NAOOA sued Kangadis for false advertising under the Lanham
Act and NY General Business Law §§ 349 and 350, alleging that Kangadis marketed
a product as “100% Pure Olive Oil” when in fact it contains Pomace, an
industrially processed oil produced from olive pits, skins, and pulp. NAOOA moved for a preliminary injunction, and
Kangadis represented that it had cleaned up its act: all of its “100% Pure
Olive Oil” product packed after March 1, 2013 contained no Pomace.
The court preliminarily enjoined Kangadis from selling as
“100% Pure Olive Oil” any product containing Pomace, and from selling any
product containing Pomace without expressly labeling it as such. However, the court declined to extend the
injunction to cover “100% Pure Olive Oil” used for 100% refined (not virgin)
olive oil. It ordered Kangadis to take
certain steps to inform potential customers about the pre-March Pomace content
of its tins, but declined to order Kangadis to post notice of its past
mislabeling on its website.
Kangadis’s Capatriti brand, labeled as “100% Pure Olive
Oil,” has about 15% of the market. Three samples taken in August 2012 contained
significant quantities of Pomace. Olive
oil comes from olives that are mechanically crushed and spun to separate out extraneous
solids and excess water. This is “virgin olive oil.” If virgin olive oil
undergoes refining to remove impurities, then it is no longer called “virgin,”
but remains “olive oil.” Pomace, aka Olive-Pomace oil, is made from the residue
materials left over after olive oil has been mechanically extracted from the
flesh of the olives. Residual skins, pits, and pulp are dried, heated, and
treated with industrial solvents to produce Pomace.
Kangadis admitted that at all relevant times before the
suit, its product contained only Pomace, but now no longer uses any Pomace to
fill its Capatriti tins. Instead, it uses only refined olive oil. A number of
state, federal, and industry labeling standards distinguish between “olive oil”
or “pure olive oil,” which must contain at least some virgin olive oil, and
“refined olive oil,” which need not contain any virgin olive oil. NAOOA argued that this made Kangadis’s labels
false and misleading.
Despite Winter,
the Second Circuit appears to use a more liberal standard for preliminary
injunctions, allowing them when a plaintiff shows (a) irreparable harm and (b)
either (1) likelihood of success on the merits or (2) sufficiently serious
questions going to the merits to make them a fair ground for litigation and a
balance of hardships tipping decidedly toward the party requesting the
preliminary relief. But the court didn’t need to worry because NAOOA lost under
either standard.
NAOOA showed irreparable harm: its member companies compete
with Kangadis and thus Kangadis’s sales were likely to come at their
expense. Also, refined olive oil is
generally cheaper than virgin olive oil, so false or misleading labels would
provide an unfair competitive advantage. Further, Kangadis's labeling allegedly
induced consumers to buy a product that is not what it seems, and thus might
cause consumers to lose faith in olive oil products in general. These were “quintessentially”
irreparable harms given the difficulty of proving exact lost sales. And NAOOA had standing on behalf of its
members.
On likely success on the merits, however, NAOOA
faltered. It showed that labeling
standards distinguish between “olive oil” or “pure olive oil” and “refined
olive oil.” New York defines olive oil as “a blend of refined olive oil [ ] and
virgin olive oils,” while “refined olive oil” is defined as “the olive oil
obtained from virgin olive oils by [certain] refining methods.” Federal and
industry standards similarly distinguish “olive oil” from “refined olive oil.” USDA’s voluntary standards require “olive oil”
to have some virgin olive oil. Kangadis’s
own website in the past touted its “100% Pure Olive Oil” product as a
“wonderful blend of virgin and refined oil made from hand picked olives,” and
two of Kangadis's suppliers defined “pure olive oil” as a blend of virgin and
refined olive oil on their websites. Thus, it was “beyond reasonable dispute” that
Kangadis was violating these various standards.
However, NAOOA wasn’t seeking direct enforcement of the
standards, which were either legally nonbinding or unenforceable through a
private right of action. (Seems like a
good case for falsity by necessary implication to me! The regulation sets the baseline for consumer
expectations; consumers may not know exactly what it means, but they have every
reason to expect the term to mean the same thing no matter who’s using it. When someone defies the regulations, consumers
have no way to know about the private meaning used by that particular producer.) There was no extrinsic evidence “that the
perceptions of ordinary consumers align with these various labeling standards
such that they would understand a product labeled ‘100% Pure Olive Oil’ to
contain a blend of refined and virgin olive oil.” Thus, there was no likely success on the
merits on a misleadingness theory.
Nor could there be literal falsity, because only an
unambiguous message can be literally false, and the label was ambiguous. It was “entirely plausible that a reasonable
ordinary consumer would interpret the phrase ‘100% Pure Olive Oil’ to refer
simply to a product that contains olive oil-that is, oil derived from the flesh
of the fruit of the olive tree--and nothing but olive oil.” The consumer might well view the claim as
silent as to whether the oil was virgin or refined, no matter what industry
insiders and certain regulators would think.
“[I]n the absence of any evidence to the contrary, it is far from clear
that an ordinary consumer, unfamiliar with industry lingo, would perceive those
terms the same way.”
The decision in Cashmere & Camel Hair Mfrs. Inst. v. Saks
Fifth Ave., 284 F.3d 302 (1st Cir. 2002), was not to the contrary. There, a
seller sold “cashmere” suits that in fact contained recycled fibers, when a
federal statute required recycled cashmere to be labeled as such. The First Circuit held that the ads might be
literally false, because the federal statute “essentially tell[s] consumers
that garments labeled ‘cashmere’ can be presumed to be virgin cashmere as if it
had been explicitly stated.” But that was a different procedural posture (an
appeal from a grant of summary judgment to the defendant), and the court couldn’t
find likely success on a similar
theory. Plus, the First Circuit’s
standard was arguably inconsistent with the Second Circuit’s rule that only an
unambiguous claim can be literally false. The state law analysis was similar.
