Food & Beverage

Straight Talk About the Food & Beverage Industry: Inconsistency with a dash of rigor is a bad regulatory recipe for manufacturers

MCC: Can you talk to us about the most common issues currently facing your food and beverage clients, and what the key challenges will be over the next 12 to 24 months?

Graham: There are a few things. First, from more of a macro perspective, there may be the passage of laws at the state and local levels that will result in an inconsistent regulatory landscape. If a particular city or state wants to require genetically modified organism (GMO) labeling, for example, that creates difficulties for manufacturers. And it’s not just a compliance problem. Consumers’ eating preferences can change quickly, so requiring food to be labeled organic, GMO-free or gluten-free can present a challenge from a marketing perspective as well.

Another issue of continuing concern will be consumer class actions. Consumers are generally more critical and better informed. They read labels more closely. And class action counsel feed on this skepticism, holding food and beverage manufacturers to a very high standard in terms of making sure labels are accurate and not misleading.

The last thing I would say is that we are looking at a somewhat more rigorous regulatory environment given the FDA’s court-ordered deadlines to issue key final FSMA (Food Safety Modernization Act) rules in the summer and fall of 2015, and in the spring of 2016. Looking down the road, this could create more burdens for manufacturers in terms of the number and frequency of inspections.

MCC: What are the emerging legal issues at the intersection of food labeling and marketing/advertising?

Graham: One is the differing approaches taken by the FTC, the FDA and USDA to make sure that labels are accurate. The USDA has a preapproval process for the labeling of all meat, poultry and egg products. The FDA, on the other hand, generally does not preapprove labels. There are also more and more competitors challenging advertising and labeling claims before the NAD (National Advertising Division). Overlapping agency and jurisdictional authority, including industry self-regulation, is not new, but the more complex and stringent the regulatory environment, the greater the risk – and potential consequence – of noncompliance.

MCC: Have you been seeing any issues related to a company’s ability to execute marketing and advertising as a result of labeling requirements by local consumer protection agencies or by the consumer protection divisions of state attorneys general?

Graham: Absolutely. There’s not only the expense of creating additional labels for products that are sold in a particular state, but marketing and advertising can be affected as well, because regulators have said there has to be consistent treatment of nutrient content/health claims in both labeling and advertising, so a labeling requirement in one state could impact a national advertising campaign. That said, the biggest burden on our clients is complying with inconsistent regulatory requirements from state to state and between states and the federal government.

MCC: Can you discuss any issues you're seeing in the USDA’s or FDA’s handling of appeals?

Graham: The only issue that I’ve run into consistently and across the board is industry dissatisfaction with agency responsiveness. Sometimes the FDA and the USDA both have a tremendous amount of work, and if we appeal a labeling or an inspection decision, the time it takes to get a response or a result can be frustratingly long. Commerce needs to keep moving. Food can’t be sitting around for a long time, and the launch of a new product needs to happen somewhat expeditiously or you may miss a market window.

MCC: Do you have any advice for corporate counsel regarding best practices for product development at a time of increased regulatory scrutiny?

Graham: It’s critical that the legal, marketing and product teams start working together early on in the process of developing a new product. You don't want to start down a path that leads to a situation in which the label is, or could be, inaccurate or misrepresents what the product contains, or a situation in which you are making claims about a product that you can’t support, be it a health claim, a structure/function claim, an ingredient claim, or an assurance that the product is non-GMO or gluten-free.

It’s also important that legal, marketing and product development teams work together from the start of the product development cycle. This is important in terms of developing regulatory strategy, ensuring regulatory compliance in product development, preparing documents and submissions needed for marketing regulatory approval, and developing quality control systems to ensure post-approval regulatory compliance.

MCC: Can you discuss best practices for ensuring preparedness for inspection?

Graham: I have my clients prepare an inspection policy or standard operating procedure that starts with identifying who should be the initial “go-to persons” when the inspector arrives. Whether you call them compliance managers, facility inspection coordinators or some other title, they should be trained in preparing for agency inspections and in the proper protocol for receiving government visitors. Training will include everyone from the front desk employee who is responsible for checking credentials to those who will accompany the inspector to the precise areas the inspectors need to see and who need to know how to respond to questions outside the scope of the investigation, when to make a corporate officer available, or how to handle a request to speak to an employee without the presence of management. Training also should include those who will attend the closing meeting that marks the end of the inspection, and those responsible for making sure that the FDA 483 form is accurate and appropriate and, if not, understanding how to register objections. If that's all set out in a plan that includes training and practice, then inspections tend to go more smoothly and end up, one hopes, with fewer issues to correct.

