no injury to alcoholic kombucha producer from competitor's false no-alcohol/low-sugar label (cute dogs are also involved)

Tortilla Factory, LLC v. GT’s Living Foods, LLC, No. CV 17-7539 FMO (GJSx), 2023 WL 6296900 (C.D. Cal. Sept. 27, 2023)

Interesting bench trial result that finds no proximate causation of plaintiff’s injury from defendant’s false advertising. Despite finding the plaintiff’s expert’s testimony about sugar and alcohol levels in defendant’s kombucha “credible and compelling,” lack of harm doomed its case. (But that suggests that some AG might want to get involved, especially as to whether GT should be selling its products without the alcohol warning label.)

The basic allegations: defendant’s kombucha had much higher levels of sugar and alcohol than advertised, allowing defendant to sell it without an alcohol warning and to get consumers who didn’t want those levels of sugar and alcohol to choose it. Tortilla Factory’s Kombucha Dog has approximately 1.25% alcohol by volume and is sold as an alcoholic beverage, with a government-required warning label. It also uses pictures of rescue dogs on the label. And Tortilla Factory entered into an exclusive distribution deal that was a disaster—the distributor let lots of accounts die.

Meanwhile, GT is the leading kombucha seller in the market, with about 50% market share as of 2018, but there are about 300+ kombucha brands in the US, with California the most competitive state given lots of local brands.

Tortilla Factory simply couldn’t show the requisite harm. Although it argued that it expended significant amounts on corrective advertising about authentic kombucha and sugar, the court found that it was just typical advertising “undertaken by any small business entering a competitive market.”

And more generally, the misrepresentations about the amount of alcohol in, and lack of a government alcohol warning label on, certain of GT’s products would not have decreased Tortilla Factory’s sales. A customer who wanted a product that didn’t have enough alcohol to need a label would have instead purchased “one of dozens of available nonalcoholic kombucha drinks in the market.” Tortilla Factory’s own expert testified that the alcohol label was very important to consumers and was a drag on sales. And his survey was suspect because he showed consumers the front of a Kombucha Dog bottle with images of rescue dogs, but only the back and side of GT’s Classic bottle, and conceded that “the photo of a cute dog could inject bias into the result[.]”

Because the alcohol part was so important, the sugar misrepresentations became unimportant: again, a consumer who wanted lower sugar content would have chosen a different nonalcoholic kombucha beverage even if GT’s had been properly labeled, and there was no evidence about consumer reactions to sugar labels.  

Evidence about Tortilla Factory’s prior customers who eventually sold GT’s also didn’t show harm causation from falsity, as opposed to other factors like the disaster distributor or GT providing special flavors (also, GT sold kegs to some customers, and the evidence of falsity related to bottles, not kegs; I don’t know the science here so I don’t know if that would likely make a difference).