BusinessWorld Anti-Trust Commentary - COMPLETE

Published May 25 and 26, 2011 in BusinessWorld

Also available here and here

Proposed antitrust law to level the playing field

"Level playing field"

The Business Mirror Editorial

Published 24 May 2011 in the Business Mirror

(Original article available online here)

"Up for deliberations by the Senate this week is a proposed antitrust law that its chief proponent, Senate President Juan Ponce Enrile, has promised “will bite; it has fangs.”

The need for such a law was emphasized by Enrile himself just a few weeks ago when he responded to a query if the recent megadeal between the leading telco firm and the third largest in the industry violated any law: “We have an anti-trust law in the Revised Penal Code, but it is a dead law. Without a law, there’s no crime committed.”

The Competition Act of 2011, of course, is anchored on solid ground, namely, the Constitution: “The State shall regulate or prohibit monopolies when the public interest so requires and that no combinations in restraint of trade or unfair competition shall be allowed.”

The Enrile bill enumerates three categories of unfair trade practices: cartelization; monopolization; and abuse of monopoly power, which includes predatory behavior toward competitors; price fixing, bid rigging, limitation and control of markets, market allocation, arrangements to share markets or sources of supply and price
discrimination.

Other unfair trade practices under the Enrile bill are the distribution of false or misleading information capable of harming the business interests of another firm, and the unauthorized receipt, use, or dissemination of confidential scientific, technical, production, business or trade information.

Perhaps, what Enrile meant by his bill definitely having “fangs” and not likely to be ignored is the provision on penalties for violations.

The proposed antitrust law, in fact, goes for the jugular, or rather, where it hurts most—the pockets—as it seeks to impose very stiff penalties on violators. Each and every violation shall be punishable by a fine of not less than P10 million but not exceeding P50 million, if a natural person; a fine of not less than P250 million but not exceeding P750 million if a firm; imprisonment not exceeding 10 years, or both, at the discretion of the court.

Businessmen would definitely think twice about losing at the very least P10 million. How much more if the government demands P750 million for unfair trade practices?

Apart from expanding the coverage of unfair trade practices, the Enrile bill also seeks to strengthen the power of regulatory authorities to go after violators, with the Department of Justice (DOJ) and the Department of Trade and Industry (DTI) as its chief enforcers. The DOJ and the DTI can, on their own, initiate preliminary inquiries to enforce the law upon filing of a verified complaint by an interested party.

Enrile is correct in pointing out that “the increased deviousness and complexity of schemes in perpetuating monopolies in the free-market landscape” requires “equally sophisticated legislation” that would protect the public from price manipulation and other unfair trade practices.

By strengthening the government’s hand in dealing with unfair trade practices, the antitrust bill paves the way to a level playing field in Philippine business.

The Senate should, therefore, pass the bill as soon as possible after proper consultations with all stakeholders.

The Competition Act of 2011 will benefit the entire economy because it will encourage fair play. Unfair trade practices, after all, stunt economic growth and discourage new investments.

It should be passed into law because, in the end, Big Business is not necessarily good business."

Senate to deliberate on anti-trust bills

"Senate set to deliberate antitrust bill next week"

by Butch Fernandez

Published 18 May 2011 in Business Mirror

(Original article available online here)

"The Senate moved to speed up floor deliberations on a new Anti-Trust Law that its chief proponent, Senate President Juan Ponce Enrile, said would add more “fangs” to existing regulations, penalizing unfair trade and uncompetitive practices, including cartels, monopolies, abuse of dominant position, predatory pricing, bid-rigging and price-fixing.

“This [new Anti-Trust Law] will bite; it has fangs,” Enrile told editors and reporters of the BusinessMirror, the Philippines Graphic and dwIZ in a breakfast press conferences on Wednesday.

Enrile explained that the proposed Competition Act of 2011, embodied in Senate Bill (SB) 1 that he and Senators Ralph Recto and Antonio Trillanes IV co-authored, was meant to plug gaps in the existing Anti-Trust law, which, Enrile noted, was “not as sharp.”

