FTC

Attempts to Enforce “Humane” Treatment of Poultry Fail

Consumer Class Action, False Advertising, Food, FTC

** Foster Farms Prevail in Dismissing Class Action **                                                                                                                                                                                            

By: Brent E. Johnson

Resolving a politically-charged case based strictly on legal precedent and the evidence is no easy task.  But as Elle Woods said (quoting Aristotle), “The law is reason free from passion.”  (Granted, Elle disagreed with Ari.)  Recently, a case involving the treatment of chicken broilers during the farming and slaughtering process posed that very dilemma to a superior court judge in Los Angeles.  Leining v. Foster Poultry Farms, Inc., Cal. Super. Ct., No. BC588004.

The origins of this putative class action were both public and explosive.  On June 17, 2015, reporters gathered at the Millennium Biltmore Hotel in downtown Los Angeles to view three minutes of video footage of animal cruelty perpetrated by Foster Poultry Farms, Inc. employees at two facilities in Fresno during the preceding two months.  None other than noted animal welfare activist, vegetarian and retired “The Price Is Right” host, Bob Barker, narrated the video and spoke to the assembled reporters.

The video was shot by two undercover investigators from Mercy For Animals, a non-profit organization dedicated to advocating for animals generally and the prevention of farm animal cruelty specifically.  The investigators applied for and obtained jobs with Foster Farms in order to surreptitiously record the footage.  One of the investigators allegedly reported the animal abuse to his superior as well as phoned Foster Farms’ hotline to no avail.

Foster Farms was not the only party in Mercy For Animals’ crosshairs.  Part of the focus of the presentation – and, in particular, Mr. Barker’s remarks – was the American Humane Association (“American Humane”), a non-profit whose website declares “is committed to ensuring the safety, welfare and well-being of animals.”  American Humane pioneered, among other things, Hollywood’s animal welfare program, “No Animals Were Harmed.”  In the case of farm animals, American Humane operates a voluntary certification program where farms can earn the American Humane Certified™ label through annual facility audits that demonstrate the farms’ compliance with American Humane’s animal welfare standards.  Foster Farms had been Humane Certified™ for the two years preceding the May/June 2015 videotaped incidents.  Mr. Barker informed the reporters that he had in years past been an advocate for American Humane until “I was suddenly made aware of what [American Humane] really [is], and I have absolutely no respect for [them].  I think they have failed miserably in their efforts to protect animals in the movie industry, and obviously they have failed miserably in any protection for animals in the food industry.”  Mr. Barker went so far as to remark that American Humane once had been a beneficiary of his will — but given that he appears to be immortal, the loss of this status may not be a matter of consequence.

After the exposé at the Biltmore, Mercy For Animals filed a complaint with the Federal Trade Commission against both Foster Farms and American Humane claiming that the two entities had engaged in unfair and deceptive practices in connection with the advertising of Foster Farms chicken products under the Humane Certified™ label when the video footage showed that chickens were not being raised or slaughtered humanely.  A week later, Foster Farms was sued for false advertising in a putative class action in Los Angeles County Superior Court.  Leining v. Foster Poultry Farms, Inc., American Humane Association, BC588004 (LA Sup. Court, July 13, 2015).  American Humane was added as a defendant by way of Plaintiff’s first amended complaint.

Foster Farms’ reaction to the publication of the video was swift.  It suspended (and ultimately terminated) five employees allegedly involved in the animal cruelty and cooperated with the Fresno County Sheriff’s Department’s Agricultural Crimes Task Force.  (At least one former employee was prosecuted.)  In addition, Foster Farms reinforced “animal welfare training companywide and in its plants.”  Finally, the Company implemented a state-of-the-art video monitoring system at its facilities that allowed auditors to review daily footage to assure employee compliance with Foster Farm’s animal welfare policies and procedures.

American Humane’s initial response to the Mercy For Animals video was surprise. Organization officials immediately met with Foster Farms to discuss the matter.  After the meeting, American Humane’s spokesperson, Mark Stubis, stated, “Foster Farms has worked very hard to create a culture of humane treatment . . . .  In the three years that we’ve been working with them, they have never failed an audit. This is an extremely rare situation for us.”  Mr. Stubis continued, “The certification program can’t stop one or two employees who break those rules . . . .  We certainly expect any certified farm to take immediate corrective action against anyone who abuses animals.”  American Humane subsequently conducted unannounced inspections of Foster Farm’s poultry facilities and they passed.  Foster Farms retained its status as Humane Certified™.

