The Food, Beverage and Cosmetics Law Review: USA
The US Food and Drug Administration (FDA) is the primary federal agency that regulates most food, beverage and cosmetic products pursuant, generally, to the Federal Food, Drug, and Cosmetic Act (FDCA).2 The FDA has a variety of mechanisms to address violations of the law, and works with the US Department of Justice and US Attorneys to bring enforcement actions.
Federal responsibility for food safety and labelling is shared by the FDA and US Department of Agriculture (USDA). The FDA has authority over all domestic and imported food products (except for most meats and poultry), including seafood, fish and shellfish products. The Food Safety and Inspection Service (FSIS), an agency of USDA, regulates most meat and poultry and some egg products, as well as catfish.
The US Federal Trade Commission (FTC) regulates advertising (but not labelling) for food, beverages and cosmetics under the Federal Trade Commission Act (FTCA), which prohibits a variety of 'unfair or deceptive acts or practices', including the dissemination of false advertisements for food, beverages and cosmetics aimed at consumers.3
The Department of the Treasury's Alcohol and Tobacco Tax and Trade Bureau (TTB) regulates alcohol production, importation, wholesale, distribution, labelling and advertising, primarily under the Federal Alcohol Administration Act.4
State agencies administer certain licensing and labelling requirements for these products under their own state-specific statutory and regulatory frameworks.
Year in review
As first announced in 2018, the FDA has been pursuing its Nutrition Innovation Strategy, which seeks to modernise food label claims and standards of identity, and implements the recently overhauled nutrition label and restaurant menu labelling requirements. In June 2021, the FDA took action to revoke the standards of identity for low-fat and non-fat yogurt and amend the standard for yogurt.5 In December 2020, the agency also issued proposed rules to revoke the standards of identity for French dressing and frozen cherry pie.6
With respect to food safety, in September 2020, the FDA proposed a Food Traceability Rule that would establish additional record-keeping requirements for certain foods, including leafy greens, fresh-cut fruits and vegetables, and some types of fish, shell eggs and nut butters. If finalised, the rule would standardise the data elements and information that companies establish and maintain, and the information needed to facilitate rapid and accurate traceability.7 In March 2021, the FDA issued a Letter to Industry on chemical hazards, including toxic elements, in foods for babies and young children.8 The FDA reminded manufacturers and processors of the FDA's goal to 'reduce exposure to toxic elements in foods to the greatest extent feasible and to further advance progress in this area through more research and enhanced collaboration among stakeholders'. The FDA announced its 'Closer to Zero' action plan9 for reducing exposure to toxic elements, such as arsenic, cadmium and mercury.
In the cosmetics space, the FDA published a final report regarding asbestos in talc-containing cosmetics in March 2020. The report reflected data from sampling of talc-containing cosmetics for asbestos. The results showed that 43 samples were negative while nine were positive. In the case of the positive samples, the FDA immediately notified the public and worked closely with the affected companies on subsequent recalls.10
During the covid-19 pandemic, the FDA provided certain regulatory flexibilities to the food industry. For example, the FDA published a temporary enforcement policy relaxing regulatory requirements for shell egg producers,11 and facilitated the distribution of food by easing enforcement of nutrition labelling requirements for certain packaged food intended to be sold in retail establishments.12 Further, the agency announced that it would temporarily conduct Foreign Supplier Verification Program (FSVP) inspections of food importers remotely.13 The FDA also partnered with the US Centers for Disease Control and Prevention and the US Occupational Safety and Health Administration to develop a number of resources to help food industry employers continue or resume operations safely.14
Food and cosmetic safety
i Foods and beverages
The United States has a comprehensive statutory and regulatory framework that covers all stages of food production, processing, holding, distribution and marketing of food intended for human consumption.
