False advertising on enhanced water labels: an analysis of Ackerman v. The Coca-Cola Company.

Brison, Natasha T.

Introduction

The U.S. carbonated soft-drink market posted a 2.1% volume decline in 2009, according to trade publication Beverage Digest (O'Leary, 2010). This was the fifth consecutive yearly decline for this market, and corporations have credited the loss to Americans choosing to seek bottled water as a healthier alternative to carbonated soft-drinks. In an effort to combat decreasing sales, corporations have developed products in the nutrient-enhanced water category. These enhanced waters are fortified with vitamins and nutrients, and tout health benefits beyond mere hydration. For example, these brands claim to rejuvenate and replenish the human body with essential vitamins and minerals, and some even advertise ingredients aimed at actual ailments. The most popular of these brands is the Coca-Cola Company's (Coca-Cola) Vitaminwater, which boasts a more than 50% market share in the non-carbonated beverage category. Even with the recession, sales of Vitaminwater rose an estimated 37% in 2007-2008 (Elliott, 2009). Much of Vitaminwater's success can be attributed to Coca-Cola's marketing and advertising efforts.

Background

The Coca-Cola Company prides itself on "Responsible Marketing" and is "dedicated to providing information consumers can trust" (Coca-Cola Company, 2010). Easy-to-access nutritional information can be found both on product labels and online, as well as portion control sizes to assist consumers with the necessary tools to make informed purchase choices. Advertising campaigns for Vitaminwater have highlighted the nutritional benefits of the product such as "vitamins + water = all you need," "vitamins + water = what's in your hands," and "Keep perky when you are feeling murky." One print advertisement depicted three flavors of Vitaminwater (Essential, Defense, and Multi-V) under the phrase "flu shots are so last year." Each flavor represented "more vitamin C" and "more immunity." Campaigns also featured the ingredients, which consist of vapor-distilled, deionized, reverse osmosis filtered water; electrolytes; and vitamins A, C, B3, B5, B6, B12, and E to name a few (Vitaminwater, 2010). Other ingredients are added based on the flavor and intended purpose of the drink. For example, the Rescue flavor "is specially formulated to support optimal metabolic function with antioxidants that may reduce the risk of chronic diseases, and vitamins necessary for the generation and utilization of energy from food;" Defense "is specially formulated with nutrients required for optimal functioning of the immune system, and the generation and utilization of energy from food to support immune and other metabolic activities;" and Formula 50 "is specially formulated to provide 50% of the many important vitamins you need every day" (Vitaminwater, 2010). With consumers seeking healthier beverage alternatives, the question presented is whether such marketing practices will mislead consumers to buy a product that is characterized as mostly sugar.

Coca-Cola's marketing efforts are now under legal scrutiny. In 2009, Coca-Cola was named in a class action lawsuit, Ackerman v. The Coca-Cola Company. This case is a hybrid of five previous class action lawsuits filed in the United States District Court in the Eastern District of New York (Ackerman v. The Coca-Cola Company and Energy Brands Inc. (d/b/a Glaceau), Case No.09-cv-0395). The complaint, representing classes from New York, New Jersey, and California, identifies thirteen class action allegations which include state law claims based on Fraud/Misrepresentation, Unfair Business Practices, False Advertising, and Breach of Express and Implied Warranties.

Analysis of the Lawsuit

Ackerman's complaint seeks compensation from Coca-Cola for deceptive practices in representing the dietary benefits of the product Vitaminwater and marketing the drink as a dietary supplement. Ackerman further claims that Coca-Cola "deceptively promoted" Vitaminwater as a "nutrient enhanced water beverage" and that Vitaminwater does not consist solely of "vitamins + water" which is contrary to the Vitaminwater promotional language "vitamins + water = all you need" and "vitamins + water = what's in your hands." Ackerman states the labeling and advertisements are "false, misleading, deceptive, and unfair," and Coca-Cola has "profited enormously from their deceptive marketing of Vitaminwater" (Ackerman v. The Coca-Cola Company, 2009). Ackerman argues that the name Vitaminwater itself is a material misrepresentation. The name says the product is only vitamins and water when in fact the product "contains 33 grams of sugar, almost as much as a can of Coke," contrary to the company's advertising that Vitaminwater is a healthy alternative to carbonated beverages (Ackerman v. The Coca-Cola Company, 2009).

After the complaint was initiated, Coca-Cola filed a Motion to Dismiss stating (1) that Ackerman's state-based claims were preempted by federal law and (2) that Ackerman did not satisfy the pleading standards of the Federal Rules of Civil Procedure 8 and 9(b). These were not only procedural strategies by Coca-Cola to prevent the lawsuit from going forward but also an attempt to provide some insights into the basis of Ackerman's claims and the impact such claims could have on advertising.

