POM Wonderful v. Coca-Cola: False Advertising and Business Implications

Pomegranate juice is a trendy, health conscious drink, but are all pomegranate drinks equal?  Pom Wonderful sued Coca-Cola under Section 43(a) of the Lanham Act claiming that the beverage giant was misleading consumers about the amount of pomegranate juice in its MINUTE MAID “Pomegranate Blueberry Juice.”  Although pomegranate seemed to be the selling point, the drink was actually comprised of 99.4% apple and grape juices.

Rather than substantively address this Lanham Act claim, Coca-Cola (“Coke”) sought to dismiss the suit as precluded by the Food, Drug, and Cosmetics Act. This past June (2014), the Supreme Court of the United States (“SCOTUS”) unanimously held that the regulatory provisions of the Food, Drug, and Cosmetic Act (“FDCA”) do not preclude or limit the statutory private right of action provided in the Lanham Act. Instead, they are complementary statutes that provide greater protection to consumers in combination than either could alone.

What You Need to Know about the Case

Coke’s Argument

  • Emphasized National Uniformity: If the FDA approves a label, then the Lanham Act should not be used to overturn that determination
  • The FDA explicitly preempts state law unfair competition claims, thus, Coke argued, federal Lanham Act claims should be precluded too

SCOTUS

  • Focused on consumer protection
  • Emphasized primacy of Federal Law over Administrative Regulation
  • The Lanham Act and the FDCA are complementary, there was no statutory text or interpretive principle to support Coke’s argument that the FDCA precludes federal unfair competition claims under the Lanham Act
    • Focused on the plain language of the statutes
  • The FDCA and the Lanham Act have differing scopes, purposes, requirements, and afford different protection to consumers
    • Lanham Act
      • Draws upon market expertise and empowers private parties to sue competitors
      • Market competitors have “detailed knowledge” about consumer reliance, thus Lanham Act suits “provide incentives” to follow FDA regulations
      • Suits take advantage of “synergies” among different regulation methods
    • FDCA
      • Enforcement solely through the FDA and the Department of Justice
      • Focus more on nutrition and ingredients
      • Does not pre-approve food labels, unlike with drugs and medicine

Business Reactions and Implications of the Supreme Court’s False Advertising Decision

  • SCOTUS’ reasoning can lend itself to other administrative regulations
    • Reflects a possible move away from government enforcement and towards private enforcement relying on market mechanisms
  • Because corporate entities can bring Lanham Act claims on behalf of consumers there may be a possible increase in competitor-corporations bringing claims
  • Short Term: POM has a redistributive effect
    • Early market entrants with well defined and clearly labeled products should gain market share and litigation damages from later entrants who attempt to create facsimiles
  • Long Term: Easy Corporate Adaptability
    •  Armed with the information in POM, companies should be able to adapt and avoid blatantly misleading attempts to make cheap facsimiles of products

Labeling Recommendations and Best Practices

  • “Puffery” in advertising and branding still allowed
    • Products may still be hyped in their ads, but the hype must be credible
    • Assertions in ads must have reasonable support based on the product
  • Labeling
    • Ruling should not substantially change the process of creating a label or brand and approving it
    • During the corporate review process:
      • Arrange a legal opinion on whether the label is misleading; or
      • Perform research and development based on consumer surveys examining consumer reaction to and belief about the product based on the ads
  • Liability for False Advertisements
    • Any statement in the ad that is subject to proof is a “claim”
      • Liability arises when the nature, characteristics, qualities, or geographic origins of the goods are misrepresented
    • Each claim should have a “reasonable interpretation” compared with the product

False advertising claims can majorly cost a company when it means changing an entire ad campaign or regaining the lost goodwill of consumers, but business should be able to easily adapt to comply with the Supreme Court’s decision. Given the level of agency regulation in today’s government, it’s good to know that federal law, if not the be-all and end-all of regulation, remains a viable cause of action when there’s overlapping jurisdiction.

A longer version of this article was included in both Vol. 52, No. 1 (2014) of the ISBA’s Corporate Lawyer Newsletter and Vol. 54, No. 2 (2014) of the ISBA’s Intellectual Property Law Newsletter.

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