Retail & Consumer Products Law Observer

Retail & Consumer Products Law Observer

Legal Insight for the Retail and Consumer Products Industry

How Sweet It Isn’t

Posted in Advertising & Product Risk Management

The last few years have seen a war waged on sugar. In addition to increased media attention, USDA and the Department of Health and Human Services have set recommended sugar consumption limits. In the latest Dietary Guidelines For Americans 2015-2020, one of the five “guidelines” is to limit calories from added sugars. FDA also has new recommendations on consumption of sugar, reflected in draft guidance issued January 2017.

In addition to USDA and FDA’s guidance, other groups, such as the American Heart Association, are supporting policies that help lower the intake of sugar-sweetened beverages by the American public. One such policy is to tax drinks and food sweetened with sugar. In November 2014, 75% of voters in Berkeley, California approved a tax of 1 cent per ounce on sugar-sweetened beverages, which is said to have generated more than $2.5 million for use in community nutrition and health efforts. Consumption of sugar-sweetened beverages is also reported to be down by 20%.

In June 2016, the City of Philadelphia, Pennsylvania also instituted a sugar tax, levying a 1.5 cent per ounce tax on the “distribution” of sweetened beverages. The tax was immediately challenged, upheld by the trial court, and went into effect on January 1, 2017. A direct appeal to the Pennsylvania Supreme Court was denied, and on Wednesday a Pennsylvania appeals court upheld the tax, again rejecting arguments that the levy was duplicating the state’s sales tax.

The challengers argued that the tax was an impermissible sales tax that violated the state constitution because it was based on volume instead of a set percentage, making the tax 6 to 78%, depending on the size of the drink. Challengers also argued that by imposing its levy on distributors and dealers, it was an attempt to go around the state’s Sterling Act, allowing the city to impose taxes only on subjects not already taxed by the state. Such a levy, they argued, would likely be passed along to consumers, making it nothing more than a sales tax in disguise.

The Court of Appeals disagreed, finding “the subject matter of the tax, the nonretail distribution of sugar-sweetened beverages for sale at retail in the city, and the measure of the tax, per ounce of sugar-sweetened beverage, are distinct from the sales tax imposed under the tax code upon the retail sale of the sugar-sweetened beverage to the ultimate purchaser.” One judge dissented, finding the tax too closely linked to retail sales. “While I acknowledge that the [beverage tax] does not appear to be duplicative of the sales tax because it is not explicitly labeled a retail sales tax, the majority ignores that the [beverage tax] is only triggered when there is a retail sale involved.” Another appeal is expected.

Importantly, during the first month of the tax, estimates of the amount of money brought in totaled $5.7 million. To date, the tax has brought in up to $25.6 million. The City of Philadelphia has launched a “comprehensive monitoring campaign” to ensure compliance, including recently adding 10 additional enforcement staff. The tax is intended to primarily fund a pre-K program and a city-wide rebuilding of parks and recreation centers.

It will be interesting to watch the progression of sugar taxes to determine whether such measures, in addition to furthering the public policy goals shared by the American Heart Association, will become a viable income source for cash-strapped cities.

Photo Credit: Michael Allen Smith

Trampoline Manufacturer Can’t Bounce Away From FTC Trouble

Posted in Advertising & Product Risk Management, Product Liability & Torts

FTC Moves Ahead Enforcing Endorsement Cases

A few months ago, acting Federal Trade Commission Chairwoman Olhausen stated that the FTC should shift focus to cases of actual harm, leaving many to wonder whether FTC would still actively enforce endorsement cases. However, in April, the FTC sent out ninety letters to brand influencers and marketers reminding those influencers and marketers to clearly and conspicuously disclose their relationship to brands. On the heels of these April letters, the FTC filed a complaint and ultimately reached entered a proposed settlement order (“order”) with two brothers that relied on deceptive endorsements and misleading review websites to sell Infinity and Olympus Pro brand trampolines.

