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.
Five Tips for "Green" Advertising
By Guest Blogger David Pacheco
This post also appears on the Essential Nutrition Law Blog
Yesterday, Stoel Rives' Salt Lake City office hosted a seminar on Advertising Law with Catherine Lake, Josh Gigger, and myself presenting. As part of the seminar, I offered some tips on avoiding legal problems when advertising the environmental friendliness of your goods or services. Here is a summary of those tips:
Making false or misleading green claims in advertising, even if unintentional, can get you in trouble with the FTC and with consumers and competitors suing under the Lanham Act and a number of other state and federal laws. To help avoid these problems, here are five tips to consider when making green claims in advertising, including on packaging and labels:
1. Substantiate your claims.
The claim must be based on competent and reliable evidence and the basis must exist at the time the claim is made. Objective scientific research (test, studies, etc.) by qualified experts using generally accepted procedures to produce reliable results is normally sufficient to satisfy the "competent and reliable" requirement. Because the evidence must exist when you make your claim, you cannot rely on research conducted after you make the claim as proper substantiation. Companies making green claims should keep documentation and other records showing proper substantiation.
2. Be specific.
Does the claim apply to your manufacturing process, your packaging, your product, of some combination of the three? For example, if you use the word "recyclable" without any qualifications, that claim is misleading unless every component of the product and packaging is recyclable (excluding minor incidental components like the plastic lid on a soda pop bottle). You also need to be clear about how you define your advertising terms. What do you mean by "Eco Friendly" or "Ozone Safe"? Courts and the FTC tend to give very literal interpretations that include every ambiguity to such claims and therefore, clarity on the part of the advertiser is essential.
3. Qualify your claims.
If Tip #2 requires you to be more specific with your claim, you must qualify that claim with clear, prominent, and understandable language. The larger the font and the closer the statement appears to the green claim, the less likely you are to have a problem. Avoid fine print and legalese as much as possible.
4. Accurately present your claims
Comparative advertisements need to be accurate. If you advertise the product as having "50% more recycled content", it is not clear what you are comparing; it could be another version of your product or a competitor's product. A claim may be literally true but misleading: "50% More Recycled Content!" when the recycled content went from 2% to 3%. Consumers and the FTC are probably looking for something a little more substantial than 2% to 3% when products make such claims.
5. Be truthful
Finally, and perhaps most obviously, make sure your claims are true. Avoid making claims that are half-truths or otherwise leave out crucial facts. For example, fruit labeled as "organic" that uses three times as much water in the growing process. Also, toting a product as "All-Natural" in an attempt to set the product apart from competing products can be misleading because various harmful "all-natural" ingredients like arsenic, lead, or mercury are not likely to come to mind when a consumer sees the ad. Using marks or symbols that give the impression of third-party approval or certification is also misleading and has led to problems for a number of companies.
These tips are based on the FTC's Guides for the Use of Environmental Marketing Claims, or "Green Guides". For an interesting study on false or misleading green claims, check out TerraChoice's "Greenwashing Report".
For more on this topic especially as it relates to food products, you can also play on demand the webinar we did on this topic in November of 2009 or read the takeaway points from the webinar.
New York Times on the Rise in Unfair Competition Claims: Challenging Competitors' Advertising Is Increasingly an Important Part of an Overall Marketing Strategy
Stephanie Clifford wrote over the weekend in the New York Times about what’s behind the increase in unfair competition claims. Ms. Clifford reports:
The number of complaints over ads from competitors filed with the National Advertising Division of the Council of Better Business Bureaus, the industry’s main self-regulatory program for national ads, is on track to set a record this year. There have been 82 formal complaints so far in 2009, after last year’s record of 84 challenges, a sharp increase from 62 in 2007 and 52 in 2006.
Among a discussion of what it means to file an NAD complaint versus court action and why both seem to be increasing is this salient quote from Linda A. Goldstein at Manatt, Phelps & Phillips, LLP: “How brands will deal with their competitors’ advertisements is an increasingly important component of the overall marketing strategy.”
Learn About Who Is Setting Sustainability Standards and How to Make Good Sustainability Claims: Register for the 11/3 Sustainable Foods Webinar
If you haven’t already, register here for the second in a three-part webinar series on environmentally friendly sustainable food products, to be held at 9 am PT, Tuesday, November 3. This installment of the series will focus on sustainability standards, third-party certification and avoidance of “green-washing.”
The webinar will feature:
- FDA regulatory lawyer Ricardo Carvajal from Hyman, Phelps & McNamara;
- Roberta Anderson from Food Alliance, the nation’s leader in setting third-party sustainability standards for food production;
- Alison Dennis from Burgerville, a traditional quick-service restaurant on the cutting edge of sustainability; and
- Advertising lawyer Jere Webb from Stoel Rives.
The webinar is interactive, and those listening live will be able to submit questions. We will strive to answer all questions either during the broadcast or off-line directly with listeners.
