Food & beverages, retail and franchising

In a nutshell

Food and beverages

Food and beverages, retail, and franchising law are three overlapping practice areas which center on the trade of products and services. They encompass the sale of goods and services to consumers, as well as business-to-business (B2B) matters. Attorneys who specialize in these fields must take a holistic approach to their work, as they deal with a wide range of issues; matters can encompass real estate leases, franchise documentation, M&A deals, antitrust compliance and IP regulations. There is a contentious side to these practices, where the work is similarly varied: false advertising class actions, GMO (genetically modified organism) labeling claims and data breach investigations are covered, alongside other issues. Practitioners act for an unsurprisingly broad list of clients, including multinational food distributors, international fashion houses, shopping centers and trade associations.

The global flow of products and services, facilitated by the rise of e-commerce, means that lawyers typically have expertise in both international and domestic regulations. The latter are issued by the likes of the Food and Drug Administration (FDA), the United States Department of Agriculture (USDA), the Drug Enforcement Administration (DEA), the Department of Justice (DOJ) and the Federal Trade Commission (FTC).



What lawyers do

Food and beverages/retail (disputes)

  • Receive instructions from a client who has been accused of false advertising.
  • File for a motion to dismiss.
  • If it's a class action, conduct 'class' discovery. This involves working with experts to try to defeat class action certification. Attorneys will depose the experts before filing and defending their reports.
  • If class certification is granted (or if the case was never a class action in the first place) attorneys carry out 'merits' discovery. They obtain all the relevant documents and conduct depositions about liability and damages.
  • Apply for summary judgment. If summary judgment is denied, the case goes to trial. Attorneys determine the evidence and depositions to use, produce the exhibit list, and decide on what sort of discovery or motions to advocate.
  • Go to trial. Handle post-trial steps.
  • Attorneys for the plaintiff conduct due diligence before filing a complaint, oppose motions to dismiss, defend class action certification and oppose summary judgment.

Franchising (transactional)

  • Receive instructions from a franchisor who would like to establish a franchise agreement with a franchisee.
  • Draft a franchise disclosure document (FDD) and send it to the franchisee to review.
  • Negotiate any revisions to the disclosure document in consultation with the client.
  • Apply to have the FDD filed by a state agency if required under state law.
  • Draft the franchise contract and ensure that it is signed by both parties.

 

Realities of the job

  • Miriam Guggenheim, co-chair of Covington & Burling’s food, drug and device practice group, says: “The issues in the food and beverages industry are quite broad. There is nutrition and public health policy; engaging with Congress and the FDA; considering what consumer advocacy groups and NGOs think about a particular issue; helping companies think through acquisitions and about the value of the brand; giving labeling advice; and preventing consumer fraud litigation.”

“There will be enforcement actions and recalls where you need to drop everything and help a client make a decision and interact with regulatory agencies.”

  • Martin Hahn, food and beverages partner at Hogan Lovells, suggests: “A typical day is unpredictable. There will be countless calls and people that will stop by your office. There will be enforcement actions and recalls where you need to drop everything and help a client make a decision and interact with regulatory agencies.” He jokes: “I never accomplish what I intend to do when I come into the office!”
  • Food and beverages cases are often filed in California with the US District Court for the Northern District of California, which is fondly referred to as the 'Food Court.'
  • Lawyers in this field must maintain a thorough understanding of various acts, especially the Nutrition Labeling and Education Act (1990) and the FDA Food Safety Modernization Act (2011).
  • An interest in science is essential within the food and beverages domain: “You have to be willing to engage with scientific studies and grapple with them,” Miriam Guggenheim points out.
  • Guggenheim also emphasizes the importance of time management, especially as a regulatory attorney: “We tend to work on several different matters at a time, compared to litigators or corporate attorneys who might work on one deal for an extended period. I handle 14 to 16 client matters on any given day, which is fun but can also be challenging.” However, she also notes that “the hours are still lower compared to typical litigation or corporate practices.”

“You have to be willing to engage with scientific studies and grapple with them.”

