KIND Petitions FDA: Should Investors Lose Confidence in General Counsel?

In a previous article I discussed how important it is for food businesses to conduct an in-depth label review prior to launching new products. Specifically, I addressed the FDA Warning Letter issued to KIND LLC and pointed out how costly labeling mistakes can be, especially when the risk could have easily been mitigated. In their response to FDA, KIND agreed to correct most of the technical errors noted in the letter; however, when it comes to changing their view of what foods are allowed to label themselves as "healthy" they don't agree with what they refer to as "outdated" regulations.

In a citizen petition letter ("Petition Letter") sent to FDA last week, KIND's general counsel, Justin Mervis, notes that under current regulations "whether or not a food can be labeled "healthy" is based on specific nutrient levels in the food rather than its overall nutrition quality." KIND then goes on to claim that new scientific evidence no longer supports this view and that, accordingly, FDA amend 21 C.F.R. 101.65(d)(2) in regards to nutritional content claims so that manufacturers may use the term "healthy" without regard to the total fat or saturated fat, if the source of such fat comes from fruits, vegetables, nuts, seeds, legumes, whole grains or seafood, provided that "such foods are used in their whole form or have been processed in such a way that did not materially degrade their nutritional value." 

While the Petition Letter makes several other recommendations, the majority of the Petition Letter is devoted to the argument that there is a disconnect between the Dietary Guidelines and what claims manufacturers are permitted to state on their labels. KIND argues that manufacturers should be permitted to make claims on their products labels (e.g., "nuts are part of a healthy diet") that are consistent with federal dietary recommendations and current scientific evidence. As such, KIND goes on to request the FDA "undertake rulemaking to define a "dietary guidance statement" as a statement in food labeling about the usefulness of a food, or a category of foods, in maintaining healthy dietary practices." The requested rule would permit claims on food labels to communicate that certain foods are useful in creating a diet that is consistent with current dietary recommendations, so long as those claims are not misleading.

While it isn't a secret that food regulations, in some part, have become "outdated", what makes KIND's petition interesting is it comes after being caught violating the same regulations they are petitioning to amend. The real question is whether KIND knew their product labels were non-compliant when released into the marketplace or did they make a business decision to move forward with non-compliant labels in order to promote their "healthy" marketing campaign. While the saying "it's better to ask for forgiveness then to ask for permission" may apply in certain situations, it's probably not the best strategy when it comes to breaking federal law. 

The role of the general counsel is to advise executive leaders on the state of the law, how certain laws affect their business and to provide pertinent information and/or legal advice to such leaders so they have the ability to make informed decisions. The general counsel is not required to be an expert in the industry in which their client operates (although it certainly helps); however, they should know the limits of their expertise and, when appropriate, bring in outside assistance with such expertise. If they don't know their limits, or can't identify potential legal issues outside their expertise, then their departure should be swift. After all what good is legal counsel if leaders are not able to rely on their advice?

It isn't clear whether KIND made the decision to market their products with non-compliant labels, but if they did the general counsel shouldn't take the blame. However, it took KIND six months to file their Petition Letter which leads me to believe the labeling violations occurred not because of a strategic business decision, but due to the lack of regulatory expertise and oversight from the general counsel's office. If my presumption is correct, investors should demand answers and push for changes in the executive suite. These violations have resulted in significant expense revising labels, advertising and websites, in addition to substantial legal fees incurred responding to the Warning Letter and submitting the Petition Letter, and most recently defending consumer lawsuits. While attorneys play a significant role in advising businesses, legal fees cannot be entirely avoided; however, they can be efficiently managed. It is up to KIND's investors to decide whether their capital in this situation was well-spent. 

Growing Craft Beer Industry Through Tax Cuts

While the craft beverage industry has grown significantly over the past decade, it has the potential to grow to new heights if small producers weren't burdened by federal regulations that have failed to keep pace. This could all change, however, if Congress passes a bill now pending titled the Craft Beverage Modernization and Tax Reform Act ("CBMTA"). If passed, the bill would decrease taxes on craft brewers in order to help small businesses profit and encourage continued growth in the booming sectors. (Note: the CBMTA also cuts federal excise taxes on distillers, vintners and cider makers)

Under current law, a tax is imposed on all beer brewed or produced in, or imported into, the United States. The excise tax rate is $18/barrel (about $0.05 per 12 oz. bottle/can). Brewers that make less than 2,000,000 barrels per year may qualify for a lower excise tax rate on its first 60,000 barrels. If a brewery qualifies for this lower rate, its first 60,000 barrels of beer sold will be taxed at $7/barrel (about $0.02 per 12 oz. bottle/can). 

Breweries are required to pay excise taxes semi-monthly (24 payments per year); however, a smaller brewery can qualify for quarterly payments. To qualify for quarterly payments, the estimated annual tax liable for the brewery must not exceed $50,000 (~7143 barrels) and their excise tax for the previous year must not have exceeded $50,000.  It is important to note that paying quarterly taxes may greatly increase the amount of a brewer’s bond.

Under CBMTA, the federal excise tax on the first 60,000 barrels will be reduced to $3.50/barrel for domestic brewers producing less than 2 million barrels annually. It also reduces the federal excise tax to $16/barrel on the first 6 million barrels for all other brewers and importers. The excise tax of $18/barrel would remain for breweries producing more than 6 million barrels annually.

Lowering the excise tax is important to small brewers, the majority of who operate on tight margins. Unlike large multinational brewers who enjoy the benefit of economies of scale, small brewers maintain higher costs for raw materials, production, packaging, marketing and distribution. Adjusting the excise tax would allow small brewers nationwide to reinvest more than $70 million annually into growing their businesses. Passing this bill is crucial to sustain the continued growth of the craft beer industry, so if you're a craft beer fan please contact your congressional leaders and tell them to support the Craft Beverage Modernization and Tax Reform Act. 

Creating Sustainable Jobs Through Aquaculture

Many cities and states have experienced economic difficulties at one point or another. Some overcame adversity, while others continue to struggle. Those who were successful when faced with the realities of a declining tax base and bleak economic picture turned to open-minded leaders who understood that "business as usual" wasn't going to right the ship. These leaders all accepted the concept that if you expect to grow and thrive then you need to continually reinvent yourself.

