AMA Calls for More Accurate Fat Labeling Rules
At its recent annual meeting, the American Medical Association (“AMA”) agreed to urge the Food and Drug Administration (“FDA”) to adopt more accurate labeling standards regarding trans fats and saturated fats used in food products.
Current FDA rules allow nutrition labels to list saturated and trans fats as zero, so long as the product contains less than 0.5 grams of fat per serving. However, the AMA claims that this is misleading to consumers, who could potentially consume more than a quarter of the American Heart Association’s recommended limit of two grams of trans fat per day in a single serving, unaware that the product contains trans fats.
The AMA’s position that consumers are being misled by current FDA rules does have some support in the marketplace. In a consumer survey conducted by market researchers Greenfield Online, 72 percent of U.S. respondents said they read nutrition labels and fact panels in an effort to make healthy purchasing decisions when shopping, and 61 percent said they considered zero grams of trans fat per serving to be the most important heart health related claim for a product.
Stakeholders Debate Competition in the Poultry Industry at USDA/DOJ Workshop
It’s been a couple weeks since chicken farmers and processors met with Secretary of Agriculture Tom Vilsack and Attorney General Eric Holder in Normal, Alabama to discuss competition in the poultry industry. The May 21 USDA/DOJ workshop was the second such meeting conducted by the agencies in their quest to review enforcement policy relating to competition in agriculture. The meeting certainly highlighted the fact that there is debate among stakeholders in the industry about the state of competition, healthy or not.
Several sources noted with great interest that Christine Varney, DOJ’s Assistant Attorney General in charge of the Antitrust Division, asked one poultry farmer to call her directly if he experienced intimidation from poultry processors. The farmer declared that he was concerned to appear in public speaking about the way poultry “integrators” contract with poultry farmers like himself, who actually raise chicks into broilers. The recently published transcript of the May 21 proceedings also contains a farmer’s anonymous statement that was read to the government lawyers by a farmer willing to speak on his colleague’s behalf.
From a policy perspective, there was more to the May 21 workshop than fear and loathing. For example, Assistant Attorney General Varney asked about the prevalence of farmer cooperatives in the industry – to which farmers on the panel replied that poultry farmers do not generally work together in cooperatives. Large poultry integrators, therefore, deal with poultry farmers on a one-on-one basis. And as one can read in the transcript, poultry farmers present in Normal, Alabama generally felt that the large poultry “integrators” have too much power over them. Outside the context of the workshop, Poultry farmers recently sued processors for their alleged unfair practices, without success. On May 10, a federal appeals court upheld the dismissal of claims against Tyson Foods, because the poultry farmers failed to allege that the challenged tactics actually harmed competition – i.e., reduced output or increased prices.
That brings us back to Assistant Attorney General Varney’s question about the prevalence of farmer cooperatives. Because the Capper-Volstead Act enables farmers to band together and jointly negotiate with the large buyers without violating Section One of the Sherman Act, farmers could theoretically deal with poultry processors through a collective or cooperative organization.
Leading up to the meeting, large-scale poultry producers prepared themselves for criticism from farmers. The National Chicken Council released a report by an agricultural economist that describes healthy, vigorous competition in the poultry industry. And while chicken farmers at the workshop complained about the “power” of large poultry integrators, the National Chicken Council report cited a 2001 study that found farmers were generally happy to raise chickens for integrators. Interestingly, the report also reviewed government reports that show much higher levels of concentration among beef and pork processors relative to the poultry industry, and the report showed modest declines in retail prices for chicken products over the past 18 years.
What’s the takeaway from this round of the USDA/DOJ meetings? It’s hard to say. As a general rule, the antitrust enforcement agencies hate to argue with falling consumer prices. But the transcript reveals certain concerns about the power of poultry integrators over the farmers. Though the government’s listening tour clearly shows that government lawyers from USDA and DOJ are listening, it’s not clear yet what they are thinking. Watch for more clues at the June 25 workshop in Madison, Wisconsin, when the DOJ and USDA will be examining competition in the dairy industry.
Denial of Insurance for Consumer Fraud/Lanham Act Claims: Blaming the Product, Not the Advertising?
UPDATE: For those interested in reviewing the Axis policy discussed in the motion, it can be linked here.
I'm often asked in my practice about the availability of insurance coverage for claims by consumers or competitors that products are deceptively labeled, marketed or advertised. Those interested in the topic should follow the litigation between Welch Foods, Inc. and its insurers regarding coverage for the putative consumer fraud and the Lanham Act claims asserted against Welch’s over the marketing of its pomegranate-containing juice products.
No rulings have been issued as of yet. But one of Welch's insurers, AXIS Surplus Insurance Company, has taken the interesting position that the "Media Wrongful Act" coverage in its policy provides no coverage. According to Axis's Motion for Summary Judgment, "[i]n a covered Media Wrongful Act claim, the Loss arises from, and is actionable based on, the creation or dissemination of the advertising."
Axis argues that the underlying claims that Welch's marketing of its product created "confusion, deception and mistake in the pomegranate juice market" are not covered under the Media Wrongful Act coverage because "the POM Complaint does not allege that Welch’s liability results from a media liability — i.e., a harm created by the creation or dissemination of Welch’s advertising — but from a liability resulting from the sale of juice which does not live up to such advertising." Axis explains further that "if the product conformed to the standards set forth in the advertisements, the putative class would not have a claim against Welch’s."
How is Axis's reasoning not circular? Can't Welch's argue the reverse in an equally compelling way: That had the putative class or competition believed that the advertising conformed to the product, there would be no claims against Welch's?
