Advertising Litigation

The decision in Kwan v. Sanmedica International, 854 F.3d 1088 (9th Cir. 2017) in April, has occasioned a lot of discussion about the apparent demise of the establishment claim “standard” in California.  What the Kwan decision should have done, but did not, is provoke some hard thinking about what this “standard” is and how we use it.  From the Kwan decision, it is apparent that the Ninth Circuit does not understand where the establishment claim principle came from and what it means.  But its error is understandable, because attorneys and judges have been careless with the principle and arguably have made much more of it than it should be.                                                                                                                                             

Kwan has been accepted as standing for two propositions.  The first, which should be non-controversial and unsurprising, is that in private suits brought under California’s Unfair Competition Law (UCL) and Consumer Legal Remedies Act (CLRA), a plaintiff must allege and ultimately prove that the offending advertising claim is false, not merely unsubstantiated.  There has been no serious dispute about this since the California Court of Appeal (Second District) decision in National Council Against Health Fraud, Inc. v. King Bio Pharmaceuticals, Inc., 107 Cal. App. 4th 1336, 133 Cal. Rptr. 2d 207 (2003).  What made Kwan news was that the court also rejected plaintiff’s allegations that defendant’s dietary supplements were “clinically tested to boost [human growth hormone] by a mean of 682%,” is provably false, and in so doing refused to “incorporate Lanham Act provisions into California’s unfair competition and consumer protection law by distinguishing between ‘establishment’ and ‘non-establishment’ claims.”  854 F.3d at 1097.    Continue Reading Is It Time to Rethink Establishment Claims?

On October 25, the U.S. District Court for the District of Massachusetts dismissed a consumer class action under Massachusetts law, contending that Wesson vegetable oil is falsely labeled “100% natural” because it allegedly is extracted from genetically modified corn, soybean and rapeseed.  Lee v. Conagra Brands., Inc., 1:17-cv-11042 (D. Mass Oct. 25, 2017).  This was an unusually clean case in that there was no other ground challenging the “100% natural” claim and no counts for other legal violations.  The court thus had squarely to decide whether the presence of genetically modified ingredients renders a product not “natural” under the law.

The court’s decision that GMOs are not necessarily not natural relied on the FDA’s longstanding approach to the use of the term.  The FDA has no formal definition of “natural” as applied to foods, but its policy, as expressed in the Background section of FDA’s November 12, 2015, request for comments on the subject, is that “we have not attempted to restrict use of the term “natural” except for added color, synthetic substances, and flavors” and “we have considered “natural” to mean that nothing artificial or synthetic (including colors regardless of source) is included in, or has been added to, the product that would not normally be expected to be there.”  80 FR 69905.  The court was also influenced by the FDA’s policy not to require special labeling of products containing genetically modified ingredients based on its 1992 conclusion that “The agency is not aware of any information showing that foods derived by these new methods differ from other foods in any meaningful or uniform way, or that, as a class, foods developed by the new techniques present any different or greater safety concern than foods developed by traditional plant breeding.”  57 FR 22984.

The court concluded, “Because Wesson’s ‘100% natural’ label conforms to FDA labeling policy, it cannot be unfair or deceptive as a matter of law.”  That is a strongly stated, absolute conclusion.  This was not a pre-emption case, but a determination on the merits that the label is not deceptive.  One might wonder how this sits with the view espoused by the Supreme Court in POM Wonderful LLC v. Coca-Cola Co., 134 S. Ct. 2228 (2014), holding that food or beverage labels conforming to FDA labeling regulations can still be false or misleading under Section 43(a) of the Lanham Act.  The Supreme Court limited its holding to the federal Lanham Act, so POM Wonderful does not control consumer class actions brought under state laws, but its underlying logic was that FDA regulations – to say nothing of informal “policies” – are not the final authority on whether advertising and labeling statements may deceive consumers.

It will be interesting to see how other courts handle this issue as it relates to GMOs and all-natural claims, an increasingly common type of food marketing class action.  Also interesting is the potential gap opened up between Lanham Act and state consumer actions in terms of what is deceptive, which heretofore has been fairly coterminous.  This Conagra decision suggests that in a case this one or like POM Wonderful v. Coca-Cola, a competitor Lanham Act action could be permitted despite the label satisfying FDA regulations or other pronouncements, but the consumer class actions that typically follow Lanham Act cases, seeking their own bite at the pie, might not be.

The “local” food movement is growing, as many consumers attempt to find fresher options, support local businesses, and reduce the environmental impact of shipping foods over longer distances. One problem, though, is that no one is quite sure what “local” means. As with the word “natural” – another word without a clear meaning – this ambiguity creates some risk for companies that want to advertise that something is “local.”

