CHICAGO (CN) - Consumers who bought Grove Square Coffee pods, a knock-off version of Keurig's K-cups that contain instant coffee rather than fresh coffee grounds, have asserted a common claim that the product's packaging deliberately mislead them, the 7th Circuit ruled.
"This case is about coffee," the 7th Circuit's 27-page opinion begins. "Not just any coffee - it is about the individual coffee pods that are used in the popular Keurig coffeemakers. The Keurig system solved a problem with which coffee drinkers had struggled for years: how to make individual portions of fresh-brewed coffee in a tidy, flavorful, easy, and relatively inexpensive way."
Keurig's patent protection on the pods used with its machine, known as K-cups, expired in 2012.
But Sturm Foods wanted a jumpstart on nabbing a piece of Keurig's market, and introduced a product called Grove Square Coffee (GSC) in 2010 that mimicked the external K-cup design, but lacked a filter on the inside.
Without a filter, Sturm could not use fresh coffee grounds, and instead used instant coffee in its pods.
However, Sturm's consultants allegedly advised that "use of the word 'instant' is a real no-no," so Sturm's packaging for its pods describe the product as "naturally roasted soluble and microground Arabica coffee."
The package showed fresh beans on the front, and set forth a "Coffee Lover's Bill of Rights," including the right to a "fresh cup," but did not mention that the pod contained only a dusting of fresh coffee on top of instant chunks.
In addition, the package warns users not to remove the foil seal on top of the pod, stating that the cup will not work in the coffee maker without it - a false claim, possibly intended to ensure the buyer did not view the contents of the pod.
These marketing ploys were successful, as studies showed very few consumers equated "soluble" coffee with "instant" coffee.
In addition, Sturm priced its pods at near-premium level, selling its pods at three to four times the price of instant coffee.
But consumers were not fooled by their taste buds: "The public response after the release of GSC was awful. The day after the product started selling in Wal-Mart stores, Sturm emailed its employees to request that the legal department, not the quality control or sales department, be immediately informed about any complaints regarding GSC," according to the judgment.
One retailer, Discount Coffee, ispurported to have told Sturm that its product "has been the poorest performing introductory product that we have had in our 12 year history." Others complained to the Better Business Bureau.
In response, Sturm allegedly encouraged its employees to write fictitious favorable reviews online, with the help it's the marking department.
A federal judge refused to certify the class, but the 7th Circuit reversed Friday.
"The question whether the GSC packaging was likely to mislead a reasonable consumer is common to the claims of every class member. (Note that this is an objective question, not one that depends on each purchaser's subjective understanding of the package.) The district court abused its discretion in failing to recognize that this question satisfied the commonality requirement of Rule 23(a)(2)," Judge Diane Wood said, writing for the three-judge panel. (Parentheses in original.)
The court said this case was "quite similar" issue in POM Wonderful v. Coca-Cola
, where the Supreme Court upheld a deceptive practice action against the Coke company for labeling a juice product as "pomegranate-blueberry," when it contained 0.3 percent pomegranate juice and 0.2 percent blueberry juice.
"With respect to the misleading nature of the packaging, the district court had almost nothing to say. This is it: 'The court has seen the packaging at issue - plaintiffs bring it to each hearing - and finds that it is not designed to mislead consumers. It says what it is.' That is a conclusion, not a reason," Wood said. "It appears to assume that a package cannot be misleading if it does not contain literal falsehoods. But that is not the law. Moreover - ironically - it appears the district court itself was confused about the product: the court's analysis reveals that it failed to understand that 'soluble' coffee and 'microground' coffee are not the same thing."