In general, food products15 subject to the FDA's jurisdiction that are sold in the US must not be adulterated or misbranded under the FDCA.16 A food is 'adulterated' if, for example, it contains poisonous or deleterious substances that may render it injurious to health; if it is manufactured under unsanitary conditions; or if it contains unsafe ingredients.17 A food is misbranded if, among other things, its labelling (due to affirmative statements or omissions) is false or misleading.18
Most domestic and foreign facilities that manufacture, process, pack or hold food must register with the FDA every two years, and failure to register can lead to refusal of an import.19 The FDA may suspend a facility registration if it determines that food manufactured, processed, packed, received or held by the facility has a reasonable probability of causing serious harm to humans.20 Registered foreign facilities must designate a US agent who lives or maintains a place of business in the US and is physically present in the US.21 'Farms' are exempt from registration, as are foreign facilities if food from a foreign facility undergoes further manufacturing or processing (including packaging) by another facility outside the US.22
Current Good Manufacturing Practices (CGMPs) establish the minimum requirements for methods, equipment, facilities and controls for producing safe and wholesome food.23 Under the FDCA, as amended by the FDA Food Safety Modernization Act (FSMA), food facilities may be subject to the following key requirements, among others:
- Under the Hazard Analysis and Risk-Based Preventive Controls (HARPC) rule, registered facilities must create and implement a food safety plan – which includes a hazard analysis, preventive controls, a risk-based supply chain programme, a recall plan and monitoring, corrective action and verification procedures – and must maintain required records.24
- A registered food facility must make a report to the FDA through the Reportable Food Registry within 24 hours of determining that there is a reasonable probability that food manufactured, processed, packed or held by the facility will cause serious adverse health consequences.25
- At the FDA's written request, a company must permit the agency timely access to all relevant records when the FDA has a reasonable belief that a food manufactured, processed, packed, distributed, received, held or imported by the company is adulterated and presents a threat of serious adverse health consequences or death to humans or animals.26
- Most registered facilities must comply with a rule requiring mitigation strategies to protect food against intentional adulteration from acts of terrorism targeting the food supply and other acts intended to harm the public health.27
- Shippers, receivers, loaders and carriers who transport food in the US by motor or rail vehicle are subject to requirements to ensure the sanitary transportation of food.28
The FDA has the authority to inspect domestic and foreign facilities that manufacture, process, pack or hold food for introduction into the US to assess compliance with CGMPs and HARPC, and may require production of records when the FDA reasonably believes a food is adulterated and presents a threat of serious adverse health consequences or death to humans or animals.29 If a foreign facility refuses to permit an FDA inspection within 24 hours of the FDA's request to inspect, food from the facility will not be admitted.30
If the FDA observes violative conditions during a facility inspection, the agency will issue an FDA Form 483 to notify management. Should the FDA determine that the conditions are serious, it may issue a warning letter to the facility.31 The facility must respond to the FDA and explain how it has remedied (or will remedy) the objectionable conditions. The FDA also has other enforcement powers, including administrative detention or seizure of an article that is adulterated or misbranded, recalls (as discussed further below), injunctions and criminal prosecutions.32
Food imported into the US generally must meet the same laws and regulations as food produced domestically. The FDA must receive prior notice of imported foods; food imported or offered for import without prior notice may be refused admission.33 Imported food products are subject to FDA review at US ports of entry, and the FDA may refuse admission of imported foods if it 'appears from the examination of such samples or otherwise' that the product:
- was manufactured, processed or packed under unsanitary conditions;
- was forbidden or could not be sold in the country where it was produced or from which it was exported; or
- is adulterated or misbranded.34
The FDA does not certify, license or otherwise approve individual food importers, products, labels or shipments prior to importation. Under the FSVP rule, importers must verify that the food they import from foreign suppliers complies with the FDCA's food safety requirements – including having processes and procedures that provide at least the same level of protection as those required under HARPC, if applicable – and is not adulterated or misbranded.35
Food products subject to USDA's jurisdiction must comply with the Federal Meat Inspection Act (FMIA), Poultry Products Inspection Act (PPIA) or Egg Products Inspection Act, as applicable. Generally, the PPIA requires inspection of establishments that 'process' 'poultry products',36 and the FMIA requires inspection of establishments that 'prepare' 'meat food products'.37 Both the PPIA and FMIA provide exemptions from federal inspection for certain types of establishments if certain criteria are met.38 Establishments that are subject to inspection must obtain a grant of inspection from FSIS and must meet associated requirements, including establishing and implementing a hazard analysis critical control point plan and sanitary standard operating procedures. There are additional requirements for imports of meat, poultry and egg products, which are limited to countries and establishments that meet requirements equivalent to those established by FSIS.39
The FDA regulates most cosmetic products, which are subject to adulteration and misbranding provisions under the FDCA.40 Cosmetics are not subject to premarket review (other than for colour additives), but must be made and packaged in sanitary facilities and safe for their intended use.41 While product and manufacturing facility registration are not required for cosmetics, the FDA permits voluntary registration of cosmetics establishments and voluntary filings of cosmetic product ingredients.42 Regulations restrict the use of certain ingredients that the FDA has determined are poisonous or deleterious, including mercury compounds and methylene chloride.43 The FDA may inspect cosmetic establishments to determine whether cosmetics are safe and properly labelled. If the agency identifies a violation of the FDCA, it may issue a warning letter, request that the firm conduct a recall, seize violative products, seek an injunction or seek criminal penalties.44
iii Food additives and contaminants
Under the FDCA, any substance that is intentionally added to food is a food additive, and is subject to premarket review and approval by the FDA45 unless the substance is generally recognised, among qualified experts, as having been shown to be safe46 under the conditions of its intended use, or unless the use of the substance is otherwise excluded from the definition of a food additive.47 The use of a food substance may be generally recognised as safe (GRAS) either through scientific procedures or, for a substance used in food before 1958, through experience based on common use in food.48 GRAS status is established through notification by an applicant to the FDA of the applicant's own conclusion that a substance is GRAS, or self-affirmation of the GRAS status of a substance without notification to the FDA. The FDA has also recognised certain substances as GRAS, as set forth in the FDA's regulations, and the agency maintains a GRAS Notice Inventory containing information regarding substances for which the FDA has received a notification.49 Packaging materials for FDA-regulated products must also comply with the FDA's food additive regulations if the packaging contains food contact substances that are reasonably expected to migrate into food.50 FSIS and the FDA have a joint ingredient approval process for meat, poultry and egg products, under which the FDA authorises safety and FSIS determines suitability and efficacy for use.51
