Category: Food & Hospitality

NLRB General Counsel Authorizes Complaints Asserting Franchisor Can Be Jointly Liable With Its Franchisees

Schiff Hardin Law Firm

Earlier this week, the General Counsel of the National Labor Relations Board (NLRB), Richard F. Griffin, authorized the issuance of multiple complaints which include allegations that a franchisor, McDonald’s, USA, LLC, could be liable as ajoint employer with its franchisees for violations of theNational Labor Relations Act (NLRA). The text of the General Counsel’s authorization is available here.

Since 2012, McDonald’s, USA, LLC and its franchisees have been named in 181 unfair labor practice charges filed with the NLRB. In a memorandum issued to the Regional Directors, the General Counsel noted that 43 of those charges were found to have merit, while the remaining charges either were found to have no merit or are pending further investigation. The General Counsel’s action authorizes the regions in which the charges were filed to issue administrative complaints naming McDonald’s USA, LLC and its franchisees as respondents if the parties are unable to reach settlement in the 43 cases that have been found to have merit.

The authorization comes on the heels of an amicus brief filed by the General Counsel in June in Browning-Ferris Industries of California, Inc., urging the Board to adopt a new standard for determining joint-employer status. Under the current standard, the NLRB analyzes whether alleged joint employers share the ability to control or co-determine the essential terms and conditions of employment. TLI, Inc., 271 NLRB 798 (1984). Essential terms and conditions of employment include hiring, firing, discipline, supervision and direction of employees. Laerco Transportation, 269 NLRB 324 (1984). The putative joint employers’ control over these employment matters must be direct and immediate.

In the amicus brief, the General Counsel argued that the Board’s current standard for determining joint-employer status is significantly narrower than the traditional standard and ignores Congress’s intent that the term “employer” be construed broadly. Griffin urged the Board to adopt a new standard that accounts for the totality of the circumstances, including how putative joint employers structure their commercial dealings. Under the proposed test, joint-employer status would exist if one of the entities wields sufficient influence over the working conditions of the other entity’s employees such that meaningful bargaining could not occur in its absence.

The NLRB has not yet decided whether to adopt the General Counsel’s proposed standard, and the Browning-Ferris case is currently pending before the Board.

Implications and Recommendations

Although the General Counsel’s action has sparked a flurry of debate over the proper test for determining joint-employer status, it remains unclear whether the NLRB will accept his position. If the NLRB decides to adopt a new joint-employer standard, it would likely expand the number of entities found to be joint employers and thus potentially liable for alleged unfair labor practices, and could have ramifications under other employment laws as well, including wage and hour and discrimination cases.

ARTICLE BY

Alexis Dominguez
OF
Schiff Hardin LLP

FDA Issues Guidance for Safety of Nanomaterials in Cosmetic Products (as well as in Food)

GT Law

For the last seven or so years, the U.S. federal government and some state governments have been collecting cradle-to-grave information regarding nanomaterials. The data collection call-ins were intended to create a collaborative, scientific dialogue with the goal of examining relevant information, and identifying information gaps and ways to address those gaps.

Last week, the FDA issued guidance documents for both cosmetic and food manufacturers. The guides are one more step intended to assist industry and other stakeholders in identifying the potential safety issues of nanomaterials in consumer products and in developing a framework for evaluating them. It also provides contact information for those who wish to discuss safety considerations regarding the use of specific nanomaterials in cosmetic products with the FDA.

If your company is considering the use of nanomaterials in its products, it is important to recognize that although nanotech cosmetics are still subject to the same legal requirements as other cosmetics, in that they do not require premarket approval, the products must be safe under customary usage conditions and properly labeled. Additionally, although the FDA has explained that the current safety framework used for conventional cosmetics is still appropriate for cosmetics using nanotech, companies should keep in mind the unique properties of nanomaterials when testing safety. Ultimately, as this guidance reminds, companies are legally liable for ensuring the safety of their products. As to food products, the FDA encourages manufacturers to contact the agency early in the development process to assist in assessing the safety and potential issues with using nanotechnology.

Read the complete press announcement from the FDA here.

Article By:

Angela Diesch
Of:
Greenberg Traurig, LLP

Making Use of Social Media: FDA Releases Two Draft Guidelines on the Use of Social Media Platforms by Drug and Device Manufacturers

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The Food and Drug Administration (FDA) has released two long-awaited draft guidance documents for the drug and device industries revolving around the use of social media platforms by drug and device manufacturers — Internet/Social Media Platforms: Correcting Independent Third Party Misinformation About Prescription Drugs and Medical Devices (“Guidance on Correcting Third Party Misinterpretation”), and Internet/Social Media Platforms with Character Space Limitations – Presenting Risk and Benefit Information for Prescription Drugs and Medical Devices (“Guidance on Presenting Risk/Benefit Information”).

As the titles suggest, the purpose of the documents is to clarify how social media may be utilized by drug and medical device companies for the voluntary correction of misinformation provided by independent third parties, as well as for presenting promotional messaging regarding risk/benefit information of products. But while the guidelines provide helpful clarification regarding how such platforms may be utilized, they each also raise considerations that companies should take heed of before beginning to use these outlets, and should be factored into a company’s social media guidelines.

Internet/Social Media Platforms: Correcting Independent Third Party Misinformation About Prescription Drugs and Medical Devices

As an initial matter, the Guidance on Correcting Third Party Misinterpretation (“Draft Guidance #1”) establishes two points: first, Draft Guidance #1 only applies to misinformation posted to Internet-based platforms by an independent third party, therefore excluding content provided by the company itself, its employees and agents. Second, Draft Guidance #1 establishes that the exception to a company’s obligation to respond to or correct misinformation only applies to information that is “truly independent,” for example posted by an independent third party to an unaffiliated platform or a platform providing content that is not controlled by the company.