The FTC resolved the complaint filed by Mercy For Animals on April 28, 2016.  In the FTC’s eyes, the issue revolved around its Guides Concerning the Use of Testimonials and Endorsements in Advertisements (“Endorsement Guides”).  16 C.F.R. § 255.4  “Because [American Humane] holds itself out as a bona fide independent certification organization, the [Humane Certified™] label on Foster Farms products arguably constitutes an endorsement, as defined by the FTC Guides Concerning the Use of Testimonials and Endorsements in Advertisements.”  But despite its reference to the Endorsement Guides and its recitation of the general parameters of American Humane’s certification program, the FTC passed on the issue of whether or not the program resulted in a certification that “conveyed any express or implied representation that would be deceptive if made directly by the advertiser.”  In the end, the FTC simply concluded that because Foster Farms took immediate remedial actions after learning of the video (suspending/terminating the involved employees, cooperating with law enforcement, and installing an expensive camera system) and passed American Humane’s inspections of the affected facilities, it would not recommend enforcement action “[d]espite concerns about the [American Humane] certification in light of the documented animal abuse . . . .”

Despite the FTC’s decision, the class action in Los Angeles raged on.  The putative class was represented by Drinker Biddle & Reath, LLP (“DrinkerBiddle”) — a firm noted for its defense of consumer class actions.  Perhaps not coincidentally, DrinkerBiddle represented the producers of The Price Is Right in past employment lawsuits brought by former Price is Right models.

The class action complaint did not place much emphasis on the Mercy For Animals video.  Rather, the complaint’s gravamen was that American Humane’s certification standards were woefully inadequate and far from what a reasonable consumer would believe is the humane treatment of chickens – even chickens whose destiny is dinner.  In Plaintiff’s graphic words, “(a) the chickens were hatched from eggs taken from facilities that are allowed to engage in forced-molting[1], maceration[2], beak-trimming[3], de-combing[4], toe amputation[5], food and water deprivation[6], and Noz Bonz practices[7]; (b) the chickens are shackled upside down by their feet for 90 seconds prior to slaughter as they are conveyed through processing facilities, electrically shocked before being rendered effectively unconscious, if they are at all, by such electric ‘stunning,’ and are then drowned and scalded, after having their necks cut, while they are, in at least some cases, still conscious; (c) the chickens suffer bruises and broken wings and bones; and (d) that the chickens spend their entire lives in chronic pain due to joint and leg deformities resulting from selective breeding for rapid growth, and live exclusively indoors in overcrowded poultry barns with high ammonia concentrations, many suffering from foot diseases, and unable to walk more than 5 feet without severe pain.”  According to Plaintiff, because American Humane’s certification purportedly permitted these practices, the Humane Certified™ label was objectively false and misleading.  [Editors’ Note:  If Plaintiff’s allegation that some of the chickens were “drowned” – i.e., still breathing when they were placed in the scalding tank to remove their feathers – this would be a violation of United States Department of Agriculture regulations that would have presumably been discovered during Food Safety and Inspection Service inspections.  The opinion does not reference any such evidence being presented to the court.]

On August 11, 2017, Foster Farms and American Humane filed for summary judgment Two weeks ago, the Honorable John Shepard Wiley, Jr. granted the defendants’ motion and dismissed the case. Judge Wiley’s opinion is an interesting and important read.  It starts with the premise that American Humane’s certification is subjective.  “The undisputed evidence in this record is that the word ‘humane’ is very vague.”  Judge Wiley then moves to the controlling California authority, Hanberry v. Hearst Corp. (1969) 276 Cal.App.2d 680, a case where the plaintiff claimed that a pair of shoes bearing the “Good Housekeeping Seal of Approval” was slippery on vinyl flooring, which slipperiness caused her injury.  The Hanberry Court concluded, according to Judge Wiley, that for a subjective product endorsement to be non-negligent, it must meet three requirements:  (1) the endorser must be independent; (2) the endorser must take reasonable steps in conducting its evaluation; and (3) the evaluation must involve some degree of expertise.  Id. at 686.

Judge Wiley dispatched with these requirements in short order.  American Humane was independent from Foster Farms despite the fact that the Company allegedly pays American Humane $375,000 for its certification, which Plaintiff contended was “unusually high” (without evidentiary support such as comparisons to other similar organizations).  As for Plaintiff’s assertion that American Humane was not independent because every certification program participant passed the organization’s audits, the court observed that the program is voluntary and, therefore, only those poultry farms that will pass the audits apply for the certification.  “When the applicant pool is highly non-random, one cannot expect certification results to vary randomly.”

On the issue of reasonable steps, Judge Wiley dismissed Plaintiff’s assertion that conducting audits – as opposed to annual visits to each poultry facility – was required.  “The Hanberry case condoned sampling, as is rational.”  And the fact that American Humane gave poultry producers between seven and fourteen days’ notice of the audit did not create a “Potemkin Village” because “[n]otice was necessary to ensure there were actually chickens at that facility.”

