Shares of salad-centric fast-casual chain Sweetgreen Inc. fell sharply after Chipotle Mexican Grill Inc. filed a lawsuit against the company, alleging that its recently-launched Chipotle Chicken Burrito Bowl amounted to trademark infringement.
Shares of Sweetgreen
SG,
slid 11% during mid-afternoon trade. The stock has fallen 79% over the past 12 months.
In the lawsuit, filed in U.S District Court for the Central District of California’s Southern Division, Chipotle
CMG,
said it sent a written demand that Sweetgreen rename the new product and it said that Sweetgreen “did not respond and continued its infringing conduct.”
The lawsuit, obtained by Bloomberg Law, also alleged that Sweetgreen’s burrito bowl, which it debuted on Thursday, used “very similar” ingredients to those found Chipotle’s own popular bowls, such as chicken, rice, black beans and salsa.
The lawsuit also alleged that Sweetgreen’s advertising for its burrito bowl tried to create a “false association” with Chipotle by using fonts, colors and capitalization similar to those used by the Mexican fast-casual chain. Chipotle also cited a comment in an Instagram post on Thursday that they said tried to piggyback off of Chipotle’s branding.
“In response to a comment stating ‘Chipotle who?!’ Sweetgreen replied ‘you said it, not us’ and included an emoji meant to indicate ‘zipped lips,’” the lawsuit said.
Chipotle said that after becoming aware of Sweetgreen’s new menu item, the chain’s lawyers contacted Sweetgreen via telephone and written correspondence.
“Chipotle suggested that Sweetgreen re-name its menu item using ‘chipotle’ in lower-case, in a textual sentence, to accurately describe ingredients of its menu item, such as ‘. . . with chipotle flavoring,’” the lawsuit said. “As one example, Chipotle suggested that ‘chicken bowl with chipotle’ may be a more appropriate name for Sweetgreen’s new menu item.”
But the suit added: “Sweetgreen failed to respond to Chipotle’s letter and has continued its infringing conduct, necessitating the instant action.”
Chipotle’s lawsuit asked Sweetgreen to pay it “any and all profits Sweetgreen has received by its conduct alleged herein” as well as damages or losses suffered. It also requested that Sweetgreen stop using branding that was similar to Chipotle’s for promotions.
In a release announcing the launch of the burrito bowl, Sweetgreen said the new menu item included chipotle powder, blackened chicken, salsa, wild rice, lime cilantro black beans, along with sliced tomatoes and cabbage. It said the item was intended to help the chain evolve beyond salads, and followed efforts to bring heartier items to its menu.
The lawsuit was filed as Sweetgreen tries to lean in to new menu items, like desserts and drinks, and its loyalty program. William Blair analysts, in a research note in February, said that Sweetgreen’s fourth quarter results suffered from “workers being out of the office longer around the holidays relative to prior years alongside continued underperformance at some units.”
Sweetgreen declined to say what steps it might take following the lawsuit.
“We are aware of the lawsuit Chipotle Mexican Grill has filed over the name of our new bowl,” a representative said in a statement. “However, we do not comment on pending litigation.”
Chipotle, in its own statement to MarketWatch, said it was dedicated to guarding its intellectual property.
“We don’t typically comment on litigation, but we will say generally that we’re committed to protecting our valuable trademarks and intellectual property,” Laurie Schalow, Chipotle’s chief corporate affairs officer, said in a statement to MarketWatch. “Consistent with that, we will take appropriate actions whenever necessary to protect our rights and our brand.”
Shares of Chipotle were down 1.9% on Wednesday.
This post was originally published on Market Watch
