Monday, August 10, 2009

Hoist on its own potassium: Gatorade loses to Powerade

Stokely-Van Camp, Inc. v. The Coca-Cola Co., 2009 WL 2390245 (S.D.N.Y.)

In the district court’s words, Powerade “advertises its beverage by promoting its inclusion of certain electrolytes contained in sweat, and its competitor [Gatorade] wants it to stop.” In March, Coca-Cola relaunched Powerade as Powerade ION4, which is allegedly more like human sweat than both old Powerade and Gatorade (comment: ewww), in particular because ION4 has small quantities of calcium and magnesium; small quantities of calcium and magnesium are lost in sweat.

Gatorade sued Coca-Cola for false advertising, trademark dilution, and related torts.

The court found that sports drinks, as a category, have several components. First, they have electrolytes or salts, the most important of which is sodium “which stimulates rapid absorption of liquid by the body, helps the body retain fluid, and also stimulates the thirst response to encourage drinking.” They often contain potassium, which aids in hydration. And they contain carbohydrates, usually glucose, to provide energy, facilitate the absorption of liquid, and make the drink taste better. Gatorade is the market leader, with 75-80% share. Powerade, a me-too brand, has most of the remainder.

To improve market share, Coca-Cola decided to harp on the “sweat replacement” idea, pioneered by Gatorade. It relied on current scientific research about the amounts of sodium, potassium, calcium, and magnesium lost in sweat, calculating a ratio of 100 parts sodium to 24 parts potassium to 3 parts calcium to 1 part magnesium. It wasn’t feasible to make a true sweat-like formultion, because that would mean 800 mg of salt per 8-oz serving, “incredibly salty and kind of unpalatable.” (Comment: kind of? You think?) So they instead put in 100 mg sodium and an appropriate ratio of the other electrolytes, and adopted the name/tagline “Powerade ION4--Advanced Electrolyte System.”

Until recently, Gatorade touted the presence of calcium and magnesium in one of its variants, Gatorade Endurance Formula, attributing performance and hydration benefits to these ingredients. Studies didn’t show any positive effects on hydration, but its scientists were still optimistic about the possibilities. Gatorade scientists even filed a patent application for a sports drink enhanced with calcium and magnesium, claiming to improve fluid consumption and retention over conventional sports drinks. Gatorade made some claims to consumers, especially athletic coaches and trainers, about the functional benefits of calcium and magnesium, stating that its special formula was designed to more effectively replace electrolytes lost in sweat. Up through April 2009, just before Gatorade sued, the Gatorade website advertised that the calcium and magnesium in Gatorade Endurance Formula provide a performance benefit.

Gatorade caught wind of the Powerade ION4 plan, and initially wanted to “erase the point of difference” by reformulating Gatorade before ION4 launched. It experienced a calcium supply roadblock, however, and scrapped the reformulation because it couldn’t launch the new version before ION4 debuted. Then, on advice of counsel, it started to purge its ads of positive references to calcium and magnesium. It issued new talking points approved by the legal departement, telling spokespeople to say that calcium and magnesium are not important in a sports drink—only tiny amounts of these minerals are lost through sweat, and the tinier amounts in ION4 (remember that the ratio is the same, not the content) provide no material benefit. These new talking points left some employees “bewildered” about the apparent contradiction with past messages.

Meanwhile ION4 began advertising, first with a comparative campaign because Gatorade is the market leader and thus growing the brand would require comparison to Gatorade. The comparative ads were designed to last 60 days “so as not to give prolonged free publicity” to Gatorade and because retailers “don’t like it when brands within a category just compete at one another.” The ads included the cover of the April 6, 2009 issue of ESPN magazine. The front has half a picture and the line "you wouldn't settle for an incomplete cover" with a flap that unfolds, suggesting that Gatorade is “incomplete” and “missing two electrolytes.”

ION4 called itself “the complete sports drink,” containing four electrolytes “in the same ratio typically lost in sweat …. Upgrade your formula. Upgrade your game.” Other versions of the ad said Gatorade was “missing two critical electrolytes.” Billboards repeated the “incomplete” theme, as did the Powerade website.

