May 2012

POM vs. FTC

As we reported last week, Federal Trade Commission (“FTC”) Chief Administrative Law Judge D. Michael Chappell sided with the FTC when he found that POM’s marketing campaign – the one that reminded us of the alleged “wonderful” capability of pomegranate juice to treat, prevent, or reduce the risk of certain medical conditions – was in fact “deceptive.”  In particular, Judge Chappell found that POM’s claims that its juice can ward off and treat heart disease, prostate cancer and even erectile dysfunction lacked the scientific “juice” to support these statements.

Unlike other companies that have been recently embroiled in this same type of fight with the FTC POM is not going away without a fight.  In fact, it has poked a big stick in the eye of the FTC with a new advertising campaign which omits any mention of its failure to substantiate its claims of disease prevention and treatment, and instead “illuminates the facts and opinions” in the judge’s decision which emphasize the health “benefits” of pomegranate juice.

http://youtu.be/Z1cLQBQTzkM

Using excerpts pulled directly from Judge Chappell’s 335 page decision, POM’s “new” marketing approach touts the facts that pomegranate juice “supports prostate health” and “provides a benefit to promoting erectile health and erectile function.

POM and the FTC have until June 18 to appeal Judge Chappell’s decision.  And based on its actions thus far, it is likely that POM will in fact appeal the ruling.  In the meantime, it is clear that POM will not go down without a fight, and will challenge the limits of the FTC’s power to regulate the content of its advertising campaigns.  This strategy is, however, not without risks.  Such actions may cause the FTC, at some later date, to seek corrective advertisements and penalties if it finds that POM mischaracterized the judge’s ruling in its advertising.  Stay tuned, as this fight has likely just begun.

POM WonderfulClass action lawsuits against major consumer product companies are on the rise thanks, in large part, to the Better Business Bureau’s National Advertising Division (“NAD”). The NAD assists in the advertising industry’s self-regulatory efforts to ensure truth and accuracy in advertising by providing guidance to industry in an effort to ensure that consumers can rely on the claims made by companies in their advertising campaigns – ironically enough –in an effort to avert litigation.

 

NAD does so by investigating complaints submitted to it by either competitors or consumers concerning advertising claims made by various companies.  NAD then uses a hybrid form of alternative dispute resolution to decide whether the claims can be substantiated, and publishes its decision online, in print, and via press release.

Recently, plaintiffs’ class action lawyers from across the country have begun to look to the decisions of NAD in order to support false advertising class action claims.  In a never-ending effort to seek out and discover the “next big thing,” plaintiff attorneys have begun to focus their attention on NAD rulings, which have sparked a new wave of class action lawsuits aimed at companies’ advertising campaigns.

According to NAD Director Andrea Levine, these NAD-driven lawsuits are not so much about “fixing the advertising or protecting the public,” but instead are all about the “money,” as there is no shortage of both product sales and consumers to join in these claims.

The NAD decisions inadvertently lay out a “roadmap” for plaintiff attorneys because they not only detail the legal doctrines which support their findings, but they also indentify an advertiser’s potential defenses and vulnerabilities before discovery even commences.  A perfect example of this is the class action lawsuit which was filed against the William Wrigley Jr. Company, based on the claim that its Eclipse brand gum was scientifically proven to kill germs that cause bad breath.  In a decision published one month prior to the filing of this suit, the NAD chronicled in great detail its critique of Wrigley’s support for its position and concluded that Wrigley should discontinue or modify its advertising campaign.  The class action plaintiffs then used the information gleaned from the NAD decision as a basis to sue Wrigley’s.  In fact, they actually cited the decision in their complaint.  Wrigley’s wound up settling that case for $6 million.

In another recent case, a federal class action lawsuit charges that POM Wonderful falsely advertised that its pomegranate juice provided certain health benefits to its users.  The NAD found that some of the research on which POM relied did not support its health claims – evidence which is directly cited by the plaintiffs in their class action lawsuit.  A copy of the POM Wonderful Class Action Lawsuit can be read here.

It appears that NAD rulings are becoming a gateway for class action lawsuits which, if left unchecked, may spiral out of control.  Companies must coordinate their efforts to enact legislation that makes it more difficult for a class to be certified and more difficult for weak cases to survive.  Otherwise, they run the risk of being “Eclipsed” by potentially game-ending class action lawsuits.

