Innovation (doing business as Living Essentials) alleged
that NVE’s 6 Hour POWER energy shot infringed its trademark in 5-hour
ENERGY. After LE won a case against a
different competitor, LE distributed a “recall notice” stating that NVE's “‘6
Hour’ energy shot” had been recalled. NVE alleged that this constituted false
advertising and a violation of the Sherman Act.
The district court granted summary judgment rejecting everyone’s claims;
the court of appeals reinstated the trademark infringement and false
advertising claims, but affirmed on the Sherman Act.
The PTO initially denied LE’s 2004 application for
registration on descriptiveness grounds.
Starting in 2005, LE marketed 5-hour ENERGY nationwide. In March 2006, NVE introduced 6 Hour Power:
On appeal, NVE argued that LE failed to show that it had
acquired distinctiveness before NVE entered the market. The district court emphasized the
descriptiveness of LE’s mark as key in its award of summary judgment, but that
was in the context of an infringement inquiry, not a protectability
inquiry. (The court of appeals noted
that NVE has claimed in other litigation that 6 Hour POWER is inherently
distinctive, a “contrast” in position, though presumably NVE would like to
distinguish between power and energy.)
Unfortunately, the court of appeals erred in the basic test of
descriptiveness: knowing the
goods/services, is further inference or imagination required to connect the
alleged mark to the goods? That is why
“apple” is generic for apples, descriptive for the color of lipstick, and
arbitrary for computers. Sadly, though
the court began by noting that 5-hour ENERGY “simply describes a product that
will give someone five hours of energy, it continued:
But that is not the end of such an
inquiry. The first question one would ask is how would the energy be
transferred? Through food? Through drink? Through injections? Through pills?
Through exercise? Also, one would ask what kind of energy is the mark referring
to? Food energy (measured in Calories)? Electrical energy? Nuclear energy? With
some thought, one could arrive at the conclusion that the mark refers to an
energy shot. But it is not as straightforward as NVE suggests. Such cognitive
inferences are indicative of “suggestive” rather than descriptive marks.
As applied to a beverage, the “how” question is answered by
knowing the goods; the “what kind of energy” is not answered by imagination but
rather by basic knowledge of human physiology shared by average consumers who
understand that neither electric shocks nor nuclear radiation are generally
delivered, or desirable, via beverages.
“With some thought,” one could also arrive at the conclusion that the
mark refers to socks, or batteries, or any other good (at least any other good
as to which the term wouldn’t be deceptive).
Compare “Chicken Poop” for lip balm.
That’s both an actual example and arbitrary, though in the abstract,
without knowing the product, one would probably assume it’s generic for chicken
poop. Or compare “Best” for
anything. Since you couldn’t figure out
what the goods were from the simple term “best,” the court’s test implies that
“best” is suggestive rather than, as it is, highly descriptive. That’s why marks are not classified in the
abstract, without reference to the goods or services for which they are
claimed. “Cognitive inferences” are
properly only assessed in the goods/mark connection, not in inferring what
goods might be named.
Regardless, the court of appeals held that 5-hour ENERGY was
suggestive “‘because of the degree of inferential reasoning necessary for a
consumer to discern’ that the ‘5–hour ENERGY’ mark relates to an energy
shot. The connection between ‘5–hour’
and ‘ENERGY’ is ‘not so obvious that a consumer seeing [5–hour ENERGY] in
isolation would know that the term refers to’ an energy shot rather than, for
example, a battery for electronics, an exercise program, a backup generator, or
a snack for endurance sports” (citation omitted). Thus, though the suggestive/descriptive line
is hazy, the mark is suggestive and protectable.
The court of appeals then turned to the confusion
analysis. The district court found
dissimilarity of the marks plus descriptiveness pivotal in its conclusion,
along with NVE’s lack of intent to confuse.
LE focused mostly on intent, since there were diverging accounts of the
origin of the name from NVE President Robert Occhifinto and former NVE Vice
President Joe Palmeroni. Occhifinto
claimed that he chose the name because the caffeine’s effects last about 6
hours and because the rhyming scheme of an earlier product named “TOWER OF
POWER” led them to use the term “POWER.” The court thought this earlier product was a
“convenient coincidence.” (Okay, if the
generic name of the category is “energy shot,” and they can’t use the term
“energy” because it’s too close to a suggestive mark, then why isn’t “power” a
distinct alternative? In other words,
why is the use of “power” any problem at all?)
Palmeroni testified that he investigated the growing energy shot market
and that his market research focused on LE’s product, as it was “really the only
one that we took seriously” and the one whose sales ‘were blowing up.” In name choice, he testified that he focused
on having a shot that was better than a shot that lasted only five hours. He agreed that he believed that “the name 6
Hour Power was selected by N.V.E. to trade off of the success and reputation of
5–Hour Energy.”
