Advertising Law -- Jul 03, 2013

Manatt, Phelps & Phillips, LLP

In This Issue:

Orange Juice Suit Squeezes Its Way Forward

In the latest consumer class action alleging false “natural” claims, a federal court judge in New Jersey ruled that Tropicana Products cannot avoid an action asserting that the company’s claim that “Tropicana Pure Premium is 100% pure and natural juice” is false and misleading.

The complaint alleges that the juice is actually “pasteurized, deaerated, stripped of flavor and aroma, and stored for long periods of time before available to the public, and colored and flavored before being packaged.” Seven plaintiffs argued that long-term storage of the product and the addition of chemically engineered “flavor packs” derived from sources other than those used to make the juice deviated from Tropicana’s natural claims.

In addition to the “100% pure and natural” label, the container featured an image of an orange pierced by a straw, and the Tropicana Web site made statements about consumers receiving “the freshest, most delicious straight-from-the-orange taste.” The plaintiffs alleged violations of various state consumer protection laws, as well as unjust enrichment and breach of warranty.

Tropicana sought to dismiss the suit on preemption grounds, claiming that an express preemption provision in the Nutrition Labeling Education Act prevented the plaintiffs’ suit. It also maintained that the Food and Drug Administration has established standards regulating pasteurized orange juice. Under these regulations, Tropicana is only required to label its juice as “pasteurized” – a requirement it fulfilled, the company said.

In rebuttal, the plaintiffs said their state law claims fell outside the NLEA’s preemption provision. Tropicana adds flavor packs to the juice, which constitute ingredients that the company failed to list, making its labeling inaccurate, incomplete, and false, they told the court.

The court agreed.

“Tropicana has not overcome the starting presumption that Congress does not intend to supplant state law for purposes of this motion to dismiss,” wrote U.S. District Court Judge Dennis M. Cavanaugh. “The state regulations focus on the same requirement contained in the federal regulations, i.e., accurate and complete labeling of a product’s ingredients. The standard of identity of pasteurized orange juice requires the disclosure of the added flavoring in a product’s statement of ingredients. Because plaintiffs’ claims involve an alleged failure to meet the requirements of federal law, and not a standard that deviates from or adds to such requirements, these claims are not preempted.” Tropicana also argued that the plaintiffs failed to plead reasonable expectations about the all-natural representation. With the word “pasteurization” in all capital letters on the front of the label, the company asked how a consumer could claim to be misled by the “100% pure and natural” statement?

But the court found no supporting evidence for the idea that Tropicana’s consumers “understood the intricacies relating to the shelf life and processing of the orange juice so as to destroy a reasonable expectation of the product’s freshness.” Instead, “allowing this matter to progress to the discovery phase will provide the court with a more detailed answer to the question of whether the named plaintiffs believed they were getting fresh, as opposed to pasteurized, orange juice.”

Judge Cavanaugh further declined to dismiss the suit based on Tropicana’s contention that the plaintiffs failed to establish the “where” requirement. “The ‘where’ requirement may be satisfied by the misrepresentations allegedly contained on Tropicana’s labels or packages; there need not be strict identification of one particular store location where it is alleged that the labeling and packaging in question was sold in thousands of locations throughout the country,” he concluded.

The decision was not a complete victory for the putative class. Although the court allowed claims for violations of the New York and New Jersey consumer protection laws, breach of warranty, and unjust enrichment to move forward, claims under Wisconsin law for false and deceptive advertising for “merchandise” and punitive damages were dismissed.

To read the opinion in Lynch v. Tropicana Products, click here.

Why it matters: The Tropicana suit presents many of the issues commonly found in similar “natural” class actions, from a preemption argument by the defense to a dispute between the parties over the plaintiffs’ reasonable reliance upon the challenged claims. Although the Lynch suit survived a motion to dismiss, the case remains in the early stages.

Show Me the Substantiation, Says the NAD

The ads told viewers to “Show me the Carfax.” In return, the National Advertising Division told the company to show it some substantiation. Following an inquiry letter from the NAD, Carfax, Inc., a provider of vehicle history reports for used cars, has agreed to discontinue certain broadcast advertising.

The self-regulatory body sought substantiation for claims in a Carfax television ad, including express claims such as: “Just give me the Carfax”; “Before you buy a car, just say, ‘Show me the Carfax’ ”; “You want to see the accidents and service records reported to Carfax and a price based on the car’s history”; and “Don’t run the risk of buying used cars with costly hidden problems. Get a detailed vehicle history report from our nationwide database within seconds.” The NAD also considered an implied claim that the Carfax report “provides a complete history of the used car and consumers can rely solely on the report when purchasing the car.”