On the alternate standard, in light of the host of labeling
standards that distinguish between “olive oil” or “pure olive oil” and “refined
olive oil,” NAOOA might have raised “sufficiently serious questions going to
the merits to make them a fair ground for litigation.” But it still didn’t show
“a balance of hardships tipping decidedly” in its favor. Sure, declining to enjoin false advertising
would likely cause some competitive harm, but it wasn’t clear how severe that
harm would be. NAOOA’s primary concern
was the mislabeled Pomace, which was now enjoined, and requiring Kangadis to
change its labels (or its product) would “no doubt … involve considerable
burdens, expenses, and risks to Kangadis's consumer relationships and goodwill.”
As to notice to consumers of the pre-March tins, the court
found that NAOOA would be irreparably harmed without such notice. Kangadis
sells about a million tins per year; the packaging says that the product
remains edible for 2 years; and the average US consumer consumers about 1 liter
of olive oil per year. Thus, a large
quantity of 3-liter tins of “100% Pure Olive Oil” containing Pomace likely
remain on consumers' kitchen shelves.
Kangadis argued that much of the “100% Pure Olive Oil” being
offered for sale in the market was presently refined olive oil and not Pomace. As
a result of the publicity surrounding the filing of the lawsuit in February
2013, a number of orders were cancelled, decreasing the supply of available Capatriti
tins below their usual levels. Still, NAOOA showed that it was likely that a “not
insignificant” number of mislabeled tins remained available for sale. Cancelled orders showed only diminished
volume, not insignificant sales volume—and the average was sales of tens of
thousands of tins a week. And while Kangadis said that tins “filled” after
March 1 contained only refined olive oil, it didn’t say anything about when it
put its last tins containing Pomace into the distribution chain, or about how
long it takes an average tin to reach the end consumers. Thus, NAOOA showed irreparable harm.
The harm could be addressed by requiring Kangadis “to send
appropriate stickers through its distribution chain to affix to unsold
Capatriti tins that contain Pomace.” This would narrowly target potential
consumers who might otherwise buy Pomace labeled as “100% Pure Olive Oil,” and rendered
broader notice unnecessary. Website notice would go beyond the stickers to
inform past purchasers about tins still on kitchen shelves, but NAOOA didn’t
explain how such notice would avert any irreparable harm to its members, since
those consumers had already decided to buy Capatriti instead of any other
brand, so the harm couldn’t be undone.
(I suspect a court deciding a trademark case would think about this
differently: to the extent that Kangadis built up goodwill through false advertising,
that harm can be undone if the deception is disclosed so that consumers won’t
reward it for past misconduct. After
all, a consumer with a mislabeled tin on the shelf might very well finish it
months from now and go to the store, then see a Capatriti tin that doesn’t now
contain Pomace and think it was the same thing she’d bought before.)
The court did reject Kangadis’s argument that NAOOA delayed
too long to show irreparable harm. In
2007, NAOOA sent a letter to Kangadis stating that NAOOA's quality control
program had tested a sample of “Capatriti extra virgin olive oil,” which was
determined to “contain[ ] a large proportion of olive pomace oil.” NAOOA obtained the samples underlying the current
action August 2012, but did not file suit until February 2013. But these delays
weren’t unreasonable under the circumstances. First, the 2007 sample was of
extra virgini olive oil, not “100% Pure Olive Oil.” Plus, NAOOA could
reasonably have assumed that the adulterated sample was the result of a
discrete quality control error “rather than an ongoing effort to pass off
Pomace as olive oil.” Delays resulting from the careful preparation of NAOOA’s
expert report, which were critical to the court’s understanding, were also not
unreasonable. In any event, Kangadis didn’t
identify any material prejudice it has suffered as a result of NAOOA's delay.
Finally, the court found that NAOOA was likely to succeed on
the literal falsity claim based on selling Pomace as “100% Pure Olive Oil.” “While Pomace may in some sense be ‘olive oil’
in that it is an oil derived from olives, it is not remotely what the ordinary
consumer understands ‘olive oil’ to be.”
(I don’t really understand how the court knows this to be true, but not
refined v. pure.) In its argument that
NAOOA should be required to post a bond, Kangadis argued that if consumers were
notified about the presence of Pomace in Capatriti, its sales would plummet—which
was “telling,” since it wouldn’t happen if consumers already understood “olive
oil” to include “an industrially processed substance like Pomace.” By contrast, olive oil and refined olive oil
were “not so fundamentally different,” since they both came from mechanically
pressed olive flesh and “olive oil” actually contains refined olive oil under
the cited labeling standards.
The injunction would impose on Kangadis the “modest” direct
costs of creating and distributing the stickers, “as well as some diminished
goodwill from any resulting negative publicity.” But NAOOA assured the court that, “in
contrast to its role in inviting an article in the New York Times the same day this action was filed, it had no
intention of trumpeting this Court's preliminary relief to the press.” (Why is this a relevant consideration? Paging Paul Alan Levy on the propriety of
limiting a litigant’s relief based on its promise not to publicize that
relief.) “Based on that representation,”
any diminished goodwill Kangadis suffered would be of its own doing; it has no
legitimate interest in perpetuating false advertising. (“Kangadis will be harmed if its false
advertising is publicized” also seems like Kangadis’s own doing, I must say.)
Kangadis sought a $10 million bond, approximating its gross
profits from Capatriti over the next three years. This was “wildly
unreasonable.” A $10,000 bond would
adequately address the risk the injunction issued in error.
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