Advertising & Labeling

Divided California Supreme Court Holds State Unfair Practices And False Advertising Laws Can Be Applied To Corporate “Image” Advertising

Are “Happy Cows” Next?

In a 4-3 decision the California Supreme Court has reinstated a private attorney’s general lawsuit against Nike alleging that Nike’s public communications concerning its labor practices are false and misleading in violation of both the state’s strict liability unfair practices and false advertising statutes. Both a trial court and a state court of appeal had previously dismissed the action on First Amendment grounds.

The majority opinion in Kasky v. Nike determined that Nike’s public statements concerning its labor practices constituted commercial speech and based upon current United States Supreme Court decisions were not entitled to the absolute First Amendment protection. The majority used a three part test that looked at the identity of speaker, the speaker’s intended audience and the content of the message. The Court based its conclusion on the fact that the speakers were Nike officers and directors who were acting in furtherance of the company’s commercial interest, the intended audience included purchasers of Nike’s products and the company’s statements concerned its own business operations. While conceding that commercial speech frequently addresses issues of public policy, the majority concluded that speech is still commercial if it is likely to influence consumers in their commercial decisions.

Three justices dissented. The dissents disagreed with the majority’s conclusion that Nike’s statements about its labor practices were commercial speech. The dissents stated that even if Nike’s statements had a commercial aspect, they were so intertwined with public debates on globalization and labor practices that non-commercial aspects had to outweigh any restrictions that might be imposed on them as commercial speech. The dissenters also noted that the decision means that the playing field in public policy debates will now be uneven with business critics enjoying the First Amendment’s absolute protection while businesses will be subject to an onerous strict liability standard.

Nike has stated that it intends to seek review of the decision by the United States Supreme Court.

Among the parties filing friend of the court briefs were California Attorney General Bill Lockyer and the Sierra Club on behalf of Kasky and the ACLU on behalf of Nike.

Comment:
Unless and until the United States Supreme Court reverses the decision in Kasky v Nike, companies doing business in California should recognize that the State Supreme Court decision has effectively eliminated any distinction between the advertising of products and services and statements pertaining to company business practices. In addition to being subject to actions by private parties as well as public agencies, plaintiffs in Unfair Practices and False Advertising actions do not need to prove either that consumers relied upon a defendant company’s public statements or that they were damaged by purchasing the defendant’s products. Furthermore, because of the statute’s strict liability standards, conventional methods of documenting information, sometimes referred to as a “paper trail,” may not be adequate.

Zackler & Associates provides legal services concerning all aspects of marketing and is available to review with you any communications that may raise issues under Kasky.

 

Country Of Origin Labeling Requirements Expanded

The 2002 Farm Bill has substantially revised and expanded country of origin labeling requirements. Of particular concern to retailers will be the bill’s record keeping requirements.

Under the new law, beef, lamb, pork, fish, peanuts and fresh produce will have to be labeled at retail with the product’s country of origin which includes the United States. For example, under prior law only imported pre-packed produce had to be labeled by country of origin. Grocery stores will now have to also post signs identifying the country of origin (including the US) for produce received in bulk that is unpacked and not sold directly from its container.

The bill directs the Secretary of Agriculture to issue voluntary country of origin labeling guidelines by September 30, 2002 and mandatory labeling rules by September 30, 2004. Grocery stores must maintain country of origin records and suppliers are required to provide retailers with county of origin information. Grocers could be fined up to $10,000 for violations of the regulations.

Comment:
The country of origin labeling requirement is one small part of the 492 page Farm Bill which formalized the effective repeal of the short-lived “Freedom to Farm Act.”

Zackler & Associates provides advice on labeling, distribution and similar issues subject to USDA regulation and can review with you how the Farm Bill might affect marketing and labeling of your products.

 

NEW ORGANIC LABELING RULES TO GO INTO EFFECT

As provided in the final rules that were published by the USDA on December 21, 2000, effective October 21, 2002 all packaged food products sold as organic must comply with the labeling requirements of the National Organic Program (“NOP”). The only exception is for products that have already entered the “chain of commerce.” Consequently, any unshipped organic food products that have not been labeled in compliance with NOP standards as of October 21 will have to be relabeled prior to shipment.

The labeling requirements for organic foods depend upon whether the product is “100% Organic,” “Organic,” or made with identified organic as well as non-organic ingredients. In each case, the organic certifier must be identified on the label by name. The certifier’s address, Internet address or telephone number may also be included on the label. Products that can be labeled as “100% Organic” or “Organic” may also use the USDA “Organic” seal.

Comment:
After years of waiting and wrangling the U.S. finally has national organic standards. Zackler & Associates can assist you in determining how to advertise and label your products that are “100% organic,” “organic” or contain organic ingredients. We can advise you about alternative nomenclature for products that cannot be labeled “organic.”