Upon receipt of the inquiry, Carfax informed the NAD that it believed the challenged ads were “truthful and accurate.” However, due to “business reasons,” the company discontinued the television commercial in question.

“NAD believed the challenged television commercial reasonably communicated the implied message that consumers interested in purchasing a used car can rely solely on a Carfax report for a vehicle’s complete history,” the NAD wrote. “NAD appreciated the advertiser’s permanent discontinuance of the television commercial, an action it deemed necessary and proper under the circumstances.”

To read the NAD’s press release about the case, click here

Why it matters: The Carfax case provides a reminder that advertisers should be prepared to substantiate both express and implied advertising claims. The company may have discontinued the ad, but the NAD made sure to note that the move was both “necessary and proper under the circumstances.”

Connecticut First to Enact GMO Labeling Law

In June, Connecticut became the first state to require mandatory labeling of genetically engineered foods, although the law will not take immediate effect.

Companies have some time to prepare as the new law will not take effect unless and until two triggering factors occur. First, four other states – including one bordering Connecticut – must enact similar legislation. Second, any combination of states in the Northeast (Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, or Vermont) with a combined population of 20 million residents must also pass parallel laws.

The triggers were added to the bill as a compromise to opponents, explained Governor Dannel P. Malloy. He said the provisions are intended to protect local farms by “ensuring that the regional agricultural market has adopted the new labeling system before placing an undue and disproportionate burden” on Connecticut farmers.

“This bill strikes an important balance by ensuring the consumers’ right to know what is in their food while shielding our small businesses from liability that could leave them at a competitive disadvantage,” Governor Malloy said in a statement. Although Governor Malloy has indicated his intention to sign the bill into law, he has yet to do so.

The new law defines “genetic engineering” as “a process by which a food or food ingredient that is produced from an organism or organisms in which the genetic material has been changed through the application of: (A) In vitro nucleic acid techniques, including recombinant DNA (deoxyribonucleic acid) techniques and the direct injection of nucleic acid into cells or organelles; or (B) fusion of cells, including protoplast fusion, or hybridization techniques that overcome natural physiological, reproductive or recombination barriers, where the donor cells or protoplasts do not fall within the same taxonomic group, in a way that does not occur by natural multiplication or natural recombination.”

All food intended for human consumption must be labeled “Produced with Genetic Engineering,” either on the bill of sale accompanying wholesale sales or clearly and conspicuously on the packaging for retail sales. Similar labels must also appear on raw agricultural commodities as well as on seed or seed stock.

The Connecticut law exempts four categories from the labeling requirements: alcoholic beverages; produce sold at roadside stands, pick-your-own farms, and farmers’ markets; food intended for immediate consumption that is never packaged for retail sale; and meat from animals that were not genetically modified but were fed genetically modified foods or given genetically modified drugs.

The Commissioner of Consumer Protection is charged with enforcement. Violators are subject to a civil penalty up to $1,000 per day, per product (although the penalty cannot be multiplied by the number of individual packages of the same product offered for sale).

To read Connecticut’s new law, click here

Why it matters: The passage of Connecticut’s law has spurred other states to push similar legislation forward. The Maine legislature passed a bill nearly identical to Connecticut’s (with comparable triggering provisions), although Governor Paul LePage has yet to sign it into law. More than 20 other states (including required Northeast locations such as Massachusetts, New Jersey, and Vermont) are also considering GMO labeling laws, and a federal bill – the Genetically Engineered Food Right-to-Know Act – was introduced to both houses in April. Despite the recent success, however, the bills still face significant challenges from opponents in the food and agribusiness communities. In California, for example, voter initiative Proposition 37 narrowly failed to pass after a hard-fought battle on both sides of the issue.

Goldfish, Super Mario Bros. Targets of New Suits

Consumers are challenging two different snack foods over allegedly false and deceptive advertising in new putative class actions.

California resident Garett Koehler claimed he purchased multiple flavors of Pepperidge Farm’s “Natural” Goldfish crackers until he learned that the product in fact contains genetically modified ingredients such as thiamine mononitrate and riboflavin. Koehler said he relied upon the product’s advertising and other promotional materials and understood the “Natural” statement “to mean that the products contained no GMO ingredients or other artificial or synthetic ingredients,” according to the complaint. Had he known the crackers were not natural, he would not have paid for them, he said.

