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August 10, 2016 Articles

Squeezing the Market Share: Corporate False Labeling Actions in POM and Beyond

By Sarah B. Miller

Food and beverage companies have long faced legal battles from competitors, consumers, and the government, but health-related claims have come under increasing scrutiny in recent years. A series of recent cases involving POM Wonderful, LLC (POM) shows the struggle companies may face in promoting the benefits of their products while complying with federal regulations and keeping their market share. While the judiciary is strengthening the power of federal agencies and expanding the sources of attacks against manufacturers, one new case suggests that juries may be becoming increasingly skeptical of Lanham Act claims based on false labeling. Counsel for food and beverage companies must remember that the case they are defending, or bringing, may be just one piece of a successful litigation strategy. And, increasingly, findings and guidance by federal agencies are becoming outcome-determinative. 

Jurisprudence Aiding False Advertising in Labeling Claims Ripens
On the heels of its decision in Lexmark International, Inc. v. Static Control Components, Inc., 134 S. Ct. 1377 (2014), holding that a plaintiff can sue another party for unfair competition even if they are not direct competitors, the Supreme Court decided POM Wonderful LLC v. Coca-Cola Co., 134 S. Ct. 2228 (2014) in June 2014. The Court held in POM that competitors are not precluded from bringing Lanham Act claims related to labels governed by the Food and Drug Administration (FDA) under the Federal Food, Drug and Cosmetic Act (FDCA). Originally, POM’s Lanham Act claim was dismissed by a California district court, which found that claims based on labeling regulated by the FDA under the FDCA are precluded because they were “within the FDA’s purview.” POM Wonderful LLC v. Coca Cola Co., 727 F. Supp. 2d 849, 874 (C.D. Cal. 2010). The district court referenced its prior finding that, because the FDCA and the FDA’s implementing regulations detailed the “acceptable ‘common or usual name’ and appropriate labeling for a multiple-juice beverage,” the court could not interpret the FDA’s regulations as applied to the Coca-Cola’s “Minute Maid® Enhanced Pomegranate Blueberry Flavored 100% Juice Blend” because such an analysis would require the court to “usurp the FDA’s discretionary role in the application and interpretation of its regulations.” POM Wonderful LLC v. Coca Cola Co., No. CV 08-06237, 2009 WL 7050005, at *3 (C.D. Cal. Feb. 10, 2009). (citation omitted). 

After reviewing the Ninth Circuit’s affirmation of that holding, the Supreme Court found that the FDCA and the Lanham Act were both distinct and complementary and that, therefore, “it would show disregard for the congressional design to hold that Congress intended one federal statute nonetheless to preclude the operation of the other.” POM Wonderful LLC v. Coca-Cola Co., 134 S. Ct. at 2231 (citation omitted). Thus, Lanham Act claims can be brought to challenge advertisements governed by the FDA. The impact of this decision will likely be far-reaching, and not only for Lanham Act claims. Federal courts have already relied on POM in declining to dismiss other federal statutory claims based on alleged preclusion. See, e.g., Madden v. Anton Antonov & AV Transp., Inc., No. 4:12-CV-3090, 2015 WL 9690017, at *7 (D. Neb. Feb. 17, 2015) (allowing an employee to bring a Federal Employers’ Liability Act claim based on unsafe conditions resulting in a railway accident even though the employer was in compliance with the Federal Railroad Safety Act).  

Juries May Be More Skeptical Than Judges, Finding False Labeling Claims Brought by Competitors Have No Juice
The case history of POM’s case against Coca-Cola suggests that juries may have more faith in the consumer than judges have. Although the Supreme Court granted certiorari to answer questions about preclusion in POM, at oral argument the Court discussed the relative merit of POM’s claim that the labeling at issue was misleading, discussing the FDA’s rules on multi-juice naming. Transcript of Oral Argument at 7:3–10:5, POM Wonderful LLC v. Coca-Cola Co., 134 S. Ct. 2228 (2014) (No. 12-1761). Justice Kennedy even stated that he would have been confused by the Coca-Cola’s labeling, saying, “Don’t make me feel bad because I thought that this [product] was pomegranate juice.” Id. at 40:10–11. On remand, however, the Central District of California jury addressing the ultimate question unanimously held that Coca-Cola’s marketing of its pomegranate blueberry juice blend, which contained less than 1 percent pomegranate and blueberry juice combined, as “Enhanced Pomegranate Blueberry Flavored 100% Juice Blend” was not false advertising under the Lanham Act. POM Wonderful LLC v. Coca Cola Co, No. 2:08-cv-06237, 2016 WL 2587994 (C.D. Cal. Feb. 19, 2016). 

