February 8, 2016
The legal ins and outs of operating a food business may, depending on what products you sell and how you plan to sell them, extend beyond obtaining your local health permits. In this podcast, Lauren Handel of Foscolo & Handel, PLLC, also known as The Food Law Firm for their specialization in food business issues, discusses some of the things food entrepreneurs need to keep in mind.
As a note, links to the resources mentioned in the podcast are included below the following transcript.
Jennifer: Today we’re here with Lauren Handel who’s a partner in a law firm Foscolo & Handel, PLLC also known as The Food Law Firm. This law firm is uniquely dedicated to meeting the legal needs of food businesses from farm to fork and all the steps in between. Lauren counsels food, farming and alcoholic beverage businesses on various aspects of law including regulatory compliance, commercial contracts and intellectual property. She also has represented clients in litigation and regulatory proceedings. Lauren earned her JD cum laude from Georgetown University Law Center and an LLM in Agricultural and Food Law at the University of Arkansas School of Law. She’s admitted to practice in New York, New Jersey and Maryland.
Before we get started talking to Lauren, I just want to make one thing clear. This podcast is not providing legal advice to any specific food entrepreneur and that you should always consult an attorney as and when you have legal questions. Additionally, we are covering some topics today, some very in depth topics. We’re coming them at a very high level. Again, it is recommended that you consult with an attorney with any specific questions that you have. With that clarified, first of all, welcome Lauren and thank you for taking the time to share your knowledge with us.
Lauren: Thank you. Thanks for inviting me.
Jennifer: Absolutely. One thing that I was hoping to start with was if you can help us understand some of the differences between all these acronyms that food entrepreneurs always hear when we talk about permitting. FDA, USDA, State Department of Agriculture, County Health Departments? How can food entrepreneurs understand which agencies they need to be permitted with because it honestly seems pretty confusing to a lot of folks from the outset.
Lauren: It’s a good question. There are two levels of regulation of food businesses both federal and state and sometimes three; federal, state and local being a county or city level. It really depends on the type of food product and the type of business. Someone making a packaged food product that contains meat, poultry or is a liquid egg product meaning egg out of it’s shell. They’re going to be regulated at the federal level by the US Department of Agriculture, USDA. If it’s any other kind of packaged food product, then they’re also regulated or regulated instead by the Food and Drug Administration, FDA. FDA generally has responsibility for all food but has an agreement with USDA that USDA takes a lead when it comes to meat, poultry and non-shell egg products. At the state level, the states impart enforce federal law and to some extent have additional law that go beyond federal requirements.
States can’t have laws that conflict with federal law however, but at the state level it depends on the state which the agency is responsible. New York for example, it’s the State Department of Agriculture and Markets that has responsibility for food manufacturing. In New Jersey it’s Department of Health. In some states, it’s both and it just depends on the type of food. For example in California, food is generally regulated at the state level by the California Department of Health but certain products for example dairy products are under the Department of Agriculture. Again, it depends on the type of product. It also depends on exactly what the business is doing so if instead of making a manufactured package product, you are doing food service or your retail business, then you’re likely to also be regulated at the local level in the primary inspection you would have and permit if one is required would be from a county health department or a city health department in larger cities like the City of New York Health Department is responsible for food service in New York. Those are the basic dividing lines; is that a package good or is it a retail or food service business.
Jennifer: That’s good to know and that’s a good reminder for folks that it’s going to be both highly dependent on your business but also your state and possibly city and or county with who you need to be talking to.
Lauren: That’s right. It’s usually a good idea to start by calling the state, health department or Department of Agriculture and asking them, explain to them what kind of business you’re going to have and ask them if they regulate you or you would need to go to a county or city.
Jennifer: Great. I appreciate that because you’ve given a lot of them to at least a starting point because again seemed confusing. What about when it comes to regulatory compliance? Are there mistakes that food entrepreneurs or food manufacturers can make during the production and or packaging of their product that could land them in trouble?
Lauren: Sure. There are plenty of mistakes especially if you don’t know what rules apply to you so that’s the first step is figure out what rules apply. I mean, there are general rules that apply to anyone making a processed food product just as the current good manufacturing practices, the basic sanitary practices to make sure that you make a product that’s not contaminated. Beyond that, it also depends on the type of product so for now, there are extra rules and I’m not addressing meat and poultry. Meat and poultry always has extra rules and is a much more involved process because USDA gets involved from the outset. You have to have them there to inspect at all times. Leaving meat and poultry aside, talking about other kinds of food products, if you’re making for now a seafood, juice or a low acid or a canned product, then there are additional rules that apply to you and you would be well advised to find out what they are to make sure you’re complying and not only that you’re complying, but that you have the records in place that you’re keeping system in place so that you can prove to FDA if they come to inspect or if a state inspector comes to inspect so that you can prove your compliance.