Unlike food additives, there is no GRAS (or similar) exemption for colour additives in food. All substances that impart colour are colour additives and are subject to premarket approval unless they are used solely for a purpose other than imparting colour.52 Colour additives must comply with individual listing requirements.53 The same requirements for colour additives apply to cosmetics as well, and a cosmetic containing a colour additive that does not comply with the applicable FDA regulation is considered adulterated.54
FDA-registered food facilities generally must comply with HARPC requirements, which include creating and implementing a recall plan. Most companies have a recall policy to address situations where the company must voluntarily recall a product. The FDA also has the authority to issue a mandatory recall for food when the agency believes that there is a 'reasonable probability' that a food is adulterated or misbranded and its use or exposure will cause serious adverse health consequences.55 The agency must provide the responsible party with an opportunity to cease distribution and recall the food, but if the party does not institute a voluntary recall, the FDA can order the recall.56 The FDA has no authority under the FDCA to mandate a recall of a cosmetic, but the agency may request that a firm recall a product. For both food and cosmetics, once a firm initiates a recall, the FDA takes an active role in the recall process, including monitoring its progress, evaluating the health hazard presented by the product being recalled, issuing a public notification if the recalling firm is unwilling to do so and ensuring the product is destroyed or suitably reconditioned.57 USDA does not have the authority to mandate a recall, but official establishments do have an obligation to notify FSIS of adulterated or misbranded products.58
i Labour and immigration
The US immigration system is administered primarily by the US Citizenship and Immigration Services (USCIS) agency to permit employers to request work visas and permanent residency for scientists, engineers, executives and managers, technology professionals, intracompany specialists and other occupations in the food, beverage and cosmetics industries. Most employer petitions are initially filed with USCIS followed by visa issuance at a US consulate abroad. Under the US free trade agreements with Canada and Mexico, there are special expedited immigration options for certain specific food industry-related professions, including agriculturalists, biologists, chemists, poultry and dairy scientists, and animal and plant breeders. Agricultural operations and other seasonal non-agricultural employers may be able to use some of the US temporary worker programmes. Enforcement of employer compliance with immigration regulations is conducted by a range of agencies, including USCIS, the Department of Labor and US Immigration and Customs Enforcement.
ii Processing and certifications
The FDA does not define the term 'organic', but both foods and cosmetics may be certified as 'organic' by USDA through its National Organic Program. USDA guidelines outline how certified organic food products are grown and processed, including, among other factors:
- requirements for soil quality;
- animal-raising practices;
- pest and weed control; and
- use of additives.
Organic producers generally rely on natural substances and physical, mechanical or biologically based farming methods. 59 Processed foods labelled as 'organic' generally may not contain artificial preservatives, colours or flavours.60 Products labelled as 'made with organic' ingredients must contain at least 70 per cent organically produced ingredients and, like all other organic products, must identify the USDA-accredited certifier, but 'made with organic'-labelled products may not bear the USDA organic seal.61
USDA prohibits genetically modified organisms (GMOs) in organic products by banning the use of 'excluded methods'. 62 USDA defines 'excluded methods' as:
[a] variety of methods used to genetically modify organisms or influence their growth and development by means that are not possible under natural conditions or processes and are not considered compatible with organic production. Such methods include cell fusion, microencapsulation and macroencapsulation, and recombinant DNA technology (including gene deletion, gene doubling, introducing a foreign gene, and changing the positions of genes when achieved by recombinant DNA technology). Such methods do not include the use of traditional breeding, conjugation, fermentation, hybridization, in vitro fertilization, or tissue culture.63
The FDA has issued guidance discouraging the use of 'non-GMO', as opposed to 'not developed using bioengineering', for example. The FDA has said, however, that it does not intend to take enforcement action against 'non-GMO' and similar claims as long as the food is, in fact, not derived from a genetically engineered plant and the food's labelling is not otherwise false or misleading.64
Although US consumers are interested in sustainability as a goal for food, beverage and cosmetics products, the initiatives on this front are generally led by company business practices rather than rules and regulations. For example, Ben & Jerry's, a popular ice cream producer, began a project in 2019 to eliminate single-use plastic and instead use wooden spoons and paper straws. It has also focused on biodegradability of its ice cream containers.65 In 2020, Starbucks committed to a resource-positive future, setting goals to decrease its carbon, water and waste footprints.66 In the US, development of marketing guidelines related to sustainability are likely to develop in the context of legal disputes. For example, one company was sued in 2019 by the non-profit organisations who challenged the company's marketing around its environmental stewardship and humane treatment of animals.67 The term 'greenwashing' has been coined to refer to the process of conveying a false impression or providing misleading information about how a company's products or processes are sustainable or environmentally sound.
iv Anti-corruption rules
Supply chain participants should also remain sensitive to corruption and money-laundering risks as well as the accompanying laws in this area. Such risks are often exacerbated in the context of supply chains as a result of the significant use of and reliance on third parties (e.g., consultants, vendors, suppliers) – for which control and oversight is more difficult – as well as the increasingly complex set of global supply chain interactions that often includes government touchpoints. Relevant anti-corruption laws in this area include the Foreign Corrupt Practices Act (which, in general terms, prohibits corrupt payments to foreign officials to obtain or retain business and imposes record-keeping and internal controls obligations upon certain entities), the Travel Act and federal bribery, mail and wire fraud statutes, as well as local anti-bribery and anti-corruption laws in the foreign countries in which the companies and supply chains operate (e.g., the UK Bribery Act and Brazilian Clean Company Act). Relevant anti-money laundering regulations include:
- the recently enacted Anti-Money Laundering Act of 2020;
- the Bank Secrecy Act; and
- Office of Foreign Assets Control enforcement regulations.
