(Diego M. Radzinschi)
Food and beverage companies would be wise to take a long, hard look at their product labels in light of a U.S. Supreme Court decision clearing the way for competitors to allege those labels are false or misleading.
“As a marketing lawyer, it’s a really significant decision for the industry,” said Linda Goldstein, chairwoman of the advertising, marketing & media division at Manatt, Phelps & Phillips. “All marketers now will have to take a much closer look at the claims they make and perhaps didn’t look at through the same lens [as the Supreme Court]. It will certainly cause a greater degree of due diligence of their packaging and labeling claims.”
In its unanimous decision on June 12 in POM Wonderful v. Coca-Cola, the high court held that a business allegedly injured by a competitor’s false or misleading advertising of its food and beverage products may bring a civil lawsuit under the federal Lanham Act — even if the product labels have been regulated by the Food and Drug Administration.
The ruling is unlikely to trigger a tidal wave of lawsuits, according to legal experts. But there will be increased litigation, they predicted, because companies can no longer claim a safe harbor from those suits simply because their labels were authorized by the FDA.
And the high court’s approach could be applied in other industries when a federal agency regulates advertising, such as pharmaceuticals and alcoholic beverages. “This is a template. This will guide decisions in those areas,” said Paul Llewellyn, co-leader of Kaye Scholer’s trademark, copyright and false-advertising group.
Brett Heavner, a partner at Finnegan, Henderson, Farabow, Garrett & Dunner, agreed. “There are a lot of other agencies in the federal government that have a say in the advertising in industries they regulate — the [Federal Deposit Insurance Corp.] and how banks advertise services; the [Federal Communications Commission] in the telecommunications industry,” he said.
“To the extent someone was going to try to make a similar argument to Coca-Cola’s — that their advertising was insulated from these claims because of federal regulations — I think they will have a harder time,” he said.
POM Wonderful LLC sued The Coca-Cola Co. under the Lanham Act in 2008. POM claimed that Coke’s use of the words “Pomegranate Blueberry” on its label misleads consumers into believing that the product consists primarily of pomegranate and blueberry juices. In fact, the drink consists mainly of apple and grape juice (99.4 percent) blended with 0.3 percent pomegranate juice and 0.2 percent blueberry juice.
The U.S. Court of Appeals for the Ninth Circuit sided with Coke, holding that its label complied with regulations under the Food, Drug, and Cosmetic Act (FDCA), as amended by the Nutrition Labeling and Education Act, and that the agency authorization of the label preempted the Lanham Act claims.
In April arguments before the justices, Coke’s counsel, Kathleen Sullivan of Quinn Emanuel Urquhart & Sullivan, argued that the two federal laws — the FDCA and the Lanham Act — were in conflict and the food law should prevail.
“Just to be clear, what Congress wanted was national uniformity so that a manufacturer could print one label and sell in the 50 states and not have its juice legal when you leave on the flight in California and illegal when you land in D.C., ” she argued.
But POM’s counsel, Seth Waxman of Wilmer Cutler Pickering Hale and Dorr, argued that there was no conflict. “Here, Congress has never precluded or conditioned enforcement of the Lanham Act in food-labeling cases. And it is entirely possible — in fact, entirely easy — for Coke to comply with both statutory obligations,” Waxman said.
WHAT THE COURT SAID
Justice Anthony Kennedy, writing for an 8-0 court (Justice Stephen Breyer did not participate), rejected all of Coke’s arguments as well as the Obama administration’s argument that a Lanham Act claim was precluded to the extent the FDCA or FDA regulations specifically require or authorize the challenged aspects of the label.
“The Lanham Act and the FDCA complement each other in major respects, for each has its own scope and purpose,” Kennedy wrote. “Although both statutes touch on food and beverage labeling, the Lanham Act protects commercial interests against unfair competition, while the FDCA protects public health and safety.”
Kennedy said nothing in the text, ­history or structure of the FDCA or the Lanham Act showed that Congress intended to forbid Lanham Act suits. In fact, he said, the two laws have co-existed for 70 years and Congress never acted to bar Lanham Act suits in this context.
He also rejected the government’s “middle ground” argument that Lanham Act suits are barred when the FDCA or FDA regulations specifically authorize the challenged aspects of a label. The government, he said, wrongly assumed that those FDA regulations are a ceiling.
That part of the decision is the most important, said Harold Weinberger, head of the advertising group at Kramer Levin Naftalis & Frankel. “Just because the FDA says you can do it doesn’t mean a competitor can’t come in and show it’s misleading.”
David Ter Molen, a partner in the food industry team at Chicago’s Freeborn & Peters, agreed. “Before, food ­companies effectively had a safe harbor. But the ruling said FDA regulations are not a ceiling, but effectively a floor. Now there is a risk a Lanham Act claim could be brought against that type of label. The risk is something greater than zero. What that number is going to be depends on what the product is.”
The justices did not specifically address what happens with such claims that are brought by consumers in state-law consumer fraud class actions, which “are proliferating like rabbits,” Weinberger said.
Manatt Phelps’ Goldstein said, “Class action litigation has been heavily targeted at the food and beverage industry. By the court leaving that issue open, the industry hasn’t achieved the stopgap to the proliferation of class actions had there been a broad favorable ruling in favor of Coke.”
POM now has the opportunity to prove that Coke’s label is misleading.
Contact Marcia Coyle at email@example.com.