The comparative ads were discontinued within the planned 60-day period; according to Coca-Cola, some ads in ESPN publications were discontinued earlier because Gatorade threatened ESPN with the loss of millions of dollars in ad spend. (The opinion has a tone suggesting the parties are both throwing tantrums; kind of funny how the same behavior—both in the marketplace and in the courtroom—can be spun as extreme rationality in the Holmesian ‘bad man’ sense or as childishness, depending on your viewpoint. Maybe the bad man is actually an undersocialized child?)

Coca-Cola also dropped the term “critical” from its ads, and has no intent to resume the “incomplete” or “missing two electrolytes” claims while this suit is pending. But it’s still making the “complete” claims, including a claim that “other sports drinks don’t” replenish these four electrolytes “in the same ratio typically lost in sweat.” Meanwhile, the Nutrition Facts box on the label said ION4 is “[n]ot a significant source of ... calcium ....” The revised copy says that the drink “helps replenish 4 electrolytes lost in sweat,” and the Nutrition Facts says, “Not a significant source of ... calcium [and] magnesium ....”

So: Gatorade alleged that the complete/incomplete/missing/critical etc. claims were false, and challenged the use of “upgrade your formula. Upgrade your game.” It also alleged dilution by tarnishment from the ads showing half a bottle of Gatorade and using the “incomplete” claim. (The federal claim is clearly barred due to the comparative advertising exception to 43(c); if litigated to conclusion, raises an interesting question of the extent to which NY’s dilution law, which has extensive built-up precedent, ought nonetheless be interpreted to match the federal law.)

The court found the request for a preliminary injunction against the incomplete/missing claims, and the allegedly dilutive uses of the half-bottle of Gatorade, moot in light of Coca-Cola’s sworn commitment not to resume the ads during the pendency of this suit. (Hmm. Given that Lanham Act cases are almost always resolved on such motions, that’s not a very strong commitment; I’m pretty sure it was open to the judge to find that a voluntary commitment was insufficient.)

On the remaining claims, the judge found that Gatorade failed to show falsity. First, on “The Complete Sports Drink” slogan, Gatorade conceded that ION4 was a complete sports drink, just not the only one. But the addition of “the” to “complete sports drink” was, the court ruled, non-actionable puffery: “consumers understand that the advertiser is not contending that the particular attribute or feature can only be found in its product.” Furthermore, “advertising terms” like “complete” are puffery becaues they’re subjective and nonfalsifiable. Gatorade’s expert admitted there’s no scientific consensus on the meaning of “complete” in the sports drink context.

Gatorade argued that the previous Powerade ads primed consumers to make the complete/incomplete comparative connection, even though the original comparative ads had ceased to run. But this isn’t the only reasonable interpretation of the ads, and so Gatorade couldn’t show that the claim was false by necessary implication.

Moreover, there was no evidence that any comparison to Gatorade was false: the parties agreed that Gatorade doesn’t have Calcium and magnesium. “But Coca-Cola does not claim in its advertising for Powerade ION4 that either calcium or magnesium provides any benefit other than the fact that they are added, for whatever that is worth.” “Pointing out” a true but meaningless fact can’t be literally false. (Oh, come on. A necessary implication of an ad focusing on the addition of those ingredients is that they’re important. Add to that the fact that calcium and magnesium are known to be essential nutrients, and we’re a far cry from an ad touting a meaningless made-up term that would confuse but not mislead consumers.) Anyway, Gatorade would have to show misleadingness to win, and it didn’t have a survey.

Gatorade tried to avoid the need for a survey by arguing that Coca-Cola’s bad intent to deceive warranted a presumption of deception, as Second Circuit precedent allows. The court found that the evidence here was insufficient to rise to the requisite level of egregiousness. Coca-Cola’s internal documents have “locker room type banter” and “other boorish comments” directed at Gatorade, meant to “fire the guys up.” But they don’t show an intent to deceive; the worst fact was a company scientist’s expression of concern that the use of “incomplete” might lead consumers to think, wrongly, that Gatorade wasn’t as functional as Powerade. And the court accepted the explanation that company executives ultimately concluded the ads were truthful given their meaning: Gatorade doesn’t have calcium and magnesium.

As for “Replenishes 4 critical electrolytes in the same ratio typically lost in sweat. Other sports drinks don’t,” this was literally true in the sense of being based on research on the average amounts lost in sweat. Gatorade argued that sweat loss varies from person to person, and even in a single individual. But the ads don’t claim that the ratio is the same for everyone, just that it’s the “typical” ratio. In lay speech, “average,” “typically,” and “usually” are often synonymous. This was another meaningless but not literally false statement.