According to Enrile, a consolidated bill, incorporating related proposals filed by other senators, is due to be reported by Sen. Manuel Villar, chairman of the Committee on Trade and Commerce, for floor deliberations next week.

Apart from penalizing unfair trade and anti-competitive practices in restraint of trade, unfair competition and abuse of dominant power, SB 1 also seeks to strengthen the powers of regulatory authorities to go after violators, with the Department of Justice (DOJ) and the Department of Trade and Industry (DTI) as its chief enforcers.

As proposed by Enrile, persons found violating the law face fines ranging from P10 million to P50 million, while erring companies would be fined from P250 million to P750 million, plus 10-year imprisonment.

The proposed legislation also gives regulatory agencies the power to impose fines ranging from a minimum of P100, 000 to P5 million (for a person) and from P5 million to P50 million (for a company) for each violation.

Under the bill, the DOJ and the DTI shall, on their own, initiate preliminary inquiries to enforce the law upon filing of a verified complaint by an interested party.

The bill, however, also sought to protect confidentiality of information submitted in connection with the enforcement of the law, by providing that any document submitted or marked confidential by the DOJ, relevant to an investigation, shall not be disclosed, published, copied or disseminated. It also includes immunity from suit to any firm or person who will cooperate with authorities and give information to the DOJ.

“Our people have been victims to big business. It behooves the Senate to provide protection to our people against price manipulators,” Enrile said in his explanatory note to the bill. “In a volatile economic situation, such as that which we are experiencing now, it is not very difficult to imagine how artificial prices in one or two commodities is able to directly or indirectly raise the prices of related goods and services.”

Enrile cited Article XII, Section 19, of the Constitution, which provides that “the State shall regulate or prohibit monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed.”

“As proof of the importance of this Constitutional mandate, Section 22 of the same article encourages the promulgation of legislation that would impose civil and criminal sanctions against those who circumvent or negate this principle,” the senator said. “Hence, Section 22 of the Constitution provides: “Acts which circumvent or negate any of the provisions of this article shall be considered inimical to the national interest and subject to criminal and civil sanctions, as may be provided by law.”

While previous legislations have been passed pursuant to this Constitutional mandate, Enrile noted “the increased deviousness and complexity of schemes in perpetuating monopolies in the free-market landscape necessitates an equally sophisticated legislation that would effectively address this concern.”

“Generally, this bill penalizes combinations or conspiracies in restraint of trade and all forms of artificial machinations that will injure, destroy or prevent free-market competition,” Enrile added."

PART 2 - BusinessWorld - ANTI-TRUST PROTECTION FOR SMEs

2nd of 2 parts (View part 1 here and here).
Hit the stands on 26 May 2011
Available online on 25 May 2011


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Part 2 - anti-trust in BusinessWorld

"Part 2 - Anti-trust protection for SMEs"
by Atty. Lorna Patajo-Kapunan
BusinessWorld Online, 25 May 2011
(Original article available online here)

View Part 1 here and here

"Part II

It cannot be denied that, despite economic reforms, the Philippines continues to move forward as a country of service providers.

The country is replete with BPOs, retailers, distributors, mom and pop stores, "sari-saris" and all forms of SMEs. We provide support and muscle to the brains -- the multinationals who call the shots, lay down the requirements, and demand the services that we provide.

It is not uncommon to have existing service agreements where there is no equal footing between the two parties; the foreign company will typically have more superior leverage and bargaining power than the Filipino SME.

The result is that the relationship will be that of the Filipino SME being at the beck and call of the multinational. There is no real or adequate protection for the middleman -- and more often than not, it is the Filipino SME which acts as the middleman.

While anti-trust cases are few and far between, the Supreme Court has on occasion ruled that the termination of a multinational of the distributorship agreement of its local distributor was illegal and constituted bad faith. In the said case, the Supreme Court ruled that the Filipino SME had to bear the brunt of distribution and impossible sales quotas set by the multinational, with the latter reneging on its earlier promises of support under the agreement.