  • Deborah Coldwell, franchising litigator at Haynes and Boone, flags the difference between a litigator's and a corporate attorney's schedule: “50% or more of my colleagues are transactional lawyers. They are very busy at year end, whereas we are not so busy. However, we work really hard when we are going to trial – 24/7 in some instances.”
  • Working with foreign jurisdictions is common for a transactional franchising lawyer. “We do a significant amount of work for US-based clients expanding internationally,” states Stuart Hershman, a franchising partner at DLA Piper. He explains that most overseas jurisdictions do not have governmental franchising agencies: “You have to comply with laws internationally, including franchise-specific laws in an increasing number of countries, but overall (there of course are exceptions) there isn't government interaction and oversight like there is in the US.” In contrast, franchising litigators find that most brawls tend to be domestic in nature. “I have not seen that many cross-border court cases,” Coldwell tells us. “Typically if they are cross-border they end up in arbitration.”
  • Many firms actively seek out candidates with professional work experience. Warren Karp, co-chair of Greenberg Traurig's global retail practice, notes: “We look for people who have taken a year or two after college to go out into the real world, to do volunteer work or gain business experience. We find that when they come into the firm as a young associate they have a different, beneficial perspective.”

 

Current issues

June 2021

Food and beverages

  • There has been much debate and consumer concern over labeling and advertising in recent years. Recent attention has been given to what constitutes 'natural' food as, at the time of writing, there is not yet a clear legal or regulatory definition. The past four years have been marked by a sharp rise in the number of lawsuits filed that allege misrepresentation on labeling for 'natural' products, including food and other consumer goods like laundry detergents. In a recent case against Burger King, a vegan customer argued they had been tricked into believing the fast food chain’s ‘Impossible Whopper’ burgers (which are cooked on the same grills as other products) contained no meat residue. Florida District Judge Raag Singhal dismissed the case as Burger King never decreed that its vegan burgers would be cooked on a different surface.
  • There have been many mislabelling class actions in recent years over vanilla as an ingredient. One of the most recent saw McDonalds consumers alleging that they were led to believe that the vanilla flavor at the fast food chain is only derived from ‘real vanilla plants’ – the case was heard in February 2021, but a ruling is yet to be given. The interesting thing about these kinds of lawsuits is that companies can be targeted even if they comply with FDA regulations, as arguments are often based on advertising material, photos and assumptions.
  • As a result, transparency is on the rise, as Miriam Guggenheim explains: “We're seeing a continued interest by consumers to learn more about their food. Companies are intending to be more transparent about their products, by stating what the ingredients are and where they come from.” This can, however, create new problems: “They are using more plain English and can come up against regulatory bodies if they aren't consistent with defined terms.”
  • Since 2020, the FDA has had to enforce its powers on various products such as teas and health supplements that claim to boost immunity response to Covid-19, cure Covid-19 or make other coronavirus-related claims.
  • Health food enthusiasts and influencers have hopped on the kombucha trend, touting the health benefits of the fermented drink. However, in tax, this product is treated as alcohol as the law states any drink with 0.5% or more alcohol content is classed as alcohol. Congress are due to look at this, including proposals to increase the threshold to 1.25% ABV.
  • The FDA extended the deadline for when food manufacturers will have to introduce a new 'Nutrition Facts' label for their packaged foods. Manufacturers with $10 million or more in food sales had until January 2020 to do so, while those with sales under that amount will have until January 2021. Martin Hahn tells us that the introduction of the label has resulted in “a tremendous economic burden on the industry.”
  • The increasing number of 'meat alternatives' has put pressure on the $200 billion a year meat industry in the US. Plant-based substitutes are taking up an increasingly large market share, and lab-grown meat is on its way to the mainstream. There's been debate about whether these substitute products should be regulated by the FDA or US Department of Agriculture and how competition with traditional meat products should be managed. In January 2020, the California Plant Based Alliance was formed to help these types of companies in California ward off government regulations that could be harmful to their growth – the first of its kind. 
  • Like many practice areas, the food and beverages market is becoming increasingly international in its focus. Guggenheim reports: “Foreign companies are interested in entering the US and domestic companies are looking to acquire foreign companies and bring new food products to the country.”
  • The Agriculture Improvement Act of 2018 reinforced the prior Act of 2014; its biggest changes included the removal of certain cannabis products from the Controlled Substances Act. As such, use of CBD has been increasing in the mainstream over the past few years, and this will be an area that continues to develop along with the regulations surrounding it.
  • After sugar taxes had made some headway under the Obama administration, the tide seems to have turned. A few cities have their own soda taxes, but so far there isn’t anything nationwide. The Pennsylvania Supreme Court upheld an appeal against the state's beverage tax in July 2018, but a follow-up with similar intentions has been submitted, and Arizona, California and Michigan have passed legislation that prohibits local sugar taxes for the foreseeable future.

