From bright and glossy, to refined and elegant, product labeling and packaging convey information, messaging, and claims about a brand. At the same time the labeling and packaging must also include mandatory information, guided by local, national, and regional regulations. As more companies take their products global, they need to assess the legal requirements for each market to avoid the possibility of litigation, and of misleading customers and losing their trust.
In this hoganlovells.com interview, Thomas Salomon, a Hogan Lovells partner in our Hamburg office, discusses how labeling and packaging define a brand, and how legal requirements guide what is written on a label and the way a package is designed.
Labeling and packaging requirements are defined in various sources within the EU and member nations. How do companies identify these requirements?
Salomon: First of all, the challenge is to find all these sources, because they are not always familiar to clients.
What we have in mind is a client who wants to enter a new market. In your home market, you’re well connected and know the right people to ask. You have accumulated the necessary know-how over time or your regulatory department takes care of that. So companies usually have no problem identifying the legal requirements and external and internal legal advice may only come into play when you have to interpret legal requirements. That’s the national view.
When you start cross-border distribution and sales into different markets, you begin with a prior step, and that is identifying all the applicable rules. There are regions where you have a certain harmonization, like the EU, where you can be mostly sure about the regulatory requirements because they are set forth in European legislation, be it regulations or directives, and provide a good starting point.
What are the challenges with complying with both national and EU legislation for labeling and packaging?
Salomon: Regulations are immediately applicable in every member state, while directives have to be implemented by national legislation. In that case, you still have to find the national legislation. You have to consider whether there are any particular additions or changes and whether they are permissible or not. In any event, you have to look into the practice in the various markets. For example, the EU has 24 offical languages and most regulations require information in the national language. Against this background, even if you have the same wording, it doesn’t mean that the interpretation given by the courts in all relevant countries is necessarily the same.
There are two levels to that: first is identifying, then interpreting. With interpreting, you have, again, two levels: one is the national level and the other is the European. The national levels are very important, because even if you’re sure that the lawyer has so much foresight that he or she knows how the European court of justice will ultimately interpret the language of a regulation, that doesn’t say that the local courts in member states will have the same understanding from the outset.
So you may face problems. You may be away from the market due to injunctions for a certain period, maybe three or four years, until the European court of justice looks at it. So you want to get it right also from a local perspective; just using the view from the European law perspective is not necessarily sufficient. It is good, because ultimately this is what should apply, but you must make sure that you don’t face problems on the way to it.
What support does Hogan Lovells provide to clients with the interpretation of labeling and packaging regulations?
Salomon: That’s one thing that we at Hogan Lovells are very keen on: we can provide advice from the European level and have advisors who can tell you this is the direction you have to go. But at the same time, we don’t stop at that level and then leave it to the client to fight through with local authorities and courts. Through our network of offices, we also have local counsel who say yes, that’s the standard.
For example, let’s say in Germany, France, or Spain, we have case law that says a certain requirement should be applied this way. Then you suddenly find out that there are different ways of interpretation that conflict or are not entirely in harmony. That’s the same situation with federal laws in the United States: you have federal courts in California and in Texas interpreting them and they won’t always agree. Therefore, you need to look into the national practice and operation of the law.
That’s very important and a key challenge, because in the end, you want to have one product that can be sold in all markets. You don’t want to have different labels and packaging for each individual market because you want to keep costs down and have one product to put on the shelves, and you don’t want to think about it. So if you get an order from Bulgaria and you have your warehouse in Germany, you just want to send it there without packing it again.
That’s the challenge: have a uniform appearance in the markets, so customers immediately recognize the product whether they are at home in Germany or on vacation in Spain. At the same time, make sure that you comply with all the local intricacies you may find.
Label content should meet both labeling and legal requirements. How do clients assess the risks related to requirements without compromising their message?
Salomon: The starting point usually is what the client wants to say about their product. What kind of information and messages do they want to convey?
Then, from the other end, what are the mandatory requirements — the information you must give about your product? That’s usually a simple list of information. Who is the manufacturer or responsible seller of the product? Where was it made? What are the ingredients? With food or cosmetics, how much of the product is in there, by pieces, weight, or volume? That’s the easy stuff. You just check boxes.
The more challenging part is what they want to say about the product. How do they want to describe it? What kind of characteristics or effects do they want to ascribe to it, and what is the factual basis for that?
Then we have to ask, are there any regulations about this specific product? For example, there are strict regulations in Europe on so-called health claims for food. Any kind of message that attributes a health effect to a certain food has to be pre-approved by authorities. The question is, are you already within or without? There may be some leeway or clever way of using the words, and there may be risks.
