Food & beverages, retail and franchising

In a nutshell

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.”

 

 

Current issues

June 2023

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 present, there is no clear legal or regulatory definition. The past 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 2022 class action case against The Coca-Cola Company, a consumer is suing the brand for falsely advertising its berry Fanta beverage as containing 100% natural flavors, when it does in fact contain artificial flavoring. 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.
• The definition of what can be labeled ‘healthy’ is also set to change. The criteria currently states that foods that help people meet dietary recommendations for beneficial nutrient consumption, like total fat, saturated fat, and cholesterol, can be labeled ‘healthy’. The FDA has plans to update this guidance in line with current science.
• 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 plainer English and can come up against regulatory bodies if they aren't consistent with defined terms.”
• The 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. In March 2022, Flora Growth Corp announced the completion of its first import of food and beverages containing CBD from Colombia to the US, following an update on Colombia’s framework for the use, distribution, and export of cannabis. In the US, the FDA is yet to provide set regulations on the use of CBD and hemp for consumption, instead leaving it up to individual states to decide. This has caused massive variations in regulation per state.
• The beginning of 2023 saw the FASTER (Food Allergy Safety, Treatment, Education, and Research) act come into play, naming sesame as the ninth ‘major food allergen’ for food-labeling purposes. As a result, food manufacturers will need to update any new labels to reflect this.
• The use of so called “forever chemicals” (PFAS) is set to be outlawed across many states this year, starting with New York and California. Studies suggest that PFAS is not easily degradable and as a result can accumulate in water, soil, animals, and humans.

 

Retail

• The popularity of online shopping has already in recent years affected the commerce of bricks-and-mortar retailer. Though according to the Financial Times, US retail sales increased by 3% in January 2023, despite soaring inflation rates.  
• Deloitte US’ 2023 retail industry outlook shines spotlights on supply chains, sales returns and customer retention.
  • In an increasingly digital and rapid world, our capacity for patience has invariably reduced. Same-day and next-day deliveries have become increasingly popular and retailers need to rethink supply chains and storage situations in order to fulfil demands.
  • Returns cost companies and pose logistics complications. ‘Return bars’ are on the rise – they deal with the logistics of packing and shipping the return to retailers.
  • Deloitte’s report cites that the process of gaining new customers can cost a company up to seven times more than the expense of retaining existing customers. Companies need to turn to ‘social commerce’ which involves investing in ‘a seamless purchasing experience’ by using shoppable tags and in-app transactions.
• 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.”
• 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 Hershey’s Kisses, the Vans checkerboard pattern, and the red sole of a Christian Louboutin shoe.
• With the rise in fast fashion over the last two years, there have been some lawsuits on this front, most notably against China-based online fashion company Shein. Recently, the company settled a copyright lawsuit brought by an artist over claims they used her artwork without her permission.
• Data privacy is on everyone’s radar; the question remains, what can retailers do with consumers’ data and personal information? The American Data Privacy and Protection Act proposed national standards for the handling of consumer data, though it failed to pass. There have been concerns voiced about the complications that individual state laws on data privacy may cause, further underlining the need for a nationwide Act.
• Buy Now, Pay Later platforms like Klarna and PayPal have become an increasingly popular payment method over the past few years. In 2021, the market was valued at around $141.8 billion. There is yet to be any proposed federal regulation on the rules of how these platforms operate, including baseline protections for consumers that standard credit cards follow.
• With various US sanctions and Brexit, retailers are taking a second look at their supply chains. As cross-border trading becomes increasingly difficult, companies are looking at becoming more cost and time efficient by relocating manufacturing and supply chains closer to home.
• Are we seeing the return of infomercials? Livestream shopping has been highlighted as a growing trend as brands partner with influencers to promote products, particularly on TikTok. Forbes reported that according to a survey conducted among 2,000 people across the US and the UK, 36% have made a purchase through a livestream. The market for this type of sale in the US is expected to hit $26 billion in 2023.

 

Franchising

• The beginning of 2023 saw the FTC propose a rule that would ban non-compete clauses between the majority of employers and workers. The term ‘worker’ in the FTC’s draft currently does not extend to include franchisees as pertaining to a franchisee-franchisor relationship, where the latter would hypothetically be considered the employer. The FTC since welcomed public comments on how the non-compete ban should extend in the context of 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)? In February 2021, the U.S. Department of Labor submitted a new regulation proposal to the White House which sought to clarify this issue once and for all, but it was rejected. In absence of a clear congressional framework, reliance on judicial interpretation creates much legal uncertainty.
• “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 National Owners Association (NOA) which represents more than 1,000 of its locations has strayed dangerously close to a union in certain eyes. 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.