Rebecca Tushnet

Republic Technologies (NA), LLC v. BBK Tobacco & Foods,
LLP, 2023 WL 3004625, No. 16 C 03401 (N.D. Ill. Apr. 19, 2023)

Previous
discussion. A jury found that defendant HBI engaged in unfair competition
and violated the Illinois Uniform Deceptive Trade Practices Act (IUDTPA” in its
packaging and promotional activities for its RAW Organic Hemp branded tobacco
rolling paper products. Here, the court mostly denied a renewed motion for
disgorgement, prejudgment interest, and attorneys’ fees.

Republic alleged that HBI, its competitor in the tobacco
rolling paper industry, engaged in false advertising under the Lanham Act,
unfair competition, and violations of the IUDTPA. HBI counterclaimed that
Republic infringed its copyrights and trade dress. The jury ruled for HBI on
one of its copyright infringement counterclaims and one of its trade dress
claims against Republic and awarded HBI $979,620 in lost profits and $40,000 in
statutory damages. The jury found that HBI did not engage in false advertising
under the Lanham Act, but that HBI had engaged in unfair competition under
Illinois common law and violated the IUDTPA. There was no special verdict form.

Because the jury was instructed not to consider the question
of damages as to the unfair competition and IUDTPA claims (and plaintiffs
cannot seek monetary damages under that statute), Republic was not awarded any
monetary damages. The false advertising claims were based on statements (1)
that HBI’s rolling paper is “made in Alcoy, Spain, the birthplace of rolling
paper;” (2) that HBI’s RAW “Organic Hemp” papers are the “World’s Only” or
“World’s First” organic hemp rolling papers; (3) that HBI contributes its funds
or sales to a charitable entity called the “RAW Foundation;” (4) that HBI’s
rolling papers are made with “natural hemp gum;” (5) that RAW rolling papers
are “100% wind powered;” and (6) that OCB Organic Hemp papers (Republic’s
products) are knock-offs, “RAWnabees,” copies, or fake versions of RAW. The
court granted an injunction focusing on the Alcoy claims, which were false.

Here, the court declined to order disgorgement of “every
cent of profit from HBI’s RAW brand during that time period—over $34 million.” Disgorgement
is unavailable under the IUDTPA, which provides only for injunctive relief, and
if the violation was willful, attorneys’ fees. But IUDTPA remedies are
additional to any other remedies available against the same conduct under the
common law. “And here, the jury also found that HBI committed common law unfair
competition, which may carry with it the right to disgorgement, though the
parties have not cited, and this Court could not find, an example in Illinois
in the last 75 years.”

Assuming that disgorgement was available, the court looked to
the Restatement (Third) of Unfair Competition for guidance. That worthy
document deems disgorgement appropriate only when (1) “the actor engaged in the
conduct with the intention of causing confusion or deception,” and (2) “the
award of profits is not prohibited by statute and is otherwise appropriate” in
light of all of the factors of the case.

The court was primarily guided by the absence of proof that
the false statements were a substantial factor in producing sales. The court’s
previous finding that the falsehoods “are likely to cause consumers to choose
HBI’s products over Republic’s products” were directed at “likely” future harm
to Republic, not actual proof of causation of HBI’s past profits. Republic
could have provided survey data or consumer testimony, but did not.

Republic mainly pointed to the testimony of HBI’s own
witnesses that the purpose and effect of the “RAW Foundation” promotion and
charitable giving campaigns was to drive more sales, increase brand awareness,
and enhance brand loyalty. “But though there was no official ‘Raw Foundation’
entity, HBI did indeed donate moneys to charities and conduct charitable
events.” Also, a company’s belief that its advertising is important and profitable
“is not evidence that the advertising actually had that effect.” (Once again,
courts in false advertising cases refuse to make the plaintiff-favorable
inferences that are standard in TM cases, here about intent.)

As for the parties’ competing damages experts, HBI’s expert
admitted that he did not review any consumer data or have any background in
understanding consumer behavior, while Republic’s expert also admitted that he
did not know “how much of HBI’s profits are attributable to the challenged
statements;” did not “have any basis for adjusting [his] profit opinion to account
for the fact that the jury might accept some of the statements, but not all of
them, as false advertising;” and did not “have any basis for an opinion that
any of the challenged advertisements actually increased HBI’s profits.”  This lack of evidence that the wrongful
conduct was a “substantial factor” in producing sales was “fatal” to an award
of disgorgement.

The other factors listed by the Restatement didn’t change
anything (the adequacy of other remedies; the public interest in
deterrence/disgorgement; degree of fault; any delay in suing; any related
plaintiff misconduct).  The court
specifically noted the risk of a windfall to Republic, given that there are 22
hemp-based competitor rolling paper products, “all of whom may have suffered
sales losses because of HBI’s misleading statements.” Deterrence was
sufficiently served because it cost HBI money to bring itself into compliance
with the injunction by removing numerous marketing statements from all
packaging, marketing, and promotional materials for upwards of 600 items. Nor
was Republic a completely innocent party in the matter, given that the jury
found that it willfully infringed HBI’s trade dress and copyright.

However, the court did award some attorneys’ fees under
IUDTPA, which are available “if the court finds that [defendant] has willfully
engaged in a deceptive trade practice.” Willful conduct is defined as conduct
that is “voluntary and intentional, but not necessarily malicious.” HBI acted
with willfulness as to the Alcoy statements. “[W]hen HBI—a full year after
trial—claimed that any problems with its Alcoy statements could be solved by
essentially rearranging the punctuation of its previous statements, this Court
found that it was ‘an attempt to mislead.’” Thus, Republic’s reasonable
attorneys’ fees as to that issue would be awarded.

from Blogger http://tushnet.blogspot.com/2023/04/no-disgorgement-under-state-law-when.html

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.

from Blogger http://tushnet.blogspot.com/2023/04/monster-wins-permanent-injunction.html