 

The California Supreme Court recently released its long awaited decision in the class action case Brinker v. Superior Court (Hohnbaum), S166350, in which a class of approximately 60,000 restaurant employees alleged their employer failed to provide meal and rest periods as required under California law. Class action litigation has increased exponentially in California, with meal and rest period cases playing a large role in that increase. The Brinker decision provides clarification regarding issues of scope and timing for meal and rest periods required under California law, and provides further guidance regarding certification of classes for wage and hour claims.

Meal Periods

In a long anticipated ruling, the Court held, with regard to meal periods, that employers need not ensure that employees take 30 minute uninterrupted meal periods, but employers must provide such meal periods, in which the employees are relieved of all duty. Under Brinker, an employer has no responsibility to police such meal breaks to ensure that no work is done.  An employer may be liable, however, if they actually know or should know that an employee is not taking the meal period, or they create incentives to coerce or discourage employees from taking their meal period.

The Court also provided some clarification with regard to the timing of meal periods. Plaintiffs argued that California Labor Code Section 512 and California’s Industrial Welfare Commission Wage Orders should be interpreted to require meal periods on a “rolling” basis.  The Court, however, disagreed and found that a meal period must be provided if an employee works a shift over five hours (with the meal period starting no later than the 5th hour), and that a second meal period must be provided no later than the 10th hour of work. The Court also noted that a first meal period may be waived by mutual consent if the employee works no more than 6 hours on the day in question. A second meal period may be waived if the first meal period is not waived and the employee does not work more than 12 hours on the day in question.

Oral arguments can be viewed here:

Rest Periods

The Court also held that employees are entitled to rest periods of 10 minutes “for each four hours of work or major fraction thereof.”  In this context, a “major fraction” means a fraction greater than one half.  No rest period is required for employees who work a shift of less than 3 ½ hours. Michael Kelly, on Squire Sanders’ blog, Employment Law Worldview, provides a chart which outlines the new rest break requirements as follows:

Under the new Brinker standard, employees are entitled to rest breaks as follows:

 

Hours Worked Rest Periods
0 to less than  3.5 hours None
3.5 up to 6 hours 1
More than 6 up to 10 hours 2
More than 10 up to 14 hours 3
More than 14 up to 18 hours 4

 

The Court did not provide similar guidance regarding the timing of rest periods, noting that the Wage Orders only require that rest breaks fall in the middle of work periods “insofar as practicable.” As such, employers are advised to make good faith efforts to provide rest breaks in the middle of a work period, but practicality provides flexibility for the timing of such breaks. It is important to note that for rest periods, there is no “relieve of all duty” standard.

It is important that California employers review their current policies and ensure that they are current and comply with the above requirements. It is also important that employers review time sheets to ensure breaks are taken and that incentives are not created to discourage meal periods. As any employer without a clearly communicated policy is vulnerable to such class action litigation, it is also advisable to inform employees directly of such policies. Employers should also consider the following issues in light of Brinker when reviewing their policies:

 

  • What record keeping will be used to provide proof of meal periods and rest breaks? And how often will these records be reviewed to ensure compliance?
  • Establish what constitutes “relieve of all duty” for purposes of a meal period.
  • Establish a policy for supervisors to ensure employees are not discouraged from taking breaks or coerced.

More information on Brinker and its impact can be found on LXBN. 

Raw HamburgerOn May 2, 2012, the United States Department of Agriculture (“USDA”) announced a series of prevention-based policy measures that it believes will better protect consumers from foodborne illness in meat and poultry products.

The USDA states that the purpose of these new regulations is to better allow both manufacturers and the USDA to:

 

 

(1)  trace contaminated food materials in the supply chain;

(2)  react more quickly to contamination; and

(3)  establish effective food safety systems.

The first measure will allow the USDA’s Food Safety and Inspection Service (“FSIS”)  to speed up the process for tracking E. coli O157:H7 in the nation’s food supply.  Currently, after an initial report of E. coli, USDA officials are required to wait for additional confirmation before they can begin an investigation.  These new measures will now allow FSIS to  initiate its investigation after the first indication of a positive test and move quickly to identify the source of the contaminated product and any processors who may have received contaminated product.  Once the source is properly identified, FSIS can issue instructions for minimizing consumer cases of foodborne illness accordingly.