This decision comes years after three other California juries declined to award damages to POM for claims that it was harmed by misleading labeling of pomegranate juice blends by its competitors after those courts allowed the claims to proceed to trial. See POM Wonderful, LLC v. Tropicana Prods., Inc., 2010 WL 3590162, at *1–2 (C.D. Cal. Sept. 7, 2010); Pom Wonderful LLC v. Ocean Spray Cranberries, Inc., 642 F. Supp. 2d 1112, 1119–20 (C.D. Cal. 2009); Pom Wonderful LLC v. Welch Foods, Inc., No. CV 09-567 AHM, D.E. 29, at 6–7 (C.D. Cal. June 23, 2009). In the case against Welch Foods, a jury found that the labeling of its “Welch’s 100% Juice White Grape Pomegranate” product was intended to, and did, deceive consumers. See Verdict Form, POM Wonderful LLC v. Welch Foods, Inc., No. CV 09-567 AHM. Even in the Welch’s case, however, the jury found that POM had not suffered lost sales. Id

These outcomes suggest that, in the age of pervasive health claims advertising, juries are more skeptical and disinclined to award damages in Lanham Act cases regarding labeling than judges may be.  

Agency Findings Bear Fruit
It may be that the jury in POM’s case against Coca-Cola was persuaded by agency findings that would seem to permit the subject labeling, but it is hard to know what the jurors found most persuasive in these Lanham Act cases. In cases brought by federal agencies, however, courts will increasingly be required to adopt agency findings before a jury can weigh in. Last month, in another case involving POM, the Supreme Court declined the opportunity to limit federal agency discretion over beverage labeling. Less than two months after the POM decision, the Supreme Court denied certiorari over POM’s case against the Federal Trade Commission, in which POM asked the standard of review properly employed on a finding by the Federal Trade Commission (FTC) that a truthful advertisement implies a misleading message to a minority of customers and thus receives no First Amendment protection. POM Wonderful, LLC v. Fed. Trade Comm’n, 777 F.3d 478 (D.C. Cir. 2015), cert. denied, 2016 WL 1723326 (U.S. May 2, 2016) (No. 15-525).  

POM argued in its petition that, while its advertisements presented various claims about POM’s health benefits, none of the ads contained “any claim of unqualified scientific proof and [they] do not remotely market POM as having the effects or testing pedigree of a pharmaceutical product.” POM Wonderful, LLC v. Fed. Trade Comm’n, 777 F.3d 478 (D.C. Cir. 2015), petition for cert. filed (U.S. Oct. 23, 2015) (No. 15-525), at 11. Of course, one can only guess at why the Court declined to hear this case, especially given the unusual situation presented by an open seat on its bench, but, in any event, this leaves POM stuck with the D.C. court’s holding that the findings of the FTC regarding commercial advertisements, “if supported by evidence, shall be conclusive,” even where a party asserts First Amendment claims. POM Wonderful, LLC v. Fed. Trade Comm’n, 777 F.3d at 490. As a result, POM is also stuck with an injunction forcing it to halt certain health-related advertising until it is shown to be backed by at least one randomized and controlled human clinical trial. Id. at 505 (“For the foregoing reasons, Part I of the Commission’s remedial order will be modified to require petitioners to possess at least one RCT before making disease claims covered by that provision and, as modified, enforced.”) 

After the POM cases, agency findings appear to be more important than ever before. A review of the coverage of these cases reminds us that industry still shouldn’t rest on its laurels—or on government sanctioning of its products for that matter. While the outcome of POM’s suit against Coca-Cola may not have been fruitful (so to speak), it does evidence a trend of competition between companies that promote their products as healthful spreading from Fifth Avenue to the courtroom. Further, as any good corporate advisor knows, litigation of this type can affect a company’s bottom line even if the company ultimately prevails. After the decision in POM was published, the investment advisory group the Motley Fool warned investors:  

Regardless of how things may end for Coca-Cola in this particular case, the long-term implications for investors look quite clear. Both consumers and regulators are increasingly paying more attention to the fine print when it comes to alleged health benefits of foods and drinks, so you need to be very careful when picking the right stocks to capitalize on the trend toward healthier nutrition.

Andrés Cardenal, “Pom Wonderful’s Deceptive Ads: Lessons for Consumers and Investors,” Motley Fool, May 23, 2015.  

While the media often cover the ultimate outcomes of such cases, the initial complaint or a lower court’s (or, in this case, higher court’s) decision often gets more coverage, especially when a government agency has weighed in. It’s hard to say whether investors—or consumers—are savvy enough to stay tuned. 

Keywords: litigation, products liability, Lanham Act, Federal Food, Cosmetics, and Drug Act, FDCA, POM Wonderful LLC v. Coca Cola Co. 

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