Monster wins permanent injunction against VPX in false advertising case

Monster Energy Co. v. Vital Pharmaceuticals, Inc., 2023 WL 2918724, No. EDCV 18-1882 JGB (SHKx) (C.D. Cal. Apr. 12, 2023)

Following a large verdict for Monster on false advertising claims, this opinion discusses extensively the requirements for injunctive relief in false advertising cases. The jury awarded $271,924,174 for damages sustained by Defendants’ false advertising and found that the false advertising was willful and deliberate.

“As a general rule, a permanent injunction will be granted when liability has been established and there is a threat of continuing violations.”

The court applied a rebuttable presumption of irreparable harm. VPX argued that Monster didn’t show irreparable harm because: (1) the harms are purely economic; (2) VPX “abandoned any marketing focus on Super Creatine or creatine” before the jury rendered its verdict; and (3) VPX’s remediation obviates the need for an injunction.

Are lost prospective customers and market share purely economic harms? Although they sound economic, “evidence of threatened loss of prospective customers” can be intangible, irreparable harm. [This only makes sense if the real issue is difficulty calculating those losses; otherwise, this is straight-up economic harm.] There was evidence at trial that Super Creatine was VPX’s point of difference, allowing VPX to distinguish its Bang from Monster’s beverages. “Six months after the jury rendered its verdict, Defendants continue to manufacture, distribute, and advertise BANG cans with the Super Creatine label. Accordingly, unless an injunction is granted, consumers will continue to believe that BANG contains creatine and view Monster’s products less favorably than they otherwise would, rendering the threat of future lost customers an intangible irreparable harm.”

The court reasoned that “a loss of customers directly translates to lost sales. A lost customer may constitute the loss of a relationship with a customer as well as reference to other potential customers.” It might not be irreparable if there was already no evidence of lost customers or sales and no explanation of why money was sufficient.  But “Monster presented evidence that it lost customers and an award of monetary damages to Monster has not stopped Defendants from continuing to falsely advertise their products to consumers.”

So too with lost market share.

Defendants argued that VPX had already abandoned any marketing focus on Super Creatine or creatine, “reflecting the economic reality that neither is an important contributor to sales.” The jury rejected this argument at trial, and they were still—even after trial—posting ads showing pictures of cans with the Super Creatine label.

VPX also argued that it has redesigned the BANG label, promotional materials, and advertising to eliminate any reference to Super Creatine or creatine. It has announced its decision to stop marketing BANG as containing Super Creatine and notified its distributors of the label changes along with the jury verdict; and its retailers are aware of its ongoing transition as well as the verdict. “VPX also argues that it will not return to the type of advertising that was the subject of the jury’s verdict because it is now governed by a board of majority-independent directors, who have instructed VPX to complete the redesign transition.”

These efforts were insufficient to meet the “formidable” burden of showing “it is absolutely clear the allegedly wrongful behavior could not reasonably be expected to recur.” Defendants admitted that VPX was still manufacturing cans with the “Super Creatine” label and continued to do so until sometime in March 2023. They also intend to sell “Super Creatine” cans through the end of the calendar year. Defendants argued that the destruction of its existing cans “would cause millions of dollars in losses, severely disrupt VPX’s supply lines and business relationships, and leave VPX unable to fill existing customer orders or meet consumer demands.” “But Defendants have brought on themselves these unfortunate consequences through their false advertising.”

Plus, they hadn’t removed existing false advertising from their social media accounts. Defendants assert that “[i]t is impossible for VPX to review and eliminate all of the hundreds of thousands archived and historical social media posts that may include an image of the legacy [BANG] can or logo.” But they didn’t explain why this is impossible, especially for VPX’s own social media accounts. It wasn’t enough that VPX was “removing active content most likely to be seen by consumers ... [and] expects to complete ... revisions to the contents of its website by approximately March 31, 2023.” content.” Moreover, consumers were still being deceived by its false advertising (citing a consumer post saying “The ceo posted a pretty descriptive video on the whole breakdown. A lot of fancy words in there but it sounded like [Bang]’s got [creatine] and the lawsuit is more against the word ‘super’ and another saying “A reminder that Bangs have creatine.”).

