United States: Little Noticed POM Wonderful Decision Could Result In New Mislabeling Lawsuits

Last Updated: July 28 2014
Article by John R. Gotaskie, Jr.

The Supreme Court again this summer was the focus of immense media and public scrutiny. Much of that scrutiny revolved around the High Court's decision in the Hobby Lobby case, where the Court concluded that some closely-held corporations have religious freedom rights pursuant to the First Amendment to the Constitution. While arguably novel and announced by a divided Court, the Hobby Lobby decision was not completely unexpected, as it flows pretty generally and directly from the Court's decision in Citizens United.

While the Hobby Lobby decision has the potential to impact the franchise industry, I believe that the considerably less talked about–and unanimous (8-0, with Justice Breyer not participating in the consideration or decision)–decision in POM Wonderful LLC v. Coca-Cola Company likely has far greater potential to impact the franchise industry in the long term.

POM Wonderful produces, markets, and sells a pomegranate-blueberry juice blend. Coca-Cola makes and sells a competing juice blend under its Minute Maid brand consisting of 99.4% apple and grape juices, 0.3% pomegranate juice, 0.2% blueberry juice, and 0.1% raspberry juice.  The Court itself stated "[d]espite the minuscule amount of pomegranate and blueberry juices in the blend, the product is prominently labeled "pomegranate blueberry" juice in all capital letters.  While the Minute Main label discloses that its juice is a "flavored blend of 5 juices" and "from concentrate with other flavors", those words appeared in much smaller type. Furthermore, the Court also noted that the Minute Maid label displays a vignette of blueberries, grapes, and raspberries in front of a halved pomegranate and halved apple.

POM sued Coca-Cola under the Lanham Act, claiming that the Minute Main label tricked and deceived consumers. While better known for its trademark provisions, the Lanham Act permits companies to bring suit when their sales or business reputation is injured by the false advertising or marketing of a competitor. Specifically, POM's suit claimed that the name, label, marketing and advertising used by Minute Maid misled consumers into believing the product consists primarily of more expensive pomegranate and blueberry juices when it really consists primarily of less expensive apple and grape juices. The consumer confusion that resulted caused POM, it alleged, to lose sales.

Coca-Cola, for its part, defended the POM lawsuit by pointing to the Federal Food, Drug and Cosmetic Act (FDCA). The FDCA authorized a statutory scheme designed primarily to protect that health and safety of the public at large, and the Act prohibits the misbranding of food or drink. Misbranding includes labeling that is false and misleading, if required information is not prominently displayed, and/or the label does not disclose the common or usual name of the foodstuff inside the packaging. Of particular importance here is that the Food and Drug Administration (FDA) had issued regulations regarding the labeling of juice blends, but that the Government–unlike the situation with prescription drug labels, for example–does not preapprove juice labels.

The critical issue in the case was the intersection of the Lanham Act and the FDCA because the FDCA provides the Federal Government with near-exclusive enforcement authority; i.e., the FDCA does not authorize private suits. Both the trial court and the Ninth Circuit Court of Appeals agreed with Coca-Cola, finding that the comprehensive FDA regulatory scheme enacted pursuant to the FDCA barred POM's Lanham Act claim.  The Supreme Court disagreed. The Court placed great weight on the fact that a textual analysis of both statutes disclosed no Congressional intent to bar unfair competition claims of the type brought by POM. The textual analysis was bolstered by the fact that both laws had coexisted for over 70 years and, in that time, Congress had not chosen to preclude Lanham Act claims on food labeling when it had pre-empted state laws in the same area. Additionally, the Court noted that while the Lanham Act and FDCA complement each other in various ways, they are intended to address different issues. The Lanham Act protects commercial interests while the FDCA protects public health and safety. Moreover, the Court explained that competitors are likely to notice unfair practices in a more accurate and immediate fashion. At the same time, the Court believed the likelihood of inconsistent national results to be low.

It seems that this decision has the potential to open a Pandora's Box of labeling questions for any franchisor and its franchisees in the food and beverage industry. While the intent of the Court seems noble and genuine, food and drink purveyors will no longer be able to rely upon the carefully considered and developed federal regulations alone. They will also need to consider whether one of their competitors will conclude that their labeling, advertising or marketing is "misbranded" and sue. The bar for a successful lawsuit will admittedly remain high–companies, including POM Wonderful on remand, will still need to prove an injury such as lost sales to be successful. Nonetheless, new Lanham Act lawsuits based on alleged mislabeling and "misadvertising" of food and beverages are likely to proliferate. And, as anyone who has been involved in such suits can attest, they are costly to defend.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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