Antitrust Law Daily Wrap Up, ADVERTISING—N.D. Cal.: PepsiCo’s marketing of Gatorade Protein Bars may be deceptive, (Aug 16, 2024)

By E. Darius Sturmer, J.D.

Consumers from New York and California plausibly alleged claims of consumer deception only partially preempted by federal regulations, but lacked standing to pursue injunctive relief.

PepsiCo, Inc. may have violated state consumer protection laws by deceptively advertising that its Gatorade Protein Bars promote consumers’ fitness, health, athleticism, and well-being when in fact they contain primarily sugar, the federal district court in San Jose, California, has ruled. While the plaintiff consumers’ claims were partially preempted by the federal Food, Drug, and Cosmetic Act (FDCA), to the extent that they seek to impose labeling requirements that do not match the requirements of federal law or they challenge health or nutrient-content claims permissible under federal regulations, many of the statements at issue do not involve claims regulated by the Food and Drug Administration (FDA) and the parties’ disagreement about the application of the FDA’s “characterizing ingredient” regulations to Gatorade Protein Bars presented factual issues that could not be resolved on a motion to dismiss, so none of the plaintiffs’ claims could be entirely discarded. The plaintiffs plausibly alleged claims of consumer deception from the advertising, marketing, and labeling of the bars and sufficiently stated claims under the “unlawful” and “unfair” prongs of California’s Unfair Competition Law (UCL). However, as “sophisticated consumer litigants now aware of the relationship between the amounts of sugar disclosed on the bars’ labels and their own health concerns,” they could not show a concrete threat of future harm warranting injunctive relief, so they were denied standing to seek it. They also failed to plead an entitlement to equitable relief. PepsiCo’s motion to dismiss was granted in part and denied in part (McCausland v. PepsiCo, Inc., No. 5:23-cv-04526-PCP (N.D. Cal. Aug. 14, 2024)).

Three self-described fitness enthusiasts from New York and California who bought Gatorade Proteins Bars at local stores and online between 2020 and 2023, allege in their complaint that they were led to buy the product because of claims on its label suggesting equivalency to “PROTEIN BAR” and stating “PROTEIN TO HELP MUSCLES REBUILD,” as well as other similar statements on the Amazon.com landing page for the product. The label touts “20 g of protein.” Its ingredients panel also reveals high levels of total and added sugars, though the complaining consumers claim that they were left unaware of how excessive the sugar level is because PepsiCo did not state the Recommended Daily Value of sugar for the product “the way it does for fat and sodium.” The plaintiffs attest that they were not at the time familiar with nutritional knowledge such as how many grams of sugar are in a teaspoon, what limits on added sugar daily intake the health authorities recommend, or the negative health consequences of regularly consuming high-sugar protein bars, and they contend that they would not have purchased the bars, or would have bought fewer bars, or would have paid a lower price for them had they understood the nutritional character of the product.

The plaintiffs’ complaint asserts that PepsiCo’s conduct violates multiple federal and state statutory provisions, official policies, and regulations targeting deceptive marketing, including New York’s General Business Law Sections 349 and 350 and California’s UCL, Consumer Legal Remedies Act (CLRA), and False Advertising Law (FAL).

PepsiCo moved to dismiss the complaint in its entirety as preempted by the FDCA. The company also seeks total dismissal on the ground that the plaintiffs failed to plausibly allege that its labeling and marketing of the bars is likely to deceive a reasonable consumer, as is required under each of the relevant New York and California statutes. Further, Pepsi’s motion argues that the plaintiffs failed to state a claim under the “unlawful” or “unfair” prongs of the UCL, lack Article III standing to seek injunctive relief, and are not entitled to equitable restitution because they do not allege that they lack an adequate remedy at law.

Preemption. Finding merit in PepsiCo’s argument that the plaintiffs’ claims sought to impose requirements for labeling sugar content that differ from those of federal law, the court found the claims preempted to the extent that that they do so. Gatorade Protein Bars comply with federal regulations, the court noted. Accordingly, the plaintiffs were prohibited from pursuing any claim that PepsiCo’s failure to label the amount of sugar and added sugar in teaspoons (rather than the grams required by the FDA) or to include a Daily Value for sugar would, by itself, constitute deceptive or misleading advertising in violation of California or New York law.

