POM Wonderful: U.S. Supreme Court Holds Lanham Act False Advertising Claims Not Precluded by FDA Statute

by Dorsey & Whitney LLP
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On June 12, 2014, the United States Supreme Court issued its decision in POM Wonderful LLC v. Coca-Cola Co., No. 12-761, which confirms that federal false advertising claims can be brought against false or misleading advertising for beverage products regulated by the U.S. Food & Drug Administration. The Court held that the federal Food, Drug and Cosmetic Act does not preclude private enforcement remedies under the Lanham Act.

Background of the Case

POM Wonderful, the marketer of a line of pomegranate juices, including a pomegranate-blueberry juice blend, had brought suit against Coca-Cola Co. under Section 43(a) of the Lanham Act, alleging that the name, label graphics and marketing of one of Coca-Cola’s Minute Maid juice blends would mislead customers into believing that the product consisted predominantly of pomegranate and blueberry juice, when it actually consisted primarily of less expensive apple and grape juices. The labeling prominently displayed the words “pomegranate blueberry,” with smaller font type stating that the product was a “flavored blend of 5 juices.” In fact, the product contained only 0.3% pomegranate juice and 0.2% blueberry juice – characterized by the Court as a “miniscule amount.” The graphics on the labeling depicted a “vignette of blueberries, grapes and raspberries in front of a halved pomegranate and a halved apple.”

The District Court did not adjudicate POM Wonderful’s false advertising claim on the merits. It granted partial summary judgment to Coca-Cola, holding that the Food, Drug, and Cosmetic Act (FDCA), which prohibits the misbranding of food and beverages, precluded Lanham Act challenges to the name and labeling of Coca-Cola’s juice blend. The Ninth Circuit affirmed.

The Supreme Court, in an 8-0 unanimous opinion authored by Justice Kennedy (with Justice Breyer recused), reversed the 9th Circuit’s decision. The Court held that the FDCA and the Lanham Act’s provisions on false advertising are complementary, such that false advertising claims can still be brought by competitors even when the claims involve advertising in industries regulated by FDA. The decision reaffirms the broad protection federal law affords against false advertising and makes clear that participants in industries regulated by FDA are not immunized from liability for false advertising under federal law.

The principal reasons for the conclusion reached by the Court were:

The Issue is Preclusion, Not Pre-emption – Justice Kennedy explained that the principle of pre-emption was not involved in the decision, because pre-emption comes into play only when determining whether a state law is pre-empted by a federal statute or agency action. Here, the issue was whether a cause of action under one federal statute was precluded by another federal statute. The Court concluded that the Lanham Act did not expressly forbid or limit claims against product labeling regulated by the FDCA. Likewise, the FDCA, “by its terms, does not preclude Lanham Act suits.” Indeed, as Justice Kennedy observed, the two statutes have co-existed for almost 70 years.

The Lanham Act and the FDCA are Complementary – According to the Court, the two federal statutes are complementary, and “it would show disregard for the congressional design to hold that Congress nonetheless intended one federal statute to preclude the operation of the other.” The cause of action for false advertising under the Lanham Act is primarily for the benefit of competitors, although consumers may benefit from the Act’s proper enforcement. In contrast, “the FDCA statutory scheme is designed primarily to protect the health and safety of the public at large,” including through the prohibition of selling misbranded food and drinks.

The two federal statutes were also described as complementary with respect to enforcement remedies. Enforcement of the FDCA is “largely committed to the FDA,” but the agency “does not have the same perspective or expertise in assessing market dynamics that day-to-day competitors possess.” Competitors will have an awareness of unfair competition practices that “may be far more immediate and accurate than that of agency rulemakers and regulators,” and the Lanham Act draws upon this “market expertise.” The Court found it noteworthy that FDA does not pre-approve food and beverage labels, and instead relies on after-the-fact enforcement actions, warning letters and other measures. Because FDA does not necessarily pursue all violations, if Lanham Act claims were precluded, then “commercial interests – and the public at large – could be left with less effective protection in the food and beverage labeling realm than in many other, less regulated industries.”

Allowing Lanham Act Claims Will Not Impair National Regulatory Uniformity – As Justice Kennedy commented, the national uniformity of food and beverage labeling will not be disrupted by permitting Lanham Act claims to co-exist with FDCA enforcement, since claimants like POM Wonderful are seeking to enforce the Lanham Act, not the FDCA or its regulations. Moreover, while the application of the Lanham Act by different judges and juries throughout the country “may give rise to some variation in outcome, this is the means Congress chose to enforce a national policy to ensure fair competition.” Further, the Lanham Act is itself uniform in extending protection against unfair competition; it is variable only to the extent that the rights afforded by the Act are enforced on a case by case basis, as would be the case for the products of any industry covered by the Lanham Act.

The FDCA is Not a Ceiling on the Regulation of Food and Beverage Labeling – The Court specifically rejected the assumption made by Coca-Cola and the Government (which submitted its own Amicus Curiae brief) and held that the FDCA and its regulations are not a “ceiling on the regulation of food and beverage labeling.” The Court concluded that just because food and beverage labeling is involved does not mean that a manufacturer or advertiser has no Lanham Act liability “for practices that allegedly mislead and trick consumers, all to the injury of competitors.”

* * * *

The case has been remanded back to the District Court, and POM Wonderful will now have the opportunity to try to prove its allegations that Coca-Cola’s Minute Maid product name and labeling was misleading to consumers.

Take Aways

  • The Supreme Court endorsed the robust use of Section 43(a) Lanham Act claims to address false advertising that is causing competitive harm.

  • The holding that the FDCA does not preclude private Lanham Act enforcement claims against beverage advertising is highly likely to be applied to other product categories regulated by FDA, such as food, cosmetics and over-the-counter drugs.

  • The POM Wonderful analysis of complementary federal statutory schemes may apply to permit false advertising claims against products and services regulated by other federal statutes, such as in the areas of insurance, product safety and securities.

  • Because the POM Wonderful decision did not involve a pre-emption issue applicable to state statutes and remedies, the Court’s decision does not have any direct bearing on state consumer class actions for food mislabeling, although it might serve to encourage wider use of such lawsuits.

  • When Justice Kennedy remarked from the bench during oral argument that he was misled by the Minute Maid product labeling, it didn’t bode well for Coca-Cola’s chances of winning the case.

 

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