High court false advertising case rejects preemption defense

Listen to this article

The legal food fight between a fruit juice manufacturer and soft drink conglomerate Coca-Cola Co. will continue in federal court now that the U.S. Supreme Court has ruled that a false advertising claim was not precluded by federal law.

The decision in POM Wonderful LLC v. Coca-Cola Co., No. 12-761, “established that, at least in the false advertising [and] unfair competition context, manufacturers cannot hide behind one federal statute in order to avoid liability under another,” said Tim Kelly, partner and chair of the Trademark Practice Group at Fitzpatrick, Cella, Harper & Scinto LLP in New York.

The ruling could also bring bad news for defendants facing other types of claims alleging misrepresentation in food product labeling.

“The people who are probably most closely watching this case are members of the [civil] defense bar [in jurisdictions] that are friendly to consumer class actions,” said James Neale, a partner in the Charlottesville, Va. office of McGuireWoods LLP. “A lot of those folks were hoping the Supreme Court would give them a preemption arrow to put in their quiver.”

Too little pomegranate

The ruling allows soft drink producer POM Wonderful to proceed with its lawsuit against Coca-Cola alleging violations of §43(a) of the Lanham Act, the primary federal law outlawing false advertising.

POM Wonderful began producing and selling pomegranate juice products when the fruit’s high antioxidant properties created a health craze over a decade ago. The company subsequently sued Coca-Cola, alleging that its competing product — Minute Maid Pomegranate Blueberry drink — was 99 percent apple juice and contained only trace amounts of pomegranate and blueberry juices.

The product’s name and photos of pomegranates and blueberries on its packaging, POM Wonderful alleged, were misleading and violated §43(a).

Coca-Cola moved to dismiss the suit, arguing that its labeling complied with the Food, Drug and Cosmetic Act. The 9th U.S. Circuit Court of Appeals agreed, holding that the Lanham Act claim conflicted with the Food and Drug Administration’s regulation of food products.

But in an 8-0 ruling, the Supreme Court reversed.

Noting that “neither the Lanham Act nor the FDCA, in express terms, forbids or limits Lanham Act claims challenging labels that are regulated by the FDCA,” the court concluded that the two statutes complement each other rather than conflict.

“Enforcement of the FDCA and the detailed prescriptions of its implementing regulations is largely committed to the FDA. The FDA, however, does not have the same perspective or expertise in assessing market dynamics that day-to-day competitors possess,” wrote Justice Anthony Kennedy for the court.

“Lanham Act suits draw upon this market expertise by empowering private parties to sue competitors to protect their interests. … A holding that the FDCA precludes Lanham Act claims challenging food and beverage labels would not only ignore the distinct functional aspects of the FDCA and the Lanham Act but also would lead to a result that Congress likely did not intend.”

Justice Stephen Breyer did not participate in the case’s consideration.

Bitter taste for defense bar

In light of the court’s ruling, Neale said that he would advise clients who manufacture food and beverage items to carefully review labels, even those that have passed muster before the FDA.

But that task, he said, won’t necessarily be easy. Companies will also have to anticipate how the label might be perceived by the public — and its competitors. The FDA regulations are no longer the standard, but simply the floor for avoiding liability.

“Now the task isn’t only to ask: ‘Are we following regulations?’ but also to ask, ‘Do these regulations make good sense and are they adequate?’” Neale said.

Kelly said the ruling gives a definitive answer to the previously unresolved question of whether the Lanham Act and the FDCA clash, but that it may not necessarily break new ground.

“The situation presented here is not really very different from any other Lanham Act §43(a) situation,” said Kelly. “Yes, it potentially opens up the manufacturer to multiple suits and multiple assertions of what is ‘clear or not ‘misleading,’ but that has always been the case under §43(a).”

But Neale said the decision is a big blow to civil defendants and their attorneys. While it does not directly affect consumer class action claims or take away the defense of preemption in cases where state-based lawsuits could be seen as conflicting with federal law, the justices also did not grant the preemption protection from label-related liability that defense attorneys were looking for, particularly in cases where federal regulations were being followed.

“While the Supreme Court was careful to say this isn’t a preemption analysis, they didn’t do the defense bar any favors,” Neale said.

Now food product manufacturers and their attorneys have work to do.

“I would tell my food company clients that they have always got to worry about these types of claims that they make on their labels, particularly in consumer-friendly jurisdictions,” Neale said. “Even if consumers and the FDA don’t take exception to their label, their competitors could.” Follow @dcdicta