Failure to follow the rules if there are affirmative obligations on you under the regulations and you fail to follow them even if you’re violation is only not having records that you’re supposed to have means legally that the food is deemed adulterated and therefore it’s unlawful to sell or to hold or to have an income also in the United States. You definitely don’t want that to happen and so you need to know what the rules are and put a system in place to follow them. That will become more complicated as more types of foods become regulated with so I mentioned the categories; juice, sea food, canned and low acid are certified foods right now are the only food groups for FDA purposes it have sort of additional obligations and that’s all becoming expanded under the Food Safety Modernization Act. Everyone will have to do more than they are doing now regardless of the type of food that they’re making.
Jennifer: Can you explain a little bit to us about how the Food Safety Modernization & Act ultimately may impact entrepreneurs; especially for our listeners who are on the smaller scale for the most part or starting out? What sort of things might they need to be keeping an eye out for with regards to this?
Lauren: I’d say as first step like I said before, you need to know what rules are, what they will be. The bottom line is it’s an increased hurdle. It’s an additional hurdle and cost for entering into the food business whereas before, if you were making a product other than the categories that I mentioned; juicy food, low acid canned foods and certified foods, there wasn’t a whole lot you had to do in terms of food safety compliance and planning before you start manufacturing. That’s not to say that it wasn’t a good idea to do a food safety plan, it’s always been a good idea but it wasn’t required. Now that will become part of your legal requirements and so you’ll have to have food safety plan in place, that means having a person who is knowledgeable about food safety science to evaluate the hazards of your process and the food that you’re making.
Identify what those hazards are. Identify how they can be controlled and create a system to control them and then also you need the record keeping to show that you’re doing all these and to keep track of your monitoring to make sure that the hazard stay controlled. It’s a lot of requirements. Maybe some good advice for people other than seeking out the regulations and understanding them is to find a good food safety professional, a consultant who can help you with this. Although there are classes available and it maybe a very good idea to take a class on food safety planning, it’s really this is hard science and unless you have a background in Microbiology and other kinds of food risks, it’s going to be very difficult to do well and so all the FDA doesn’t have a whole lot of resources to enforce this law when it becomes effective. If they do show up and may look at your food safety plan, it’s going to be very hard for people who didn’t have a professional create that plan.
I’m not sure there are enough food safety professionals out there but people should start to try to find them. Smaller business will have a longer time to comply. The timeline is so that the final rules and I’m talking only about one piece of the Food Safety Modernization Act right now what’s called the Preventive Controls Rules. There are other sets of rules too but this is sort of the biggest one that I think would be of interest and applicable to your listeners. The final regulation was released at the end of August, really the very beginning of September. Big companies, companies that have more than 500 employees and more than $1 million in annual food sales will have only one year to comply.
Smaller companies will have two or three years so if you have less than 500 employees then you’ll have three years to comply. That sounds like plenty of lead time but practically, I don’t think people will really have that much time especially if they’re using contract manufacturers that maybe larger. FDA has also tried to ease some of the burden on smaller businesses by making it so that if they supply a larger company that has a faster timeline, that’s not going to pressure them to comply on their customer’s timeline. Practically, I think that big companies will want to be ahead of the game and I’m not sure how comfortable they will be so if you’re selling an ingredient …
Jennifer: That’s a great point. I haven’t even thought about that but that’s a fantastic point.
Lauren: … Yeah. What you sell is not a finished product but an ingredient that could be used by a larger manufacture in their product, technically you’ll have more time and the buyer will also have more time to either supply a verification aspect of these rules where they have to ensure that their suppliers are also complying. At least try to allow for some flexibility and time for everyone to sort of catch up but like I said practically I think larger companies want to be ahead of the regular or timeline. They also have to be concerned about liability risk and this is now the industry standard enforced in law so you’re failure to follow the law can be used against you as evidence of negligence or gross negligence. Practically, I think people will have to comply sooner than three years even for smaller businesses.
Jennifer: It sounds like it’s one those things that you don’t want to leave until the last minute. Anyway, just to be able to wrap your head around and do correctly.
Jennifer: Speaking of liability because you just mentioned that. Obviously our listeners, they’re always trying to produce those safe product for consumers but that proverbial stuff and I’ll use the word stuff as opposed to the more rude word but the proverbial stuff does happens. What do entrepreneurs need to be aware of from a liability standpoint?