Domestic and international supply chain participants should ensure adequate practices to identify and mitigate third-party risks, including through the use of third-party due diligence, defensive contractual provisions, training and monitoring.
v Due diligence and monitoring
The FDA generally requires registered food facilities that manufacture or process a raw material or other ingredient that they receive from a supplier to establish and implement a risk-based supply-chain programme, through which the facilities must approve suppliers, determine and conduct appropriate verification activities and document their supply-chain programme.68 Supplier approval is based on various factors, including the hazard analysis for the food and the supplier's food safety history relevant to the raw materials or ingredients.69 Importers generally must conduct similar approval and verification activities for their foreign suppliers.70 To comply with these requirements, covered facilities will need to evaluate the risks associated with the ingredients provided by suppliers and distributors, work with their suppliers to obtain relevant information and, in some cases, conduct onsite audits.
Sales and marketing
i Regulatory framework
In general, food labels must bear the following required information:
- statement of identity (the name of the food);71
- the name and address of the manufacturer, packer or distributor;72
- the net quantity of contents;73
- an ingredient declaration;74
- nutrition labelling;75 and
- allergen labelling.76
The FDA does not pre-approve labels for food products, and manufacturers are responsible for ensuring that their product labelling is compliant. The FDA has regulatory requirements for certain types of claims, including nutrient content claims (which characterise the level of a nutrient in the food) and health claims (which characterise the relationship of any substance to a disease or health-related condition).77 Health claims are limited to claims about disease risk reduction, and cannot claim to diagnose, cure, mitigate or treat a disease.78 The FDA may review product labelling during an inspection or otherwise, and may issue a warning letter when it identifies serious non-compliance with labelling requirements under the FDCA.
The FDA requires menu labelling of calorie information in restaurants and similar retail food establishments, and the requirements apply to standard menu items offered for sale in covered establishments. A covered establishment is defined as 'a restaurant or similar retail food establishment that is a part of a chain with 20 or more locations doing business under the same name (regardless of the type of ownership, e.g., individual franchises) and offering for sale substantially the same menu items'.79
Unlike the FDA, USDA and FSIS have the authority to approve product labels before the products may be offered for sale. USDA has established requirements for the content and design of labels to ensure that they are truthful, accurate and not misleading, and that products are not misbranded. Product labels must generally bear the following features:
- product name;
- inspection legend;
- handling statement;
- net weight;
- ingredient statement;
- name and place of business of manufacturer, packer or distributor;
- nutrition labelling; and
- safe handling instructions.80
FSIS has also issued guidance documents to assist firms in understanding when special statements and claims may be used. While allergen statements are not mandatory, FSIS supports the voluntary addition of such statements on meat and poultry labels immediately following the ingredient statement.81
A cosmetic product must have a truthful, non-misleading label that indicates that it is for cosmetic use; lists ingredients; states the product contents of the package by weight; and states manufacturer, distributor or packer information.82
While the FDA exercises primary authority over food and cosmetics labelling, the FTC exercises authority over advertising of foods and cosmetics.83 The FTCA prohibits 'unfair or deceptive acts or practices'; advertising must be truthful, non-misleading and adequately substantiated.84 In some cases, the FDA and the FTC conduct joint enforcement efforts. One recent effort involved sending warning letters to companies marketing products that claim to treat covid-19, including cannabidiol-containing products.85
The TTB requires pre-approval of alcohol beverage labels within its jurisdiction but does not require pre-approval of alcohol beverage advertisements. The TTB does offer a voluntary pre-clearance service and monitors advertising through referrals and complaints, industry member requests for pre-clearance and internal selections of advertisements for review. Advertising regulations generally prohibit statements that are false, statements that are inconsistent with the approved product labels, false or misleading statements that are disparaging of a competitor's product, health-related statements that are false or misleading, and misleading guarantees.86 Certain alcohol products are required to follow FDA labelling regulations: low-volume alcohol wines, beers that are made from substitutes for malted barley and beers made without hops.
ii Consumer protection and false advertising
Personal injury or class action plaintiffs may point to advertising statements as the bases for misrepresentation, warranty and consumer fraud claims. In those claims, plaintiffs generally aim to prove that company statements were false and misleading, and they may attempt to use the FDA's communications to support these claims. When the FDA sends a warning letter to a manufacturer based on review of labelling or promotional materials, the FDA's letter generally contains assertions that certain claims language may misbrand the product or be 'false or misleading'. Although such letters are neither formal findings by the FDA nor final agency actions, they can be admitted in litigation and used against manufacturers defending these suits. Even without an FDA letter, plaintiffs may sue (usually in class actions) under state consumer protection acts that prohibit false or misleading advertising. Competitors may also sue for false or misleading advertising under the US Lanham Act or state law equivalents.
