The Lanham Act and POM Wonderful LLC v. Coca Cola: A Cause of Action for Competitors

PomegranateMany of my cases will pit one competitor against another in litigation. An antitrust claim is often at the center of the dispute, but a number of other claims can find their way into the case; sometimes even in a starring role.

Litigation between competitors can include, for example, trade secret or intellectual property disputes, tortious interference claims, and Lanham Act claims, to name just a few. Our focus today is on the Lanham Act because the U.S. Supreme Court last week issued an interesting opinion on its scope in POM Wonderful LLC v. Coca Cola Company.

The question was whether The Federal, Food, Drug and Cosmetic Act (FDCA) precluded a plaintiff from filing a Lanham Act claim related to food labeling. Justice Kennedy explained for a unanimous court (which did not include Justice Breyer) that plaintiffs can pursue their claim about pomegranate-blueberry juice labeling: The statutes don’t conflict—they complement each other.

First, some background. The Lanham Act is a federal private right of action to enforce trademark rights, as well as (and relevant here) “unfair competition through misleading advertising or labeling.” What is particularly interesting about the Act is that it is specifically designed for competitors. That is, consumers that discover false advertising or labeling can’t bring a Lanham Act case. Only competitors that can “allege an injury to a commercial interest in reputation or sales,” have standing. You might recall that the Court addressed Lanham Act standing earlier this term in Lexmark International, Inc. v. Static Control Components, Inc., discussed here.

Consumers don’t have standing to sue under the Lanham Act, but they benefit from competitor lawsuits (at least theoretically) because competitors expend the costs and effort to stop deceptive advertising and labeling. This is a positive externality and an example of a federal law that creates a private attorney general enforcement model, which I have discussed in law-review form here. A private attorney general is a private party that is incented by law—through a cause of action and prospective damages—to enforce laws with a public benefit.

You can read my article discussing the elements of a Lanham Act claim for false advertising here.

By contrast, the FDCA is the traditional expert administrative agency statute that limits itself to government-agency enforcement. These sort of statutes are great in theory, but the reality is that the government experts are rarely omnipotent beings that can create utopias through benevolent regulation, even if they are often sold as something close to that. The reality is that these agencies have limited resources, limited abilities, limited efficiency, and terrible incentives. But that is a story for another day.

What matters is that the FDA enforces the FDCA and it could have but has not prohibited the label in question. In any event, it has jurisdiction over the issue. At the same time, the Lanham Act (a more general statute) seems to apply to the mislabeling allegations. What gives?

The Ninth Circuit affirmed the district court that Congress decided to entrust mattes of juice beverage labeling to the FDA, which has promulgated comprehensive regulations on the matter and has not prohibited the labeling in question. Out of respect for this regulatory regime and its specific regulations addressing the issues in question, the Ninth Circuit barred the plaintiff’s Lanham Act Claim.

The Supreme Court disagreed. The Court viewed this as a statutory-interpretation case and did not see any conflict in the two statutory regimes. Neither Act forbid the Lanham Act claims in the case. (Note: because of preemption principles and the Supremacy Clause, the result would likely have been different if the Lanham Act were a state statute).

In fact, the two federal acts complement each other: “the Lanham Act protects commercial interests against unfair competition, while the FDCA protects public health and safety.” (Slip op. 11). But more importantly (in my view), “the FDCA and the detailed prescriptions of its implementing regulations is largely committed to the FDA. The FDA, however, does not have the same perspective or expertise in assessing market dynamics that day-to-day competitors possess.” Id.

By contrast, “Competitors who manufacture or distribute products have detailed knowledge regarding how consumers rely upon certain sales and marketing strategies. Their awareness of unfair competition practices may be far more immediate and accurate than that of agency rulemakers and regulators.” (Slip op. 11-12).

And here is my favorite line of the opinion: “Lanham Act suits draw upon this market expertise by empowering private parties to sue competitors to protect their interests on a case-by-case basis.” (Slip op. 12). That’s right, the Supreme Court endorses competition as a superior form of regulation to the command-and-control methods of the expert agency and their infamous five-year plans.

The Court then connected these points by explaining that allowing enforcement through both the FDCA and the Lanham Act took advantage of “synergies among multiple methods of regulation.”

The antitrust and competition laws in the US are similarly enforced through both private parties and government agencies. In the EU, by contrast, most (but not all) antitrust and competition enforcement occurs through government action. Perhaps the EU isn’t taking sufficient advantage of the “synergies among multiple methods of regulation.”

Update: A federal jury found in favor of defendant Coca-Cola on the Lanham Act. You can read about it here.