MCC: What about protecting intellectual property in the context of an inspection?

Graham: We advise clients to be vigilant regarding government access to their IP by limiting access on jurisdictional grounds or making objections about confidentiality. You don't have to disclose IP that may become available to other parties under the Freedom of Information Act. If inspectors want to take pictures, you don't necessarily have to allow that. The key is that everyone on your team who is going to be involved in the inspection should know what the inspectors are entitled to and what they should not see, because access often differs depending on whether the inspection is being done by the USDA or FDA.

What information ultimately will be placed in an inspection file and disclosed to the public needs to be addressed immediately at the end of the inspection, either at the closing meeting or in a follow-up letter, so there is mutual understanding as to what is and is not confidential in the report, especially with respect to trade secrets.

MCC: Turning to every company’s favorite subject – class actions – are there any recent lessons to be learned?

Graham: I’ll speak to two areas here. The first issue is how to get cases dismissed early in the litigation. This involves issues like preemption, primary jurisdiction, and the Rule 9(b) standard of particularity for pleading fraud. Most of the class actions in the food and beverage area are consumer fraud cases based on a representation on the label, and which raise preemption and primary jurisdiction challenges related to issues that the FDA has yet to sort out. In 2014, the federal courts provided guidance, with the U.S. District Court for the District of Florida addressing the primary jurisdiction in Greenfield v. Yucatan Foods LP and the U.S. District Court for the Southern District of California holding forth on proper preemption analysis in Peterson v. Conagra Foods Inc. Another 2014 case, Maple v. Costco Wholesale Corp, out of the Eastern District of Washington, clarifies issues around pleading fraud with particularity in the context of a labeling case.

The second way to make short work of a class action is at the putative stage, by defeating the plaintiff’s motion for class certification. It’s important to be current on all trends in the case law to identify possible fault lines in the plaintiff’s case. The plaintiff has the burden of proving that the putative class meets the four threshold questions of Fed. Rule 23(a) and satisfies at least one of the enumerated categories in Rule 23(b), an extremely tall order.

MCC: Meanwhile, companies also need preparedness strategies for single-plaintiff litigation, whether brought by an individual consumer or a competitor. What’s your advice to clients who need something else to worry about?

Graham: I emphasize the need to maintain a complete file on each product. This involves documenting all decisions relating to the label’s creation and contents, how it complies with applicable regulations, and how you represent the ingredients contained in the product. Everyone from leadership to employees at all levels must understand how prevalent litigation in this area has become, whether initiated by competitors, individual consumers, consumer groups or federal, state or local authorities – or a combination thereof. Only by ensuring awareness of the significant legal, financial and reputational risks posed by misleading – let alone false – labeling and advertising can you begin the task of litigation preparedness or, even more important, risk avoidance and mitigation.

MCC: Speaking of risk avoidance, do you have recommendations for safe hiring of third-party vendors, from component manufacturers to distributors to marketers?

Graham: The key here is in the contract negotiations: making sure those in your supply chain understand that if something goes wrong and it's traced back to their product or service, the problem is their responsibility. Insist that they maintain compliance records that the purchaser can check, and make sure that they allow you to inspect their operation, or at least disclose their inspection records to you, before signing a contract or ordering a vendor's goods. Being able to trace any food or beverage back to its origins can be crucial during a food-related recall or outbreak. And just as food chain traceability is essential to building relationships with consumers and satisfying government regulators, it’s just as important to your relationships with your supply chain partners.

MCC: Dykema has long been engaged in the food and beverage space. In closing, tell us what prompted the firm’s decision to form a standalone practice.

Graham: Dykema offers a wide range of experience in serving food and beverage companies, from regulatory work to lobbying to handling matters relating to false advertising litigation and IP protection. Clients also appreciate our ability to marry industry-focused expertise with cross-industry best practices. Having a dedicated practice enables deeper study of the industry so we can track trends and better understand the context in which our client companies are operating. It also helps with business development, but really our focus is on providing the very best service to our loyal clients.

Published .