Supreme Court Decision May Lead to More False Advertising Claims in Food and Beverage Industry

The Supreme Court's ruling in Pom Wonderful LLC v. Coca-Cola Co. may open the door to more false advertising claims regarding food and beverage labeling.

The Lanham Act permits one competitor to sue another for unfair competition arising from false or misleading product descriptions.  The FDA also regulates food and drink labeling in a myriad of labeling requirements and standards authorized by the Federal Food, Drug and Cosmetic Act ("FDCA").  Competitors, however, are not allowed to bring claims to enforce the FDCA standards.

In the recent case before the Supreme Court, POM Wonderful LLC, which sells a pomegranate-blueberry juice blend, filed a lawsuit against Coca-Cola, alleging that the name and label of one of Coca-Cola's juice blends mislead consumers into believing the product consists predominantly of pomegranate and blueberry juice when it actually consisted mostly of apple and grape juice.  Coca-Cola argued that the lawsuit was barred because its label complied with FDCA standards.  The FDCA distinguishes between a product's label and ingredients.  The Supreme Court, however, ruled that the false advertising claim could continue under the Lanham Act because "Congress did not intend FDA oversight to be the exclusive means of ensuring proper food and beverage labeling."  The Court explained: "The FDCA's enforcement is largely committed to the FDA, while the Lanham Act empowers private parties to sue competitors to protect their interests on a case-by-case basis. Allowing Lanham Act suits takes advantage of synergies among multiple methods of regulation."  The case will be remanded to trial court for a decision on the merits.

You can read more about the Court's ruling here and here.

Supreme Court Creates New Standing Test For Asserting False Action Claim Under Lanham Act

On March 25, 2014, the Supreme Court issued a unanimous opinion, authored by Justice Scalia, in Lexmark International, Inc. v. Static Control Components, Inc.  In a previous post, I discussed my involvement in this case at the trial court level.

Supreme Court Justice Scalia

The case involves the standing requirements for asserting a claim for false advertising under the Lanham Act.  There was an existing split among the regional circuits, with some courts limiting standing to direct competitors, other courts adopting the standing analysis from antitrust cases, and other courts applying a broader "reasonable interest" test.  The Supreme Court, however, rejected all of these standards and created a new "zone of interests" test, explaining:

While none of those tests is wholly without merit, we decline to adopt any of them. We hold instead that a direct application of the zone-of-interests test and the proximate-cause requirement supplies the relevant limits on who may sue.

The "zone of interests" test originates from cases interpreting standing to seek judicial review under the Administrate Procedures Act.  The Court, however, held that this test also applies to other statutorily created causes of action, like the Lanham Act.  The Court further stated:

We thus hold that to come within the zone of interests in a suit for false advertising under §1125(a), a plaintiff must allege an injury to a commercial interest in reputation or sales. A consumer who is hoodwinked into purchasing a disappointing product may well have an injury-in-fact cognizable under Article III, but he cannot invoke the protection of the Lanham Act—a conclusion reached by every Circuit to consider the question....  Even a business misled by a supplier into purchasing an inferior product is, like consumers generally,not under the Act’s aegis.

With respect to the proximate cause analysis, the Court held:

that a plaintiff suing under §1125(a) ordinarily must show economic or reputational injury flowing directly from the deception wrought by the defendant’s advertising; and that that occurs when deception of consumers causes them to withhold trade from the plaintiff.

The Court's new "zone of interests" test appears to be broader than some of the tests used by lower courts but more narrow that others.

In reaching its decision, the Supreme Court critiqued the various multifaceted tests that lower courts previously had used, noting that these "open-ended balancing tests can yield unpredictable and at times arbitrary results."  It will be interesting to watch if this decision leads to broader changes in the standing requirements for other statutory causes of action.

For example, the traditional standing test for antitrust claims was one of the "open-ended balancing tests" that the Court critiqued.  Does this case forecast a change to standing principles under antitrust law?

Supreme Court to Decide Requirements for Standing under Lanham Act

In the coming weeks, the Supreme Court will decide a case involving the proper framework for determining standing to maintain an action for false advertising under the Lanham Act.  The case, Lexmark International, Inc. v. Static Control Components, has a long history, in which I played a role nearly eight years ago.  In fact, I believe that I drafted the motion to dismiss that is the subject of this appeal.

The District Court granted that motion, in September 2006, dismissing the antitrust and false advertising counterclaims for lack of standing based on the factors set forth in Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters.  After that decision, in 2007, there was a trial on the remaining claims, which resulted in a number of lengthy appeals.  In one of those appeals, on October 26, 2012, the Sixth Circuit reversed the District Court's ruling as to standing after finding that that the Associated General factors were not the proper analysis for a Lanham Act claim.

This decision added to an existing circuit split on the proper analytical framework.  The Third, Fifth, Eighth and Eleventh Circuits have adopted the Associated General factors; the Seventh, Ninth and Tenth Circuits have adopted a categorical test permitting suits only by an actual competitor; and the Sixth and Second Circuits have applied a more expansive "reasonable interest" test.

It is rather unusual for the Supreme Court to review a district court decision from way back in 2006.  I imagine that at the time the district court initially ruled on this issue, many of the cases that are now being cited and relied upon by both parties had not yet been decided.  It is also odd, on a personal level, to remember back eight years ago (before I had any children!) when I drafted that initial motion to dismiss.