Think of Boston in the late 1970's through early 1980's which relied heavily on manufacturing jobs, the city lost close to half of its population from all-time highs. Now, thirty years later, Boston is a leader in technology, education and medicine. Or take Pittsburgh back in the early 1980's where the steel industry was collapsing and unemployment exceeded 17 percent. Many area leaders responded with denial and people held out hope the steel mills would reopen. But that didn't happen, instead mill owners began demolishing plants and selling the steel for scrap. In the middle of the crisis, leaders emerged from the surrounding communities and joined forces to guide greater Pittsburgh into the technology center it is today.

So what does all of this have to do with aquaculture? Well, as the country increasing searches for locally sourced food, supplies for fresh seafood are in high demand. But not every state has the natural resources available to fulfill this growing need and consumers are left to the mercy of large distributors. Michigan, however, is in position not only to meet this demand, but to become a leader in this industry. The state has the longest freshwater coastline in the U.S. and the second longest coast line in the U.S. next to Alaska. But not everyone is open to new ideas and innovation.

Recently, a bill was introduced that would prohibit any commercial fishing operations on the Great Lakes surrounding Michigan. The reasoning behind the bill is to protect the natural resources of the state (i.e., fish waste causes pollution). Well, yeah, that's why it's called "waste"! But with a strong regulatory structure and academic community in Michigan, surely aquaculture can be studied and carried out in a responsible and environmentally friendly way. Just as farmers are stewards of the land, owners of aquaculture operations care deeply about the water. I'm sure nobody wants to see the Great Lakes return to the conditions that plagued them during the twentieth century, nobody more than aquaculture farmers that rely on these waters for their livelihood.

Michigan's jump into aquaculture isn't about "growing fish for the expensive restaurants in Chicago", as Sen. Rick Jones of Grand Ledge has put it. It's about bringing Michigan into the future and using it's resources responsibly to reinvent itself and create jobs. Michigan is already a dominant force in agriculture and is home to one of the nation's premier agricultural schools in Michigan State University. There is no reason why Michigan can't follow the same path with aquaculture, but it takes leaders with vision and openness to new ideas. Not only will aquaculture farms result in direct jobs, but indirect jobs such as manufacturing of fish products and transportation of the products to market.

If we are to take something away from the experiences of cities mentioned above, it is important to point out that Pittsburgh, referred to as the "Steel City", now relies on less than 20% of its economic output from steel. I'm not comparing Pittsburgh with the entire State of Michigan (or even Detroit for that matter), because the economics of a city are quite different from that of an entire state. However, in a state that historically has relied heavily on the automotive industry as a driver of economic growth, Michigan's leaders should take note. While Michigan, outside of a few distressed metropolitan areas (i.e., Detroit, Pontiac, Flint), is not experiencing an economic crisis, people aren't exactly tripping over each other to relocate to the state either, with an estimated population growth rate near zero. This is why, more than ever, all options should be on the table. While it's easier to say "no" to new ideas, especially ones that may upset some constituents, successful leaders make decisions regardless if the decisions are unpopular. After all it's not about making the popular decision, it's about doing what is right for the economic success of Michigan.

Craft Brewers Should Prepare for FDA Inspections

"Whoa, hold on," you say, "I'm a craft brewer. What does the FDA have to do with me?" Well, that's a good question. As a brewer you are already familiar with your state liquor agency and the Tobacco, Tax and Trade Bureau ("TTB"), but what you probably don't realize is that the Food and Drug Administration ("FDA") also regulates your operations. With the increased focus on food safety, and additional regulations under the Food Safety Modernization Act ("FSMA"), it is only a matter of time until FDA comes knocking on your door.

"Okay, you've got my attention," you respond. "So what part of my business does the FDA regulate?" Glad you asked. The FDA has jurisdiction over many aspects of your business, including both the inputs to and outputs of your operation. Below are just some examples:

Registration: Just like food manufacturers, breweries are required to register as a food facility with the FDA and renew their registration every two years. This registration requirement applies regardless of whether you brew domestically or overseas (i.e., import beer into U.S.A.).

Labeling Requirements: Beer that contains both malted barley and hops are subject to TTB labeling regulations; however, beer that doesn't contain both malted barley and hops (i.e., rice or wheat beer) are subject to FDA labeling regulations. These regulations require additional disclosures, including: ingredients (such as spices, flavorings, colorings, chemical preservatives); allergens, such as wheat; and nutritional facts (think of that dreaded word "calories"), of course unless it meets certain exemptions.

Good Manufacturing Practices ("GMPs"): Federal regulations have established GMPs for the manufacturing, packing or holding of human food, which includes several of the steps in the beer-making process. Storing and holding grains and other food products for processing and beer for shipment is also subject to regulation. In order to comply with these regulations your operations need to be sanitary, you must perform an analysis of your operations to address any potential hazards, and implement GMPs to minimize such hazards.

Reporting and Recordkeeping: Food safety continues to be a primary concern of FDA and new regulations under FSMA. To ensure your brewery remains compliant you must keep records of the immediate sources of food and the immediate recipients of products you sell. In the event of food safety incident, such as the release of an adulterated product from a production, bottling or manufacturing facility, FDA may require the release be reported. These record will assist brewers and FDA in identifying the sources and recipients of the adulterated products. 

Bulk Sales: Bulk sales of foods and processing byproducts, such as spent grain for animal feed, are subject to FDA regulation. Brewers already implementing human food safety requirements would not need to implement additional preventive controls or GMPs for animal food, except to prevent physical and chemical contamination. This requirement applies even if you're donating the byproducts for use in animal food.

Food Service and Sales: In addition to selling beer, do you serve food or sell packaged food products, such as olive oils, cheese, meats or other snacks, in your tasting room or brewpub? Food products served or sold on premise may be subject to federal, as well as state or local, regulations. While exemptions that may apply, you should make sure you stay in compliance with the law.

