One trillion dollars. That’s how much global sales of “healthy” food products are estimated to reach by 2017. That number represents a staggering amount of purchase power for consumers, but it also foretells the importance of savvy legal counsel to food and beverage manufacturers. Since 2011, consumer advocacy groups and plaintiffs have filed more than 150 food-labeling class actions against food and beverage companies. A growing craft-brewery industry only adds to the complexity of the laws that regulate food and beverage companies. And final rules under the federal Food Safety Modernization Act have already started to apply to companies of nearly every size.

The challenges facing manufacturers, including those right here in Wisconsin – for example, Klement’s Sausage Co., MillerCoors, Ocean Spray Cranberries, and Usinger’s Famous Sausages, as well as numerous craft breweries and niche food manufacturers – only continue to grow. To protect clients and prevent litigation, it is important for lawyers to understand the crucial details of the laws that govern food and beverage companies. This article takes a broad look at the current state of food and beverage law, giving lawyers and industry professionals alike a glimpse into the challenges and opportunities that face this dynamic and growing industry sector.

Lack of Definition for “Natural”

One reason for the rise in litigation against food and beverage companies is that the two U.S. agencies in charge of enforcing labeling laws – the Food and Drug Administration (FDA) and the U.S. Department of Agriculture (USDA) – refuse to establish an enforceable standard for use of the claim “natural.” In 1993, the FDA invited comments to help it decide on a definition of natural. After review, it concluded that because of “resource limitations and other agency priorities,” it would not undertake rulemaking to establish a definition, instead making a determination on a case-by-case basis. However, it offered informal guidance, stating that:

“From a food science perspective, it is difficult to define a food product that is ‘natural’ because the food has probably been processed and is no longer the product of the earth. That said, the FDA has not developed a definition for use of the term natural or its derivatives. However, the agency has not objected to the use of the term if the food does not contain added color, artificial flavors or synthetic substances.”

The USDA’s guidance on the meaning of natural, which applies only to meat- and poultry-based products, dates back to 1982. Under that guidance, natural means that the product does not contain any artificial flavor or flavoring, coloring ingredient, or chemical preservative, or any other artificial synthetic ingredient, and the product and its ingredients “are not more than minimally processed.”¹

Because of this, courts have been burdened with the task of addressing questions surrounding the use of the term on food labels, determining whether a product is natural, or whether naturally processed products can also be considered natural. Courts deciding on “all-natural” lawsuits have been inconsistent, granting dismissal in some cases but certifying classes in other cases that are very similar. In these lawsuits, plaintiffs allege claims of false advertisement, fraud, unfair trade practices, and breach of warranty stemming from food manufacturers’ use of the terms “natural” or “all natural” on their product labels.

While many of these lawsuits have been dismissed by courts for a variety of reasons, including preemption, lack of standing, jurisdiction, or failure to plead with specificity, food and beverage manufacturers are not entirely in the clear, as many of the lawsuits have resulted in substantial, multimillion-dollar settlements.

One of the more high-profile, recent settlements involved energy-drink maker Red Bull, which agreed to settle a $13 million lawsuit for false advertising. The suit argued that Red Bull’s advertisements misled consumers with promises of increased physical and mental performance. Although this is a sizable settlement with numerous implications for food and beverage manufacturers, the case only begins to scratch the surface of the trending issues in food litigation, such as all-natural claims or fruit-content claims. Most of these cases, which hinge on the addition or omission of one or two words on a label, result in multimillion-dollar claims against the food manufacturer.

In reviewing some recent cases from the past two years, it is apparent that the settlements can be particularly large, considering the costs of litigation as well as the increased manufacturing costs needed to change labels. In addition to paying the following settlement amounts, the companies are removing, or have removed, the “natural” or “all natural” wording from their products, but have not admitted liability in the process of the settlements:

• Kellogg’s agreed to a $5 million settlement regarding the labeling of Kashi products as all natural.

• Trader Joe’s agreed to a $3.4 million settlement over the labeling of a juice product.