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CPSC Hears Rare Oral Argument in Zen Magnets Recall Litigation

Posted in Advertising & Product Risk Management, Product Liability & Torts

On June 7, the U.S. Consumer Product Safety Commission provided administrative law followers a fascinating case study. For the first time in two decades, the CPSC’s five Commissioners heard an appeal put on by CPSC staff in administrative litigation. In its appeal, the staff seeks to overturn an administrative law judge’s opinion finding that Zen Magnets’ controversial high powered, small rare earth magnets (SREMs) are not defective and are not a substantial product hazard when sold with appropriate warnings. Novel already, what made this argument all the more interesting was an additional wrinkle:  four of the five Commissioners who heard the appeal had voted previously to approve a final safety standard that has the practical effect of banning such magnets outright.

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Join Us: ABA Food & Supplements 7th Annual Workshop

Posted in Advertising & Product Risk Management, Events, Product Liability & Torts

2017 continues to be the year of the Food Safety Modernization Act, as the U.S. Food and Drug Administration, having completed its roll-out of the major rules implementing this land-mark food safety legislation, moves in earnest with inspections to check on compliance.

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To help manufacturers prepare for this and other issues confronting the food industry, on Tuesday, June 13th, the American Bar Association Food & Supplements Subcommittee is hosting a Workshop in Hershey, Pennsylvania. One topic of discussion will be FSMA inspection preparedness as a panel of industry representatives will talk about what they’re seeing from the latest FDA inspections, and what manufacturers should expect when agency investigators come knocking this summer and fall.

In addition to talking about how to prepare for an FDA inspection, the panel plans to examine what FDA has said about its expectations during its first round of visits focused on FSMA compliance. It will also talk about how manufacturers can have their FSMA documents in order for investigator review, and how to prepare for the flurry of environmental samples FDA is likely to take. Crowell & Moring partner John Fuson will be presenting as part of the panel. Additionally, Laura Cordova will be speaking on a panel regarding ethical issues in parallel criminal and civil proceedings. Michelle Gillette is one of the program organizers for the workshop.

For more information, visit the ABA website.

Trolls and Tall Tales: How to Protect Your Company’s Online Reputation

Posted in Advertising & Product Risk Management

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In today’s social media and internet focused world, tracking online reviews and commentary from consumers is essential for product manufacturers and retailers. Savvy online participation can provide companies with important quality feedback and bolster customer relations when consumer concerns are handled quickly and sensitively. But even companies are not immune to cyber trolls. What happens when an online comment or review contains false information about your product or brand, or accuses your company of offering poor customer service or selling defective goods? And, as is commonly the case, how can the truth of the matter be verified if the comment is posted anonymously? Here are some suggestions to follow as you work through the issue:

  1. Step One: Arm yourself with information by reviewing the basic elements of defamation law.
  2. Step Two: Assess whether action is necessary.  Sometimes ignoring the issue can be the right answer.
  3. Step Three: Take informal action, such as responding to blog comments on your own with your side of the story or requesting a retraction from the author or website host.
  4. Step Four: Assess goals and risks of litigation or formal action. 
  5. Step Five: If necessary, strategically draft a defamation complaint to initiate litigation.
  6. Step Six: Stand your ground and litigate aggressively through discovery challenges and other potential obstacles.

For more details, see the full article:  Six Steps to Protecting Your Reputation Online

Long Live the King (Bio)

Posted in Advertising & Product Risk Management

Ninth Circuit Follows King Bio Decision in Confirming Private Plaintiffs May Not Challenge “Lack of Substantiation” Under California Law


To view the full version of this article, visit the latest version of our Recent Happenings in Advertising & Product Risk Management newsletter.

When it comes to prosecuting false advertising, what is the appropriate division of labor between government authorities acting on behalf of the public, on the one hand, and members of the public themselves?

Most states have answered this question by enacting consumer protection laws that allow private plaintiffs to step into the shoes of government prosecutors to challenge allegedly false advertising. These private enforcement mechanisms supplement the roles played not only by state agencies and prosecutors but also by the Federal Trade Commission and Food and Drug Administration at the federal level. At the same time, most of these states have reserved exclusively to government actors the power to demand that advertisers produce evidentiary support, or “substantiation,” for their advertising claims—especially when they are not definitively “false,” but rather relate to new technologies undergoing testing, or to areas of scientific controversy.