Inspections: Under the rules promulgated under FSMA, the FDA is obligated to inspect every brewery in this country over the next several years. This means the FDA can observe your manufacturing processes, inspect your facilities and every aspect of your operation. They also can review your records and take photograph your operations. You should be prepared for any kind of surprise inspection. Also, if the facility fails to meet compliance standards on the first visit to your brewery, FDA will reinspect at a later date and you will be charged at a rate of $221/hour. 

As you can see, the FDA has quite a bit of regulatory oversight over your brewery. But it's not too late to take action to ensure your brewery is compliance, as many of the food safety rules under FSMA have yet to take effect. If your brewery is unsure whether it is in compliance with, or need assistance in adapting your brewery to meet, FDA regulations please contact our attorneys at Morsel Law.

FDA Issues Another Blow to Maker of Just Mayo

Earlier this year, Hampton Creek Inc., the maker of Just Mayo, was sued by Unilever, the maker of Hellman's mayonnaise, and accused of false advertising for calling its egg-less spread "mayo". Even though experts thought the claims were strong, the case was eventually dropped due to the negative publicity Unilever received which painted it as a corporate bully. As mentioned in an earlier article, a class-action lawsuit was filed against Hampton Creek in Florida state court asserting similar claims, but this time by consumers who claim they were misled into thinking Just Mayo’s product was actually mayonnaise. 

Well, unfortunately for Hampton Creek, the third time isn't a charm. This time the feds are knocking on their door. On August 12th, FDA issued a warning letter to Hampton Creek citing various violations of the Federal Food, Drug and Cosmetic Act (the "FDC Act") by their Just Mayo and Just Mayo Sriracha products. The warning letter specifically notes that both products make "cholesterol free" nutrient content claims on their labels (and website), but don't include a statement that discloses the level of total fat in a serving of the product in immediate proximity to the cholesterol claims, which is a violation of the applicable regulations. The letter also notes both products make unauthorized health claims on their labels (and website) by implying that the products can reduce the risk of heart disease due to the absence of cholesterol. Under federal regulations (see 21 C.F.R. 101.14(a)(4)), a food is disqualified from making health claims if the food contains more than 13 grams of total fat per 50 grams. Both Just Mayo and Just Mayo Sriracha contain 36 grams of fat per 50 grams.

But the biggest blow is one that will set up plaintiffs for successful consumer protection lawsuits. Just like the accusations made by Unilever and the Florida consumer in their complaints, the FDA notes that because neither the Just Mayo and Just Mayo Sriracha products contain eggs, they don't meet the definition of "mayonnaise" under the regulations (see 21 C.F.R. 169.140(c)), and thus are misbranded under the FDC Act. While the FDA goes on to list several additional labeling violations in the warning letter, this could be the most detrimental to Hampton Creek's core business.

Many recent lawsuits have relied on FDA warning letters as evidence to support a claim that a manufacturer violated state and/or federal law and, in many instances, the plaintiffs have been successful. Food manufacturers should ensure they thoroughly understand FDA regulations before labeling their products. This is not only to avoid a false advertising lawsuit, but also to avoid misbranding. It’s a prohibited act to distribute misbranded products and manufacturers can be subject to FDA enforcement and/or private party lawsuits.

Whether the lawsuits against Hampton Creek could have been avoided is difficult to determine. However, what I can say for certain is this warning letter is sure to bring additional lawsuits. So I hope for Hampton Creek's sake they take the time to focus their attention internally and resolve the issues that could have easily been avoided by conducting a thorough regulatory review. 

As mentioned above, food companies may minimize the chances of their products facing a legal challenge by consulting with an attorney familiar with FDA regulations. If you need assistance navigating or complying with the laws affecting your food or beverage businesses, please feel free to contact our attorneys at Morsel Law.

Alcohol Beverage Labels: The Importance of Each Word

Let's be honest, most of us as consumers don't read each and every word on a food and beverage labels, especially that fine print way down at the bottom. Sure, we check the ingredients, maybe even the calorie count, but for the most part that's about it. But when it comes down to it, everything on the label matters. Not necessarily to the majority of consumers, only those trying to squeeze money out of the pockets of businesses. And, as demonstrated below, it only takes one person to notice something questionable to cause major headaches.

Just ask Diageo PLC. They were recently sued over the labeling of their Red Stripe beer. Although marketed as a "Jamaican-style lager" and the logo of a Jamaican brewery is displayed on the bottle, the beer is brewed and bottled in Latrobe, PA. This isn't something Diageo is trying to hide, they disclose it directly on the label. However, the complaint claims that the label falsely misrepresented the country of origin of the beer which resulted in consumers paying higher costs for an imported beer. I guess the plaintiffs haven't purchased domestic craft beers lately, which can be some of the most expensive items in the beer cooler.

Another recent proposed settlement with "mislead" consumers came from the owners of Templeton Rye, an Iowa-based whiskey maker. According to the complaint, the whiskey company conducted deceptive marketing practices for failing to disclose its product's origins, and further suggesting that it was made in small batches of a "Prohibition-era recipe." In fact Templeton Rye doesn't even distill their own product. Instead, it buys the rye from MPG Ingredients in Lawrenceburg, IN, and passes it off as their own distillate. The rye whiskey that Templeton Rye purchases isn't even made in small batches, but in large quantities which Templeton Rye purchases in small amounts, the remaining whiskey is sold to other distillers which is then bottled under different brand names. Although Templeton Rye does blend the whiskey at their facilities with an alcohol flavoring formulation which they purchase from yet another vendor to achieve their own flavor profile. Of course, all of this is disclosed on the company website, but that didn't matter to the plaintiffs. Templeton Rye's co-founder, Keith Kerkhoff, is livid, stating: “It’s all about greedy people…if people didn’t like our product, they wouldn’t have bought a second bottle." The parties have reached a settlement where the company has agreed to reimburse consumers who purchased their product in the amount of $3-6 per bottle, up to 6 bottles. 

Last year, Fifth Generation Inc., the marker of Tito's Homemade Vodka, was sued in California for false and deceptive marketing, and in Florida for unfair and deceptive practices. The vodka maker touts that its product is "handmade", however, this apparently isn't the case anymore. Originally, the vodka was made by its founder, Tito Beveridge, in pot stills just outside of Austin, TX. But now, the company produces over 850,000 case per year out of an industrial facility. The company has stated in its own defense that their labels were signed off by the Alcohol and Tobacco Tax and Trade Bureau ("TTB"), so if putting "handmade" on their label is "false advertising" then the TTB wouldn't have approved the labels in the first place. Apparently, this logic wasn't enough for the courts to dismiss the lawsuit. 

