Antitrust Law Daily Wrap Up, ADVERTISING NEWS: High Court denies review of POM Wonderful suit, (May 2, 2016)

By Greg Hammond, J.D.

The U.S. Supreme Court denied today POM Wonderful, LLC’s petition for review of a decision by the U.S. Court of Appeals in Washington, D.C., which affirmed an FTC determination that a series of ads touting the benefit of POM’s pomegranate-based products were deceptive (POM Wonderful v. FTC, Dkt. 15-525).

In 2012, the FTC affirmed an administrative law judge’s (ALJ’s) finding of liability under the FTC Act. While the ALJ found that 19 of POM’s advertisements and promotional materials contained implied claims that POM products treat, prevent, or reduce the risk of heart disease, prostate cancer, or erectile dysfunction and that those claims were unsubstantiated, the majority of the commissioners found that 36 of POM’s ads and promotional items made false or misleading claims.

The appellate court determined that the FTC properly found POM’s efficacy and establishment claims to be deceptive due to inadequate substantiation. In particular, the FTC had examined the studies put forth by POM to substantiate the ads and concluded that the studies failed to qualify as randomized controlled clinical trials (RCTs) of the kind that could afford adequate substantiation. The court acknowledged that RCTs might be costly, but noted that an advertiser can always assert a health-related claim backed by medical evidence falling short of an RCT if it includes an effective disclaimer disclosing the limitations of the supporting research. The court additionally rejected POM’s argument that the substantiation standard applied by the FTC to POM’s establishment and efficacy claims amounted to a new legal rule adopted in violation of the Administrative Procedure Act’s notice-and-comment requirements for rulemaking, reasoning that the FTC did not amend a regulation, but "validly proceeded by adjudication."

"I am pleased that the POM Wonderful case has been brought to a successful conclusion," stated FTC Chairwoman Edith Ramirez, in response to the Supreme Court’s decision. "The outcome of this case makes clear that companies like POM making serious health claims about food and nutritional supplement products must have rigorous scientific evidence to back them up. Consumers deserve no less."

Franchising, discrimination. The International Franchise Association, Inc. (IFA) also has been denied review of a decision by the U.S. Court of Appeals in San Francisco, which found that the IFA was not likely to succeed on the merits of its challenge to Seattle’s $15 an hour minimum wage ordinance—or more specifically, to the municipality’s decision to group franchisees in with the category of "large employers" that will be subjected to the steeper schedule of incremental wage hikes over the next five years. The appellate court affirmed a district court decision denying preliminary injunctive relief from the $15 an hour minimum wage ordinance. The question presented was: Whether a state or local law that discriminates against certain in-state businesses based solely on their ties to interstate commerce discriminates against interstate commerce? (International Franchise Association, Inc. v. Seattle, Dkt. 15-958).

RICO, proximate causation. The Supreme Court additionally denied review in an action in which a group of telemarketing companies, chiropractic clinics, and affiliated law offices challenged a decision by the U.S. Court of Appeals in New Orleans, which concluded that sufficient evidence existed to support a jury’s finding that the petitioners violated the Racketeer Influenced and Corrupt Organizations Act (RICO) and Ohio’s RICO statute, committed fraud, and were unjustly enriched. The petitioners engaged in a scheme to defraud insurance companies, including Allstate Insurance Co., by contacting not-at-fault victims in vehicle accidents and convincing them to receive unnecessary chiropractic services, the appellate court found. The petition for review asks: When, if ever, can the plaintiff in a civil RICO case predicated on mail and wire fraud establish proximate causation without showing that someone—the plaintiff or a third party—relied on the defendants’ misrepresentations to the plaintiff’s detriment? (Plambeck v. Allstate Insurance Co., Dkt. 15-949).

Attorneys: Thomas C. Goldstein (Goldstein & Russell, P.C.) for POM Wonderful, LLC. Donald B. Verrilli Jr. for the Federal Trade Commission. Paul D. Clement (Bancroft PLLC) for International Franchise Association, Inc. Gregory C. Narver for City of Seattle. Peter Michael Jung (Strasburger & Price, LLP) for Michael Kent Plambeck. Wade Caven Crosnoe (Thompson Coe Cousins & Irons, LLP) for Allstate Insurance Co.

Companies: POM Wonderful, LLC; International Franchise Association, Inc.; Allstate Insurance Co.

News: Advertising FranchisingDistribution RICO FederalTradeCommissionNews