• PepsiCo agreed to a $9 million settlement over the labeling of its Naked Juice brand.

• PopChips agreed to a $2.4 million settlement over labels stating that its chip products were all natural.

Choosing Words for Labeling

Other words on food and beverage labeling have, in recent years, triggered lawsuits similar to the natural-claims cases. Following are some other contentious words that manufacturers will want to take extra caution using, as well as the suggested style of usage for each.

• “Low,” “high,” “free,” “reduced,” and “light” are all words used in a nutrient-content claim, which is the most frequently used claim on food products, and directly or implicitly characterizes the level of a nutrient in the food. The FDA has established specific standards and definitions for each nutrient-content claim that may be used, such as “low fat” or “high in fiber.” According to the FDA, these words must indicate if food meets a definition “without benefit of special processing, alteration, formulation or reformulation.”²

• “Healthy” – even this seemingly nondescript word has a very specific meaning when it is used on food labels under FDA regulations. The term may be used only if a food is low in fat and contains limited amounts of cholesterol. Further, if it is a single-item food, it must provide at least 10 percent of the daily value per serving of at least one of the following: vitamin A or C, iron, calcium, protein, or fiber.³

• “Fresh” means that the food is in a raw state and has not been frozen or subjected to any form of thermal processing or preservation, except one or more of the following: the addition of approved waxes or coatings; the post-harvest use of approved pesticides; or the application of a mild chlorine wash or mild acid wash on produce.⁴

• “Gluten free” means that the food either is inherently gluten free or does not contain an ingredient that is 1) a gluten-containing grain; 2) derived from a gluten-containing grain that has not been processed to remove gluten; or 3) derived from a gluten-containing grain that has been processed to remove gluten, if the use of that ingredient results in the presence of 20 parts per million (ppm) or more gluten in the food.⁵

Wisconsin Manufacturers, Craft Brewers Also Affected

The challenges that manufacturers face extend beyond the purview of food. Another growing industry, craft brewing, is contributing to the complexities confronting companies, including businesses right here in Wisconsin. [Editor’s Note: Please also see “Starting a Brewery in Wisconsin” in this issue.]

The craft beer industry appears here to stay. According to the Brewers Association, an American trade group consisting of more than 1,900 brewers, craft beer made up 11 percent of the overall national beer market in 2014 – the first time it has ever reached double digits. Yet as recent litigation demonstrates, brewers of every size should be concerned about labeling.

In lawsuits, plaintiffs allege claims of false advertisement, fraud, unfair trade practices, and breach of warranty stemming from food manufacturers’ use of the terms “natural” or “all natural” on the product labels.

A recent lawsuit against MillerCoors alleges that the company misrepresented its Blue Moon brand of beer as a craft beer or microbrew. Also, the suit alleges that MillerCoors misrepresented or omitted facts relating to MillerCoors and Blue Moon Brewing Co., such as misrepresenting who actually brews the Blue Moon sold in stores. As a result, according to the complaint, consumers purchased Blue Moon when they “would not have otherwise purchased it, or would have only bought it at a lower price.” The plaintiff notes in the lawsuit that he and others are willing to pay a premium for “high-quality, small-batch, craft beers.” Further, he alleges that consumers pay $2 to $3 more for a six pack of craft beer, rather than a “six pack of macro brewed, or mass-produced beer.”

The lawsuit states MillerCoors goes to “great lengths to disassociate Blue Moon beer from the MillerCoors name.” For example, MillerCoors does not appear on the Blue Moon bottle, nor is there a MillerCoors reference on the Blue Moon website. In addition to alleging that the company fraudulently claims that “Blue Moon is brewed by Blue Moon Brewing Company,” the lawsuit states that MillerCoors uses the trademark “artfully crafted” to “falsely portray Blue Moon as a craft beer.” MillerCoors’ use of “false and deceptive marketing,” the complaint alleges, misleads consumers and allows MillerCoors “to charge up to 50 percent more for Blue Moon beer than it charges for other MillerCoors products.”

