|July 2, 2014|
Previously published on June 19, 2014
In a highly anticipated decision, the Supreme Court on June 12 announced that compliance with food labeling guidelines promulgated by the Food and Drug Administration will not operate as a bar against false advertising claims brought under the Lanham Act. In its decision, the Court made clear that food and beverage labeling may mislead consumers even though the labeling complies with the Federal Food, Drug and Cosmetics Act (“FDCA”), and may be actionable under the Lanham Act. The decision will have significant ramifications for all advertisers operating in regulated industries because compliance with particular labeling or disclosure requirements does not constitute a “free pass” against the Lanham Act’s prohibition against false advertising.
POM Wonderful LLC (“POM”), a major producer and seller of a variety of pomegranate products, competes with the Coca-Cola Company (“Coca-Cola”) in the pomegranate juice market. Recently, Coca-Cola began marketing what it labeled, in large type with capital letters, a “pomegranate blueberry” beverage. The labeling of the beverage also contained the words “flavored blend of 5 juices” and “from concentrate with added ingredients” in smaller type, and featured a picture of a halved pomegranate in front of raspberries, blueberries and grapes. POM brought suit under the Lanham Act, alleging that because the Coca-Cola beverage contained only 0.3% pomegranate juice and 0.2% blueberry juice, compared with 99.4% apple and grape juice, Coca-Cola’s labeling was deceptive and misled consumers. POM specifically claimed that Coca-Cola’s labeling would mislead consumers to reasonably believe that the “flavored blend of 5 juices” contained substantially more pomegranate juice than it actually did. As a result, POM claimed that it lost sales, and demanded damages and injunctive relief.
Coca-Cola won partial summary judgment at the District Court level. The lower court ruled that the FDCA - a federal law that gives the United States Food and Drug Administration (“FDA”) the authority to ensure the safety of a variety of goods, including beverages - precluded POM’s Lanham Act claims concerning the labeling and naming of the Coca-Cola beverage. The District Court held that the FDA, through its regulations that expressly approved of some of Coca-Cola’s labeling, as well as through its conscious failure to regulate in other areas that would have affected Coca-Cola’s labels, had “directly spoken” on the issue. In particular, the FDA had rejected a proposal that would have regulated the numbers and types of fruits on beverage labels. Additionally, the FDA set specific font-size requirements, and permitted the use of a juice name even though the juice is not the predominant one in the blend.
The Court of Appeals for the Ninth Circuit affirmed this portion of the District Court’s ruling, barring POM’s Lanham Act claim. In its decision, the Ninth Circuit indicated that it did not want to interfere with the FDA’s “expert” judgment. The “comprehensive” labeling regime established by the FDA under the authority provided by the FDCA, the Ninth Circuit ruled, should receive deference because Congress elected “to entrust matters of juice beverage labeling to the FDA.” According to the Ninth Circuit and the District Court, it would upset Congress’ intent, as evidenced by the FDCA, to permit POM’s Lanham Act claim to continue.
The Supreme Court began by distinguishing between the Congressional intent underlying the enactment of both the Lanham Act and the FDCA. The Court explained that the Lanham Act, first enacted in 1946, was designed in part to provide a cause of action for “unfair competition through misleading advertising or labeling.” Under the Lanham Act, remedies can be awarded to those who “allege an injury to a commercial interest in reputation or sales” arising from the use by any person of “any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which ... misrepresents the nature, characteristics, qualities or geographic origin of his or her or another person’s goods, services or commercial activities.” The Court then noted that the FDCA, by contrast, was designed “primarily to protect the health and safety of the public at large,” although the statute does provide that the FDA is also entitled to issue regulations to “promote honesty and fair dealing in the interest of consumers.” While private parties can bring suits under the Lanham Act, they cannot bring private actions to enforce the FDCA, which is almost exclusively enforced by the United States government. The Court went on to observe that the FDA’s regulation of food is “less extensive” than its regulations of drugs even though it had issued several regulations of food labeling under the FDCA, including one at the heart of the instant suit which requires that, if a juice blend fails to list every juice that it contains and “mentions only juices that are not predominant in the blend,” then the company distributing the juice must “declare the percentage content of the named juice” or otherwise indicate that the named juice is simply a “flavor or flavoring.”
In determining that the FDCA and Lanham Act can interact without the FDCA precluding claims brought under the Lanham Act, the Court observed that neither the FDCA nor the Lanham Act explicitly proscribes Lanham Act suits based on labeling regulated by the FDA. The Court noted that for nearly 70 years Congress had the authority to bar Lanham Act suits where they intruded on the FDA’s labeling authority. The Court found this seven-decade period of inaction to be “powerful evidence” that Congress did not intend for the FDCA to be the exclusive means of ensuring proper food and beverage labeling. The Court explained that because the FDCA is typically only enforced by the government, the Lanham Act can be effectively enforced by private actors, who the Court noted often have more information about market dynamics and unfair pricing. The FDCA and Lanham Act, the Court concluded, should be properly viewed as complementary enforcement mechanisms.
The Court explained that while the enforcement of the FDCA and its implementing regulations is largely committed to the FDA, the FDA “does not have the same perspective or expertise in assessing market dynamics that day-to day competitors possess . . .[and their] awareness of unfair competition practices may be far more immediate and accurate than that of agency rule makers and regulators.” Noting that the FDA acknowledged that it does not pursue enforcement measures against all objectionable labels, the Court explained that if Lanham Act claims were precluded by the FDCA, the commercial interests (and indirectly the public at large) could be left with less effective protection in the food and beverage labeling realm than in other less regulated industries. The Court noted that “it [was] unlikely that Congress intended the FDCA’s protection of health and safety to result in less policing of misleading food and beverage labels than in competitive markets for other products.”
The Court also disagreed with the Solicitor General’s view that a Lanham Act claim should be precluded “to the extent the FDCA or FDA regulations specifically require or authorize the challenged aspects of [the] label.” In this case, that would have resulted in POM being unable to challenge the name of Coca-Cola’s product, (“Pomegranate Blueberry”), because FDCA regulations specifically permitted the name used by Coca-Cola. However, according to the government, other aspects of the labeling not specifically addressed under the FDCA could be properly challenged under the Lanham Act. The Court rejected the Solicitor General’s notion that the FDCA and its implementing regulations established the ceiling on the regulation of food and beverage labeling, noting that Congress intended the FDCA and Lanham Act to act as complementary enforcement mechanisms, rather than for the FDCA to displace the Lanham Act with respect to food and beverage labeling in any area where the FDA has exercised its regulatory role.
POM Wonderful is potentially a very significant decision. The Supreme Court has reaffirmed that advertising in regulated industries requires clearance at multiple levels. Not only must advertising comply with applicable regulatory requirements, but the advertisers must also ensure that the advertising not convey a false or misleading message. The Court has made it clear that there may be no regulatory safe harbor. The Court did make clear that the scope of its ruling was limited to the interaction between federal regulatory agencies and federal rules that affect related areas, leaving consumer claims brought under state consumer protection laws unaffected.