Innovation Ventures, LLC v. NVE, Inc., 2015 WL 871137, No.
08–11867 (E.D. Mich. Feb. 27, 2015)
Various evidentiary rulings in the latest round of this
trademark/false advertising case over energy shots, the first of which presages
what I expect to be increasing uncertainty in the courts until the Supreme
Court revisits the issue. The others are
in moderately decreasing order of broader importance, but the later ones have enough human interest to include here.
Here, Innovation wanted to exclude evidence that the PTO
refused its ITU application for “5-Hour Energy” in 2005 on grounds of mere
descriptiveness. The mark was
subsequently registered on the Supplemental Register. In 2008, the PTO refused another application,
again on mere descriptiveness grounds.
The Sixth
Circuit, however, held that “[t]he line between merely descriptive and
suggestive marks is admittedly hazy and can be difficult to discern” but that
5-Hour Energy was suggestive. Thus, Innovation argued, evidence about the PTO
proceedings would be contrary to the law of the case and would confuse the
jury. NVE responded that the PTO proceedings were probative of the relative
strength or weakness of the mark.
The court agreed that this evidence would have some
probative value, but concluded that on balance it was more prejudicial than
probative:
Introducing prior USPTO findings
which conclude that the mark is merely descriptive, and therefore not
protectable, would contradict the Sixth Circuit’s legal conclusion and serve
only to confuse the jury. Even with a limiting instruction, proof that the
USPTO had repeatedly denied Plaintiff a trademark could carry definitive weight
with the jury, and suggest that they were allowed to reach a conclusion
inconsistent with the Sixth Circuit’s ruling.
Nor did NVE cite cases where PTO rulings were presented to a
jury as probative of the strength of a mark for purposes of likely confusion
analysis. Though arguably relevant to
strength, the rulings were more directly probative of protectability, and the
Sixth Circuit had already determined protectability.
[Comment: It seems to me that this question implicates two
issues before the Supreme Court this Term: from Hana Bank, if classifying a term/mark is a question of fact and not
law (and if placing a term on one side of the generic/mark line is a question
of fact, why wouldn’t the descriptive/suggestive line be the same?), then
shouldn’t a jury get to decide it and not the Sixth Circuit, given that court’s
conclusion that the matter is not free from doubt? Relatedly, Hargis may tell us the kind of deference the PTO’s conclusion is
due when the applicant had the opportunity to contest the finding—at the very
least, I’d think it should be evidence for the jury to consider.]
Innovation also unsuccessfully sought to preclude NVE’s
unclean hands defense. NVE initially argued fraud on the PTO, though it lost
that part of the argument. It also argued that Innovation “usurped” NVE’s 6
Hour Power mark by registering “sixhourpower.com” and “6hourpower.com” in bad
faith, and also brought forth an expert who identified and discussed alleged
anti-competitive behavior such as Innovation’s “STS rack program” that paid
retailers to keep NVE’s products off the front counters at convenience stores.
These allegations of anti-competitive and unfair conduct were enough to
preserve an unclean hands defense.
The defense must be established by “‘clear, unequivocal and
convincing’ evidence,” but that didn’t mean that NVE had to maintain viable
counterclaims for cybersquatting and antitrust violations. The facts underlying
an unclean hands defense need not be of “such a nature as to be punishable as a
crime or as to justify legal proceedings of any character.”
Innovation also sought to exclude evidence or argument
contrary to the Sixth Circuit’s mandate, but the court concluded that
Innovation overread that mandate.
Innovation argued that NVE couldn’t introduce evidence: (i) that Innovation
was not the first to use the mark in specific geographic areas, when the Sixth
Circuit stated that Innovation used its mark “nationwide” since June 2005; (ii)
that the “5–hour ENERGY” mark was weak when NVE entered the market; and (iii)
that Innovation’s conduct supported NVE’s unclean hands defense. The trial court reviewed the court of appeals
opinion and disagreed. The Sixth Circuit
didn’t excuse Innovation from carrying its burden of proof on its common-law
trademark infringement claim, and part of that is the plaintiff’s burden to
establish first use of its mark in every geographic area in which it claims
superior rights. The use of the term “nationwide”
was part of the court of appeals’ recitation of background facts, not a
definitive ruling or finding of fact intended to establish the date upon which Innovation’s
use of its mark occurred in particular
geographic areas.
