Federal Trade Commission – The Fashion Industry Law Blog

The constitutional rights of businesses are hot topics. Freedom of speech is a fundamental tenet of liberty, protected by the First Amendment to the Constitution, that benefits commercial entities as well as individuals. The right to spend unlimited money to support the election or defeat of particular candidates for office derives from the right to freedom of speech. But does the same First Amendment right protect businesses from being compelled by government regulations to speak on matters as to which they would prefer not to comment, whether or not they are “controversial” or “political”? Is there a freedom to refrain from speaking?

If you think this question has nothing to do with fashion, you would be wrong. Every manufacturer in the fashion and accessory business labels its products with their “country of origin”, guided by detailed regulations promulgated by the Federal Trade Commission. Decisions in two recent cases, which have nothing to do with fashion, but everything to do with government regulations compelling businesses to speak on the source of their products, suggest that the “country of origin” regulatory scheme for the fashion industry may be challenged on First Amendment grounds.

A federal statute requires country of origin labeling for meat to address the country where the animal was born, raised or slaughtered. New rules for implementing the statute were promulgated in 2013 to comply with a World Trade Organization ruling on a complaint from Mexico and Canada, requiring greater specificity in describing separately the country where each of these events in the animal’s life occurred. A group of trade associations, feedlot operators and meat processors filed suit to enjoin the rules, claiming they violated the First Amendment. The argument was rejected by a three judge panel of the Court of Appeals for the D.C. Circuit, holding that the First Amendment did not bar the government from compelling factual speech on a non-controversial matter that might be of interest to consumers. The full court, however, voted to hear the case anew before all eleven judges of the court. The parties were directed to address the scope of First Amendment protection for mandatory disclosure of purely factual and non-controversial commercial information, compelled for reasons other than preventing consumer deception.

The outcome of this review may be foreshadowed by the same court’s decision on April 14, 2014, striking down Securities and Exchange Commission regulations that required public companies to disclose whether they used “conflict minerals” (minerals from the Democratic Republic of the Congo used by warring factions to finance their operations) in products they marketed or manufactured. The three judge panel found that it was unconstitutional to compel speech in the absence of a need to prevent consumer deception.

So one might well ask whether it is unconstitutional to compel apparel manufacturers to say anything about the subject when they are not marketing goods based on the country of origin. What purpose does it serve and do consumers need the information?

Credit: Helene M. Freeman

Why is a can for Minute Maid juice like a coat? The answer: Because federal statutes and government regulations prescribe how each is labeled. In the case of juice, the label is prescribed by the U.S. Food and Drug Administration (FDA) regulations promulgated under the Nutritional Labeling and Education Act of 1990. In the case of the coat, as apparel manufacturers are all too aware, by the Federal Trade Commission (FTC) under either the venerable Wool Products Labeling Act of 1939 or the Textile Fiber Products Identification Act. The regulatory schemes share ostensibly the same goal: to assure a uniform national standard and to inform consumers of the content and the qualities of the goods. But what if prescribed rules do not further that purpose?

That is a question posed by a case that the Supreme Court heard on April 21, 2014 Pom Wonderful LLC v. The Coca-Cola Company. Pom’s business revolves around marketing beverages featuring pomegranate juice. Coca-Cola, wishing to cash in on the craze for such beverages, introduced a Minute Maid juice it called “Pomegranate Blueberry.” Notwithstanding the name, pomegranate juice constituted only 0.3% of the contents, and blueberry only 0.2%. The 99.4% of the contents which consisted of apple and grape juice was uncredited in the product name and the graphics decorating the label. Pom sued, claiming that the name “Pomegranate Blueberry” constituted false advertising and unfair competition, as consumers would naturally infer that the product’s main ingredients were pomegranate and blueberry juices. Unfortunately for Pom (and, one might add, for consumers seeking the health benefits of pomegranates and blueberries), FDA regulations specifically permit naming a product for ingredients so minor that they could be described as no more than flavoring.

So, now, the Supreme Court will decide whether a competitor can sue for false advertising and unfair competition when the contents of a label are authorized (or sometimes even required) by government regulations, no matter how misleading. In the language of the law, do the specific provisions of federal labeling law preempt federal and state laws that more broadly and generally protect consumers and competitors from deception as to the contents or quality of the goods?

Should the Court find for Pom, attention will have to be given not only to technical compliance with legal requirements, but also to whether consumers are likely to be misled. One might think Coca-Cola has the better argument. After all, if your labels comply with federal regulations, you should not have to worry about what consumers think. If there is a problem, the fault lies with the government and its regulations. But that conclusion might be wrong. Some of the justices appeared to view the labels as very misleading. Others wondered whether the FDA considered anything other than health and safety in promulgating the regulations and questioned whether assuring that consumers are not misled was the responsibility of the FDA.

Of course, that is the responsibility of the FTC and it is the purpose ostensibly served by the FTC labeling rules for textiles. But even under the FTC rules, you can name your line of sheets “Bamboo,” as long as that is just the name and the fine print on your label states that the fabric is rayon made from bamboo fibers. After all, this is consistent with a regulatory scheme that requires you to state the country of origin of a coat but not that of vitamins or toothpaste.

Credit: Helene M. Freeman