Claims that may be subject to Lanham Act or private civil actions include:
- a false claim about the characteristics or the benefits of the goods or service (including, in particular, health benefits of the product);
- the way the price is represented, for example, products are advertised at sale prices, but turn out not to be;
- the way the goods or services are supplied or manufactured is misrepresented, for example, made in the US or 'eco-friendly'; and
- claims that leave out or hide material information.
The US permits product liability claims, and state law provides the elements of those claims, which may be filed in state or federal court. Plaintiffs can bring several different types of product liability claims, the most common of which is negligence, which requires proof that the defendant's breach of a duty proximately caused the plaintiff's injuries. The negligence may be related to, generally, the design of the product, the manufacturing process or failure to warn.
State law governs strict liability claims and therefore the availability of such a claim will depend on the jurisdiction in which the plaintiff sues. However, most states recognise strict liability claims in product liability cases. A strict liability claim does not require that a plaintiff show that the defendant breached a duty, but the plaintiff will still have to show a product defect that proximately caused the plaintiff's injuries. In certain cases involving products that cannot be made completely safe, failure to warn may be considered the 'defect', even if the product itself is not defective.
Any type of recall or government action related to a food, beverage or cosmetics product will almost always result in civil product liability litigation as well. Similarly, litigation arising out of a food-borne illness or contaminant will be brought under the same product liability claims discussed above. A food-borne contaminant will almost always be considered a 'defect' in the product if it was not intended to be in the product and if it creates a risk of personal injury.
Personal injury and product liability claims involving physical injury or property damage typically are brought in the US as individual claims, or in some cases aggregate claims. Class actions are uncommon because these types of injuries are generally too individualised to permit class certification. Personal injury and product liability actions filed in federal court are often coordinated in federal courts under the Judicial Panel for Multidistrict Litigation rules. State courts also have their own various methods for coordination of cases filed within the same state.
Intellectual property (IP) offers a wide array of tools to set companies apart and edge out completion in the food, beverage and cosmetics industry. IP protection includes trademarks, trade dress, trade secrets and patents – all of which have advantages and disadvantages in securing a competitive advantage in the marketplace.
A trademark is a non-functional, distinctive sign used by a business to differentiate its goods from those of its competitors.87 Trademark protection is how customers recognise a product in the marketplace and distinguish it from competitors. Trade dress is a subset of trademark law that protects the design, shape, colour, packaging or appearance of a product, where these characteristics help customers distinguish a product in the marketplace. Elements of trade dress are protectable under the Lanham Act, and most parallel state laws, only if they are both distinctive and non-functional.88
A trade secret may consist of any formula, pattern, physical device, idea, process or compilation of information that provides the owner with a competitive advantage in the marketplace and is treated in a way that can reasonably be expected to prevent the public of competitors from learning about the secret.89 Many food, beverage and cosmetics companies also leverage the secretive nature of trade secrets as a marketing tool. On the other hand, trade secrets do not prevent independent discovery or reverse engineering. Also, in the US, trade secrets enforcement varies from state to state.
Patents cover technical inventions, such as chemical compositions, or machine designs that are new and unique.90 Patent protection can add significant value to an emerging brand by keeping competitors at bay, serving as an asset or collateral to secure financing, or as leverage to license across different industries or markets. However, establishing the novelty of a food, beverage or cosmetics patent limits the availability of patent protection in many instances.91
While trademark protection is the tool most used by businesses in the field of food and cosmetics, traditionally underutilised branches of IP protection are seeing a resurgence. For example, this year has seen a continued boom in patent filings for commercialised substitute meat products – food products having structures, textures and other properties similar to those of animal products.
In short, food, beverage and cosmetics companies can use IP to differentiate themselves in the market and protect innovations. Those who take advantage of both traditional and underutilised branches of IP protection will likely secure a competitive advantage in the market.
Several voluntary organisations have developed best practices and other guidelines that can assist regulated entities in demonstrating that they complied with industry standards, or in otherwise mitigating potential liability.
Consumer product marketing (including food and beverages) is subject to industry self-regulation through the National Advertising Division (NAD) of the Better Business Bureau. NAD evaluates national advertising for truthfulness and accuracy. Specific challenges to a company's advertising can also be made either by a competitor company or by a consumer. Generally, NAD seeks voluntary compliance with its determinations regarding the truth and accuracy of challenged advertising. In cases where an advertiser declines to participate or to abide by the terms of an NAD decision, the issue is referred to the FTC. In some cases, NAD will also reach out to the FDA on an issue.
The Consumer Brands Association (formerly the Grocery Manufacturers Association) is the national trade association for the consumer-packaged goods industry in the US, representing food, beverage, household and personal-care product companies. For dietary supplements, the Consumer Healthcare Products Association, a member-based association representing manufacturers and distributors of over-the-counter drugs and dietary supplements, has adopted guidelines on advertising practices. The Personal Care Products Council is one of the leading national trade associations representing cosmetics and personal care products companies.
Food Marketing Institute – The Food Industry Association is a national trade association for the entire food industry and supply chain (including retailers, suppliers, wholesalers and companies that provide services to these entities) in the US. The Plant Based Food Association (PBFA) was created in 2016 to represent the plant-based food industry. PBFA has adopted voluntary labelling standards and has helped to develop merchandising and marketing programmes and promote plant-based foods in the media. The American Frozen Food Institute is a national trade association for the frozen food industry in the US.
