Monday, September 17, 2012

6th Circuit finds "5 Hour Energy" suggestive for energy shot; overbroad recall potentially misleading

Innovation Ventures, LLC v. N.V.E., Inc., --- F.3d ----, 2012 WL 4039843 (6th Cir.)

Innovation (doing business as Living Essentials) alleged that NVE’s 6 Hour POWER energy shot infringed its trademark in 5-hour ENERGY.  After LE won a case against a different competitor, LE distributed a “recall notice” stating that NVE's “‘6 Hour’ energy shot” had been recalled.  NVE alleged that this constituted false advertising and a violation of the Sherman Act.  The district court granted summary judgment rejecting everyone’s claims; the court of appeals reinstated the trademark infringement and false advertising claims, but affirmed on the Sherman Act.

The PTO initially denied LE’s 2004 application for registration on descriptiveness grounds.  Starting in 2005, LE marketed 5-hour ENERGY nationwide.  In March 2006, NVE introduced 6 Hour Power:

On appeal, NVE argued that LE failed to show that it had acquired distinctiveness before NVE entered the market.  The district court emphasized the descriptiveness of LE’s mark as key in its award of summary judgment, but that was in the context of an infringement inquiry, not a protectability inquiry.  (The court of appeals noted that NVE has claimed in other litigation that 6 Hour POWER is inherently distinctive, a “contrast” in position, though presumably NVE would like to distinguish between power and energy.)  Unfortunately, the court of appeals erred in the basic test of descriptiveness: knowing the goods/services, is further inference or imagination required to connect the alleged mark to the goods?  That is why “apple” is generic for apples, descriptive for the color of lipstick, and arbitrary for computers.  Sadly, though the court began by noting that 5-hour ENERGY “simply describes a product that will give someone five hours of energy, it continued:

But that is not the end of such an inquiry. The first question one would ask is how would the energy be transferred? Through food? Through drink? Through injections? Through pills? Through exercise? Also, one would ask what kind of energy is the mark referring to? Food energy (measured in Calories)? Electrical energy? Nuclear energy? With some thought, one could arrive at the conclusion that the mark refers to an energy shot. But it is not as straightforward as NVE suggests. Such cognitive inferences are indicative of “suggestive” rather than descriptive marks.

As applied to a beverage, the “how” question is answered by knowing the goods; the “what kind of energy” is not answered by imagination but rather by basic knowledge of human physiology shared by average consumers who understand that neither electric shocks nor nuclear radiation are generally delivered, or desirable, via beverages.  “With some thought,” one could also arrive at the conclusion that the mark refers to socks, or batteries, or any other good (at least any other good as to which the term wouldn’t be deceptive).  Compare “Chicken Poop” for lip balm.  That’s both an actual example and arbitrary, though in the abstract, without knowing the product, one would probably assume it’s generic for chicken poop.  Or compare “Best” for anything.  Since you couldn’t figure out what the goods were from the simple term “best,” the court’s test implies that “best” is suggestive rather than, as it is, highly descriptive.  That’s why marks are not classified in the abstract, without reference to the goods or services for which they are claimed.  “Cognitive inferences” are properly only assessed in the goods/mark connection, not in inferring what goods might be named.

Regardless, the court of appeals held that 5-hour ENERGY was suggestive “‘because of the degree of inferential reasoning necessary for a consumer to discern’ that the ‘5–hour ENERGY’ mark relates to an energy shot.  The connection between ‘5–hour’ and ‘ENERGY’ is ‘not so obvious that a consumer seeing [5–hour ENERGY] in isolation would know that the term refers to’ an energy shot rather than, for example, a battery for electronics, an exercise program, a backup generator, or a snack for endurance sports” (citation omitted).  Thus, though the suggestive/descriptive line is hazy, the mark is suggestive and protectable.

The court of appeals then turned to the confusion analysis.  The district court found dissimilarity of the marks plus descriptiveness pivotal in its conclusion, along with NVE’s lack of intent to confuse.  LE focused mostly on intent, since there were diverging accounts of the origin of the name from NVE President Robert Occhifinto and former NVE Vice President Joe Palmeroni.  Occhifinto claimed that he chose the name because the caffeine’s effects last about 6 hours and because the rhyming scheme of an earlier product named “TOWER OF POWER” led them to use the term “POWER.”  The court thought this earlier product was a “convenient coincidence.”  (Okay, if the generic name of the category is “energy shot,” and they can’t use the term “energy” because it’s too close to a suggestive mark, then why isn’t “power” a distinct alternative?  In other words, why is the use of “power” any problem at all?)  Palmeroni testified that he investigated the growing energy shot market and that his market research focused on LE’s product, as it was “really the only one that we took seriously” and the one whose sales ‘were blowing up.”  In name choice, he testified that he focused on having a shot that was better than a shot that lasted only five hours.  He agreed that he believed that “the name 6 Hour Power was selected by N.V.E. to trade off of the success and reputation of 5–Hour Energy.”