Reading the opinion as a whole, though, it is clear that Plaintiff’s case ground ashore on the rocks of expert opinion.  American Humane’s primary witness and Scientific Advisory Committee member was Dr. Joy Mench, who the Court described as “a leading expert on poultry who sits on virtually every scientific advisory board in the industry.”  She was a professor at the University of Maryland and, later, the University of California Davis.  Dr. Mench authored the only textbook in the field of poultry behavior and welfare.  Most significant to Judge Wiley, Dr. Mench’s advisory committee work (including her work with American Humane) was truly independent – as it was without compensation other than travel expenses.

Pitted against Dr. Mench was Plaintiff’s expert, Leah Garces, USA Director for Compassion in World Farming and a member of the Board of Directors for Global Animal Partnership (https://www.compassioninfoodbusiness.com/our-work/meet-the-team/leah-garces/) whose testimony the Court struck in its entirety.  Garces opined that American Humane’s standards are not “the best,” which Judge Wiley found irrelevant because American Humane does not represent that its standards are the best.  Most tellingly, the Court characterized Plaintiff’s expert as follows:  “Garces is a partisan advocate. . . . Garces is not a scholar or researcher.  She has done no research and published no peer-reviewed articles or books.  She has no scholarly or academic appointments or affiliations.”  The Court’s final blow:  “Garces’ method is ipse dixit:  ‘I say it.  Believe it.’ . . .  Garces includes three vague sentences about her supposed professional experience, but nothing concrete distinguishes her from an opinionated but insubstantial dilettante.”  Let’s face it, it’s hard to prevail when your expert’s testimony is dismissed as coming from a “dilettante” and excluded in its entirety.

What can we learn from the Foster Farms case?  First, hire an expert with solid credentials.  But putting aside the obvious, this case is interesting for what Defendants did not argue and what Plaintiff failed to argue.  Although Dr. Mench testified that the word “humane” as it applies to the treatment of broiler chickens is “subjective” and the Court agreed, Defendants did not assert that the Humane Certified™ label was “puffery,” i.e., a claim that expresses subjective rather than objective views that no reasonable person would take literally.  Newcal Indus., Inc. v. IKON Office Solutions, 513 F.3d 1038, 1053 (9th Cir. 2008).  First, American Humane’s certification is an actual label that obviously has value or it wouldn’t exist.  And second, consumers care that the animals they eat were treated humanely – even if their view of what “humane” means differs.  For Plaintiff’s part, the question is:  Where was the survey evidence demonstrating that, no matter how divergent consumer definitions of “humane” may be, American Humane’s standards do not meet their expectations?  Granted, divergent views on the meaning of “humane” could prove challenging to class certification.  But Plaintiff’s reliance on expert testimony regarding the expert’s personal definition of the term was unpersuasive – particularly when compared to the Defendants’ expert whose entire career has been focused on animal behavior and the humane treatment of same.

In the end, it appears that Plaintiff and her counsel relied on the “Parade of Horribles.”  It didn’t work.  The court analyzed the evidence that was before it and controlling California authority on commercial endorsements and determined that Plaintiff failed to meet her burden of showing a triable issue of fact that an independent, non-profit’s standard for the humane treatment of poultry, which was developed by members with expertise on the behavior of  chickens and enforced through a reasonable auditing process, was somehow divergent from the reasonable consumer’s subjective view of the humane treatment of chickens.

Perhaps that is for the best.  Consumer class actions are poor vehicles for recognizing and enforcing important substantive rights – including the rights of animals to humane treatment.  Plaintiff’s complaint alleged that “the price of Foster Farms American Humane® Certified labeled chicken was $5.99/lb. whereas other chicken labeled ‘all natural’ but without the American Humane® Certified label was $2.99/lb. and other chicken labeled as ‘hatched, raised, harvested in the U.S.’ was $3.99/lb.”  But would an advertising injunction and a $2-$3 refund per pound of chicken (up to ten pounds with receipt/5 pounds without) really have meant anything?  The forum for such issues is not the Los Angeles County Superior Court, but Congress, the United States Department of Agriculture and state agriculture departments.  Congress long ago enacted laws for the humane slaughter of livestock, 48 U.S.C. § 1901 et seq., and FSIS has promulgated detailed regulations under that law.  But those regulations do not apply to poultry.  With regard to chickens and other domestic fowl, FSIS regulations and inspections are directed to “good commercial practices,” rather than humane practices.  Whether that changes as consumers demand and expect humane treatment of all animals raised for meat remains to be seen – but it’s certainly likely.

