Sound Business Advice: Know All the Laws Governing Your Marketing (And You Probably Shouldn’t Misrepresent Your Product Either)

Recipe for a lawsuit: mix 99.5% apple, grape and raspberry juices with 0.3% pomegranate juice and 0.2% blueberry juice and call the resulting juice blend “POMEGRANATE BLUEBERRY.” This is what Coca Cola did to find itself embroiled in a false advertising case brought by POM Wonderful.

POM Wonderful makes a pomegranate blueberry juice comprised entirely of pomegranate and blueberry juices and is a direct competitor of Coca Cola. POM Wonderful alleges that Coca Cola is misleading customers about the nature of its juice product, causing POM Wonderful to lose sales to Coca Cola for what POM Wonderful claims is a far different product than advertised. Coca Cola prevailed in the lower courts by arguing that its label had been approved by the FDA. Because the FDA is authorized to regulate juice beverage labeling and has issued extensive regulations governing the content of such labels, the lower courts reasoned that allowing a false advertising suit by a competitor would undercut the FDA’s “expert judgments and authority” on labeling. Essentially, the lower courts decided that the FDA knows best; if it was okay with the label, the label must not be misleading.

The United States Supreme Court disagreed, holding last month that nothing about either false advertising laws or food and drug laws forbids POM Wonderful’s challenge to Coca Cola’s label. Specifically rejecting the proposition that the FDA possessed expertise to regulate advertising that private enterprise lacked, the Court noted that competitors “have detailed knowledge regarding how consumers rely upon certain sales and marketing strategies” and an “awareness of unfair competition practices [that] may be far more immediate and accurate than that of agency rule makers and regulators.”  Therefore, allowing both administrative enforcement through the FDA and private enforcement by competitors “takes advantage of synergies among multiple methods of regulation.”

The erosion of judicial deference to administrative agencies as the sole, or even primary, guardians of marketplaces is hardly sudden. The Supreme Court, in particular, has shown increasing distrust of governmental agencies as all-knowing regulators. Still, the Court’s ruling is significant because it did not concern the typical direct challenge to the correctness of the FDA’s decision. The Court determined rather that the FDA’s decision, even if proper under food labeling laws, did not matter to the question of false advertising. As a result, competitors may now assert false advertising claims in private suits covering a wide variety of untrue and misleading statements that were permitted or even expressly authorized by the government. Combined with another decision from this term expanding competitors’ standing to sue, the scope of false advertising claims has undoubtedly broadened, potentially leading to more litigation.

The impact of the Court’s decision on small business could be significant. Various industries have certain licensing and regulatory requirements. Under the POM Wonderful decision, marketing content that strictly complies with such regulations may constitute false advertising. For example, advertising that a business uses “green” and environmentally-friendly business practices because it meets EPA requirements may nonetheless constitute false advertising if a jury believes that it used such terms misleadingly. Obviously, the goal should always be not to deceive potential customers, but it is not always clear where the line is. The lesson of POM Wonderful is that you cannot rely on the government to identify the line.

It should be noted Coca Cola has not yet been found guilty of false advertising. The Supreme Court only ruled that Coca Cola could be sued by POM Wonderful under false advertising laws despite FDA approval of the label. A jury may still find that the label was not misleading. But I think Coca Cola has a tough position. Regardless of the outcome, the fact that Coca Cola may get squeezed should make businesses consider carefully their marketing choices and not rely on the government to protect them.

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