As you can see above, each word really does matter. Similar lawsuits against alcohol beverage makers are being filed more and more frequently. Whether on a beverage label or marketing campaign or website, it is important to review and analyze all materials prior to releasing them into the marketplace. If a company doesn't have internal staff qualified to complete this type of regulatory review, they should locate and hire a specialist. Think of this as buying an insurance policy. You spend a small amount of money to get it right the first time to mitigate risk, instead of going without and hoping for the best. But if something is incorrect, one of two scenarios happen: regulators come knocking on your door or you're served with a civil complaint by affected "consumers". Either way, the company is faced with the high cost of defending themselves and possible damage to their reputation, which will most likely result in loss of customers. If your business is unsure whether a label or marketing materials are in compliance with, or need assistance in adapting your label or materials to meet, TTB or FTC regulations please contact our attorneys at Morsel Law. 

FDA Delays Menu Labeling Rule

As mentioned in another article in December, the Food and Drug Administration ("FDA") issued a final rule on food labeling (the "Rule"), as required under the Affordable Care Act, which provides for nutrition labeling of "standard" menu items for chain restaurants with 20 or more locations and "similar retail food establishments." Initially the Rule was to be implemented on December 1, 2015; however, since the Rule was issued numerous chain restaurants, grocery stores, and other covered establishments complained that they may not be able to comply within such time period.  Thus, on July 9, 2015 the FDA responded by announcing that it was extending the compliance date for the Rule to December 1, 2016. 

This is welcome news to the food industry as many businesses have struggled to implement procedures to comply with the Rule. Food businesses will now be afforded additional time to train staff, design new menus, and develop new information systems to assist in efficiently complying with the Rule. The FDA also announced it intends to publish a guide to assist covered establishments in complying with the Rule which is expected to be issued in August 2015.

While the menu labeling rule implementation has been delayed for one more year, it’s important for businesses to start planning for the implementation. If your food or beverage business needs assistance with implementing or interpreting the menu labeling rule, please feel free to contact our attorneys at Morsel Law.

So You Want to Start a Brewery in Michigan?

How many times have you spent sipping on a cold pint of the dark stuff with your friends when one of them, after finishing his third beer, has an epiphany: "Dude, we should totally start our own brewery...I mean how hard can it be?" Although your kind-hearted friend's idea sounds good at the time, what he doesn't know is that starting a brewery is no easy task. Navigating the laws and regulations alone would send most people running for the hills. However, there are some of you out there with the drive and passion for good beer and a determination to bring these tasty suds to the masses. So for those who've made it this far into my article, below I'll outline the different types of licenses need to start a brewery in Michigan.

While breweries are regulated under both state and federal laws, for the purposes of this article I'll just touch in the Michigan specific requirements. Michigan law allows a brewer to operate under either a brewer's, brewpub or micro-brewery license. A brewery license permits manufacturing an unlimited quantity of beer. Brewers may sell the beer they produce to licensed wholesalers, but many not sell directly to retailers. A brewer may also sell the beer it produces to consumers for on-premise consumption at only one brewing facility in Michigan, but it may sell beer that it produces at all of its facilities for off-premises consumption. Sampling of beer in a hospitality room located on the brewery premises is also permitted.

A micro-brewery license permits manufacturing of up to 60,000 barrels of beer annually (which includes any out-of-state production). Micro-brewers may sell beer to licensed wholesalers, but not directly to retailers. Micro-breweries that produce 30,000 barrels or less per year may sell directly to consumers for on and off-premise consumption without an additional license. Sampling of beer on the brewery premises is permitted.

A brewpub license permits manufacturing up to 18,000 barrels of beer annually. In addition to a brewpub license, a brewpub must also hold an on-premise license (Class C, Tavern, A-Hotel, B-Hotel or Resort). The brewpub must operate a full service restaurant with at least 25% of gross sales coming from non-alcoholic items. Brewpubs may not sell their beer to wholesalers or retailers, but may sell their beer to consumers for on or off-premises consumption.  

The key differences between a brewer's, micro-brewery and brewpub license are the amount of beer the establishment can produce, restaurant requirements and restrictions, and limitations on to whom you can sell.

Specifically, whereas a brewer's license authorizes the production of an infinite amount of beer, a micro-brewery license restricts production to 60,000 barrels per year and a brewpub license restricts production to 18,000 barrels per year. While a brewery or micro-brewery may be allowed to have a restaurant on its premises, a brewpub license requires the brewer to operate a restaurant on its premises. No license permits the sale of beer directly to retailers and only breweries and micro-breweries may sell to wholesalers. 

It is important to note that local regulations may further restrict your operations, such as stricter closing hours than state requirements. Thus, it is critical to research and understand the local ordinances prior to choosing a location. If you need assistance in establishing or navigating the laws and regulations that effect your brewery, please contact us at Morsel Law.

Streamlining Your Food Imports Into the U.S.

If you import food into the United States then you are familiar with the headaches and hassles that go along with this burdensome regulatory process. But that may change with the release of the draft guidance that outlines FDA’s plan to implement the Voluntary Qualified Importer Program ("VQIP") mandated under the Food Safety Modernization Act. The VQIP is a voluntary, fee-based program for the expedited review and importation of foods from importers who achieve and maintain a high level of control over the safety and security of their supply chains. 

The new draft guidance lays out the various benefits in addition to expedited entry that an importer can expect to receive from participating in VQIP, including limiting examination and/or sampling of VQIP food entries to “for cause” situations. Additionally, participants in the VQIP will have access to the VQIP Importers Help Desk, which will be dedicated to responding to questions and concerns of VQIP importers. 

The draft guidance lays out the eligibility for participating in the program, which includes: (a) 3-year history of importing food into the U.S.; (b) do not import food subject to an import alert or Class 1 recall; (c) have a current facility certification for each foreign supplier of food intended to be imported under VQIP; and (d) be in compliance with Foreign Supplier Verification Program requirements and applicable seafood and juice HACCP regulations.  