If you missed the first installment, you can read about the take-aways and replay the webinar on demand here. The slide deck can be downloaded here.
Environmentally Sustainable Foods: Dispelling Fear and Understanding That Sustainability Must Be Good for Business
Stoel Rives is proud to sponsor an upcoming webinar series on legal and business aspects of bringing sustainable food products to market. Industry representatives will talk among other things about what sustainable food products are, help dispel the fears of traditional food companies, discuss strategies for minimizing business and litigation risks, and underscore the importance of sustainable foods as a profit-making enterprise.
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The first session, October 20, will discuss what an environmentally sustainable food product is, how a company may need to rethink research and development and supply chain issues, and financing. Participants include Steve Rowe, Sr. V.P. and General Counsel from Darigold, Inc. and its parent Northwest Dairy Association, food supply chain consultant Monica Gelinas from Karp Resources, and business lawyers Joel Dahlgren and Duff Bryant from Stoel Rives.
The second session, November 3, will look at what the FDA and USDA may do to define sustainability, third-party certification issues and green washing. Participants include Alison Dennis, Director of Supply Chain from Burgerville, Roberta Anderson from third party certifier Food Alliance, FDA lawyer Ricardo Carvajal from Hyman Phelps and trademark lawyer Jere Webb from Stoel Rives.
The third session, November 17, will look at increased risks presented by sustainable food products and strategies to mitigate those risks. This panel will include Peter Truitt, CEO of Truitt Brothers; Steve Marinovich, insurance broker at Propel Insurance; advertising lawyer Anne Glazer from Stoel Rives and me.
Each session will be 60 minutes and feature an interactive, "rapid fire" roundtable format. The panels will also respond in real time to questions submitted by listeners. Registration is free. Contact me if you would like further information.
Challenges of a Lanham Act Injunction in Food Cases: Lessons from an Advertising Battle Between Two Major Consumer Products Companies
The recent decision in Stokely-Van Camp, Inc. v. Coca-Cola Co. (i.e., Gatorade vs. Powerade) illustrates the hurdles a company has to overcome to convince a court to stop a competitor from using arguably false advertising. Stokely-Van Camp, Inc. (“SVM”) was challenging advertising that compared Powerade ION4 to Gatorade Thirst Quencher.
Judge John G. Koeltl of the Southern District of New York characterized the case as “an advertising battle between two major consumer products companies over one company’s comparison of its beverage to human sweat.”
Following a two-day preliminary injunction hearing, the court denied a request to enjoin various advertising claims about Powerade ION4. Ultimately, to succeed, SVM, makers of Gatorade, had to show (1) likelihood of irreparable harm and (2) either a likelihood of success on the merits or serious questions going to the merits that were sufficient to make them fair grounds for litigation, with a balance of hardships tipping decidedly in its favor.
As with any request for a preliminary injunction, this is a difficult standard to meet. Personal experience is that no matter the legal standards, judges often revert to the “is a building going to collapse?” gut-check approach.
“Unclean hands” are also a big deal when it comes to injunctions. Courts are very reluctant to grant injunctive relief if they get a sense that the moving party is itself guilty of the acts it complains of.
In the SVM case, the court came down against SVM on the second prong concerning the merits of its Lanham Act false advertising and trademark dilution claims. The court ruled that the claims were moot (because Coca-Cola already dropped the aggrieved advertising campaign), nonactionable puffery or, for the implied falsity claims, not supported by extrinsic evidence.
The court went further in addressing irreparable harm. Even if SVM’s claims were merited, the court did not believe SVM was entitled to a presumption of irreparable harm, because Coca-Cola discontinued the comparison ads. The court also found SVM’s arguments of a public health risk unconvincing.
Perhaps the most interesting lesson is the court’s final conclusion of law that SVM had “unclean hands.” Even if SVM’s injunction motion had met the legal standard, fatal to its motion would have been that “SVC complains about Coca-Cola’s claims regarding the presence of calcium and magnesium in Powerade ION4, but it has made virtually identical claims about calcium and magnesium in its own Gatorade Endurance Formula.”
The court concluded by saying, “SVC cannot, having jumped on the bandwagon of calcium and magnesium first, now jump off and claim that Coca-Cola must get off too.”
Opening the Door to More Litigation Between Food Companies? See POM v. Ocean Spray Decision
False advertising claims under the Lanham Act and corresponding state law claims for food companies can be tough going. Many intersect issues regulated by the FDA under the Federal Food, Drug, and Cosmetic Act (FFDCA). No private right of enforcement of the FDA regulations exists. Only the FDA is allowed to bring a legal action to enforce its regulations. Lanham Act claims are generally barred where private litigants ask the court to determine preemptively how the FDA will interpret its own regulations.