Under Article VI, clause 2 of the United States Constitution, state laws that "interfere with, or are contrary to the laws of Congress" are deemed invalid and are barred, i.e., expressly preempted. Coca-Cola argues that imposing damages on a defendant under state law would conflict with the Federal Food, Drug, and Cosmetic Act (FDCA) of 1938. The FDCA is the federal legislation designed to protect consumers from fraud or misrepresentation in the sale of food and drugs. It also empowers the Food and Drug Administration (FDA) to regulate advertising related to health claims of food manufacturers. To determine whether Ackerman's state law causes of action conflict with FDA Regulations, the Court examined the following: "(a) use of health or implied nutrient content claims in products with high sugar content; (b) use of health or implied nutrient content claims of "healthiness" in products fortified in violation of FDA fortification policy; and (c) use of product name that includes some, but not all ingredients" (Ackerman v. The Coca-Cola Company, 2010 U.S. Dist. LEXIS 73156).

The FDA has never ruled that sugar is unhealthy, nor that sugar is a disqualifying nutrient which would prohibit Coca-Cola from touting other purported benefits of its products and the health claims denoted on each flavor (59 Fed. Reg. 24232, 24244 [May 10, 1994]). The FDA, however, does restrict health claims (or implied claims of "healthiness") when products are essentially junk foods fortified with minimum nutrient levels to encourage consumption; this is also known as the jelly bean rule (FDA, 1994).

The Court's Ruling on the Motion to Dismiss

The Court dismissed only three of Ackerman's 13 claims. The court held that the remaining "claims are not preempted by the FDCA because they seek to impose requirements on the defendants that are identical to those imposed by the FDCA" (Ackerman v. The Coca-Cola Company, 2010). These remaining ten claims including misrepresentation, unfair business practices, and deceptive advertising will proceed to be heard by the Court. Thus, below is a brief summary of how the remaining claims may proceed and their potential impact on advertising and marketing.

For a claim of fraud or misrepresentation, Ackerman must prove the following elements: "(1) a material misrepresentation of a presently existing or past fact; (2) knowledge of the falsity by the person making the misrepresentation; (3) intent that the misrepresentation be relied upon; (4) justifiable reliance of the misrepresentation; and (5) resultant damage" (Cipollone v. Liggett Group, Inc., 683 F. Supp. 1487, 1499 [D.N.J. 1988]). Ackerman argues the company's product claims are a material misrepresentation. The name itself says the product is only vitamins and water when in fact the product contains 33 grams of sugar, almost as much as a can of Coke, contrary to the company's express and implied advertising that Vitaminwater is a healthy alternative to carbonated beverages. Coca-Cola intended for health-conscious consumers to rely and this information and has taken advantage of consumers by selling the product.

To determine if a business practice is "unfair," under the California Unfair Competition Law (UCL), the practice must offend an established public policy or the practice itself is "immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers" (Wilner v. Sunset Life Ins. Co., 78 Cal. App. 4th 952, 965, 93 Cal. Rptr. 2d 413 [Ct. App. 2000] citing State Farm Fire & Cas. Co. v. Superior Court, 45 Cal. App.4th 1093, 1104, 53 Cal. Rptr. 2d 229 [Sup.Ct. 1996]). Arguing that Coca-Cola's business practices violate public policy or are immoral would be arduous to prove solely on the fact that Vitaminwater contains 33 grams of sugar; the labels are clearly marked with ingredients and nutritional information, and any advertisement violations are policed by the Federal Trade Commission (FTC). For the false advertising claim, Ackerman must prove dissemination in any advertising medium of any "statement which is untrue or misleading, and which is known, or which by the exercise of reasonable care should be known, to be untrue or misleading" (Cal. Bus. & Prof. Code [section] 17500; Lozano v. AT&T Wireless Servs., Inc., 504 F.3d 718, 731 [9th Cir. 2007]). Using the "Defense" Vitaminwater flavor as an example, the advertising claims only state that the product is formulated with nutrients required for optimal functioning of the immune system. It does not make a claim that drinking this flavor will boost the immune system, only that it contains such a nutrient that has been scientifically proven to offer this benefit. Arguing that this statement is untrue or misleading would also be difficult to prove.

In evaluating whether advertisements are deceptive, blatant lies are rare. More common are ads that are subtly misleading, and the distinction between subtly misleading and legitimate puffery can be difficult to define (Pohl, 2010). Puffery, which is legal according the FTC, is defined as a "term frequently used to denote the exaggerations reasonably to be expected of a seller as to the degree of quality of his product, the truth or falsity of which cannot be precisely determined" (Better Living, Inc. et al., 54 F.T.C. 648 [1957], affd, 259 F.2d 271 [3rd Cir. 1958]). In 1984, the FTC issued a Policy Statement on Deception affirming that puffery does not warrant enforcement action by the Commission, and it generally will not pursue cases involving obviously exaggerated or puffing representations (i.e., those that the ordinary consumers do not take seriously).

