In this false advertising case, Vital (VPX) moved for partial summary judgment on the issue of damages, and prevailed. The parties compete in the energy drink/energy shot markets: Hansen makes Monster Energy and Monster Hitman Energy Shooter, while Vital makes Redline Princess and Redline Power Rush! 7-Hour Energy Boost. The court previously denied Hansen’s motion for preliminary injunction against VPX’s claims that Power Rush provides “7 Hours of Pure Energy,” “7 Hours of Sustained Energy,” and “No Crash.”
Under California law, restitution is available, but not non-restitutionary disgorgement. Because Hansen has no property interest in VPX’s profits, it was not entitled to monetary relief for any violation of the California Business & Professions Code.
Under the Lanham Act, Hansen was not entitled to actual damages. Although Hansen presented sufficient evidence to create a genuine issue of material fact on actual injury, the evidence of the amount of damages was speculative at best, making an award of actual damages improper. Ninth Circuit precedent is that actual injury isn’t required to obtain damages where deliberately false comparative claims give rise to a presumption of actual deception and reliance, but in the absence of such a presumption, plaintiffs need to show actual injury through methods such as consumer surveys and market analysis.
Hansen’s damages theory was sales diversion, and it presented evidence from which a reasonable jury could infer head-to-head, in-store competition. It also presented evidence of slower sales since the introduction of energy shots like Power Rush, making duration and “no crash” claims. And it presented evidence of causation: its consumer survey expert opined that a significant number (a total of more than 40%) of consumers understood from the Power Rush label that the product claims to provide seven hours of energy. Its consumer behavior and marketing expert opined that consumers would be motivated to choose drinks like Power Rush making duration and “no crash” claims over similar drinks that don’t make those claims.
VPX argued that, given the dozens of other energy shots like Power Rush on the market, a consumer would have purchased one of the other energy shots making those claims if Power Rush weren’t available. It also argued that buying an energy shot like Power Rush doesn’t divert sales from Monster Energy, an energy drink. “ Power Rush is a low-volume, non-refrigerated shot of caffeine that can be carried in a pocket or purse and consumed over several days. By contrast, Monster Energy is a large-volume, chilled, carbonated drink that would be consumed soon after opening. An energy shot commonly sells for over $3.00, while an energy drink can be purchased for $1.50.” But, drawing all reasonable inferences in Hansen’s favor, there was still a genuine issue of material fact.
Amount of damages was more troublesome. Damages need not be calculated with “absolute exactness,” but there must be a reasonable basis for computation. Hansen did not explain how VPX’s profits from Power Rush, its measure, was a reasonable measure of compensation for Hansen’s lost profits and damage to reputation. There was little evidence that every Power Rush or Princess sale was a lost sale for Monster Energy or Hitman. The advertising didn’t target Hansen for comparison; there are dozens of energy products on the market; and shots and drinks are “to at least some degree”aimed at different market segments; Princess, in a pink bottle, is marketed to women, and Hansen doesn’t sell a competing targeted product. (Calling Ann Bartow!) Thus, awarding VPX’s profits would not be a reasonable measure of harm and would constitute a penalty rather than compensation under §1117(a).
Hansen failed to provide a sufficient basis for determining damages in any amount, such as showing an extra drop in sales for its competing products compared to noncompeting products. Just because Monster’s sales growth slowed considerably while 5-Hour Energy’s was consistently strong doesn’t mean the court can get a lost profits estimate out of the difference. Any award of damages would be improperly speculative.
Section 1117(a) also provides for an award of defendant’s profits, subject to the principles of equity. Profits may be awarded (1) to compensate the plaintiff for diverted sales; (2) to prevent unjust enrichment; and (3) to deter. Intent is highly relevant. But (1) was inapplicable because VPX’s profits weren’t a reasonable proxy for diverted sales; Hansen didn’t show intent to deceive consumers and thus didn’t show unjust enrichment; and “awarding VPX’s profits would not serve a deterrence policy.” An injunction alone would suffice.
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