5 hours of energy, 5 years of lawsuit

Innovation Ventures, LLC v. N2G Distributing, Inc., --- F. Supp. 2d ----, 2011 WL 900054 (E.D. Mich.)

Another round in the energy shot wars. Innovation makes 5-Hour ENERGY, a drink that purportedly reduces fatigue. N2G created the “6 Hour ENERGY Shot,” using a red-yellow-black color scheme with a silhouetted figure climbing a mountain range, strikingly similar to Innovation’s packaging, and N2G used a caution statement that was exactly the same as Innovation’s.

Innovation sued for trademark and trade dress infringement, copyright infringement, false advertising, and counterfeiting. In 2008, the court granted a preliminary injunction based on the trade dress. After that, Innovation ran ads and sent letters to more than 100,000 truck stops and convenience stores referring to a “6 Hour Energy product” rather than identifying N2G by name and informed store owners that they “could be subject to liability” under federal law for selling “this product.” Each letter contained a copy of the complaint, which had a black-and-white photocopied picture of N2G’s product on page 6. N2G counterclaimed for tortious interference, violation of state consumer protection law, and various trademark challenges.

The PTO refused registration to 5-Hour Energy on mere descriptiveness grounds; it’s now on the Supplemental Register.

Innovation wisely conceded that its mark lacked inherent distinctiveness (puzzlingly, the court dropped a footnote that “energy” might be suggestive; registration on the Supplemental Register is generally understood as a concession of descriptiveness), but argued secondary meaning, emphasizing the presence of consumer surveys and proof of intentional copying. Its first survey of consumers of 2-ounce energy drinks led its expert to conclude that 77% of respondents called 5-Hour Energy a brand name, while only 16% thought it was a common name, better than the comparison brands. Another survey, not limited to energy drink consumers, found 39-52% brand recognition. And a final survey of prospective purchasers of energy shots found 64% association of 5-Hour Energy with a single company.

As for intentional copying, Innovation relied on the similarities in the product packaging. It also submitted unsolicited consumer emails as evidence of association with a specific source, argued that it had used the mark for more than six years, and noted that it had spent millions on advertising and sold millions of bottles. Various industry articles recognized 5-Hour Energy as an established brand, and N2G didn’t dispute that Innovation “advertises extensively and holds sway over a substantial portion of the energy shot market.”

The surveys took place after the alleged infringement (they were done in late 2008 while the alleged infringement was in March 2008), but the court could take that into account in weighing them. Defendants argued that the product was known as Chaser 5-Hour Energy until recently, but the court pointed out that while “Chaser” was part of the packaging, the words 5-Hour Energy were darker, larger, and more prominent. Defendants’ expert also criticized the three surveys. But even viewing this evidence in a light most favorable to defendants, no reasonable juror could find lack of secondary meaning “when confronted with the deluge of evidence presented by Plaintiff. Most notably, Defendants have not produced any evidence explaining how their product's very similar mark and design were independently derived, without any reference to Plaintiff's product.” (Intentionally copying the trade dress isn’t the same thing as copying a descriptive term, though—another reason to copy a descriptive term is that it’s descriptive.)

The court cautioned that merely descriptive terms couldn’t be appropriated by a single producer. Thus, Innovation didn’t own “5-Hour Energy” exclusively. But it did have a right to be protected against unfair imitation. “Therefore, viewing the marks at issue in conjunction with their trade dress, the evidence of intentional copying is so clear in this particular case that Plaintiff's mark should be afforded secondary meaning.”

Innovation also won summary judgment on its copyright claim, because N2G simply copied the medical cautionary statement verbatim. The court ruled that the statement had the minimum necessary level of originality to be copyrightable. Though N2G’s president testified that he didn’t copy the caution, N2G didn’t explain how it independently came up with an identical caution statement. Intentional copying was the only explanation, and it couldn’t be rebutted by the president’s unsupported, self-serving testimony. N2G argued mootness because the packaging and cautionary statements had been changed. But there’s still the initial infringement; though Innovation lacked a timely preinfringement registration and thus couldn’t get statutory damages or attorneys’ fees, other damages were available. (What’s the market value of the expression in the caution statement? I imagine it’s low.) Summary judgment for Innovation.

The court refused to dismiss N2G’s counterclaims. For tortious interference, Innovation argued that there was no evidence that it knew of N2G’s contracts, business relationships, or expectancies, and that N2G failed to produce any evidence of causation or damages. N2G’s president stated at his deposition that, as a result of Innovation’s mailing, customers wanted to return products or decline to buy products that had nothing to do with the lawsuit. He testified about difficulties with one specific potential distributor, Ravi. N2G also produced an email from Innovation to 7-Eleven, a potential distributor, claiming that N2G’s product was “making people sick.”

Innovation argues that N2G still didn’t show any contractual relationship or expectancy with any recipient of its mailing. “But the purpose of Plaintiff's communications was to inform the recipient of the preliminary injunction issued by this Court regarding Defendants' products. Given the purpose behind Plaintiff's communications, logic dictates that Plaintiff only sent the letter to businesses that it expected to have a contractual relationship or potential contractual relationship with Defendants.”

Innovation also argued that there was no unjust interference because it truthfully disclosed the existence of the preliminary injunction (and put a picture of the product at issue in the complaint). That doesn’t cover the 7-Eleven email, but also there’s a question of fact on misleadingness: “after all, the Court's preliminary injunction was based solely on trade dress and the cautionary phrase.” This created a question of fact. (The court later notes that courts have divided on the question of whether the mailing was misleading; viewing the evidence in the light most favorable to N2G, a reasonable juror could find misleadingness.)

Michigan Consumer Protection Act: N2G argued that this same conduct violated the MCPA because it contained false or misleading representations of fact. Innovation argued that the alleged wrongful conduct wasn’t directed at consumers. The law covers “the conduct of a business providing goods, property, or service primarily for personal, family, or household purposes,” and the court concluded that Innovation is in the business of providing goods for personal, family, or household purposes, and thus its conduct fell within the MCPA. Moreover, MCPA claims by competitors are permitted, since the intent of protecting consumers is served by suits by nonconsumers with a significant stake in the issues.

The court also refused to throw out N2G’s counterclaim for a declaratory judgment of noninfringement, because Innovation’s claim for trade dress infringement was vague, attacking N2G’s “mountain sunrise design and color scheme.” The declaratory judgment would help determine the scope of Innovation’s claims.