Participation in the VQIP is for the U.S. fiscal year, which begins on October 1st each year. Applications to participate in VQIP will need to be submitted electronically through the FDA’s industry portal between January 1st and May 31st before the fiscal year in which the importer seeks to join the program. FDA has indicated that due to resource constraints, it will limit the number of participants in the first year to 200 at the most. Participation must be renewed annually, and participants will be subject to FDA inspection. 

If your company is considering participating in the VQIP program, carefully review the draft guidance as the FDA will only accept comments on until August 4, 2015. 

Update: Ag Committee Passes Bill to Repeal COOL

The Agriculture Committee of the U.S. House of Representatives voted 38 to 6 to approve HR. 2393, a bill that would repeal Country of Origin Labeling ("COOL") requirements for beef, pork and chicken products, while leaving intact the requirements for all other covered commodities, such as seafood and shellfish. This move comes just two days after the World Trade Organization ("WTO") ruled against parts of the COOL law, a requirement that labels tell consumers what countries the meat is from: for example, "born in Canada, raised and slaughtered in the United States'' or "born, raised and slaughtered in the United States.''

House Agriculture Committee Chairman Mike Conaway, R-Texas, a long-time supporter of the meat industry, stated "[w]e cannot sit back and let American businesses be held hostage to the desires of a small minority who refuse to acknowledge that the battle is lost." But other congressmen don't believe swift and immediate action is the way to react. Rep. Collin Peterson, D-Minnesota, ranking member on the Agriculture Committee, stated "I’m disappointed that the WTO ruled against the United States, but I think repealing COOL is premature...there are still several steps that have to occur before [retaliation from Canada and Mexico] would take place."  

What is interesting is how quickly Congress reacted to the WTO ruling, an international trade body with no input from American citizens. As mentioned in an earlier article, consumers are demanding increased transparency in the food supply, especially when it comes to knowing where their meat comes from. Moreover, more than 60 other countries have mandatory labeling requirements, including the European Union which requires indication of the country of birth, fattening and slaughter. Although the U.S. and EU laws are different, it is possible for Congress to review similar meat labeling laws and determine whether their is a suitable alternative to repealing the law outright. This may take some time, but it is better to get it right than to do it quick.

Congress is supposed to represent the people, not special interest groups; however, in passing this bill through committee it sends the message that their campaign donors are more important than voters. Time will only tell whether this bill goes anywhere, but I hope voters take notice and remember in November. 

U.S. On Verge Of "COOL" War

Those of us born before 1980 probably remember growing up the midst of the Cold War between the United States and Soviet Union. The Cold War ended in 1991, however, the U.S. could find itself facing a trade war, this time with its North American neighbors.

On Monday, the World Trade Organization ("WTO) ruled the U.S. country-of-origin labeling ("COOL") required on certain meat packaging discriminates against livestock from Canada and Mexico. The ruling could lead to retaliatory measures in the form of tariffs on U.S. imports.  Canada and Mexico have both indicated they intend to impose sanctions on U.S. exports as early as late summer.

The labeling law was originally introduced by Congress as part of the 2002 farm bill. The current rules require labels to state, for example, that the animal that produced the meat was "born in Mexico, raised and slaughtered in the United States" or "born, raised and slaughtered in the United States."  Canada and Mexico argued that these labeling requirements caused the prices of their meats to drop because meatpackers don’t want to go through the hassle and expense of segregating imported animals. The WTO report supports this argument, claiming that U.S. regulations, which require meat producers to indicate on retail packaging where each animal was born, raised and slaughtered, give less favorable treatment to imported meat than domestic products.

As a result of the WTO ruling, Congress is now faced with a tough choice: amend or repeal the law, or suffer punitive tariffs on a range of goods. Any amendment needs to be narrowly tailored so that U.S. meat producers are not favored over imports. In 2013 while the dispute was working its way through the WTO, Congress amend the labeling rules, but the WTO stated in their report the amendment did not go far enough. Repealing the law could appease Canada and Mexico and prevent a trade war; however, what message would this send to U.S. consumers? As consumer demand has been increasing over the past several years for transparency in the food supply, by repealing COOL Congress would in effect be telling consumers that U.S. trade interests are more important. How well this would sit with consumers is unknown, but with the 2016 election on the horizon I'm willing to bet legislators are polling their constituents on this issue. If Congress does nothing U.S. exporters will certainly suffer, most likely passing the additional cost onto consumers. But it isn't just additional cost, it's lost jobs. Jobs in the industries affected by the tariffs and jobs that supply those industries. In the stagnant economy in which we live, any action that results in job losses needs to be thoroughly reviewed.

The U.S. Congress is on the clock and the world is watching.  Whatever side you may be on, this is going to be a fight of historic proportions as money continues to pour in from all sides. Stayed tuned for updates as we closely follow this matter.

Food Safety Incidents Can Destroy Businesses

Spring is finally here and summer is just around the corner. As a kid this was my favorite time of the year, besides school ending for summer vacation, it was the season of BBQ's and ice cream. Who doesn't like ice cream? The average American consumes 48 pints of the delicious treat each year and they consume more ice cream during the summer months than the rest of the year combined.   

It is also the favorite time of the year for ice cream makers as they watch their products fly off the shelves. However, not all ice cream makers will be experiencing happiness this summer as some recently were forced to pull their inventories from store shelves. Blue Bell Creameries LP, the maker of Blue Bell Ice Cream, and Jeni's Splendid Ice Creams LLC both recently found traces of Listeria bacteria in their products. In addition to pulling products, both companies have temporarily shut down their plants until they can identify and remedy the problem. These recalls follow fellow Washington based ice cream maker, Snoqualmie Gourmet Ice Cream Inc., who last year removed all its ice creams, gelatos, custards and sorbets from retailers’ shelves after health officials linked two listeria cases at a hospital to tubs of its ice cream.

Listeria is not a laughing matter, in fact it is one of the deadliest food borne pathogens. Listeria is a virulent pathogen that thrives in cool, wet environments, and has previously prompted food companies to shut plants since it is difficult to eradicate even through plant cleanings.