Lauren: I think a lot of people who unless they went to law school, they are shocked when I tell them and I do this a lot. When I speak to groups of food entrepreneurs is I’d scare them and partly intentionally because people need to really be aware of what they face so that they can prepare for and try to mitigate the risk as much as possible. People are surprised to learn that there’s such a thing as strict product liability. What that means is regardless of how much you do to try to be safe, to try to prevent bad things from happening, you can be the most careful food processor and follow the law completely and have an excellent food safety plan and do everything you possibly can as you said stuff happens, the law will still hold you liable. It used to be long time ago before strict product liability was invented by the course in this country, that you had a claimant who was injured by a consumer product had to prove that the manufacturer did something wrong, that they were negligent or they did something intentionally wrong and that’s what caused the product to be defective and caused their injury or illness or death. That was pretty difficult to do because you have to have evidence and you have to do a lot of sifting to figure out what went wrong.
The courts felt that that was unfair and inefficient and so as between this innocent victim who just bought up consumer product and had no reason to believe they will harm them and the company that even if they did everything right, they were profiting from the sale of that product, the court said the company is the manufacturer should be the ones to bear liability because they’re in the best position to prevent that harm from happening in the first place and also to ensure against that risk. That’s how strict product liability that’s why strict liability was invented and it applies to food products as well as all other kinds of consumer products. What that means practically for people who are getting into food business, they have to understand that sure most people do that food is a potentially dangerous product. It can be contaminated with pathogens despite your best efforts.
There are science ways to control those risks and people should be doing them, that’s what food safety planning is about, the implementation of food safety. We should absolutely be doing all that you can to prevent those things from happening but then if they do happen, if you do sell contaminated product or make contaminated product, you need to have protections in place to protect your business, protect your personal assets so that means insurance and that’s extremely important in having the right kind of insurance. Everyone who sells a food product should have not only general business liability but that policy should include products liability and specifically contaminated products coverage because otherwise the contamination events from pathogens or from chemical contaminants, other kinds of contaminants could be excluded under the policy. Generally, insurance policy exclude contamination and pollution from coverage. Make sure you have contaminated products coverage.
You might also look into product recall insurance because the cause of a recall can be really huge and devastating. I will say that recall insurance is a pretty limited thing and there are a lot of circumstances in which you might need to issue a recall or just as a precautionary. You have reason to believe that you have a product that’s being contaminated or there’s something wrong with it and you need to get it back or you need to issue a recall. Unless someone’s actually been hurt then the insurance is not likely to cover that. It’s very limited. Hopefully it will become more expensive and more widely available. It already has become much more widely available than it was. It’s a relatively new form of insurance. It’s definitely worth asking an insurance agent about as you’re shopping around for insurance policy.
Jennifer: Thanks. That’s very good to know and obviously very important. I know we’re coming a bunch of different topics today, but what about labeling and marketing of products? Are there key things that food businesses need to be aware of with regards to what they put on their labels and how they market their products or their regulations and place or legal concerns that food businesses also need to have with regards to like I said labeling and marketing.
Lauren: Absolutely. It’s a very big area of regulation. It’s about half of what I do is advising food companies on their labeling and marketing. At first thing is understand that when I say labeling and when FDA talks about labeling, it’s not just the physical label on the package but also anything that accompanies the sale of the product. FDA will also look to a company’s website especially if the package has the web address on it but also other kinds of marketing materials are regulated by FDA and also by the FTC, Federal Trade Commission. Advertising of any kind including the website is under the FTC jurisdiction. Some people should think very broadly about all their marketing materials being at least potentially regulated. FDA rules; these are two set of rules. They are the affirmative requirements and so people are probably familiar with some of these nutrition labeling for example, the nutrition facts panel that’s on almost all food products is required under FDA regulations.
There are few other things that are required and that you have to have otherwise the product is deemed misbranded. I mentioned products being deemed adulterated before and therefore unlawful to sell, the other sort of big prohibition and food law is misbranding. The very basic level of misbranding is having anything that’s false or misleading about the product on the label but it’s also can be the failure to comply with pretty nit picky rules about what’s required to be on your label and in what format, placement. They’re very detailed rules. I would encourage people to go to the FDA website or just Google FDA Food Labeling Guide and FDA has actually a very good useful guide. A Google say that not everything is there. You do have to also read the regulations for particular new ones or as very specific requirements but there are links to the regulations also in the guide, at least in the online version so that’s a very good resource.
In addition to the affirmative requirements, there are prohibitions or things that you cannot say about your food or that you cannot say in certain ways or that you can only say in certain ways so claims about the nutrition content of the food. For example if you want to say that your product is high in fiber or low in fat, low in cholesterol, high in protein, a good source of vitamin A; all those things are called nutrient content claims. They characterize the level of a nutrient in the product and those are only allowed by FDA if you use their approved words though are the words I was using high end, good source of, rich in , excellent source of. Those are examples of approved ways that you can say those things. There’s also requirements for the conditions in which you can use those claims. If you’re going to make a good source claim then the product has to per serving provide between 10% and 19% of the daily value for that nutrient. That’s an example of a type of regulated claim.
