Corporate Advertising: Conducting Your Own Due Diligence Is A Must

Without fail, one of the first responses from companies accused by competitors of false advertising is that “we didn’t know,” and it may well be that the advertising information came from a reputable source. But is the “innocent mistake” defense viable in false advertising litigation? Although it seems only fair that a company taking reasonable steps to verify information in its advertisements would be in the clear, federal advertising law holds companies strictly liable for false advertising. In other words, there is no good faith or innocent mistake defense to underlying liability.

We recently found a “juicy” illustration of the point. Pom Wonderful, the leading marketer of pomegranate juice, had noticed one of its smaller competitors using Pom’s own studies to market competing juice. With this competitor on the radar, Pom also noticed that the company, California-based Purely Juice, was marketing “100% pomegranate juice,” with “no added sugar.” Pom’s testing proved that claim incorrect, and after negotiation failed, Pom sued in federal court.

Purely Juice, it turns out, had been using a broker to find juice suppliers. The broker vouched for its suppliers, but, despite those assurances, the juice Purely Juice received was adulterated, so that the “100% pomegranate” and “no sugar” claims were false. Purely Juice claimed it had no idea of the adulteration, and that it took the word of its broker about the reliability of the juice supply.

Was that approach successful? Just last week, a court of appeals affirmed a trial award against Purely Juice of approximately $1.2 million in damages, disgorgement of more than $300,000 in its profits, and attorney’s fees of more than $620,000. One of the legal principles that resulted in the award is that a company is liable for false advertising regardless of its knowledge. Not only that, an officer or director is personally liable for false advertising in which she participates or that she directs, so the president of Purely Juice, also a defendant, shared in the liability.

It did not help Purely Juice that the trial court also found it “knew or should have known” about the shaky credentials and processes of its suppliers and therefore, of the adulteration. In that market, the limited supply of pomegranate juice means that many suppliers mix in other juice, and add sugar. Had the company conducted and abided by its own testing, and done better due diligence, one wonders if it could have avoided the litigation entirely.

For our own marketing teams, the lesson is clear. The advertising “buck” stops at the company’s door, and assurances from third parties about the quality or characteristics of supplied products, even from trusted suppliers or business partners, will not insulate the company from liability for false advertising. Thorough internal due diligence is a must.


--Andrew Flake

Andrew B. Flake is a partner in the Litigation Group at Arnall Golden Gregory LLP (andrew.flake@agg.com). Our firm serves the business needs of growing public and private companies, helping clients turn legal challenges into business opportunities. We don't just tell you if something is possible, we show you how to make it happen. Please visit our website for more information, www.agg.com.

Are Private E-mails Sent From Work Privileged?

The new year brings a recent ruling by a federal court judge, which raises a question as to whether employers have full access to their employees' workplace email correspondence. In light of this decision, employers should ensure that their employee policies expressly address the parameters of personal use for workplace computers and networks.

The Decision

A federal court judge in the District of Columbia has ruled that a federal prosecutor who sent emails to his attorney using workplace computers had the right to keep those emails concealed because they were privileged. This decision is novel because courts generally rule that employees have no expectation of privacy as to personal information on workplace computers and networks. In this case, however, the judge ruled in favor of finding a right of privacy because the federal prosecutor was allowed by his employer, the Department of Justice, to use workplace computers for personal matters, creating a reasonable expectation of privacy.

What This Means For You

If a company allows employees, whether in practice or through a formal policy, to use workplace computers for personal matters, an employee may be able to successfully keep confidential email correspondence and electronic files of a personal nature in the event of a dispute. To avoid this result, companies should strive to audit their formal policies and their practical application to ensure that employees are expressly prohibited from using workplace computers for personal matters. While the decision discussed above is not binding everywhere or the majority view at the moment, it may be indicative of a trend favoring employees and their expectation of privacy.

-- Anuj Desai, Esq.

Not If, But How

Arnall Golden Gregory, LLP has significant experience in drafting and auditing human resource policies and agreements, including those concerning employee use of workplace infrastructure. Do not hesitate to contact us if we can be of help to you.

Please visit our web site for more information, www.agg.com. Also, we thank you for reading our blog and wish you a very happy new year.