[1] Forced molting is the practice of forcing feather loss and regrowth, which increases egg production in mature hens.  It is accomplished by withholding food (and sometimes water) from chickens for an extended period of time.

[2] Grinding up day-old male chicks because they will not lay eggs and are not suitable for meat production.

[3] Prevents chickens from injuriously pecking each other or themselves.

[4] De-combing is the removal of the chicken’s comb to limit the damage caused by frostbite or other injuries, to prevent the chicken’s head from becoming so heavy it interferes with eating or causes the head to sink into the chest, and to prevent injuries from other chickens or enclosures.

[5] Toe amputation occurs when a chicken’s toes are infected or suffer injury, such as frostbite.

[6] See footnote 1 on forced molting.

[7] According to the complaint, “the practice of piercing the nasal septum of young breeding roosters with a plastic stick to prevent them from accessing females’ food.”

How Not To Advertise Your Supplement

False Advertising, Food, FTC, , ,

** FTC Claims Major Scalp in Fake News Case **      

By: Brent E. Johnson                                                                                                                                                    

The recent political season has contributed new words to our lexicon — “alternative facts” (Thanks, Kellyanne!) and “fake news.”  While these terms may sound novel to us, the Federal Trade Commission has long taken action to curb such practices in commercial advertising under its mandate to enforce prohibitions on unfair or deceptive acts or practices (15 U.S.C. § 45(a)) and specifically false advertisements for food, drugs, devices, services, or cosmetics (15 U.S.C. § 52).

Recently, the FTC obtained a $29+ million personal judgment (ouch!) against a Tampa Bay businessman based on advertising the FTC claimed lacked scientific substantiation and misled consumers by using a fake news site and article.  Fed. Trade Comm’n v. NPB Advert., Inc., No. 8:14-CV-1155-T-23TGW, 2016 WL 6493923, at *9 (M.D. Fla. Nov. 2, 2016).  The case centered around one Nicholas Congleton, who — inspired by a clip from The Dr. Oz Show discussing a clinical study of the weight loss effects of green coffee extract (the Vinson Study) — founded Pure Green Coffee.  The business was largely operated online, relying on search engine and other digital advertisements (click bait) to the tune of $9.5 million.  This advertising investment proved to be money well spent.  From 2012 to 2014, Pure Green Coffee generated gross receipts just shy of $34 million.

Much of Pure Green Coffee’s advertising practices are standard grist for the FTC mill – inadequate substantiation for efficacy claims, unsupported establishment claims, and customer testimonials.  Pure Green Coffee promised consumers fabulous results – twenty-eight pounds in nine weeks or ten pounds and one-to-two inches of belly-fat in a month.  Although Mr. Congleton admitted in his deposition that he had no scientific basis for Pure Green Coffee’s weight loss claims, in opposition to the FTC’s motion for summary judgment he cited to “news articles, blog entries, and manufacturers’ brochures” (non-starters) as well as nine studies – chief among them, the Vinson Study Dr. Oz discussed on TV.  Unfortunately, most of the studies either did not involve green coffee extract or weight loss.  The Vinson Study was debunked by the FTC’s expert on several bases – but primarily because Dr. Vinson, himself, withdrew it.

The FTC based its argument that Pure Green Coffee made establishment claims in its ads in part on a photo —  a man wearing a white doctor’s coat and stethoscope holding a pill.   The Court found that this image implied that a physician or scientist had established Pure Green Coffee’s efficacy.   As for testimonials, Pure Green Coffee’s online ads committed the cardinal sin – they did not disclose that the participants were compensated.

Which brings us to fake news.  Pure Green Coffee purchased the domain “dailyconsumeralert.org” and loaded the page with a spoof banner for “Women’s Health Journal,” a list of several health- or fitness-related categories, and a fake article by a non-existent columnist that offered a purportedly unbiased test of the efficacy of green coffee extract that Mr. Congleton copied and pasted from another website.  The online ad also employed the ever popular “AS SEEN ON” advertising device next to the logos of CBS, ABC, MSNBC, and CNN – creating the impression that these networks reported favorably on Pure Green Coffee.  The court found that the webpage appeared as a bona fide news outlet and thus misled consumers — despite Mr. Congleton placing the word, “Advertorial” at the top.

Mr. Congleton’s case was not a particularly difficult one for the FTC.  But it nevertheless presents a cautionary tale to supplement sellers.  First, the more specific the claim, the closer the FTC will scrutinize the substantiation.  Depending on the nature of the claim the F.T.C. will require the study to include randomized clinical trials, human as opposed to animal proxy trials, and will take a hard look at the methodology and controls in the testing.  Second, images of folks in white coats or hospital scrubs in supplement ads are sure to grab the FTC’s attention.  Third, paid endorsers must be identified as such.  And finally, supplement makers must guard against intentionally or inadvertently creating fake news.