However, Draft Guidance #1 does not completely exclude company-operated sites. In stark contrast with the company’s obligation to correct content when that content is “owned, controlled, created …influenced or affirmatively adopted or endorsed by, or on behalf of, the firm,” where such corrections are obligatory and also carry advertising and labeling regulatory requirements, Draft Guidance #1 does not hold companies responsible for correcting misinformation where a company owns or operates an online platform that allows for user-generated content (chat room, etc.) over which a company does notexert control. However, Draft Guidance #1 cautions that such a site should contain an “overarching and conspicuous statement that the firm did not create or control the [user-generated content].”

If a company chooses to voluntarily respond to truly independent misinformation, Draft Guidance #1 sets parameters on the process for taking correction action, which should either be by (i) providing appropriate truthful corrective information or (ii) providing “a reputable source for correct information, such as the firm’s contact information. In either approach, in order to constitute “appropriate corrective information” a firm’s communication should denote the affiliation of the corrective post with the company, and be:

  • relevant and responsive to the misinformation;
  • limited and tailored to the misinformation;
  • non-promotional in nature, tone, and presentation;
  • accurate;
  • consistent with the FDA-required labeling for the product;
  • supported by sufficient evidence; and
  • posted either in conjunction with or reference the misinformation.

In acknowledgement of the vast nature of the Internet and certain forums and the reality that it may be impractical for a company to attempt to correct all misinformation about its products that may appear, Draft Guidance #1 stipulates that companies do not need to address all incorrect information that may be posted regarding a particular drug or device, even if a company elects to correct a selective portion. When addressing any misinformation, therefore, Draft Guidance #1 recommends that a company create a figurative box around the particular misinformation and portion of the forum it intends to correct, and then revise all the incorrect information within that defined boundary, which should include also correcting positive misinformation or exaggerations. Following corrective action, while Draft Guidance #1 does not hold companies responsible for monitoring the communication, it does recommend that companies keep records that include (i) the date, location, and content of the misinformation; (ii) when the wrongful information was discovered; and (iii) a description of the corrective information provided, including the date it was furnished.

Finally, Draft Guidance #1 suggests that the FDA does not intend to object if a firm voluntarily corrects misinformation and the voluntarily provided corrective information does not satisfy otherwise applicable regulatory labeling or advertising requirements, so long as the corrective information is not non-truthful, misleading, or in a manner other than recommended by Draft Guidance #1. However, companies should take heed that any corrective action that goes beyond merely providing accurate information that is specifically tailored to the misinformation it is addressing (i.e., including slogans or promotional information) must comply with applicable regulatory requirements related to labeling or advertising.

While helpful for establishing clearly both the parameters for correctly responding to misinformation as well as for clearly limiting a company’s obligation to respond to any or all misinformation posted by an independent third party, the Guidance on Correcting Third Party Misinterpretation also reminds companies to take caution when doing so to ensure that their responses are narrowly tailored enough to fall under the purview of the guidance and outside regulatory requirements. That caution includes carefully considering where misinformation clearly constitutes “truly independent” information. Companies should be mindful of the reality that “truly independent” is not a concept that is well defined, and should thus be cautious before asserting that certain misinformation may fall under the purview of Draft Guidance #1 as the FDA advances a broad interpretation of when a company is responsible for taking corrective action.

Internet/Social Media Platforms with Character Space Limitations — Presenting Risk and Benefit Information for Prescription Drugs and Medical Devices

Prepared by the Office of Prescription Drug Promotion, the second guidance issued by the FDA last week, the Guidance on Presenting Risk/Benefit Information (“Draft Guidance #2”), addresses the parameters around presenting benefits and risks information on Internet and social media platforms with character spacing limitations, such as microblogs (e.g., Twitter) and online paid search (e.g., “sponsored links” on search engines such as Google). Draft Guidance #2 clearly establishes that, as a threshold matter, the character restrictions do not eliminate the company’s responsibility to ensure its promotional messaging complies with all applicable regulations related to advertising and labeling, and cautions that such forms of media may not be appropriate for promotion of certain products, such as those with complex indications or risk profiles.

For companies that choose to make product benefit claims on character-space-limited communication sites, while each may reasonably use common abbreviations (including scientific and medical abbreviations), punctuation marks, and other symbols to comply with space constraints, Draft Guidance #2 presents a broad set of rules that must be satisfied by each communication relating to both risk and benefit information.

Benefit Information

  • Benefit information should be accurate, non-misleading, and reveal material facts within each individual message or tweet.
  • Benefit information should be included with risk information in the same message. Do not spread benefit and risk information across multiple messages or tweets.

Risk Information

  • Risk information should be included with benefit information in the same message. Do not spread risk and benefit information across multiple messages or tweets.
  • Risk information should be “comparable in scope” to the benefit information, and should, at minimum, include the most serious risks, e.g., those included in a boxed warning or known to be life-threatening, among others, associated with the product. To determine whether risk information is “comparable in scope” to the benefit information, the FDA weighs (i) whether the risk information “qualifies any representations made about the product,” and (ii) whether the risk information is presented with a “prominence and readability comparable to the benefit claims about the product.” While risk disclosures may be concise when paired with benefit information, a hyperlink to a complete, and exclusive, discussion of risks should be included and appropriately titled and not promotional in nature.
  • Both the proprietary and established (generic) name for the product should be included within the character-space limited communication and on each landing page associated with each hyperlink in that initial communication. Draft Guidance #2 recommends that the landing page be devoted exclusively to the communication of risk information about the product and not to the promotional home page. Such landing page should also prominently display quantitative ingredient and dosing information for prescription drugs.