For food producers, a food safety incident can be catastrophic. Not only is it a financial strain on the company, but it can destroy their reputation as consumers lose confidence in their business. A perfect example is the 1993 E. coli outbreak that damaged Jack in the Box's reputation for many years from which they may never fully recover. Plaintiff's lawyers also pick up on food safety incidents like sharks sniffing out blood in the ocean, leading to countless of lawsuits filed on behalf of consumers allegedly injured by the contaminated products.

These incidents demonstrate why food producers must take preventative measures to put place and enforce food safety procedures in their facilities. It is not enough to just have safety procedures in place for the manufacturing process, companies must also address transportation and storage of their products. This is no longer an option as the proposed rules under the Food Safety Modernization Act ("FSMA") focus on the storage and transportation of products, including loading and unloading operations, transportation, packaging and bacterial testing. 

There are many producers, both domestically and abroad, that are not yet prepared for FSMA’s requirements to take effect or for the audits that will be required. Training and preparation for audits and inspections will be the key to success of any program. FSMA is a game changer as this training must be targeted at all levels, from the corporate offices to floor managers. If your food company hasn't already begun the process of implementing the processes and procedures under FSMA it should consider doing so now. The final rules are scheduled to be issued later this year.

Michigan Craft Brewers Beware: FDA Rule May Impact Your Business

Over the past two years Michigan business owners spent considerable time implementing procedures to comply with the health care requirements under the Affordable Care Act (the “Act”). Just when business owners thought they could turn their attention back to doing what they do best (i.e., running their business), regulators issue new requirements, this time targeting the food and beverage industry.

The FDA’s final rule on food labeling (the “Rule”), as required under the Act, provides for nutrition labeling of “standard” menu items for chain restaurants with 20 or more locations and “similar retail food establishments”. Unlike earlier drafts, the final Rule requires chains to also issue caloric information for alcoholic beverages. While the Rule does not specifically apply to breweries, there may be unintended consequences that impact craft brewers, especially those brewers that sell to chain restaurants. Michigan craft breweries should take notice.

Michigan, ranked fifth in the nation, is home to more than 150 craft breweries. Consumer demand for craft brews continues to grow and many national chain restaurants operating in Michigan already carry local craft beers on their menus. Many restaurants rotate their offerings regularly and list the current beer selection on menu boards. While restaurants are ultimately responsible to collect nutritional information on the items they serve, it is unclear whether restaurants would instead place this burden on brewers.

The FDA has noted that restaurants can utilize nutritional databases in order to determine calorie content on the beers they offer, such as the USDA National Nutrient Database for Standard Reference. According to the database, the calorie count for a “typical beer” is 153 calories per 12 oz. serving. But the problem is craft beers are not “typical”. They are full-flavored concoctions which ingredients vary greatly from one brewery to another. Thus, labeling all craft beers 153-calories would clearly be inaccurate.

Under the Rule, businesses must provide an inspector with information substantiating nutrient values, including the method and data used to derive these nutrient levels. A "responsible individual" for the business must certify that the information contained in the nutrient analysis is complete and accurate. So if a restaurant lists a 350 calorie beer as having that 153-calorie count, they run the risk of violating the Rule, especially if they cannot demonstrate they took reasonable steps to ensure the brewery adhered to the 153-calorie count. Failure to comply with the Rule, or if you don't get it right, the menu item will be deemed "misbranded" which is a misdemeanor under the Food Drug and Cosmetic Act. The FDA retains the discretion to hold those "responsible individuals" who certify the menu labeling, criminally liable for a misbranding violation.

Knowing the risk of a potential misbranding violation could lead to restaurants not accepting the standard reference calorie count, forcing brewers to supply nutritional information. Thus, craft brewers may be faced with a choice: either supply calorie counts or take their products elsewhere. But with rumors circulating that the Alcohol Tax & Trade Bureau (the “TTB”) — which is responsible for approving alcohol labels — could look at its own labeling policies and enforce stricter regulations in the near future, even possibly requiring nutritional information on beer labels, craft brewers may need to consider analyzing their beers now. So in the event the TTB follows the FDA’s lead and implements new labeling requirements, brewers will be prepared and know the caloric content of their products.

Craft brewers have long stressed a “drink better, not more” philosophy, unlike the mass-produced beers who have offered low-calorie light brews for decades, so hopefully consumers won’t be deterred by the calorie counts. It may slow cross-over growth, but it won’t stop the momentum. My prediction: calories or not, craft beers are here to stay.

Label Reviews Are Critical For All Food Businesses

Imagine you are sitting at your desk on a Tuesday morning.  You are going over your financials in preparation for tax season when your assistant knocks on your door.  She walks into the office and drops mail on the desk.  She mentions an envelope addressed to your attention with the FDA listed as the return address. Curious, you open it and to your surprise you find a letter stating that your company has violated the Federal Food, Drug, and Cosmetic Act (the "Act"). The letter states that you have 15 days to respond with corrective actions you plan to take in response to the violations.

This isn't a hypothetical, this is similar to what happened to Kind LLC last month, the maker of Kind bars.  In the Warning Letter, the FDA noted multiple violations, including the improper use of the word "healthy" on the Kind bar labels.  Pursuant to federal regulations, a food can make a “healthy” claim only if it has 1 gram or less of saturated fat per serving and gets no more than 15 percent of its calories from saturated fat. The four Kind bars called out in the FDA’s letter—Fruit & Nut Almond & Apricot, Fruit & Nut Almond & Coconut, Kind Plus Peanut Butter Dark Chocolate + Protein, and Kind Plus Dark Chocolate Cherry Cashew + Antioxidants—have between 2.5 and 5 grams.

The letter also stated the use of the “+” symbol was in violation of the applicable regulations. The regulations state that “plus” can be used if a food has 10 percent more of a nutrient than another similar food, and the product lists that food. The Kind bars don’t.  Kind bars carry a “good source of fiber” claim, which claim is defined as 10 to 19 percent of the DRV for a nutrient. In this case, that’s 2.5 to 4.75 grams of fiber—and the Kind bars in question do meet the definition. However, if the product is not low-fat (containing 3 grams or less), then that fact must be disclosed on the label, near the fiber claim. Again Kind bars don’t.

