A ruling will likely impact future dietary supplement lawsuits involving counterfeit claims. A judge awarded the makers of 5-Hour Energy — an over-the-counter drink you’ve probably seen at Walgreens or CVS — over $20 million dollars after third-party distributors took liberties with the brand’s messaging and labeling.
Anyone involved in the sale or marketing of supplements should take 3 minutes to read about this case. Why? It’s a reminder that hyper-aggressive sales tactics can decimate profits.
Dietary Supplement Law: Counterfeit Dispute
5-Hour Energy usually reaches store shelves through re-sellers and third-party marketers. The lawsuit we’re about to discuss involved one such deal that went awry.
In 2009, Living Essentials granted a small California-based business the exclusive distribution rights for Mexico. New packaging and labels tailored to Spanish-speaking consumers — plus discounted stock options — were all part of the deal.
So, what went wrong?
Well, according to Living Essentials, the pair initiated a scam that involved:
- Selling the Spanish-labeled products, at higher prices than the English-labeled products, in the United States instead of Mexico;
- Selling their supply to U.S. distributors who replaced the 5-Hour Energy label with their own brands’ labels.
Did The Distributor Break A Contract By Reselling Products?
Living Essentials (LE) felt their Mexico distribution partners were violating parts of the Lanham Act. As far as LE saw it, the defendants knowingly produced fake goods at Living Essentials’ expense. The defendants, conversely, insisted that they operated within the contract’s bounds.
And it’s with those viewpoints that the two parties embarked down Lawsuit Lane.
Now, as far as dietary supplements go, 5-Hour Energy is a huge player, so the legal battle fell into the “high-profile” category. And we all know what high profile lawsuits look like: protracted, nuanced and teeming with motions. This particular case lasted four years and involved fastidious vendor investigations, counterfeit-related court orders, and jurisdictional changes; plus, the defendants clawed deep during appeals, involving over 70 different entities.
Court Makes Dietary Supplement Law Ruling: Distributor Didn’t Have Resell Rights
Ultimately, the plaintiffs, Living Essentials, won this dietary supplement counterfeit case. In a 94-page opinion, the court explained how the defendants violated the Lanham Act by running a private label side business that contravened the original distribution contract. Interestingly, the Court also laid blame at the feet of a convenience store that sold the re-branded products and ordered it to pay part of the damages.
Dealing With Dietary Supplement Law Issues?
Our firm helps private label sellers and marketers with dietary supplement law issues. We answer questions, write contracts, help clients defend themselves against FTC investigations, represent counterfeit victims, and sort out listing hijackings.
To put it simply: We resolve issues that plague online marketers and sellers.