Take a stroll through your local grocery store or pharmacy, and you can’t help but notice a surfeit of labels featuring claims such as “100% natural,” “organic,” “gluten free,” or “no trans fats” competing for your attention.
However, as illustrated by two recent class action settlements south of the border, labeling assertions such as “all-natural” can have broad implications that extend well beyond mere consumer choice. The makers of Organix, a hair and skin company that makes consumer products such as shampoos and body washes, recently agreed to pay a putative class of consumers $6.5 million, and also agreed to remove the word “organic” from its labels unless organically produced ingredients comprise at least 70 percent of the product by volume. The plaintiffs in this case alleged that consumers paid a premium for Organix products in reliance on the labelling, notwithstanding the fact that the products allegedly contained only 10 percent organically-produced ingredients. Similarly, a $1.3 million settlement was approved earlier this year in respect of “Neutrogena Naturals”, which is manufactured by Johnson & Johnson. The plaintiffs in that case alleged that product labels and website advertising for the Neutrogena Naturals’ line of skincare products falsely led consumers to believe that the products did not contain synthetic ingredients.
What is Driving this Trend?
These are but two examples of a growing trend in the United States, and elsewhere, stemming from an increased scrutiny by regulators and consumers (and by extension, the plaintiffs’ bar) on the adequacy and accuracy of product labelling, particularly in the health milieu. New product labelling class actions are being commenced on a weekly basis, demonstrating the increased willingness of consumers to take food, beverage and personal care product manufacturers to task over product labels, particularly in the context of:
- “natural” or “organic” product claims;
- products that claim to have salutary health benefits; or
- products that claim to be free from ingredients considered to be damaging to one’s health.
Numerous factors have contributed to the increase in the number of class actions that are being commenced, including:
- consumers are increasingly concerned by the health aspects of the products they bring into their homes;
- mindful of emerging consumer trends, manufacturers have responded by revising existing product labelling or creating new product lines to take consumers’ concerns into account; and
- regulators and litigants alike have become increasingly focused on product labelling, particularly insofar as health assertions are concerned.
Although this trend has yet to be fully adopted in Canada, the recent settlement in Quebec of a class action commenced against Danone Inc. in respect of Activia and DanActive yogurts on behalf of all Canadian consumers highlights the fact that the Canadian environment is far from immune from these types of emerging actions. In Sonego v. Danone Inc., the plaintiffs claimed that Activia and DanActive were advertised on the basis that the probiotics contained in the yogurt help to strengthen immune systems, in spite of an alleged lack of scientific consensus about whether probiotic bacterial supplements are beneficial to one’s health. The class was certified by the Superior Court in Quebec for the purposes of settlement on May 27, 2013. The settlement agreement provided that each class member would become entitled to between $15 and $50, depending on whether the consumer had retained evidence to substantiate their purchase. As of the date of the settlement, Danone estimated the total exposure to be in the range of $1,700,000.00. The Quebec proceeding, which was modeled on a parallel U.S. proceeding, illustrates the fact that “copycat” litigation on both sides of the border is soon to be commonplace, as has been the case in other areas of product liability.
Risk Mitigation Strategies for Manufacturers
The phrase “an ounce of prevention is worth a pound of cure” has never been more apt. Although there are a myriad of strategies that a company may employ in the product labelling context to minimize their chances of being sued, some “best practices” include the following:
- Know your product inside and out, including how it is made, and where its ingredients are sourced;
- Substantiate health claims on labels or websites with research and reports before it hits the shelves;
- Know the law in terms of labelling requirements, and what regulations and guidelines promulgated by regulatory agencies apply to you;
- Consider how the average consumer might interpret your label, through focus groups and other marketing research;
- Ensure that the imagery on your label is reflective of the accompanying text (i.e., consider the potentially problematic scenario in which there are predominant images of fruits on the label, but the product doesn’t contain fruit);
- Keep abreast of research, studies, and litigation trends at the national and international level; and
- Integrate your marketing department and your product development team with internal/external legal counsel at an early juncture to ensure that potentially false or misleading claims are headed off at the pass