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Ninth Circuit Rejects Manufacturer's Preemption Arguments, Reinstates Consumer False Advertising Claim Against FDA-Regulated Margarine Substitute

When Robert Reid visited Albertsons in Oceanside, California, he spotted something different on the condiment shelf.  There was a package with a picture of a heart-shaped, buttery spread resting on a toasted English muffin.  The spread looked a lot like margarine.  This was no ordinary margarine though—it was Benecol.  The packaging left the impression that Benecol is not only tasty, but a health food.  “Proven to Reduce Cholesterol” it read.  “No Trans Fat” and “No Trans Fatty Acids.”  Reid bought the marketing and bought Benecol not once, but several other times.

Years later Reid learned his faith in Benecol was misplaced.  That “No Trans Fat” claim on the package?  False.  The truth: Bencol contains at least some trans fat.  And what about those cholesterol claims?  The trans fat in Benecol actually counteracts the spread’s cholesterol-lowering properties.

Reid brought a federal class action lawsuit against Johnson & Johnson and McNeil Nutritionals (collectively “McNeil”), the makers of Benecol.  Reid’s complaint contained claims under California’s Unfair Competition Law, False Advertising Law, and Consumer Legal Remedies Act.  McNeil asked the district court to dismiss Reid’s complaint on the basis of standing, preemption, primary jurisdiction, and abstention.

The district court dismissed Reid’s complaint on standing and preemption grounds.  In Reid v. Johnson & Johnson, No. 12-56726 (9th Cir. 2015), the Ninth Circuit reversed.  After finding Reid had standing to pursue the claims, slip op. at 9–11, the court turned to McNeil’s argument that Reid’s state law claims are preempted by the Federal Food, Drug, and Cosmetic Act (“FDCA”) and the Food and Drug Administration’s (“FDA”) related regulations.

The “No Trans Fat” Claim

The Ninth Circuit first dealt with Reid’s claim that McNeil’s “No Trans Fat” labeling violated California law.  The court first set out the framework for food regulation.  In 1990, Congress passed the Nutritional Labeling and Education Act (“NLEA”).  NLEA brought about the familiar Nutrition Facts Panel on food packages.  NLEA includes a preemption provision to ensure the Nutrition Facts Panel is uniform across the United States.  A state law that requires something in the Nutrition Facts Panel that differs from FDA regulations is preempted.  At the same time, the Ninth Circuit observed that “NLEA does not preempt state law-based causes of action that are identical to the federal labeling requirements.”  Reid, slip op. at 12.

The court determined that the fate of the “No Trans Fat” claim “turns on whether the statement is authorized by FDA regulations.”  Id. at 17.  The Ninth Circuit concluded that the “No Trans Fat” claim was not authorized by FDA for two reasons.  First, FDA sent a warning letter in which it referred to a “No Trans Fat” claim as an “unauthorized nutrient content claim.”  Id. at 18.  Second, FDA regulations forbid nutrient content claims that are “false or misleading in any respect.”  21 C.F.R. § 101.13(i)(3).  FDA promulgated a separate rule allowing “No Fat” and “No Saturated Fat” claims for food “that contains less than 0.5 grams of fat or saturated fat by serving.”  Reid, slip op. at 19.  FDA would not have “go[ne] to the trouble of promulgating” that rule if those claims were already not false or misleading under section 101.13(i)(3).  Since FDA expressly accepted “No Fat” and “No Saturated Fat” claims, the court found FDA’s refusal to do the same for “No Trans Fat” meant the claim is not authorized.  The Ninth Circuit found the claim was not preempted.  Id. at 20.

The Cholesterol-Lowering Claim

The court next turned to Reid’s claim against McNeil for its marketing Benecol as a cholesterol fighter.  McNeil conceded that its cholesterol claims “fall short” of what FDA permits in 21 C.F.R. § 101.83(c)(2).  Reid, slip op. at 20.  Regardless, McNeil maintained Reid’s claim was preempted due to a 2003 FDA letter in which the agency stated it intends to exercise enforcement discretion with respect to cholesterol claims like the ones on Benecol’s packaging.

The Ninth Circuit rejected McNeil’s argument.  The court held that “the 2003 letter lacks preemptive effect.”  Id. at 23.  The court declined to apply deference to the agency’s statement under Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), since such actions “do not carry the force of law.”  Reid, slip op. at 23.  Even so, the court found that the 2003 statement’s own terms did “not authorize any health claims that conflict with the FDA’s existing . . . rule.”  Id.  Further, FDA “did not intend to foreclose state law challenges to health claims that do not comply with existing [FDA] rules.”  Id. at 24.