Innovation argued that the Sixth Circuit’s finding of
suggestiveness prevented NVE from introducing evidence of 5-Hour Energy’s relative
strength when NVE entered the market.
But that argument improperly conflated protectability with likely
confusion. The Sixth Circuit found
likely confusion to be a “factually intensive issue” and a “close call” that
could be “decided either way.” NVE was not precluded from introducing evidence
that Innovation’s mark was weak when it entered the market as part of the
likely confusion analysis.
Nor would NVE be precluded from introducing evidence of
alleged cybersquatting and antitrust/anti-competitive behavior as part of its
unclean hands defense, because those counterclaims have been dismissed from the
case. The evidence pertaining to them could nevertheless be offered as relevant
to support an unclean hands defense. The Sixth Circuit didn’t address the
merits of the unclean hands defense, and there was no clear mandate negating
that defense.
NVE also moved to exclude expert testimony from Dr. Dan
Sarel, a marketing consultant who conducted a mall intercept survey in 2009. The respondents were limited to “buyers and
potential buyers of 2–ounce energy drinks who are 18–35 years old, ¾ males,¼
females, residing all over the country.” NVE challenged the methodology for including
an improper survey population, employing an improper control, utilizing leading
and suggestive questions, and failing to replicate market conditions. In late
2011, a very similar survey and report from Dr. Sarel was excluded in another
case brought by Innovation, on the grounds that its methodology had “multiple
flaws” resulting in an “unreliable scientific foundation for its conclusions.” The court found that the report here suffered
from many of the same kinds of problems.
The previous exclusion relied in part on the fact that Dr.
Sarel did not allow the survey participants to handle the actual sample
bottles, but rather used pictures of the various products. Here, respondents
were allowed to handle the bottles. But other significant flaws remained,
including leading questions, failure to provide a “don’t know” option, and use
of an inadequate control product, the energy shot “ROCK ON.” That control had “blatantly
obvious differences” from the 5–Hour ENERGY product in color, lettering, theme,
imagery, and name. (NB: The image I found of Rock On does have orange on the
label, but apparently the control used had “no significant red, orange, yellow,
or blue coloring.”) ROCK ON didn’t emphasize time or duration, have a bright
red bottle to coordinate with its flavor, depict an image of fruit, or feature
durational language in a bold font in horizontal writing.
Innovation commissioned a new survey with different
methodology; that could be relied on at trial, but not this original survey.
NVE also moved to exclude Innovation’s Teflon survey conducted by Howard Marylander.
Marylander opined that: (1) 5–Hour ENERGY “is recognized as
a brand name in the context of foods and food supplements ... [and] that brand
recognition is a strong one[ ]” and (2) “[b]ecause of its clear recognition as
a brand, ... 5–HOUR ENERGY has strong secondary meaning.” NVE argued that the Teflon survey was mooted by the Sixth
Circuit’s finding of suggestiveness, and also argued that the survey had
various methodological flaws.
Innovation responded that the survey could be used to show
the strength of its mark, a likely confusion factor, and the court agreed that
it was relevant for this purpose, given the unique procedural posture of the
case. Teflon surveys are generally reliable and widely accepted;
Marylander’s methodology was patterned after other surveys that have been
judicially scrutinized and approved by other courts. Any errors did not make it
unreliable but could be tested in front of the jury.
NVE further moved to exclude Innovation’s expert witness Dr.
Gregory Carpenter. Innovation agreed not
to elicit testimony about Carpenter’s opinion of NVE’s intent in selecting its
name, or on the ultimate issue of likely confusion/infringement. Thus, the only
disputed issue was whether Dr. Carpenter’s opinion about Innovation’s brand
strength was cumulative. Dr. Carpenter,
a professor of marketing strategy at Northwestern University, was a
well-credentialed professor specializing in market research concerning
“pioneering brands,” or brands that have a “first mover” advantage. NVE argued that he didn’t conduct any
independent investigation, study, or survey.
