Dannon Forced to Open Wallet and Change Advertising (Again)
Note: The following is posted by David Pacheco from the Essential Nutrition Law Blog.
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The multinational food company Dannon agreed to a 45 million dollar class action settlement earlier this year based on consumer complaints about advertising claims regarding the health benefits of its probiotic line of dairy products. Now the company has entered into a $21 million dollar settlement with the attorneys general from 39 states. The L.A. Times reports that this is the largest-ever multistate attorney general consumer protection settlement with a food producer. The attorneys general alleged that Dannon made deceptive and unlawful claims in advertising which were not substantiated by competent and reliable scientific evidence at the time the claims were made. According to the allegations, the majority of scientific studies showed improvement in intestinal transit time when an individual consumed three servings of the probiotic products per day for two weeks, and did not support Dannon's advertised claims that one serving per day for two weeks improved digestive health. In addition, the attorneys general alleged that Dannon could not substantiate claims regarding improved immunity against the flu and common cold.
Between this and the March settlement, Dannon has now agreed to pay $66 million as restitution for the misleading health claims, which comes out to about 1.3% of Dannon reported $5 billion in worldwide net sales of the probiotic line in 2009. This latest settlement should remind companies to keep state governments on the list of watchful eyes monitoring health claims related to food and supplement products.
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.
