The Claim Game

Lawsuit-happy litigators are targeting manufacturers over the use of ill-defined words like “natural” on product packaging. Here’s how the fallout may affect retailers.

With the rise in consumer interest in products labeled “natural” and “organic,” a host of lawsuits have arisen in recent years to refute those claims. This type of litigation poses a threat to a thriving sector of the beauty industry. For a sense of scale, here are some stats from Ecovia Intelligence (formerly Organic Monitor), a London-based specialist research, consulting and training firm that has been tracking the natural and organic products industry for almost two decades: The North American market for this category of personal care products is now worth $5 billion, and the market share of total personal care products is approaching 10 percent in the U.S. “It’s a lucrative market that is attracting many new entrants–but not all of these entrants are keen to develop ‘pure natural’ personal care products,” explains Amarjit Sahota, Ecovia’s founder and president. “They may use some natural or organic ingredients and make natural or organic claims.”

Unfortunately, whether a manufacturer uses incorrect terminology on labels due to ignorance or intent to misrepre- sent its product, it can be held liable for those misstatements. Increasingly, companies are even being hit with class action lawsuits due to false or faulty claims on product labels. What’s behind the rise in legal action, and what can be done to address the issue?

A NATURAL PROGRESSION
Gay Timmons, president of cosmetics maker Oh, Oh Organic in Richmond, California, works with natural and organic brands in the hope of defining best practices for the use of these oft-murky terms in cosmetic and personal care products. “Lawsuits previously focused on the word ‘organic.’ Those started in 2008, but died down a couple of years ago,” Timmons explains. “But there are now multiple lawsuits around the word ‘natural.’ Today, it’s easier to sue over the claim of ‘natural,’ because there is no definition.”

Sahota agrees that lawsuits have become a major issue in the North American natural personal care industry. He notes that greenwashing–that is, brands making false natural or organic claims–is a worldwide phenomenon. Yet almost all lawsuits are happening in the U.S. for specific reasons.

“We believe there are two reasons: First, these consumers are more interested in natural and organic personal care products, looking for these products in retailers,” Sahota says. “Second, which is unique to the States, is lax regulations; apart from California, the terms ‘natural’ and ‘organic’ are not protected by regulations.” California has the California Organic Products Act, which is designed for organic farming and food products but also covers personal care products.

Curt Valva, president of Sunstate Natural Products Consultants in Tampa, Florida, retired two years ago as a high-level executive at one of the nation’s first certified organic skincare lines, Aubrey Organics. As a result, he has experience wading through the quagmire of claim challenges from a manufacturer’s perspective. He explains that lawsuits surrounding the use of terms like “natural” are mostly cropping up in California, New York and New Jersey, where enforcement agencies are more active and consumer-oriented. He estimates that the number of such lawsuits is growing by over 25 percent year over year.

“Voluntary standards are not popular in the States; it is therefore easy for brands to make natural and organic claims without adopting any standards.”

—Amarjit Sahota, founder, Ecovia Intelligence

In addition, Timmons explains that the U.S. Food and Drug Administration regulates drugs and cosmetics, while the Federal Trade Commission monitors the promises that manufacturers make to consumers. For example, the FDA commonly handles function claims. “A lot of companies are treading in the middle of [over the counter] drugs and cosmetics,” Valva says. “If you say a moisturizer reduces wrinkles, that’s changing the structure of skin–and that’s a drug claim.”

But when it comes to recent class action lawsuits, Valva stresses, it’s not the FDA or the FTC bringing about these claims; in fact, under the current administration, their funds have been cut. Instead, lawyers looking to make a quick buck are taking a closer look at labels and, if something seems awry, threatening class action lawsuits. A company then may choose to fight the accusations in court. However, this requires hiring legal counsel, preparing documentation and examining the company’s sales history, which can cost tens of thousands of dollars and numerous hours–often not an option for a smaller business. Or the company can settle for a set amount, such as $10,000, and the lawsuit gets dropped.

