Friday, October 01, 2010

Judge to energy drink sellers: out of my courtroom, fight it out in the market

Innovation Ventures, LLC v. N.V.E., Inc., 2010 WL 3743652 (E.D. Mich.)

Plaintiff sells a 2-ounce “5-hour ENERGY” beverage.  Defendant sells a 2-ounce “6 Hour POWER” beverage.  Plaintiff sued for common-law infringement.  Defendant counterclaimed on various grounds.

Counterclaims first (I am omitting some): Plaintiff has a registration on the Supplemental Register; defendant counterclaimed to cancel it on the ground of fraud.  The court ruled that defendant lacked standing because it had suffered no harms from the presence of the mark on the Supplemental Register, which confers no substantive rights (but does show up in searches and does provide a basis for refusing registration to others).  Plaintiff didn’t rely on the supplemental registration (as it couldn’t) in this litigation; even if defendant had standing, the court would decline to exercise its discretion to cancel the mark in the absence of a cancellation petition to the PTO.

Defendant also counterclaimed for false advertising based on a letter entitled “Legal Notice” that plaintiff distributed.  In 2008, plaintiff sued N2G Distributing and Alpha Performance Labs based on their sale of a competing 2-ounce “6 Hour ENERGY” shot.  It obtained a preliminary injunction directing a recall and enjoining the defendants from distributing etc. the product.  Plaintiff then sent the following legal notice to over 100,000 retailers, i.e., convenience stores and truck stops, which provided in relevant part:

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 all 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. If you have any questions, please call us at 248-950-1700 ext. 217.

In other litigation against another competitor making “6 Hour ENERGY!,” BDI Marketing, BDI Marketing received a preliminary injunction from another judge in the Eastern District of Michigan related to the legal notice, pursuant to BDI’s false advertising counterclaim. Defendant claimed that the legal notice caused it approximately $3.4 million in damages.

Defendant argued that the notice was literally false, so deception could be presumed.  The court first declined to rely on the BDI case because it involved “different parties and circumstances” (how?) and took place at the preliminary injunction stage.  Anyway, the district judge there only found the legal notice misleading.  And the court disagreed with the conclusion that the notice was false.  According to the magistrate judge in the BDI case, the plaintiff didn’t win a decision against a “‘6 Hour’ energy shot’ as stated, but rather against a specific product from N2G whose overall trade dress was confusingly similar.  Here, however, the court concluded that it was undisputed that plaintiff won an injunction against the producer of an energy shot using the name “6-Hour,” as stated in the notice. 

Comment: Well, not exactly.  Part of the name of the product that was enjoined was “6-Hour.”  Why didn’t plaintiff provide the full name of the product?  This is why the false/misleading distinction is so mischevious.  The omission of the full name was misleading, there’s an obvious reason for the omission, and—crucially—providing the truth would have been just as easy as providing the misleadingly incomplete information.  Given that the costs of telling the truth are so low here, we shouldn’t make a Lanham Act claimant run an expensive and no doubt hotly contested consumer survey to show that the misleading omission did what it was likely to do.  Where removing the misleadingness without decreasing the provision of truthful information would be harder, there may well be reason to make it harder for challengers to prevail.

But no: “Stating that the decision was based on the use of an overall product image would have, perhaps, provided more clarity, but the absence of the explanation for the injunctive relief does not render the statement literally false.”  As a result, defendant needed to show actual deception of a substantial portion of the intended audience, retailers.

This was lacking.  Defendant had numerous statements from employees, distributors, and brokers, who reported being confused, but that doesn’t show how retailers reacted.  (Because retailers are entirely different classes of human being, and likely to be more expert in distinguishing types of 6-hour energy drinks than distributors!)  Defendant also offered statements from the same sources about confusion among retailers, but this was hearsay.  (There are a bunch of cases reaching this conclusion; interestingly, this is not a uniform rule, because some courts apply a state of mind exception.)  Defendant further offered direct testimony from one distributor about lost accounts and sales following the legal notice, but “given that the legal notice was distributed to over 100,000 retailers nationwide, this hardly constitutes evidence that a significant portion of the intended audience was actually deceived.”  Successful claimants usually provide a consumer survey, but there wasn’t one here.  (Note also the implications for Lanham Act claims in specialized markets: if you think a consumer survey of the general public is expensive, you should see what it costs to survey only a subset.)

