Stay ADvised: 2024, Issue 19
In This Issue:
- No Sugarcoating This: Court Refuses To Fully Dismiss False "Health Halo" Suit Involving Gatorade Protein Bars
- No Cheese for Plaintiffs, No Dismissal for Mars Wrigley of Class Action Over "Real Cheese" Claims
- FTC Report Details Trends in Multi-Level Marketing (MLM) Income Disclosure Statements
No Sugarcoating This: Court Refuses To Fully Dismiss False "Health Halo" Suit Involving Gatorade Protein Bars
A class action lawsuit alleging that PepsiCo falsely advertises Gatorade Protein Bars as healthy when their high sugar content renders them decidedly unhealthy—protein or not—will proceed, at least in part.
The U.S. District Court for the Northern District of California refused PepsiCo's motion to dismiss, finding that not all of the claims at issue were preempted by the FDCA. Plaintiffs also plausibly alleged that a reasonable consumer would be deceived by the claims.
In their complaint, the two California plaintiffs asserted that Gatorade Protein Bars are advertised to promote health and athleticism, but because the bars have high levels of both total and added sugar these claims are false and misleading. Additionally, the plaintiffs asserted that the product label is deceptive because it fails to alert consumers to the product's high sugar content and the fact that its primary characterizing ingredient is sugar. They also contended that PepsiCo's use of the word "protein" in the product was meant to mislead consumers into coming away with the impression that the product enhances fitness.
In seeking to dismiss the lawsuit, PepsiCo argued that plaintiffs sought to "impose requirements for labeling sugar content" different from those required by federal law, that plaintiff's complaint was preempted by the FDCA, and that the claims are not likely to deceive a reasonable consumer. PepsiCo also argued that plaintiffs were asking the court to treat sugar as a "disqualifying nutrient," which they said contravened federal law. It further noted that the FDA has determined that there is "no sound basis" for "limiting health claims on food on the basis of added sugar."
The court agreed that plaintiffs' claims were preempted to the extent they sought to impose labeling requirements not identical to federal law requirements. This included any claim that PepsiCo's labeling was deceptive because it failed to include the amount of sugar in teaspoons rather than grams as federal law requires, or an argument that the bars should include a daily value for sugar itself, which is also not required by federal law. However, the court refused to dismiss claims related to "determining what a reasonable consumer might understand about the bars' sugar content" and whether PepsiCo's other statements advertising the bars were misleading, wrote the court.
The court found that PepsiCo was correct that certain of plaintiffs' claims are preempted "to the extent they challenge health or protein-content claims." The marketing claims "Backed by Science" and "Used by the Pros," and claims that the product was formulated at the Gatorade Sports Science Institute, were health claims falling under the preemption umbrella. However, PepsiCo was not entitled to dismiss all of the contentions because many of the statements that plaintiffs claimed were misleading were not health or nutrient-content claims.
PepsiCo also argued that the challenge to the name "Protein Bar" was preempted by federal law because plaintiffs could not impose the label "candy bar" or "dessert" on a product under federal law. Plaintiffs disputed this characterization of their allegations. The court refused to dismiss this contention, saying this argument was not ripe for disposition on a 12(b)(6) motion to dismiss.
The court also found that plaintiffs plausibly alleged that reasonable consumers were not knowledgeable enough to interpret the sugar content listed on the label and were likely to be deceived by the company's advertising, at least at this state in the proceedings.
Key Takeaways
Plaintiffs have been attacking the alleged false "health halo" of a range of products for the past decade despite detailed disclosures of ingredients and nutrient content immediately available on packaging. From cereals to energy drinks to protein bars, food companies have faced litigation risk from consumers who presume that foods advertised with health claims must be bereft of certain undesirable nutrients such as sugar. The lesson for food companies is that despite certain wins in the 9th Circuit in favor of the reasonableness of consumers, e.g., McGinity v. P&G and others, the risk of the alleged false "health halo" claim persists and those allegations are likely to survive a motion to dismiss. Even when consumers can easily turn the package to the side and see exactly how much sugar a product contains, courts do not always credit that the reasonable consumer will know to do so.
No Cheese for Plaintiffs, No Dismissal for Mars Wrigley of Class Action Over "Real Cheese" Claims
Mars Wrigley must face allegations that it falsely advertised its Combos Stuffed Snacks as containing a filling made with "REAL CHEESE" after its bid to dismiss the case was rejected like a pizza without cheese.
Three likely cheese aficionados, buyers of Combos, and, since May 2023, plaintiffs in a putative class action lawsuit filed the complaint alleging that Mars Wrigley falsely advertises Combos when it makes claims on the label that the snacks contain "filling made with REAL CHEESE" and it places that claim alongside a photo of a block of cheddar.
Instead, the Combos filling contains mostly palm oil and dairy product solids. Plaintiffs alleged the ingredients are used as fillers and bulking agents, and that just 2% of the product contains real cheese. Plaintiffs also contended that the marketing was likely to mislead the reasonable consumer.