Ackerman asserts that puffery is not what Coca-Cola has done. Vitaminwater's sugar content, consumer reliance on the name of the product, and claims that it is a nutrient-enhanced beverage are not puffery. The implications of the advertisement go beyond puffing and assert a material statement about the product's attributes, capable of measurement as true or false, which is a violation of the law (Miller, 2010). Again, in Coca-Cola's defense, courts have followed the FTC but have interpreted the decision by stating the standard for whether an act or practice is misleading is whether a reasonable consumer would have been misled by the defendant's conduct (Marcus v. AT&T, 138 F.3d 46 [Court of Appeals, 2nd Circuit 1998]). Overall, most consumers do not feel strongly one way or the other about puffery claims. Both familiarity and experience with the products influence believability of the claims (Haan & Berkey, 2002). Arguably, the reasonable consumer who is concerned about sugar content will read product labels and nutritional fact panels, and the detail that the FDA has never ruled that sugar is unhealthy only strengthens the case in Coca-Cola's favor.

Implications for Sport Marketers and the Advertising Industry

In evaluating the practical implications for sport marketers and the advertising industry, the fact that ten out of the thirteen claims survived the Motion to Dismiss is noteworthy. The court believed the issues regarding unfair business practices, false advertising, and fraud had merit. Proving these issues, however, may be difficult for the plaintiffs since there is often a fine line between legitimate puffery and deceptive or misleading advertising.

Since the ruling on the Motion to Dismiss, lawsuits against Coca-Cola's Vitaminwater have been filed in Florida, the Virgin Islands, and Canada. Coca-Cola attempted to transfer and consolidate the two additional U.S. cases to the federal court in New York, but the motion was denied. The parties have also attempted to mediate but have had difficulties setting a date. Earlier in 2011, several Vitaminwater ads were banned by the United Kingdom Advertising Standards Authority (ASA) due to claims that the drink was "nutritious;" the ASA stated that use of the word was misleading (ASA, 2011). Although the Ackerman case is still pending, the decision will have repercussions for not only sport marketers and the advertising industry but also other enhanced water beverages. In 2012, Activate by Rising Beverage Co. and SoBe[R] Calorie Lifewater by S. Beach Beverage Company were also named in lawsuits with similar product health claims.

If Coca-Cola loses this case, the FDA will have to take a formal position on whether sugar should be a disqualifying nutrient like total fat, saturated fat, cholesterol, and sodium. There may also be careful monitoring of enhanced water beverage advertisements by the FTC, which could potentially lead to corporate claims of advertising censorship in the marketing of sports products and brands. Vitaminwater advertisements have also included NBA stars Kobe Bryant and Lebron James. If the messages provided by these athletes are deemed misleading, the sports industry may see more lawsuits targeting athletes who endorse such products with health claims. Most recently, Shaquille O'Neal and Lamar Odom were named in the Power Balance lawsuit; both athletes were paid celebrity endorsers of the product (Fusfeld, 2011). Although the Power Balance lawsuit has been settled, if holding these athletes accountable for their endorsements becomes a trend, sport marketers will undoubtedly see endorsement agreements become more iron-clad, and/or athlete endorsements will decrease for fear of future litigation. Regardless of the outcome of this case, consumers, ultimately, must be able to trust enhanced water labels and get exactly what they pay for.

References

Elliott, S. (2009, March 31). With humor, Glaceau Vitaminwater introduces new low-calorie beverage. NYTimes.com. Retrieved from http://www.nytimes.com/2009/04/01/business/media/01adco.html?_r=1

Fusfeld, A. (2011, January 25). Shaq and Lamar Odom are being sued for endorsing those bogus PowerBalance bracelets. Business Insider. Retrieved from http://www.businessinsider.com/shaq-lamar-odom power-balance-lawsuit-2011-1

Haan, P., & Berkey, C. (2002). A study of the believability of the forms of puffery. Journal of Marketing Communications, 8(4), 243-256.

Howard, T. (2002, August 23). USA Today. Retrieved from http://www.usatoday.com/money/advertising/2002-08-22-water_x.htm

Miller, R. (2010). Advertiser liability for "implied" claims in Lanham Act false advertising cases. IP Litigator, 16(5), 43-50.

O'Leary, N. (2010, March 30). Soft-drink consumption continues to decline. Brandweek. Retrieved from http://www.brandweek.com/bw/content_display/news-andfeatures/packaged-goods/e3iedc670800607df6c191cf7d4164ab322

Pohl, M. (2010). Three little pigs of deceptive advertising. Pharmaceutical Executive, 30(9), 30-31.

DISCLAIMER: Inquiries regarding this feature may be directed to series co-editors Steve McKelvey at mckelvey@isenberg.umass.edu and John Grady at jgrady@mailbox.sc.edu. McKelvey is an associate professor and graduate program director in the Mark H. McCormack Department of Sport Management at the University of Massachusetts Amherst. Grady is an associate professor in the Department of Sport & Entertainment Management at the University of South Carolina.

The materials in this column have been prepared for informational and educational purposes only, and should in no way be considered legal advice. Readers should not act or reply upon these materials without first consulting an attorney. By providing these materials it is not the intent of the authors or editors to enter into an attorney client relationship with the reader. This is not a solicitation for business. If you choose to contact the authors or editors through email, please do not provide any confidential information.

Natasha T. Brison, JD, is a clinical assistant professor in the Department of Kinesiology and Health at Georgia State University. Her research interests include sport marketing and athlete branding, entrepreneurship in sport, and the legal aspects of sport such as contract drafting/negotiation and utilizing mock trials to teach sport law.