Retail

  • The Covid-19 crisis has caused a significant shift in the retail market. Statista reports that 84% of US consumers have changed their shopping behavior since Covid-19, and that – globally – 22 billion extra e-commerce website visits have emerged. With online sales soaring higher than ever, the future of physical retail is uncertain.
  • The popularity of online shopping has already in recent years affected the commerce of bricks-and-mortar retailers; retail space in shopping malls has consequently become cheaper. Furthermore, the sector has suffered from the lackluster economy, leading to an increased number of companies filing for bankruptcy. 2019 saw 23 major US retailers file for bankruptcy, including Barneys New York, Diesel, Forever 21 and Sugarfina. This was up from 16 in 2018, when big names like Claire's, Toys R Us, Kiko USA and Sears filed for bankruptcy. 2020 saw 30 retailers file for bankruptcy, despite government subsidies.
  • According to Deloitte US, the retail industry should be ready for more economic change. The economy slowed in 2019: GDP growth declined from 3.1% in Q1 to 1.9% in Q3, with a drop in investment growth. Given that the uncertainty surrounding trade tariffs is expected to continue, Deloitte predicts real GDP growth to slow to 1.6 % in 2020.
  • Retail company CEOs are being held more accountable for shaping company culture, as well as brand reputational issues linked to their own conduct. 2019 had the highest number of CEO departures (around 1,500) since 2002, which in turn links to the employment law aspects of retail work.
  • The digitalization of the retail market (via increased use of mobile devices and the spread of social media) has given rise to many opportunities for lawyers. Warren Karp identifies an important trend in this digitalized retail market: “There is a move from multichannel retailing to consumer-centric, omnichannel retailing where the consumer has multiple choices. They can get products from anywhere, delivered directly from a fulfillment center or store.”
  • Amazon – the fifth biggest company in the US by revenue – has been at the center of many legal challenges in recent years, from antitrust inquiries to product liability cases, plus issues of fraud and counterfeits. In 2019, Nike took the decision to remove its products from the site altogether, which could pose a worrying precedent for the company.
  • Intellectual property is an important strand of retail work. Companies often look to protect their designs under trade dress – a constituent of the Lanham Act. Examples include the shape of a HERSHEY KISS chocolate, the Vans checkerboard pattern, and the red sole of a Christian Louboutin shoe. Owner of Dr. Martens, AirWair, recently launched trade dress lawsuits against BooHoo, Nasty Gal and Pretty Little Thing for the infringement of its shoe designs.
  • Products are also becoming 'smarter' in line with technological developments. E-textiles are of great interest to apparel manufacturers, as well as to the military sector, which accounted for over 26% of the global market share, according to research by Technavio. In addition, US conglomerate DuPont has recently launched a range of 'smart clothing' aimed at the healthcare and fitness industries, which incorporates stretchable electronic inks and films that can trace the wearer's heart and breathing rates. A new breakthrough in the use of cellulose in the conductive fibers space means that e-textiles and smart clothing can be powered by the wearer’s body heat alone.

     

Franchising

  • One of the big issues in the franchising market continues to be the 'joint employer' model. It has thrown up the following question: which party is responsible for employees? The franchisor (the owner of the franchise) or the franchisee (the company or individual licensed to operate under the franchise)? The saga started in 2014 when the National Labor Relations Board decided that McDonald's could be held partly responsible for its franchisees' employees. Much has happened since then with the 2015 Browning-Ferris case expanding the definition of a joint employer, much to the consternation of franchisors. This was then overturned and reinstated in the years that followed, but the legal ping-pong is now closer to settling down. In April 2020, the National Labor Relations Board introduced a new rule clarifying that for a company to be considered a joint employer of a worker, it must have sway over key terms of the worker’s employment, including hiring, wages, hours and discipline. In September 2020, this rule was taken down by the district court for Southern New York, which stated that the definitions in the rule were limited. In February 2021, the U.S. Department of Labor submitted a new regulation proposal to the White House.
  • Over the last two-plus years there has been an increasing effort by certain administrative agencies in the US to hold franchisors liable for things that happen at the franchisee level,” Stuart Hershman tells us. Consequently, a lot of franchising lawyers are advising on employment dispute resolution matters.
  • McDonald's is also at the center of another trend – as the number of its franchisees increases, the foundation of a National Owners Association has strayed dangerously close to a union in certain eyes. Though the group was incorporated as a nonprofit, its activities could be seen to resemble collective bargaining. Organizations such as this which resemble unions, but don't have that official status, could have a profound effect on the nature between franchise owners and franchisees in the future.
  • Technology also poses a challenge to the franchising market, Deborah Coldwell notes. She explains that there are laws for everything “from drone delivery, to online ordering, to website franchise sales,” adding: “Keeping up is going to be a challenge for lawyers and companies because technology moves so quickly.”