The American Beverage Association is a government lobbying group that represents the beverage industry in the US, including producers and bottlers of soft drinks, bottled water and other non-alcoholic beverages.
Financing and M&A
The economy, both nationally and globally, has experienced tremendous volatility over the past 18 months (January 2020 to June 2021), and the M&A market is no exception. Prior to the onset of the covid-19 pandemic, M&A activity remained strong and demand was high. In March 2020, M&A activity came to a screeching halt, with buyers and sellers assessing the economic impact of the shutdown on target businesses, as well as then-pending and future transactions. The devastating economic impact of the pandemic on various industries became apparent in the second and third quarters of 2020, as many businesses suffered substantial disruptions to economic and business activity. For some economic sectors, such as retail, travel and real estate, disruptions were not only significant but persistent. However, the lasting impact on general economic and business activity proved to be far less perilous than initially feared. In fact, many businesses, including those in the food, beverage and cosmetics industries, rebounded quickly and even thrived in the later stages of the pandemic. As a result, M&A activity in the fourth quarter of 2020 accelerated rapidly and has remained extremely robust to June 2021.
Strong business performance, coupled with significant amounts of available capital – corporate America cash balances, an abundance of private equity and debt, and robust capital markets demand (including the unforeseen rise of the special-purpose acquisition company market) – resulted in extremely high buyer demand for acquisitions and investments during this period. As of June 2021, the M&A market remains very seller-friendly. This is generally true for companies in the food, beverage and cosmetics industries as well.
This seller-friendly market is readily apparent in a number of ways. Deal velocity is faster than ever, as buyers who want to capture attractive target companies must be willing to move extremely fast. Deals are also being struck at historically high valuations and multiples of earnings. At the start of the pandemic, there was a sense among M&A practitioners that earn-outs would become increasingly prevalent as a means of bridging valuation gaps in uncertain times. This expectation proved to be incorrect as most deals are still done with price certainty. While the usage of earn-outs remains relatively unchanged as a general matter, it remains more commonplace in pharmaceutical and biotech deals than other industries.
The legal terms of many (or most) deals are also very seller-friendly. Deals are often struck with very little conditionality. Furthermore, many deals are closed with little or no indemnification – or any other recourse – against the sellers. These terms are driven by buyer demand as well as the continued growth of the market and acceptance for representation and warranty insurance (RWI). Insurers have stepped into the shoes of sellers for breaches of representations and warranties. While the uses of RWI started as a trend among private equity buyers, corporate buyers have also begun to adopt usage of the product to compete with private equity buyers.
Special issues for certain products
As discussed above, alcohol is regulated by the TTB. In 2020, consumers were unable to sit inside their favourite establishment because of covid-19. In response, legislation has been moving quickly throughout the country to allow consumers to receive alcohol delivered to their doorstep. Approaches differ by state: Alabama, for example, enacted a bill that allows wineries to ship their goods directly starting 1 August 2021, but requires fulfilment houses to obtain licences from the state for each warehouse location that ships to Alabama residents. Kentucky proposed similar legislation but also requires producers to collect three types of taxes from the consumer. Other states, such as Florida, Oklahoma and Texas, have opted to implement 'cocktail-to-go' laws, which allow not only for direct delivery but also for bars and restaurants to serve portable alcoholic beverages to patrons. Allowing businesses to sell to-go alcoholic beverages allows them to remain open. As the US emerges from the pandemic, it will be difficult to meet the demands of every interested party. Fulfilment houses will want to continue to ship directly to consumers, while bars and other establishments will want consumers to come in person to be served. Consumers, however, will want as many options available to them as possible.
ii Drugs versus cosmetics debate
Drugs and cosmetics are both regulated by the FDA. The FDCA defines drugs to include articles (other than food) intended to affect the structure or any function of the body of man or other animals.92 A cosmetic, however, is defined as 'articles intended to be rubbed, poured, sprinkled, or sprayed on, introduced into, or otherwise applied to the human body or any part thereof for cleansing, beautifying, promoting attractiveness, or altering the appearance'.93 New drugs require FDA approval before commercialising the product, while cosmetics do not. The FDA has stated that some products meet the definitions of both cosmetics and drugs, and therefore must comply with the requirements for both. A recent class action litigation trend is for plaintiffs to claim that they purchased a cosmetic, but that they now believe it was a drug that was sold without approval of a new drug application.94 These plaintiffs sue under their local state consumer fraud act, arguing that the product was misbranded.
Outlook and conclusions
With the continuation of the pandemic and new virus variants, it is expected that supply chain disruptions will continue, along with increased ingredient and food prices affected by restricted plant workforces. It is also expected that the federal government will increase regulation in the area of food and beverages, as this was a lower priority during the prior administration. Regulatory or unofficial developments are expected with respect to new food trends and innovations, such as hemp, cannabidiol and tetrahydrocannabinol, as well as the use of animal cell culture technology for meats and poultry. In addition, the FDA will continue to pursue its New Era of Smarter Food Safety initiative, first launched in April 2019. The FDA's leadership recently released a blueprint for the initiative reflecting input from a variety of stakeholders and the public and offers a vision for the next decade, with a focus on technology, modernisation and food safety culture. The combination of the effects of the pandemic coupled with new and exciting food, beverage and cosmetics developments and regulation will create unique opportunities and challenges for companies in 2021.
