Authored by Lori Lustrin.
Food and beverage manufacturers are well accustomed to heeding counsel’s advice of dotting their “I’s” and crossing their “T’s” to ensure their product labels comply with applicable governmental regulations. But since the United States Supreme Court’s pronouncement in Pom Wonderful LLC v. Coca-Cola Co., food and beverage makers now face a heightened level of scrutiny from what may be their most formidable challengers—direct competitors.
Pom holds that private companies have standing under the Lanham Act (a statute traditionally used in trademark disputes), to wage false and misleading advertising claims against their competitors. The facts in Pom were relatively straightforward. Beverage maker Pom Wonderful brought a Lanham Act claim against industry giant Coca-Cola regarding the labeling on one of its Minute Maid juices. Pom Wonderful alleged that the juice’s label—that prominently stated it was “pomegranate blueberry” blend—was misleading because the juice contained only 0.3% pomegranate juice and only 0.2% blueberry juice. Coca-Cola lodged a traditional preclusion defense, contending that applicable Food, Drug and Cosmetic Act (“FDCA”) regulations precluded Pom’s suit.
Rejecting Coca-Cola’s argument, the Pom Court found that the Lanham Act complimented the FDCA’s labeling regulations. The Court reasoned that government regulators often times lack the unique “perspective” and “market expertise” of competitors necessary to uncover non-compliance. For example, the Court observed that
[Competitors] have detailed knowledge regarding how consumers rely upon certain sales and marketing strategies.”
Id. at 2238.
The Supreme Court thus concluded that the Lanham Act not only empowers private parties to protect their own interests, but also serves as an important public policy function by “taking advantage of synergies among multiple methods of regulation” to protect consumers. Id. at 2238-39.
In the wake of the Pom Court’s pronouncement, federal courts have seen a substantial uptick in Pom-style claims.
Surely, more are still to come.
The takeaway from Pom and its progeny is that food and beverage firms must adjust to a fundamentally different legal landscape—one where they (and, conversely, their competitors) have a powerful tool for policing one another’s labeling and advertising. So long as a claimant can establish that its competitors’ label is either false or contains a statement or representation that—even if ambiguous or literally true—was misleading in context, they can directly hold their competitors accountable.
And the stakes are high. If successful, the Lanham Act not only provides for the award of actual damages (measured by the amount of the plaintiffs’ lost sales attributable to the competition’s misleading label), but also the competitor’s profits, the plaintiff’s attorney fees, and even corrective advertising—remedies rarely available under state consumer-protection statutes. For those who play by the rules but find out their competitors refuse to do so, that’s quite, well, wonderful.
The converse, of course, is also true. Food and beverage companies are already the targets of shotgun-style putative class action lawsuits and increasing scrutiny from FTC and FDA regulators. Now they must also plan to defend claims brought by adversaries that know (or should know) their business as well as anyone. This is particularly true in highly competitive markets, where competitors may use Pom-style actions as a means to maintain, gain or regain market position.
At bottom, regardless of which side of the “v” companies may fall, Pom requires food and beverage manufacturers to be all the more vigilant in ensuring their product labels—and those of their competitors—are legally compliant.