Our distinguished alumnus, founder and former fearless leader, Ken Odza, has sent out an invitation to a FREE ABA Roundtable this coming Thursday, December 12.
The topic is criminal prosecutions of food companies and their officers.
Contemplaying how one might become the subject of a prosecution may not exactly something that will fill you with comfort and joy this holiday season, but the topic is obviously both timely and important.
You can sign up HERE.
Did I mention it is free?
Of particular interest were the mix of goods, the markup. the volume he buys each week and that he dropped the "P" from Pirate Joe's when he was first sued.
My real question is what would happen if I walked into my local Trader Joe's (and I'm a big fan) wearing one of his "I'm Shopping for Pirate Joe's" t-shirts.
Sad news out of Oregon.
Much of the work of detecting the cause of outbreaks is art, not science, and by all accounts he was an artist.
When innovation meets the law, the results are often surprising.
Now consider Pirate Joe's, a business located in the upscale Kitsilano neighborhood of Vancouver, B.C.. I will let them describe their business model in their own words:
Pirate Joe's is an unaffiliated unauthorized re-seller of Trader Joe's products (we are being sued). We stock what we are asked to stock by Trader Joe's lovers who don't always have the time (or a car or a passport) to head south to Bellingham (the nearest Trader Joe's). We buy retail from Trader Joe's then import everything legally and add Canadian compliant ingredient and nutrition facts labels. We have to pay the rent and the help (and the label supplier) so prices are higher than at Trader Joe's. We have no set markup - every product we carry has different import and transport issues so we kinda just wing it until it seems fair to you and also makes business sense to us. If something seems overpriced, please tell us - we're sensitive about it. ;-)
Trader Joe's has no locations in Canada. Canadians who live in British Columbia's Lower Mainland can access the store at 2410 James Street, Bellingham, Washington or the many located further south in the Seattle metropolitan area. But this requires them to travel, to have a passport, to brave the line at customs, to use American money, etc. Pirate Joe's will do all that for them, and allow them to buy in comfort using Canadian money in Kitsilano.
One way Trader Joe's could look at this is they were getting a free ride into the Canadian market. Pirate Joe's paid them exactly what they would have been paid had the same customers all driven down to Bellingham and bought the products there. If Trader Joe's wanted to enter Canada, it would have to deal with export and import issues, Canadian labeling issues, Canadian taxes, Canadian employment law, the foreign exchange issue, and the price of Vancouver real estate, to name just a few. Instead, they just make sales at retail to Pirate Joe's, owe him nothing for the service of advertising their products in Canada in the best possible way, or for affixing Canadian labels to the goods, handling the taxes, leasing space, putting up a website or anything else.
Instead, Trader Joe's sued Pirate Joe's in federal court in Seattle.
And, so far, has lost.
Pirate Joe's is actually just an assumed name of Michael Norman Hallatt, who is a Canadian citizen with permanent residency in the United States. Thus, Trader Joe's could sue him in the United States and in federal court.
The basic claim was a Lanham Act claim. This is the main trademark act in the United States, but the question that Judge Marsha Pechman had to answer was whether it has extraterritorial impact. In other words, in these circumstances, did the purchase of these goods in the United States at full retail price and importation, legally according to Canadian customs, into Canada violate American law?
Under Ninth Circuit precedent, a Lanham Act claim can have extraterritorial effect under a three prong test:
- The defendant's action creates some effect on American foreign commerce
- The effect is sufficiently great to present a cognizable injury to plaintiff under the Lanham Act
The interests of and links to American foreign commerce are sufficiently strong in relation to those of other nations to justify an assertion of extraterritorial authority.
The court determined, on a motion to dismiss, that Trader Joe's could not meet these tests. The court relied on a Ninth Circuit decision involving a fight between Mike Love and Brian Wilson, both former Beach Boys. Wilson had had a CD that included covers of old Beach Boys hits distributed with the Daily Mail in England to promote his "Smile" album and concerts. Love, who had the right to the Beach Boys trademarks, sued. But the Ninth Circuit found that any injury to him was not in the American market. Similarly, Trader Joe's could not show that it was injured at all in the American market, since it had received literally as much money as it would have if Pirate Joe's customers had crossed the border and bought the goods in Bellingham.
A far more interesting question would be what would happen if Trader Joe's wanted to open stores in Canada. But that would represent issues of Canadian law that should be decided by Canadian courts. Here, Judge Pechman's decision that Pirate Joe's is not damaging Trader Joe's in the United States seems correct.