Bimbo Bakeries filed a lawsuit against a competitor with various claims, including trade secrets misappropriation, false designation of origin, and false advertising. Among all of those things was a “local” claim. Bimbo argued that U.S. Bakery’s “Fresh. Local. Quality.” tagline was false in Utah because U.S. Bakery neither maintained a baking facility in Utah nor contracted with a Utah facility to manufacture its products. U.S. Bakery filed for summary judgement, arguing (among other things) that the word “local” falls “within the category of non-actionable words because the term is vague and not measurable and is therefore merely an opinion.”

The court disagreed. In many cases, the analysis of whether a company has made a false designation of origin under the Lanham Act is easy. (For example, using “Idaho Potatoes” to describe potatoes grown outside of that state would be a problem.) In this case, the analysis was harder because the term “local” is less precise. Indeed, in a 2010 report, the USDA noted that although “local” has “a geographic connotation, there is no consensus on a definition in terms of the distance between production and consumption.” In this case, Bimbo provided surveys showing that the tagline was misleading and material to potential purchasers. “Because the term local does not carry a set definition,” the court determined that “whether the term is false or misleading is a question appropriate for the fact finder” and denied summary judgement.

Earlier this month, a jury determined that US Bakery had “engaged in false advertising by using the words ‘Fresh. Local. Quality.’ in connection with the advertising and promotion of its products.” The jury attributed over $8 million in profits to the false advertising and awarded over $2 million in total damages (including the trade secret claims). Because the Special Verdict form simply asked for “Yes” or “No” responses, we don’t have any insights into the analysis or a clear answer as to what “local” means.

This case may raise more questions than answers, but it suggests that companies need to think carefully before claiming that a food – or any other product – is “local,” especially if that word will be used in a state in which the product isn’t made or grown.

On Thursday, a federal court in New York dismissed an FTC and New York Attorney General action against Quincy Bioscience, which sells the dietary supplement, Prevagen.  Quincy bases claims for its product on research that includes a randomized, controlled clinical study.  The court observed that the parties agreed that this “gold standard” study followed “normal well-accepted procedures” and showed statistically significant results in a subgroup of healthy, aging adults, although not the experimental group overall. 

The court acknowledged the regulators’ arguments that data analyses revealing the subgroup results were subject to an increased risk of false positives.  The court, however, concluded that the regulators failed to allege that “any actual errors occurred” or that “that reliance on the subgroup data ‘is likely to mislead consumers acting reasonably under the circumstances.’”  The court observed that “the subgroup concept” is “widely used in the interpretation of data in the dietary supplement field.” 

Kelley Drye represented Quincy Bioscience in the matter. 

 

The consumer advocacy non-profit Truth in Advertising, Inc. (TINA.org) has set its sights on Goop, the lifestyle brand launched by Gwyneth Paltrow.  In a complaint filed earlier this week with the Santa Clara and Santa Cruz County California district attorneys, both members of the California Food and Drug and medical Device Task Force, TINA alleges they found over 50 instances where claims were made that products Goop produces or promotes “can treat, cure, prevent, alleviate the symptoms of, or reduce the risk of developing a number of ailments.”  TINA has requested that the California district attorneys investigate Goop’s marketing practices. 

This is not the first time Goop has been forced to defend claims that it promotes.  Last summer, the National Advertising Division took issue with claims related to using “dust” dietary supplements, such as Action Dust and Brain Dust, both sold by Moon Juice.  The NAD closed the case after Goop agreed to permanently discontinue the dust claims. Continue Reading TINA Has Eyes on Goop

What should a corporation do when a class action lawsuit claims it broke the law, the group of allegedly affected people is massive, but the real-world “harm” is effectively nil?

If the lawsuit fails to state a valid claim, obviously you move to dismiss it. But what if your best arguments require expensive discovery, you can’t be certain of a victory even then, and the downside risk—such as from statutory minimum damages—is intolerable to you?

One good strategy for corporate defendants facing these situations is to settle by making corrective changes to address the alleged problem and, in lieu of what would be tiny damages payments to affected class members, contribute a palatable amount of money to non-profit groups working to protect the interests of those consumers. Continue Reading Cy Pres Class Action Settlements Just Fine, Ninth Circuit Says

Yesterday, a panel of the Third Circuit Court of Appeals took another step back from a circuit split over the extent to which aspiring class plaintiffs must show a “reliable and administratively feasible means of determining whether putative class members fall within the class definition,” and one judge called for scrapping that requirement altogether.

Continue Reading Third Circuit Steps Back from the Brink of a Circuit Split over “Ascertainability”

On August 2, 2017, the U.S. District Court for the Central District of California dismissed a putative class action lawsuit against Ross Stores that accused the discount retailer of misleading promotional pricing practices. The lawsuit stemmed from February and May 2015 purchases by the two lead plaintiffs of items bearing price tags with a selling price and an instruction to “Compare At” the higher, reference price. Ross has since changed the reference price signal from “Compare At” to “Comparable Value.”