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Even in California—which has an especially robust statutory scheme allowing consumer “attorneys general” to bring suit for false advertising—courts have long held that the state legislature deliberately entrusted the power to demand substantiation only to “prosecuting authorities,” not private plaintiffs. As one California Court of Appeal explained in the seminal decision in National Council Against Health Fraud v. King Bio Pharmaceuticals, the policy rationale is that this division of labor is “the least burdensome method of obtaining substantiation for advertising claims” and limits “undue harassment of advertisers.” Yet that has not stopped the plaintiffs’ bar from filing suit after suit—often class actions—alleging that companies lack sufficient scientific support for their advertising claims.

For more, see the full article.

The Devil is in the Details: Recordkeeping a Central Focus in FSMA Inspections

Posted in Advertising & Product Risk Management, Product Liability & Torts
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The Food Safety Modernization Act, which was signed into law by President Obama on January 4, 2011, promised sweeping reform of food safety practices from farm to fork, and shifted FDA’s regulatory posture from reacting to food contamination to proactively preventing it. While the Trump administration has vowed to eliminate two regulations for every new regulation, at this year’s Food and Drug Law Institute’s Annual meeting, Dr. Susan Mayne, the Director of FDA’s Center for Food Safety and Applied Nutrition, made clear that FSMA is the law of the land and FDA fully intends to continue its implementation and enforcement of it.

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New Private Right of Action in Canada for False or Misleading Electronic Advertising

Posted in Advertising & Product Risk Management

This alert has been prepared in collaboration with Canada’s Fasken Martineau law firm. Mr. Di Domenico is a partner and regional chair of the firm’s Antitrust/Competition & Marketing Group in Toronto. Chris Cole is Co-Chair of Crowell’s Advertising & Product Risk Management Group in Washington, D.C.


In less than three months, Canada will introduce a private right of action arising from false or misleading representations made in electronic messages. These provisions target false or misleading advertisements in, for example, email and social media and arguably capture website advertising based on the law’s broad definition of “electronic message.” Government-initiated enforcement of these provisions has already taken place through Canada’s Competition Bureau since 2014, which has led to Consent Agreements against Avis, Budget (following a contested application), Amazon, Hertz, and Dollar Thrifty. Even more concerning, the law applies statutory penalties to each violation. The closest United States analog to such a law would be the Telephone Consumer Protection Act, which carries penalties for violation of up to $1500 per violation.

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CPSC Withdraws Material Misrepresentation Claim against Michaels Stores in Shattered Vases Case

Posted in Advertising & Product Risk Management

MichaelsEarlier this month, the Consumer Product Safety Commission in tandem with the Department of Justice withdrew its “material misrepresentation” claim in its ongoing lawsuit against arts and crafts retailer Michaels Stores. The Government had alleged, inter alia, that Michaels made a material misrepresentation to the agency in its Section 15(b) Report for certain glass vases that shattered during normal handling. The Government’s withdrawal of this claim raises interesting questions as to what constitutes a “material misrepresentation” – in this case to the CPSC – and why the claim was withdrawn.

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CPSC Announces Second Civil Penalty Of Year

Posted in Advertising & Product Risk Management, Product Liability & Torts

CPSC Reaches Civil Penalty Agreement with Viking Range and Middleby Corporation; Firms to Pay $4.65 Million to Resolve Late Reporting Allegations Over Defective Gas Ranges

StoveThe U.S. Consumer Product Safety Commission (CPSC) has announced a civil penalty settlement with Viking Range, LLC of Greenwood, Mississippi and its parent company, The Middleby Corporation of Elgin, Illinois. The companies have agreed to pay a civil penalty of $4.65 million to resolve charges that they knowingly failed to immediately report allegedly defective gas ranges to the Commission under Section 15(b) of the Consumer Product Safety Act (CPSA). This civil penalty, the second of 2017, follows the Commission’s $5.8 million civil penalty levied against Keurig Green Mountain in February. Both penalties underscore that the Commission’s general approach to civil penalties, and desire to increase the amount of penalties imposed for violations, will not change overnight with new agency leadership. Indeed, the Acting Chairman actually voted against the settlement agreement, proposing instead an amendment to reduce the amount of the civil penalty to $2 million.

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