Monday, January 30, 2017

Placebo effect means customer satisfaction doesn't disprove harm; suggestive TM can be fact claim

In re 5-hour ENERGY Marketing & Sales Practices Litig., No. MDL 13-2438, 2017 WL 385042 (C.D. Cal. Jan. 24, 2017)

Plaintiffs alleged that defendants engaged in deceptive and unfair business practices under the laws of various states and the Magnuson-Moss Warranty Act in selling 5-hour ENERGY, including  both representations on the 5HE packaging and off of it.  On-label representations include the product’s name and the claims to provide “five hours of energy” or “hours of energy,” and “no crash.” These statements were allegedly misleading because 5HE provides only a few minutes of energy, at most, and results in a “crash” at the end of the five hours.  Plaintiffs alleged that they used 5HE for a while—up to 1300 times for one plaintiff—before discontinuing use.

Defendants argued that the repeat purchases showed that plaintiffs weren’t injured and that, after their first purchase, they couldn’t have been deceived because they had personal experience with the product and no longer required the statements on the packaging to understand the product’s effects.  However, as a matter of law, repeat purchase isn’t proof of lack of injury; injury is a matter for the jury.  Federal Trade Commission v. Pantron I Corp., 33 F.3d 1088, 1097 (9th Cir. 1994) (even if some consumers were satisfied and became repeat purchasers, claims were false as a matter of law).  In particular, the Pantron court said, “Where, as here, a product’s effectiveness arises solely as a result of the placebo effect, a representation that the product is effective constitutes a ‘false advertisement’ even though some consumers may experience positive results.” Or, as the court here says, “what mattered most in a false advertising claim was not how consumers felt about the product but what the product actually did.” The case law establishes that “evidence of consumer satisfaction takes a backseat to scientific evidence showing that the product’s claims are verifiably false.”

So too with defendants’ reliance argument based on plaintiffs’ personal experiences.  Cases accepting similar arguments concerned “items like a lipstick that promises 24-hour coverage or a ‘fresh’ orange juice—products where the consumer can quickly tell whether the representations on the products’ packaging are true.”  But, as the lipstick case recognized, for things like “dietary supplements”—exactly the issue here—it might be harder to tell for some products.  [That is, 5HE is at least partially a credence good, not an experience good.] Here, plaintiffs testified that they weren’t sure or that they thought they should give the product a chance.  “Although the Court is skeptical that the Plaintiffs on the far end of the spectrum—those who purchased 5HE several hundred times before discontinuing use—can state a false advertising claim for their later purchases, Plaintiffs have raised a genuine dispute of fact that at least some subsequent purchases satisfy the reliance requirement.” A trier of fact should decide when the “reasonable consumer” would learn of the efficacy of the product, especially given that “consumers may operate for some time under a ‘placebo’ effect before realizing that the product lacks efficacy.”

Although plaintiffs couldn’t plead the off-label representations they relied on with sufficient specificity, the court found that some state consumer protection laws didn’t impose reliance requirements, only exposure to the misrepresentation: New York, New Jersey, and New Mexico don’t have reliance.  So too with NJ and California warranty law.  Defendants argued that causation was still required, but “[t]o prove causation in a state that does not impose a reliance requirement, the plaintiff need only prove that the reasonable consumer is ‘likely to be deceived,’” which would be better decided by the trier of fact.

Courts have required that a “written warranty” under the Magnuson-Moss Warranty Act reference a “specified period of time” in order to be actionable. Plaintiffs argued that the 5HE trademark, the “five hours of energy,” and the “no crash” statements qualified, but defendants argued that the 5HE trademark couldn’t be the basis for an MMWA claim because it’s suggestive as a matter of law, not descriptive, and “is used to indicate the source of goods, not to provide a warranty to customers.”  The case law holds that trademarks can be warranties.  The Sixth Circuit’s conclusion that the trademark was suggestive rather than descriptive had “little relevance.”  “It is unclear to the Court why trademark classifications should play any role in determining whether the trademark constituted a ‘written promise’ to consumers. As simple as it is, the 5HE trademark meets the standard required by the MMWA.”

The court dismissed claims related to decaffeinated 5HE packaging because none of the named plaintiffs had bought it.  Though the alleged misstatements on the packaging were the same, the ingredients differed significantly—6 mg of caffeine compared to 200 mg.  The composition of the product would be very important to the issue of whether the product provided “five hours of energy” and caused a “crash” at the end of the five hours, and no remaining named plaintiff could testify about their experiences with the decaffeinated product.

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