In early October last year, the Federal Trade Commission (FTC) released a long-awaited draft of its Guides for the Use of Environmental Marketing Claims (the “Green Guides”), which provide guidance for companies making environmental claims about their products and services. The draft Guides proposed to significantly tighten the standards for a range of environmental claims, such as “green,” eco-friendly, biodegradable and recyclable. Although the comment period on the proposal ended ten months ago, the FTC has yet to release the final Guides. Agency officials speaking at various conferences have admitted that the roughly 300 sets of comments they have received on the proposal have included some significant issues that the Commission must address before issuing the final document.
In the meantime, the FTC has assured it will continue to monitor advertising claims in furtherance of its duty to police false claims under Section 5 of the FTC Act, and will bring enforcement regardless of the state of the Guides. This has been only partially true, however, as the Commission’s enforcement appears to have been ad hoc this year – its most notable activities having been to rein in false claims about bamboo textiles and an obviously fraudulent green certification scheme. Otherwise, the Commission has been strangely silent thus far. There have been no cases brought, for example, regarding ubiquitous “carbon neutral” or “eco-friendly” claims. Against the sprawling landscape of green marketing, the FTC remains a lurking tiger.
What’s Next for the FTC?
It is important to note that the forthcoming Guides, however significant they may seem, are designed to set forth FTC’s views regarding whether specific green marketing claims are deceptive or unfair under the FTC Act. The Guides do not have the force of law, and the FTC maintains the position that they could bring enforcement today on any subject covered by the draft Guides under its general statutory authority. This is undoubtedly true in theory, but in practice, the Commission is likely loathe to forge new ground in litigation that may paint its enforcement as an abrupt departure from a settled course of conduct and thereby disrupt the new Guides even before they are issued. Thus, we predict that the FTC will continue its pattern of enforcement against “low hanging fruit,” i.e., obvious cases of false advertising, until the Guides have been issued in final and industry has had a grace period in which to digest the new rules. That means, assuming the Guides issue in Winter 2011, we will likely won’t be discussing the first major enforcement sweep until the Summer of 2012.
Substantively, the FTC is grappling with some significant issues on the new Guides. In response to tighter restrictions on claims of recyclability, for example, the Commission was met with a variety of comments regarding practical implementation. To cite one example, the agency proposed eliminating the commonly used qualification of “May not be recyclable in your area” in favor of a three-tier system of disclosure that would require every consumer goods manufacturer to ensure what percentage of communities had recycling programs that could recycle their packages before saying anything about recycling at all. Unfortunately, reliable information regarding these issues is not widely available, raising the prospect that industry would need to man the phone banks to contact every community recycling facility in America if they wanted to put the chasing arrows on their packages.
Biodegradability claims have also been more complicated than originally believed. The FTC’s first draft of the Guides suggested that an appropriate biodegradability claim could almost never be made for a product destined for a municipal landfill. This is because most municipal landfills do not have conditions conducive to biodegradation. But, the Commission’s discussion of the issues cast unnecessary doubt on widely used tests for biodegradation, causing confusion among companies that sell truly biodegradable products. The Commission also focused on terrestrial biodegradation, but said little about aquatic biodegradation concerns.
These and many other unresolved issues have led one senior FTC official to remark publicly that this is the most intellectually challenging endeavor he has ever undertaken.
Into the Breach Steps NAD
In the meantime, the National Advertising Division of the Council of Better Business Bureaus (“NAD”) has heard over a dozen such cases in the last year and is creating law – mainly by applying its interpretation of the draft Guides. The NAD is a voluntary, self-regulation forum for advertising claims and disputes. It hears competitor-initiated challenges, challenges brought by consumer groups and NGOs, and it brings its own self-monitoring cases. Two trends are emerging at the NAD in the area of green claims. First, one sees a significant rise in cases brought by major corporations, such as Procter & Gamble, to challenge green claims by smaller companies such as Seventh Generation. Such challenges have often been successful, resulting in restrictions on some of the marketing efforts by these companies. Second, NAD is seeing more challenges by non-profits that seek to invalidate misleading industry labeling practices. For example, in the last several years, different groups have attacked animal husbandry claims for chickens, egg production and foie gras. In all of these cases, NAD has rarely been reluctant to write on a clean slate, by defining terms that the FTC and other agencies have left alone due to complexity. Thus, the NAD has a line of cases, for example, interpreting the use of the term “natural” in products ranging from toothpaste, to sugar substitutes, to hard surface cleaners.
Class action attorneys have been busy in the area of green marketing as well. For example, the makers of Fiji Water successfully fended off a putative class action regarding their use of a “green drop logo” on packages. The plaintiffs had contended that the logo conveyed the impression that the product had been certified by a third-party environmental organization, when in reality, the logo was self-administered by the Fiji marketing department. Although this kind of conduct would likely be banned under the new FTC Guides, the court found that it was not misleading to any reasonable consumer and dismissed the case.
SC Johnson settled a class action earlier this year regarding its use of a self-certification on Windex and other cleaning products it sells, called “Greenlist.” In that case, the plaintiffs had contended that the self-certification was misleading, both because it was self-administered and because it permitted the inclusion of glycol ethers in the Windex formulation. SC Johnson folded its cards rather than fight the case, dropping the Greenlist logo program.
Numerous cases are now pending throughout the country on the labeling of food products containing high-fructose corn syrup (“HFCS”) as “all-natural” or “natural.” Surprisingly, the FDA has no enforceable regulations on its books about the term and the FTC has also stayed out of the area, thus creating the kind of ambiguity on which consumer class action plaintiffs’ lawyers depend. In a related area, the Corn Refiner industry is defending a Lanham Act false action by a group of sugar growing cooperatives over similar HFCS labeling claims.
The regulation of green marketing is dynamic and largely unsettled. As the rules begin to emerge, marketers will have to proceed carefully.
Christopher Cole is Partner in the Litigation and Advertising, Marketing & Media practices at Manatt, Phelps & Phillips in the Washington, D.C. office. He has extensive experience in matters involving false advertising litigation – including the development, substantiation, approval and defense of advertising and labeling claims – and represents clients in such industries as environmental products and services, food and beverages, media and telecommunications, consumer products and pharmaceuticals. Mr. Cole can be reached at (202) 585-6524 or firstname.lastname@example.org.
This column is the seventh in a series of articles by law firm Manatt, Phelps & Phillips, LLP’s Energy, Environment & Natural Resources practice. Earlier columns discussed Corporate Sustainability, Green Chemistry Regulation, Renewable Project Failures in California, Promoting Recycled Water, Environmental Liabilities in Bankruptcy Reorganizations, and California Renewable Policy.