There’s the sort of broad category of what I call good for you claims. I don’t mean literally using those words are good for you but if you want to make a claim that your product has some sort of health related benefits in one way of another but is very regulated territory and so people should just be aware of that. Look further into the rules if they’re interested in making that type of claim about a product which many people are. Just know that there are some claims that you actually cannot make. You can’t say anything about a food product being used to treat or cure or prevent disease because that makes it a drug under the law and drugs have to go through a very extensive and expensive pre-approval process by FDA so they’re absolutely not allowed for a food product. Beyond that, there are ways that you can lawfully make claims about health related benefits but you have to do it a way that is allowable under FDA rules and have sufficient evidence to back up those claims.
Jennifer: As a reminder to folks, as you mentioned it’s not just what’s on the package but on every … That was interesting to hear about the website that they would and check the website and some of the other marketing materials are reminder that those rules apply across the board. I will include a link on the site to the FDA food labeling guide so that folks can find that easily.
Lauren: Great. Add to that, it’s getting broader and beyond the website and we will see eventually I think someone will push back against FDA on this but at least in the drug context for now, they’ve taken the position that liking on Facebook, liking a consumer’s comment that made an unapproved claim was basically endorsing, the company endorsing that comment and sort of making it as their own. FDA has issued warning letters to companies saying if you can’t make a claim, you also can’t endorse a customer making that claim. Social media is another area where you have to be careful and especially there’s a lot of companies that have people out there who blog for them or promote them on Instagram and Twitter.
You do have an obligation only under FDA law but under the Federal Trade Commission which also has a very good guide on that issue. I don’t have the web address in my head but FTC has a guide on social media and endorsements. Just companies do need to be aware that you have an obligation to monitor what people are saying and to be very careful to not create the impression that people are making these comments without any sort of incentive if you in fact you are giving them some benefits even if you’re sending them for your products or sending them coupons that’s required to be disclosed. Also, you can’t be endorsing claims that you yourself cannot make.
Jennifer: Thank you. I’ll also will look up this link and include that as well so that folks can take a look at that. I want to end with one question and it’s actually the number one question that I hear from food entrepreneurs all the time and that is with regards to protecting their recipes. Is that something that’s possible for food entrepreneurs to do is this, can they copyright them or can they do anything to protect their recipes or is that just not really possible?
Lauren: For the most part, the only protection you have in terms of intellectual property protection in a recipe is as a trade secret. Recipes are not subject to copyright protection because they’re not considered original enough. However, if you write a cookbook and there are original aspects of authorship in your cookbook then the cookbook could be subject to copyright protection but the recipe itself and what most food processor are concerned about is how do you protect just the underlying recipe and formula and even the methods that she used to produce a food product is extremely difficult to have patent protection for a recipe. Again, it’s just very hard to come up with something that is truly noble in food because we’ve all been cooking for thousands of years. Even if you have an unusual combination of ingredients, it will be very hard to get patent protection for that. Trade secrets are really the only form of protection that most people have for their recipes. What that means is it is something that gives you a commercial benefit compared to your competitors and you derive that benefit because only you know it, you keep it secret.
It’s extremely important to actually keep your recipes secret. That doesn’t mean that no one knows them. Obviously you need people to do work for you and people that actually make the product, they need to know the recipes but they should all be doing that under an obligation of confidentiality which you get by having them signed an undisclosure agreement. Also, if you have people creating recipes for you or helping you to tweak your recipes or you hire a consultant, a food science consultant to help you develop a recipe, you should make sure that in your agreement with them that they have an undisclosure agreement but also it’s clear that you own that recipe. Even if someone else you’re paying them for that service, you want to make sure that they can’t then use that recipe to go out and make the same product themselves or sell it to someone else. You want to have this part of that agreement that you have exclusive ownership rights in whatever, what product they create for you.
Jennifer: Thank you. That was absolutely the number one question I get asked all the time from folks. As a reminder to everybody listening, this podcast is not providing legal advice to any specific food entrepreneur and as always, you should consult with an attorney as and when you have legal questions. I want to thank you Lauren for joining us today. As reminder, Lauren is a partner at Foscolo & Handel, PLLC also known as the Food Law Firm. Thank you so much for joining us. I really appreciate all the information you gave us. You’ve given us a lot to be thinking about as we move forward in our businesses so thank you.
Lauren: You’re welcome. It’s my pleasure.
Resources mentioned in the podcast:
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