The court of appeals thought that Palmeroni’s testimony
wasn’t particularly helpful and reflected NVE’s search for ways to compete with
LE, not to copy it. “In fact, when
Palmeroni raised possible issues relating to likelihood of confusion between
the products, Occhifinto discussed ways to differentiate the products, e.g.,
using a different color, to eliminate possible grounds of confusion.” NVE also challenged Palmeroni’s testimony,
given that he was fired before it adopted the 6 Hour POWER name, though he was
involved in discussing 5-hour ENERGY earlier.
Also, he’s involved in apparently vicious litigation against NVE on
other matters. Assuming its accuracy,
this testimony still didn’t impress the court of appeals: the focus on 5-hour
ENERGY “focused on its large market share and the need to catch up, rather than
to copy it” and showed intent to compete, not to copy.
The court of appeals deemed likely confusion a close
call. But the factors were “so evenly
balanced”—4 to 3 as the 6th Circuit counts factors, with an additional
factor not at issue—that “precedent counsels in favor of not granting summary
judgment.” (Perhaps oddly, the court of appeals didn't discuss the effect of the suggestiveness finding; but then, a borderline suggestive/descriptive mark can be considered relatively conceptually weak.) Comment: Other courts hold that it is
perfectly fine to give heavier weight to certain factors, depending on the
particular facts. For example, imagine a
plaintiff with a famous mark suing a direct competitor with a completely
dissimilar mark: while a number, even a majority, of the factors would favor the plaintiff, mere
counting wouldn’t reflect much about likely confusion. But here, the district court gave little
weight to much of LE’s evidence, including “a survey that used ‘highly leading
questions,’ evidence of confusion from ‘third party witnesses,’ and forty
alleged instances of consumer confusion. This was “the wrong posture to take on
summary judgment.” The case had to go to
a full trial.
The court then turned to the false advertising claims. Other parties made “6 Hour” energy shots—LE
sued two others in separate cases over the “6 Hour Energy Shot” and “6 Hour
ENERGY!” A court issued a preliminary injunction against the sale of 6 Hour
Energy Shot and a recall order, but it found in LE’s favor on the trade dress claims; it didn’t find
trademark infringement.
LE thought that
the recall order coming from the defendants didn’t go far enough—defendants
didn’t send it to retailers who bought the product from third parties. Thus, after the recall had been completed, LE
“took it upon itself to send an additional recall notice … to 110,000
convenience stores and truck stops and to place a notice in retailer magazines.” This notice said:
RECALL OF “6 HOUR” SHOT ORDERED
Court orders immediate stop to
manufacturing, distributing and sale of 6 Hour Energy shot.
Dear Customer,
We are pleased to announce that we
won a decision against a “6 Hour” energy shot that closely mimicked 5–Hour
Energy®. The United States District Court, in Case No. 08–CV–10983, issued a
preliminary injunction ordering the immediate recall of the “6 Hour” product,
and told its manufacturer to stop making, distributing and selling it.
If you have any of the “6 Hour”
energy shots in your store(s) or warehouse(s) contact the product's
manufacturer or your distributor to return the product immediately.
DO NOT RETURN ANY 5–HOUR ENERGY ®.
It can be difficult to tell 5–Hour Energy® apart from the “6 Hour” knockoff
product….
The producer of 6 Hour ENERGY!, BDI, sued LE for false
advertising based on this recall notice.
The district court in that case granted a preliminary injunction, since
LE didn’t win a decision against “a ‘6 Hour’ energy shot” as stated, but rather
won an injunction against the use of a confusingly similar overall trade
dress. The court there pointed out that
LE could easily have avoided confusing consumers by identifying the actual
manufacturer and product enjoined—as the court of appeals, indeed, did here
(yay!) by including pictures.
The district court in NVE’s case found that the recall notice
was neither false nor misleading.
Because LE was awarded an injunction against the producer of an energy
shot with the name 6-Hour, the notice was not literally false, even if it
lacked clarity. The court of appeals
here found that the recall notice was almost—but not quite—literally false.
“First, the notice could be viewed as either ambiguous or
false with respect to how the product is named.” The notice used quote marks that could be
read broadly to say that any energy shot whose name included “6 Hour” had been
recalled and never referred to the product actually recalled in one complete
phrase. At the time, there were several
other energy shots along with NVE’s with that phrase in the title, so this was
important. Relatedly, LE said that it had
won a decision “against a ‘6 Hour’ energy shot.” But that wasn’t literally true: it won a
decision against the use of an overall product image—label and bottle.
Also, the use of the indefinite article “a” was a
problem. “a ‘6 Hour’ energy shot”
suggests that there might be more than one, but at other points the notice used
“any,” e.g., “If you have any of the ‘6 Hour’ energy shots in your store(s) or
warehouse(s) contact the product's manufacturer”—whoever they may be—“or your
distributor to return the product immediately.”
That suggested that any 6 Hour shot was subject to recall, as did the
use of “the” to describe the recalled product.
As Justice Kagan has recently noted:
“Not an” sometimes means “not any”
…. If your spouse tells you he is late because he “did not take a cab,” you
will infer that he took no cab at all (but took the bus instead).… Suppose your
spouse tells you that he got lost because he “did not make a turn.” You would
understand that he failed to make a particular turn, not that he drove from the
outset in a straight line.