For the same reasons, monetary remedies were inadequate, though the court was less persuaded by the contention that a damages award is inadequate because VPX’s bankruptcy makes future relief uncertain. VPX is undergoing a chapter 11 reorganization, where “[l]iquidation is not the objective” and “the aim is by financial restructuring to put back into operation a going concern.” Monster offered no proof that damages “payable through a plan of reorganization is an inadequate remedy” or evidence that VPX “would be unsuccessful in reorganizing.”

The balance of hardships also favored an injunction: “there is no harm to a defendant from an injunction which prevents continuing dissemination of false statements.” What about the problems with destroying inventory/filling existing customer orders? Monster argued that VPX could wrap the cans in shrink sleeves, and anyway it’s been more than 6 months since the verdict. “Courts have ordered recalls for less than that amount of time. … But considering the burden that may fall on Defendants to remove all false advertising and cans nationwide, the Court will give Defendants an additional 30 days to complete the transition.”

The public interest also favored a permanent injunction.

Defendants argued that an injunction would burden legitimate and protected speech by requiring VPX to remove social media posts merely for including an image of a BANG can with the Super Creatine label. But there’s no free speech interest in false commercial speech. [Interesting question about old advertising hanging around—especially if the ad didn’t focus on the label; what result if the benefit of old promotional partnerships would be lost? Would the possibility of digital editing suffice? What if such editing would violate the contract with old promotional partners?]

The court wasn’t concerned about the non-false aspects of advertising that included images of the falsely labeled cans, e.g., an Instagram post with an image of a BANG can with the Super Creatine label and the caption reads: “With a blast of berry flavors in every sip, you won’t believe it has ZERO sugar, carbs, or calories! Tag a friend in the comments who needs to try this flavor!” “That social media post is advertising Defendants’ product by encouraging consumers to tell their friends to buy the BANG can with the Super Creatine label—a label that misleads consumers into believing that the can contains creatine.”

The court did narrow the scope of the proposed injunction. An injunction that prohibits Defendants from falsely or deceptively claiming that Super Creatine is creatine, that BANG drinks contain creatine, and that BANG drinks or Super Creatine provide the physical, mental, health, or other benefits of creatine, was appropriate. However, Monster’s proposed outright ban on any reference to creatine/creatine-related substances, even if truthful, was overbroad. It would enjoin VPX from ever using “any form or purported form of creatine” in their beverages, even if there was no deception. Thus the court adopted this language:

The Enjoined Persons are permanently enjoined from falsely or deceptively using, either expressly or impliedly, [using] the word ‘creatine’—whether alone or together with other words—in selling, offering to sell, marketing, promoting, or advertising any BANG energy drink or any other beverage ....

Defendants argued that the injunction should not burden truthful discussions concerning ongoing scientific research and developments regarding creatyl-L-leucine (“CLL”) and creatine forms, “ ‘about which there is legitimate ongoing scientific disagreement,’ ” [citing ONY v. Cornerstone] and that individual defendant Owoc has “legitimate commercial and noncommercial interests in CLL and creatine research that go beyond the promotion of BANG, which the injunction needlessly burdens.” But the injunction would be limited to advertising and promotional statements, not conclusions made from scientific articles. It was tailored to enjoin false statements made in “selling, offering to sell, marketing, promoting, or advertising” BANG drinks. Defendants were only enjoined from speaking about their views on CLL in a false or deceptive manner when “selling, offering to sell, marketing, promoting, or advertising,” BANG drinks.

Defendants argued that Monster’s brief confirmed its attempt to suppress noncommercial speech when Monster argued that defendants’ false claims continued by highlighting an Instagram video posted by Owoc on @bangenergy.ceo in November 2022, that has since been taken down by Defendants. Defendants argued that Owoc’s video was not purely commercial as it does more than propose a commercial transaction by including his critiques about Monster’s litigation tactics, his opinions on defendants’ and Monster’s studies, and VPX’s reorganization. The court declined to decide the issue since the video was no longer public. “But the Court will note that Owoc’s statement in the video that Super Creatine is ‘just like creatine monohydrate’ seems to be misleading and not inextricably entwined with pure speech such that it would be entitled to full First Amendment protection.” As the Supreme Court has held, “advertising which links a product to a current public debate is not thereby entitled to the constitutional protection afforded noncommercial speech.”

