Innovation Ventures, LLC v. N2G Distrib., Inc.

• Decision Date: 14 August 2014
• Docket Number: 13–1817.,Nos. 12–1635,s. 12–1635
• Citation: 763 F.3d 524
• Parties: INNOVATION VENTURES, LLC, Plaintiff–Appellee, v. N2G DISTRIBUTING, INC., a California Corporation, and Alpha Performance Labs, a Nevada Corporation, Defendants–Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

763 F.3d 524

INNOVATION VENTURES, LLC, Plaintiff–Appellee,

v.N2G DISTRIBUTING, INC., a California Corporation, and Alpha Performance Labs, a Nevada Corporation, Defendants–Appellants.

Nos. 12–1635, 13–1817.

United States Court of Appeals,Sixth Circuit.

Argued: June 18, 2014.

Decided and Filed: Aug. 14, 2014.

ARGUED:James K. Thome, Vandeveer Garzia, P.C., Troy, Michigan, for Appellants. Mark A. Cantor, Brooks Kushman P.C., Southfield, Michigan, for Appellee. ON BRIEF:James K. Thome, Timothy J. Connaughton, Vandeveer Garzia, P.C., Troy, Michigan, for Appellants. Mark A. Cantor, Marc Lorelli, Brooks Kushman P.C., Southfield, Michigan, for Appellee.

Before: KEITH, CLAY, and McKEAGUE, Circuit Judges.

OPINION

CLAY, Circuit Judge.

These consolidated appeals arise from a jury trial followed by a contempt proceeding. At trial, Defendants N2G Distributing, Inc. (“N2G”) and Alpha Performance Labs were found to have infringed the trademark and trade dress of 5–hour ENERGY (“FHE”)—a product sold by Plaintiff Innovation Ventures, LLC—in violation of the Lanham Act, 15 U.S.C. § 1051, et seq. The district court then held Defendants in contempt, along with their owner, Jeffrey Diehl, for violating the permanent injunction entered after trial. Defendants appeal many of the district court's rulings, but for the reasons that follow, we AFFIRM the district court in full.

BACKGROUND

A. 5–Hour ENERGY

Plaintiff is the marketer, distributor, and seller of FHE. FHE is an energy shot, which is an energy drink sold and consumed in small portions. Plaintiff began selling FHE in August 2004 after just a few months of development. FHE was not the first energy shot to hit the market, but it did have a unique angle. While other energy drinks targeted young consumers, Plaintiff marketed FHE to working adults. Plaintiff hoped that these consumers would come to see FHE as a replacement for an afternoon cup of coffee or a caffeinated soda.

Plaintiff's 2004 sales of FHE totaled, at most, a few hundred thousand dollars. In 2005, sales were $3 million. Sales increased astronomically from there. Plaintiff sold over 200 million bottles of FHE between 2006 and 2008. By March 2009, FHE controlled nearly 70% of the market for energy shots. Sales of FHE totaled over 460 million bottles in 2011, which translated into $620 million of revenue. Plaintiff budgeted approximately 25% of its gross sales to go to advertising for FHE. Thus, Plaintiff spent over $40 million in advertising in 2008, and over $120 million in 2010.

Plaintiff also took steps to protect the FHE mark. In June 2004, Plaintiff submitted “5–hour ENERGY” for trademark registration with the U.S. Patent and Trademark Office (“PTO”). The PTO rejected Plaintiff's application in January 2005, deeming the mark too descriptive to be eligible for trademark protection.¹ Plaintiff placed FHE on the Supplemental Register in September 2005.² Plaintiff eventually secured a trademark for “5–hour ENERGY” in August 2011, shortly before this case went to trial.

Plaintiff also attempted to protect its mark and market position through litigation. While Plaintiff was not the first energy shot on the market, it was the first to achieve widespread success. This success attracted hundreds of competitors. Plaintiff had to defend suits from other market participants who believed Plaintiff was infringing on protected marks. And Plaintiff itself sued many new-comers that Plaintiff's executives believed were infringing FHE's name and trade dress. Defendants' range of energy shots was one of Plaintiff's targets.

B. Defendants' Products

Jeffrey Diehl has been in the dietary supplement game since the mid–1990s. In those early days, Diehl produced pills and powders going by the name of “Nitro2Go Herbal Energizer,” “Max Diet Formula,” “Sexual Enhancement Formula,” and “Explosive Ginseng.” In 2005, Diehl founded N2G, and served as its president.

In 2007, Diehl came out with his first energy shot. Diehl wanted to sell an array of energy shots with different names, so he created Alpha Performance Labs to market and distribute this universe of products. In early 2008, Diehl began to market and sell “6 Hour Energy Shot,” “Nitro2Go Instant Energy,” and “Extreme Monster Energy Shot.” As the picture below of 6 Hour Energy shows, the bottle bears some resemblance to FHE's bottle (on the left).