The court of appeals thought that Palmeroni’s testimony wasn’t particularly helpful and reflected NVE’s search for ways to compete with LE, not to copy it.  “In fact, when Palmeroni raised possible issues relating to likelihood of confusion between the products, Occhifinto discussed ways to differentiate the products, e.g., using a different color, to eliminate possible grounds of confusion.”  NVE also challenged Palmeroni’s testimony, given that he was fired before it adopted the 6 Hour POWER name, though he was involved in discussing 5-hour ENERGY earlier.  Also, he’s involved in apparently vicious litigation against NVE on other matters.  Assuming its accuracy, this testimony still didn’t impress the court of appeals: the focus on 5-hour ENERGY “focused on its large market share and the need to catch up, rather than to copy it” and showed intent to compete, not to copy.

The court of appeals deemed likely confusion a close call.  But the factors were “so evenly balanced”—4 to 3 as the 6th Circuit counts factors, with an additional factor not at issue—that “precedent counsels in favor of not granting summary judgment.”  (Perhaps oddly, the court of appeals didn't discuss the effect of the suggestiveness finding; but then, a borderline suggestive/descriptive mark can be considered relatively conceptually weak.) Comment: Other courts hold that it is perfectly fine to give heavier weight to certain factors, depending on the particular facts.  For example, imagine a plaintiff with a famous mark suing a direct competitor with a completely dissimilar mark: while a number, even a majority, of the factors would favor the plaintiff, mere counting wouldn’t reflect much about likely confusion.  But here, the district court gave little weight to much of LE’s evidence, including “a survey that used ‘highly leading questions,’ evidence of confusion from ‘third party witnesses,’ and forty alleged instances of consumer confusion. This was “the wrong posture to take on summary judgment.”  The case had to go to a full trial.

The court then turned to the false advertising claims.  Other parties made “6 Hour” energy shots—LE sued two others in separate cases over the “6 Hour Energy Shot” and “6 Hour ENERGY!” A court issued a preliminary injunction against the sale of 6 Hour Energy Shot and a recall order, but it found in LE’s favor on the trade dress claims; it didn’t find trademark infringement. 
LE thought that the recall order coming from the defendants didn’t go far enough—defendants didn’t send it to retailers who bought the product from third parties.  Thus, after the recall had been completed, LE “took it upon itself to send an additional recall notice … to 110,000 convenience stores and truck stops and to place a notice in retailer magazines.”  This notice said:


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 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….

The producer of 6 Hour ENERGY!, BDI, sued LE for false advertising based on this recall notice.  The district court in that case granted a preliminary injunction, since LE didn’t win a decision against “a ‘6 Hour’ energy shot” as stated, but rather won an injunction against the use of a confusingly similar overall trade dress.  The court there pointed out that LE could easily have avoided confusing consumers by identifying the actual manufacturer and product enjoined—as the court of appeals, indeed, did here (yay!) by including pictures.

The district court in NVE’s case found that the recall notice was neither false nor misleading.  Because LE was awarded an injunction against the producer of an energy shot with the name 6-Hour, the notice was not literally false, even if it lacked clarity.  The court of appeals here found that the recall notice was almost—but not quite—literally false.

“First, the notice could be viewed as either ambiguous or false with respect to how the product is named.”  The notice used quote marks that could be read broadly to say that any energy shot whose name included “6 Hour” had been recalled and never referred to the product actually recalled in one complete phrase.  At the time, there were several other energy shots along with NVE’s with that phrase in the title, so this was important.  Relatedly, LE said that it had won a decision “against a ‘6 Hour’ energy shot.”  But that wasn’t literally true: it won a decision against the use of an overall product image—label and bottle.

Also, the use of the indefinite article “a” was a problem.  “a ‘6 Hour’ energy shot” suggests that there might be more than one, but at other points the notice used “any,” e.g., “If you have any of the ‘6 Hour’ energy shots in your store(s) or warehouse(s) contact the product's manufacturer”—whoever they may be—“or your distributor to return the product immediately.”  That suggested that any 6 Hour shot was subject to recall, as did the use of “the” to describe the recalled product.  As Justice Kagan has recently noted:

“Not an” sometimes means “not any” …. If your spouse tells you he is late because he “did not take a cab,” you will infer that he took no cab at all (but took the bus instead).… Suppose your spouse tells you that he got lost because he “did not make a turn.” You would understand that he failed to make a particular turn, not that he drove from the outset in a straight line.