Koehler’s complaint argued that genetically modified ingredients and artificial or synthetic substances are “by definition not natural” and “reasonable consumers reasonably do not expect food labeled as ‘natural’ or ‘Natural’ to include artificial or synthetic substances.”

“No reliable, scientific studies guarantee or show any evidence of long-term safety of GMOs for human consumption,” he contended, adding that “There is an increasing concern amongst health experts and consumers alike that introducing foreign genes into food plants may have unexpected and negative impacts on human health, such as creating new allergens, causing allergic reactions in susceptible individuals, and causing digestive issues.”

The suit also noted that Pepperidge Farm removed the “Natural” statement prior to the filing of Koehler’s suit, which he submitted as evidence of “an implied admission that the products were not natural at all material times” when purchased by the plaintiff.

Koehler sought to certify a class of California residents who purchased the crackers after June 2009 and requested actual, statutory and punitive damages, as well as an injunction to halt the allegedly misleading advertising.

In a separate case, also filed in California federal court, a plaintiff alleged that Kellogg Co. deceives consumers by marketing its Super Mario Fruit Snacks as having been “Made with Real Fruit” when they actually are made of apple puree and various chemicals and preservative additives.

According to the complaint, Kellogg “merely contains de minimis real fruit and unhealthy, unnatural ingredients, chemicals and preservative additives, in addition to merely containing apple puree rather than real fruit.” Reasonable consumers interpret the “Made with Real Fruit” claim to mean that it contains whole fruit, plaintiff Alicia Spevak said, and not just minimal amounts. “In reality, it is an unhealthy sweet snack that is full of sugar, and chemicals.”

She similarly asked the court to certify a statewide class of purchasers for actual, statutory, and punitive damages, as well as injunctive relief for violations of state law.

To read the complaint in Koehler v. Pepperidge Farm, click here.

To read the complaint in Spevak v. Kellogg Co., click here.

Why it matters: The seemingly endless trend of lawsuits challenging “natural” and similar food product claims continues with the suits against Pepperidge Farm and Kellogg. Companies making such claims should be prepared to substantiate their advertising in the face of comparable challenges.

Will Advertisers Feel the Backlash After Revelations of Government Surveillance?

After the nation learned that the National Security Agency has engaged in widespread surveillance of consumer communications over the last several years, some advertisers fear the public’s reaction could negatively impact the industry.

“One of our concerns is that people will try to pass new restrictions – out of fear of government surveillance – that will stop what marketers can do, without having any impact on what the government can do,” Linda Woolley, president and CEO of the Direct Marketing Association, told MediaPost. If citizens confuse government spying with the ad industry’s data collection, “things could go very badly for marketers,” she added.

Brian Wieser of Pivotal Research Group told MediaPost that at the very least, consumer awareness about online privacy has been heightened by the NSA surveillance revelations. “If few consumers were paying attention to debates regarding the use of personal data between corporate participants and a handful of regulators, it seems almost certain that many more will be doing so now,” he said.

Others are hoping the government’s activities will place the actions of the advertising industry in a better light, or simply remain a political issue for the current administration. “Politically, the current debate around the Prism program and other government practices certainly takes the focus off of more accepted commercial data practices, and it would seem antithetical to the administration’s current national security practices for them to push data collection restrictions onto leading internet companies,” Mike Zaneis, senior vice president and general counsel of the Interactive Advertising Bureau, told AdAge.

The initial public response has included a push for legislation to protect their privacy rights. But depending on the level of citizen outrage, a movement to restrict data collection or a requirement that companies obtain explicit consent from consumers prior to gathering information or tracking their Internet activity could be possible.

Rachel Thomas, DMA vice president of government affairs, recently posted a blog in which she maintained that unless the industry corrects mischaracterizations about “what data-driven marketers do and how we do it, we will get caught up in the Washington backlash against governmental intrusion.” Specifically, Thomas noted that the NSA isn’t interested in marketing data; instead, the agency allegedly collected metadata about telephone calls made by consumers and the actual content of communications such as e-mail, videos, data stored in the cloud, and social networking details – data not relevant to marketers.

“Any calls for new restrictions on marketing in the wake of the NSA leaks is misplaced, misguided, and born out of a basic misunderstanding about how data-driven marketing works,” she concluded.

Why it matters: The impact of the public backlash remains to be seen. One possible indicator that the advertising industry is feeling some of the reaction: consumers are seeking greater privacy protections. Privacy company Abine reported a 54 percent increase in downloads of its anti-tracking software over the seven-day period following the NSA’s news, while Duck Duck Go, a search engine that does not keep user logs, said its users increased by 55 percent in the same time period.

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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