Yet these kinds of agreements are not only typical but recurrent. Multinationals, after all, maintain the upper hand -- a Filipino SME constantly faces the underlying threat of having its service agreement terminated by the foreign company.

And why not? First, there is no law or policy protecting these Filipino middlemen. Second, a local company providing BPO services to a multinational is just one of many Filipino SMES eagerly lining up to do business with the big foreign company.

If the Filipino SME falls behind a quota set by the foreign "partner," then the latter can just promptly pull the plug -- after all, there are dozens of other small, practically interchangeable, Filipino companies waiting in the wings.

In the scenario mentioned earlier, what is often overlooked is that when a foreign company pulls the plug by deciding to illegally terminate its service contract with a local company, the Filipino SME loses not just a contract, but loses its entire business.

This means people losing their jobs, Filipino entrepreneurs losing everything they put up to start the business. You have cases wherein hundreds of employees are suddenly laid off before Christmas because a multinational decided to terminate its service agreement with its local Filipino distributorship.

There is no real leverage, no equal protection, to ensure that the small Filipino business is treated as a real partner by the foreign company or multinational. This is why there is an urgent need for a comprehensive anti-trust law, and a regulatory agency with teeth.

We are also being encouraged to all collectively be watchdogs for anti-trust acts committed around us -- by the companies we work for, the companies we deal with, and even the companies which provide our basic household needs."

BusinessWorld - ANTI-TRUST PROTECTION FOR SMEs

Hit the stands on 25 May 2011
Available online 24 May 2011

(Click on image to enlarge)

BusinessWorld: Atty. Lorna Kapunan on Anti-Trust

"Anti-trust protection for SMEs" (1st of 2 parts)
by Atty. Lorna Patajo-Kapunan
Published in BusinessWorld Online Edition on 24 May 2011
(Original article available here).

"Part I

The recent PLDT-Smart buy-out of Sun Cellular emphasized once again the need for a more comprehensive anti-trust law in the country. Public awareness of the lack of a determinative anti-trust policy has heightened. While the National Telecommunications Commission (NTC) has been tasked with investigating any anti-trust policies in the Sun Cellular sale, there continues to be much criticism for the lack of an anti-trust law with "teeth."

And while the NTC may be called forth to investigate possible anti-trust violations in the telecommunications sector, the question remains as to who will "police" similar violations in other industries, such as consumer goods, manufacturing, food, retail, and distribution.

The current business climate in the Philippines highlights the need not only for a comprehensive anti-trust policy but a regulatory body with teeth. Apart from NTC, there is the Department of Trade and Industry (DTI) tasked by law to implement and monitor compliance with trade and industry laws. But then, when an issue like predatory pricing or vertical price restraint comes up, DTI itself claims it has no jurisdiction. There is thus much confusion as to which and what agency has the expertise to regulate trade and industry laws. Who monitors and who metes out the punishment? Are the penalties even sufficient to prevent anti-trust violations in the Philippines?

Admittedly, "anti-trust" remains a somewhat vague concept in our country, especially to the general public. Lawyers and businessmen may understand the general idea, but would themselves be hard-pressed to define, much less abide with, perimeters surrounding anti-trust violations, precisely because of a lack of a comprehensive anti-trust law that provides such guidelines. What it all boils down to is the prevention of monopoly and the promotion of free competition. Why is this important to the common tao? The answer is because, when there are no clear-cut rules and regulations, foreign companies, multinationals, and large local companies, will continue doing anti-trust practices which ultimately affect not only the consumer but the Filipino worker, employee, and entrepreneur. And they will continue to do such prohibited acts precisely because they can get away with it here in our country.

