INSIDER Law
5-hour Energy Wins and Loses Court Battles with State AGs

5-hour Energy Wins and Loses Court Battles with State AGs

<p>Court decisions in the Northwest have produced mixed results for Living Essentials LLC and Innovation Ventures LLC.</p>

Four years after state attorneys general launched a multistate investigation into the advertising and marketing practices of 5-hour Energy, state judges in Indiana, Oregon and Washington have issued decisions for and against the producers of the popular dietary supplement.

Court decisions in Oregon and nearby Washington have yielded mixed results for Living Essentials LLC and Innovation Ventures LLC (referred to jointly as Living Essentials).

In 2014, a number of states sued Living Essentials and Innovation Ventures following the multistate probe. Five states—Maryland, Ohio, Tennessee, Vermont and Oregon—led a steering committee as part of a 33-state investigation into 5-hour Energy's marketing practices, according to 2013 court papers filed by the Oregon Department of Justice.

Only recently have some of the cases been decided in state courts based on facts and witness testimony presented during bench trials.

Washington Court Rules For and Against 5-hour Energy

In October, a Seattle court ruled the companies behind 5-hour Energy violated the state Consumer Protection Act. King County Superior Court Judge Beth Andrus agreed the companies’ press releases and advertising campaigns promoting 5-hour Energy were misleading, according to the office of Washington Attorney General Bob Ferguson.

Andrus’ 58-page opinion examined the following representations by Living Essentials in advertising, marketing and promotional materials:

·         The non-caffeine ingredients in various formulations of 5-hour Energy provide alertness, energy and focus.

·         The effects of Original and Extra Strength 5-hour Energy are superior to consuming the equivalent amount of coffee and other sources of caffeine.

·         Decaf 5-hour Energy provides alertness, energy and focus.

·         Consumers will not suffer a “crash" after drinking the energy shot.

·         Doctors recommend 5-hour Energy (as purportedly implied in an advertising campaign).

The state failed to prove Living Essentials violated the Consumer Protection Act when it aired or published its “no crash" advertisements and its ads indicating the non-caffeine ingredients in the product promote alertness, energy and focus, the judge ruled. However, she found in favor of the state and against Living Essentials on the remaining three claims, including an “Ask Your Doctor" advertising campaign.

“The makers of 5-hour Energy misled consumers in pursuit of profit," Ferguson declared in a statement. “They broke the law, and they will be held accountable for their deception."

The judge will determine penalties and other remedies at a future date, according to Ferguson’s Oct. 10 news release.

Responding to the ruling in an emailed statement, Living Essentials asserted the Washington court found in the company’s favor “on the key issues."

Oregon AG Gets ‘Spanked’

In July, a trial was held in Multnomah County Circuit Court on claims that Living Essentials and Innovation Ventures violated Oregon’s Unlawful Trade Practices Act, or UTPA. It is the same statute that is relevant in a separate lawsuit pending against GNC, the specialty retailer of vitamins and supplements, and brought by Oregon Attorney General Ellen Rosenblum.

After the government presented its evidence, Judge Kelly Skye granted directed verdicts for the defendants on some of the claims. On Oct. 4, she ruled in favor of 5-hour Energy on the remaining claims filed by Rosenblum.

Kristina Edmunson, a spokeswoman for Rosenblum, noted her office and Living Essentials have filed objections to the judge’s findings. Once the findings are final, the attorney general “will be in a position to appeal, or not," she said.

Doug Gansler, the former attorney general of Maryland and an ex-federal prosecutor, said the court ruling marked a significant defeat for the Oregon authorities. A partner in Washington with the law firm BuckleySandler LLP, Gansler has counseled U.S. trade associations representing the dietary supplement industry.

“They had a full-blown trial and got spanked," he said in a phone interview. “And it was very significant to the industry," Gansler added, “because Oregon has taken the view that the state attorneys general should be going after companies in the supplement space."

5-hour Energy Prevails in Indiana

The ruling in Oregon was at least the second court opinion favorable to Living Essentials in its ongoing battles with the state attorneys general. In April, a judge in Marion County Superior Court in Indianapolis ruled in favor of Living Essentials and Innovation Ventures in a lawsuit brought by the state.

