The Franchise Memorandum

In an 8-0 decision announced on June 12, 2014, the Supreme Court held that a company may sue a competitor for unfair competition under the Lanham Act because of false or misleading food and beverage labeling and advertising, even when the labeling and advertising otherwise meet the requirements of the Federal Food Drug and Cosmetic Act ("FDCA"). POM Wonderful LLC v. Coca-Cola Co., 189 L. Ed. 2d 141 (U.S. June 12, 2014). POM, a pomegranate juice producer that markets and sells a pomegranate-blueberry juice, sued Coca-Cola under the Lanham Act for misleading labeling of the pomegranate-blueberry juice sold by its Minute Maid Brand. Minute Maid was one of POM's main competitors in the pomegranate-blueberry juice market. Although Coca-Cola's product only consisted of 0.3% pomegranate juice and 0.2% blueberry juice, the words "POMEGRANATE BLUEBERRY" appeared prominently on the juice's label. Coca-Cola contended that because its label met all content and labeling requirements of the FDCA, it was not false or misleading.

The issue before the Supreme Court was whether the FDCA displaces the Lanham Act with respect to food and beverage labeling. It found that the FDCA did not expressly preclude private parties' claims under the Lanham Act; nor did the Lanham Act expressly limit itself to claims outside the FDA's oversight. The Court determined that the Lanham Act and the FDCA complement one another and could be applied consistently. It noted that the FDCA only preempts inconsistent state law. Finally, the Court dismissed the government's argument that the Lanham Act claim was precluded to the extent that the FDCA or FDA regulations specifically require or authorize the challenged portions of the label.

As a result of the decision, food and beverage companies, including franchisors, should install comprehensive labeling controls to ensure that their labeling and advertising fully comply with both the FDCA and the Lanham Act. Food and beverage franchisors should avoid using labeling or advertising as a means to prop up the quality or quantity of a certain ingredient and make sure their labeling and advertising accurately reflects their products' ingredients or qualities without creating false or misleading commercial impressions.