How can Pirate Joe's survive, given that it obviously has to mark up Trader Joe's prices significantly to cover its costs and some profit? The answer lies in the price differential between the United States and Canada. A decade ago, I spent a month in Canada when the Canadian dollar was at about 62 cents U.S. Now it is essentially par, but Canadian prices have risen, not fallen, as the value of their dollar has increased. So Canadians are just used to paying one-third or more higher prices for the same goods in the U.S. Add in the convenience and cachet of the Trader Joe's goods available on a store shelf in Kitsilano, and the business model makes some sense.
Detecting fraud is art, not science. Harry Markopolos, the man who figured out Bernie Madoff's fraud well in advance of the regulators, was a competitor of Madoff's, obsessed with figuring out why Madoff's results were so stable in all markets. Because of his obsession, and his instinctive knowledge of those markets, he knew that there weren't enough options in the world for Madoff to trade if he was telling the truth about his strategy. So it had to be fraud.
What does this have to do with honey?
Consider the case of two young German businsspeople, sent on their first mission abroad on behalf of food conglomerate Albert L. Wolff GmbH. One ends up in prison and the other under house arrest before they both left the United States for good. Why? They were involved in bringing in honey from China without paying the stiff tariffs on such honey. One way in which they were found out is quite similar to how Markopolos figured out Madoff: there wasn't enough honey available from the places they claimed it was imported.
The raid on the ALW office on North Wabash Avenue occurred seven months later, after U.S. honey producers had warned Commerce and Homeland Security that companies might be smuggling in cheap Chinese honey. Low prices made them suspicious. So did the large amount of honey suddenly coming from Indonesia, Malaysia, and India—more, in total, than those countries historically produced.
Just as Bernie Madoff could not have made the trades he claimed he was making, so too it was simply impossible that more than 100% of the annual production of honey in three large countries could have been sent to the United States for export, let alone to a single company. In this case, the complaints to the government (which, after all, had a fiscal stake in the matter) were heeded and at least some investigations launched and people jailed.
Honey is a major issue today, both because of the issues with regard to disappearance of honeybees and because of illegal and adulterated imports. What can one do?
One organization that has the right idea is True Source Honey. They will certify the origin of honey on products, authorizing the placement of a trademark on honey that meets their standards.
Of course, if you can, you can just know where your honey comes from. My honey comes from pretty much my own backyard. Our local Seattle Urban Honey, sold at farmers' markets, will show you exactly where the hives are for each jar of honey, which is designated by zip code. You can taste the difference between zip codes, too. One of the hives is close enough to our house that when I see a bee in my yard I can expect where it's heading to make honey.
The FDA's final rule on gluten-free labeling was published in the Federal Register on August 5, 2013, with a mandatory date for compliance of one year thereafter, or August 5, 2014. But the FDA makes clear that this is an outside date. "However, as stated, FDA anticipates that manufacturers are likely to follow the requirements of the final rule as soon as possible." (emphasis supplied).
Imagine you're a consumer who suffers from the travails of celiac disease. Indeed, let's not imagine one, let's take a real one, a paralegal in my office who always orders the gluten-free option at our monthly lunches. Here's what she says is important about the rule:
As a celiac grocery shopper for the last three years, I was limited to the outside aisles. But now that food manufacturers are producing more gluten free products, I can once again shop in the once barren inner aisles. Clear, uniform rules on gluten free labeling are important. It means less time spent reading labels and less risk of a gluten reaction (usually lasting about 10 days). I can spend more time with family and friends and don’t have to worry about my reading glasses.
When she talks about "outside aisles", she means the meat, dairy and produce departments. The inner aisles are prepared and packaged foods. She's looking forward to shopping in the inner aisles again like everyone else.
Here's the deal: as the FDA knows, most of the goods that comply with the new rule (i.e., do not have wheat, rye or barley as an ingredient and contain less than 20 parts per million of gluten) are already known to be gluten-free to manufacturers. But right now, a "gluten-free" label does not need to be one that complies with the rule, yet a consumer like my paralegal has no way of knowing this until next August.
Why make her wait?
And wouldn't a manufacturer get serious bang for the buck by putting out, as soon as it can, a label that says, in essence, "Gluten-Free: Complies with new FDA Rule"?
And do it in big type, so she doesn't need her reading glasses. To quote a very wise man, "Make It So".
There is a concept in the law called puffery and it’s great.
I cannot prove that to you that it’s great, however, because a legal concept’s greatness or lack of greatness is something entirely personal. And that is an excellent introduction to the concept.