While these are only some of the alleged violations in the Warning Letter, you can see the list is pretty extensive.  Not only must Kind respond to the FDA with corrective actions, but now they face the significant expense of revising their labels, adverting and website.  This is no small task for an international food producer. However, this risk could have been mitigated through an in-depth label review. The FDA's regulations covering health and nutritional claims are complex and not always transparent.  As demonstrated in the letter to Kind, this is a reminder of how important it is for food businesses to have an in-depth review of their labels and marketing prior to production.  Most important to point out is that FDA regulations affect businesses of all sizes, so small and startup food businesses with limited experience navigating federal regulations should pay particular attention to their labels and marketing.

If your business is unsure whether a product label is in compliance with, or need assistance in adapting your label to meet, FDA regulations please contact our attorneys at Morsel Law.

How Beverage Companies Can Avoid Unnecessary Lawsuits

In a recent suit filed in California, Millennium Products, Inc., the maker of GT’s Kombucha and Synergy drinks, was challenged on claims that its drinks contain "powerful antioxidants", which plaintiffs claim is in violation of the Food, Drug and Cosmetics Act because the antioxidant statements it makes are misleading and unauthorized nutrient content claims as proscribed by the FDA.

Pursuant to federal regulations, a nutrient content claim is a claim on a food product that directly or by implication characterizes the level of a nutrient in the food (e.g., "low fat," "high in oat bran," or "contains 100 calories"). Only those claims that are specifically defined in the regulations may be used, all other claims are prohibited. Previously approved nutrient content claims characterize the level of a particular nutrient (e.g., ‘low sodium’), whereas a term such as ‘high in antioxidants’ ties a claim (i.e., ‘high’) to a class of nutrients that share a specific characteristic (i.e., they are antioxidants).

GT’s label use lists “EGCG 100mg" (a polyphenol found in tea with recognized antioxidant properties) in order to substantiate their antioxidant claim. However, for claims characterizing the level of antioxidant nutrients in a food, a reference daily intake (RDI) must be established for each of the nutrients that are the subject of the claim, but in this case there is no established RDI for EGCG. Moreover, since GT's product is a type of tea, and the FDA considers tea a food with no nutritional significance, the plaintiffs claim the drinks do not contain “even a single antioxidant nutrient with an established RDI."

It is important to note that Millennium Products, Inc. isn't the only company to face legal action in recent years from consumers making false labeling claims. Recently, Twinings North America, Inc. was sued for allegedly deceiving consumers by mislabeling its teas as a "natural source of antioxidants", however, in this case the judge dismissed the lawsuit stating that a "natural source of antioxidants" is not a nutrient content claim because it did not state or imply the level of antioxidants. However, in warning letter sent in 2012 the FDA noted that the statement "very powerful antioxidant" is an unauthorized nutrient content claim because "very powerful" characterize the level of antioxidants in the product. Other tea producers were also sent warning letters by the FDA over their green teas because they were improperly labeled with the term “antioxidant” (see Unilever, Inc. maker of Lipton Tea and Dr Pepper Snapple Group).

As lawsuits are increasingly targeting food and beverage makers challenging their labeling claims, it is more important than ever to make sure your labels are thoroughly reviewed prior to introducing the products into the marketplace. If your business is unsure whether a product label is in compliance with, or need assistance in adapting your label to meet, FDA regulations please contact our attorneys at Morsel Law.

FDA Releases Menu Labeling Guide for Small Businesses

On December 1, 2014, the Food and Drug Administration (“FDA”) issued a final rule on food labeling, as required under the Affordable Care Act, which provides for nutrition labeling of "standard" menu items for chain restaurants with 20 or more locations and "similar retail food establishments." If you are a restaurant owner the menu labeling rule will most certainly impact on your bottom line. The rule is expected to cost the food industry some $315 million to implement and about $44 million per year after that, according to the FDA’s original cost-benefit analysis. In addition to restaurants, the rule applies to food facilities in entertainment venues, such as movie theaters and amusement parks, take-out food establishments, bakeries, convenience stores, grocery stores and supermarkets.

Several months have now past since the rule was finalized and business owners continue to show frustration with the hundreds of pages of legalese they are forced to navigate in order to prepare their companies for its implementation. Thus, in response to this frustration, the FDA has released a Small Entity Compliance Guide, which is intended to restate the rule's requirements in plain language.

The guide provides detailed guidance on many topics, including: types of establishments covered; how to label menus with nutritional information; how to determine calorie content of foods; and the consequences of misbranding. Most importantly, the guide provides visual examples on how to calculate calories when to toppings change on particular menu items, such as ice cream sundaes and pizza. The guide also discusses the food labeling requirements in great detail, including: labeling requirements for standard menu items; formatting requirements for declaring calories; nutritional information; and requirements for food that is self-service or on display.

The rule is scheduled to go into effect on December 1, 2015, therefore it’s important for businesses to start planning for the implementation. Although the guide was meant to make it easier for small businesses to comply, the rule's requirements for determining caloric content and labeling menus are highly detailed and complicated. Therefore, if your small businesses needs assistance in complying with the rule, please contact us at Morsel Law.

Update: Avoiding Costly Mistakes For Your Food Business

In an article I published last fall, the maker of Hellman's mayonnaise sued Hampton Creek Inc., the maker of Just Mayo, accusing the company of false advertising for calling its eggless spread "mayo". But due to the negative publicity Unilever received which painted it as a corporate bully, they eventually dropped the suit. However, Hampton Creek’s worries have not disappeared as they are now facing another legal challenge.

Earlier this month, a class-action lawsuit was filed in Florida state court again stating, among other things, that Just Mayo is misleading and therefore “misbranded” in violation of federal law. Unlike the previous suit, these plaintiffs are also asserting that Hampton Creek violated the Florida Deceptive and Unfair Trade Practices Act, which have more flexible standards than the federal Latham Act (the act under which the previous suit was filed). Considering many legal experts at the time thought Unilever has a strong case, Hampton Creek could be in a bit of trouble this time around. There is no multi-national corporation to launch a campaign against, only consumers who claim they were misled into thinking Just Mayo’s product was actually mayonnaise. Although I’m sure they are working diligently to come up with a strategy to combat their new foes.