1 Kara L McCall, Elizabeth M Chiarello and Diane C McEnroe are partners and Sarah M Goldstein is a staff attorney at Sidley Austin LLP. The authors would like to thank Marketa Lindt, Geeta Malhotra, Marketa Lindt, Geeta Malhotra, Taylor Shuman, Kristina Martinez, Michael Springer-Ingram and Jaclyn Fonteyne for their assistance in preparing this chapter.
2 See generally 21 USC § 301, et seq.
3 See generally 15 USC §§ 45, 52, 55; 21 USC § 352(r).
4 See generally 27 USC § 205(e); 27 USC § 8.
5 86 Fed. Reg. 31117 (11 June 2021).
6 85 Fed. Reg. 82980 (21 December 2020); 85 Fed. Reg. 82395 (18 December 2020).
7 85 Fed. Reg. 59984 (23 September 2020).
8 Letter from Susan Mayne, FDA, Center for Food Safety and Applied Nutrition, to Baby and Toddler Food Manufacturers and Processors, 5 March 2021, www.fda.gov/media/146423/download (last visited 2 July 2021).
10 FDA, FDA Releases Data from the Agency's Year-Long Sampling Assignment to Test Talc-Containing Cosmetic Products for the Presence of Asbestos, 9 March 2020, www.fda.gov/food/cfsan-constituent-updates/fda-releases-data-agencys-year-long-sampling-assignment-test-talc-containing-cosmetic-products (last visited 2 July 2021).
11 FDA, FDA Provides Temporary Flexibility Regarding Packaging and Labelling of Shell Eggs Sold to Consumers by Retail Food Establishments During COVID-19 Pandemic, 3 April 2020, https://www.fda.gov/food/cfsan-constituent-updates/fda-provides-temporary-flexibility-regarding-packaging-and-
labelling-shell-eggs-sold-consumers-retail (last visited 2 July 2021).
12 FDA, FDA Provides Temporary Flexibility Regarding Nutrition Labelling of Certain Packaged Food in Response to the COVID-19 Pandemic, 26 March 2020, https://www.fda.gov/food/cfsan-constituent-updates/fda-provides-temporary-flexibility-regarding-nutrition-labelling-certain-packaged-food-
response-covid (last visited 2 July 2021).
13 FDA, FDA To Temporarily Conduct Remote Importer Inspections Under FSVP Due to COVID-19, 3 April 2020, www.fda.gov/food/cfsan-constituent-updates/fda-temporarily-conduct-remote-importer-
inspections-under-fsvp-due-covid-19 (last visited 2 July 2021).
14 FDA, FDA and OSHA Team Up to Publish Checklist to Assist Food Industry During COVID-19, 19 August 2020, https://www.fda.gov/food/cfsan-constituent-updates/fda-and-osha-team-publish-
checklist-assist-food-industry-during-covid-19 (last visited 2 July 2021).
15 Dietary supplements are a subset of foods and are regulated differently from conventional foods.
16 21 USC § 331.
17 id. § 342(a).
18 id. § 343(a).
19 21 CFR §§ 1.225, 1.285.
20 21 USC § 350d(b).
21 21 CFR §§ 1.227, 1.232.
22 21 USC § 350d(c); 21 C.F.R. §§ 1.226(a), (b), 1.227. Farms, however, may be subject to requirements for produce safety. 21 CFR part 112. A foreign facility is not exempt from registration if the further manufacturing/processing (including packaging) conducted by the subsequent facility consists of adding labelling or any similar activity of a de minimis nature. 21 CFR § 1.226(a).
23 21 CFR part 117, subpart B. Certain categories of foods, including acidified foods and low-acid canned foods, and infant formula, are subject to their own CGMPs that provide enhanced safety provisions. See 21 CFR parts 113, 114, 106.
24 21 CFR §§ 117.126, 117.190, 117.315.
25 See 21 USC § 350f.
26 id. § 350c. FDA also enforces general record-keeping requirements to enable tracing of manufactured foods along the supply chain; foreign facilities are exempt unless they transport food in the US. 21 CFR § 1.327(h).
27 21 CFR part 121.
28 id. part 1, subpart O.
29 21 USC §§ 374, 350c(a)(1).
30 id. § 384c(b).
31 FDA, Regulatory Procedures Manual, Section 4-1.
32 21 USC §§ 334, 332, 333, 350l; 21 CFR part 1, subpart K.
33 21 CFR part 1, subpart I.
34 21 USC § 381(a); FDA, Regulatory Procedures Manual 9-8 (Detention without Physical Examination) (citing FDCA Section 801(a)).
35 21 CFR part 1, subpart L.
36 21 USC §§ 453(f), 455(b).
37 id. §§ 601(j), 606(a).
38 id. §§ 454(c)(2), 661(c)(2).
39 USDA, FSIS Guidance for Importing Meat, Poultry, and Egg Products into the United States 1 (September 2020).
40 21 USC §§ 361, 362.
41 id. § 361(c).
