|June 25, 2014|
Previously published on June 19, 2014
Last week’s decision by the U.S. Supreme Court clarifies that competitors can bring false advertising claims based on food product labels. See POM Wonderful LLC v. Coca-Cola Co., No. 12-761, 573 U.S. --- (June 12, 2014). Some courts previously held that the Food, Drug and Cosmetic Act ("FDCA") barred this type of claim. In light of the Supreme Court’s ruling, manufacturers should re-evaluate their labeling to guard against such claims. Food companies are now on notice that Food and Drug Administration (“FDA”) labeling regulations set a floor, not a ceiling, for competitor false advertising liability.
POM sells a pomegranate-blueberry juice blend. Coca-Cola sells a juice blend containing 0.3% pomegranate juice and 0.2% blueberry juice. The label for the Coca-Cola product advertises the blend as “POMEGRANATE BLUEBERRY.” The label also shows a picture of blueberries, grapes and raspberries in front of a halved pomegranate and a halved apple.
POM claimed that the label misled consumers into believing that the Coca-Cola product consists mainly of pomegranate and blueberry juices. POM asserted that this deception caused it to lose sales, violating the Lanham Act. The Lanham Act allows one competitor to sue another for false or misleading advertising.
Coca-Cola argued that the FDCA precluded POM’s claim. The FDCA prohibits misbranding of food and beverages. A food or drink is misbranded if its labeling is false or misleading. The FDA has made regulations to implement the FDCA, including regulations for the labeling of blended juices.
The Central District of California agreed with Coca-Cola. It reasoned that the FDA had not prohibited any aspect of the Coca-Cola product’s label, even though the FDA had made regulations on the issues involved in the case. The 9th U.S. Circuit Court of Appeals affirmed, following similar reasoning.
The Supreme Court Reverses
In a unanimous decision, the Supreme Court explained that since neither law explicitly forbids Lanham Act claims based on product labels, “labels regulated by the FDCA are not, under the terms of either statute, off limits to Lanham Act claims.” If Congress intended otherwise, it would have enacted preclusion provisions during the laws’ 70-year coexistence. But the closest the laws come to preclusion are the Nutrition Labeling and Education Act amendments to the FDCA. Those amendments bar states from imposing food and beverage labeling requirements that are not identical to FDCA requirements. They say nothing about preclusion of other federal statutes.
Instead, the laws complement each other. Due to the realities of the market, competitors are better situated to identify false advertising than the FDA. “Allowing Lanham Act suits takes advantage of the synergies among multiple methods of regulation.” Thus, the FDCA does not allow a seller to “mislead and trick consumers, all to the injury of competitors.” The Supreme Court reversed the 9th Circuit and remanded the case for further proceedings.
Implications for Food and Beverage Sellers
Compliance with FDA labeling regulations does not insulate a food or beverage seller from Lanham Act claims. To avoid Coca-Cola’s fate, sellers should evaluate their labels to determine whether they are misleading or deceptive. Conversely, sellers who believe competitors are siphoning sales through false advertising should consider filing a Lanham Act claim.
The decision does not, however, open the flood gates to consumer class actions. The Supreme Court was careful to state that “this is not a pre-emption case.” Accordingly, the Nutrition Labeling and Education Act amendments remain in force and preempt state law claims that impose labeling requirements “not identical” to FDCA requirements. Preemption thus turns on whether the FDA has made regulations on the allegedly misleading statements. If it has, state law claims are likely preempted unless they parallel federal labeling requirements. If not, sellers need to resort to other defenses.