In light of the restrictions set forth by Draft Guidance #2, while companies should feel comfortable taking advantage of current social media platforms including those with character restrictions, they should also ensure that the parties responsible for drafting any such posts are aware of the parameters placed on such communications. A hypothetical example provided by Draft Guidance #2 exemplifies some of the potential disadvantages of such messaging:

NoFocus (rememberine HCl) for mild to moderate memory loss-May cause seizures in patients with a seizure disorder www.nofocus.com/risk

While the message complies with each of Draft Guidance #2’s directives, the balancing of risk and benefit information in a space restricted communication may have the unintended result of highlighting risk over benefit. Additionally, from a practical standpoint, the space constraints may prevent the inclusion of all necessary information. If a company cannot conclude that “adequate” benefit and risk information (along with other required disclosure) may be communicated in the same message or tweet — particularly at 140 characters — Draft Guidance #2 recommends that the company reconsider whether the use of the particular platform is the appropriate forum for the dissemination of such messaging before making use of such forums, once again in particular for drugs with complex indications or high risk profiles.

As a general conclusion, while the Guidance on Presenting Risk/Benefit Information is self-admittedly limited in scope, and does not address “promotion via product websites, webpages on social networking platforms (e.g., [Facebook, Twitter, YouTube]), and online web banners,” it undeniably provides helpful direction for drug and device companies’ use of social media sites for promotional messaging where communications are restricted to a limited number of characters, as well as highlighting how the FDA may intend to regulate such use. Companies should pay careful attention to the restrictions while taking advantage of the opportunities these social media platforms offer, and should take care to ensure to instill clear policies that comply with Draft Guidance #2 that are available to, and understood by, individuals tasked with producing and monitoring social media content for the company.

The FDA will be accepting comments on both Draft Guidance #1 and Draft Guidance #2 until September 16, 2014.

Article By:

Cynthia J. Larose
Christine M. Wahr
Of:
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

New York Federal Court Rejects Preemption and Primary Jurisdiction Arguments in “All Natural” Case

GT Law

In our February 12, 2014 post, entitled “Consumer Class Actions Trending From Attacking ‘All Natural’ to ‘Raw,’” we addressed whether claims challenging consumer product advertising as “all natural” were preempted in the absence of specific guidance from the FDA and the mixed results the argument has produced.  In Ault v. J.M. Smucker Co. et al., 2014 WL 1998235 (S.D.N.Y. May 15, 2014), the Court denied a motion to dismiss based on preemption and primary jurisdiction where the plaintiff alleged that it was deceived into purchasing Smucker’s Crisco oil by “all natural” advertising where the product contained genetically modified organisms, or GMOs, because the FDA has not addressed the use of the term “all natural” in this context.

All Natural

Smuckers argued that FDA policies regarding the use of the term “natural” preempt state law false advertising claims based on this language, even if those policies are informal.  However, the Court found, “no federal specifications exist here.”  Id. at *3.  And “[e]ven if an informal FDA definition does exist, the term ‘natural’ ‘may be used in numerous contexts and may convey different meanings depending on that context[]” [citation,] [and] “that is one of the reasons the FDA has never adopted a formal definition.”  Id. (citing Pelayo v. Nestle USA, Inc.,<“> No. CV 13–5213, 2013 WL 5764644, at *5 (C.D.Cal. Oct. 25, 2013)).  In addition, “the FDA has declined to consider the specific issue here:  whether and under what circumstances food products containing ingredients produced using genetically engineered ingredients may or may not be labeled ‘natural.’”  Id. (citation and some internal quotation marks omitted).  “As a result,” the Court found, “any general, informal FDA guidance is not controlling.”  Id. (citing In re Frito–Lay N. Am., Inc. All Natural Litig., No. 12–md–2413,2013 WL 4647512, at *10 (E.D.N.Y. Aug. 29, 2013)).

The Court also rejected Smucker’s argument that the FDA’s decision not to impose a labeling requirement for foods with GMOs supports preemption, stating, “[i]n effect, Defendant interprets the FDA’s lack of action as approval for Defendant’s use of the phrase ‘All Natural’ to describe foods containing GMO [but] [i]n reality, the FDA has stayed silent because it ‘operates in a world of limited resources’ where it ‘must prioritize which issues to address.’”  Id. (citation omitted.)

In addition, the Court found Smucker’s primary jurisdiction argument unavailing:  “three federal district judges previously referred the question of whether foods containing GMOs may be labeled ‘natural’ to the FDA under the primary jurisdiction doctrine [and on] January 6, 2014, the FDA responded and explicitly declined to make such a determination.”  Id. at *4 (citing January 6, 2014 FDA Letter).  “The FDA’s refusal to consider the question demonstrates that ‘resort to the agency at this time would be unavailing,’ [citation] and therefore weighs against applying the primary jurisdiction doctrine.”  Id.

This case signals that, until the FDA acts, preemption and primary jurisdiction arguments against “all natural” advertising of products with GMOs may be more and more challenging.

Article By:

Jordan D. Grotzinger
Of:
Greenberg Traurig, LLP

FDA (Food and Drug Administration) Proposes Tobacco Products Rule; E-Cigarettes, Cigars To Be Regulated

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The rule would ban the sale of e-cigarettes, cigars, pipe tobacco, and other products to those under 18; would require warning statements on product packages and in advertisements; and would require manufacturers to register and list products the with Agency and submit new products for premarket review.