While there are existing provisions on anti-trust in Philippine law, these provisions are scattered across different codes and republic acts. There are no implementing rules and regulations. The various and existing anti-trust provisions do not provide clear-cut guidelines, elements/requisites, and quantum of evidence required to determine whether an act constitutes unfair competition, monopolistic behavior, or restraint of trade. The penalties meted out alone by certain provisions are dismally insufficient as preventive measures.

These are the issues that the Philippine Senate hopes to address in various proposed anti-trust bills. During the Senate "Understanding Anti-Trust" public forums held last February 2011, facilitated by Senators Manny Villar, Juan Ponce Enrile, and Sergio R. Osmeña III, the following proposed anti-trust bills were presented to the public and extensively discussed: Senate Bill No. 1, authored by Senatore Juan Ponce Enrile; Senate Bill No. 125, authored by Senator Sergio R. Osmeña III, Senate Bill No. 175, authored by Senator Antonio F. Trillanes IV, and Senate Bill No. 1838, authored by Senator Miriam Defensor Santiago. While the Senate can be lauded for recognizing the need to strengthen our anti-trust laws, with the intention of providing greater protection to the consumers, Filipino small-to-medium enterprises (SMEs), and middlemen, these proposed bills have yet to be approved.

The absence of rules and regulations implementing anti-trust laws also translates to less anti-trust cases filed in and ruled on by the Philippine courts. In fact, in the Senate’s "Understanding Anti-Trust" Forum, it was reported that right now there is only just ONE anti-trust case filed before the Department of Justice. In the same Senate public forums, Senator Manny Villar called for the need for greater protection for the middlemen -- the Filipino SMES who provide retail, distribution, and other BPO services to multinationals and other foreign companies. There is an urgent need to provide for a level playing field and for penalties that will actually deter corporations from committing anti-trust and other prohibited acts.

(To be continued)"

MANIFESTO on Anti-trust

MANIFESTO ON THE NECESSITY OF AN ANTI-TRUST LAW IN THE PHILIPPINES:
(Published advertisement in the Philippine Daily Inquirer on 23 May 2011)

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Image source, and more details in http://antitrustlawcenter.blogspot.com/

The need for a comprehensive anti-trust law - in the spotlight again

"A tale of two telecom industries"
by Cielito F. Habito
Published 24 May 2011 in the Philippine Daily Inquirer
(Original article also available online here).

"THERE ARE remarkably parallel developments transpiring on both sides of the Pacific in two very different economies: the Philippines and the United States of America. Here’s the general scene: A giant telecommunications company has moved to acquire (and thus merge with) another competitor, threatening to achieve a commanding share of the industry, thereby reducing competition therein.

In the US, American Telephone & Telegraph (AT&T) has announced a $39-billion takeover of T-Mobile USA, in a merger that would make the company the dominant player in an industry that has heretofore had four major players. Industry rival Sprint Nextel Corp. is fighting the move, claiming that the merger threatens its very existence as a standalone company, which could bring back the old telephone monopoly (of the then giant AT&T) that US regulators broke up in 1984. Since the AT&T-led American Bell Telephone Co. opened the first telephone exchange in 1877 in New Haven, Connecticut, this single firm had controlled the American telephone industry. The forced break-up led to a lively competition that resulted in lower costs and wider choices for American consumers.

In a parallel development here at home, the Philippine Long Distance Co. (PLDT) has acquired a controlling stake in Digitel Corp. which operates Sun Cellular, whose entry into the erstwhile duopoly of PLDT/Smart and Globe had dramatically transformed the nature of pricing in the industry, to the benefit of consumers. Just as Sprint Nextel is unhappy in the US, so is Globe in the Philippines as it faces the prospect of being relegated to a small minority share (30 percent) of a two-player market. It is arguing for a more level playing field with the National Telecommunications Commission, inasmuch as PLDT would now own a disproportionate share of the telecommunications frequencies on which the companies may transmit their phone services.

