Thursday, October 20, 2016

Package size can be false advertising

In Re: Mccormick & Company, Inc., Pepper Products Marketing & Sales Practices Litigation, 2016 WL 6078250, No. 15-cv-2188 (D.D.C. Oct. 17, 2016)

Watkins, which produces black pepper, alleges that its largest competitor, defendant McCormick (which has 70% of domestic black pepper sales), deceptively “slack-filled” its black pepper containers, confusing consumers and causing a loss in Watkins’ pepper sales. Consumers can’t see inside McCormick’s containers before they buy. In early 2015, McCormick allegedly reduced the amount of actual pepper in each of its pepper tins by 25% but “misleadingly continued to use the same traditional-sized tins” and reduced the quantity of peppercorns in its grinders from 1.24 ounces to 1 ounces, again without changing the size of the containers. McCormick did print the reduced quantity on the containers. Watkins also alleged that McCormick kept the price the same, though it didn’t specify wholesale or retail price.  Under 21 C.F.R. § 100.100, “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.” 

McCormick challenged Watkins’ Article III standing. In a false advertising suit, a plaintiff can demonstrate injury by showing that “ ‘some consumers who bought the defendant’s product under a mistaken belief’ fostered by the defendant ‘would have otherwise bought the plaintiff’s product.’ ” The court here quoted Judge Bazelon’s statement that “all claims of competitive injury are to some extent speculative, since they are predicated on the independent decisions of third parties; i.e., customers. However, ... it is the stuff of the most elementary economic texts 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.” Given the purpose of the Lanham Act to protect producers against unfair competition, the court adopted the Ninth Circuit rule that “[a] plaintiff who can’t produce lost sales data may ... establish an injury by creating a chain of inferences showing how defendant’s false advertising could harm plaintiff’s business.”  That’s what happened here.  Watkins alleged that consumers bought containers that looked like they delivered more bang for the buck and wouldn’t have done so if they’d known the truth; that was an adequate allegation of injury fairly traceable to McCormick’s conduct.

Statutory standing: Lexmark allowed Watkins standing. Lexmark noted that “potential difficulty in ascertaining and apportioning damages is not ... an independent basis for denying standing where it is adequately alleged that a defendant’s conduct has proximately injured an interest of the plaintiff’s that the statute protects.”  Sales diversion from a direct competitor was a “paradigmatic” direct injury for Lanham Act purposes.

On the merits, Watkins also stated a claim.  McCormick argued that slack-fill packaging wasn’t “commercial advertising or promotion.”  “McCormick’s insistence that the size of its containers does not constitute advertising or promotion defies common sense and the law.”  McCormick argued that the size of its containers didn’t propose a commercial transaction.  But “advertising includes statements about the product to be sold, not merely a proposal to sell.” Moreover, “[t]he 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.” As Watkins argued, “[t]he size of McCormick’s containers is exactly what makes them misleading, because consumers cannot see the amount of their contents.” (We might more properly call McCormick’s actions communicative conduct, but that hardly helps its argument.  Compare this wrongly decided case about how color and price aren't falsifiable claims.) 

Watkins properly alleged falsity, given federal law about nonfunctional slack fill.  “[T]he slack-fill regulations do not include an exception for containers which accurately state the product amount.” The court articulated the reason for this rule:

An accurate statement of weight does not necessarily correct a consumer’s misimpression of product quantity based on the size of a container, because consumers are accustomed to seeing how much space a product occupies but may not know how that relates to its weight. Moreover, as plaintiff has alleged, the history and iconic, recognizable size of the McCormick containers creates a misleading impression.

McCormick argued that Watkins needed to plead “facts showing that identifiable consumers were actually confused.”  But Watkins could rely on the allegations in the parallel consumer class actions against McCormick, and anyway, the regulations consider nonfunctional slack fill to be deceptive as a matter of law, “ so there is nothing implausible about allegations of actual, widespread deception among McCormick’s customers.”

State law claims under various deceptive trade practices laws also survived.

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