On this last point, it is critical that supplement companies (and any company engaged in internet marketing for that matter) familiarize themselves with the FTC’s December 2015 Native Advertising Guidelines.  These guidelines were developed to advise businesses on how to advertise online without running afoul of the FTC’s prohibition of fake news.  While a business might believe its online advertisement clearly appears as such when a consumer views it and, therefore, is not deceptive, the FTC’s position is that “advertisers cannot use ‘deceptive door openers’ to induce consumers to view advertising content.  Thus, advertisers are responsible for ensuring that native ads are identifiable as advertising before consumers arrive at the main advertising page.”  (Emphasis added.)  This is no easy task — as shown by the Guidelines, themselves — which contain 17 different examples of online advertisements and how each should be treated.  Suffice it to say, native advertising is a hot button issue for the FTC, and enforcement actions against businesses who ignore the Agency’s guidelines are a growth industry for advertising defense lawyers.

Say It Like You Don’t Mean It

False Advertising, FDCPA, FTC, ,

Washington, DC - October 11, 2009: An entrance to the Federal Trade Commission office building in downtown Washington, DC. The doorway features an ornate bronze grillwork depicting various commercial trade conveyances. This is one of the smaller side entrances. The FTC is a government agency that regulates consumer protection laws, antitrust laws, trademark registration, antitrust laws, and other trade and commerce issues.

** The FTC Weighs In On OTC Homeopathic Drugs With New Disclosure Requirements **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

By: Brent E. Johnson

                                                                                                                                                                                                                                                                                                                                                                                                                         

This past Tuesday, the FTC issued its brand new Enforcement Policy Statement on Marketing Claims for OTC Homeopathic Drugs.  In sum, the FTC is fine with homeopathic drug makers advertising and labeling their products as effective in treating certain conditions – as long as they prominently disclose that their products don’t really work.

As we’ve blogged about recently, homeopathy is the brainchild of  the German physician, Samuel Hahnemann (1755-1843), who divined the concept of “like cures like.”  As the FTC explains, “Homeopathy . . . is based on the view that disease symptoms can be treated by minute doses of substances that produce similar symptoms when provided in larger doses to healthy people.”  In what has become the subject of much controversy over time, homeopathy made its way into the Food Drug and Cosmetic Act of 1938.  The FDCA defines drugs to include “articles recognized in the . . . official Homeopathic Pharmacopoeia of the United States.  (‘HPUS’)”  21 U.S.C. § 321(g)(1)(A).  The HPUS is a weighty tome first published in 1897 that sets forth standards for manufacturing homeopathic drugs as dictated by the Homeopathic Pharmacopoeia Convention of the United States.  Just how homeopathic remedies became “drugs” under the FDCA is shrouded in the mists of time, but it is generally accepted that New York Senator Royal Copeland, a homeopath, family physician, and sponsor of the FDCA, had a hand in it.

In 1988, the FDA issued its Compliance Policy Guide (CPG) for homeopathic drugs titled, “Conditions Under Which Homeopathic Drugs May be Marketed.”  The CPG allows homeopathic drug makers to sell OTC products without demonstrating their efficacy.  CPG Sec. 400.400.  This allowance, however, applies only to homeopathic products intended for “self-limiting disease conditions” (i.e., medical problems that will go away on their own anyway) that are amenable to self-diagnosis and treatment.  The CPG mandates that OTC homeopathic drugs are labeled as “homeopathic” and that the labels display at least one major OTC indication for use.

The sale of homeopathic remedies has grown hand-in-hand with nutritional supplements over the past two decades.  Unlike supplements making nutritional deficiency, structure/function, or general well-being claims, however, the FDA does not require OTC homeopathic products to carry a disclaimer such as, “This statement has not been evaluated by the Food and Drug Administration.  This product is not intended to diagnose, treat, cure, or prevent any disease.”  So, in the world of OTC homeopathic drugs, the FDA actually requires a use indication but doesn’t require substantiation or a disclaimer.

Enter the FTC.  Responding to pressure from consumer advocacy groups and, particular to this case, the Center for Inquiry (an organization that aims “to foster a secular society based on science, reason, freedom of inquiry, and humanist values”), the FTC issued its Enforcement Policy.  In it, the FTC impliedly acknowledges that, even though it has always had enforcement authority over homeopathic OTC drug makers, it has generally chosen not to police false or misleading advertising or labeling of their products due to the FDA’s 1988 CPG.  But no more!  Directly contradicting the CPG’s requirement of usage indications without the need to demonstrate efficacy, the FTC is announcing to homeopathic product makers everywhere that their products are not exempt “from the general requirement that objective product claims be truthful and substantiated.”