Caraco Pharm. Labs., Ltd. v. Novo Nordisk A/S, 132 S.Ct. 1670, 1681 (2012). Because “what does this article mean?” must be answered “it depends,” the notice couldn’t be literally false.  Comment: This is skipping the follow-up: depends on what?  In the examples above, the context is provided by the nature of the question, not by further evidence of audience reaction; in none of Justice Kagan’s examples, including the ones I’ve omitted, was there any ambiguity in what the article meant in that particular sentence, because humans are context-making machines. Thus, it’s not enough to create ambiguity for a word to have multiple meanings in the abstract.  If I say “I ate an apple for lunch” to you (so you can’t hear capitalization or lack thereof), you could not seriously believe that there is any question about whether I ate a fruit or a computer, despite Apple’s fame.  Likewise, were a laptop to advertise MORE PROCESSING POWER THAN AN APPLE, without any indication that this was a joking reference to a piece of fruit, there’s no ambiguity.  The doctrine of falsity by necessary implication recognizes this function of context. 

That said, while I think this is a case of falsity by necessary implication, it’s a closer call than some others.  LE clearly took a victory against one competitor as a chance to harass a wider segment of the competition, and I’d be inclined to take into account that they easily could have specified more clearly.  In these circumstances, rather than—as the court of appeals did—ruling that this was only a factual dispute over misleadingness, I would leave it to the finder of fact to decide whether this “close question” involved literal falsity, misleadingness, or nonmisleading communication.  The court of appeals, however, held that misleadingness was the issue for the finder of fact.

The district court excluded as inadmissible hearsay all of NVE’s evidence that various unidentified retailers contacted them over the notice.  NVE only named one distributor out of over 100,000 retailers nationwide.  But its witnesses testified that NVE and its distributors received a number of calls “from convenience stores and truck stop retailers—the very people that received the recall notice—who wanted to return ‘6 Hour POWER.’ One NVE employee stated that the notice caused a ‘huge nightmare’ and the phones were ‘blowing off the hook’ with calls to return the product. NVE claimed that at least one sales program … ‘just died’ after the recall notice.”  One witness stated that she received “phone calls from brokers and customers and faxes of this legal notice sent to us and that's when the nightmare began.... [I]nitially, we started getting faxes and inquiries from our customer base, and then the phone calls just started pouring in from all little mom and pop shops all over the United States, you know, asking if they should pull our product.”  Others testified similarly about needing to send out notices to customers and being “inundated” with calls.  Emails a month after the initial notice indicated that there were continuing questions about sending back NVE products.

This was not inadmissible hearsay.  It was too heavy a burden to expect a sworn statement from a retailer who calls a distributor and claims confusion; the calls were relied on not to show the truth of the statements but to show the state of mind of the speakers.  “The fact that so many people called NVE immediately after receiving the notice at the very least raises a genuine issue of material fact as to whether a significant portion of the recipients were misled.”

LE said that these were non-actionable inquiries, not evidence of confusion.  But these weren’t mere inquiries; the testimony was that many distributors called to stop buying NVE’s product.  NVE claimed that after the recall, its sales growth for 6 Hour POWER dropped from 13.7% to 1.1%.”  “NVE's damages expert estimated that NVE lost $3.4 million in sales as a result of the recall notice. A jury could find that these were not just inquiries; they were calls that resulted in lost sales. All of these calls evidence a belief that ‘6 Hour POWER’ had been recalled. Had the callers lacked such a mistaken belief, such phone calls would not have occurred.”

NVE’s own corrective advertising was also relevant, not for its truth but to provide circumstantial evidence that some retailers believed that there was in fact a recall on “any of the ‘6 Hour’ shots in your store.” Together, there was more than enough evidence to survive summary judgment.

NVE also argued that the false advertising, along with other bad acts (including exclusivity requirements and registering and, violated the Sherman Act.  But NVE only presented evidence of damages from the recall notice.  False advertising isn’t actionable under the Sherman Act unless it’s so difficult for the plaintiff to counter that it could potentially exclude competition. “Isolated business torts, such as falsely disparaging another's product, do not typically rise to the level of a Section 2 violation unless there is a harm to competition itself.”  The Sherman Act protects competition, not competitors.  It was relatively simple for NVE to counter the recall notice by sending its own notices; that was enough to end the antitrust claim.  (Comment: I understand the desire to deal with false advertising on its own merits, given the existence of the Lanham Act.  The offered reason for excluding it from antitrust law, though—that false advertising generally doesn’t harm competition—contradicts the underlying theory of the Lanham Act, and in particular the idea that it was easy for NVE to fix the problem contradicts NVE’s evidence that despite its corrective actions it suffered millions of dollars in damages.  I’m just saying, a better reason would be better.)  So that was the only part of the district court’s decision that was affirmed.

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