The case that brings up “puffery” is Viggiano v. Hansen Natural Corp., decided by the U.S. District Court for the Central District of California, which is in Los Angeles. Although the case covers a number of important issues, the one I want to focus on is the claim that labeling the soda at issue with the word “premium” breached an express warranty under Section 2-313 of the Uniform Commercial Code. The court described the claim as follows:
Viggiano also alleges that Hansen’s statement that the beverage is a “premium soda” is a warranty that has been breached because the soda has “less than premium ingredients [due to the] presence of sucralose and acesulfame potassium.”
The court would have none of it.
The term “premium,” however, is mere puffery; it has no concrete, discernable [sic] meaning in the diet soda context, and thus cannot give rise to a breach of warranty claim.
The court was almost entirely right. “Premium” clearly cannot give rise to a breach of warranty claim; it is not, as Section 2-313 requires, “An affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain . . . .” But it does have a “discernible” meaning and anyone reading this blog knows what that meaning is, instinctively. It means you’re going to pay a higher price. Why? Because the retailer, wholesaler and manufacturer all believe they can get you to pay a higher price. If they are right, you will pay the higher price whether there is any inherent extra value in the goods or not. If they are wrong, the price will be lowered. That is the unbending law of economics.
(Parenthetically, I think it's quite likely that Hansen's called its diet soda, and also its club soda, which is pictured here, "premium" is be because its main line of sodas is marketed as "Natural Cane Soda" because it uses cane sugar instead of HFCS and they needed a word to fit in the same position on the logo of the sodas that don't use sugar.)
But why do I think puffery is great? Because it helps leaven the conversation. It allows us to use poetry in advertising, not bureaucratic double-speak. And it stops unworthy lawsuits in their tracks.
Consider the world without puffery. I said we could never know that “puffery’ was “great”, but imagine if Kellogg’s could not have Tony the Tiger tell us that Frosted Flakes were "gr-r-reat!”
Or imagine the lawsuit when a flex-fuel train, running out of coal or diesel crossing the mountains, sues Good ‘n’ Plenty because their engine would not run on candy-coated licorice. I don’t want to live in that world.
We'll have plenty more about the FDA gluten-free labeling rule that came out Friday.
While I'm still digesting the 95 pages of the release, I wanted to point out something in the FDA's update that echoed what was in my last entry. In describing why the FDA chose 20 ppm as the level below which an item would be deemed "gluten-free", the FDA said,
This is the lowest level that can be consistently detected in foods using valid scientific analytical tools.
Well, exactly. We can't measure what we can't measure.
* But then again, I'm a lawyer.
In the fifth episode of "The Hitchhiker's Guide to the Galaxy", by Douglas Adams, Peter Jones played The Book. At one point, The Book gives some "helpful" information about the universe. First, that it is infinite. Next, it goes on to prove, through comical science and mathematics pulled out of Douglas Adams' unique brain, that the number of imports, exports, rainfall, population and monetary units in the universe is, in each case, "none."
My favorite is the explanation of why there is no population.
It is known that there is an infinite number of worlds, but that not every one is inhabited. Therefore, there must be a finite number of inhabited worlds. Any finite number divided by infinity is as near to nothing as makes no odds, so if every planet in the Universe had a population of zero then the population of the Universe must also be zero, and any people you may actually meet from time to time are merely the products of a deranged imagination.
Douglas Adams died in 2001, eons too early at the age of 49, but I am fairly certain he would have given a rueful chuckle to the case of Pardini v. Unilever US, Inc., decided by the United States District Court for the Northern District of California on July 9.
The case involved "I Can't Believe It's Not Butter! Spray". This is a product, as the court takes judicial notice, that is "dispensed via manual pump, with each pump delivering a squirt of oil."
According to the complaint, the first three listed ingredients are water, liquid soybean oil and sweet cream buttermilk, the latter of two presumably including fat. The plaintiff claimed that each bottle contains 771 calories and 82 grams of fat, making fat 24% of the product by weight. Nonetheless, both the packaging and the "Nutrition Facts" claim "0 Calories" and "0 Fat". Which plaintiff then claimed violated the Federal Food, Drug and Cosmetic Act, 21 USC § 301 et seq. So can a product that is nearly one-quarter fat legally claim no fat?