Although this particular, ongoing lawsuit concerns a large American brewer, it should not be taken lightly by smaller brewers. While there are not specific words or phrases on beer labels such as “natural” that have so far triggered lawsuits, trademark disputes between brewers over similar sounding names or logos have started to become more common. For example, in early 2015, Lagunitas Brewing Co. filed a complaint against Sierra Nevada Brewing Co., asserting that the black, bold, “IPA” lettering on Sierra Nevada’s Hop Hunter packaging was too similar to Lagunitas’ IPA packaging. The complaint asserted that consumers might confuse the two brands, based on similar “IPA” branding. Although the complaint was later dropped, the news was closely followed in the industry for its implications. In the end, brewers of all sizes must be careful about what they put on their beer labels and how they advertise their beers more generally.

New Food Safety Laws Encourage Prevention, Accountability

Adding additional burden to food and beverage manufacturers’ legal considerations is the implementation this year of several rules under the Food Safety Modernization Act (FSMA). The FSMA is a sweeping overhaul of food-safety regulations. Most of the provisions in the law took effect in 2015, making this a pivotal time for food processors to design and implement new methodologies for ensuring food safety. Many of the requirements of the law vary in scope depending on the business’s total sales or the size of the company, so it will be crucial for attorneys to carefully understand the law and its penalties.

The FSMA is wide-ranging in scope and addresses four key components of ensuring food safety.

Prevention. This is the cornerstone of the legislation, and includes provisions that require a food-safety plan, hazard analysis, and preventive controls for both human food and animal food. With some exceptions, the rule applies to facilities that are required to register with the FDA under the current food-facility-registration requirements in the Federal Food, Drug, and Cosmetic Act. Examples of such facilities include food manufacturers, processors, warehouses, and storage tanks.

Inspection, Compliance, and Response. Preventive controls improve food safety only to the extent food processors and producers comply with them. As such, the FDA must provide oversight and ensure compliance with the Act. Further, to be effective, the FDA must have the tools to respond when problems arise.

Import Safety. When the law goes into effect, importers will be responsible for ensuring foreign suppliers have adequate preventive controls in place (like those required of U.S. manufacturers).

Enhanced Partnerships. For the legislation to be successful, all food-safety agencies must work together. Specifically, the FDA must partner with state and local authorities to, for example, inspect food facilities as problems arise. This continued partnership will allow the FDA to achieve its public health goals.

Familiarity with Laws, Regulations Key to Avoiding Issues

Legal challenges for the food and beverage industry continue to grow more complex as consumers demand higher quality and more accountability in their diets. Labeling lawsuits, a growing craft-beer industry, and new food-safety laws mean manufacturers will increasingly require savvy counsel to help proactively prevent and defend any issues that arise.

In the end, new and creative marketing claims will outpace regulations, putting food and beverage processors at risk if they use such claims without understanding the laws that regulate them. To avoid legal challenges, companies can take the following steps:

• Manufacturers must know about the ingredients in their products and the processes by which the products, or ingredients, are made.

• To avoid expensive and damaging lawsuits, manufacturers can remove contentious words from their labels, focus on specific ingredients that are not regulated as heavily, and highlight regulated ingredients that are not present in the product.

• Remaining current on all developments regarding “natural” and “all natural” labels on products is now vital for lawyers providing counsel to food and beverage manufacturers.

Endnotes

¹ Letter from Phillip L. Minerich, Hormel Foods Corp. Servs. LLC, to Robert C. Post, USDA Food Safety & Inspection Serv. (Oct. 9, 2006); USDA, Office of Policy, Program & Employee Dev., Policy Book (Aug. 2005).

² U.S. FDA, Guidance for Industry: A Food Labeling Guide (9. Appendix A: Definitions of Nutrient Content Claims) (Jan. 2013).

³ U.S. FDA, Guidance for Industry: A Food Labeling Guide (10. Appendix B: Additional Requirements for Nutrient Content Claims) (Jan. 2013).

⁴ 21 C.F.R. § 101.95.

⁵ U.S. FDA, Gluten-Free Labeling of Foods (last updated Nov. 17, 2015).