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Deceptive Price Increases: Nothing to Sneeze At

July 2015 Pricing, Product

A subtle and often effective way to take a price increase is to lessen the quantity of the product provided, while holding the price constant.  Perhaps with this mind, ice cream now commonly comes in 1.5-quart containers instead of half gallons, and packaged coffee is often sold in 12-ounce, rather than one-pound bags. Neither of these is necessarily deceptive, but a recent Wall Street Journal article describes a situation where this sort of behavior may be.  According to the article, McCormick & Company earlier this year reduced the contents of three sizes of its iconic red and white tins of ground black pepper by 25 percent without changing tin sizes, something that is now being litigated.  By the same token, proving that McCormick has liability for this conduct may not be easy.

On June 9, a McCormick competitor filed a lawsuit claiming that the change in contents, but not package size, violated the prohibitions on making false and deceptive marketing claims in Section 43(a) of the federal Lanham Act, as well as comparable provisions at the state level. This complaint was followed less than a week later by a New York consumer class action.

Under the Lanham Act, the truth or falsity of express claims can readily be determined.  Here, McCormick clearly and apparently accurately indicated the new net quantity of contents on the front of each tin as required by law. As a result, the deceptiveness, if any, comes from implied claims, meaning that the plaintiffs must show consumers who purchased McCormick pepper were so accustomed to getting a particular quantity in a certain size tin, that they paid no attention to the new net weight statement with the lesser quantity and overlooked the accompanying shelf tags (at least in some cases) that indicated quantity, price and price per ounce.  Added to the mix, it is alleged that, during the transition period, tins of the same size, but different weights, were commingled on the shelf and sold at the same price.

Because of the implied nature of the claim at issue, the plaintiffs must introduce either expert testimony or marketing research or both to demonstrate that consumers who purchased the McCormick product were misled.  This sets up a potential battle of each side’s experts.  Moreover, the research, if done, is much more rigorous than that typically conducted for business purposes and substantially more expensive.  Interestingly, it is unnecessary to show that a majority of consumers were deceived, just a healthy minority.  State law standards are similar.

Even when the claims with issue are misleading, another issue is reliance or, to put it another way, materiality.  Here, the plaintiffs must demonstrate that consumers relied on the deceptive representation (i.e., no change in quantity) in making the purchase decision. This means that, if consumers understood that they were getting less for the same price, they would not have purchased the McCormick product and would have bought a competitive offering at a lower price (if available) or made no purchase at all.

So, when product contents are reduced and package size shrinks in corresponding fashion (like the ice cream and coffee examples mentioned earlier), there is less likelihood of deception. While the McCormick situation is easier, the plaintiffs will have to prove that a sufficiently large group of purchasing consumers was deceived by the increase in slack fill and such deception was material in the purchase decision.  However, even if McCormick prevails, it will still be an expensive undertaking.

Although reducing product contents, while maintaining price, remains a viable option for effecting a price increase, care should be taken to do it in a such a way to minimize the chances of a challenge on deceptiveness grounds.

Notes

  1. Partner and Co-Chair, Antitrust and Trade Regulation Group, Freeborn & Peters LLP, a Chicago a firm (ezelek@freeborn.com; 312-360-6777). The author thanks his colleague, Lauren Berheide, for her assistance.  © 2015 EFZ All Rights Reserved.
  2. Paul Ziobro, How Do Companies Quietly Raise Prices? They Do This, The Wall Street Journal, June 11, 2015, http://www.wsj.com/articles/how-do-companies-quietly-raise-prices-they-do-this-1434041940.
  3. Watkins Inc. v. McCormick & Co., Inc., No. 0:15-cv-02688-DSD-BRT (D. Minn. filed June 9, 2015). The federal statute is found at 15 U.S.C. § 1125, and a representative state statute is Minnesota Uniform Deceptive Trade Practices Act, Minn. Stat. § 325D.44.  Watkins also alleged that the increase in dead space violates the Food & Drug Administration regulation on permissible slack fill, 21 C.F.R. § 100.100, but only the government can enforce this provision.
  4. Dupler v. McCormick & Co., Inc., No. 2:15-cv-03454 (E.D.N.Y. filed June 15, 2015).
  5. The Supreme Court has held that, even when products are labeled in conformity with federal law, there still can be deception under the Lanham Act. POM Wonderful LLC v. Coca-Cola Co., 134 S.Ct. 2228 (2014).
  6. For example, in California, the plaintiff must show that it is likely that a significant portion of consumers, acting reasonably in the circumstances, could be misled. While surveys and expert testimony regarding consumer expectations are not required, a few isolated examples of actual deception are insufficient.  Brazil v. Dole Packaged Foods, LLC, No. 12-CV-01831-LHK, 2014 WL 6901867, at *5 (N.D. Cal. Dec. 8, 2014) (litigation over natural claims).
  7. See Major v. Ocean Spray Cranberries, Inc., No. 12-cv-03067, at 5-8 (N.D. Cal. Feb. 26, 2015) (order granting defendant’s motion for partial summary judgment; denying plaintiff’s motion for class certification in deceptive labeling case).


About the author

Gene F. Zelek, Jr. is a Partner in the Corporate and Litigation Practice Groups and serves as Co-Leader of Freeborn’s Antitrust and Trade Regulation Practice Group.  Gene focuses his practice on marketing-related law, applying extensive counseling, transactional and litigation experience on behalf of a wide variety of leading consumer and industrial businesses and consulting firms throughout the world. His areas of emphasis include antitrust, pricing and distribution, as well as branding, licensing, intellectual property, entertainment, strategic alliances, supply relationships, complex contracts, advertising and new product development.

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