The key to this is serving size. The plaintiff claimed "that Defendant used unlawful serving sizes so that it could round down to zero ICBINBS's fat and calories per serving." The court, however, held that the serving sizes were lawful under FDA regulations, even though their effect is exactly what the plaintiff claimed. The plaintiff argued that the FDA recommended serving size for a spray is 0.25 grams but the serving size for this product is 0.20 grams. But one pump of the spray is in fact 0.20 grams. As the court said, "it would not make any sense for Defendant to list a serving size of 1.25 sprays (0.25 grams), since a consumer could not dispense a quarter of a spray." But even if 0.25 grams were used, "so long as the basic laws of physics apply, there is no possible way that 0.25 grams of any substance could have more than 0.5 grams of fat." (emphasis supplied)
The half a gram issue derives from the remarkably clear statement in 21 CFR § 101.9.(c)(2) defining what is to be disclosed on a label as to fat:
(2) "Fat, total" or "Total fat": A statement of the number of grams of total fat in a serving defined as total lipid fatty acids and expressed as triglycerides. Amounts shall be expressed to the nearest 0.5 (1/2) gram increment below 5 grams and to the nearest gram increment above 5 grams. If the serving contains less than 0.5 gram, the content shall be expressed as zero.
(emphasis, again, supplied)
In other words, Unilever not only was entitled to claim that its spray had zero grams of fat per serving, it was required to. As you contemplate the idea that a product that is nearly 25% fat by weight must, by law, make the claim that it has no fat, consider whether Douglas Adams had a gift for understatement.
Everyone from the First Lady to the Mayor of New York to my own personal physician is on an anti-obesity campaign these days. Michelle Obama generally operates by trying to instill healthy habits; my doctor simply says I will lose weight if I use more calories than I consume (which is why you'll find my name here). Mayor Bloomberg tried to limit some options he considers unhealthy.
(Parenthetically, in the course of doing some research for this blog entry, I found the entry in the Urban Dictionary under my own surname. One definition is "To maintain the proper diet in association with the physical activity." What a nice way to refer to "Goldfarb". I wish I could take credit, but it apparently comes from a Marc Goldfarb about whom I have been able to find out nothing more; ignore that first definition, please).
Then there are lawyers. One suggested way for combating obesity has been for attorneys general to take the initiative and sue the "food industry" for causing obesity. This is a patently bad idea.
Happily, there is a well-written and well-argued law review article that suggests that the attorneys general would be wasting their time. In Parens Patriae: A Flawed Strategy for State-Initiated Obesity Litigation, published in the William & Mary Law Review, John B. Hoke makes the case that the case cannot be made for such litigation. The argument is actually quite simple: for a state attorney general to bring a claim, he or she ordinarily must operate under the parens patriae doctrine. But, while this was asserted in the tobacco litigation that was generally settled between attorneys general and that industry, there are significant and important differences between the claims in those cases and the likely claims in obesity cases. And those differences are enough to sink the idea.
Of these, the most important one is the basic causal link, without which any tort suit is bound to fail.
Because someone's overall lifestyle contributes to obesity, and food consumption is only one cause of obesity, establishing sufficient causation between the conduct of the food industry and the obesity epidemic may be an insurmountable burden for parens patriae obesity suits.
Moreover, as Hoke points out, "no food, if consumed in moderation, is entirely harmful." Finally, and to me most importantly, "The sheer number of food companies and food manufacturers further weakens the causal connection between the conduct of the food industry and obesity." I'd actually go farther: in this context, there is no "food industry." Unlike what Hoke called an "oligopoly," where five settling defendants essentially covered all the tobacco purveyors in the United States, a significant portion of food in the United States is produced and consumed outside of any "industry" as the term could be applied to any potential defendant in a lawsuit. Mothers produce breast milk; I think we can assume that no attorney general and no plaintiffs' lawyer is going to go after mom. People grow their own food; neighbors share the produce from their gardens. People also actually cook food themselves, from raw ingredients whose quantities and proportions are up to them. We are not slaves even to our cookbooks.
Hoke similarly destroys the use of the "public nuisance" cause of action as a grounds for obesity litigation. His strongest argument is that, under this doctrine, "the defendant must be in control of the product that actually causes the harm." Other than a farm-to-table restaurant, this is a hard element to prove in connection with food, and that's not exactly the kind of defendant these cases are likely to want to target.
Combating obesity is a worthy goal. Educating people about healthy choices and healthy lifestyles, providing valuable and germane information about the food they eat is a laudable means to that goal. If I may be so vain, Goldfarbing is a laudable goal. Using the blunt hammer of the litigation system, on the other hand, can lead to uncontrollable and not necessarily benign results.