In an order granting judgment as a matter of law, Judge Timothy W. Oakes declared, “The alleged implicit misrepresentations were not actionable under the applicable version of the Indiana Deceptive Consumer Sales Act. The court does not need to reach the issue of whether an aggrieved consumer has been identified."

Corey Elliot, a spokesman for Indiana Attorney General Greg Zoeller, had no comment on the decision. In 2015, Zoeller and 13 other attorneys general asked Congress to launch an inquiry into the herbal supplement industry and give FDA more authority to regulate botanical supplements.

“The courts in Oregon and Indiana got it right and found in favor of Living Essentials on all matters," Living Essentials said.

Cases involving 5-hour Energy, and filed by attorneys general, are also pending in Vermont and Hawaii.

Living Essentials could be facing more dire circumstances. The majority of states that investigated 5-hour Energy decided not to move forward against the product, Gansler said.

“To have them [state attorneys general] fall by the wayside one by one by one is really a major victory for the industry and its argument that national supplement products are best regulated by the regulatory agency that has the expertise, experience, scientists and … the clear authority to regulate the industry," namely the FDA, the former attorney general said.

‘Ask Your Doctor’ Ad Leads to Different Conclusions by Judges

The rulings in Oregon and Washington underscore that a victory in one state court is no guarantee of a win in another state court—even in cases with similar issues and laws.

In Oregon, the government failed to convince the court that various versions of an “Ask Your Doctor" (AYD) advertisement that ran for a year violated the UTPA because it was misleading. On the other hand, the Washington court found Living Essentials violated state law when it aired the ads.

“This evidences the great variances between courts in different states and the need to discuss this specifically while strategizing during multistate litigation," observed Abhishek Gurnani, a partner in Chicago with the law firm Amin Talati Upadhye LLP who advises food, beverage and nutritional supplement companies.

The AYD ads combined the results of the two surveys, which Oregon authorities found problematic. In the first survey, an online questionnaire, 503 doctors were asked to identify characteristics of an energy drink they would recommend; a sales force conducted a second face-to-face survey with 2,659 doctors, requesting a similar evaluation, according to the Oregon court’s 12-page findings of fact, conclusions of law and verdict.

The Oregon judge quoted the text of the lengthiest AYD ad: “We asked over 3,000 doctors to review 5-Hour Energy and what they said is amazing. Over 73 percent who reviewed 5-hour Energy said they would recommend a low-calorie energy supplement to their healthy patients who use energy supplements. 73 percent. 5-hour Energy has 4 calories and is used over 9 million times a week. Is 5-hour Energy right for you? Ask your doctor. We already asked 3,000."

The advertisement’s “substantive message" was neither misleading nor “material to consumer purchasing decisions," the judge ruled. In her objections to the court’s findings, Rosenblum contended the state need not provide evidence of “materiality" under the UTPA, “because materiality is inherent in the types of representations that the legislature prohibited." Moreover, even if materiality is an element of proof, the state didn’t need to establish consumers relied on a misrepresentation, she argued.

Gurnani was struck by the court’s observations that consumers may expect bias in a survey that an advertiser procured. The court further pointed out, “The language of the AYD ad does not represent that the surveys were conducted in a scientific or unbiased manner."

“In essence, the Oregon court treated this language different than a ‘doctor recommended’ claim and read each of the words in the ad literally in finding them to be truthful," Gurnani noted.

The Washington court reached a different conclusion. “While the statistics displayed in the ads and the words used in the ad were literally true, the impression left by the ads was not," Andrus, the King County Superior Court Judge, wrote in her order.

The judge found the AYD ads left the impression “that a substantial majority of doctors believe 5-hour Energy is a safe and effective nutritional supplement that they would recommend to their patients," but she said neither survey asked doctors if they believed the product was healthy or safe.

Said Gurnani, the beverage and supplement lawyer: “The Washington court would be considered what is to be the mainstream interpretation of ‘doctor recommended’ claims, which are required to be supported by well-designed surveys."

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