In a lawsuit recently filed in the Southern District of Florida, Global Beverage Enterprises, Inc. (“Global”), the manufacturer of specialty carbonated beverages like Mr. Q. Cumber Sparkling Cucumber Beverage, brought Lanham Act claims against CytoSport, Inc., alleging false advertising of CytoSport’s popular Muscle Milk line of beverages. The basis of the claim is that the Muscle Milk beverages contain no milk and, therefore, the product name is false and misleading. If the case sounds vaguely familiar, it might be because this is not the first time Muscle Milk products have come under attack for alleged false advertising. CytoSport has been defending similar claims for the past several years, and the unique history of those efforts sets the stage for a fascinating Lanham Act claim – one that may prove to be an uphill battle for Global.
The Prior False Advertising Proceeding
Five years ago, Nestle USA brought a competitor claim against CytoSport in the National Advertising Division of the Better Business Bureau (“NAD”), a self-regulatory forum. Nestle’s allegations were virtually identical to those alleged by Global, including that the Muscle Milk products – despite the absence of milk – were sold in grocery and convenience stores alongside milk and other dairy products. CytoSport declined to participate in the NAD proceeding, and the case was referred to the Federal Trade Commission (“FTC”). (As discussed here, if an advertiser does not respond to a competitor’s challenge, NAD will generally refer the matter to the FTC.)
The FTC opened an investigation into possible violations of section 5 of the Federal Trade Commission Act, in particular “whether CytoSport’s product labeling and marketing for its ready-to-drink products could mislead consumers by implying that CytoSport’s products contain milk, when in fact they are water-based nutritional drinks.” See FTC closing letter dated May 10, 2010. But the FTC ultimately declined to recommend any enforcement action against CytoSport—in part because CytoSport agreed to modify its Muscle Milk labels to include a conspicuous disclosure on the front of the label that the product “Contains No Milk.”
The FDA’s Warning Letter
Just a year after the FTC closed its investigation, however, the Food and Drug Administration sent CytoSport a warning letter alleging, among other things, that the Muscle Milk product labels are misbranded within the meaning of Section 403(a)(1) of the Federal Food, Drug, and Cosmetic Act because the labels prominently feature the word “milk” when the products, in fact, contain no milk. Although the federal statutes enforced by FTC and FDA are different, the FTC’s “misbranded” products analysis is similar to the FTC’s false advertising analysis, so the warning letter may indicate an inconsistency in how these two agencies view the disclosure.
Effectiveness of Disclosure
In general, disclosures are considered effective where: (1) they are presented clearly and conspicuously; and (2) they are used to explain a claim, not cure a false claim. Although these basic guidelines have been developed in the Lanham Act case law and NAD case reports, the FTC has been perhaps most instrumental in establishing the rules concerning the appropriate use of disclosures (including through last year’s updates to its Dot Com Disclosures).
Here, there is likely to be little dispute regarding whether the disclosure is clear and conspicuous. As seen on the label, it appears immediately below the product name, is the same color as the product name, and is easy to read and understand. As for whether the disclosure merely explains the “Muscle Milk” name (as opposed to curing a false claim), that is likely to be the subject of significant dispute. If the product name is deemed a claim that the product contains milk, then the disclosure “contains no milk” could be perceived as curing an otherwise false claim.
On the other hand, didn’t the FTC already bless the disclosure when it closed its investigation of CytoSport, citing the disclosure as at least one factor in its decision? As a technical matter, the answer is “no.” The FTC’s closing letter expressly states that the Commission’s decision not to recommend enforcement action should not be construed as a determination that no violation has occurred. Nevertheless, CytoSport is likely to argue that the FTC’s decision to close its investigation in 2010 without further action demonstrates that the “Contains No Milk” disclosure meets the basic guidelines for an effective disclosure. After all, it is unlikely that the FTC would support its decision to close its investigation by specifically calling out a disclosure about which it had reservations.
Why It Matters
This case bears watching because it raises the question whether an advertiser can be held liable under the Lanham Act for advertising claims investigated by the FTC and for which the FTC declined to recommend enforcement action. In addition, it is possible that the case will confront the question of the FDA and FTC’s overlapping jurisdiction regarding certain types of advertising claims (including those contained on many types of product labels). While the FDA and FTC tend to coordinate their efforts on cases of common interest, the procedural history of this case raises a potential inconsistency, and it will be interesting to see whether the court defers to one agency or the other in resolving the case.