Legal/Regulatory Update

Patrick J. McNamara, Esq., Scarinci & Hollenbeck

This article contains excerpts from a presentation of legal and regulatory issues given by NAFFS General Counsel Patrick McNamara.

THE ONGOING “WAR ON SUGAR”

According to a recent survey by Euromonitor, the demand for sweet snacks has dropped by approximately 47 percent, as consumers continue to look for foods with limited or no added sugar. The growth of healthy snacks arose by approximately 7 percent in the period of 2014 to 2015, compared to conventional snacks which increased by less than 5 percent. The report noted that when combining Western Europe and North America the growth in healthy snacks increased by approximately $10.8 billion in sales from the time period of 2011 into 2016.

Philadelphia enacted a soda tax ordinance scheduled to go into effect Jan. 1, 2017. The tax would add 1.5¢ per ounce to the cost of most sugary and diet beverages and is projected to generate approximately $92 million on an annual basis. The city intends to use these funds for expanded pre-kindergarten and other health initiatives. Subsequent to the adoption of this ordinance, the American Beverage Association filed a lawsuit to block the ordinance, claiming it is unconstitutional because relying upon this tax is unfairly punitive to small business owners and low-income families and another type of revenue source should be used for that purpose. The new lawsuit argues that the tax is pre-empted by Pennsylvania state sales tax law and that would violate state law that requires essentially the same type of product to be taxed at the same rate. They also argue that products purchased through the Supplemental Nutrition Assistance Program, more popularly known as food stamps, are exempt from sales taxes and as such by implementing a soda tax on these purchases would be in violation of state and federal regulations. The city contends the soda tax is not a sales tax because it is applied at the distributor level and not at the point of purchase in a supermarket.

The use of the soda tax is gaining popularity, not just in the United States but globally. France introduced a targeted sugar tax on soft drinks five years ago. Measures have also been announced in Mexica and the United Kingdom. In November 2014, Berkeley, Calif. was the first municipality in the United States to pass a targeted tax on soda. Similar taxes have been proposed in Norway and South Africa.

Pepsico announced it is targeting by the year 2025 to have at least two-thirds of its drinks have 100 or fewer calories from added sugar per 12-ounce serving. At the moment, about 40 percent of its drinks meet that standard. The company intends to hit this target by introducing more zero-and low-calorie drinks as well as reformulating existing drinks. Pepsico said the new global target is more ambitious than its prior goal of reducing sugar by 25 percent in certain drinks and in certain markets by the year 2020. Pepsi’s 2025 goals also include targets for lowering sodium and saturated fats.

REGULATIONS AND LITIGATION CONCERNING E-CIGARETTES

As of Aug. 15, 2016, sales of e-cigarettes to minors is banned. The regulations require a photo identification to buy electronic cigarettes and ban retailers from handing out free samples or selling them in vending machines. The rules also cover alternative forms of tobacco such as cigars, hookah tobacco and pipe tobacco. These final rules are deliberately targeted to give the FDA the regulatory power to try and prevent young people from using e-cigarettes, cigars and hookah tobacco, which had gone largely unregulated in the view of the FDA.

The amount of litigation concerning the use of e-cigarettes has also grown. Users have sued manufacturers for exploding devices that have caused severe burns and even amputations. Meanwhile, the industry continue to grow in terms of popularity, number of customers, and revenue. Wells Fargo estimates the industry will top $10 billion in worldwide sales in 2017. Bloomberg news issued an estimate that global electronic cigarette industry will surpass the profits of traditional cigarettes within 30 years.

There is a class action pending in Federal District Court in California, Cox v. Cuttwood, LLC, et al., over the alleged use of harmful chemicals such as diacetyl in electronic cigarettes. The lawsuit alleges violations of California’s Consumer Legal Remedies Act, Unfair Competition Law and Deceptive, False and Misleading Advertising Law, and Breach of Expressed or Implied Warranties. The lawsuit also contends that none of the products contained a warning label advising users of the chemicals known links to Popcorn Lung, Emphysema and Chronic Obstructive Pulmonary Disease. There are also questions as to whether lawsuits may be in the offing in the future as a result of the findings of diacetyl has been found in more than 75 percent of e-cigarettes and liquid refills.

CLIMATE CHANGE IN THE FLAVOR INDUSTRY

Numerous companies are taking a far more serious look at the impact of climate change on their supply chain, ingredient sources and what impact that may have on their companies. Mars recently acknowledged it hired a team of meteorologists to review and analyze the impact of the weather on its chocolate business. It is their job to evaluate weather patterns to determine the impact of the ingredients they need for their various products. The meteorologists’ tasks are not just to look at near-term weather forecasting but also to look into the future to examine issues concerning climate change and global warming. The challenge is to try to try to anticipate what the climate will be 10 or 20 years into the future and to try to better understand the potential climate scenarios and risks to supply chains.

The Federal Government has, under the auspices of the NOAA, a website dedicated to the issue called www.climate.gov. A report posted on its website in February 2016 noted the potential impact on Cacao trees because the places where they grow are forecast to become warmer, drier and less suitable to their cultivation. They noted one study where in the countries of the Ivory Coast and Ghana, areas along the coastline would become less suitable for cultivation of Cacao but that properties used further inland may lack sufficient water supplies to become as suitable an area for continued growth of Cacao.

The U.S. government estimated the amount of carbon dioxide in the atmosphere has risen by 25 percent since 1958, and by about 40 percent since the start of the Industrial Revolution. Regardless of the improvements in technology, pollution control and climate accord agreements, while many people will argue over the given impact certain items may or may not have to the environment, what no one seems to discuss is the simple reality that in a span of just over 200 years, we have seven times as many people as we did in the year 1800, placing demands on the same amount of air, land and water as we had 215 years ago.

DEFEND TRADE SECRETS ACT OF 2016

On May 11, 2016 the Defend Trade Secrets Act of 2016 became law. It significantly amended and broadened powers under the Economic Espionage Act of 1996, which this law amends and provides for federal criminal penalties for foreign economic espionage and trade secret theft and adds new federal civil trade secret protections. Some of the new features of the law are as follows: (1) there are new federal remedies including the federal private right of action for trade secrets that provides for federal law remedies instead of only state law remedies for the theft of trade secrets. These remedies include injunctive relief, monetary damages and the possibility of doubling damages for malicious and willfulness of misappropriation of trade secrets. Because the legislation is not pre-empting the network of existing state laws, trade secret owners now have the choice of form to pursue relief either in federal or state court. There are new tools for recovering trade secrets based on an ex-parte court order to seize trade secrets by law enforcements officials and to bring them within the custody of the court with a full hearing to be held no later than seven days after the law party’s present in court. There are new protections for the use of trade secrets during the course of litigation, including the use of protective orders in an expanded manner and new provisions addressing digital information that arises in trade secret cases. There is also a new whistle blower provision concerning the disclosure of trade secrets to law enforcement in order to report or investigate possible violations of this or other laws.

Patrick J. McNamara, Esq. has served since 1994 as general counsel to NAFFS. Copies of the various reports and documents referenced in his speech can be obtained from NAFFS or directly from him. Please contact him at pmcnamara@scarincihollenbeck.com or call his office at 201-896-4100. The complete version of Mr. McNamara’s presentation is available at www.naffs.org.

This presentation provides general information only and does not constitute legal advice. No attorney-client relationship has been created. If legal advice or other expert assistance is required, the services of a competent professional should be sought. We recommend that you consult with an attorney familiar with your specific situation before taking any action.