Tuesday, August 05, 2008

The market for pomegranates

Pom Wonderful LLC v. Purely Juice, Inc. (C.D. Cal., July 17, 2008)

Pom Wonderful sued Purely Juice for falsely advertising 100% pure pomegranate juice when in fact the juice was heavily adulterated with sweeteners and, in some cases, contained little if any pomegranate juice at all. In earlier proceedings, the 9th Circuit affirmed the denial of a preliminary injunction because the facts weren’t sufficiently developed and there was some uncertainty about what “100% juice” means under FDA regulations.

Pom Wonderful proceeded and recently won at the district court on remand. The tone of the opinion suggests that defendants’ evidence was ultimately so bankrupt that the court might have been a bit discomfited by its prior denial of a preliminary injunction. But sometimes you do need all the facts, and Pom Wonderful certainly brought them to bear this time around: No matter what “100% pomegranate juice” means, it doesn’t mean what was in those Purely Juice bottles.

Pure pomegranate juice has high levels of polyphenols, which have numerous claimed health benefits. The current research does not show the same benefits for juice with added sugar and other adulterants. Pom Wonderful has played a major role in disseminating these health claims and is a market leader in “super premium” juices.

In April 2006, Purely Juice began selling a “100% pomegranate juice” product claiming to have no sugar added. Its website called the juice “all natural” and promised “NO added sugars or sweeteners.” The juice’s sugar allegedly came from natural fructose. Purely Juice made similar health claims to Pom Wonderful’s, but marketed itself as a lower-priced alternative.

Unlike Pom Wonderful, Purely Juice isn’t a grower. It pays a broker, Perma Pom, to buy pomegranate juice concentrate from suppliers in Iran (hey, is that legal?) and other Middle Eastern suppliers. In 2006, industry participants were generally aware that there was a problem with adulteration of Middle Eastern pomegranate juice. The court found that Purely Juice knew or should have known of these problems (though of course that’s not necessary for a Lanham Act violation). Moreover, throughout the relevant period, Purely Juice paid well below market rates for pure pomegranate concentrate.

Pom Wonderful became concerned that Purely Juice’s lower prices were enabled by adulteration. Pom Wonderful secured numerous test results substantiating this concern. The first concluded that the Purely Juice sample tested “contains little or no pomegranate juice” and was in fact mostly corn syrup and other fruit juice. Pom Wonderful complained to Purely Juice, which maintained that its own tests found that its juice was within acceptable legal parameters.

Pom Wonderful had seven independent labs, including the “leading juice authenticity testing laboratory in the United States,” conduct additional scientifically accepted tests specifically designed for pomegranates. The unanimous consensus was that “100% pomegranate juice” was false because the juice had added sugars and other fruit juices, and its levels of polyphenols, antioxidants, and potassium were correspondingly far below what ought to have been present in pure pomegranate juice.

Purely Juice’s own testing also detected high levels of sucrose and corn syrup in its juices—results it had in hand when it responded to Pom Wonderful’s complaint with a denial. Purely Juice repeated its tests on numerous different lots, and got the same results each time; the testing lab concluded that the lots had “little or no pomegranate juice.” After the last round of testing, Purely Juice held some unshipped lots of juice, but it didn’t recall any of the already-shipped products, though those were the lots that it had tested and found adulterated. (The court noted that other competitors whose lots Pom Wonderful also tested and found wanting appeared to take the problems more seriously, though again we aren’t grading on a curve when it comes to the Lanham Act.)

After filing the complaint, Pom Wonderful continued to test Purely Juice lots, and continued to find problems, though from the quotes in the opinion there appears to have been more pomegranate in the more recent batches.

The court accepted expert testimony that pomegranates have scientifically accepted ranges of various characteristics, which can be used to distinguish pomegranate juice from other juices. Moreover, sucrose and corn syrup don’t occur naturally in pomegranates—shocking, right?—and the Purely Juice products were therefore adulterated. Purely Juice attempted to argue that non-US pomegranates have different chemical profiles; the court was not convinced, pointing out (among other things) that corn syrup wasn’t a component of pomegranates even on Purely Juice’s evidence.

What about the FDA regulations that had injected uncertainty into the meaning of “100% juice” in the earlier proceedings? The FDA regulates “Brix,” which measures the amount of dissolved solids (sugars) in a given amount of liquid. Brix measurement, however, is used to prevent dilution of fruit juice with water. It doesn’t distinguish between fruits, the issue here. In fact, the court held, Brix is “almost entirely irrelevant in detecting the sophisticated forms of dilution and/or product alteration made possible by advances in modern [food science].” Only chemical analysis can determine the authenticity of juice.

Thus, Purely Juice’s advertising was literally false; deception is presumed.

The court also considered consumer perception: as you’d expect, consumers of super-premium juices are highly concerned with product ingredients and have even contacted the parties asking about added sugars. Moreover, the relevant consumers are highly concerned with health benefits. Thus, “100% pomegranate” is material. (As the court noted, the fact that “100% pomegranate” goes to the “very nature” of the product would have been enough to justify this conclusion.)

The Lanham Act violation was coupled with a California state law false advertising violation. California law imposes a duty of reasonable care on advertisers; defendants shirked that duty.

Defendant’s president and founder was individually liable, jointly and severally, with Purely Juice.

The court concluded that Purely Juice would have lost most or all of its market share had it truthfully labeled its juices. The court accepted defendants’ damage calculation of approximately $1.2 million dollars in lost profits for Pom Wonderful during the period for which adulteration was proved, plus over $300,000 in profits for Purely Juice.

In addition, the court granted injunctive relief, noting that the fact that Purely Juice imported its juice made it especially likely that the false advertising would be repeated unless enjoined. The public interest strongly favored an injunction: Unadulterated pomegranate juice may have significant health benefits, while adulterated juice deprives consumers of those benefits and the adulterants may even harm them.

On this record, the Lanham Act did exactly its job: attacking a practice that consumers could not detect for themselves, and whose existence would create exactly the “market for lemons” that distorts markets and destroys high-quality products were it not for the requirement of truth in advertising.

You can read Purely Juice’s press release (we never intended to mislead anyone, and there was never any safety danger) here.

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