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An EGG-cellent Example of How a Law Suit Can Backfire: Unilever v. Hampton Creek

Unilever, maker of Hellman's, sued Hampton Creek for false advertising and unfair competition over its egg-free "Just Mayo" product.

Unilever, maker of Hellman’s, sued Hampton Creek for false advertising and unfair competition over its egg-free “Just Mayo” product.

Hampton Creek, according to its website, is “a company dedicated to [helping everyone] eat delicious food that’s healthier, sustainable, and affordable.”  Earlier this year, Hampton Creek was featured on This Week in Startups where it demonstrated its “Just Mayo” product.

Just Mayo

Just Mayo is an egg-free dressing designed to replace traditional egg-based mayonnaise.  Indeed, one of the main points of Just Mayo, appears to be to avoid the use of eggs.  According to Hampton Creek CEO Joshua Tetrick, eggs are some of the most inefficient food products, requiring an energy to food ratio of 39:1.  Hampton Creek on the other hand achieves an energy to food ratio of 2:1.  According to Tetrick, Just Mayo resulted from two years of research and development by Hampton Creek.

The Lawsuit

Unilever sued Hampton Creek for false advertising and unfair competition.  See the Complaint.

On October 31, 2014, Conopco (a company that does business as Unilever), the maker of Hellman’s mayonnaise, sued Hampton Creek for false advertising and unfair competition under  the Lanham Act (federal law) and various state laws.  According to Unilever, the Food and Drug Administration regulations define “mayonnaise” as “the emulsified semi-solid food prepared from vegetable oil” and containing an “acidifying” ingredient of either (1) vinegar or (2) lemon or lime juice, and an “egg yolk-containing” ingredient.  Unilever also alleges that “mayo” is a commonly understood synonym for “mayonnaise.”  Therefore, according to Unilever, Hampton Creek is falsely advertising its product by calling it “mayo” when it does not include any “egg yolk-containing ingredient.”  See the Complaint here.

False Advertising Under the Lanham Act

False advertising plaintiff’s typically have to prove:

(1) the defendant made a false or misleading statement of fact in a commercial advertisement about a product;

(2) the statement either deceived or had the capacity to deceive a substantial segment of potential consumers;

(3) the deception is material, in that it is likely to influence the consumer’s purchasing decision;

(4) the product is in interstate commerce, and the plaintiff has been or is likely to be harmed by the statement.

Should the case progress, it will be interesting to see how a court addresses the second element above. Just Mayo is specifically and clearly marketed as being egg free.  Therefore, regardless of the FDA’s definition of “mayonnaise” it would seem hard to suggest that Hampton Creek’s “Just Mayo” brand could deceive or have the capacity to deceive a substantial segment of potential consumers looking for traditional egg-based mayonnaise.

The Backlash

Shortly after Unilever initiated its suit, it received significant public backlash.  Well known chef Andrew Zimmerman initiated a petition on Change.org asking Unilever to stop bullying Hampton Creek.  In the word of Zimmerman:

Unilever, a UK-based 60 billion dollar multinational corporation, filed a lawsuit confessing that Hampton Creek is taking away market share from a couple of its products: Hellmann’s and Best Foods. Thus, as Unilever admits, it’s attempting to rely on an archaic standard of identity regulation that was created before World War II to mandate that Hampton Creek removes its products from store shelves.

As of November 20, the petition had over 70,000 online signatures.

Additionally, as reported by One Green Planet, marketing experts have stated that Hampton Creek received over $3M of free product placement based advertising per day in the week following the lawsuit.  Accordingly Hampton Creek received over $21M of marketing benefits in just the first week following the lawsuit.

The Lesson

It will be interesting to see how far Unilever presses the lawsuit.  It is unlikely that they expected this degree of backlash and this outpouring of support for Hampton Creek.  Indeed, given the increasing awareness of the need for sustainable food sources, and allergy-friendly foods, the public opinion appears to be that Hampton Creek is on the right side of history.  Accordingly, filing a lawsuit against a competitor requires much deeper analysis than whether one is likely to prevail on its legal claim.  Here, even if Unilever ultimately prevails on its claims (which is not a certainty, as discussed above), it’s quite possible that Hampton Creek might end up the winner.

