The Supreme Court decided POM Wonderful LLC v the Coca Cola Company  on June 12, 2014.  If you listened to the oral argument you would have assumed Coke’s chance of success was proportional to the .3% of pomegranate juice in its pomegranate beverage.  POM purported to assert a “classic false advertising case” that the de minimis amounts of pomegranate juice in the Coca Cola products rendered the labeling actionable under the federal Lanham Act.  Coca Cola’s defense hinged on technical compliance and whether POM’s claims were an improper attempt to enforce the Food Drug and Cosmetic Act (FDCA).  The District Court and Ninth Circuit found that Food and Drug Administration (FDA) regulations preempted POM’s Lanham Act claims.

Things did not go ‘better with Coke’ at oral argument:

Justice Kennedy:  I think it’s relevant for us to ask whether people are cheated in buying this product. Because Coca-Cola’s position is to say even if they are, there’s nothing (a competitor or the Court) can do about it.”

The Justices’ sentiments concerning the underlying claims poured into the Court’s opinion:

The position Coca-Cola takes in this Court that because food and beverage labeling is involved it has no Lanham Act liability here for practices that allegedly mislead and trick consumers, all to the injury of competitors, finds no support in precedent or the statutes. Id. at 17.

Coca Cola had presented a coherent defense of technical compliance with FDA’s labeling requirements but the Justices appeared more interested in consumer perceptions than technical compliance:

Justice Kennedy:  “You want us to write an opinion that sa[ys] that Congress enacted a statutory scheme because it intended that no matter how misleading or how deceptive a label it is, if it passes the FDA … there can be no liability?  That’s what you want us to say?”

Counsel for Coca-Cola:  “We do not, Your Honor.”

The Court reasoned that Lanham Act suits draw upon the market expertise of competitors by empowering them to sue to protect their interests on a case-by-case basis by “serv[ing] a distinct compensatory function that may motivate injured persons to come forward,” Lanham Act suits, to the extent they touch on the same subject matter as the FDCA, “provide incentives” for manufacturers to behave well.  Id. at 12.

The Government’s Proposed Solomon Solution

At the request of the Court, the government had filed an Amicus brief taking a middle position favoring Coca Cola—arguing that claims seeking to impose liability for complying with labeling regulations should be precluded—but ultimately siding with POM that it “should be free to challenge aspects of the respondent’s [juice] label that are not specifically addressed by the FDCA or the FDA’s regulations.  The Government’s middle-ground approach suggested the Court “preclude private parties from availing themselves of a well-established federal remedy because an agency enacted regulations that touch on similar subject matter but do not purport to displace that remedy or even implement the statute that is its source.”   Rejecting the government’s position the Court stated: “[e]ven if agency regulations with the force of law that purport to bar other legal remedies may do so, it is a bridge too far to accept an agency’s after-the-fact statement to justify that result here.”  Id. at 17.

Claim Preclusion is not Claim Preemption

The Court observed that “if Lanham Act claims were to be precluded then commercial interests—and indirectly the public at large—could be left with less effective protection in the food and beverage labeling realm than in many other, less regulated industries.” The Court reasoned that it was “unlikely” that Congress intended the protections of the health and safety to result in less policing of misleading food and beverage labels than in competitive markets for other products.  Id. at 12.

According to the Court “[a]lthough the application of a federal statute such as the Lanham Act by judges and juries in courts throughout the country may give rise to some variation in outcome, this is the means Congress chose to enforce a national policy to ensure fair competition.”  Id. at 14.  The Court reconciled the apparent inconsistency with its ruling in Geier v. American Honda Motor Co., 529 U.S. 861 (2000), barring a claim where the federal agency allowed for various options for compliance, stating:

Here, by contrast, the FDA has not made a policy judgment that is inconsistent with POM’s Lanham Act suit. This is not a case where a law suit is undermining an agency judgment, and in any event the FDA does not have authority to enforce the Lanham Act.   Id. at 16-17.

Also at issue in this case are state law claims that were awaiting the Supreme Court’s ruling.  Preemption and preclusion have much in common and what remains to be seen is the extent to which the Supreme Court’s ruling will influence how the Ninth Circuit decides the issue of whether “Pom’s California state law claims, which are based on similar allegations to Pom’s Lanham Act claim” are preempted.

What Does this Opinion Mean For Prescription Drugs?

In GlaxoSmithKline LLC v Teva Pharmaceuticals USA, Inc. 2:13-cv-00726 –ER (ED PA Mar. 2014), GSK asserted a Lanham Act claim alleging that representations of bioequivalence were “literally false” (eliminating the need to prove scienter) and that [Teva] made “millions of dollars in profits to the detriment of [GSK].”  Teva argued that determinations of bioequivalence are for the FDA and GSK was trying to privately litigate the FDCA.  The parties argued to different conclusions that the area of law is well settled but the Court disagreed.  The Court cited extensively from the Ninth Circuit’s opinion in POM and, nonetheless, denied the motion to dismiss finding that the claims of falsity were not precluded by FDA’s earlier determination of bioequivalence, permitting the Lanham Act claims to proceed.

Lawyers will need to ensure trial courts faced with deciding whether to dismiss federal or state claims appreciate the nuanced difference between preclusion and preemption.

While the facts in POM were unique, the Court’s ruling is not limited to the facts, and this opinion is a green light for companies within FDA regulated industries to sue competitors whenever there is a shift in market share.