The FTC believes this will be no easy feat:  “For the vast majority of OTC homeopathic drugs, the case for efficacy is based solely on traditional homeopathic theories and there are no valid studies using current scientific methods showing the product’s efficacy.”  So what’s a homeopathic OTC drug manufacturer to do?  Just add to your product’s label (in close proximity to the FDA’s required efficacy indication or incorporated into it) that “(1) there is no scientific evidence that the product works and (2) the product’s claims are based only on theories of homeopathy from the 1700s that are not accepted by most modern medical experts.”  Simple enough (although try fitting it on a label).  But the FTC further warns, “In light of the inherent contradiction in asserting that a product is effective (the FDA’s requirement) and also disclosing that there is no scientific evidence for such an assertion, it is possible that depending on how they are presented many of these disclosures will be insufficient to prevent consumer deception.”  The FTC recommends that marketers conduct consumer surveys “to determine the net impressions communicated by their marketing materials.”  And to make sure there is no possible avenue of escape, the FTC includes this flourish:  “Marketers should not undercut such qualifications with additional positive statements or consumer endorsements reinforcing a product’s efficacy.”  In short, if you can’t say something bad about the product, say nothing at all.

Au Naturale

All Natural Litigation, FDA, Food, FTC, ,

** How can we “Know It When We See It” to divine when the FTC will label an all natural claim misleading? **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

By: Brent E. Johnson                                                                                                                                                                                                                                         

On April 12, 2016, the Federal Trade Commission (“FTC”) announced proposed settlements with four skin care, shampoo and sunscreen companies over the use of the term, “natural” in their product labeling and advertising (ShiKai, Rocky Mountain Sunscreen, EDEN BodyWorks, and Beyond Coastal products).  The FTC issued an administrative complaint against a fifth skin care company making similar claims.  The gravamen of each of these actions is the FTC’s assertion that the companies’ products “are not ‘all natural’ because they contain[ ] or contained at least one synthetic ingredient.”  The FTC’s Director of the Bureau of Consumer Protection, in announcing the settlements, proclaimed, “’All natural’ or ‘100 percent natural’ means just that — no artificial ingredients or chemicals.”  “Companies should take a lesson from these cases.”

But what exactly is that lesson?  To answer that – lets recall the history of federal “natural” regulations (or more accurately, the lack thereof).  The Food & Drug Administration (“FDA”) is the primary federal agency responsible for the labeling of food, drugs and cosmetics sold in the United States to, among other things, prevent consumer deception.  21 U.S.C. § 331(a).  Three of the five companies sued by the FTC sell “drugs” (sunscreen).  So what is the FDA’s position on “natural”?  As we’ve blogged about before, the FDA has repeatedly demurred on the question asserting that “priority food public health and safety matters are largely occupying the limited resources that FDA has to address food matters.”  Letter from Leslie Kux, Assistant Commissioner for Policy Food and Drug Administration, to Judges Gonzalez Rogers, White, and McNulty, January 6, 2014 (responding to the question of whether GMO seed used to grow corn rendered the corn unnatural).  The FDA, from time to time, has relied on its 1991 “informal policy” of defining “natural” for food for human consumption “as meaning that nothing artificial or synthetic (including all color additives regardless of source) has been included in, or has been added to, a food that would not normally be expected to be in the food.”  56 Fed. Reg. 60421, 60466-60467 (Nov. 27, 1991).  For example, in a November 16, 2011 Warning Letter to Alexia Foods, the FDA asserted that the company had misbranded its mushrooms and red potatoes as “All Natural” when they contained disodium dihydrogen pyrophosphate — a synthetic chemical preservative.

Very recently, as we’ve also posted about, the FDA has requested public comment on a possible definition of “natural” for food labeling signaling that the FDA may be ready to issue some sort of concrete “natural” rule in the near future, at least as the term applies to food.  It will be interesting to see if things have changed since 1991, when the FDA, in assessing the possibility of consumer confusion, concluded that “natural” was already in “widespread use” “on a variety of products to mean a variety of things” with “consumers regard[ing] many uses of th[e] term as non-informative.”  56 Fed. Reg. 60421, 60466.