The plaintiffs’ claims are also preempted to the extent that that they challenge health or nutrient-content claims permissible under federal law, the court said, but because the FDA has determined that sugar is not a disqualifying ingredient, its presence in the bars does not preclude PepsiCo from including express or implied health claims in the bars’ labeling. It is allowed to include nutrient-content claims so long as those claims are consistent with federal regulations, the court added.

Furthermore, preemption could not dispose of the case because many of the statements that the plaintiffs claim constitute deceptive or misleading advertising—such as “Backed by science,” “Used by the Pros,” and the claim that the bars were formulated and tested at the Gatorade Sports Science Institute—could not reasonably be construed as health or nutrient-content claims. Thus, “federal law does not preempt plaintiffs’ state law claims premised thereon.”

The court refused to delve fully into the parties’ dispute over whether the plaintiffs’ challenge to the name “Protein Bar” is inconsistent with and therefore preempted by federal law. The plaintiffs contest PepsiCo’s characterization of their claims as aiming to force PepsiCo to label the product a “candy bar” or “dessert,” and they assert the real issue to be whether the FDA “insulates Gatorade Protein Bar’s deceptive and misleading name.” But the disagreement about the application of the FDA’s “characterizing ingredient” regulations to the bars presented deeply factual issues unresolvable on a Rule 12(b)(6) motion, the court explained.

Consumer deception. Moving on to the sufficiency of the non-precluded claims, the court found that the plaintiffs plausibly pleaded: (a) that reasonable consumers are likely to be deceived by the advertising, marketing, and labeling of Gatorade Protein Bars, (2) that they were reasonable consumers, (3) that they were not knowledgeable enough to properly interpret the sugar content listed on the label, and (4) that they were deceived owing to PepsiCo’s marketing campaign and self-proclaimed science-backed claims.

PepsiCo’s argument that the plaintiffs’ claims were implausible because they had failed to allege that reasonable consumers would “misinterpret ‘protein’ or any other challenged statement to mean ‘healthy’ or ‘low sugar,’” did not persuade the court otherwise. “Whether the reasonable consumer understands that a product aimed at athletic recovery contains carbohydrates or the level of sugar contained in the Gatorade Protein Bars is a factual question not properly resolved at the 12(b)(6) stage[,]” the court stated.

“Unlawful” and “unfair.” The court next rejected an argument by PepsiCo that the plaintiffs could not state a claim under either the “unlawful” or “unfair” prongs of California’s UCL. The plaintiffs had indeed pleaded plausible violations of state law, as well as both 21 U.S.C. 343 and 21 C.F.R. 102.5, the court reiterated, and this sufficed to support a UCL claim under its “unlawful” prong. Whether the plaintiffs adequately alleged “an unavoidable consumer injury that could give rise to an ‘unfair’ UCL claim” was another matter of factual dispute that could not be undertaken on a motion for dismissal. The plaintiffs’ averment that they were reasonably misled notwithstanding the label’s disclosure of sugar content was sufficiently plausible to preclude dismissal.

Article III standing. The court agreed with PepsiCo, however, that the plaintiffs’ complaint failed to establish their Article III standing to pursue claims for injunctive relief. While “a previously deceived plaintiff may have standing to seek injunctive relief where she would consider purchasing a product in the future if able to rely upon the defendant’s representations,” the plaintiffs here could not make such a claim because they now know better than to rely on the marketing, advertising, and labeling of the bars when deciding whether they contain levels of sugar they deem unhealthy. “They can instead find that information by reviewing the labels on the bars,” the court remarked. Even if the disclosure of sugar content on the bars’ labels were to be found insufficient to prevent a reasonable consumer from being deceived, the plaintiffs “can no longer claim such ignorance after having filed this lawsuit,” the court concluded.

The Case is No. 5:23-cv-04526-PCP.

Judge: Pitts, P.

Attorneys: Maia Kats (Just Food Law) for Ian McCausland. Andrew Santo Tulumello (Weil, Gotshal & Manges LLP) for PepsiCo, Inc.

Companies: PepsiCo, Inc.

Cases: Advertising StateUnfairTradePractices CaliforniaNews