On April 25, the U.S. Food and Drug Administration (FDA or the Agency) published a proposed rule (the Rule) in the Federal Register, establishing, for the first time, federal regulatory authority over electronic cigarettes (e-cigarettes), cigars, pipe tobacco, dissolvable tobacco products, and nicotine gels (deemed tobacco products).[1]

Key Takeaways from the Rule, if Finalized

The following would apply to the newly deemed tobacco products:

  • No sales to those younger than 18 years of age and requirements for verification by means of photographic identification
  • Requirements to include health warnings on product packages and in advertisements
  • Prohibition of vending machine sales unless in an adult-only facility

In addition, per the Rule, manufacturers of newly deemed tobacco products would be subject to the following requirements, among others:

  • Register with, and report product and ingredient listings to, the Agency
  • Market new tobacco products only after FDA review
  • Not make direct and implied claims of reduced risk unless FDA confirms (1) that scientific evidence supports the claim and (2) that marketing the product will benefit public health
  • Not distribute free samples

Background

The Tobacco Control Act provides FDA with the authority to regulate cigarettes, cigarette tobacco, roll-your-own tobacco, and smokeless tobacco. Section 901 of the Federal Food, Drug, and Cosmetic Act (FD&C Act), as amended by the Tobacco Control Act, permits FDA to issue regulations deeming other tobacco products not named in the tobacco control statute (e.g., e-cigarettes) to be subject to the FD&C Act. Section 906(d) provides FDA with the authority to propose restrictions on the sale and distribution of tobacco products, including restrictions on access to, and advertising and promotion of, tobacco products if FDA determines that such regulation would protect public health.

The Rule would extend FDA’s existing authority over cigarettes, cigarette tobacco, roll-your-own tobacco, and smokeless tobacco to include e-cigarettes, cigars, pipe tobacco (including hookah [water pipe] tobacco), dissolvable tobacco products, and nicotine gels. This latter group of tobacco products, deemed by FDA to be subject to the Tobacco Control Act, was not named in such legislation.

Scope of the Rule

Broadly, the Agency has proposed the following two alternatives for the scope of the deeming provisions and, consequently, the application of the Rule:

  • Option 1 would extend the Agency’s authority to all tobacco products not previously regulated by FDA that meet the statutory definition of “tobacco product,”[2] except accessories of such products
  • Option 2 would extend the Agency’s authority to all tobacco products not previously regulated by FDA that meet the statutory definition of “tobacco product,” except premium cigars[3] and the accessories of products not previously regulated by FDA

FDA is seeking comment on the relative merits of Option 1 versus Option 2, based primarily on the public health consequences of adopting one option or the other.

The principal difference between the two options is the scope of cigar regulation. Under Option 1, all cigars would be covered. Under Option 2, only a subset of cigars (i.e., “everything but “premium” cigars) would be covered by the Rule.

As noted above, accessories of proposed deemed tobacco products are outside the scope of the Rule. FDA considers accessories of proposed deemed products to be those items that are not included as part of a finished tobacco product or items that are intended or expected to be used by consumers in the consumption of a tobacco product. For example, FDA considers accessories to be those items that may be used in the storage or personal possession of a proposed deemed product (e.g., hookah tongs, bags, cases, charcoal burners and holders, cigar foil cutters, humidors, carriers, and lighters). However, e-cigarettes, and the components thereof, and hookah pipes are covered by the Rule.

Requirements; Implications for Retailers and Manufacturers

Generally, deemed tobacco products would be subject to the same FD&C Act provisions that apply to cigarettes. These include, but are not limited to the following:

  • Prohibition on selling (at a retail counter or via a vending machine) these products to persons under 18 years of age and verification by means of photographic identification related to the same
  • Enforcement action against products determined to be adulterated and misbranded
  • Required submission of ingredient listing and reporting of harmful and potentially harmful constituents (HPHCs) for all tobacco products
  • Required registration and product listing for all tobacco products
  • Prohibition against use of modified risk descriptors (e.g., “light,” “low,” and “mild” descriptors) and claims unless FDA issues an order permitting their use
  • Prohibition on the distribution of free samples
  • Premarket review requirements

Display of Health Warnings on Deemed Tobacco Product Packages and Advertisements

The Rule would require the following health warning on packages of cigarette tobacco, roll-your-own tobacco, and deemed tobacco products other than cigars sold, distributed, or imported for sale within the United States: “WARNING: This product contains nicotine derived from tobacco. Nicotine is an addictive chemical.” Regarding cigars, the Rule would require that any cigar sold, distributed, or imported for sale within the United States must bear one of the following warning statements on each product package:

  • “WARNING: Cigar smoking can cause cancers of the mouth and throat, even if you do not inhale.”
  • “WARNING: Cigar smoking can cause lung cancer and heart disease.”
  • “WARNING: Cigars are not a safe alternative to cigarettes.”
  • “WARNING: Tobacco smoke increases the risk of lung cancer and heart disease, even in nonsmokers.”
  • “WARNING: This product contains nicotine derived from tobacco. Nicotine is an addictive chemical.”[4]

These warning statement requirements also apply to advertisements of cigarette tobacco, roll-your own tobacco, and deemed tobacco products, regardless of form, which could encompass retail or point-of-sale displays (including functional items, such as clocks or change mats), magazine and newspaper ads, pamphlets, leaflets, brochures, coupons, catalogues, posters, billboards, direct mailers, and Internet advertising (e.g., websites, banner ads, etc.).