Anyway, deception means being tricked into believing an untruth about a product; mere confusion and inquiry are insufficient.  Defendant’s evidence only went to confusion and inquiry, which cost defendant time to clear up.  Thus, defendant didn’t show actual deception sufficient to get damages.  Likewise, because the court found that “a plain reading of the legal notice would not trick a reasonable viewer into believing that 6 Hour POWER had been recalled,” and nowhere stated or implied that “all” 6 Hour products had been recalled, defendant wasn’t entitled to injunctive relief.  “At worst, the legal notice should have caused the intended audience to inquire as to which product bearing the name ‘6 Hour’ had been recalled; there was no language that could have tricked a reasonable viewer into believing that it applied specifically to 6 Hour POWER.”  But this was simple ambiguity, which was insufficient to find a tendency to deceive.  Summary judgment for plaintiff.

Plaintiff also won summary judgment on the interference with contractual relations counterclaim because defendant couldn’t show specific facts that a jury could find showed actual malice.  And antitrust counterclaims failed because, when such claims are based on advertising, a claimant has to allege facts sufficient to overcome a presumption that false advertising has a de minimis effect on competition.  Thus, it must demonstrate that the advertising was clearly false and that it would be difficult or costly for the victim to counter the false advertising.  (This is black letter law, but I don’t know why.  These factors have little to do with monopolization or attempted monopolization; if we want to make antitrust claims harder to win, as we clearly do, shouldn’t we look to something more tied to antitrust principles?)  Anyway, defendant failed to show that the notice was clearly false.

Plaintiff’s claim for infringement of the 5-Hour ENERGY trademark, however, failed.  The products are the same, they’re sold in similar marketing channels, and they’re often impulse buys made without great care.  However, the mark was not strong—it was highly descriptive.  Secondary meaning alone wasn’t enough to make a mark strong.  (I think the court meant that “secondary meaning merely sufficient to allow the term to count as a mark doesn’t make a mark strong,” because a highly descriptive mark can be strong in the marketplace, like American Airlines.  And this is obviously true, otherwise there would be no such thing as a weak mark.)

The key factor was the dissimilarity of the marks.  The only shared term was “hour,” the least prominent word.  The fonts are very different.  Defendant also uses its house mark, STACKER 2®, lessening the potential for confusion.

Plaintiff’s evidence of actual confusion was insufficient.  Where the parties have been doing business for some time and have advertised extensively, isolated instances of confusion are not entitled to great weight.  In fact, the existence of only a handful of instances of actual confusion after significant time or concurrent sales may even lead to an inference that confusion is unlikely.  And confusion that is short-lived or on the part of individuals casually acquainted with a business is worthy of little weight.

Plaintiff argued that its survey found a 38.5% likelihood of confusion, but defendant argued that the questions were highly leading.  Plaintiff merely argued that this went to weight rather than admissibility—so the court didn’t give it much weight.  Nor did inquiries from customers about whether the same company made the two products count as actual confusion—they don’t show actual belief, and in fact indicate that consumers may have been aware that the sources were different. 

There were also three third-party witnesses.  One, who’d never purchased either product but had seen 5-hour ENERGY in ads and at stores, complained to plaintiff about a 6 Hour POWER TV ad.  Another emailed plaintiff to complain when he felt nauseous after consuming 6 Hour POWER. The third was a retail buyer who stated that she believed that her store sold “5 hour power,” and later said “I guess I thought they were interchangeable terms.”  This was entitled to little weight.  The first two were only casually acquainted with the products at the time, and the second said in his deposition that he mistakenly contacted plaintiff and didn’t actually believe that plaintiff made 6 Hour POWER at the time.  The court didn’t explain why it discounted the testimony of the third witness.

Finally, plaintiff offered an admission log with reports of 40 instances of confusion.  Defendant argued that many were inadmissible hearsay and that they were de minimis in light of the millions of products sold over the years.  The court agreed on both counts.

On intent, the court found that defendant didn’t adopt the mark with the intent of benefiting from plaintiff’s reputation.  Defendant argued that it used “POWER” due to its previous success with energy products sold under the rhyming name TOWER OF POWER, and that it chose “6 Hour” based on research indicating that one of the product's ingredients, caffeine, has effects in the human body lasting approximately six hours and because it desired another rhyming name. This was credible evidence that plaintiff did not choose the 6 Hour POWER mark to intentionally copy Plaintiff's mark. The court was unwilling to infer intent based on defendant’s knowledge of plaintiff’s mark, given the dissimilarities. 

The court was unwilling to find a likelihood of confusion merely because defendant's mark, like plaintiff's mark, describes the number of hours of energy that it will provide.  “To hold otherwise would, in essence, give Plaintiff a monopoly on the use of all marks in connection with energy products that describe the amount of hours or other denomination of time for which the products function.”  The marks here were similar to those used in “dollar” stores.  Marks including the word “dollar” describe the kind of store, and multiple “dollar” marks aren’t thereby confusingly similar.  Summary judgment for defendant.

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