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Marketing Tips for Entrepreneurs

Entrepreneurs should understand advertising laws before marketing their product.

Entrepreneurs should understand advertising laws before marketing their product.

An aggressive marketing strategy can be a valuable tool for an entrepreneur seeking the attention of new customers and investors.  However, given their limited budgets, entrepreneurs should be aware of the laws governing advertising to avoid costly marketing mistakes which could bankrupt the company. The best way to effectively communicate your marketing message without exposing yourself to liability is to understand and follow the laws governing advertising.

The Federal Trade Commission Act

Under the Federal Trade Commission Act, advertisements must be truthful and  non-deceptive, advertisers must have evidence to back up their claims, and advertisements cannot be unfair.  An ad is considered to be deceptive if it contains a statement (or omits information) that is likely to mislead consumers and the information is material- or important- to a consumer’s decision to use or buy the product. Ads are deemed unfair if they cause substantial injury that a consumer could not reasonably avoid and if the benefits consumers receive do not outweigh the injury caused.  An example of an advertising campaign that recently strayed from these rules were ads for Yaz birth control pills which gave consumers the impression that Yaz was a drug useful in treating acne and general mood problems, which in fact were unapproved uses of the drug. The FTC sued Yaz for these misleading ads, which resulted in the drug manufacture having to run corrective ads at a cost of $20 million, in addition to paying fines levied by the FTC and FDA.

The Lanham Act

The Lanham Act allows business competitors to privately sue advertisers for false advertising. Competitors can sue under the Lanham Act so long as they can prove that the advertiser made factually false claims about the product, the ad deceived a large segment of the targeted population, the deception was a main part of the ad, the product was sold across state lines, and the company bringing suit was likely to be harmed by the advertising. For example, in 2004 dental floss manufacturers sued Pfizer for its advertising campaign for the mouthwash Listerine. Pfizer’s ads stated that clinical tests showed that the mouthwash was as effective as flossing in fighting plaque and gingivitis.  Even though Pfizer had some clinical data involving Listerine, the court found that the cited studies did not support Pfizer’s proposition.  The court enjoined Pfizer from running the ads and ordered Pfizer to recall all mislabeled bottles of Listerine.

State Laws

Finally, it is important to note that each state also has its own set of consumer protection laws protecting the public against unfair competition and deceptive advertising practices. Consumers typically have more power to privately sue companies for false or deceptive advertising under state laws than federal laws.

Advertising Tips for Entrepreneurs

By familiarizing yourself with the above-mentioned laws and by following a few simple guidelines, entrepreneurs can avoid false advertising claims.

1.  Don’t lie.   The classic case of false advertising is saying something that is not literally true.  For example, if you sell sneakers and advertise that wearing them helps tones muscles and lose weight, when in fact they don’t, you could be liable for false advertising. (see this story on toning shoes).

2.  Don’t imply things that aren’t true.  Even if you don’t outright lie, but rather advertise with ambiguous statements or images that are open to interpretation, you may still be liable for false marketing. In one example of an implicitly false ad, Polar Corp., the maker of seltzer, created an ad showing a polar bear holding their competitor’s Coke soda bottle.  In the ad, the polar bear tosses the can of Coke into a trashcan labeled “Keep the Artic pure.” The court held that Polar’s ad implied Coke was not pure, misrepresenting the nature and quality of Coke.  This ambiguity was sufficient grounds for Coke to bring a claim of false advertising against the soft drink company.

3.  Have data to back up your factual claims.   While puffery or exaggerated commendations- for example “these jeans are the best”- are tolerated in the field of marketing, be careful of making more qualified statements unless you have the data to back it up. Airborne, which entered the market 10 years ago claimed to prevent colds and boost your immune system but lacked factual evidence to back up its claims. As a result, Airborne found itself settling a false advertising lawsuit for over $23 million.

4.  Don’t knock on your competitor unless it is fair.  Mentioning your competitor’s product in an ad in order to compare your products is permissible, so long as you don’t make claims about a competitor’s product that you can’t prove.  For example, if you claim your laundry detergent gets clothes five times brighter than your competitor’s detergent, you had better have the data to back that up, or you can expect your competitor to contemplate bringing a false advertising claim against you under the Lanham Act.