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.

It’s a common question. A company creates a product with a competitive advantage; it takes steps to substantiate a superiority claim; and, satisfied that it has met the legal standard, it bases an advertising campaign on that claim. Then, a competitor comes along with a new product, and the superiority claim is no longer accurate. How soon must the company change its claims? According to a Massachusetts federal court, the answer may be “immediately.”

In July 2013, Dyson launched a campaign advertising that its DC41 vacuum had “twice the suction of any other Suctionvacuum.” One year later, SharkNinja released its Shark Powered Lift-Away vacuum and contacted Dyson to let them know the claim was no longer accurate. Dyson conceded that, and took steps to remove the claim from the marketplace. SharkNinja, though, claims that Dyson dragged its feet. For example, Dyson didn’t begin stickering over the claim on packages until November 2014, and some claims remained on the market until early 2015.

SharkNinja sued Dyson for false advertising under the Lanham Act. Dyson moved for summary judgment, arguing that an advertiser can’t be held liable if it uses “commercially reasonable efforts” to remove claims from the market once they become stale. The court disagreed, holding that the law doesn’t exempt a company from liability just because it takes steps to remove a claim after learning that it’s no longer true.  Instead, the court held that “an advertiser that puts a claim into the marketplace bears all of the risk of the claim being false or becoming stale.” As a result, the court denied Dyson’s motion.

The decision suggests that an advertiser can be liable the moment a claim can’t be substantiated, even though the claim was previously true. It doesn’t seem to matter to the court how fast an advertiser moves to change a claim, once it becomes stale. The creates a strong disincentive for any company to make a comparative claim, especially on packages or in stores, where the claim cannot be changed quickly.

We’ll be watching this case closely to see if Dyson appeals and the appellate court takes a more measured approach.

Seven crops of pomegranates (and other fruits) have grown, ripened, been picked, pulped and processed.  A river of juice has flowed.  After seven years of litigation, the last overripe fruit of the Lanham Act campaign launched by POM Wonderful against four of its major competitors has hit the ground with a squishy thud.

A Los Angeles jury this week absolved The Coca-Cola Company of any wrongdoing in a Lanham Act case brought by POM Wonderful in September 2008, in which POM contended that Coca-Cola’s Minute Maid Enhanced Pomegranate Blueberry Flavored 100% Juice Blend misled consumers by its labeling into believing that it contained more than a tiny amount of pomegranate juice.  The jury took less than a day to find that POM had failed to prove that Coca-Cola misled consumers as to its juice blend contents.

The suit, styled POM Wonderful LLC v. The Coca-Cola Company, CV 08-06237-SJO (MJWx) (C.D. Cal.) was the first-filed of four actions by POM against major producers of juice blends, the other defendants being the Tropicana division of Pepsi and growing cooperatives Welch Foods and Ocean Spray Cranberries.  Each defendant produced a 100% juice blend that featured pomegranate as one of its keynote flavors, but did not contain a very large proportion of pomegranate.  Pomegranate, these companies explained, is a strong-tasting fruit of which a little goes a long way, flavor-wise.  Consumers, they believed, understand the difference between a juice’s featured flavor and its ingredient statement.  POM countered that pomegranates supposedly have unique health benefits that consumers sought, but were actually denied, in buying these products.

The stated intention of POM owner Stewart Resnick was to secure one or more victories in these cases and then set out to “clean up the industry” of the many juice drinks that feature characterizing flavors that flavor the beverages but do not make up a large proportion of the contents.  It turned out to be lawyers who cleaned up, as POM spent millions attacking its competitors and then defending countersuits by the FTC and class action plaintiffs against POM’s dramatic claims of health benefits, inspired by counterclaims and affirmative defenses asserted in the cases POM filed.

The high point of POM’s campaign, to the extent it ever had one, was a near-verdict against Welch Foods, in which the jury found that Welch’s had intentionally misled consumers as to the pomegranate content of its juice blend, but that this had caused no injury to POM, and thus created no liability to that particular competitor.  In all of other cases, the defendants persuaded juries that consumers were not misled as to their beverage’s pomegranate content.

What the Jury Didn’t Hear

It was just as well for Coca-Cola that there were no Supreme Court justices on its jury.  In 2014, in the course of deciding 8-0 that POM’s Lanham Act claims were not precluded by the Food, Drug & Cosmetic Act, justices made several gratuitous comments in oral argument that made it clear that Coke’s labeling left a bad taste in their mouths.  A successful pretrial motion in limine by Coca-Cola kept references to the case’s Supreme Court detour out of the trial.

Other decisions on motions in limine, however, seemed to benefit POM Wonderful, and generally had the effect of isolating the trial from all of the related legal and regulatory actions that have become known collectively as the Juice Wars, isolating this matter as if it were the first test of POM’s theory.  Reference to the Tropicana, Welch’s and Ocean Spray matters was prohibited, despite Coca-Cola’s argument that these cases were probative of POM’s largely fruitless litigation campaign against its competitors.  Coke’s bid to counterattack against POM’s allegedly exaggerated health claims for its juices was severely cut back, with the court excluding Coca-Cola’s key expert and almost all references to regulatory and self-regulatory cases against POM’s claims.  References to no less than 37 follow-on lawsuits against Coca-Cola or POM for deceptive practices also were excluded.