Unlike the FDA, the U.S. Department of Agriculture’s (“USDA”)  rules on “natural” for meat and poultry appear quite definitive.  According to the USDA’s Food Standards and Labeling Policy Book, “natural” means “(1) the product does not contain any artificial flavor or flavoring, coloring ingredient, or chemical preservative (as defined in 21 CFR 101.22), or any other artificial or synthetic ingredient; and (2) the product and its ingredients are not more than minimally processed.”  Is this a “bright line” test?  Not really.  The USDA Policy Book states that “Relatively severe processes, e.g., solvent extraction, acid hydrolysis, and chemical bleaching would clearly be considered more than minimal processing.”  Okay, so no “relatively severe processes.”  But it also states. . . “the presence of an ingredient which has been more than minimally processed would not necessarily preclude the product from being promoted as natural . . . if it can be demonstrated that the use of such an ingredient would not significantly change the character of the product to the point that it could no longer be considered a natural product.”  Oh.

In the end, the USDA relies on disclosure to alleviate consumer confusion.  The Policy Book states:  “All products claiming to be natural or a natural food should be accompanied by a brief statement which explains what is meant by the term natural, i.e., that the product is a natural food because it contains no artificial ingredients and is only minimally processed. This statement should appear directly beneath or beside all natural claims or, if elsewhere on the principal display panel; an asterisk should be used to tie the explanation to the claim.”  Because the USDA’s Food Safety and Inspection Service must approve all meat and poultry product labels before they are placed on store shelves, any issues over the nuances of whether a product is “natural” are worked out on the front end.

Brief philosophical interlude:  The USDA’s definition of “natural” has little or nothing to do with consumer health – a smoked meat (thought by some to expose consumers to carcinogens) is “natural” but a meat that undergoes relatively benign acid hydrolysis to round out flavor and break down proteins so they are more easily digested is unnatural.  But if a consumer equates “natural” with “wholesome” (the FDA’s term) or “healthy,” does the USDA’s “natural” rule help consumers at all?

This brings us to the FTC – the agency with the longest history of not making rules on “natural” claims.  “On December 17, 1982, the Commission decided to terminate its proposed trade regulation rule on food advertising.  The proposed rule would have regulated energy and weight control claims, fatty acid and cholesterol claims, and natural food claims.”  48 Fed . Reg. 23270 (May 24, 1983) (emphasis added).  This avoidance has continued unabated, up to and including the FTC’s revisions to the Green Guides governing environmental marketing claims.  “The final Guides do not address organic, sustainable, and natural claims. . . .  For . . . sustainable and natural claims, the Commission lacks sufficient evidence [presumably of what consumers think “natural” means] on which to base general guidance.”  16 CFR Part 260 (Oct. 6, 2010).

Of course, the FTC has long maintained that it has the right, on a case-by-case basis, to take enforcement actions against companies that use “natural” deceptively.  48 Fed . Reg. 23270 (May 24, 1983).  But in the absence of an actual rule, the FTC is relying on the Potter Stewart pornography principle  — “it know it when it sees it.”  Jacobellis v. Ohio, 378 U.S. 184 (1964).  That’s fine, but, under those circumstances, it is difficult for companies “to take a lesson” from the FTC’s five recent enforcement actions other than that the FTC doesn’t want to see chemicals in natural products.

But maybe that isn’t even true.  The proposed settlements that the FTC announced on April 12th appear on the surface to be easy ones – the challenged products contain substances with chemical-sounding names like Dimethicone, Polyethylene, Butyloctyl salicylate, Neopentyl glycol Diethylhexanoate, Ethylhexyl glycerin, Phenoxyethanol, Polyquaternium-7 and/or Caprylyl glycol.  The only public statement from one of the settling companies who sells sunscreen attributed its natural labeling to a mistaken belief that it could make the claim if the active ingredients were natural.  But is important to observe that the FTC complaint against the single settlement hold out, California Naturel, is much narrower than the other complaints citing to only one “synthetic ingredient” – dimethicone – in a single product – Sunscreen SPF 30 – despite the fact that California Naturel (according to its beautifully designed website) sells a variety of skin care products that include numerous substances that have chemical-sounding names (e.g., Polyglyceryl-3 polyricinoleate – “an emulsifier made from glycerol and fatty acids”). California Naturel takes care on its website to explain when its ingredients are “extracted,” or “derived from” natural sources, but does the extraction or derivation processes render the ingredients “synthetic”?  Apparently not.

So here we are – waiting for the FDA to maybe shed some light on what “natural” really means.  But it is certainly understandable why the agency, as well as the FTC, have hitherto been reluctant to make a call on the issue.  And whatever rule the FDA publishes, we must bear in mind its own admonition back in 1991 — “natural” “mean a variety of things” with “consumers regard[ing] many uses of th[e] term as non-informative.”  Will the FDA’s pronouncement distill the essence of consumer understanding on the subject (if it even exists) or will it simply be a set of rules?  If not the former, perhaps it’s better for the FTC and the FDA to continue to rely on the Potter Principle.