43 21 CFR part 700, subpart B.
44 21 USC §§ 334, 332, 333; 21 CFR part 7, subpart C; FDA, Regulatory Procedures Manual, Sec. 4-1.
45 21 USC §§ 321(s), 348.
46 'Safe' means 'a reasonable certainty in the minds of competent scientists that the substance is not harmful under the intended conditions of use.' 21 CFR § 170.3(i).
47 21 USC §§ 321(s), 348.
48 id.; 21 CFR §§ 170.3, 170.30.
49 21 CFR parts 182, 184, 186; FDA, GRAS Notice Inventory, www.accessdata.fda.gov/scripts/fdcc/?set=GRASNotices.
50 21 USC § 348(a)(3).
51 Memorandum of Understanding Between the US Department of Agriculture, Food Safety and Inspection Service, and the United States Department of Health and Human Services, Food and Drug Administration, MOU 225-00-2000 Amendment 1 (January 2015).
52 21 USC §§ 321(t)(1), 379e(a).
53 id. § 379e(b); 21 CFR part 70.
54 21 USC § 379e(a).
55 id. § 350l.
57 21 CFR part 7, subpart C.
58 21 USC §§ 612, 459(b); 9 CFR § 418.2.
59 See 7 CFR part 205.
60 See id. §§ 205.605, 205.606.
61 See id. § 205.304.
62 See id. §§ 205.105(e), 205.301(f)(1).
63 7 CFR § 205.2.
64 See FDA Guidance for Industry: Voluntary Labeling Indicating Whether Foods Have or Have Not Been Derived from Genetically Engineered Plants 7, 8 (rev. March 2019).
65 Ben & Jerry's, 'Sustainable Packaging', www.benjerry.com/values/how-we-do-business/responsibly-sourced-packaging.
66 Starbucks Stories & News, 'Starbucks announces coffee-specific environmental goals', https://stories.starbucks.com/stories/2021/starbucks-announces-coffee-specific-environmental-goals/#:~:text=5%
67 Meat+Poultry, 'Tyson sued over advertising claims', www.meatpoultry.com/articles/21617-non-profits-sue-
68 21 CFR § 117.410.
69 id. § 117.410(d)(1).
70 id. part 1, subpart L.
71 21 CFR § 101.3.
72 id. § 101.5.
73 id. § 101.7.
74 id. § 101.4.
75 id. § 101.9.
76 21 USC § 343(w).
77 21 CFR §§ 101.13, 101.14.
78 id. § 101.14.
79 id. § 101.11.
80 9 CFR §§ 317.2, 317.300, 317.309, 381.117, 381.118, 381.121, 381.122, 381.125, 381.400, 381.409, 381.123.
81 USDA, FSIS Compliance Guidelines: Allergens and Ingredients of Public Health Concern: Identification, Prevention and Control, and Declaration through Labelling (November 2015).
82 21 CFR §§ 701.3, 701.11, 701.12, 701.13.
83 Memorandum of Understanding Between the Federal Trade Commission and the Food and Drug Administration, MOU 225-71-8003 (1971).
84 15 USC § 45(a).
85 See, e.g., FDA Warning Letter to Trinity Natural Health & Pain Management, Inc., 13 April 2021; FDA Warning Letter to AusarHerbs, 12 January 2021; FDA Warning Letter to For Our Vets LLC dba Patriot Supreme, 16 October 2020.
86 27 CFR § 4.64 (wine); 26 CFR § 5.65 (distilled spirits); 27 CFR § 7.54 (malt beverages).
87 See 15 USC § 1051 et seq. The Lanham Act (also known as the Trademark Act of 1946) is the federal statute that governs trademarks, service marks, and unfair competition.
88 This year, Ezaki Glico Co. Ltd., maker of the Pocky cookie sticks, petitioned the US Supreme Court to resolve a circuit split relating to the unlawful copying of 'functional' trade dress. In a petition for certiorari, Ezaki Glico Co. Ltd. urged the Court to reverse the Third Circuit, which said the design of the cookie sticks was too 'functional' to be locked up under federal trademark law. Ezaki Glico Kabushiki Kaisha v. Lotte Int'l Am. Corp., 986 F.3d 250, 255 (3d Cir. 2021), as amended (10 March 2021), petition for cert. filed.
89 Trade secret laws are governed by state and federal laws. The Defend Trade Secrets Act of 2016 (DTSA), codified at 18 USC § 1836, et seq., is a US federal law that allows an owner of a trade secret to sue in federal court when its trade secrets have been misappropriated. The Uniform Trade Secrets Act (UTSA) is a Uniform Act promulgated for adoption in the United States. To date, 47 states and the District of Columbia have adopted the UTSA.
90 35 USC §§ 100–105.
91 A patent for a claimed invention may not be obtained if the differences between the claimed invention and the prior art would have been obvious to a person having ordinary skill in the art to which the claimed invention pertains. 35 USC § 103.
92 21 USC § 321(g)(1)(C).
93 id. § 321(i).
94 See Somers v. Beiersdorf, Inc., 847 F. App'x 456 (9th Cir. 2021); Borchenko v. L'Oreal USA, Inc., 389 F. Supp. 3d 769 (CD Cal. 2019).