Implications

The Supreme Court’s decision in POM Wonderful LLC v. Coca-Cola Co., 134 S. Ct. 2228 (2014), provided a lesson for FDA-regulated industries.  Mere compliance with a FDA regulatory standard does not insulate a party from false advertising liability under the Lanham Act.  Reid is not the same as POM Wonderful.  Reid’s claims were based on state, not federal law.  Further, Reid alleged that McNeil’s labeling did not facially comply with FDA regulations.  

Reid illustrates the risk of noncompliance.  Reid opens the door for consumers to sanction companies for noncompliance with the FDCA through state law claims.  A company making questionable marketing claims under the FDCA might not raise FDA’s ire, but could face a consumer class action suit instead.

Query whether claims like those in Reid represent an end run around FDA's exclusive authority to enforce the FDCA.  21 U.S.C. § 337(a).  A petition pending at the Supreme Court could shed light on this question.  Athena Cosmetics, Inc. v. Allergan, Inc., presents the question whether a state unfair competition claim premised on a party's alleged failure to obtain FDA approval for a product is preempted.  The Court is currently waiting for the Solicitor General to provide his views on the petition.

USPTO Satellite Offices - Coming Soon To a Time Zone Near You

USPTO Satellite Offices - Coming Soon To a Time Zone Near You

By Timothy Bradley Published in IP Links
(December 2014)
© Coats + Bennett, PLLC 2014
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Episode of CNBC's "The Profit" Illustrates a Trademark Pitfall to Avoid

Marcus Lemonis is the star of CNBC’s reality show “The Profit.”  “The Profit” chronicles Lemonis’ relationships with ailing businesses.  At the beginning of each episode, Lemonis offers cash-strapped business owners much-needed funds in exchange for an equity stake in their companies.  The rest of the show depicts Lemonis’ efforts to turnaround these businesses' fortunes.

Trademark law issues figured prominently into a recent episode.  Lemonis made an investment in a small restaurant franchise called My Big Fat Greek Gyro.  Less than ten minutes into the episode, questions about the restaurant’s name arose.

“Who came up with the name?” Lemonis asked.

“We have issues with the name,” one of the co-owners said.  Co-owner Mike Ference explained “there was a company in California that actually trademarked MY BIG FAT GREEK.”  Ference said the companies exchanged e-mails, but nothing more.

The situation bothered Lemonis.  “Normally when there is a trademark dispute in a name it’s something you can work through especially if it’s a single location,” Lemonis observed.  “But in this case, we’ve sold the rights in the name to franchisees and now we’re finding out we can’t actually use the name—you’ve got a problem.”

Later on in the episode, the show reveals how the owners solved the problem.  They chose to rebrand to THE SIMPLE GREEK.

If the owners had conducted a trademark clearance, they would have likely avoided having to rebrand.  Such an analysis would have included clearing MY BIG FAT GREEK GYRO against other previously registered marks.  A fairly thorough search would have likely cost the owners of MY BIG FAT GREEK GYRO less than $2,000.

Instead, the owners had to incur the cost of hiring a rebranding specialist to develop new advertising material and other collateral.  In the process, they also lost the goodwill and consumer association they had built up in MY BIG FAT GREEK GYRO.  To paraphrase Lemonis from another episode, that sounds a lot like “stepping over dollars to save pennies.”

Unilever Drops False Advertising Lawsuit Against Vegan Just Mayo, Concerns Remain for Hampton Creek

Unilever’s lawsuit against Hampton Creek started with a bang: a motion for a preliminary injunction claiming Hampton Creek engaged in false advertising by promoting its eggless Just Mayo sandwich spread as real mayonnaise.  Last Thursday it appears to have ended with a whimper: a three-paragraph press release and a one-page dismissal of the lawsuit.

In its press release, Unilever said it “decided to withdraw its lawsuit against Hampton Creek so that Hampton Creek can address its label directly with industry groups and appropriate regulatory authorities.”  Unilever then lauded Hampton Creek’s “commitment to innovation and its inspired corporate purpose” and stated it “believe[s] Hampton Creek will take the appropriate steps in labelling its products going forward.”

Unilever's suit proved to be a public relations headache from the outset, serving as fodder for late-night comedians.  Since Unilever announced its decision to withdraw the suit, popular media is piling on.  CNNMoney reports “Unilever lays an egg.”  Meanwhile a headline on Slate blares that “The Maker of Hellmann’s Just Dropped an Absurd Lawsuit Over the Definition of Mayonnaise.”

It would be fair to say the lawsuit backfired on Unilever.  The Associated Press reported “the lawsuit has been a boon to Hampton Creek, boosting sales of Just Mayo.”  That is not a surprise.  The suit handed Hampton Creek invaluable free publicity—“the opportunity to tell our story to millions of people” as Hampton Creek CEO Josh Tetrick put it.  The result: a David-versus-Goliath narrative depicting Unilever as an out-of-touch, well-heeled bully.  An underdog story Americans could believe in and buy into at their local retailer.

