Pepsi fails to derail launch of Coca-Cola's reformulated sports drink

United States of America
In Stokely-Van Camp Inc v The Coca-Cola Company (09 Civ 3741, August 4 2009), the US District Court for the Southern District of New York has refused preliminarily to enjoin The Coca-Cola Company's advertising and promotion of its new Powerade ION4 product.

Gatorade, which is produced by Pepsi’s Stokely-Van Camp (SVC) division, and Coca-Cola's Powerade products are leaders in the sports drink category. However, sales of Gatorade comprise upwards of 75% of the market. In an effort to increase its market share, in 2007 Coca-Cola took steps to reformulate its product. The goal was to develop a product that more precisely mimicked the fluids lost by athletes during exercise (ie, sweat). To achieve this goal, Coca-Cola added the electrolytes calcium and magnesium to the Powerade formula, which already contained sodium and potassium. The quantities of these four electrolytes were adjusted so that the reformulated Powerade product contained the electrolytes in approximately the same ratio that such electrolytes are typically lost in sweat.

The marketing strategy developed by Coca-Cola for its relaunch of Powerade included an advertising campaign with two phases:

  • first, a 'seed' phase of short duration, which was intended to be competitive in nature and was designed to compare the reformulated product to Gatorade; and 
  • second, a launch phase designed to focus on the new product. 
The seed phase employed billboards and widespread print advertising in sports-related magazines, and directly (and indirectly) compared the Gatorade and Powerade ION4 products. The campaign touted the Powerade ION4 product as the "complete" sports drink because of its electrolyte formulation, and had the slogan “Upgrade Your Formula. Upgrade Your Game”. The comparative ads ran for less than 60 days.

Coca-Cola's second-phase ads focused less on comparing Powerade ION4 to Gatorade, and more on explaining to consumers the science behind the reformulated Powerade. However, the ads continued to refer to the new product as the "complete" sports drink and to analogize the formula to the composition of sweat.

Upset by Coca-Cola's campaign, SVC filed suit in the Southern District of New York alleging false advertising, trademark dilution (by tarnishment), deceptive acts and practices, injury to business reputation and unfair competition under both federal and state law. SVC thereafter sought a preliminary injunction in connection with its false advertising and dilution claims.

The court began its analysis by explaining that under Second Circuit law, to satisfy its burden on its motion for a preliminary injunction, SVC needed to show:

  • a likelihood of irreparable harm in the absence of the preliminary relief; and
  • either a likelihood of success on the merits of its claims or sufficiently serious questions going to the merits of its claims so as to make them a fair ground for litigation, with the balance of hardships tipping squarely in its favour. 
With respect to the dilution by tarnishment claim (based on the use by Coca-Cola of images of the Gatorade bottle and of other GATORADE marks and logos), the court quickly disposed of SVC’s request for preliminary injunctive relief because Coca-Cola had stopped making use of the GATORADE marks in its ads.

Addressing the false advertising claims, the court pointed out that SVC objected to four specific elements of the Powerade ION4 campaign:

  • the claim that Powerade ION4 is “the complete sports drink”, thereby implying that Gatorade is an “incomplete” sports drink that is missing key electrolytes; 
  • the claim that the Powerade ION4 product replenishes the key electrolytes lost in sweat while others - ie, Gatorade - do not;
  • the allegation that calcium and magnesium are “critical” electrolytes; and
  • the use of the slogan “Upgrade Your Formula. Upgrade Your Game”.
As to the first element, the court easily concluded that SVC could not meet its burden. Coca-Cola had already stopped running the ads which alleged that Gatorade was incomplete because it was “missing” two electrolytes. Thus, SVC’s request for preliminary relief on this front was moot. The fact that Coca-Cola had stopped running the offending ads, and the promise by Coca-Cola that such ads would not return during the pendency of the litigation, were enough for the court to conclude that there was no need for preliminary relief.

Addressing the other false advertising claims, the court was not persuaded that SVC had met its burden of establishing a likelihood of success on the merits, either because the ads amounted to no more than non-actionable puffery, or because SVC had not shown a likelihood of establishing that the ads were false - either literally false or, although literally true, likely to mislead and confuse consumers (ie, false by necessary implication). The court reasoned that while the statement “the complete sports drink” could, in theory, be interpreted to mean that Powerade ION 4 is more complete than Gatorade, other interpretations were possible, as the ads did not necessarily imply a comparison to Gatorade. The court ruled that if SVC truly believed that the Powerade ION4 campaign created a misleading commercial impression in the eyes of consumers, it should have provided evidence that consumers viewed the ads as creating such a misleading impression. In the absence of such evidence, the court could not conclude that SVC had carried its burden on its implied falsity argument.