Both mergers have yet to be cleared by their respective governments, even as their merits and demerits have been the subject of active public policy debate. But there’s a key difference between the two stories: the legal and institutional framework within which government clearance for the mergers is being deliberated is quite different in the US from the Philippines. In the US, there has long been a strong law against cartels and monopolies, through the Sherman Antitrust Act of 1890, later reinforced by the Clayton Antitrust Act of 1914. The purpose of the law is to prevent the combination of business entities that could potentially harm competition, such as monopolies or cartels. At the time of its passage, “trust” was synonymous with monopolistic practice (which is no longer necessarily the case today). This was because the trust—a centuries-old form of contract whereby one party entrusts its property to a second party— was a popular way for monopolists to hold their businesses, and a way for cartel participants to create enforceable agreements. Internationally, the more common name now for such laws is “competition law” or “competition policy.”

US antitrust laws declare it a felony for any person to monopolize or attempt to monopolize any part of trade or commerce, or to combine or conspire with any other person or persons to restrain trade or commerce, whether in domestic or foreign markets. Other practices deemed illegal include price discrimination between different buyers if such discrimination tends to create a monopoly; exclusive dealing agreements; tying arrangements; and mergers and acquisitions that substantially reduce market competition. The AT&T and T-Mobile merger could fall under the last, giving the US government explicit basis to stop it if it can be established that this will indeed reduce market competition.

The US Senate is currently deliberating on the issue, and some lawmakers have indicated public skepticism over AT&T’s claim that T-Mobile was “not an important competitor,” in an apparent attempt to play down the significance of its move. The US legislators have noted, for example, that T-Mobile often undercuts the prices of AT&T and current industry leader Verizon Wireless—something anyone of us roaming with our cell phones in the US can readily confirm (check your bill: a text message sent home from the US via T-Mobile costs P20, but one sent through AT&T costs P25).

In a similar manner, Sun Cellular had constantly been undercutting the prices of PLDT-Smart and Globe, forcing the latter two into offering the “unlimited” packages that it first introduced.

Whether in the US or here, it seems that the strategic response of the more dominant player was to buy out the underpricing competitor. And just as bystander Verizon in the US must privately welcome the elimination of a “price-spoiler,” Globe must also find some private satisfaction in the elimination of a player that had spoiled the profitable party (i.e., before Sun entered the picture years ago).

Still, the Philippines does not have the comprehensive competition policy that the US has long had, to give it a strong legal basis to stop the PLDT-Digitel merger. What it has are piecemeal laws and executive issuances that had opened previously monopolized or protected markets, especially those introduced by President Fidel V. Ramos in the 1990s to break open prominent monopolies and cartels, notably in telecoms and domestic airlines. But many remain, such as in cement, domestic shipping, port handling services, and other key industries. It is high time Congress acted to correct the glaring deficiency.

* * *

E-mail: cielito.habito@gmail.com"

Greater call for anti-trust law!

"Think tank renews call for anti-trust law "
by Daxim Lucas
Published in the Philippine Daily Inquirer on 22 May 2011
(Original article also available online here).

"MANILA, Philippines—Mergers and consolidations lead to the concentration of market power in a few corporations—a situation that serves as a fertile breeding ground for restrictive business practices that stifle competition and disadvantages consumers, a private think tank said.

More importantly, Forensic Law and Policy Strategies Inc. (Forensic Solutions) pointed out that international mergers pose the biggest threat to developing economies like the Philippines, where anti-trust laws are largely absent to guard against the abuses that could result from such corporate unions.

Forensic Solutions, which is headed by former Justice Secretary Alberto Agra, said the lack of adequate Philippine laws on mergers and other corporate mergers should prompt Congress to pass a new legislation to check against possible abuses.

The latest policy paper, which Agra co-wrote with banking law expert Faye Josephine Miguel Rañola, recommended the crafting of a law calling for review of proposed mergers and the setting up of a threshold above which a corporate merger will be classified as monopolistic.

“Arrangements that do not comply with fair competition guidelines and those that significantly limit competition should not be allowed,” Agra said in the policy paper “Competition Laws in the Face of the Merger Wave.”

