Package as “Advertising”

Originally published by Susan Ross (US).

On October 17, 2016, a US federal trial court in the District of Columbia ruled that a competitor may pursue a Lanham Act claim for false advertising due to a container of black pepper. Watkins Inc. v. McCormick & Co., Inc., Case No. 1:15-cv-2188 (ESH) (D.D.C. Oct. 17, 2016) (2016 WL 6078250). In ruling on a motion to dismiss, the court found that the “size of a package signals to the consumer vital information about a product and is as influential in affecting a customer’s choices as an explicit message on its surface.” Watkins Mem. Op., Case No. 1:15-cv-2188.

Background

The case began in early 2015, when McCormick decreased the amount of black pepper in its containers (sold to consumers) by 25%, and also decreased the price. McCormick changed the weight listed on the containers to reflect the accurate amount of black pepper in each container, but did not change the size of the container. Because the containers were either metal (which the consumer could not see through) or plastic grinders (where the labels covered the contents), consumers were unable to see the amount of empty space (called “slack-fill”) in the containers. Consumer class actions were filed, but this case involved a lawsuit filed by a competitor, alleging false advertising under the Lanham Act. McCormick moved to dismiss the competitor lawsuit.

Standing

A McCormick competitor in the black pepper business, Watkins Inc., claimed that McCormick’s actions prevented consumers from purchasing Watkins’ black pepper. Watkins claimed that the McCormick containers falsely implied that the amount of pepper was equivalent to, or more than, the amount offered by Watkins with its similarly-sized containers. Watkins claimed that if consumers had known the amount of black pepper was actually 25% less in the McCormick containers, the consumers would have purchased competitors’ black pepper, including Watkins’.

McCormick argued that Watkins could not prove it had standing to bring a claim, because its injuries were speculative. In order to prove standing for a Lanham Act claim, a plaintiff must show (1) injury in fact, (2) causation, and (3) redressability. McCormick challenged the first two elements in its motion to dismiss.

Because the case is at an early stage, the court assumed that Watkins’ allegations of consumer confusion were true. The court found it was elementary economics that “‘if two firms are offering a similar product for different prices, the firm offering the lower price will draw away customers from its competitor.’” Therefore, the court ruled, the diversion of sales from Watkins to its direct competitor is the “paradigmatic direct injury from false advertising.” The court also found that the injury was “fairly traceable to McCormick’s conduct.”

False Advertising Under the Lanham Act

In order to maintain a false advertising claim under the federal Lanham Act, a plaintiff must show, among other things, that the defendant had engaged in “commercial advertising or promotion.” McCormick argued that its black pepper containers were not “commercial speech.” The federal court first looked to a similar case under New York state law that found that “excessive slack fill states a claim for false advertising” under New York’s law. (Waldman v. New Chapter, Inc., 714 F. Supp. 2d 398, 406 (E.D.N.Y. 2010) (package listed weight in grams rather than ounces.)

This court followed that rationale and applied it to the Lanham Act. This court found that the “size of a package signals to the consumer vital information about a product and is as influential in affecting a customer’s choices as an explicit message on its surface.” The court also found that the size of the black pepper containers “‘is exactly what makes them misleading, because consumers cannot see the amount of the contents.’”

FDA Regulations and Consumer Confusion

The U.S. Food and Drug Administration (FDA) regulations state that

A container that does not allow the consumer to fully view its contents shall be considered to be filled as to be misleading if it contains nonfunctional slack-fill. Slack-fill is the difference between the actual capacity of a container and the volume of product contained therein. Nonfunctional slack-fill is the empty space in a package that is filled to less than its capacity for reasons other than:

(1) Protection of the contents of the package;

(2) The requirements of the machines used for enclosing the contents in such package; and

(3) Unavoidable product settling during shipping and handling;

21 C.F.R. § 100.100(a). Therefore, the court reasoned, “nonfunctional slack-fill is considered deceptive as a matter of law, so there is nothing implausible about allegations of actual, widespread deception among McCormick’s customers.”

In days past, such an explicit FDA rule might have brought a pre-emption or primary jurisdiction challenge by the defendant. The traditional argument would be that Plaintiffs are using the Lanham Act as a vehicle for enforcing FDA regulations, a disfavored arena for private civil litigants. In the post-Pom Wonderful world, however, McCormick did not look to FDA’s prohibition of slack-fill as preclusive. See Pom Wonderful LLC v. Coca-Cola Co., 134 S. Ct. 2228 (2014).

Considerations

Although this case is only in the early stages, companies selling products where consumers cannot see the contents may wish to review their packaging.

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