June 1979 marked the debut of one of the fast-food industry’s most genius marketing concepts: the Happy Meal. By adding a small toy to its popular burger-and-fries combo, McDonald’s created an enticing children’s menu item that generates big business. A November 2010 study conducted by Yale University’s Rudd Center for Food Policy & Obesity found that 41 percent of parents claimed their children ask to go to McDonald’s on a weekly basis, and 22 percent of parents take their children to McDonald’s at least once a week.

Some advocacy groups and consumers say these statistics correlate with American children’s expanding waistlines. The Centers for Disease Control and Prevention (CDC) reports that childhood obesity rates have tripled over the past 30 years, and it says a contributing factor to the upsurge is the frequency of meals eaten away from home. Health organizations have labeled childhood obesity as an epidemic, and eradicating the problem has become one of Michelle Obama’s primary goals.

The obesity problem also incited a highly publicized lawsuit in December 2010. In conjunction with the Center for Science in the Public Interest (CSPI), California mother Monet Parham filed a class action suit against McDonald’s, alleging that marketing Happy Meals to children violates consumer-protection laws.

Ads for Happy Meals, she claims, are inherently deceptive because they persuade children–who don’t comprehend advertising–to bombard their parents with requests for unhealthy food, thus exacerbating “a super-sized health crisis in California.” Parham says she purchases Happy Meals for her children only because they relentlessly demand them after seeing ads for the featured toys.

Critics call Parham v. McDonald’s Corp. frivolous. However, some experts say food and beverage companies should take the lawsuit seriously, because whether or not the case moves forward, its hype reflects a national focus on health, and imminent industrywide marketing and product reform.

Corrupting Kids

Experts say Parham isn’t likely to obtain class certification because all class members couldn’t have been identically affected by the allegedly deceptive advertising.

“There are so many individual issues,” says Shook, Hardy & Bacon Partner Madeleine McDonough. “What kind of advertising did they actually see? What’s the proof that they actually relied on the advertising? What are the reasons they ate at McDonald’s? What did they eat? What kind of control did the parents exercise?”

McDonough, co-chair of the firm’s Agribusiness & Food Safety Practice, says today’s Big Food suits are similar to previous decades’ Big Tobacco cases, in that “there is a concerted effort to move away from personal responsibility and shift the blame to industry.” Comparable lawsuits have accomplished little more than making headlines.

Erik Jackson, a member of Cozen O’Connor’s Commercial Litigation Department, says the plaintiffs’ argument in Parham is further weakened by the fact that parents hold the purse strings. “The claim is that the advertising is deceptive because the product is being marketed to children, and yet the children are not the people who are actually purchasing the product–it’s their parents,” he says. “No one is misleading the children about what they’re getting [in a Happy Meal]. McDonald’s is simply saying, ‘Get this food, and you’ll get a toy.’”

The court’s interpretation of the term “deceptive” will be valuable to companies with children’s marketing under frequent attack by watchdogs who argue ads featuring toys and portrayals of desired feelings, such as happiness and popularity, exploit children.

Such advertising strategies have been challenged with lawsuits in the past. CSPI threatened Kellogg with a deceptive-marketing suit in 2006 for using television characters to advertise sugary foods to kids; the result was a settlement in which Kellogg adopted nutrition standards for its marketing. The same year, various companies joined forces with the Better Business Bureau to create marketing guidelines through the Children’s Food and Beverage Advertising Initiative. Ads are now limited during children’s programming, but companies still reach kids during general-audience programs (think “American Idol”) and the Internet.

Federal regulation has lagged. The House passed the Commonsense Consumption Act (also known as the Cheeseburger Bill) in 2004 and 2007. The bill, which would have prevented people from suing manufacturers or retailers for allegedly causing their obesity or health problems, was never acted upon in the Senate.

In December 2009, an interagency group comprising the Federal Trade Commission, CDC, Food and Drug Administration, and the U.S. Department of Agriculture announced it would release recommendations for nutrition standards for marketing food to children. The standards were supposed to be released for public comment in January 2010 and submitted to Congress by July 2010. At press time, the group still hadn’t
released them.

Parham demonstrates consumer frustration with the delay, but litigation, says Jackson, isn’t an effective alternative. “Perhaps a better strategy would be to lobby the federal government,” he says.

Health Focus

The fact that Parham was filed in California is significant. A San Francisco ordinance that takes effect in December shows how the state’s strong consumer-protection laws can shape national corporate strategies.

“[The ordinance] states that companies such as McDonald’s that sell or market food to children cannot include toys with that food unless the food has a specific nutritional value that’s determined in the statute,” says Jackson. He says Parham could “cause more cities to pass laws that require better nutrition in products marketed to children. It may force McDonald’s to look at whether or not it should alter the ingredients in its products.” Although McDonald’s offers healthy children’s items, such as apple slices and low-fat milk, the CSPI claims French fries and soda are Happy Meals’ default options 93 percent and 78 percent of the time, respectively.

“It would be na?ve for anybody to think [the San Francisco ordinance] isn’t something that could be seen as a trend in more places than the Bay area of California,” says David McDowell, co-chair of Morrison Foerster’s Consumer Litigation and Class Action Practice. In 2008, he notes, California was the first state to pass a menu-labeling rule that requires chain restaurants to disclose nutritional information. “People were saying at that time, ‘That’s not going to go anywhere.’ But we’ve now seen that expand around the country,” he says.

Parham was filed during the peak of the Obama administration’s promotion of national well-being programs. In February 2010, Michelle Obama launched the Let’s Move! campaign to improve American children’s overall health. Three months later, the White House Task Force on Childhood Obesity issued a report outlining suggestions to improve children’s health. On Dec. 13, President Obama signed the Healthy Hunger-Free Kids Act, which boosts the nutritional quality of school lunch programs.

These steps point to future legislation affecting corporations, McDowell says. “Whether it’s San Francisco-style legislation against toy-food combos or other kinds of regulation, it is going to happen,” he says. “At the same time, you see lots of folks in the marketplace making changes to their marketing and product selection. Whether companies are moving because of the environment, demand or altruism, you are certainly seeing much more focus today on [becoming] smarter and healthier.”

Major players have recently self-imposed nutritional reform. On Jan. 20, Michelle Obama and Wal-Mart announced the retailer’s five-year plan to reduce produce prices, reformulate store-brand products and urge suppliers to improve their foods. ConAgra Foods plans to cut its products’ sodium content by 20 percent by 2015.

Open Conversations

Parham is a reminder to corporate counsel that the regulatory climate can greatly influence litigation. Experts say companies whose products or services touch upon hot-button issues such as nutrition should monitor watchdog groups’ latest actions. When faced with litigation threats from such groups, companies should thoroughly analyze the challenged conduct or product before initiating reforms or fighting allegations.

“Companies need to evaluate the legal and business implications of a lawsuit,” Jackson says. “If a company receives a letter from a watchdog group, it should look at how likely it is that the watchdog would prevail and what negative impact would come from the publicity of a lawsuit.”

Companies also shouldn’t automatically rebuff advocacy groups’ suggestions. “It may be that the request from the watchdog really does not significantly impact the company’s bottom line,” says Jackson. Other times, McDonough notes, executing a major change, such as a product reformulation, is costly in terms of time, money and jobs, and companies should stress to the public that developing a long-term approach to reform may supersede immediate modifications.

Dialogues–as opposed to courtroom battles–can lead to more sustainable changes in a shorter period of time. “Litigation puts people in such a polarized position that it protracts real advances,” says McDonough. “Common ground can be achieved–and perhaps greater effects in public health and in consumer options–when people sit down at the same table and work something out.”