Forensic Solutions also said the SEC should be allowed to take remedial action, and impose penalties and sanctions against existing merged corporations that were engaged in anti-competitive practices.

It also proposed the simplification of the current legal mechanisms available to interested parties for them to obtain relief or file injunctions against questionable mergers without going through a protracted litigation process.

The enactment of such laws are necessary, they said, to ensure unfettered competition in local industries and position the Filipino consumer as the “supreme arbiter” in a free market that yields the highest quality of good and services at the lowest prices possible.

Forensic Solutions made this call for new anti-trust legislation at a time when the current trend is toward the privatization and deregulation of vital industries, with governments increasingly ceding state control over economic activities to private businesses.

There are pending bills in Congress addressing certain aspects of corporate mergers.

One of them is Senate President Juan Ponce Enrile’s Senate Bill No. 123, which penalizes combinations or conspiracies in restraint of trade and all forms of artificial machinations that will injure, destroy or prevent free market competition.

The Enrile bill also prohibits stock or asset acquisitions, grant of proxies or voting rights, and board membership in two or more corporations that have the effect of substantially reducing competition or tending to create a monopoly."

Following Nandu's promotion: Nestle Philippines' troubles continue

"It's all about population control"
By Emil Jurado, TO THE POINT, Manila Standard Today, 19 May 2011
(Original article available online here)

"I recently came across published reports about a product recall being done by Nestle Philippines Inc.

I know that Nestle has recalled many of its products for various reasons—the most noteworthy being 100g glass jars of Nescafe. In this case of contaminated coffee, people were instructed to keep the lids as proof of purchase for a refund, but to “dispose of contents immediately and not to bring the coffee back to the stores where they were bought.”

A variant of Lean Cuisine frozen dinners were recalled as well when consumers reported finding pieces of hard plastic in their food.

Locally, the most recently was the recall of Maggi beef and chicken noodles after traces of salmonella were found in two batches of the beef variant.

Having to take these items off the shelves is just one of the many problems besetting NPI. I believe that the string of cases against the company regarding its dealings with its local partners is, or should be, a major concern. My gulay, it seems that the multinational has made it a habit to squeeze distributors to the point that doing business is no longer profitable. Then, when cases are filed against the company on that very same issue, it tries to squeeze itself out of legal proceedings.

***

I have written at length about a Filipino company that distributes Nestle products and has been on the receiving end of the multinational’s bullying tactics. Nestle created price caps for its goods and simultaneously shortened the time of payment collection for distributed products. The local company took issue with that and filed formal complaints with the Trade and Industry Department as well as with the Regional Trial Court. This has caught the attention of some lawmakers, who are now working on strengthening anti-trust measures.

In the meantime, Nestle seems to be taking matters in stride as it even failed to give a rejoinder to the Filipino distributor’s claims within 15 days as it was ordered by the court. Santa Banana, is this company that confident about its position, or connections, that it can afford to be complacent?

All these developments come on the heels of news that Nandu Nandkishore is to be promoted Executive Vice President for Asia, Oceania, Africa and the Middle East. Nandkishore was CEO of NPI, who was promptly shipped to the mother company to assume another position when the cases were filed by the Filipino distributor. With his new designation, I presume he is ready to finally face the music."

Nestle - more product recalls

"Nestle Product Recalls: Maggi Noodles And Other Products"
by The EQualizer Post, 05 May 2011
Complete article with images appears here.

"Nestle Philippines is recalling Maggi noodles for possible salmonella contamination.
The firm said it is recalling Maggi beef and chicken noodles after it found traces of salmonella in two batches of the beef variant.

Nestle said in an ad published in a newspaper that "the product recall is a precautionary measure to ensure the safety and quality of our products."

"We have immediately initiated an extensive investigation to determine the cause of this contamination, and initial findings suggest flavoring ingredients as the cause," it added.