To find the legal risk, you have to evaluate what kind of risk clients are willing to take and how dear certain claims are to them. Then you have to come up with whether it’s a good idea to put a specific idea on the package or put it in another material, such as radio or online advertisements, which can be changed quickly and without lots of costs, whereas changing packaging is always the worst-case scenario. For a certain time, you will not be allowed to supply the remainder of your packaging to the market, so there may be a gap in the availability of your product.
Once you identify the risk and the client’s risk threshold, what are the next steps?
Salomon: The risk always has two elements. One is purely legal — how sure are we that a certain claim is legally permissible? The second is practical — what is the actual risk of being attacked for a critical claim?
Then you identify who might challenge you. Is it a competitor? Is it a consumer protection agency or public food authority? Is there a very competitive atmosphere so that all your competitors are watching what you’re doing and don’t want you to push the limits because they’ve been hit before, so they want you to play on the same level field as they do?
You have to look at the market, the relevant players, and the official structure. What authorities are looking into it? Are they taking on things proactively, or just waiting for complaints? What about consumer protection agencies — how do they deal with these matters? You have to know who’s going after what. We know there are agencies, for example, here in Germany, that are very keen on certain practices like overly big packaging, which gives the impression that there’s more contents than there actually are. They hate when the contents go down and the packaging size goes up.
How do we counsel clients about pushing the legal limits of labeling requirements?
Salomon: You get further legal input, because the proceedings may differ according to who’s going to attack you. From a German perspective, if competitors or consumer protection agencies go after you, things may go very quickly by preliminary injunctions. It may take a day or two to obtain an injunction against you. If the authorities go after you, this is a longer process. Generally, they have to hear you first before they can prohibit you. There are procedural guarantees that protect you a little, and unless there is imminent danger to consumer safety, even if they are right your objection would still have a suspending effect on the order. That means it can’t be enforced unless there is a final decision by a court.
“Pushing the legal limit” means that there are different elements of uncertainty you can play with. It does not mean to play on time for blatantly unlawful practices. Get a realistic evaluation of your legal position. Make sure that you know which scenario is most likely to apply to you and what it means for your product. Will this proceeding give you enough time to change and therefore you can afford a more risky approach? Or will it hit you like that? If so, it’s better to take a safer approach. This may differ from market to market. It is combined with the questions we discussed earlier: what do I do with my messages for different markets?
It's a complex thing, with all these issues in mind. It’s also challenging for us as lawyers because we need to know a lot about the markets and the competition in the markets. Then we can help the client come up with a reasonable solution. The most important point for us is that the client always knows what kind of risk they are going to take and whether they actually want it. Transparency on that issue is the most important thing, from our point of view.
Can you summarize into a few key points the most commonly overlooked risks involved with labeling and packaging?
Salomon: One should be very clear in one’s strategy to choose priority target markets. Start somewhere and be aware of what the limits are in these markets, because you will most likely attach other markets to this package. Very often, you have multilingual packages. For example, chocolate bars: you have the standard information and some claims in a number of languages — English, German, French, Dutch, Spanish, Portuguese, Italian. Those are the main markets they want to push the products into.
Then they should think about what else they want to say about the product, such as using a catchy slogan or trademark, and how that will be received in those countries. Look into the major countries and then say, if that’s forbidden there, I don’t have to think about it for the other countries, because I want to push one package into those different markets. So choose the priority markets and then build groups of risk to decide how many different packages you actually want to have, for which reasons.
How can the use of other media for brand communications affect what clients put on a label?
Salomon: Clients may consider not only the packaging and messages they want to put on labels, but also ask what other communication channels they will open for their product. Will you have lots of TV, radio, Internet, newspaper, or magazine advertisements? There are many different media where you can combine messages, so ask yourself, do I have to actually put everything I want to say on the product itself or will I accompany it by some strong media presence? Then you may switch from one medium to another to balance your risks.
But if you have just the product, then it’s a different thing. And that happens a lot. If a client markets a new jam with a “home garden” concept, it implies it’s from the good old times, with the type of fruits and the manufacturing methods your grandmother used. But they don’t have a budget for a multichannel marketing campaign; they’re not going to push for prime time TV spots because the value of sales would never get it back. So they are focused on what they can say on the product itself. These are things you have to think about: what can I do?
Must clients do a risk analysis for each market they’re considering?
Salomon: In principle, yes. In practice, you don’t need to have full-fledged risk analysis from each market. Because there are differences between all markets, all the time, you need to make sure your client understands the risks. If you identify your key markets and get an understanding of what’s going on there, it’s not likely that you will find an entirely different problem in another market. That will in particular be the case in harmonized regions like the EU. If you cover a Scandinavian country, Germany, France, and Italy, you will probably not be surprised by anything coming up in Greece, Romania, or Lithuania. You will also apply a cost-benefit test: for example, Latvia is a country of about 2 million; you’re not going to spend the same amount of money for legal review as you will for Germany, with its market of 82 million.