New Requirements for Deemed Tobacco Products; Implications for E-Cigarettes and Hookahs

Significantly, the Rule would require manufacturers of deemed tobacco products to meet new additional requirements. In addition to the deemed tobacco products themselves, the scope of the Rule also includes components and parts sold separately or as parts of kits sold or distributed for consumer use or further manufacturing or included as part of a finished tobacco product. Such examples would include, but are not limited to, the following:

  • Air/smoke filters
  • Tubes
  • Papers
  • Pouches
  • Flavorings used for any of the proposed deemed tobacco products (such as flavored hookah charcoals and hookah flavor enhancers)
  • Cartridges for e-cigarettes (including the liquid contained therein)

The Rule would require manufacturers of deemed tobacco products that were not on the market in the United States by February 15, 2007 to only market such products after FDA premarket clearance. The review process adopts a system similar to the medical device regulatory process. Manufacturers may submit either (1) a premarket tobacco product application (PMTA) to, and receive a marketing authorization order from, FDA or (2) a substantial equivalence (SE) report if the new product is substantially equivalent to a predicate product (i.e., a product commercially marketed in the United States as of February 15, 2007) at least 90 days prior to introducing or delivering for introduction into interstate commerce for commercial distribution of the product.[5]

A PMTA may require one or more types of studies, including chemical analysis, nonclinical studies, and clinical studies. To demonstrate substantial equivalence, an SE notice must compare a new product to a predicate product to demonstrate that the products have the same characteristics or, if there are differences between such products, that the differences do not raise different questions of public health.

The Agency intends to continue to allow the marketing of such products pending FDA’s review of either a PMTA or SE notice, presuming such application or notice is submitted within 24 months after publication of the final Rule. It is unclear whether most e-cigarette products commercially marketed in the United States could be eligible for an SE report or if they would be required to go through the PMTA process.

Although the PMTA and SE requirements do not take effect until 24 months after publication of the final Rule, we would expect manufacturers to begin, in the near term, to gather the necessary information and prepare the necessary applications/notifications to come into compliance. Those manufacturers that submit their PMTAs or SE reports early within the 24-month window presumably will receive clearance before the close of the window. Retailers should be aware of supply chain issues and possible disruptions in the marketplace because of the Rule and should work with suppliers to understand the continued availability of deemed tobacco products.

What Is Not in the Rule; No Impact on Internet Sales or Flavored Products

The Rule’s prohibition on sales from vending machines is not intended to impact the sale of any tobacco product via the Internet, and the Rule does not otherwise address Internet sales. Note, however, that state laws would continue to apply to Internet sales.

Moreover, the Rule does not restrict the sale of deemed tobacco products that are flavored. FDA specifically notes in the Rule that the prohibition against the use of characterizing flavors established in the Tobacco Control Act applies to cigarettes only (i.e., it does not apply to e-cigarettes, pipe tobacco, cigars, dissolvable tobacco products, or nicotine gels). However, FDA requests comments on the characteristics or other factors it should consider in determining whether a particular tobacco product is a “cigarette” as defined in section 900(3) of the FD&C Act and, consequently, subject to the prohibition against characterizing flavors. FDA’s request for comments in this area is in response to the proliferation of products marketed as “little cigars” or “cigarillos” (allegedly to get around the flavored cigarette ban), but which the Agency has indicated are truly cigarettes.

Compliance Dates

The age restrictions in the Rule would take effect 30 days after publication of the final Rule, whereas the proposed health warning requirements would take effect 24 months after publication of the same. The PMTA and SE requirements would also take effect 24 months after publication of the final Rule.

Comments on the Rule

Interested parties are encouraged to submit comments on the Rule, identified by Docket No. FDA-2014-N-0189 and/or Regulatory Information Number (RIN) 0910-AG38 by July 9, 2014.

[1]. Deeming Tobacco Products To Be Subject to the Federal Food, Drug, and Cosmetic Act, as Amended by the Family Smoking Prevention and Tobacco Control Act; Regulations on the Sale and Distribution of Tobacco Products and Required Warning Statements for Tobacco Products, 79 Fed. Reg. 23,142 (proposed April 25, 2014) (to be codified at 21 C.F.R. pts. 1100, 1140, 1143), available here.

[2]. Section 201(rr) of the FD&C Act (21 U.S.C. 321(rr)), as amended by the Tobacco Control Act, defines the term “tobacco product” to mean “any product made or derived from tobacco that is intended for human consumption, including any component, part, or accessory of a tobacco product (except for raw materials other than tobacco used in manufacturing a component, part, or accessory of a tobacco product).” FDA notes in the Rule that products falling within the FD&C Act’s definition of “tobacco product” may not be considered tobacco products for federal excise tax purposes. See 26 U.S.C. § 5702(c).

[3]. The Rule defines “premium cigars” as cigars that are wrapped in whole tobacco leaf; contain a 100% leaf tobacco binder; contain primarily long filler tobacco; are made by manually combining the wrapper, filler, and binder; have no filter, tip, or non-tobacco mouthpiece and are capped by hand; do not have a characterizing flavor other than tobacco; weigh more than 6 pounds per 1,000 units; and sell for $10 or more per cigar.

[4]. In 2000, in settlements with the Federal Trade Commission (FTC), the seven largest U.S. cigar manufacturers agreed to include warnings about significant adverse health risks of cigar use in their advertising and packaging. See, e.g., In re Swisher International, Inc., Docket No. C-3964 (FTC Aug. 25, 2000). Under the 2000 FTC consent orders, virtually every cigar package and advertisement is required to clearly and conspicuously display one of several warnings on a rotating basis. FDA is proposing to adopt these four cigar warning statements from the FTC consent orders, which the vast majority of cigars already use.

[5]. FDA states in the Rule that it is aware of new product category entrants into the market after the February 15, 2007 reference date and that the SE pathway may not be available to these newer products.

