Publication - 06/17/2014

Recent Supreme Court Decision Gives Competitor False Advertising Claims Added Juice

Client Alert

By Richard E. Coe and Brynne S. Madway

The U.S. Supreme Court recently issued an opinion that could have important consequences for lawsuits between competitors in the food and beverage industry and for manufacturers’ evaluation of their product labels, but the Court’s carefully worded opinion should limit the scope of the ruling and prevent it from having a significant impact for consumer class actions or the pharmaceutical industry. In POM Wonderful LLC v. Coca-Cola Co., No. 12-761 (U.S. June 12, 2014), the Supreme Court ruled that the Federal Food, Drug, and Cosmetic Act (the “FDCA”), 21 U.S.C. § 331, and the Lanham Act, 15 U.S.C. § 1125, have a complementary relationship and that competitors can bring suits alleging false labeling under the Lanham Act even if the labels comply with the FDCA or regulations promulgated by the FDA under the FDCA.

POM Wonderful alleged that the label for Coca-Cola’s Minute Made Pomegranate Blueberry juice was misleading because it emphasized blueberry and pomegranate juice when it contained mostly apple and grape juice. POM asserted that the label violated the Lanham Act, which forbids the use of misleading advertisements and allows competitors to bring private enforcement actions. Coca-Cola argued that its label complied with FDA regulations providing that a manufacturer may name a beverage using the name of a flavoring juice that is not predominant by volume and therefore POM’s suit under the Lanham Act was barred by the FDCA. The FDCA prohibits misbranding and authorizes the FDA to issue regulations pertaining to labeling. The United States Court of Appeals for the Ninth Circuit agreed with Coca-Cola. It concluded that Coca-Cola’s label presumptively complied with FDA regulations and that permitting a private litigation challenging the label to proceed would undermine the FDA’s authority to regulate the label.

The Supreme Court reversed and held POM’s Lanham Act claims were not precluded by the FDCA. The Court read the statutes in tandem and found that they were intended to achieve different objectives; the FDCA protects consumers while the Lanham Act protects commercial interests. The Court noted that “[i]t is unlikely that Congress intended the FDCA’s protection of health and safety to result in less policing of misleading food and beverage labels.”

Coca-Cola pointed to three aspects of the FCDA to support its preclusion argument: (1) the delegation of authority to the federal government rather than private parties under the FDCA; (2) the express preemption of state laws under the FDCA; and (3) the specificity of the FDCA as compared to the Lanham Act. The Supreme Court held that the centralization of authority in the federal government under the FDCA did not indicate the foreclosure of Lanham Act suits because there was no clear attempt to preclude other federal laws—in contrast to the statute’s explicit preemption of state laws—and that the detail of the FDCA was of no moment because both statutes can be given full effect simultaneously.

Finally, the Supreme Court addressed the federal government’s narrower argument, made in an amicus brief, that a Lanham Act suit should be barred only if the FDCA or an FDA regulation requires something to be explicitly placed on the label. The Supreme Court dismissed this argument, again noting the complementary nature of the statutes. It stated that the flaw in the government’s argument was that it assumed the FDCA and its regulations are at least in some circumstances a ceiling on the regulation of food and beverage labeling, implying that other federal statutes such as the Lanham Act could impose a higher standard for a label.

Even though this holding was not explicitly stated, it is the practical consequence of the Court’s decision. Prior to the POM decision, food and beverage manufacturers could rely on compliance with FDA regulations as a defense to a Lanham Act claim by a competitor. Now there is some risk that a manufacturer will be held liable even if it follows the FDA’s guidance if a court determines that a label is nevertheless “misleading.” The POM decision will therefore introduce more uncertainty into manufacturers’ evaluations of their labels.

While food and beverage manufacturers are unlikely to see this as a positive development, they can take some comfort in what could be interpreted as the Supreme Court’s efforts to limit the scope of the opinion. It should be difficult for plaintiffs’ attorneys to use the POM decision to argue that state laws should not be preempted by the FDCA. The FDCA expressly preempts certain state laws on misbranding. In addition, the Court explicitly stated that this was not a preemption case and the Court’s preemption precedent did not govern the preclusion analysis in the case. The Court also explained that allowing federal Lanham Act claims would not be inconsistent with what Coca-Cola described as the FDCA’s intent to achieve national uniformity in labeling. While the Court admitted that allowing suits to proceed in federal court might give rise to some variation in outcomes, it opined that this variation would be “quite different from the disuniformity that would arise from the multitude of state laws” that are preempted by the FDCA. Thus, it should be difficult for plaintiffs to apply the Court’s rationale in POM to the preemption context. It is worth noting that Judge James Otero of the United States District Court of California ruled on remand from the Ninth Circuit that POM’s state law claims were preempted by the FDCA.

Manufacturers in other industries, especially the pharmaceutical industry, should also be able to argue that the Court’s opinion does not apply outside of the food and beverage industry. The Supreme Court repeatedly distinguished food and juice labels from drug labels. As noted by the Court, the FDA does not preapprove juice labels but does preapprove labels for other products, such as drugs. According to the Court, this distinction is consistent with the less extensive role the FDA plays in the regulation of food than in regulation of drugs. Pharmaceutical manufacturers should therefore have an argument that Lanham Act claims challenging drug labels are precluded by the FDCA.

Despite its somewhat limited scope, the POM decision may have important consequences for food and beverage manufacturers. At least one recent press report suggests that competitors’ use of the Lanham Act to bring claims against rivals is increasing.[1] Manufacturers are therefore well-advised to consider whether their labels could be seen as deceiving, even if they comply with FDA regulations.


[1] Angus Loten, For Small Firms, New Perils in Ad Claims, Wall St. J., May 15, 2004.
 

08/29/2014

Senator Wyden’s Better Care Lower Cost Act – Time to Take a Look

Morning Consult
Ilisa Halpern Paul

08/29/2014

The Future of SEC Enforcement Actions: Negligence-Based Charges Brought in Administrative Proceedings?

The Investment Lawyer
William L. Carr, Mary P. Hansen

08/26/2014

SEC Issues Valuation Guidance for Funds Holding Certain Short-Term Debt Securities

Investment Management Alert

08/26/2014

BIS Publishes Rule on Export Prohibitions to Russia

Client Alert
Joan Koenig, Mollie D. Sitkowski

08/25/2014

Made for the U.S.A Only: Second Circuit Holds That the Dodd-Frank Act’s Antiretaliation Provision Applies Only Domestically

SECurities Law Perspectives Blog
Kevin A. Wisniewski