Innovation argued that his testimony would show how a pioneering brand
draws competitors and why others would want to trade on the power of the brand,
and would explain how NVE’s actions were indicative of these types of
competitors. The court agreed that this
testimony could be helpful to the jury “in understanding how the various expert
surveys support the marketing theory that pioneering brands have high brand
strength.”
NVE further moved to exclude Innovation’s food and beverage
industry expert, Tom Pirko. His opinion, based on over 35 years of experience
in marketing and sales in the food and beverage industry, would be that Innovation’s
merchandising, display and incentive programs were consistent with the industry
standard and NVE’s own practices. This would be relevant to the unclean hands
defense. However, certain portions of his report and testimony shouldn’t be
presented to the jury, such as his testimony about the effect of the “Legal
Notice” Innovation sent out saying it had won an injunction against the sale of
a 6 Hour energy shot (albeit not this 6 Hour energy shot; the problem was
that Innovation tried to use this injunction to get all such shots pulled off
shelves). Pirko’s report said that the
Notice was clear and didn’t name NVE’s 6 Hour Power; didn’t actually demand
removal of the product from shelves; couldn’t have damaged NVE; and, if it was
misread, that was NVE’s fault for choosing a confusingly similar name. Those kinds of statements crossed the line
from proper opinion evidence to improper factual and legal conclusions.
Pirko could properly testify concerning how recall notices were
normally handled in the beverage industry, and what kinds of actions a typical
merchant would ordinarily take in response to a Legal Notice of the type sent
out by Innovation. He could not opine on the intended scope of the Legal Notice
or speculate about its “meaning,” or how others would understand or interpret
that meaning. He could not summarize what he believed to be the testimony or
statements of other people who have read the Legal Notice and he could not
offer any opinion on the ultimate issue as to whether the Legal Notice was
misleading or whether NVE’s 6–Hour POWER brand was confusingly similar to Innovation’s
5–Hour ENERGY.
Pirko could, however, still be an expert on the general
practices of the beverage industry, even though he wasn’t recently published on
the subject matters in this suit and listed no-peer reviewed or
non-peer-reviewed articles citing him as an expert. He had over 35 years of
experience in advising food and beverage managers, manufacturers and sellers,
including nearly 25 years of experience with recalls. He had offered
consultation services regarding energy shot products, as well as other relevant
experience. Expert testimony can legitimately be based entirely on experience.
NVE successfully excluded references to misstatements or
slips of the tongue made by NVE’s counsel or expert witnesses. During the over six years this case had been
pending (!), NVE’s counsel and experts occasionally misstated the names of the
parties’ products during discovery, such as “5–Hour POWER.” This wasn’t
relevant to the question of actual confusion in the marketplace of consumers.
See, e.g., Marshall Field & Co. v. Mrs. Field’s Cookies, 25 U.S.P.Q.2d
1321, 1992 WL 421449, at *16 (T.T.A.B.1992) (“It is obvious that respondent’s
attorney was quite aware of the differences between the two [trademarks] and
that what occurred was nothing more than a slip of the tongue under the
pressure of conducting the interrogation”); VMC Corp. v. Distrib. Marketing
Serv., 192 U.S.P.Q 227, 1976 WL 21124, *3 n. 4 (T.T.A.B.1976) (“This slip of
the tongue under the tension of being subjected to interrogation by opposing
counsel is not indicative of a marketing environment”). “This evidence is not
probative of trademark confusion. Moreover, the spectacle of Plaintiff’s
presenting misstatements by Defendant’s counsel or witnesses to prove actual
confusion would be fraught with unfair prejudice that would greatly outweigh
whatever miniscule probative value such evidence may have.”