Indeed, isn't the counter to Axis's "blame the product argument" more compelling because claims against the labeling of the product itself are subject to federal preemption, and, therefore, they could not be brought by the putative class or the competition? The putative class and competition can ONLY bring claims related to the advertising and marketing.
Jim Prevor's Traceability Answers
We recently asked for comments on Jim Prevor's story about traceability. While there was a loud silence in our comments in box (still happy to take them), today we got a long response from Jim himself in his latest Perishable Pundit. I commend it to you. And feel free to comment to Jim directly or, of course, right here.
Dismissal of "I Can't Believe It's Not Butter" Claims: Another Example of Iqbal/Twombly Succeeding Where Preemption Cannot
Judge James Ware dismissed on an FRCP 12(b)(6) motion putative class claims against Unilever alleging violations of the California Consumers Legal Remedies Act , Unfair Competition Law, and False Advertising Law . Judge Ware's decision can be found here. Plaintiff alleged that Unilever misrepresented the ingredients of its butter-substitute product through its advertising and product labeling.
The heart of plaintiff's complaint was Unilever's marketing of the product as "Made with a Blend of Nutritious Oils." Plaintiff alleged that "[t]his message . . . is misleading and deceptive because Defendant's Product contains a highly unhealthy, non-nutritious oil known as partially hydrogenated oil."
Unilever's preemption argument was rejected. The court followed what's becoming a familiar line of reasoning that while federal law governs the labeling of the product, state advertising and marketing claims are not preempted:
Although the "oils" referred to in the advertisement on the label are the same oils that are subject to the NLEA labeling requirement, the Court finds that there is no inherent conflict in allowing relief under state law with respect to what is said in the advertisement on a label about characteristics of those oils that are not regulated by the NLEA.
Judge Ware dismissed the claims against Unilever on the basis of the plausibility pleading standards articulated by the Supreme Court in the Iqbal and Twombly cases. He ruled that plaintiff's claims concerning the oils were "conclusory" and explained that the "implausibility of Plaintiff's allegations can more readily be seen if the allegations are expressed as a categorical syllogism:"
For the representation "blend of nutritious oils" to be true, all constituent oils
must be nutritious. One of the constituent oils in the product [partially hydrogenated oil] is not nutritious. Therefore, the product representation is false.
The court went on to explain why plaintiff's claims, even if accepted as true, were implausible. The court found faulty the logic underlying plaintiff's complaint about the use of partially hydrogenated oil in the "blend of nutritious oils." The court found that plaintiff's argument suffered from (1) “petitio principii (begging the question)”, (2) the "fallacy of composition" and (3) the "fallacy of division." In short, the Unilever case demonstrates that without a solid scientific and factual basis, consumer fraud claims are frequently vulnerable to attack on an early motion to dismiss (though maybe not for preemption).
Updated RFR Guidance from FDA: Possession Is More Than 9/10ths
FDA recently released updates to its Draft Industry Guidance for the Reportable Food Registry (“RFR”). The RFR, not rolled out until the fall of 2009, is still new to many companies. FDA, overwhelmed by the information coming through the RFR, is still trying to determine how to use the information submitted to the RFR and how to advise industry.
Among the more interesting clarifications in the May updates is the importance FDA puts on the possession of reportable food as a trigger for obligations under the RFR. For example, if produce is still in the field (contracted but not owned by a food seller) and tests positive for a pathogen, no reporting obligation accrues.
FDA’s hypothetical:
[F]ood facility that contracted with the farmer and tested the produce in the field is not required to submit a reportable food report, provided that the facility did not manufacture, process, pack, or hold the produce and therefore never became a responsible party with respect to the produce. However, if the field had been harvested and the contaminated produce had been moved to the food facility, the facility would have become a responsible party because it “held” the food and would be required to submit a reportable food report.
On the other hand, if the same contaminated produce is received on a company’s premises, stays in the trailer, tests positive and is rejected, a reporting obligation is triggered (even though the company did not take ownership of the product).
FDA’s description of this scenario in a Q and A format:
Q: Our manufacturing facility receives bulk trailer shipments of ingredients from our suppliers. A truck driver brings a trailer full of bulk ingredients onto our property, drops off the trailer, and drives away. However, as company policy, we do not off-load the trailers that are delivered to our facility or take ownership of the food in the trailers until after we test a sample of the food and determine that the food is acceptable. If we “reject” a shipment, i.e., return the food to the supplier, because the sample results indicate that the food is a reportable food, are we required to submit a reportable food report?
A: Yes, provided that you are a facility required to register with FDA under section 415(a) of the FD&C Act, you must submit a report for the food you determined to be a reportable food, even though you returned the food to your supplier. FDA considers that your facility “held” the reportable food because the trailers were no longer in transit once they were dropped off on your property. Thus, you are a responsible party with regard to the reportable food. Provided that the adulteration did not originate with you, you do not meet the criteria for the exemption from reporting in section 417(d)(2) (see Question E.3).
TAKE AWAY: If a company can set up a system to do its micro-biological testing before the product arrives on its premises or at its warehouse (public or private), it should. If faced with a reportable event, the reporting requires notification to FDA of one step forward and one step back in the supply chain even if the product is never distributed. Once a report is submitted to the RFR, a company should expect that the FDA will notify the company’s customers of the reportable event despite the fact that the customer never received product. FDA notification means the customer will be told that its vendor had contaminated product that rises to the level of class I recall though this may not actually be true. Food sellers and manufacturers, therefore, would be wise to take steps to avoid being “stuck” with RFR obligations for contaminated product it does not own.