“Nine out of 10 companies will settle, looking at it as a cost of doing business. Many smaller companies find it easier to settle, while larger companies may have their own legal team or access to legal counsel, even though it costs more than settling,” Valva says. “Or the company can ignore it and hope it goes away, which it usually doesn’t. But if these lawyers get 20 companies to settle at $10,000 each, that’s a lot of money.”

In a nutshell, the growing consumer demand for natural and organic products, ill-defined but common terminology in the U.S. and predatory types looking to cash in all create the perfect storm for lawsuits. “A label is a promise, and a consumer can say, ‘You deceived me,’” Timmons explains.

Of course, these rules are in place to protect consumers, and she points out that sometimes the claims are legit. If the manufacturer is negligent and the consumer is harmed, the manufacturer certainly should be held accountable. But many of these lawsuits, Timmons notes, are simply “a shakedown method to make money.”

STANDARD BEARERS
How can lawyers take issue with claims that aren’t clearly defined in the first place? Well, there are standards in place–perhaps too many. Timmons notes that back in the 1990s, scientists John Warner and Paul Anastas outlined the 12 Principles of Green Chemistry, guidelines to mitigate the occupational risk and downstream effect of chemicals, thus creating a safer, more sustainable chemistry. Then came the organic standard for food in the U.S. and European Union, which Timmons believes also could serve as a model for organic cosmetics.

But currently, there are many different standards–for example, she mentions Ecocert, the Soil Association Health and Beauty Standard, NSF/ANSI 305, the Natural Product Association’s Natural Standard for personal care products, plus several certifications in the EU, such as the Cosmos and NaTrue standards.

“Brands usually come under fire about natural/organic claims,” Sahota says. “A major difference between the United States and Europe is that voluntary standards are not popular in the States; it is therefore easy for brands to make natural and organic claims without adopting any standards. In Europe, standards like Cosmos and NaTrue are popular; although these are voluntary standards, brands are expected to adhere to these standards if they are making natural/organic marketing claims.”

“There are now multiple lawsuits around the word ‘natural.’ Today, it’s easier to sue over the claim of ‘natural,’ because there is no definition.”

—Gay Timmons, president, Oh, Oh Organic

Valva adds that certifications may be expensive and not required by law, but if a manufacturer isn’t certified, the company remains vulnerable to lawsuits. Alternatively, companies may simply have their own interpretations of the standards set in place–another danger zone. “Manufacturers need to understand the standard and formulate accordingly, with some justification on why the product is being called natural or organic,” Valva explains. “There’s a difference between natural companies that want to make cosmetics, and cosmetics companies that want to make natural products. It’s a different mindset, and many companies in the second category don’t totally grasp the rules. Then, as more companies come into the picture, and more standards–each with its own definition—there’s a lot of confusion.”

Sahota believes the only way brands can protect themselves is to gain certification or formulate products that meet industry-accepted standards. For example, “In 2008, Whole Foods Market introduced its Premium Body Care Quality Standards to ensure products in its stores conform to accepted standards, and the retailer also requests that brands making organic claims meet standards, such as NSF/ANSI 305,” Sahota says. “This is really the way forward. If brands want to make natural/organic claims, they should expect their products to meet industry- accepted standards.”

Timmons agrees that getting certified with any of the above-named organizations can be cost-prohibitive for some companies, especially smaller manufacturers. But they still can educate themselves on proper procedures. “There are something like 5,000 indie beauty businesses, and they’re not starting with a knowledge of those practices and standards,” she says. “But we do have a model, so if they can’t afford a certification, they should look at those standards and see how they’re applied. Manufacturers need to support the claim and have a definition of the claim.”

RETAILERS’ RESPONSIBILITY
Just as manufacturers should make themselves less vulnerable to attack from money-hungry lawyers, retailers also should take responsibility for the products on their shelves. “Retailers need to be gatekeepers in certain ways,” Timmons says. “I think people need to think about and have conversations about what product labels are saying.”

Valva notes that retailers can be liable if they’re misrepresenting products as natural. Some grocers, including Whole Foods Market and Trader Joe’s, even have been sued for “all natural” product claims. “Retailers might say in their defense, ‘The company told us this,’ but is that a defense? Do they need to do due diligence and ensure the claims?” Valva asks. “There’s a shared responsibility, even if the retailer’s burden is less significant than the manufacturer’s. Plus, as a retailer, your own reputation is on the line, and that can be just as strong as legal liability. What’s the difference between paying fine of $10,000 or losing significant business? The second problem lasts over the long term.”

