A Cautionary Advertising Tale About Creatine and Energy Drinks
A jury found Vital Pharmaceuticals Inc., maker of Bang energy drink, and its CEO (together, Vital) liable for false advertising under the Lanham Act and awarded Monster Energy Co. (Monster) more than $271 million for damages allegedly sustained due to the false representation that the drink contains creatine. Afterward, Monster filed a motion for permanent injunction against Vital. In Monster Energy Co. v. Vital Pharm., Inc., No. EDCV18-1882 JGB, 2023 WL 2918724 (C.D. Cal. April 12, 2023), the U.S. District Court for the Central District of California granted the injunction. The reasons tell a cautionary tale for advertisers and manufacturers.
An injunction requires irreparable harm. The remedy at law (e.g., damages) must be inadequate. Monster identified two kinds of irreparable harm. First, Monster complained of loss of prospective customers or goodwill. Vital argued that the loss of prospective customers or goodwill translates into lost sales, which can be adequately redressed by monetary damages. But the court disagreed. According to the court, "A lost customer may constitute the loss of a relationship with a customer as well as reference to other potential customers." Thus, the court concluded that Monster's loss of customers is an irreparable harm.
Second, Monster argued that it lost market share. Monster showed that Vital's market share went from 0.2 to 9.4 from 2017, to 2019 while Monster's share dropped from 37.4 to 33. However, Vital showed that from the second quarter of 2021, Vital's share declined from 8.4 to 4, while Monster's share increased from 30.9 to 31, and that from the second quarter of 2022, Vital's share declined from 6.6 to 4, while Monster's share rose from 30.7 to 31. The court ruled, "[I]t is not clear … that Monster has recovered its loss of share." The court noted that defendants continue to advertise and sell "Super Creatine"-labeled cans, which continues to threaten Monster's market share.
Vital argued that it was already abandoning any focus on "Super Creatine" or creatine and has already redesigned its label, promotional materials and advertising as reasons Monster could not establish irreparable harm. But the court was not persuaded because of Vital's continued sale of cans with the "Super Creatine" label and failure to remove the advertising from its social media accounts, so that the court was unable to conclude that Vital's behavior would not recur.
Vital objected that removing the term "creatine" from all cans, physical locations and media would result in significant disruptions to Vital's business. Vital insisted that it would have to destroy cans and prevent the company from filling existing customer orders. Balancing hardships, the court responded that it had been more than six months since the jury returned its verdict, during which time Vital should have adjusted. The court was willing to grant Vital just 30 days more. The court determined that "there is a strong public interest in preventing false advertising of products in the marketplace."
The court modified the injunction proposed by Monster and entered it inclusive of a mandatory corrective statement to be posted on Vital's webpages for 30 days. The court accepted Monster's proposal that it include, as enjoined persons, the defendants and their officers, agents, servants, employees, consultants, representatives, parent companies, owners, subsidiaries, affiliates and attorneys, "and other persons acting in concert with them who receive actual notice of this Permanent Injunction …."
Vital especially opposed the "acting in concert" language on the grounds that it potentially reaches its retailers or distributors. But the court retained the language because without it, the court said Vital could engage in false advertising through aiders and abettors. Because it requires a "fact-intensive inquiry," the court declined to decide whether the phrase subjects retailers and distributors to being held in contempt.
Vital next requested a stay of the injunction pending the outcome of Chapter 11 proceedings, but the court concluded that Vidal should not be permitted to falsely advertise during the interim. Vital has appealed the ruling to the U.S. Court of Appeals for the Ninth Circuit.