THE SCOOP
American food producers never seem to sour when it comes to pursuing consumer market share. The United States is the world’s largest consumer and manufacturer in the market for high-fructose corn syrup. Recently, consumers, and therefore U.S. food makers, have been moving away from the corn-derived sweetener in recent years. As a result, there is a lot at stake in controlling the
trajectory of the sweetener industry. Currently, a dispute between the corn and sugar interests is being waged in the California courts over an alleged misleading advertising campaign. The lawsuit could significantly affect the role trade organizations play as surrogates for their industry constituents and, more importantly, the manner in which the constituents aggregate their interests through trade group membership.
In 2010, the Corn Refiners Association (“CRA”) submitted an application to the FDA seeking approval to change the labeling of high fructose corn syrup to “corn sugar.” The application coincided with CRA’s launch of its marketing campaign to rebrand high fructose corn syrup as “corn sugar.” The application generated significant media coverage, including opposition from consumer groups and the sugar industry. Though the application remains pending, the FDA wrote to the CRA in July 2011 to express its concern with the attempts to equate the terms high fructose corn syrup and “corn sugar,” stating: “We request that you re-examine your websites and modify statements that use the term ‘corn sugar’ as a synonym for (high fructose corn syrup).” The FDA, however, has no regulatory control over a trade association’s advertising because it is promoting an industry, not selling a product. In this instance, the FDA is limited to prosecuting companies that incorrectly label ingredients and could only pursue enforcement actions against companies whose labels list high fructose corn syrup as “corn sugar.”
The sugar industry did not sit idle.
THE FOOD FIGHT
In 2011, a consortium of sugar producers led by the Western Sugar Cooperative filed suit in the Central District of California against the CRA, Archer-Daniels and other CRA member companies. The sugar consortium sought an injunction and unspecified damages due to the CRA’s “Sweet Surprise” campaign to re-brand high-fructose corn syrup as “corn sugar.”
The lawsuit alleges violations of the Lanham Act (15 U.S.C. § 1125(a)) and the California Unfair Business Practices Act on the basis that CRA’s marketing campaign constitutes false and misleading advertising for the portrayal of “corn sugar” as natural and the equivalent of cane sugar (or “real sugar” as alleged in the Complaint).
U.S. District Judge Consuelo B. Marshall dismissed the original Complaint against the defendant companies who were merely members of the CRA. The court reasoned that the plaintiffs failed to establish the elements of an agency relationship between the HCFS/corn sugar producing companies and the CRA to hold those member companies directly or vicariously liable for the CRA’s campaign. The claims against the CRA were not dismissed.
Undeterred, the sugar producers filed an amended Complaint re-alleging claims against the CRA and its member companies for violations of Section 43 (a) of the Lanham Act. The new complaint seeks to bolster its validity by arguing that the authority, governance, control and funding of the CRA comes almost exclusively from the collaborative efforts of the defendant member companies. The complaint remains vague on details of the CRA’s specific activities and focuses on the narrative behind the rebranding campaign and the special assessments used to fund the initiative.
Naturally, the defendant member companies have filed another motion to dismiss. They argue that there is well supported case law which provides that membership in a trade organization alone does not constitute sufficient grounds to satisfy the burden of showing principal-agency relationship, “even when its purpose is to promote their interests generally.” They argue that the complaint should be dismissed because it does not and cannot satisfy the plausibility required by FRCP 12(b)(6) nor the particularity of FCRP 9(a). The mere conclusory allegations of agency and conspiracy, along with allegations regarding financial contributions and board participation in the CRA are not enough to support the requisite pleadings standard.
LEFTOVERS
It remains to be seen whether Judge Marshall will conclude that a reasonable inference can be drawn from the organizational framework of the CRA to impose vicarious liability on the member companies for the potential Lanham Act violations. What weight will the Court give, if any, to a member company’s: voting presence on an association’s Board of Directors, the amount and extent of financing, and, in this instance, the approval and control of advertising campaigns? The decision could have wide-ranging implications on the mode in which trade associations organize, interact and serve as surrogates for the interests of their constituents.
Consumers may be more interested in the truth of the matter – whether corn sugar is better, worse, or the equal of cane sugar. The food industry, and other consumer-oriented industries, however, will want to know whether they need to reconsider the extent of their participation in trade associations.
