How Food Processors Can Avoid 'Natural' Disasters

With no federal guidance on how a product can be labeled as natural, how can companies compete while minimizing potential liability? There is no "one-size" answer, but several low-cost, effective solutions can help mitigate the risk.

By Noah Hagey, Matthew Borden and Rebecca Cross

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Consumer products companies and retailers are facing an escalating barrage of lawsuits alleging that the claim "natural" on front of food and beverage labels is false or misleading, even though the packaging truthfully lists all the ingredients. At least 25 such putative class actions were filed this past six months in California alone. Some retailers, such as Whole Foods, have even begun pulling products from their shelves.

No legal definition prescribes when a company may label its products as natural, and the list of accused ingredients is far from intuitive. Recent lawsuits have targeted evaporated cane juice, vegetable glycerin, soybean oil, canola oil, alkalized cocoa, yeast extract, beta-carotene, folic acid, citric acid, ascorbic acid and high-fructose corn syrup. Companies are living in uncertainty with entire product lines and billions of dollars at stake.

In this environment, with no federal guidance and a patchwork of state laws, how can companies compete while minimizing potential liability? There is no "one-size" answer, but several low-cost, effective solutions can help mitigate the risk.

The legal backdrop: In March 2010, the FDA announced a policy shift, stating that it was going to focus its enforcement efforts on front-of-the-package labeling.  According to 2010 market research, "all natural" was the second most common claim on all food products. For years, however, the FDA has refused requests to promulgate a regulation defining "natural," citing "resource limitations and other agency priorities." 

The only FDA guidance on the term is a non-binding informal policy, which states: "The agency has considered 'natural' to mean that nothing artificial or synthetic (including colors regardless of source) is included in, or has been added to, the product that would not normally be expected to be there. For example, the addition of beet juice to lemonade to make it pink would preclude the product being called 'natural.'"

The agency has considered 'natural' to mean that nothing artificial or synthetic (including colors regardless of source) is included in, or has been added to, the product that would not normally be expected to be there.

– FDA guidance on the term 'natural'

This policy, which could render vast numbers of products technically misbranded, provides only vague guidance. Moreover, it does not have enough weight to preempt claims by consumers.  To further complicate matters, both the courts and the FDA have taken the position that accurate nutritional and ingredient labeling will not immunize a company for putting inaccurate information on the front of the package. 

Due to the lack of FDA regulation, use of the term "natural" is governed by a mélange of differing state consumer laws prohibiting "misleading" advertisement, which may be enforced by private attorneys hoping to obtain a large contingency fee. Claims are particularly prevalent in California due to a tandem of recent state Supreme Court decisions drastically reducing barriers to class certification of such claims.

Although recalls, warning letters, and other regulatory actions can seriously damage a brand, by far the greatest threat to every business is litigation risk. Most commonly, such litigation takes the form of a consumer class action; i.e., when a lawyer files a lawsuit seeking to collect "damages" on behalf of millions of consumers.

Prior to this year, we assessed litigation risk based on how material the alleged mislabeling was to consumer choice. For example, a company that sold "natural" lemonade using organic beet juice for coloring would be on the least risky end of the spectrum because beet juice is harmless (if not healthy), and it does not alter the organic nature of the product. Its presence or absence would thus be unlikely to influence consumer purchasing decisions. Such a case would not provide a high-profile target for a regulatory enforcement action, and a class action lawsuit would be less likely because establishing injury, materiality and group reliance could pose legal hurdles.

On the other end of the risk spectrum would be a product marketed as being healthy or sold to children that actually contained carcinogens or created other health risks. This assay may be changing.

What is particularly troubling about the recent rash of litigation is that these suits are targeting "natural" claims that do not appear to be material. For example, there have been at least four putative class actions filed recently against makes of ice cream, including Ben & Jerry's, Breyers and Dreyer's Ice Cream. The suits claim the products were misbranded as "all natural" and that consumers were misled into buying the products because they allegedly contain alkalized cocoa processed with potassium carbonate. 

Such cases pose a heightened concern for businesses given their dubious predicate – that vast groups of consumers make purchasing decisions based on how their ingredients are processed — and put manufacturers on heightened alert concerning the manufacturing process for each of their raw ingredients.

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