On plaintiffs' false advertising allegations that the claims violate New York's General Business Law Sections 349 and 350, the U.S. District Court for the Southern District of New York agreed that plaintiffs had "at this stage…plausibly alleged" their claim. A reasonable consumer may understand "cheddar cheese"-flavored snacks to be filled predominantly with cheese, wrote the court. When combined with the image of the cheddar block, plaintiffs might then be even more likely to plausibly think the product filling contained mostly cheese.
Though Mars argued that the claim was literally true, as the product is made with real cheese, the court turned its nose away at these stinky arguments, noting that the literal truth of a claim is not determinative and an advertisement can be misleading even if it is technically true.
Mars also argued that even if "made with REAL CHEESE" was misleading, Combos' ingredient list mentions "Natural Flavor," which would clear up any misconceptions about how much cheese was in the snacks. The court disagreed, finding that an "ambiguous" reference to "natural flavor" on a separate portion of the package doesn't render the claim any less misleading.
The court also melted Mars' arguments that plaintiffs had not alleged a cognizable injury, finding that plaintiffs' allegation that they paid "'premium price, approximately $2.99 for 6.3 oz' suffices—albeit barely."
Mars had argued that plaintiffs' allegation was insufficient because plaintiffs had "failed to provide any benchmark by which to evaluate that price." But the court wrote that a mere failure to identify prices of competing products was not fatal at the early stage in proceedings.
The court dismissed plaintiffs' fraud claims, however, finding that the complaint had failed to show Mars' fraudulent intent. Plaintiffs had alleged only that Mars had "actual and constructive knowledge" that consumers preferred "real cheese" and "highlighted these attributes in selling the Product," though they knew that the filling contained "lower quality cheese substitutes." Merely alleging that the defendant had a "self-interested desire to increase sales does not give rise to an inference of fraudulent intent," wrote the court.
Key Takeaways
For companies trying to navigate the risks of ingredient callouts (especially where those ingredients are subject to an FDA standard of identity), unqualified language is likely to be interpreted as a "100% claim" by plaintiffs. This is true even if FDA regulations would allow graphics as an indicator of flavor and especially where there is express language that references the inclusion of that ingredient. Companies should consider qualifying language to help reduce risk.
FTC Report Details Trends in Multi-Level Marketing (MLM) Income Disclosure Statements
In September the FTC released a report of findings based on the agency's review of the income disclosure statements of 70 multi-level marketing (MLM) companies reflecting a broad scope of businesses, from household names to smaller shops. Income disclosure statements feature data on payments received by MLM participants. MLMs often use the statements as marketing tools to persuade participants to work with them. As those who are involved in the MLM industry know, the FTC has aggressively pursued enforcement on several MLM companies for the past decade, with particular attention to income claims.
Key FTC observations from the report include the following:
- The FTC found that the documents tend to cherry-pick data, fail to provide precise information about important terms used in the documents, and generally tend to focus on the relatively small number of participants who earned significant amounts of money.
Most income disclosure statements exclude the income of those who received little to no earnings from their participation in the MLM but do not explain this exclusion. Instead, glowing numbers showing average annual income provided in neat, carefully arranged tables often exclude certain groups of participants, such as people who didn't earn commissions, or those the MLM deems "inactive."
The FTC found that income disclosure statements do not account for expenses incurred by MLM participants, such as the MLM's annual fees. In some cases, the statements are mum on this omission. If they communicate it, this is mostly done in an inconspicuous manner. This exclusion is problematic, said the FTC, because expenses eat up much of MLM participants' earnings.
- Data presentation is confusing or ambiguous. Additionally, the statements use the words "income" or "earnings," but most statements do not prominently define the terms, which mean different things in different reports.
The statements also disclose important information inconspicuously. This includes important information participants might use to decide whether to participate in an MLM, such as the percentage of participants who didn't receive any income, or the small number who qualified for additional compensation such as incentive trips, as well the methodology to calculate income figures.
- Finally, the FTC found that many claims in the earnings reports are based on data that is not immediately apparent. For example, some disclosure statements claim that participants who received little to no income joined the MLM for reasons other than earning income, such as "simply to enjoy…discounted Member Prices," yet there is no evidence presented to back up these claims.
Speaking of cherry-picking, the cherry on top of the cake: Data from the statements reveals that the majority participants reported no to very limited income—as little as $84 a month. This information was buried in the fine print, though, per the report.
Key Takeaways
The report was commissioned following the FTC's Notice of Proposed Rulemaking regarding Deceptive or Unfair Earnings Claims, in reaction to the vast majority of public comments on the rule, which related to MLMs. The data reinforces the FTC's perception that MLMs are repeat offenders on earnings claims, and that these income disclosure statements are not as transparent as the agency would like. Despite this perception, the report does not offer a model income disclosure statement or advise as to specific practices or strategies that companies could use to make their reports more consumer-friendly. Importantly, the report also does not explicitly say that the income disclosure statements are deceptive. Nevertheless, MLM businesses may want to review their income disclosure statements in conjunction with the FTC staff's guidance to see whether they can make improvements. In any enforcement scenario, the opportunity to demonstrate a desired response to the agency's actions can be helpful.