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.
Nestle's Makes the Very Best Peanut Decision
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On Thursday, March 19, the Oversight and Investigations Subcommittee of the House Energy and Commerce Committee held another hearing on Peanut Corporation of America and the Salmonella outbreak. A focus of the hearing was the different choices made by Nestle USA, which had refused to buy PCA peanuts, and the companies testifying at the hearing, including Kellogg and King Nut, which had.
Nestle, when considering buying peanuts from PCA, had sent its own inspectors to PCA's plants. They found, according to a report of the hearing in the Washington Post, some rather damaging items:
rat droppings, live beetles, dead insects and the potential for microbial contamination
Nestle, not surprisingly, declined to buy from PCA.
At the hearing, witnesses from Kellogg and King Nut were questioned as to why they had not done their own inspections, instead relying on inspections by AIB, the American Institute of Baking, which were paid for by PCA, and which apparently tipped PCA about when it was coming.
The question nobody seemed to ask--and no one from Nestle was at the hearing--was why Nestle could not have made the results of its inspection public at the time? If there are "rodent droppings in the break room cabinets", and the company is selling peanuts to other members of the general public, just not through Nestle, isn't this something that should be made known to someone?
One answer lies in the fear of the various torts that come under the heading of "trade libel." Nestle is a big company, and even though it presumably trusts its inspectors (and makes important business decisions based on their reports), it must recognize that it is a potential "deep pocket" for lawsuits. Thus, to report publicly what its inspectors found, or even to make that information avaiable to others in the food industry, is to risk a major lawsuit.
The flip side should also be considered. If you are PCA, and someone broadcasts to the world that you have rat droppings in your break room cabinets, you are likely to experience significant losses, regardless of whether the report is true, and whether the presence of rat droppings in your cabinets affects the actual safety of your food. What we do know is that in 2008 PCA began shipping peanuts that killed people. The rat droppings found in the 2002 Nestle inspection presumably had nothing to do with those deaths, nor are we aware of any deaths or illnesses from PCA peanuts in the interim. Finally, we do not of course know whether there are other suppliers Nestle or others who conducted their own inspections rejected, and what they did with the news of rejection. Nestle, for instance, didn't write off PCA when it rejected it in 2002; it checked out another PCA facility in 2006 (and came to similar conclusions).
Then there is the question of what contractual rights and obligations existed between PCA and Nestle. Did PCA require Nestle to sign a non-disclosure agreement when it allowed it into the plants? Any well-advised company would require such an agreement at the very least to protect proprietary technology. Thus, Nestle may have been contractually bound not to reveal the results of its inspections.
As food safety legislation is being considered, the issue of tort liability and the right to use contracts to silence someone who knows about your dirty facility should be faced. It is not as simple as "all inspections should be public", but it is also unlikely to remain as business as usual. We publicize the results of government restaurant inspections without putting all restaurants that fail to pass inspection out of business.
Georgia House Unanimously Passes Food Safety Bill; Kellogg CEO Calls for Food Safety Reforms
Update to today’s earlier post: the Georgia House of Representatives unanimously passed a bill today that would strengthen food safety laws in Georgia. The Georgia House and Senate now will resolve minor differences in the proposed legislation and send a final version to Georgia Gov. Sonny Perdue for his signature.
Also today, the AP reports that the chief executive of Kellogg Co. is urging food safety reforms, including written safety plans for all food companies and annual inspections of facilities that make “high-risk foods.” The AP article notes Kellogg lost $70 million worth of peanut products in the recent salmonella outbreak linked to Peanut Corporation of America.
The Human Cost of the Peanut Butter Recall Part Two
According to a Bloomberg report, over 100 companies, including Kellogg Company., The Kroger Co., and Unilever plc expect to post losses as a result of the Peanut Company of America debacle. Although it is not specified in the article, I presume these are mainly public companies who have statutory obligations to post information about their expected losses. A CNN report suggests, however, that the real cost may be far greater.
What CNN's story indicates is that even though there is no evidence to suggest that there is anything wrong with peanuts, peanut butter or peanut butter-based products sourced from anywhere other than PCA's facility, consumers are becoming extra cautious and in many cases avoiding peanut butter altogether. It quotes Dr. Douglas Powell, an associate professor at Kansas State University and the creator of the International Food Safety Network as well as the less formal but more memorably named Barfblog. Dr. Powell sympathized with the consumers who aren't buying peanut butter.
If you're a parent packing a lunch and you have all the hectic things going on in the morning, is it really realistic to say, hey, before you put that peanut snack cracker individually wrapped item into your kid's lunch, you're going to go onto the Internet and check a Web site? I think that's a bit much. I think it's prudent to avoid this stuff until we see where this is going.
I expressed similar sentiments in a recent blog entry, so I am not disagreeing with Dr. Powell. Certainly, no one should eat, or give to anyone else to eat, anything that about which they have reason to be concerned as to its safety.
The question is: what should responsible people be saying? The CNN report quotes from spokespeople for ConAgra Foods, the makers of Peter Pan peanut butter, and J.M. Smucker, the makers of Jif peanut butter, in each case describing how their peanut butter products do not and have not used products from PCA. As USA Today reports that PCA's Plainview, Texas plant is shut down after inspectors found salmonella there, and amidst reports we have already blogged about indicating that PCA's actions were exactly the sort that lead to criminal prosecutions, what is the responsible course for dealing with this crisis?
The 100 public companies Bloomberg referred are, I would ask you to remember, the mere tip of the iceberg. Peanut butter products are sold at every mom and pop grocery store, every convenience store, nearly anywhere that sells food. Kellogg's, I dare say, can absorb its losses. In these days when thousands are losing their jobs daily where there is no highly-publicized recall adding to the current economic woes, how many more will be thrown out of work because of lost sales of peanut butter products that are not subject to suspicion?
In subsequent entries, we will be exploring some of the legal consequences of product recalls, as affected buyers try to recover their losses up the distribution chain.