Article By:

Jonathan A. Havens
Anthony “Tony” Pavel
Kathleen M. Sanzo
Of:
Morgan, Lewis & Bockius LLP

Franchisors Beware: McDonald's Workers Sue for Alleged Wage and Hour Violations by Franchisees

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Seven class action lawsuits were recently filed against McDonald’s Corp. and several McDonald’s franchisees in California, Michigan and New York. The lawsuits are a direct result of the coordinated effort by plaintiffs’ attorneys and the Service Employees International Union to pressure fast-food restaurants to pay their employees at least $15.00 per hour. The lawsuits are also part of a new strategy from the plaintiffs’ bar to sue fast-food and pizza franchisors (i.e., the “deep pocket”) for the conduct of independently owned franchisees.

The Michigan and New York class actions were filed in federal court and primarily allege that McDonald’s Corp. and the franchisees violated federal law by shaving hours from employees’ time cards, requiring employees to work off the clock and failing to pay overtime for hours worked in excess of 40 in a workweek. The California class actions were filed in state court and allege a variety of state labor law violations, including minimum wage and overtime violations and missed meal and rest breaks.

The lawsuits allege that McDonald’s Corp. is not only culpable for the suits relating to its corporate-owned stores, but also for its franchisees because of McDonald’s Corp.’s alleged heavy hand in monitoring and guiding the franchisees’ timekeeping, scheduling and other policies. In particular, the Michigan lawsuits allege that McDonald’s Corp. is a “joint employer” and thus also liable because it provides financial tracking computer software to franchisees, which allegedly guides when individual store managers may permit employees to be clocked in or on the clock. The software purportedly sends alerts to the manager when labor costs exceed a certain level of sales. As a result, the plaintiffs allege that managers prevented employees from clocking in (even though the employees were working) until the restaurant experienced a certain level of sales.

Generally, when determining whether a “joint employer” relationship exists, courts examine the totality of the circumstances, focusing on the economic realities of the particular relationship. A joint employment relationship may exist where two companies are deemed to share control of the employee, or one company is controlled by another company. Courts have considered a variety of factors when making this determination, including the ability to hire or fire the employees, supervision of the employees’ schedules and working conditions, determination of wages and the maintenance of employment records.

These McDonald’s lawsuits will need to overcome some very high hurdles before they may be certified as class actions due to the individualized nature of the plaintiffs’ claims and circumstances in the various stores. For example, certification may be inappropriate on a multi-store basis if McDonald’s can show that individual store managers implemented their own procedures and practices for scheduling and timekeeping. Nevertheless, these cases are a good reminder for franchisors to review the policies, training materials, software, etc., that they share with franchisees to ensure that the materials are lawful and will not inevitably lead to employees working off the clock. Lastly, franchisors should review their relationships and interactions with franchisees to ensure that they are not exercising control in a manner that could support a joint employer relationship.

Article By:

Joseph K. Mulherin
 
Of:
Vedder Price

Bittersweet Ending for Plaintiffs in Chocolate Price-Fixing Litigation

In a February 26, 2014 Memorandum, Chief Judge Christopher C. Conner of the United States District Court for the Middle District of Pennsylvania granted summary judgment for three defendants Mars, Inc., Nestlé USA, Inc., and The Hershey Company in a detailed opinion. The plaintiffs filed suit against chocolate manufacturers nearly six years ago, claiming that they conspired to fix the prices of various chocolate products. The decision is helpful for defendants as precedent that even lock-step price increases are not enough to survive summary judgment in a price-fixing case, at least in a market with few competitors. Judge Conner’s decision also demonstrates for defendants the value of developing and shepherding a comprehensive record to support the argument that their decisions were independent and economically and rationally defensible.

The plaintiffs relied on circumstantial evidence and an inference that parallel price increases were the result of a tacit agreement to engage in collusive behavior, “actuated” by a conspiracy in Canada that resulted in at least one guilty plea by a Canadian chocolate manufacturer. Judge Conner relied in part on a finding that the Canadian conspiracy made a similar conspiracy in the United States more plausible in denying the defendants’ motion to dismiss the complaint. In re Chocolate Confectionary Antitrust Litig., 602 F. Supp. 2d 538 (M.D. Pa. 2009).

Judge Conner found at the summary judgment stage, however, that there was no evidence that executives responsible for pricing in the United States were aware of any anticompetitive activity in Canada, and concluded that the rest of the plaintiffs’ evidence was insufficient to preclude summary judgment for the defendants. The plaintiffs had no direct evidence of conspiracy, so they were required to show both that the defendants consciously raised prices in parallel as well as sufficient evidence of “plus factors.” In this case, the court considered three plus factors: (1) the defendants’ motive and market factors; (2) whether the defendants’ behavior was against their self-interest; and (3) traditional conspiracy evidence. The plaintiffs’ evidence of parallel pricing was the strongest part of their case. The court concluded that Mars, Nestle, and Hershey raised prices in parallel because¾three times over the course of five years¾Mars initiated a price increase, and both Hershey and Nestle followed in quick succession (within one to two weeks) with nearly identical price increases (varying only once, and even then only by two-tenths of a penny).

