Recent Supreme Court Decision on “Truth-in-Labeling” Has Far-Reaching Implications

by K&L Gates LLP
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On April 28, 2014, we reported on the United States Supreme Court’s involvement in the juice-labeling lawsuit between POM Wonderful LLC (“POM”) and Coca-Cola (“Coke”). In POM Wonderful LLC v. Coca-Cola Co. (“POM”), POM sued over the labeling and advertising of Coke’s Minute Maid Blueberry Pomegranate juice product, which POM alleged misled consumers in violation of the federal Lanham Act because the product, in fact, contained little pomegranate or blueberry juice (<0.5%). Coke had successfully argued to the United States District Court for the Central District of California and the United States Court of Appeals for the Ninth Circuit that regulations promulgated by the U.S. Food and Drug Administration (“FDA”) under the Federal Food, Drug, and Cosmetic Act (“FDCA”) expressly authorized the name and label of the product, precluding any Lanham Act challenge. The Supreme Court, thus, was called upon to address whether a private party may bring a Lanham Act claim with respect to a product label regulated by—and conforming to—the FDA’s requirements.

A. The Supreme Court Finds for POM and against Preclusion
On June 12, 2014, the Court unanimously ruled in POM’s favor, holding that federal labeling requirements do not preclude private enforcement of the Lanham Act against a competitor alleged to have violated the statute. The Court primarily relied on the text of the Lanham Act and FDCA, ruling “neither… in express terms, forbids or limits Lanham Act claims challenging labels that are regulated by the FDCA.”  The reach of the Lanham Act extends to misrepresentations on labels, including food and beverage labels, and “[n]o… provision in the Lanham Act… purports to govern the relevant interaction between the Lanham Act and the FDCA.” Accordingly, “food and beverage labels regulated by the FDCA are not, under the terms of either statute, off limits to Lanham Act claims.”

In examining the statutory text, the Court acknowledged the limited preemption provision added to the FDCA when Congress amended it in 1990 as part of the Nutrition Labeling and Education Act.  The provision bars any state-law labeling rules “of the type” but “not identical to” federal food and beverage labeling requirements. It makes no mention of requirements imposed by other sources of law, including federal law, however, which the Court interpreted to mean that “Congress… did not intend the FDCA to preclude requirements arising from other sources” or, more specifically, “to preclude federal claims.”

The Court concluded that the FDCA and Lanham Act complement each other, not only in their text and structure, but “in a more fundamental respect” designed to “take[] advantage of synergies among multiple methods of regulation.” While the FDA is charged with enforcing the FDCA’s labeling and packaging provisions, the Court distinguished between the agency’s ability and that of market participants to timely identify and root out unfair competition practices: 

The FDA… does not have the same perspective or expertise in assessing market dynamics that day-to-day competitors possess. Competitors who manufacture or distribute products have detailed knowledge regarding how consumers rely upon certain sales and marketing strategies. Their awareness of unfair competition practices may be far more immediate and accurate than that of agency rulemakers and regulators. Lanham Act suits draw upon this market expertise by empowering private parties to sue competitors to protect their interests on a case-by-case basis.

The Court reasoned that precluding Lanham Act claims could leave competitors and consumers with “less effective protection in the food and beverage labeling realm than in many other, less regulated industries,” something Congress likely did not intend.

The Court rejected Coke’s arguments that Congress sought to bar private Lanham Act suits like POM’s to ensure national uniformity in food and beverage labeling and to spare manufacturers the burden of complying with a constellation of labeling requirements. The Court pointed out that “Congress not infrequently permits a certain amount of variability by authorizing a federal cause of action even in areas of law where national uniformity is important,” and, in any event, that “Lanham Act actions are a means to implement a uniform policy to prohibit unfair competition in all covered markets.”

The Justices also rejected the United States’ argument against permitting false advertising claims where the FDA has authorized a challenged aspect of the product’s label. While the federal juice-naming regulation reflects the FDA’s judgment in weighing competing interests during the rulemaking process, the Court held, “[t]he Government assumes that the FDCA and its regulations are at least in some circumstances a ceiling on the regulation of food and beverage labeling. But… Congress intended the Lanham Act and the FDCA to complement each other with respect to food and beverage labeling.” In its decision, the Court acknowledged the distinct functional aspects of the FDCA and the Lanham Act and the reality that, unlike drug labels, “FDA does not preapprove food and beverage labels under its regulations… (and) does not necessarily pursue enforcement measures regarding all objectionable labels.” Thus, precluding Lanham Act claims could leave industry and consumers “with less effective protection in the food and beverage labeling realm than in many other, less regulated industries.”

B. Takeaways from POM
To trademark and regulatory lawyers and industry stakeholders, POM likely will be received as a mixed bag.  On the one hand, the decision recognizes that federal food labeling and false advertising laws are complementary and can both be fully enforced according to their terms. The Supreme Court, thus, put regulated industries on notice that compliance with FDA regulations will not, as a matter of law, preclude future liability under the Lanham Act—or perhaps other federal laws providing a private cause of action.

On the other hand, for companies like POM locked in “truth-in-labeling” disputes, the case is a sword for combating unfair competition in the marketplace. Following POM, Lanham Act defendants may not argue—at least not easily—adherence or deference to FDA regulations to escape liability for mislabeling or false or misleading advertising.

Either way, POM will certainly have a substantial and wide-ranging impact across FDA-regulated industries. Companies would be well-served to review their labels and labeling claims for compliance with both the FDCA and the Lanham Act. K&L Gates LLP will monitor and report on significant post-POM rulings as they arise.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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