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June 12, 2014Client Alert

Supreme Court Rules that Competitors Can Challenge Advertising that is False or Misleading Even if it Complies with Federal Food and Beverage Labeling Laws

The U.S. Supreme Court ruled today that compliance with the FDA’s food and beverage labeling requirements does not preclude further challenge under the false advertising provisions of the federal Lanham Act. The decision in POM Wonderful LLC v. Coca-Cola Co. reverses a ruling from the Ninth Circuit Court of Appeals and makes clear that food and beverage labels can mislead consumers even when the labeling complies with the Federal Food, Drug and Cosmetic Act (FDCA). 

 

POM (a maker of pomegranate products, including a pomegranate-blueberry juice blend) complained that Coca-Cola’s Minute Maid juice blend label that prominently displayed “POMEGRANATE BLUEBERRY” misleads consumers to believe the product consists predominantly of pomegranate and blueberry juice when in fact it contains only 0.3% pomegranate juice and 0.2% blueberry juice. Coca-Cola argued that POM’s claims were barred because Coca-Cola’s label complied with the FDCA provisions for labels for juice blends. 

 

The U.S. district court for the Central District of California and the Ninth Circuit agreed with Coca-Cola that the FDCA precluded a challenge under Section 43(a) of the Lanham Act.  Section 43(a) allows competitors like POM to bring a civil action for injunctive relief and monetary damages when a product label or name misleads consumers about the nature, characteristics or qualities of a product. 

 

The Supreme Court determined that the FDCA and the Lanham Act complemented rather than contradicted each other, and nothing in the text of either federal statute provided a basis for preclusion of the Lanham Act claims. “Although both statutes touch on food and beverage labeling, the Lanham Act protects commercial interests against unfair competition, while the FDCA protects public health and safety,” the Court wrote. 

 

The Supreme Court described the Lanham Act cause of action available to commercial competitors as providing incentive “for manufacturers to behave well,” explaining that 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.” 

 

The outcome of the case may have been foreshadowed during oral arguments. In April, Justice Anthony M. Kennedy asked Coca-Cola why it believed it was acceptable to “cheat” consumers with its product label. 

 

The Supreme Court decision now clears the way for POM to move forward with its challenge that Coca-Cola’s label misleads consumers. The POM Wonderful opinion is a reminder to manufacturers and advertisers to consider all reasonable takeaways consumers may have from statements or other communications on a product label or in an advertisement.

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