Gatorade argued that “4 critical electrolytes” was false because calcium and magnesium aren’t critical to sports drink functionality. But the ad doesn’t say that calcium and magnesium are “critical” to hydration or to sports drinks, just that they’re critical, “for whatever that is worth.” It’s true that they’re vital to the human body. (Here again, I think the court is mistaking the function of the falsity by necessary implication doctrine, which is designed to fill in the easy logical/Gricean gaps that ads regularly use to get us to draw advertiser-favorable conclusions. The only reason to call the minerals “critical” is to suggest that one’s sports drink ought to contain them.)

“Upgrade your formula. Upgrade your game,” was also not literally false or false by necessary implication. The slogan isn’t comparative on its face (what?), and it could mean an upgrade from the previous formulation of Powerade. Even if Coca-Cola intended only a comparison to Gatorade, the text is still ambiguous. And it’s also literally true, even if both drinks provide hydration and performance benefits, because one plausible interpretation is that the slogan is meaningless rhetoric, “exhorting consumers to ‘upgrade your game.’” (Yes, and “Eat this. Be healthy” is just an exhortation too, I’m sure.) Anyway, it’s too vague and nonspecific to be a comparison. It’s also puffery—no reasonable consumer would be justified in believing that the drink would actually result in improved athletic abilities. (This is inconsistent with my experience, which is that lots of people believe this type of claim, maybe because they want to; my trainer was just telling me that her performance improved when she drank a certain type of energy drink.) And it’s puffery in that any implied superiority claim would be vague and nonspecific.

Without likely success on the merits, Gatorade couldn’t show irreparable harm; it couldn’t get a presumption of irreparable harm anyway because it failed to show that the current ads make comparative claims. (In a duopoly, as this market is, I doubt that explicit comparativeness makes a difference.)

The court also rejected Gatorade’s argument that the ads created a danger to public health by touting Powerade’s calcium content as “complete” even though Powerade does not have nutritionally significant amounts of calcium, creating the risk that people—especially at-risk female athletes concerned about calcium intake--will use Powerade as a calcium supplement. The court found this argument frivolous, because the label clearly states that Powerade isn’t a significant source of calcium, and any concerned consumer can simply read the label. (Compare to the recent 9th Circuit opinion on misleading product names arguably corrected by product labels.) “It would be remarkable indeed if a consumer were sufficiently concerned about obtaining the necessary daily requirement of calcium that he or she would drink a sports drink to obtain it, and yet so unconcerned that he or she would not even read the label that says the sports drink is not a significant source of calcium.”

Given Gatorade’s resources, its failure to show evidence of lost goodwill or lower sales was “striking,” and not in its favor.

Finally, Coca-Cola argued that Gatorade’s unclean hands disentitled it to a preliminary injunction, given that it had touted the importance of calcium and magnesium in sports drinks for years. Indeed, the court found, Gatorade had occasionally gone further than Coca-Cola in claiming performance or hydration benefits. In a similar case, Haagen-Dazs alleged that Frusen Gladje deceived consumers into thinking its ice cream was Swedish, when it was produced in the US—but so was Haagen-Dazs, and so the court concluded that it wasn’t entitled to equitable relief. Haagen-Dazs v. Frusen Gladje, 493 F. Supp. 73 (S.D.N.Y.1980). Gatorade, “having jumped on the bandwagon of calcium and magnesium first, [cannot] now jump off and claim that Coca-Cola must get off too.” Generally, wisdom may come better late than never, but a court of equity won't help you if you decide that someone else is doing a better job of fooling consumers than you did.

1 comment:

Steve Baird said...

Rebecca, nice post and commentary!

One of the things that surprised me was Gatorade's failure to submit survey evidence just in case it lost on its literally false assertions. Obviously, as the Court pointed out, they have the resources, they also had the time to obtain the evidence, it appears -- they filed the case in early April and the hearing on the PI motion wasn't until June, so why no survey evidence?

I have started to wonder whether the omission had to do with the fact that Gatorade had a history of making similar claims with respect to its Endurance Formula product -- if the results demonstrated consumers actually being misled, it might be used against Gatorade. Possible?

More of my thoughts on the topic, here: