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Food Fraud Presents Risks of Criminal Prosecution

The latest reminder of the risks of perpetrating food fraud: on May 22, 2012, the U.S. government filed felony charges against a seafood importer for allegedly falsifying Country of Origin Labeling (COOL).  According to the filing, Worldwide Shrimp Company and others conspired to violate the Lacey Act by labeling Mexican shrimp as a product of the U.S.

The defendants, of course, are innocent until proven guilty beyond a reasonable doubt.  The purpose of this posting is not to suggest otherwise.  Rather, it is to identify three (of many) underlying reasons why COOL laws are important to businesses and consumers.

First, some consumers choose not to buy imported foods like shrimp and honey, because they may be contaminated with banned chemicals that might cause personal injury.

Second, even if no one suffers personal injury from an imported food, in some states, economic injury is enough to provide standing for plaintiffs to sue, because labels matter.  Consumers often are willing to pay more for foods from certain countries (or to avoid buying foods from others) for many reasons not directly related to safety, such as supporting local jobs or reducing energy use.

Finally, companies that are accused of violating COOL laws should keep in mind they risk conviction in the court of public opinion.  Many consumers understand that companies willing to violate COOL laws may also be more likely to break other laws that affect food safety.

Nutrition Facts Labeling: Do it Right the First Time

Please see my article at FoodandBeveragePackaging.com regarding the importance of including Percent Daily Value figures in the Nutrition Facts box for food products.

Food Fraud – An Emerging Litigation Risk

April 24, 2012 2 comments

Food Fraud presents an emerging litigation risk in California and nationwide.

What is Food Fraud?

Food fraud occurs when someone sells a product that is not what it purports to be.  A few examples include short weighting (e.g., including the weight of excessive ice glazing) of frozen seafood, species substitution, dilution of premium olive oil with inferior oil, and misrepresenting a product’s country of origin.

How do Fraudsters Get Away with It?

Many times, only minor distinctions differentiate competing products, so it can be difficult even for trained professionals to detect fraud.  Almost two hundred years ago, British writer Cyrus Redding stated that consumers could avoid food fraud by becoming “perfect[ly] acquaint[ed] with that which is good.”  But how can one become “perfectly acquainted” with the differences between conventionally-produced and “free range” eggs, other than by the price paid?

Why is this an Emerging Litigation Risk?

Food fraud is economic fraud, because labels matter, and customers want to get what they pay for.  Some states have already seen food fraud class actions filed that allege honey laundering.  Food fraud also presents a risk of food allergy personal injury litigation for companies that substitute cheaper finfish products like surimi for shellfish like crab.   Food fraud also may result in criminal indictment and imprisonment.  There  are also the indirect costs of negative publicity arising from conviction in the court of public opinion.

What can be Done to Manage Food Fraud Risks?

Companies that implement food fraud risk management plans that include traceability systems like RFID and third-party verifiers may be able to reduce their food fraud risks and increase sales.

“Pink Slime” and Lessons Learned Re: Labeling and Advertising

By now, the use of “lean, finely textured beef” (LFTB, known to its detractors as “pink slime”) in ground beef products is well-known.  And that’s the problem.  If its manufacturers had been proactive in disclosing (and even advertising) its use instead of waiting for others to define the debate, then they may have minimized their risk of huge financial losses.

The purpose of this posting is not to take sides in the “pink slime” vs. “boneless lean beef” debate or to argue that one side’s arguments are more palatable, no pun intended. 

Rather, it is to highlight the importance of labeling, advertising, and promotional practices as part of a proactive risk management program.  That’s why this blog addresses more than just food safety issues; regardless of the product’s purported safety or purity, the key issue appears to be the lack of disclosure to consumers.  Why did it take 20-plus years for consumers to be able to identify what products contain this ingredient?  How could BPI, the largest producer of this product, not have seen this PR train wreck coming?

The irony of industry complaints about how the media have “smeared” the product and its producers’ reputations is that the industry’s wounds are almost entirely self-inflicted.  The producers chose not to disclose the pervasive addition of the product to ground beef, so critics naturally focused on why it was concealed from the public.  Iowa Rep. Steve King called for congressional hearings about the product’s critics, stating “they’ll have an obligation then to explain themselves why they could not base their allegations on facts and what they’ve done to damage an industry.”  However, the congressman failed to address a key issue: if the producers had disclosed these “facts” proactively, there would probably have been no “damage” to the industry.  

Consumers for decades (if not longer) have expected their ground “100 percent beef” to appear this way, not this way.  Similarly, BPI does not have even one picture of its product anywhere on its website or in its YouTube video rebuttals to films like Food Inc.  Its published images portray children enjoying burgers and the high technology used to produce its product.  Its videos feature company officers, a scientist who can’t make eye contact with the camera, and a lobbyist.  The lack of disclosure begs the question of what else might be in food fed to children?