What Does It Mean?

What drops of wisdom are to be extracted from this outcome?  POM’s 0-and-4 record in these Lanham Act cases can’t be dismissed as a fluke.  POM had plenty of bites at substantially the same apple, learning from each trial and refining its arguments, legal team and expert witnesses as it went along.  By trial number 4, the jury was surely hearing POM’s best case.  Jurors, at least in this situation, just seem skeptical of claims that people are misled by the presence of prominent words on labels, especially when the challenge comes from a competitor.

With an unrivaled record in advertising litigation and National Advertising Division (NAD) proceedings, Kelley Drye’s Advertising Law Practice Group has a national reputation as an industry leader. No other firm possesses the same combination of substantive expertise in the areas of advertising litigation and counseling, promotions marketing, green marketing, privacy and information security, marketing and

In a Lanham Act false advertising action by cosmetic surgeons against plastic surgeons – yes, those are two different things – the Tenth Circuit Court of Appeals, in an August 31 opinion, affirmed dismissal of Lanham Act false advertising claims. The Court of Appeals held that the plaintiffs failed to plead a Lanham Act claim that “has facial plausibility.” Drake Vincent v. Utah Plastic Surgery Society, No. 13-4146 (10th Cir. Aug. 31, 2015), on appeal from No. 2-12-CV-01048-TS (D. Utah).

Specifically, the court found that the eleven paragraphs of plaintiffs’ complaint that “identify the challenged statements made by Defendants and describe Plaintiffs’ characterization of those statements,” including such allegations as, “Defendants’ false and misleading statements have created confusion among Plaintiffs’ clients, potential clients, and will continue to do so if permitted to do so,” did not meet the Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), standard for the pleading of adequate supporting facts. The court observed that extrinsic evidence, generally in the form of a consumer survey, is needed to support a claim of implied falsity and that therefore a plaintiff must plead the existence of evidence that “a statistically significant part of the commercial audience holds the false belief allegedly communicated by the challenged advertisement” (quoting Johnson & Johnson-Merck Consumer Pharm. Co. v. SmithKline Beecham Corp., 960 F.2d 294, 297-98 (2d Cir. 1992)). The court found the plaintiffs’ complaint deficient because “Plaintiffs have not indicated that they possess any such surveys,” adding that “While Plaintiffs’ complaint need not contain sufficient evidence to prove their claim, they cannot file an inadequate complaint and then use the discovery process to develop a factual basis for their claims in the first instance.”

The court’s ruling on the plaintiffs’ damages allegations was similar. The complaint contained the typical Lanham Act allegation that “Plaintiffs have been and will continue to be damaged as a result of Defendants’ false statements by the resultant market confusion, by disruption of Plaintiffs’ relationship with its customers, loss of potential customers, by diversion of Plaintiffs’ customers to Defendants, any by damage to Plaintiffs’ goodwill and reputations as competent and reliable cosmetic surgeons.” The court dismissed these allegations as “labels and conclusions” and criticized the complaint inasmuch as “it does not indicate how much Plaintiffs’ profits have decreased since Defendants began their advertising campaign; it does not quantify or estimate the decrease in goodwill; it does not quantify the number of potential customers who allegedly have been lost because of Defendants’ statements or how that number would be measured.”

This is a notable opinion because it seems to require, before the complaint is filed, the development of expert evidence by consumer perception researchers and by economists that traditionally is not completed until well into discovery. Economic evidence of damages often requires access to the defendant’s confidential financial data which is not available until discovery, and would be an especially tall order if the plaintiff has challenged the advertising very quickly after the start of the campaign, as is often done in the hope of securing a preliminary injunction. Perhaps something short of full-blown surveys and econometric analyses would be adequate to support a Lanham Act advertising complaint in the Tenth Circuit, but if so, the court did not state what that would be.

On August 7, the Eleventh Circuit Court of Appeals, ruling on a question that the Court determined to be one of first impression, has ruled that a cause of action for contributory false advertising can be maintained under Section 43(a) of the Lanham Act.

In Duty Free Americas, Inc. v. Estée Lauder Companies, Inc., No. 14–11853 (11th Cir. Aug. 7, 2015) (opinion available here), Duty Free Americas (DFA), an operator of airport duty-free shops that had ceased doing carrying Estée Lauder products, contended that Estée Lauder supported false and disparaging representations by DFA’s competitors about the consequences of DFA’s non-carriage of Estée Lauder for DFA’s likely performance as a shop operator in competitive bidding to airports.  Among Estée Lauder’s defenses was that no “derivative” cause of action for false advertising exists.  The Court rejected this argument, although it affirmed dismissal of the count for insufficiently pled supporting allegations.