Understandbly, most of the reporting on Unilever’s decision to withdraw the suit suggest this dispute is over.  However, the case could resurface.  The AmLaw Litigation Daily correctly notes “Unilever’s notice . . . was filed under a procedural rule that would allow the company to refile its claims one more time, so the lawsuit could return.”  The “procedural rule” Unilever used to dismiss its case is Federal Rule of Civil Procedure 41(a)(1)(A)(i).  A party is allowed to voluntarily dismiss its case once “without prejudice” under that rule, meaning it can refile.  

Even if Hampton Creek’s battle with Unilever is over, its labeling and advertising will continue getting legal scrutiny.  The Food and Drug Administration regulates food labeling under the Federal Food, Drug, and Cosmetic Act.  States also have their own food and drug laws.  At some level, Hampton Creek will have to comply with both.

There is also a threat from the plaintiff’s bar.  Unilever gave plaintiff’s attorneys a blueprint for a class-action lawsuit against Hampton Creek under state consumer protection laws.  With class-action litigation over "all natural" foods and "homemade" vodka, it might be a matter of time before Hampton Creek finds itself in court defending against these claims again, this time from mayonnaise purchasers allegedly duped into buying a vegan substitute.

Unilever Raising Hell(mann's) in False Advertising Lawsuit Against Vegan Just Mayo

To settle litigation, General Mills has agreed to ditch the phrase “100% Natural” for granola bars.  Meanwhile, the maker of Tito’s Handmade Vodka is defending itself against allegations from class-action plaintiffs that its vodka is not actually “handmade.”  Now the food and beverage wars have reached the condiment aisle.

Unilever sells mayonnaise under its Hellmann’s and Best Foods brands.  San Francisco-based Hampton Creek makes a vegan sandwich spread called Just Mayo.  Unilever’s products contains eggs.  Since it is a vegan product, Just Mayo does not contain eggs.

On October 31, Unilever filed a false advertising lawsuit against Hampton Creek in the United States District Court for the District of New Jersey.  In its complaint, Unilever alleges that “Hampton Creek falsely communicates to consumers that Just Mayo is mayonnaise, when it in fact, is not.”  The reason: “Under federal regulations, common dictionary definitions and as consumers understand it, ‘mayonnaise’ or ‘mayo’ is a product that contains eggs.  That ingredient does not exist in Just Mayo.”  By advertising its vegan product as “mayo,” Unilever claims that Hampton Creek “is stealing market share from Hellman’s” in violation of section 43(a) of the Lanham Act and state unfair competition law.

Unilever asked the district court to enter a preliminary injunction that would forbid Hampton Creek from selling and marketing Just Mayo.  In its motion, Unilever asserts it is likely to prevail on the merits for two separate reasons: (1) the Just Mayo label is literally false and (2) survey evidence shows the Just Mayo brand actually deceives consumers.

Unilever’s argument that Just Mayo is literally false runs as follows.  The term “mayo” is synonymous with “mayonnaise.”  By definition, “mayo” or “mayonnaise” contains eggs.  Just Mayo does not contain eggs.  Therefore, according to Unilever, Hampton Creek engages in false advertising when it markets its vegan sandwich spread as Just Mayo.

Unilever also offers evidence from a consumer survey as a second basis for a preliminary injunction.  Unilever’s survey found 53.7% of consumers shown Just Mayo concluded it was mayonnaise.  Unilever concludes “[t]his level of confusion is well above the minimum confusion levels required to support findings of implied falsity under the Lanham Act.”

So far, Hampton Creek is standing its ground.  “We think we’re on the right side of how we build a food system that makes it easy for regular people to eat,” Hampton Creek CEO Josh Tetrick told Bloomberg Television.  “We never started this damn thing to be an alternative or a substitute; we started it to be right there in the condiment aisle . . . when we do that with everyone else.”

Tetrick suggested Unilever will withdraw the lawsuit “because of the incredible amount of support from the public we have received [and] from retailers.”  If Unilever refuses to back down, Tetrick said Hampton Creek will file a countersuit attacking Unilever’s advertising related to its sustainability practices.

Hampton Creek’s response to Unilever’s motion for a preliminary injunction is not due until January.  Until then, the lawsuit has become grist for the late-night comedy mill.  CBS’ Late Show with David Letterman lampooned the litigation with a mock advertisement for a fictitious mayonnaise plaintiff’s law firm called Cellino & Barnes.  Stay tuned for who gets the last laugh in this case.

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