Now, imagine that the companies producing this product had focused proactively on its claimed merits: that it’s a safesustainable, low cost, way to enjoy beef.  Photos of production machinery that looks like an indoor oil refinery just might appeal to the market segment that enjoys products like toxic waste candy.  Perhaps a catchy brand name like “spin safe” ™ could have defined the debate about using centrifuges to separate fat from lean meat.  Most importantly, calls for mandatory labeling of the product would become irrelevant; half of consumers do not read labels anyway

Lesson learned: manage labeling, advertising, and promotional issues proactively.

Labels (Still) Matter: Campbell’s Soup Pays Seven Figures to Settle “Low Sodium” Class Action

September 14, 2011 Leave a comment

The latest reminder that manufacturers must consider the costs and benefits of promoting health and nutrient content claims on product labeling:

Campbell’s Soup Company recently paid $1.4 million to settle a class action lawsuit that alleged its “Low Sodium” tomato soup labeling misled consumers.  The soup allegedly contained the same amount of sodium as the company’s regular soup, but Campbell’s sold it for a premium price.  (The complaint also alleged Campbell’s Healthy Request tomato soup claimed it was “Low in Fat,” even though it contained more fat than the company’s regular soup.)

Campbell’s denies liability and contends it complied with applicable laws. 

The purpose of this posting is not to comment on the factual or legal support for the parties’ claims or defenses.  The issue is that regardless of the merits, defending and resolving lawsuits arising out of product labeling claims can be very expensive.  Companies that invest proactively to minimize their litigation risks may avoid incurring these costs.

Are Health Claims on Kids’ Cereals Misleading? Why Should My Company Care?

August 16, 2011 1 comment

Yale University’s Rudd Center for Food Policy and Obesity recently published a study that found parents often misinterpreted the meaning of nutrient content and health claims presented on kids’ cereals.  The cereals included an “average [of] 3.1” “nutrition-related” messages per box, but they also contained an average of 35 percent added sugar by weight.

The study concluded that its participants misinterpreted the claims in two ways.  First, they “inferred” that the sugary cereals were “more nutritious” than competing products, despite their “below average . . . nutritional quality.”  Second, they attached broader meanings to the manufacturers’ health claims than their “literal interpretation.”   For example, 74% of the parents believed that an “‘antioxidants and vitamins’ (i.e. immunity) claim meant it might keep their child from getting sick.”

Most critically, the authors concluded the parents’ “beliefs predicted greater willingness to buy the cereals.”  Please recall my article regarding the Kwikset case that allowed a false advertising class action to proceed, because claims on “labels matter.”  Manufacturers of foods that some authors may deem have “below average . . . nutritional quality” may want to conduct a cost-benefit analysis evaluating the potential increased sales from advertising health claims against the risk that findings like those from the Yale study may support an unfair competition class action claim, as well as possible negative publicity in the court of public opinion.  Public interest groups may also attempt to support efforts to expand the jellybean rule to further limit manufacturers’ use of these claims.

You may be Sued Even if You Sell Safe Food

Your food processing company or restaurant may be sued even if it sold perfectly safe food, and even if your customers incurred no physical injury.  Recently, a New Jersey state appellate court ruled that Hindu restaurant patrons could sue a restaurant for serving them a dish containing meat, after they expressly told the staff they were strict vegetarians.

The customers claim they incurred spiritual and emotional injuries.  They seek damages to recover the cost of traveling to India to cleanse their souls.

The purpose of this posting is not to question anyone’s religious beliefs or comment on any factual support for the plaintiffs’ allegations or the restaurant’s possible defenses.

Rather, this litigation should serve as a reminder that “labels matter.”  As discussed in Kwikset v. Sup. Ct. (Benson) 51 Cal.4th 310, 330 (2011), companies that incorrectly represent that their product is, for example, Kosher, when it is not, may not cause any physical harm to a customer who follows Kosher dietary laws.  However, a customer that pays for food that a company misrepresents is Kosher likely has standing to sue the company for an economic injury based on that misrepresentation (at least in California).  It appears that the New Jersey courts are following similar reasoning in this recent case.

The takeaway message: your customers take your representations seriously, and misrepresentations can be very costly.  Just ask McDonald’s.  In 2009, it paid $10 million to resolve claims arising out of allegedly mislabeling its french fries as vegetarian, even though no plaintiff incurred any physical injury (although the company represented that “vegetarians can enjoy” its french fries, they contained beef flavoring; nonetheless, McDonald’s denied plaintiffs’ allegations).

Are your Health and Nutrient Content Claims Accurate and Well-Documented? Labels Matter.

Please see my new article in Food and Beverage Packaging regarding exaggerated labeling claims and potential liability for false advertising and unfair competition.