Unfortunately, experts agree that a letup in these types of lawsuits is unlikely, so retailers can serve themselves best by doing some homework. “Retailers do not always know what industry standards are and if products are meeting these standards,” Sahota says. “It’s easier for a retailer like Whole Foods Market to scrutinize products and see if they meet standards than for other smaller retailers. And retailers are also not always aware of legal suits.” She cautions that even when a retailer is aware of a lawsuit against a manufacturer, that may not indicate anything meaningful about its products. In some instances, brands may be falsely accused, making it unfair for retailers to marginalize their products.

“Retailers and manufacturers need to create a partnership that’s open and transparent. If it says ‘natural,’ ask.”

—Curt Valva, president, Sunstate Natural Products Consultants

The way forward, Sahota says, is education. Be aware of industry standards, including permitted and forbidden ingredients. Take a class to learn more. For example, Ecovia Intelligence offers industry events with updates on natural and organic cosmetic standards, including USDA Organic, NSF/ANSI 305, the Natural Product Association and the new ISO standard. “By getting educated, retailers can select brands that meet industry-accepted standards–and put pressure on brands that make false natural or organic claims,” Sahota explains.

In addition, Valva recommends, ask questions of the manufacturers whose products you stock. In the EU, certification is emblazoned on packaging, but in the U.S., you can’t simply take the manufacturer’s word; request justifications for any claims made. “Manufacturers with good practices will have those answers or will understand the standards if they’re certified,” Valva says. “If they’re organic, ask what certification they used–NSF, National Organic Program, Cosmos–and ask them to produce a copy of the certificate. For natural products, I’d ask the same questions. The manufacturer should be able to show some proof, and I’d shy away from those who don’t know. I think retailers and manufacturers need to create a partner- ship that’s open and transparent. If it says ‘natural,’ ask. Look at the front and back of the label. Look at the ingredients.”

These types of lawsuits have been ballooning over the last six to seven years, and there’s no end in sight. Valva notes they’re still increasing in frequency and predicts they’ll continue to do so in the future. So, when in doubt, reach out: Ask for help from organizations like Ecovia Intelligence and ICMAD that can help you understand the regulations and restrictions behind natural and organic claims. “You want ingredients to be clear and honest on labels–and if you don’t know, ask someone,” Valva concludes. “Because people are going to ask. If your customers don’t ask, your competition will ask. And if neither of those ask, some law firm will.”

FOR MANUFACTURERS—PROTECT YOUR BRAND
Sharon Blinkoff, counsel to the international law firm Lock Lord LLP and outside general counsel for the Independent Cosmetic Manufacturers and Distributors (ICMAD) association, offers the following tips to safeguard your brand.

  1. Watch Product Claims: “Plaintiffs’ counsel now assumes that if your brand is in a national chain or followed or noted, that your company and its sales are larger than what they may in fact be—thus making your company a more attractive target,” she says. “The demands are usually based upon product claims; package claims get just as much attention in this arena as advertising claims. So the old strategy of reducing risk based on claim positioning does not work in the area of class action demands.”
  2. Make Clear Natural and Organic Claims: “Certain claims, such as natural or organic, or claims which the FDA has cited in a warning letter, are all high-risk and likely to attract their attention. There are ways to protect your company,” Blinkoff says. “If you make natural or organic claims, make sure these claims are clear and not susceptible to multiple interpretations. Also, make sure you can support the claims you make.”
  3. Investigate & Be Prepared: “If you get a demand letter, you should always ask where the named consumer made their purchase,” she says. “If the purchase was made online on your website, you may be able to verify whether the consumer did in fact make the purchase their lawyer claims. If you are selling online on your own website, you can adopt terms and conditions that can shield you from class actions. The advice we give our clients is to be prepared for a challenge and make sure the risk is financially worth taking.”

[Photo by Armando Sanchez]