The Second Amended Complaint, filed in March 2016, contained the following allegations:

  • The use of “Compare At” is deceptive, as the higher, reference price is not a price at which substantial sales of the item were made in California.
  • The higher, reference price is the price of similar, non-identical merchandise – a material fact that Ross fails to adequately disclose.
  • A reasonable consumer would expect the reference price to refer to the price of an identical item.
  •  The retailer’s explanation of its comparison pricing is “buried” on the website and out of view in stores. Specifically, the explanation states that the comparison pricing “represents a recent documented selling price of the same or similar product in full-price department stores or specialty stores[, and w]here identical products are not available [Ross] may compare to similar products and styles.”

According to the plaintiffs, these practices violate California law, which promotional pricing statutes (1) prohibit retailers from making a false or misleading statement of fact concerning the reason for a price reduction, and (2) require that an advertised reference price have been the prevailing market price for the item within the immediately preceding three months. See Cal. Civ. Code § 1770(a)(13); Cal. Bus. & Prof. Code § 17501.

In May, Ross and the plaintiffs filed a motion for summary judgment and motion for class certification, respectively. With respect to the new, “Comparable Value” signal, the Court determined that the plaintiffs lacked standing to challenge these tags because they failed to present evidence that they actually relied on the phrase when making their purchases, or that they suffered any economic injury as a result of Ross’s use of the phrase. As a result, the Court granted the motion for summary judgment with respect to Ross’s use of “Comparable Value.”

With respect to the “Compare At” signal, the Court found that the phrase is not “obviously false or misleading on its face,” and the plaintiffs had not presented evidence, other than their own declarations and price tags, in support of their argument that the reasonable consumer would expect the reference price to refer to the price of an identical item. Regardless, the Court concluded, the plaintiffs also failed to demonstrate economic harm, and therefore lacked standing to pursue their claims. Importantly, the Court rejected the plaintiffs’ reliance on the Ninth Circuit decision in Hinojos v. Kohl’s Corp., noting that, “the standard of proof on a motion for summary judgment is higher” and demands proof that the items purchased were not worth as much as Ross claims, rather than vague averments of injury.

For the first 28 weeks of 2017, the most frequently alleged claims in new food and beverage false-advertising class actions have related to featured product ingredients that allegedly are absent, or present only in small quantities, in the food at issue.

We reviewed news reports and other mentions of newly-filed food advertising class actions for the first part of 2017 and tabulated the central cause or causes of action to learn where the current substantive focus is in these cases. Out of 52 new food advertising class actions reported between January 1 and July 15 as having been newly filed, the largest single category – 12 cases – alleged the absence of an ingredient that was featured on the product’s label and/or marketing.  Three of the suits concerned truffle-infused cooking oils, alleging that these products actually contained no truffles.  Two cases were filed against makers of ginger ales, which the suits alleged contained no ginger.  Single cases alleged that a guacamole contained very little avocado, that coconut water contained no coconut, that veggie snacks contained no vegetables, that canned octopus was really squid, and that “steak” in a sandwich was really non-steak ground beef.

The other major categories reflect the types of food advertising claims that have been much in the news in recent months. Nine cases concerned “natural” claims.  Nine cases objected to “no sugar added” or similar claims, generally on the basis that evaporated cane juice allegedly was not characterized as a sugar.  Seven cases concerned slack fill, and a further four cases alleged underfill (i.e., not that there was empty space in the package, but that the actual weight of product was less than the stated weight).  Five cases accused the food of overstating its healthiness, and a further three charged that the product falsely claimed a nutritional benefit.  Four cases alleged that an undesirable ingredient claimed not to be in the product, such as trans fat or preservatives, actually was present.

The accompanying chart shows the 52 actions broken down into categories of claims asserted. The total assertions amount to more than 52 because some cases asserted more than one type of claim.

Based on this analysis of 2017 thus far, the two takeaways for food manufacturers are (1) advertising class actions are alive and well and remain a threat, and (2) manufacturers should pay close critical attention to the accurate characterizing of their ingredients. Other well-known controversies over hot-button issues like “natural” claims, slack fill, and the treatment of evaporated cane juice continue to play out in the courts and to be the subject of new challenges.

(Click here to enlarge image.)

A mini-trend in food litigation last year was the spate of class action cases alleging that foods advertised as “natural” contained trace amounts of the herbicide glyphosate.  “Trace” is the operative word; to the extent plaintiffs alleged the amounts they found, those amounts always were far below even what the U.S. Department of Agriculture permits to exist in foods labeled “organic.”  The plaintiffs nevertheless argued that foods labeled as “all natural” cannot contain any traces of a biocide, no matter how small.

Continue Reading Minnesota Federal Judge Says Glyphosate Claims are “Unreasonable”