The court recognized, however, that parallel price increases were not sufficient, especially in a market controlled by a few competitors (or an oligopoly) to support an inference of antitrust liability. The court concluded that the plaintiffs failed to demonstrate that the defendants acted against their own self-interest as required by the second plus factor. In reaching this conclusion, the court first pointed to evidence that the defendants increased prices in anticipation of cost increases, stating “it is rational, competitive, and self-interest motivated behavior to increase prices for the purpose of mitigating the effect of anticipated cost increases.” Judge Conner also cited to what he described as “extensive” internal communications before each increase in which each defendant unilaterally discussed whether they could raise prices as evidence of “independent and fiercely competitive business conduct,” not collusion. Finally, the court agreed with Nestle’s argument that widely supported economic principles supported its decision as the defendant with the smallest market share to follow the price increases of its competitors. In doing so, the court likely rejected an argument¾often made by plaintiffs¾that it was in Nestle’s best interest to cut prices and gain market share.

The court also concluded that the plaintiffs’ traditional evidence of conspiracy was insufficient to satisfy the third plus factor. The plaintiffs relied on three pieces of evidence to satisfy this factor: (1) the Canadian conspiracy; (2) the defendants’ possession of competitors’ pricing information; and (3) the defendants’ opportunity to conspire at trade association meetings. While the court accepted that the Canadian conspiracy could, in theory, facilitate a conspiracy in the United States, it found the facts did not support the application of the theory in this case because there was no evidence that U.S. decision-makers had knowledge of the Canadian conspiracy and there was no tie between the pricing activities in the two countries. From the court’s opinion, it appears the plaintiffs had little traditional conspiracy evidence beyond the supposed connection to Canada. The court rejected an argument that a “handful” of documents suggesting that the defendants were aware of competitors’ price increases before they were made public supported an inference of conspiracy. There was no evidence that the pricing information came from competitors, and the court concluded that this exchange of advance price information was as consistent with independent competitive behavior as it was with collusion. Finally, the court ruled that the presence of company officers at trade meetings¾without any evidence that they discussed prices there¾was insufficient to permit an inference that the price increases were the result of collusive behavior. Reviewing the record as a whole, the court concluded that the plaintiffs had produced no evidence tending to exclude the possibility that the defendants acted independently.

Judge Conner’s opinion is a relatively straightforward application of the standard for ruling on summary judgment in antitrust cases set forth in the Supreme Court’s Matsushita decision and for parallel pricing cases as set forth in the Third Circuit’s Baby Food and Flat Glass opinions. If appealed, Chocolate Confectionary is unlikely to result in a decision changing these standards significantly.

On the bright side for the plaintiffs, they reached a settlement with at least one defendant, Cadbury, before the summary judgment motion was ruled upon, so they will not be left empty handed.

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Drinker Biddle & Reath LLP

Supreme Court Will Rule on Whether Agency-Approved Beverage Label Can Be Challenged as ‘False Advertising’ in Federal Court

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On January 10, 2014, the U.S. Supreme Court agreed to hear an appeal by Pom Wonderful LLC against The Coca-Cola Company.  The Court will examine whether Pom can bring a federal Lanham Act false advertising claim against a Minute Maid juice product label that had been approved by the U.S. Food and Drug Administration (FDA).  (Pom Wonderful LLC v. The Coca-Cola Co., U.S. Supreme Court case no. 12-761).

At issue in the lawsuit is a Minute Maid label for “Pomegranate Blueberry Flavored Blend of 5 Juices.”  The label presents the words “Pomegranate Blueberry” in larger type than the remainder of the phrase.  Pom claimed that the label was misleading because the product contains 0.3 percent pomegranate juice and 0.2 percent blueberry juice.

A California federal trial court and the 9th Circuit federal appeals court in California both ruled that Pom could not bring a Lanham Act false advertising claim against the label, since it had been specifically examined and approved by the FDA.  Pom has argued that the decisions were contrary to established law in other U.S. courts, and that federal regulations establish a floor –but not a ceiling — on what an advertiser is required to do to avoid a claim that the advertising is false and misleading.  Coca-Cola has argued that product labeling that is specifically authorized by the Food, Drug and Cosmetic Act (FDCA) and approved by the FDA cannot be charged as false or misleading under another federal statute such as the Lanham Act.

Although the question before the Supreme Court is whether a private party can bring a Lanham Act claim challenging a product label regulated under the FDCA, the Supreme Court’s decision could potentially have significant implications for the alcohol beverage industry.  For example:

  • If the Supreme Court rules that a competitor cannot bring a Lanham Act claim against a label that has been approved by the FDA, a natural question is whether the same rule will apply with regard to alcohol beverage labels that have been reviewed and approved by the Alcohol and Tobacco Tax and Trade Bureau (TTB) (by its terms, the Federal Alcohol Administration Act does not preempt the Lanham Act); and
  • If a Lanham Act claim would be barred against labels approved by TTB, a question may arise about whether a Lanham Act claim would be barred on elements of the label that TTB does not specifically review as a matter of policy – such as contrast, size and placement of label elements.

The Supreme Court is expected to hear argument this spring and decide the case by June 2014.  Depending on the decision, alcohol beverage industry members could find they have additional insulation against a federal false advertising claim, but they may likewise be limited in bringing a federal false advertising lawsuit against a competitor’s label that has been approved by TTB.

Article by:

Robert W. Zelnick

Of:

McDermott Will & Emery

I Scream, You Scream, We All Scream For…Ascertainability? Re: How Ben & Jerry’s Defeated an “All Natural” Class Certification Motion

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On January 7, 2014, the Northern District of California refused to certify a class of Ben & Jerry’s purchasers who allegedly had purchased ice cream that was falsely advertised as “all natural.” Astiana v. Ben & Jerry’s Homemade, Inc., No. C 10-4387 PJH, 2014 U.S. Dist. LEXIS 1640 (N.D. Cal. Jan. 7, 2014).  This opinion shows the continuing viability of arguments based on ascertainability and the Supreme Court’s decision in Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013) to defeat consumer class actions.  Thus, for many defendants, this opinion will get 2014 off to a delicious start.

