plaintiff would suffer harm through statements that consumers could only observe by exercising a high degree of care, i.e., researching Defendant's press releases and website.” Summary judgment for Bhelliom.

Innovation relied on a presumption of harm for willful false comparative advertising, but failed to show that these ads were comparative. Stating that “other shots” crash after two hours doesn’t specifically compare 5-Hour ENERGY. (This seems inconsistent with the finding that Innovation is the market leader. Other cases say that you don’t have to name the market leader for a comparison to be understood to be to the market leader. Consumers will naturally infer that the comparison is relevant, and thus default to the market leader as the comparator. Also, I don’t think that courts should limit this presumption to comparative advertising. In willful cases, shouldn’t defendants assume the risk?)

Despite this result, I can’t see how Bhelliom’s statements are tenable or anything other than at least recklessly false, given the evidence recited here, and I doubt that the AGs or the FTC would be as forgiving as the court.

Counterclaims: Innovation uses a “running man” logo on its bottle and in ads, and calls him “The Energy Guy.” In 2009, Innovation added a website feature, “Ask The Energy Guy,” and called him “Mr. Energy Guy” in six instances. Bhelliom optimistically argued federal trademark dilution, which went about as well as you’d expect, since the trademark is not famous. Likewise, infringement failed because Innovation removed all the “Mr. Energy Guy” references and Bhelliom didn’t provide any harm evidence.

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