The second key measure announced by the USDA is the implementation of three provisions included in the Food, Conservation and Energy Act of 2008.  These provisions will now require food establishments to:

(1)  prepare and maintain recall procedures on site;

(2)  notify FSIS within 24 hours that a meat or poultry product which could harm consumers has been shipped into commerce; and

(3)  document each reassessment of their hazard control and critical control point (HACCP) system food safety plans.

In addition,  USDA will make publicly available guidance to plants on the steps that are necessary to establish that their HACCP food safety systems will work as designed to control the food safety hazards that they confront. This process, called “validation,” enables companies to ensure that their food safety systems are effective for preventing food borne illness.  The guidelines will be available on the USDA website.

Proactive compliance with food safety standards, such as these recent measures enacted by USDA is of paramount importance to any company in the food industry. We advise our clients that such a proactive approach is essential to minimize risk, protect  the company’s brand name, and most importantly, to protect the customer. As such, all food manufacturers, suppliers and processors should, as soon as possible, ensure that their plants are in compliance with the new USDA measures, particularly with respect to reporting potential contamination and documenting any changes to a HACCP plan.  Furthermore, companies should preemptively review the HAACP plan guidelines released by USDA to confirm that their food safety systems are adequate and in compliance with federal laws.  The USDA expects the new regulations to go into effect in July, which just happens to coincide with the peak grilling season in the United States.

nanotechnologyNanotechnology is a cutting edge technology which involves the use of engineered, non-soluble material so tiny, it cannot be seen through a light microscope. Through manipulation of the chemical, physical and biological properties of nanomaterials, manufacturers can significantly alter the product into which they are added.   The potential capabilities of this technology in the food industry are endless. For instance, nanotechnology may be used in food packaging to keep products fresher and increase shelf life. Moreover, nano-based compounds can be used in food to enhance flavor or provide additional vitamins and minerals.

On April 20, 2012, the U.S. Food and Drug Administration (FDA) issued a draft guidance which addresses, among other things, the use of nanotechnology in food manufacturing and packaging materials. Though not legally binding, the draft guidance provides manufacturers with significant insight into the FDA’s current thinking on the use of nanomaterials in food products and packaging, as well as the direction in which the FDA may head in the future. The FDA makes it very clear as to its view on the potential risk such technologies present to both the consumer and food industry:

The consequences (to consumers and to the food industry) of broadly distributing a food substance that is later recognized to present a safety concern have the potential to be significant.

USA Today News reported that based upon the draft guidance, it appears that the FDA will place increased scrutiny upon food products and packaging which utilize nanotechnology. The draft guidance provides criteria to be used by food manufacturers to determine whether changes to the manufacturing process, including the use of nanotechnology, are authorized under the food additive or color additive regulations. According to the draft guidance, changes which utilize nanotechnology would likely fall outside the purview of those regulations, and therefore would be subject to increased regulatory scrutiny.  A recent article written by Chicago Tribune reporter Anna Yukhananov, reported that companies which utilize engineered nanoparticles in the manufacture of a particular food or food packaging may be required to affirmatively demonstrate, through additional testing, that their product is safe before they can introduce the product into the market.  Further, that the food manufacturers which utilize nanotechnology are “encouraged” to make regulatory submissions to the FDA for its approval before marketing the product, a process which is not required before a company can sell products which use approved additives.

The FDA’s recent draft guidance suggests that it will be cautious and thorough in its oversight of nanotechnology.   The long-term impact of the use of engineered nanoparticles is largely unknown, and the FDA is scrambling to get ahead of the curve.  By imposing heightened regulatory requirements on companies who wish to utilize nanotechnology in their products, the FDA will transfer the responsibility and cost of assessing the safety of this new technology onto the food industry.  The FDA’s stance will likely result in a delay in the introduction into the marketplace of products which incorporate nanotechnology, as company’s assess whether the benefits outweigh the costs of product development and the regulatory hurdles likely to be imposed by the FDA.