The FDA regulations state that "mayonnaise" must contain at least 65% oil by weight, vinegar, and egg or egg yolks. However, Just Mayo doesn’t include eggs, instead it gets its emulsification from vegan pea protein. Hampton Creek states that it calls its spread "mayo", not "mayonnaise", and therefore argues that it doesn't need to comply with the "mayonnaise" definition.

The plaintiffs’ claim that Just Mayo misleads customers who think they are buying actual mayonnaise, not an egg-free spread. Under Federal law products are “misbranded” if their “labeling is false or misleading in any particular”. See 21 U.S.C. 343. The plaintiffs’ claim, as one of many reasons, Just Mayo is misleading because the label for features an egg with a plant growing over it and it refers to its product as "mayo" and “mayonnaise" in its marketing materials. Again, this is up for the court to decide and so only time will demonstrate whether this argument is a correct interpretation of the law.

Food manufacturers should ensure they thoroughly understand FDA regulations before labeling their products. This is not only to avoid a false advertising lawsuit, but also to avoid misbranding. It’s a prohibited act to distribute misbranded products and manufacturers can be subject to FDA enforcement and/or private party lawsuits. Whether the lawsuit could have been avoided, would be difficult to determine. However, food companies may minimize the chances of their products facing a legal challenge by consulting with an attorney familiar with FDA regulations.

If you need assistance navigating or complying with the laws affecting your food or beverage businesses, please feel free to contact our attorneys at Morsel Law.

The Fight is On: Congress Considers GMO Labeling

On Tuesday, the House Agricultural Committee conducted a hearing aimed at examining the costs and impacts of mandatory GMO labeling laws. If passed, it would create a federal law that would require manufacturers to label all genetically engineered foods and any food products that contain genetically engineered ingredients.

The Genetically Engineered Food Right-to-Know Act, introduced by Rep. Peter DeFazio (D-Ore.) in the House and by Sen. Barbara Boxer (D-Calif.) in the Senate, would direct the FDA to enforce the new rule. However, some industry groups would rather have a federal solution than a federal mandate. These industry groups, including the Grocery Manufacturers Association and the Snack Food Association, seek a federal solution of voluntary labeling that preempts state laws that require mandatory labeling, claiming that complying with a patchwork of state laws would dramatically increase costs for manufacturers and consumers. Whether this is true or not is up for debate.

In response to the Right-to-Know Act and supported by industry groups, a bipartisan bill was introduced on Wednesday by Rep. Mike Pompeo (R-Kan.) and Rep G.K. Butterfield (D-N.C.) that would bar states from requiring the labeling of foods derived from genetically-modified organisms. The proposed legislation would set up, as an alternative, a U.S. labeling program that would certify foods that are free of genetically modified organisms. But the program would be voluntary, and does not require genetically-modified foods to be labeled. Thus, it would preempt state laws requiring mandatory GMO labeling (i.e., Vermont, Maine and Connecticut).

Currently, the FDA currently supports voluntary labeling in which food manufacturers indicate whether their products have or have not been developed through genetic engineering “provided such labeling is truthful and not misleading.” Which, in lay terms, means no federal requirement for GMO labeling exists.

Whatever side you may be on, this is going to be a fight of historic proportions as money continues to pour in from both sides. Stayed tuned for updates as we closely follow these bills while they make their way through the legislative process.

New York Passes GMO Labeling Bill

On March 3, 2015, the New York State Assembly Committee on Consumer Affairs and Protection voted to pass bill which would require all food made with genetically modified organisms ("GMOs") to state the presence of GMOs on their label.

The bill would require labeling for raw agricultural commodities, processed foods, seed and seed stock produced with genetic engineering.   Under this proposed law, any food for human consumption, seed or seed stock offered for retail sale in New York is misbranded if it is entirely genetically engineered or partially produced with genetic engineering and that fact is not clearly and conspicuously disclosed on the product’s packaging.  Fines for misbranding are a civil penalty of not more than $1000 per day, per product.

Any person, firm, corporation, or other legal entity may be held responsible for false labels and misrepresentations, but retailers are not subject to penalties unless: (a) the retailer is the manufacturer of the GMO raw agricultural commodity, processed food, seed, or seed stock and sells the GMO product under a brand it owns; or (b) the retailer’s failure to label was knowing and willful.

However, there are various exemptions for misbranding built into the bill.  For example, food consisting entirely of, or derived entirely from, an animal that has not itself been produced with genetic engineering does not need to be labeled as GMO, regardless of whether the animal was fed with any food produced with genetic engineering.

Other exemptions include:  products that were grown, raised, produced, or derived without the knowing and intentional use of GMO seed or food if the manufacturer provides a written statement in support of this lack of knowledge and intent; alcoholic beverages that are subject to regulation by the Alcoholic Beverage Control Law; food that has been lawfully certified to be labeled, marketed, and offered for sale as “organic”; and food that is served, sold, or otherwise provided in any restaurant, food facility, or food retailer that is engaged in the sale of food prepared and intended for immediate human consumption.

This proposed statute bears a striking similarity to the statewide GMO labeling bill rejected by California lawmakers in 2014, with nearly identical definitions and safe harbor exemptions.  Unlike the proposed California law, however, New York would enforce the law through civil penalties issued by the State Department of Agriculture and markets rather than through an injunction sought by the state Attorney General to stop continued violations of the law.  Further, unlike Connecticut and Maine’s GMO-labeling laws, New York’s proposed law does not have a triggering requirement based on when a certain number of states approve related legislation.

If passed, New York’s GMO labeling law would take effect twenty-four months after it becomes law. New York would be the fourth state to approve a GMO-labeling law, which would then trigger Connecticut and Maine’s related laws.  New York’s GMO labeling law, however, will likely face legal challenges similar to the lawsuit filed by the Grocery Manufacturers Association seeking to rescind Vermont’s GMO-labeling statute.

Stay turned for further updates as the bill makes it way through the New York state assembly.