POM Wonderful LLC. v. Coca-Cola Co.: Sound Preclusion Jurisprudence or Pandora’s Juice Box?

Sound Preclusion Jurisprudence or Pandora’s Juice Box?

June 17, 2014

Opinion Overview

On June 12, 2014, the U.S. Supreme Court handed down its long-awaited decision in POM Wonderful v. Coca-Cola. In POM Wonderful, POM brought a Lanham Act suit against competitor Coca-Cola alleging Coca-Cola’s “pomegranate and blueberry juice blend” product misleads consumers into believing it consists of pomegranate and blueberry juice, when in fact it consists predominantly of less costly juices, and that consumer confusion over the product’s contents depressed POM sales. Coca-Cola countered that POM’s Lanham Act claim was precluded by Coca-Cola’s compliance with specific FDA-promulgated regulations governing the labeling of fruit juice blends. The District Court granted partial summary judgment to Coca-Cola and ruled that the Federal Food, Drug, and Cosmetics Act (FDCA) and related FDA regulations precluded POM’s Lanham Act claim. The Ninth Circuit affirmed.

The Supreme Court disagreed. Writing for all the justices except Justice Breyer (who did not participate), Justice Kennedy held that the FDCA did not preclude claims brought by competitors under the Lanham Act for allegedly misleading food and beverage labels. Broadly speaking, the Supreme Court’s decision was based on its finding that the FDCA and Lanham Act were distinct yet complimentary pieces of legislation intended by Congress to govern food and beverage labels.

As the court noted, the Lanham Act creates a private cause of action for unfair competition through misleading advertising or labeling. “Though in the end consumers also benefit from the Act’s proper enforcement, the cause of action is for competitors, not consumers,” Justice Kennedy wrote. By contrast, the FDCA specifically prohibits the misbranding of food and drink, which includes false and misleading labeling. This prohibition is enforced through extensive FDA-promulgated regulations regarding food and beverage labeling, including the labeling of mixes of dif­ferent types of juice into one juice blend. Unlike the Lanham Act, which relies on competitors to enforce its provisions through civil litigation, the FDCA vests the federal government with practically exclusive enforcement author­ity and prohibits private actions by consumers.

The court’s decision relied heavily on a textual analysis and legislative history. As the court noted, “neither the Lanham Act nor the FDCA, in express terms, forbids or limits Lanham Act claims challenging labels that are regulated by the FDCA.” In fact, while the FDCA includes language expressly preempting competing state law causes of action, the FDCA contains no similar provision regarding other federal statutes. The court found the absence of express preclusion language had special significance in light of the statutes’ legislative history. As Justice Kennedy observed, “the Lanham Act and the FDCA have coexisted” for 70 years. During that time, the court reasoned, Congress could have concluded that Lanham Act suits could interfere with the FDCA and enacted law addressing that concern – but Congress did not. This was particularly noteworthy because Congress enacted amendments to the FDCA (1990) and Lanham Act (1988) without including preclusion language. In light of the statutes’ lengthy coexistence and statutory history, the court found the lack of express preclusion language to be “powerful evidence that Congress did not intend FDA oversight to be the exclusive means of ensuring proper food and beverage labeling.”

Additionally, the court was swayed by the fact that the two statutes, although policing similar conduct, focused on different evils and utilized different mechanisms. While both, in the given context, prohibit false and deceptive food labeling, the FDCA protects consumers through governmental rulemaking and enforcement. The Lanham Act, on the other hand, protects competitors against unfair competition through private lawsuits. The court decided this dual approach made sense because “[c]ompetitors who manufacture or distribute products have detailed knowledge regarding how consumers rely upon certain sales and marketing strategies. Their awareness of unfair competition practices may be far more immediate and accurate than that of agency rulemakers and regulators.”

Accordingly, the Supreme Court concluded that “the FDCA and the Lanham Act complement each other in the federal regulation of misleading labels” and “Congress did not intend the FDCA to preclude Lanham Act suits like POM’s.” The court rejected Coca-Cola’s position that, in the realm of food and beverage labeling, compliance with the FDCA and FDA rules insulates it from Lanham Act liability where its practices allegedly mislead consumers to the detriment of competitors.

Analysis and Impact

First, for food and beverage companies, even the strictest compliance with FDA-promulgated rules and regulations is no longer a safe harbor against Lanham Act suits by competitors. In that sense, the POM Wonderful decision establishes the FDCA as a floor rather than a ceiling. Accordingly, wise food and beverage companies will initiate audits of existing or planned labeling to identify any content that, although in compliance with FDA guidance, could be deemed misleading by a competitor or a court.

Second, the FDCA’s state court preemption power remains alive and well. Thus, although FDA compliance is no longer an absolute defense to Lanham Act suits, it should remain a viable defense against consumer lawsuits brought under state law – including pesky consumer class actions, at least when the applicable regulations are extensive.

Third, POM Wonderful paves the way for affirmative Lanham Act suits against competitors engaged in unfair trade practices that ostensibly are permissible under FDA regulations. Thus, while assessing one’s own labels is key, companies also may find value in assessing the labels of competitors for potentially misleading advertising tactics that warrant affirmative Lanham Act litigation.

Open Questions

Finally, while the court was careful to limit its decision to the preclusive effect of the FDCA against Lanham Act claims alleging deceptive labeling of foods and beverages, it could have broader implications. For example, could POM Wonderful open the door for consumer suits based on other federal statutes? One could argue “no,” because the court premised much of its analysis on the different interests protected by the two statutes: The FDCA protects consumers through federal oversight while the Lanham Act protects competitors through private action. However, the court’s focus on the statutory text and legislative history leaves the door open for a counterargument: If another federal statute lacks preclusive language, and enjoys a similar length of “coexistence” and legislative history, strong parallels could be drawn.

The scope of POM Wonderful is also open to inquiry. For example, the court distinguished between the FDA’s treatment of food and drugs by noting that drug labels receive FDA pre-approval while food labels do not. Although not held, this suggests that POM Wonderful is inapplicable to FDA-regulated drugs bearing pre-approved labels. Presumably, this same analysis would apply to any pre-approved labels – such as alcoholic beverages pre-approved by the Alcohol and Tobacco Tax and Trade Bureau.

Finally, will POM Wonderful’s preclusion analysis spread? There are numerous areas of law in which compliance with statutes, rules and regulations provide a safe harbor from litigation. However, the court’s decision was based largely on an examination of statutory text and legislative history to determine whether Congress intended one statute to preclude the other. Nothing prevents a similar analysis in myriad contexts. As such, in the absence federal statutory language expressly precluding other federal laws, safe harbors just got choppier.

McGuireWoods’ food and beverage industry teamFDA regulatory team and appellate practice team will continue to monitor the effects of this decision. McGuireWoods’ food and beverage industry team has extensive food and beverage product labeling experience and can assist clients in conducting labeling audits in response to POM Wonderful, in prosecuting Lanham Act claims against clients’ competitors, and in defending against consumer state law class actions.