Caraco Pharm. Labs., Ltd. v. Novo Nordisk A/S, 132 S.Ct.
1670, 1681 (2012). Because “what does this article mean?” must be answered “it
depends,” the notice couldn’t be literally false. Comment: This is skipping the follow-up:
depends on what? In the examples above,
the context is provided by the nature of the question, not by further evidence
of audience reaction; in none of Justice Kagan’s examples, including the ones I’ve
omitted, was there any ambiguity in what the article meant in that particular sentence, because humans are context-making
machines. Thus, it’s not enough to create ambiguity for a word to have multiple
meanings in the abstract. If I say “I
ate an apple for lunch” to you (so you can’t hear capitalization or lack
thereof), you could not seriously believe that there is any question about
whether I ate a fruit or a computer, despite Apple’s fame. Likewise, were a laptop to advertise MORE
PROCESSING POWER THAN AN APPLE, without any indication that this was a joking
reference to a piece of fruit, there’s no ambiguity. The doctrine of falsity by necessary
implication recognizes this function of context.
That said, while I think this is a case of falsity by
necessary implication, it’s a closer call than some others. LE clearly took a victory against one
competitor as a chance to harass a wider segment of the competition, and I’d be
inclined to take into account that they easily could have specified more
clearly. In these circumstances, rather
than—as the court of appeals did—ruling that this was only a factual dispute
over misleadingness, I would leave it to the finder of fact to decide whether
this “close question” involved literal falsity, misleadingness, or
nonmisleading communication. The court
of appeals, however, held that misleadingness was the issue for the finder of
fact.
The district court excluded as inadmissible hearsay all of
NVE’s evidence that various unidentified retailers contacted them over the
notice. NVE only named one distributor
out of over 100,000 retailers nationwide.
But its witnesses testified that NVE and its distributors received a
number of calls “from convenience stores and truck stop retailers—the very
people that received the recall notice—who wanted to return ‘6 Hour POWER.’ One
NVE employee stated that the notice caused a ‘huge nightmare’ and the phones
were ‘blowing off the hook’ with calls to return the product. NVE claimed that
at least one sales program … ‘just died’ after the recall notice.” One witness stated that she received “phone
calls from brokers and customers and faxes of this legal notice sent to us and
that's when the nightmare began.... [I]nitially, we started getting faxes and
inquiries from our customer base, and then the phone calls just started pouring
in from all little mom and pop shops all over the United States, you know,
asking if they should pull our product.”
Others testified similarly about needing to send out notices to
customers and being “inundated” with calls.
Emails a month after the initial notice indicated that there were
continuing questions about sending back NVE products.
This was not inadmissible hearsay. It was too heavy a burden to expect a sworn
statement from a retailer who calls a distributor and claims confusion; the
calls were relied on not to show the truth of the statements but to show the
state of mind of the speakers. “The fact
that so many people called NVE immediately after receiving the notice at the
very least raises a genuine issue of material fact as to whether a significant
portion of the recipients were misled.”
LE said that these were non-actionable inquiries, not
evidence of confusion. But these weren’t
mere inquiries; the testimony was that many distributors called to stop buying
NVE’s product. NVE claimed that after
the recall, its sales growth for 6 Hour POWER dropped from 13.7% to 1.1%.” “NVE's damages expert estimated that NVE lost
$3.4 million in sales as a result of the recall notice. A jury could find that
these were not just inquiries; they were calls that resulted in lost sales. All
of these calls evidence a belief that ‘6 Hour POWER’ had been recalled. Had the
callers lacked such a mistaken belief, such phone calls would not have
occurred.”
NVE’s own corrective advertising was also relevant, not for
its truth but to provide circumstantial evidence that some retailers believed
that there was in fact a recall on “any of the ‘6 Hour’ shots in your store.” Together,
there was more than enough evidence to survive summary judgment.
NVE also argued that the false advertising, along with other
bad acts (including exclusivity requirements and registering 6hourpower.com and
sixhourpower.com), violated the Sherman Act.
But NVE only presented evidence of damages from the recall notice. False advertising isn’t actionable under the
Sherman Act unless it’s so difficult for the plaintiff to counter that it could
potentially exclude competition. “Isolated business torts, such as falsely
disparaging another's product, do not typically rise to the level of a Section
2 violation unless there is a harm to competition itself.” The Sherman Act protects competition, not
competitors. It was relatively simple
for NVE to counter the recall notice by sending its own notices; that was
enough to end the antitrust claim.
(Comment: I understand the desire to deal with false advertising on its
own merits, given the existence of the Lanham Act. The offered reason for excluding it from antitrust law, though—that false
advertising generally doesn’t harm competition—contradicts the underlying
theory of the Lanham Act, and in particular the idea that it was easy for NVE
to fix the problem contradicts NVE’s evidence that despite its corrective
actions it suffered millions of dollars in damages. I’m just saying, a better reason would be
better.) So that was the only part of
the district court’s decision that was affirmed.
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