Ads Touting Sport Drink’s Sweat-Like Formula Not Enjoined

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

In a false advertising and trademark dilution case, PepsiCo subsidiary Stokely-Van Camp’s request for a preliminary injunction against Coca-Cola’s advertising of its Powerade ION4 sports drink was declined by the federal district court in New York City.

The court described the dispute as “an advertising battle between two major consumer products companies over one company’s comparison of its beverage to human sweat.”

Stokely-Van Camp (SVC) is the maker of Gatorade, the top-selling sports drink with annual sales of over $4 billion and over 75 percent of the U.S. market.

In March 2009, Coca-Cola launched its reformulated Powerade ION4, which it sought to position as more like human sweat than both old Powerade and Gatorade Thirst Quencher. Coca-Cola differentiated its new product as a sweat replacer, in particular, based on the inclusion of calcium and magnesium, small amounts of which are lost in sweat.

"Incomplete" Sports Drink

Early in its campaign, Coca-Cola launched an aggressive advertising blitz attacking Gatorade head-on. Ads included the claim “DON’T SETTLE FOR AN INCOMPLETE SPORTS DRINK” emblazoned above a half-bottle of Gatorade, along with the claim “MISSING TWO ELECTROLYTES* Ca CALCIUM Mg MAGNESIUM.”

Coca-Cola discontinued the comparative ads expressly targeting Gatorade in early May after SVC filed suit in April. Coca-Cola continued to advertise Powerade ION4 with claims including “The Complete Sports Drink.”

Trademark Dilution

SVC asserted that the advertisements showing half a bottle of Gatorade constituted trademark dilution by tarnishment in violation of the Lanham Act and New York law. However, SVC’s request for preliminary injunctive relief based on trademark dilution was moot, in light of the fact that the ads comparing Powerade ION4 to Gatorade were discontinued, the court ruled.

False Advertising

With regard to SVC’s Lanham Act false advertising claims, the request for preliminary injunctive relief barring Coca-Cola from advertising that Gatorade is “incomplete” and “missing” two electrolytes also was moot, the court held.

SVC argued that its request to enjoin Coca-Cola from running these ads was not moot because Coca-Cola’s alleged record of following a “cheat and retreat” strategy revealed bad faith and a likelihood that it would resume the ads. However, SVC’s fear that Coca-Cola would resume the ads was speculative and did not warrant a preliminary injunction, in light of Coca-Cola’s sworn declarations and testimony under oath that it would not resume the ads during the course of the litigation, according to the court.

Coca-Cola’s continuing advertising of Powerade ION4 as “The Complete Sports Drink” was not proven literally false, the court added. Claims that a product is “The” something-or-other are commonly viewed as mere puffery, the court said. In addition, advertising terms like “complete” have been held to be puffery because they are subjective and could not be proven true or false.

SVC contended that the advertising misleadingly implied that Gatorade was less effective because it lacked calcium and magnesium. However, a Lanham Act claim of implied falsity could not succeed without evidence that consumers viewed the ads as communicating a misleading impression. SVC had not conducted any research to produce such evidence, the court noted.

Unclean Hands

SVC’s own unclean hands precluded issuance of a preliminary injunction against Coca-Cola, the court ruled. Although SVC complained of Coca-Cola’s touting of calcium and magnesium, the evidence at the preliminary injunction hearing demonstrated that SVC too had marketed the advantage of adding calcium and magnesium to Gatorade Endurance Formula.

Some of SVC’s claims appeared to have gone further in that they suggested that calcium and magnesium provide performance or hydration benefits, while Coca-Cola only touted the addition of calcium and magnesium, without claiming that they actually do anything for the consumer other than replace the trace amounts that are lost in sweat, the court concluded.

The August 4 opinion in Stokely-Van Camp, Inc. v. Coca-Cola Co. will be reported in CCH Trade Regulation Reporter and CCH Adertising Law Guide.

Good Cause Not Required for Franchise Termination

This posting was written by Pete Reap, Editor of CCH Business Franchise Guide.

A heating and air conditioning business franchisee failed to demonstrate that a manufacturer was required to have good cause before it terminated the parties’ agreement, the U.S. Court of Appeals in Denver has decided. Thus, a federal district court did not err in granting the manufacturer judgment on the claim as a matter of law.

The dispute arose when the manufacturer discovered that the franchisee had been abusing a rebate program that reduced prices charged to dealers, enabling them to meet the prices offered by competitors.

The manufacturer terminated the franchise, the dealer brought a breach of contract action, and the manufacturer counterclaimed based on the dealer’s abuse of the rebate program.

Termination at Will

As written, the agreement entitled either party to terminate at will on 30 days’ notice, the court noted. However, the franchisee argued that the agreement had been modified by the manufacturer’s statements and conduct so that the manufacturer could not terminate it without good cause.

At best, the evidence presented by the franchisee showed that the manufacturer had consistently provided cause when terminating franchises in the past, the court observed. However, a pattern of terminating with cause was not unequivocally inconsistent with the retention of the power to terminate without cause, according to the court.

Unclean Hands

The court agreed with the franchisor’s contention that the franchisee had unclean hands, based on the phony invoices the franchisee's employees had prepared in preparation for the franchisor’s audit of the rebate program.

Although a jury had found that the franchisee should have been equitably estopped from denying that the parties’ agreement required good cause for termination, the district court properly refused to apply the equitable doctrine for the franchisee’s benefit.

Damages

The district court erred by appointing a special master for an equitable accounting on the fraud claim, the court held. The district court found that having a jury “tediously slog through” the individual invoices that the franchisee had fraudulently submitted to the franchisor would prolong the trial.

Because the jury’s general verdict in favor of the franchisor on the fraud claim did not fix the scope of the franchisor’s liability, a new jury could not calculate the franchisor’s damages without resolving the specifics of that liability. Accordingly, the entire fraud claim—not simply the question of the amount of the franchisor’s damages—was required to be retried, the court held.

The decision is Haynes Trane Service Agency, Inc. v. American Standard, Inc., CCH Business Franchise Guide ¶14,125