Companies that design, manufacture, distribute, or sell consumer products are increasingly vulnerable to consumer fraud class action litigation. Recent targeted industries include food, cosmetics, nutritional supplements, personal care products, and electronics, with particular focus on performance claims (i.e., how well the product works), and ingredient or content labeling.
Even when a product label or advertisement does not expressly make a claim about the product’s performance or content, such claims can be “implied,” making litigation a possibility. Consumer product companies may consider these possible methods of consumer fraud class action risk and exposure mitigation in 2015:
1. Identification of Product Claims
Even before considering whether claims are adequately substantiated, identify all actual and perceived advertising and packaging claims. While this may seem simple, for a company that sells hundreds of products, both branded and private label, significant efforts may be necessary to determine and track which particular language is being used in connection with any given product at any particular time in any particular location. Another challenge is to identify and understand all of the implicit messages that a product’s labeling and advertising could convey, including (and especially) messages that may be unintentional. Keep in mind that plaintiffs are increasingly challenging not only express claims, but also implied claims (e.g., “embedded” claims in pictures or testimonials).
2. Substantiation and Regulatory Compliance
Once all claims have been identified, carefully analyze the strength of the substantiation under FTC, FDA, and common law standards. Is there a “match” between the product tested and the product sold (e.g., type of ingredients, amount of ingredients)? Is the product tested under anticipated use conditions? Are the studies sufficiently powered? Does the product comply with regulatory labeling requirements? Do product testimonials or endorsements satisfy the FTC Endorsement Guide? Although private individuals cannot sue for violation of FDA regulations, plaintiffs are increasingly coming up with indirect methods to sue for alleged regulatory violations, including, for example, using California’s Sherman Act.
3. “Clinically Proven”
Some courts (including in California and Illinois) have found that the burden of proof differs depending on whether a claim simply states that a product has a benefit (often called a “non-establishment claim”), or whether the claim states that the benefit has been “scientifically proven” or “clinically proven” (sometimes called an “establishment claim”). For non-establishment claims, courts have held that a plaintiff has no cause of action for “lack of substantiation” but must instead prove that the claim is actually false. For establishment claims, on the other hand, a plaintiff can sue for “lack of substantiation.” Consider carefully the level and quantity of substantiation before making a “clinically proven” or “scientifically proven” claim. And be sure to revisit a product’s establishment claims on a regular basis to ensure the claims remain sufficiently substantiated by the latest research.
4. Monitoring of Regulatory Activity
Plaintiffs’ attorneys monitor warning letters, consent decrees, and other enforcement activity (FTC, FDA, NAD, etc.) to find grounds for a new lawsuit. Keep abreast of current regulatory attention and case law to avoid falling into an area of advertising or marketing that is of current interest to governmental agencies. Conversely, consider seriously whether you want to assume the risk in an area in which an agency has expressly declined to regulate (e.g., regulations on the use of the term “natural”) because you will almost certainly not be able to rely on agency guidance or preemption principles to defeat a lawsuit at the pleading stage.
5. Websites and Social Media
FDA and FTC assert jurisdiction over website content. Review website content for archived pages that may contain outdated material, metatags with search terms that may be perceived as implied claims, or statements that lack substantiation. Confirm that digital agencies are using accurate and up-to-date advertisements and labeling on your company’s behalf. The use of social media and testimonials also may be monitored by regulatory agencies, and should be monitored by you. Such media may be used by plaintiffs’ lawyers in class action litigation to find named plaintiffs and to attempt to demonstrate that there was “one message” about a challenged product on which the entire proposed class was entitled to rely.
6. Supply Chain Protection
Consider provisions in supply agreements that provide for recourse against suppliers if they provide substantiation for product claims or other scientific information on which you rely for your own product claims. In reaching agreements with new suppliers, negotiate for provisions that would be favorable in the event of litigation involving a supplier’s ingredient or product claims that a supplier supported (e.g., indemnification).
7. Recall Preparedness and Refund/Warranty Programs
Be prepared for the possibility of product recall. Review existing procedures or develop new ones to ensure quick and effective notice to distributors, retailers, and customers in the case of a safety risk or concern. Additionally, consider whether to institute a robust refund/warranty program. Some courts consider such programs in determining whether a class action is necessary or “superior” as a method of providing compensation to the class. Moreover, such programs can effectively moot the claims of prospective plaintiffs, thereby reducing the number of dissatisfied customers that could potentially serve as proposed class representatives.
8. Customer Relations
Frankly assess how your company responds to customer inquiries, complaints, adverse event reports, and comments. Review policies and procedures to ensure that customers and regulatory authorities are receiving accurate and consistent information. Determine what types of information could be discoverable or what types of communication might be privileged, and take affirmative steps to ensure that all types of information are treated appropriately and consistently.
9. Consumer Research
Consumer research related to claims and purchasing decisions can be both a sword and a shield in consumer fraud class action litigation. For instance, testing claims that are unlikely to meet regulatory requirements can create unhelpful, discoverable documents. Consider whether particular research (or at least certain documents arising out of the research) can and should be conducted in a potentially privileged context.
10. Proactively Govern Information
Companies are facing an ever-increasing amount of “digital debris,” or data that expired under retention schedules, has no business value, and is not subject to legal or regulatory retention requirements. Ongoing, timely, and consistent document retention policy implementation via purging or organization of such data can reduce storage and litigation costs, mitigate legal and compliance risks, and increase efficiency. Consider reviewing your company’s compliance with retention policies, as even modest investments in effective information governance can deliver substantial returns.