Turning to the claim relating to the presence in Powerade ION4 of electrolytes in the same ratio as is “typically lost in sweat”, the court was not persuaded that the statement was literally false. Rather, the court found the claim to be literally true, albeit meaningless. The court then pointed out that the fact that a statement may actually be meaningless does not make it literally false. Similarly, with respect to SVC’s objection to the characterization of calcium and magnesium as “critical”, the court sided with Coca-Cola, finding that there was nothing literally or impliedly false about the claim. The Powerade ION4 ads did not mention that the electrolytes were “critical” for any particular purpose - which arguably would have provided a potential basis for such claims being false. SVC did not and could not argue that the electrolytes are not vital to the human body.

SVC also alleged that the “Upgrade Your Formula” slogan was literally false (because it was intended to suggest a comparison between Gatorade and Powerade ION4) and false by implication (because consumers could read the slogan as making a comparative claim about Gatorade). Again, the court was not persuaded. It found that the slogan could easily be viewed by consumers as suggesting that the new Powerade ION4 formulation was an upgrade from the old formula - an interpretation that was neither literally false nor disputed by SVC. As to whether the claim was false by necessary implication, the court concluded that the claim could easily be read by consumers as comparing the old Powerade formula to the new one - a truthful claim on its face and thus one that “could not be held to necessarily imply an alternative message”. Similarly, SVC did not dispute the fact that drinking Gatorade or Powerade ION4 would provide athletes with hydration and performance benefits. While SVC alleged that the “Upgrade Your Game” element of the slogan suggested that the benefits provided by the Powerade product would be more significant than those provided by Gatorade, the court found the line to be open to more than one interpretation and too vague to imply necessarily a direct comparison to Gatorade. More significantly, the court found the “Upgrade Your Game” statement to be non-actionable puffery.

As SVC failed to show a likelihood of success on the merits of its false advertising claims, the court concluded that it was not entitled to preliminary injunctive relief. However, the court went on to hold that injunctive relief was not appropriate at this stage because SVC had not made the necessary showing of irreparable harm. The court refused to accept SVC’s argument that irreparable harm should be “presumed” in a case such as this, where the products are directly competitive and where the challenged ads make comparative claims. Similarly, the court dismissed as frivolous and wholly unsupported the proposition that SVC was being irreparably harmed because Coca-Cola’s allegedly false advertisements were creating a danger to public health. The court was also not persuaded that the Powerade ION4 campaign would cause a loss of consumer confidence or would result in lost goodwill for SVC and/or the Gatorade product. In this regard, the court concluded that if SVC believed that the Coca-Cola campaign would cause such irreparable harm to it, it should have come forward with some direct evidence to support the claim. The court stated that ‘[g]iven SVC’s research capabilities and resources, its failure to present any concrete evidence of harm is striking”.

Finally, the court examined Coca-Cola's defensive argument that SVC was not entitled to preliminary relief because of its own unclean hands. Under the 'unclean hands' doctrine, a party seeking equitable relief must come to the court in good faith. Here, the evidence made it clear that despite SVC’s complaints about Coca-Cola’s statements, SVC had for years been producing a Gatorade formulation having these same ingredients (Gatorade Endurance Formula) and had been advertising the benefits of that product. The evidence showed that SVC was working towards launching its own 'ION+' product based on the formulation of its Gatorade Endurance Formula, and that, at one point, SVC had intended to counter the reformulated Powerade ION4 product by focusing on its own calcium and magnesium-containing sports drink. It was only after it became apparent that SVC could not obtain sufficient calcium to produce its revised Gatorade ION+ in commercially necessary quantities that the company changed tactics and began attacking Coca-Cola's position regarding the benefits of calcium and magnesium-containing sports drinks. Under the circumstances, the court was unwilling to afford SVC with the benefits of preliminary relief, even had SVC been in the position to establish its entitlement to such relief.
Tim Kelly, Fitzpatrick Cella Harper & Scinto, New York

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