Removing the word “creatine” from all Bang labels and packaging wasn’t impossible; defendants were already in the process of doing it. Monster argued that the redesigned label will continue to deceive consumers because it lists CLL as an ingredient and it shows the seal and number for the Super Creatine patent. The court was not persuaded that VPX should be required to remove CLL as an ingredient or its patent number.

Defendants are entitled to include CLL and its patent number in their drinks, but they are not entitled to falsely claim that CLL is something it is not. Thus, because the redesigned label does not mention the word “creatine,” it sufficiently addresses the false advertising at issue: that CLL or “Super Creatine” is creatine.

The court also modified Monster’s proposed requirement to remove from all media “all videos and pictures showing the Bang Drinks can, label, or packaging,” because VPX isn’t in charge of the internet. The court thus limited the injunction to those that were posted by defendants or at their direction.

The court also partly granted Monster’s request for a required corrective statement.  A corrective statement was appropriate to “remedy lingering confusion caused by” past and ongoing deception. But it was unnecessary to require defendants to share a corrective statement in all of their presentations and to make available copies of the injunction at all U.S. trade shows and professional meetings attended by the defendants for at least a year. The “purpose of an injunction is to ensure that past wrongdoing is not repeated, not to further punish the wrongdoer.” They’d be ordered to “deliver to all retailers, e-commerce websites, brokers, distributors, dealers, wholesalers, importers, influencers, and other non-consumers who they have worked with to sell, offer to sell, market, promote, or advertise BANG Drinks a written, signed notice” “that includes a copy of” the permanent injunction.

Likewise, Monster’s proposal to make them share the corrective statements for at least one year raised First Amendment concerns. “Once Defendants remove within 60 days of this order their false advertising from all cans, labels, packaging, physical locations, and media, the harm to Monster will likely be greatly reduced, and sharing corrective statements for at least a year will ‘burden speech without justification.’” Thus the required duration would be reduced to one month. During that period, defendants had to post a corrective statement on “all webpages they use to sell, offer to sell, market, promote, or advertise any BANG Drinks” and on all their social media accounts a corrective statement in a font size at least 50% as large as the most prominent language on the page “and immediately adjacent to the most prominent language on the landing page of each website or pinned or otherwise saved as the first post on each social media account”:

In September 2022, a jury issued a unanimous verdict finding that Vital Pharmaceuticals, Inc. (d/b/a Bang Energy) (“VPX”) and former Chief Executive Officer John H. “Jack” Owoc willfully and deliberately engaged in false advertising by claiming that the BANG energy drink contains creatine, contains “Super Creatine,” and provides the benefits of creatine. The United States District Court for the Central District of California has permanently enjoined VPX and Mr. Owoc from falsely or deceptively selling, offering to sell, marketing, promoting, or advertising BANG as containing creatine, as containing “Super Creatine,” or as providing the benefits of creatine.

[This also omitted Monster’s request to mention the jury’s willfulness finding.]

Would the injunction compel VPX’s independent retailers and distributors to return or destroy any legacy products they purchased, creating massive losses? VPX cited caselaw finding that nonparty retailers and distributors were not in active concert or participation with the defendant because they had completed their purchases of the enjoined products prior to the injunction, though the court gave a “but see” to Aevoe Corp. v. AE Tech Co., 727 F.3d 1375, 1384 (Fed. Cir. 2013) (finding that distributors were “acting in concert” with defendant “in connection with the resale of the enjoined products,” because distributors had notice of the injunction and they had an exclusive distribution agreement with the defendant, making them “privies” of the defendant).

Because determining whether a retailer or distributor is in “active concert” with defendants wass a fact-intensive inquiry, the court declines to decide whether the injunction would compel retailers and distributors to return or destroy Bang products and subject those retailers and distributors to being held in contempt. Defendants were “free to explain the lawsuit, the scope of the injunction, the injunction’s timetable, and Defendant[s’] own theory of ‘active concert or participation’ to those retailers [or distributors] who express concern.” Yikes.