As to instances of alleged actual confusion not related to
6-Hour Power’s product or name, Innovation would have to lay a foundation
showing that the confusion asserted related to NVE’s product, not some other
6-Hour product. But evidence of
commingling the parties’ products on a common display shelf could be
introduced, at a bare minimum to show the same marketing channels. As to alleged hearsay, the Sixth Circuit
admonished that “the strict application of the rules of evidence to a claim
that depends on customer confusion places too heavy a burden on” the offering
partyand that customer calls “were not relied on to show the content of the
conversations, but rather were introduced merely to show that the conversations
occurred and the state of mind of the declarants.”
Evidence about lawsuits filed by consumers against NVE for personal injuries and wrongful death
allegedly caused by the ingestion of NVE’s discontinued products which
contained ephedra was excluded because its probative value is substantially
outweighed by the danger of unfair prejudice.
This evidence offered no support for claims of trademark infringement,
but would only serve to suggest that NVE was a bad actor. If NVE’s president, Robert Occhifinto, made
statements at trial inconsistent with his sworn testimony before Congress as
part of an investigation into the lawsuits, then he could be impeached with
that testimony, but that was it.
NVE was unsuccessful in its attempt to exclude the testimony
of Jesus “Joe” Palmeroni, a former NVE VP terminated in 2006 due to purported
theft and fraudulent conduct in his role as a sales rep. NVE sued him to recover the allegedly stolen
monies. NVE presented evidence that a
lawyer purportedly acting on Palmeroni’s behalf contacted NVE’s counsel and
offered for him to provide favorable deposition testimony in this litigation in
exchange for a favorable settlement in the NVE-Palmeroni lawsuit. A transcript of the purported phone call allegedly
stated that “Joe” (presumably Mr. Palmeroni) “could either be forgetful of not
so forgetful” during his deposition testimony, and that the attorney wished to
“have a dialogue about how we can help each other bring finality to both
things” (presumably, the two lawsuits). NVE didn’t accept this apparent
solicitation, and Palmeroni ultimately provided deposition testimony that was
unfavorable to NVE, testifying that he believed that the name 6-Hour Power was
chosen by NVE to “trade off the success and reputation” of 5–Hour ENERGY.
During the deposition, NVE cross-examined Palmeroni at
length and he said he was unaware of any communications between the parties’
lawyers. NVE had no corroborating
evidence that he knew of or participated in any kind of offer to provide
favorable testimony. While NVE could
question him at trial about this, his testimony would not be excluded.
NVE moved to bar Innovation from arguing that its Legal
Notice was literally true, given that the Sixth Circuit deemed it “on the cusp
between ambiguity and literal falsity,” and thus not literally false. Whether
parts of the Legal Notice were literally true was somewhat beside the point,
since it could still be misleading. The
court wouldn’t bar Innovation from arguing that the Notice contained some true
statements, but the jury question was whether the Notice was misleading,
deceptive to its intended audience, and actually deceived recipients.
Also, the court granted NVE’s motion to preclude Innovation
from introducing evidence of Occhifinto’s 1991 criminal convictions for importation
of hashish and money laundering. Neither involved an act of dishonesty or false
statement, and in any event more than ten years passed since conviction/release
from confinement. Evidence of convictions more than ten years old will “very
rarely and only in exceptional circumstances” be admitted. Those circumstances
weren’t present here. Innovation argued
that because of his drug-related convictions, in 2003, Occhifinto must have
been lying when he testified to Congress that he only learned after naming
certain ephedra-containing products “Yellow Jacket” and
“Black Beauty” that those names were also street names for illicit drugs.
Innovation also apparently wanted to argue that Occhifinto had a propensity to
copy from other product names and then lie about name selection. “This tortured logic simply does not give
rise to adequate probative value, sufficient to overcome the highly prejudicial
nature of presenting Mr. Occhifinto’s prior criminal convictions to the jury.”
Finally, Innovation moved to exclude NVE’s theory of lost
market share damage from its Lanham Act false advertising counterclaim. But NVE’s witnesses had offered evidence on
that theory all through the case. NVE
principals’ testimony about lost market share was admissible lay opinion
testimony based on their specific knowledge of NVE’s business.
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