Nestle has stopped production of all Maggi noodles pending the completion of the investigation, it said.

Consumers who have purchased the recalled products are requested to contact the company's hotlines 898-0061 (for Metro Manila) or 1-800-100-637853 (toll free for provincial areas). From ABS CBN NEWS

From News Medical

By Dr Ananya Mandal, MD

Lean cuisine Spaghetti With Meatball has been recalled in the U.S. after bits of red plastic have reportedly been found in a few of the ready-made meals.
The recall notice was issued by the U.S. Department of Agriculture and affects about 10,260 pounds of frozen spaghetti and meatballs. Food maker Nestle, in its statement, says the affected packages were produced in October. The health risk associated with this recall is low, the USDA’s Food Safety and Inspection Service explained. If the product is consumed, there is only a remote probability of adverse health consequences.

Nestle Prepared Foods received complaints from consumers in Minnesota, South Dakota, and Wisconsin, that consumers had found hard plastic in the frozen meals, the FSIS said. The products were sold east of the Rocky Mountains in 9.5 ounce units entitled “Lean Cuisine Simple Favorites, Spaghetti with Meatballs” and have the establishment number “EST 7991.” They all have a November 2011 expiry date on the side of the package.

“We apologize to our retail customers and consumers and sincerely regret any inconvenience created by this voluntary product recall,” Nestlé said in a statement.

CNN) — Nestle Prepared Foods Co. announced a voluntary recall of a frozen spaghetti and meatballs dinner it manufacturers which may be contaminated with pieces of red plastic.

The recall applies to packages of LEAN CUISINE® Simple Favorites Spaghetti with Meatballs frozen dinners that were manufactured during a one-hour period in October, according to a news release by the Solon, Ohio-based company.

The production code on packages subject to the recall is 0298595519 P, the release stated.

“Nestle is taking this action after a few consumers reported they had found red plastic in the meatball portion of the entrée,” the statement read. “No injuries were reported by any of these consumers.”

“Thus far, the plastic complaints appear to be confined to a very short period of production,” the company stated. “However, out of an abundance of caution, Nestle is recalling the entire hour code of that product.”

The company stated that no other products were affected by the possible contamination.

Nestlé To Drop Deceptive Health Claim On Children’s Drink

A subsidiary of Nestlé S.A., the world’s largest food and nutrition company, has agreed to drop allegedly deceptive advertising claims about the health benefits of its children’s drink BOOST Kid Essentials, as part of a settlement resolving the Federal Trade Commission’s first case challenging advertising for probiotics.

The FTC complaint charges that from fall 2008 to fall 2009, Nestlé HealthCare Nutrition, Inc. made deceptive claims in television, magazine, and print ads that BOOST Kid Essentials prevents upper respiratory tract infections in children, protects against colds and flu by strengthening the immune system, and reduces absences from daycare or school due to illness.

BOOST Kid Essentials is a nutritionally complete drink intended for children ages 1 to 13. The probiotics in BOOST Kid Essentials are embedded in a straw that comes with the drink, which was prominently featured in ads for the product. Probiotics are live, beneficial bacteria that are found naturally in many foods, and they are known for aiding digestion and fighting harmful bacteria.

“‪Nestlé’s claims that its probiotic product would prevent kids from getting sick or missing school just didn’t stand up to scrutiny,” said David Vladeck, Director of the FTC’s Bureau of Consumer Protection. “Parents want to do right by their kids, and the FTC is helping them by monitoring ads and stopping those that are deceptive.”

The advertisements challenged by the FTC featured the drink’s probiotic straw. In one ad, the straw jumped out of the drink box, formed a protective barrier around a girl as she encountered a sneezing boy, and then formed steps allowing her to reach a basketball hoop and shoot a ball into the net.

The ads falsely claimed that BOOST Kid Essentials is clinically shown to reduce illness in children, to protect from colds and flu by strengthening the immune system, and to help children up to age 13 recover more quickly from diarrhea, the FTC charged."