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Diehl testified that he gave 6 Hour Energy a red, yellow, and black color scheme because he had been using these colors in his Pure Energy powder since 2000. The hiker on the bottle was apparently a reference to Diehl, who enjoys a vigorous walk. The bottles of 6 Hour Energy and Nitro2Go Instant Energy both had warning labels. These labels mimicked the warning label found on FHE's bottle word-for-word. Despite this coincidence, Diehl testified he had never heard of Plaintiff's product before coming out with 6 Hour Energy.

C. Litigation and Trial

In March 2008, one of Plaintiff's customers was attending a trade show in Dallas and saw a flyer advertising Defendants' energy shots. The customer e-mailed the flyer to Plaintiff's President on March 3, 2008. Four days later, Plaintiff filed this lawsuit, claiming that Defendants' 6 Hour Energy Shot violated the Lanham Act by infringing on FHE's trademark and trade dress. Also in March 2008, Plaintiff applied for a copyright of its warning label.

On April 9, 2008, the district court issued a preliminary injunction barring Defendants from selling 6 Hour Energy, any other products that use FHE's trade dress, and any products that use packaging confusingly similar to FHE's trade dress. The court also ordered Defendants to recall 6 Hour Energy from the market. Defendants had sold approximately 77,000 bottles of 6 Hour Energy by that point, and received almost half of these bottles back after the recall. Diehl testified at trial that he destroyed the returned product. All told, Diehl and Defendants took a huge loss on 6 Hour Energy. Diehl also had to take his Extreme Monster Energy Shot off the market after complaints of trademark and trade dress infringement from the makers of Monster energy drink—one of the largest players in the energy drink market.

Shortly after the district court enjoined 6 Hour Energy, Diehl came out with a shot version of Pure Energy. Diehl's attorney at the time told him that Pure Energy was probably not confusingly similar to FHE. Diehl's own experience with trade dress litigation reinforced his lawyer's advice. But in mid–2008, Plaintiff amended its complaint to allege that Pure Energy also infringed on FHE's trademark and trade dress. Diehl discontinued the Pure Energy shot in late 2008. Diehl and Plaintiffs repeated this revise-and-amend cycle several more times. In the end, Diehl came out with seven products in addition to 6 Hour Energy that Plaintiff claimed infringed on the FHE trademark and trade dress.

After much more procedural wrangling (we address the relevant portions in our discussion below), the case went to trial. Plaintiff presented three claims to the jury—trademark infringement, trade dress infringement, and false advertising—involving seven of Defendants' products. The jury was also asked to consider whether Defendants' infringement was intentional. The jury found that six of Defendants' products infringed on the FHE trademark; that 6 Hour Energy and two other products infringed on FHE's trade dress; that all of Defendants' infringement was intentional, save for one product; and that two of Defendants' products were falsely advertised. (Pictures convey these findings more easily than words, so we attach the verdict form as an Appendix.) The jury awarded Plaintiff $1.75 million in damages.

D. Injunction and Contempt

On May 23, 2012, the district court issued a permanent injunction, prohibiting “Defendants, their officers, agents, servants, employees, attorneys, and other persons who are in active concert or participation with them,” from selling the six products found to infringe on the FHE trademark and trade dress. (R. 362, Permanent Injunction, at 8962.) The injunction also barred selling products that used “marks that are confusingly similar to” FHE's trademark and trade dress. ( Id. at 8963.) Defendants were ordered to hand over all the products subject to the injunction and file a report detailing their compliance. Defendants filed this report, which Diehl signed under penalty of perjury. (Diehl was not personally enjoined since he had not been named as a party and served with process, but he continued to act on behalf of Defendants.) Diehl reported that he had long ago stopped selling 6 Hour Energy and Pure Energy; that he had changed the labels for all the other infringing products, and thus was not violating the injunction; and that he had instructed the enjoined products not be sold on the Nitro2Go website. In July 2012, both Defendants declared bankruptcy.

Plaintiff did not take Diehl's representations at face value, and conducted its own investigation into Defendants' compliance with the injunction. In July 2012, Plaintiff had three separate orders placed on the Nitro2Go website. Each of these orders contained enjoined products, plus products with modified labeling that were being advertised on the website:

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These modified products were marketed by a new company, Nitro Rocks Distributing, and the orders were filled by a company called ETC Distributing. According to Diehl, N2G licensed the Nitro2Go name to Nitro Rocks Distributing, which in turn sold product to ETC Distributing. ETC also purchased products directly from Defendants before the permanent injunction issued.

Just like N2G and Alpha Performance labs, these new companies were Diehl's corporate creations. Diehl founded Nitro Rocks and owns 100% of the company. Nitro Rocks operates out of the same offices as N2G, in a building that Diehl owns. ETC is a California corporation that Diehl founded along with Hratch Djanbatian in June 2010. Djanbatian became the sole owner of...