In Astiana, the plaintiff alleged that certain Ben & Jerry’s ice creams were not “all natural” because they contained “alkalized cocoa processed with a synthetic ingredient.”  Astiana, p. 4.  After asserting claims under the Unfair Competition Law, False Advertising Law, as well as common law fraud and unjust enrichment, the plaintiff sought to certify a class of all California purchasers of “Ben & Jerry’s ice cream products that were labeled ‘All Natural’ but contained alkalized cocoa processed with a synthetic ingredient.”

The court denied class certification.  First, the court held that the class was not ascertainable so that it was “administratively feasible to determine whether a particular person is a class member.” Astiana, p. 5.  The court found that the plaintiff provided no evidence as to how the plaintiff could tell which consumers purchased ice cream with the synthetic ingredients because the synthetic ingredient was not present in every ice cream labeled as “all natural.”  Furthermore, because cocoa could be processed with a “natural” alkali, the ingredient list that only said “processed with alkali” was insufficient to identify the non-natural ice creams.  Even though only one supplier provided Ben & Jerry’s with the alkalized cocoa, the evidence demonstrated that the supplier did not know whether a synthetic ingredient was used in every instance.  Thus, even if every package was labeled “all natural,” it was impossible to tell which products actually contained the synthetic ingredients that would make the advertised claim false under California law.

Second, applying Comcast, the court held that the plaintiff was required to show “that there is a classwide method of awarding relief that is consistent with her theory of deceptive and fraudulent business practices.”  Astiana, p. 21.  The plaintiff offered no expert testimony on calculating damages, contending, instead, that it would be “simple math” to calculate Ben & Jerry’s profits and award “restitutionary disgorgement.”  The court held that this was insufficient: there was no evidence that the price of Ben & Jerry’s “all natural” ice cream was higher than its ice cream without that label, thus there was no evidentiary model tying damages to plaintiff’s theory of the case.  Since Ben & Jerry’s sold its products at wholesale (rather than to the public directly), these calculations would be extremely difficult, thereby debunking the plaintiff’s claim that the damages could be figured out with “simple math” and proving the need for expert testimony.  In light of the plaintiff’s failure to present evidence of “a damages model that is capable of measurement across the entire class for purposes of Rule 23(b)(3),” class certification was denied.

Astiana demonstrates that plaintiffs seeking to certify class actions involving small consumables will continue to run into ascertainability problems.  See e.g. Carrera v. Bayer, Corp., 727 F.3d 300 (3d Cir. 2013).  Astiana also represents the application of the strong reading of Comcast, essentially telling plaintiffs “No damages expert, no certification.”  If courts continued to adopt this reading of Comcast, plaintiffs will no longer be able to gloss over these significant (and oftentimes difficult) damages issues by simply asserting that the court can certify now and figure out the damages later.

Article by:

Paul Seeley

Of:

Sheppard, Mullin, Richter & Hampton LLP

Fast Food Comes to Indian Country

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In-N-Out Burger, the quintessentially Californian burger chain, will open its first restaurant on tribal land in early 2014 at the Morongo Casino on the Morongo Indian Reservation on the heavily trafficked Interstate 10. The reservation lies 90 miles west of Los Angeles and 20 miles east of Palm Springs. Similarly, the Wyandotte Nation of Oklahoma will open a Sonic restaurant on non-Indian land in Seneca, Missouri, about 10 miles from its Oklahoma reservation.

Fast-food restaurants have been noticeably lacking in Indian Country, primarily due to the lack of familiarity of restaurant franchises with tribal law. This is unfortunate as fast food is a perfect fit for tribal economic development. Fast-food restaurants are a magnet for highway traffic, bringing customers into the tribal business development that would otherwise not think to stop there. They complement tribally owned gas stations, gaming venues, and shopping centers with an inexpensive food alternative and bring in consistent revenue.

Deals may be as simple as a lease arrangement, as in the Morongo In- N-Out Burger, in which the franchise owner leases the land from the tribal owner and builds a restaurant there. Alternatively, the operation may be owned and operated by the Tribe, as in the Sonic restaurant, which is wholly owned by the Wyandotte Nation.

While tribally owned businesses operating on non-Indian land are clearly subject to local taxes, confusion surrounds taxation of non- Indian businesses on tribal land. In July, the Ninth Circuit precluded Thurston County in Washington State from imposing a property tax on Great Wolf Lodge, a waterpark on leased trust land, holding that state and local governments lack the power to tax permanent improvements built on Indian land. This means that a building owned by a non- Indian franchisee on tribal land is not subject to non-tribal property taxes. However, the Second Circuit recently decided that non-Indian personal property on tribal land – in that case, slot machines leased to the Tribe – is taxable.

Some fast-food restaurants on tribal land collect sales taxes for the tribe and other local governments. For example, while most businesses operating on the Navajo Reservation collect only a tribal sales tax of five percent, the McDonald’s restaurant in Shiprock, New Mexico, charges a 6.3 percent sales tax for San Juan County on top of the Navajo tax. While it is unclear that such a tax is required by law, some businesses may find it easier to pass sales taxes on to their customers than fight them.

With an ambiguous taxation framework, stand-alone businesses such as fast-food restaurants operating on tribal land must negotiate in advance who will pay these taxes should they be imposed and memorialize these decisions in the lease agreement.

Taxation is just one issue that makes doing business with Indian tribes unique. Other issues include tribal regulation, dispute resolution, and sovereign immunity. It is vital that experienced legal counsel be involved early in negotiations to ensure lasting and mutually beneficial businesses in Indian Country.

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