Now comes the recent decision in POM Wonderful LLC v. Ocean Spray Cranberries, Inc. POM is aggrieved because Ocean Spray markets pomegranate and cranberry blended juices though, according to POM, the juices are “almost entirely comprised of apple and grape juice.” POM is alleging Lanham Act false advertising claims and California state law false advertising and unfair competition claims.
The court denied a Rule 12(b)(6) motion to dismiss. Threading the needle, the Court found that the claims were not seeking FFDCA enforcement. According the Court, POM’s claims are not for “mislabeling,” but for false advertising and promotion. The court determined it would not have to interpret FDA regulations and that “POM’s Lanham Act claim ‘extend beyond the packaging and name . . . to its advertising and marketing including . . . website.” Applying similar logic, the court found that the FFDCA did not preempt POM’s state law claims.
Lesson from the POM court: Whether one food company can bring false advertising claims against another depends in part on whether a court believes that the claims are focused on non-FFDCA-regulated issues such as advertising, websites, social media or other marketing efforts.
Bottled Water Association Sues Over Water Bottle Ads
The International Bottled Water Association (IBWA) is taking aim at an advertising campaign for Eco Canteen stainless steel water bottles, claiming the ads wrongly suggest that plastic water bottles are unhealthy and unsafe.
In a lawsuit filed in the U.S. District Court for the Western District of North Carolina, IBWA claims that Eco Canteen’s television ads and content on various Eco Canteen websites deceive the public into believing that single-serve and reusable plastic water bottles constitute a safety and health risk to consumers. Among other things, IBWA’s lawsuit alleges that some of Eco Canteen’s ads have:
- Improperly linked plastic water bottles to breast and prostate cancer and stated that plastic water bottles “could be poisoning you and your family”;
- Matched images of single-serve plastic water bottles with Eco Canteen’s claims “relating to an organic compound called Bisphenol A (BPA) with the intent to confuse consumers into believing that single-serve bottles also contain BPA even though they do not”;
- Conveyed false and misleading information regarding the alleged health risks of BPA; and
- Suggested that exposing certain water bottles to warm temperatures can lead to leaching of chemicals.
IBWA brings two claims against Eco Canteen: (i) a false advertising claim under the Lanham Act, 15 U.S.C. § 1125; and (ii) an unfair competition claim under North Carolina law. A copy of the complaint (including exhibits showing some of the Eco Canteen ads about which IBWA complains) is available here.
Trademarking Green/Eco-Friendly Food - What You Need To Know
By Guest Blogger Jere Webb
It is evident that virtually every business now is trying to position itself as being “green”. For a discussion of restrictions on “green advertising”, particularly the FTC’s green ad guidelines (the “Green Guides”), and similar efforts at the state level, see “Green Claims Advertising – What You Can Say and What You Can’t”. The FTC is reviewing the Green Guides and likely will amend them in the near future. For comments submitted in the review process and additional information, see Green Guides.
The newer arena is green trademarks. The United States Patent and Trademark Office is now routinely rejecting, based on descriptiveness, multiword trademarks, that start with or contain the word GREEN. An example is the mark GREEN JOURNEY for hybrid cars. But in the same application, the applicant sought to register for clothing, and the Trademark Office accepted the mark, but with a disclaimer of the word GREEN. It found that the two word mark was merely “suggestive” of clothing, not “descriptive”. See "Green" Trademarks Face Hostile Climate in USPTO.
For an example of a green mark that passed muster, the Trademark Trial and Appeal Board (TTAB) recently reversed an examining attorney’s descriptiveness refusal for the mark GREEN INDIGO for clothing, finding it to be an “incongruous” term for clothing and therefore merely suggestive and not descriptive. The case is In re Jones Investment, Inc. (TTAB Jan. 21, 2009.)
The lesson is: If you want to include the word “GREEN” in a trademark, some careful review and advice from a trademark lawyer is in order.
Want to read more? See “Eco-Friendly Claims Go Unchecked” (USA Today June 22, 2009). The FTC’s brochure “Sorting Out Green Advertising Claims” can be found here.
Kellogg Co. Agrees to Settle False Advertising Claims
Cereal maker Kellogg Company has entered into a consent agreement with the U.S. Federal Trade Commission to settle charges that certain Kellogg advertisements contain false or misleading statements.
At issue in the FTC’s complaint are statements from Kellogg’s advertising that eating a bowl of Kellogg’s Frosted Mini-Wheats cereal for breakfast is clinically shown to improve kids’ attentiveness by nearly 20 percent. The complaint also challenges a separate advertising claim that eating Frosted Mini-Wheats for breakfast was clinically shown to improve children’s attentiveness by nearly 20 percent when compared to children who ate no breakfast. The complaint alleges that both of the challenged claims are false and violate the Federal Trade Commission Act.
The proposed settlement would, among other things, bar Kellogg from making comparable claims about Frosted Mini-Wheats unless the claims are true and not misleading. The consent agreement will be subject to public comment through May 19, 2009. The FTC will then decide whether to make the agreement final.
