5-Hour Energy awarded $20 million in counterfeiting case

By Adi Menayang contact

- Last updated on GMT

Photo: Mike Mozart/Flickr
Photo: Mike Mozart/Flickr

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5-Hour Energy has settled its claims against most of the more than 70 defendants named in a high-profile, consolidated lawsuit concerning a nationwide counterfeit operation.

After four grueling years of tracing the supply chain and continuously revising actions, the U.S. District Court for the Eastern District of New York granted 5-Hour Energy victory, issuing three defendants more than $20 million.

“We are highly gratified by the Court's comprehensive 94-page opinion granting us damages on summary judgment of more than $20 million against those that manufactured counterfeit 5-hour ENERGY, plus attorneys' fees and the costs of our investigators,”​ Geoffrey Potter, who represented 5-Hour Energy in the case, said in a press release.

From West coast to East coast

The first lawsuit by Living Essentials, who owns 5-Hour Energy, was filed in the Eastern District of New York against 20 defendants who were alleged to be selling counterfeit 5-Hour Energy shots in 2012. Living Essentials seized two million fake bottles​ that year amid an FDA investigation linking their product to 13 deaths​.

After tracing the chain of distribution further back, the plaintiffs filed another action in the District Court for the Northern District of California​. As the puzzle was pieced together, the cases were finally consolidated into the initial action filed in New York.

The story

California-based husband and wife Joseph and Adriana Shayota of Baja Exporting LLC signed a deal with Living Essentials, which owns 5-Hour Energy drink trademarks, to distribute the product exclusively in Mexico back in 2009.

New Spanish packaging and labeling was designed by Living Essentials for export. “Living Essentials sold these bottles to Baja at a discount from the price it charged U.S. distributors for English-labeled product,”​ the court document said.

But the Shayotas then attempted to sell its Spanish-label 5-Hour Energy drinks in the US—with American pricing. After having difficulty finding buyers, the Shayotas worked with Walid Jamil of Midwest Wholesale Distributors, another defendant, to swap the Spanish-language labels and packages with English-language labels and packages unauthorized by Living Essentials.

Among the defendants were Valero Retail Holdings, one of the largest independent retailers of transportation fuels and convenience merchandise in the United States.

Counting damages

The plaintiffs are entitled to more than $20 million of damages under the Lanham Act, which states that prevailing plaintiffs may recover damages that equal the defendant’s profits, any damages sustained by the plaintiff, and the costs of the action.

The plaintiffs have elected to pursue statutory damages against those defendants they contend infringed willfully (which includes the Shayotas and Midwest Wholesale Distributors), and actual damages against the remaining defendants (which includes leading transportation fuel and convenience store company Valero, who sold counterfeit 5-Hour Energy drinks).

5-Hour Energy’s victory has been lauded as the first-ever U.S. criminal prosecution in counterfeit food and beverage, which have a potential to pose significant public health risks.

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