Lumosity Tagged for $2 million by FTC

False Advertising, FTC

234** Maker of “Brain Training” Subscription Service Settles with FTC on Allegations that it did not Have the Science to Back Up its Claims of Cognitive Benefit ** . . .    

By: Brent E. Johnson 

                                                                                                                                                                                                                                                           The Federal Trade Commission has agreed to a settlement with Lumosity Inc., with respect to the company’s well known and widely advertised “brain training” program – after the FTC filed a complaint alleging Lumosity’s ads touting the cognitive benefits associated with the products were scientifically unfounded.  Federal Trade Commission v. Lumos Labs, Inc., No 3:16-cv-00001-SK (N.D Cal. Jan. 4, 2016) at ECF No. 1 (Compl.).  The settlement terms include a payment by Lumosity of $ 2 million and a requirement to notify customers who signed up on an auto-renewal plan between January 1, 2009 and December 31, 2014 about their ability to cancel their subscription.  Id. at ECF No. 10 (Order).  The FTC has issued a public statement about the settlement stating, in part: “Lumosity preyed on consumers’ fears about age-related cognitive decline, suggesting their games could stave off memory loss, dementia, and even Alzheimer’s disease . . . [but]. . .  simply did not have the science to back up its ads.”  The FTC complaint also alleges that Lumosity’s consumer testimonials featured on its website had been, in some cases, pay-to-play – i.e., were solicited through contests that promised significant prizes, including a free iPad, a lifetime Lumosity subscription, and a round-trip to San Francisco.  Id. at ECF No. 1 (Compl.) ¶¶ 19 – 21.  The settlement order requires the company and its officers to have competent and reliable scientific evidence before making future claims about any benefits for real-world performance, age-related decline, or other health conditions.  Id. at ECF No. 10 (Order) at 7 – 9.  The order also imposes a $50 million judgment against Lumosity – suspended upon payment of $2 million to the FTC.  Id. at 10 – 12.

“Virtually All” Made in The USA Guidance

FTC, Labeling, Made in the USA, , ,

made-in-usa-2

**Federal Trade Commission Staff Provide Guidance on Regulations Proscribing the “All or Virtually All” Standard for Made in the USA labeling** . . .                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

By: Brent E. Johnson                                                                                                                                                                           

The Federal Trade Commission (FTC) has a role in regulating “Made in the USA” labeling.  15 U.S.C. § 45a.  See prior post.  Under FTC regulation if “virtually all” of a product is made in the United States, then it is permissible to use the Made in the USA label.  62 FR 63756-01 at pp. 63757, 63764–65.  Unfortunately, this “virtually all standard” is vague – and the FTC has declined to come up with a bright line test for manufacturers.  Id.  The FTC’s Enforcement Policy Statement informs that in making a “virtually all” determination, the FTC will look at factors such as:  (1) the portion of manufacturing costs attributable to foreign parts and processing; (2) whether the foreign parts and processing are significant to the final product; and (3) how far back in the manufacturing process the foreign content is.  Even with this broad guidance, a case by case analysis is needed on “Made in the USA” labeling.

Fortunately, when the FTC closes an enforcement proceeding on a case, it often provides a closing letter to the target.  Such a closing letter may contain an explanation of the findings of the investigation and the rationale for why the case was closed.  A number of these FTC Closing Letters are available on the FTC website: https://www.ftc.gov/enforcement/cases-proceedings/closing-letters-and-other-public-statements/staff-closing-letters.  Recent  FTC Closing Letters regarding “Made in the USA” labeling have highlighted the importance of the second factor (see above) — whether foreign parts and processing are significant to the final product.  With respect to Loctite glue made by the German multinational Henkel, the FTC looked at the cost and function of cyanoacrylate (an ingredient imported and added to the U.S. manufacturing of the glue).  Because both the cost and function of cyanoacrylate were significant in the glue, the FTC decided that it was inappropriate for Henkel to use an unqualified “Made in the USA” label.  A similar finding was made with respect to Gorilla Glue earlier this year.  In another recent closing letter concerning the product Spray Pal (a cloth diaper cleaning device) that included a foreign-made clip used to fasten the diaper to the device, the FTC determined that, while the cost of the clip may be small relative to overall manufacturing costs, it nevertheless was essential to the function of the product.  As such, an unqualified claim of “Made in USA” was not permissible.  Companies need to be mindful that the FTC is not looking merely at the cost factor.  If an inexpensive foreign component is integral to the design and function of the product, it may be significant enough to  negate a claim of “Made in the USA.”