Earlier this week, Hershey released its new product, Ice Breakers Pacs, which are dissolvable pouches filled with powdered mint and sweetener, and are meant to dissolve on the tongue like breath strips. The pouches are blue or orange that, according to Family Court Judge Lori Dumas Brooks , looks uncannily like tiny heat-sealed bags of cocaine, crack, heroin or any other powdered drug. Jill Porter | Mint or drug: Is Hershey’s cracked? | Philadelphia Daily News | 11/30/2007
Did Hershey breaks any rules by packaging a product to look like an illegal controlled substance, even though the product is not an illegal drug? Yes, actually, it is a federal and state crime to distribute a substance labeled to resemble the likeness of a controlled substance. The statute calls this product a counterfeit controlled substance. See Section 780-102(b) of the Pennsylvania Statute.
Of course, the statute lists specific steps to proving whether Hershey intentionally packaged the product to look like the controlled substance, heroin or cocaine. For example, perhaps cocaine is only sold in colored, heat-sealed bags in Philadelphia, but is not sold in this manner across the state. The case is not open and shut. However, an interesting question is, how does a company go to jail? The chief executives responsible for the company’s actions go to jail on behalf of the company. So, if the state or the federal government were successful in proving that Hershey violated the Counterfeit Controlled Substance Act, then the chief executives could go the jail.
Is that the end of the story? No. For every criminal action, the victims of a crime can also sue the perpetrator in civil court for money damages. In this case, the victims of Hershey’s criminal actions are Hershey’s shareholders.
The shareholders of Hershey could bring a civil suit against the company for deliberately harming the corporation. This is a new legal trend; however, courts are beginning to recognize shareholders as creditors to compensate the shareholder for their losses. A suit such as this usually only lies when the company is insolvent; but it is only a matter of time before the courts recognize this cause of action, when the company mislead or deceived the shareholders. See Sons of Gwalia, Federal Court of Appeals 1305 (15 September 2005).
In addition, the shareholders could sue Hershey for not prosecuting the executives for wrongdoing. This is called a Shareholder Derivative Actions. The shareholders could also sue the company’s directors personally and directly for breach of fiduciary duty.
It will be interesting to watch this situation. Will the prosecutors investigate Hershey or will Hershey voluntarily discontinue the product?
What can you, as a business owner, learn from Hershey?
You must resist the urge to capture the lucrative illicit drug-using market by marketing a counterfeit-drug product. While you may sell many products, the revenue will not outweigh the costs.
