– Draeke Weseman, Weseman Law Office, PLLC
The reason Bhargava has won is that he plays tough. Sitting in that cemetery are a dozen or so neon copycats with names like 6-Hour Power and 8-Hour Energy. Each has been sued, bullied or kicked off the market by Living Essentials’ lawyers. In front of each are little placards with a skull and crossbones drawn in felt-tip pen. Bhargava points at the gravestone of one of his late competitors and says with a chuckle, “Rest in peace.”
— Clare O’Connor, The Mystery Monk Making Billions with 5-Hour Energy, Forbes.com (February 8, 2012)
5-Hour Energy is a
monster* behemoth in the energy shot market it created in 2004. According to Forbes, retail sales for 5-Hour Energy hit $1 Billion in 2012, with advertising spending reaching almost $200 Million. Its market share is approximately 90%; its closest competitor’s share is about 3%. As CEO Manoj Bhargava puts it, 5-Hour Energy is “killing it.”
Last month, 5-Hour Energy appears to have put the final nail in the coffin of one of its would-be competitors, a persistent copycat extraordinaire named Jeffery Diehl. Operating through a few different corporate entities such as N2G Distributing, Inc. and Alpha Performance Labs, Diehl sold energy shots by the names of 6 Hour Energy Shot, Nitro2Go Instant Energy, and Extreme Monster** Energy Shot. Depicted below is a comparison of 5-Hour Energy’s bottle on the left and one of Diehl’s bottles on the right:
In 2008, 5-Hour Energy sued Diehl in federal court in Michigan and quickly won a preliminary injunction, immediately barring Diehl from selling any more of his products under confusingly similar names or in confusingly similar packaging while a complete trial on the merits played out. Of course, this didn’t stop Diehl from changing the name and changing the packaging, and each time he did, 5-Hour Energy added another product to its complaint. Three and half years later, after much procedural wrangling and a trial on the merits, Diehl was found liable for $1.75 Million in damages for trademark infringement and unfair advertising in connection with various iterations of his copycat product. The image below is from one page of the verdict form from the jury; the circled products represent infringing products:
In addition to monetary damages, the court ordered Diehl to stop selling infringing products. A few months later, through its own investigation, 5-Hour Energy discovered that Diehl was still selling copycat products online, albeit under a new corporate entity (his other corporate entities filed bankruptcy, of course). So 5-Hour Energy dragged Diehl back into court and the court was not happy: “[Diehl’s actions] are the actions of an individual trying to hide from and avoid his obligations under this Court’s order.” Diehl was held in contempt of court and ordered to immediately stop selling infringing products or face a $1,000 a day fine. Diehl stopped.
Now, this is America after all, and even crafty contempt-ing copycats have a right to appeal. So of course Diehl appealed (after losing his motion for a new trial); his view – the evidence didn’t show a likelihood of confusion! This is what the appellate court found:
• The jury could see that Diehl’s products used similar marks, despite minute differences in the words or images;
• The jury could listen to survey evidence and attacks on that evidence and determine that 5-Hour Energy was a strong brand and robust mark;
• The jury could recognize that Diehl was selling essentially identical products: two-ounce energy shots, often at convenience stores, near cash registers, where purchases are made impulsively;
• The jury could consider even a single instance of actual confusion as increasing the likelihood of confusion;
• The jury could disregard Diehl’s testimony that he only wanted to compete with 5-Hour Energy fairly in the free market; and
• The jury could infer that Diehl was laying claim to a mark when he testified that he just wanted to own the term ‘6 Hour Energy Shot’ the same way that the owner of 5-Hour Energy owns 5-Hour Energy, thus contradicting Diehl’s claim to a fair use defense.
Diehl also wanted to object to the verdict as inconsistent – one of the bottles was not circled! But the appellate court dismissed this objection because it must be brought when the jury is still assembled, so that the jury can resolve the inconsistency, if any.
Diehl tried another approach – the evidence was unfair and improper! For example, Diehl was upset that he had been denied access to 5-Hour Energy’s secret formula, which he said would show that his probably similar formula could produce more hours of energy – 6 or 7 or 14, as claimed – thus making his marks descriptive. Diehl was also upset that the jury learned about his copycat product, the Extreme Monster Energy Shot (photo below). Diehl further complained that the jury didn’t get to read an opinion from another court where Diehl had sued a competitor over similar trade dress AND LOST, because, Diehl claimed, when he lost he learned that you could get around trade dress laws with just a few little changes, and this showed he wasn’t intentionally infringing 5-Hour Energy’s trade dress with his little changes. Finally, Diehl complained that although he was able to show that 5-Hour Energy was litigious (i.e. a trademark bully), he didn’t get to present enough evidence on that point. The appellate court disagreed that any of these issues mattered.
Diehl struck out on a few other contentions as well, bringing his appeal at the Sixth Circuit, and six years of litigation, to an end. Those contentions, and more details about the case, can be found in the court’s opinion, here.
As for where exactly 5-Hour Energy and its lawyers get the energy for these types of cases, my money is on a secret 6-Year Litigation formula!
*Author’s Note: Poor choice of words.
**Author’s Note: Diehl, apparently, didn’t think so.