Key to the Court’s reasoning was that contributory liability is well established under the Lanham Act as applied to trademark infringement, where manufacturers and distributors are routinely held liable for intentionally inducing infringement by others, including by continuing to supply product to customers that they know or should know to be infringers.  This doctrine has no precise boundary and has been defined as covering anyone who “knowingly participates in furthering” infringement.  Bauer Lamp Co. v. Shaffer, 941 F.2d 1165, 1171 (11th Cir. 1991).  The causes of action for trademark infringement and for false advertising are physically close neighbors in the Lanham Act, located in Sections 43(a)(1)(A) and 43(a)(1)(B) respectively, and the Court saw this statutory structure as supporting the suggestion that they were intended to have similar scope.  The Court also cited cases suggesting that the two Lanham Act theories were “motivated by a unitary purpose” to protect businesses against two strains of “unfair competition.”  Contributory liability also struck the Court as consistent with the Supreme Court’s rationale in recognizing the doctrine in trademark cases in Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844 (1982).  The Eleventh Circuit concluded, “It would be odd indeed for us to narrow the scope of the false advertising provision — a cause of action plainly intended to encompass a broader spectrum of protection — and hold that it could be enforced only against a smaller class of defendants.”

Having established the existence of the cause of action, the Court went on to consider the sufficiency of DFA’s allegations in support of its theory, providing useful guidance into how contributory false advertising would be analyzed.  It ruled that a plaintiff alleging contributory Section 43(a) false advertising liability must show

(1) “a third party … directly engaged in false advertising that injured the plaintiff” and
(2) “the defendant contributed to that conduct either by knowingly inducing or causing the conduct, or by materially participating in it.”

In the first prong, all elements that would have enabled the plaintiff to sue the actual advertiser must be established.  In the second, the defendant must be shown to have intended to participate in or actually know of the false advertising (including that it was false), and “actively and materially furthered the unlawful conduct — either by inducing it, causing it, or in some other way working to bring it about.”  Analogizing from contributory trademark liability theories that have been successful in the past, the Court suggested that such activities might include directly controlling or “monitoring” the third party’s false advertising or providing a product or service necessary to support the false advertising.

These standards may seem disconcertingly vague and broad, but it was here that DFA’s case actually failed.  It alleged that Estée Lauder made it possible for DFA’s competitors to misrepresent their advantage in carrying Estée Lauder products simply by continuing to supply them with Estée Lauder products, while refusing to re-enter a business relationship with DFA.  The Court found this activity too attenuated to amount to providing a product or service necessary to support the false advertising.  There was no allegation that Estée Lauder monitored or controlled the advertising of its customers to airports.

The Duty Free Americas decision may not expand the scope of false advertising liability beyond what existed previously, for the Court noted that “district courts routinely assume that contributory liability claims are available,” citing past opinions in several districts and that one Second Circuit decision, Societé des Hotels Meridien v. LaSalle Operation P’ship, L.P., 380 F.3d 126 (2d Cir. 2004), “recognized the possibility.”  This decision, however, as the first federal appellate decision to have “explicitly considered and resolved the question,” solidifies and clarifies the doctrine and should serve as a wake-up call to occupants of various links in the marketing chain that have some level of involvement with the development and dissemination of advertising claims.  This is especially true in the era of online advertising and social media campaigns, where many hands can touch an advertisement before it reaches consumers.

“Clinically proven…” “Laboratory tested.” “45% More Effective!” Claims like these sell product. They also carry with them the assertion that the advertising claim has been “established” or proven by competent and reliable testing. Establishment claims can be express (e.g., “Studies show…”) or implied (e.g., use of a caduceus or images of actors in lab coats). In all cases, however, they require that a company have the form of substantiation alluded to by the claim and that the touted performance benefit be both statistically and clinically meaningful. The risks for the unprepared advertiser are substantial, and include Lanham Act litigation, competitor-initiated challenges at the National Advertising Division (NAD), regulatory inquiries, consumer class actions, and adverse publicity.

In two recent articles, John Villafranco provided helpful tips for companies interested in using establishment claims in advertising and discuss the appropriate use of consumer feedback to develop marketing strategies. In addition to providing tips on substantiating establishment claims stemming from consumer feedback, Villafranco discussed the risks involved with using testimonials obtained through social media.

As companies increasingly integrate establishment claims and consumer feedback into marketing campaigns, these articles can assist teams in effectively marketing product without incurring substantial and unnecessary risks.

 

Phone: (202) 342-8423
Email: jvillafranco@kelleydrye.com

John Villafranco provides litigation and counseling services to corporations involved in advertising and marketing. His experience includes Lanham Act litigation, consumer class action defense, representation of clients in advertising substantiation proceedings and investigations conducted by the FTC and state attorneys general, and representation of challengers and advertisers before the NAD

Phone: (202) 342-8811
Email: wmacleod@kelleydrye.com

Bill MacLeod has more than 25 years of experience representing clients in advertising challenges before the FTC, NAD, and courts under the Lanham Act. Mr. MacLeod concentrates on advertising and marketing, focusing on privacy and children and advertising. Prior to joining Kelley Drye, he served as Director of the Bureau