[authors: Karen A. Butcher, Stephen Paul Mahinka, and Thomas J. Sullivan]
With few refinements made to the proposed guides, the guidance applies immediately and includes significant restrictions and qualifications regarding the use of important terms and claims.
The Federal Trade Commission (FTC) on October 1 issued final revisions to its Guides for the Use of Environmental Marketing Claims, generally termed the "Green Guides" (Guides), which were initially introduced in 1992 and last revised in 1998. The release culminated a multiyear process of review and analysis, described by the FTC's Chairman as a "Herculean effort." The revisions delineate how the FTC intends to apply its existing powers prohibiting deceptive and unfair business practices to many of the latest environmental marketing claims and practices. Ultimately, after assessment of 340 unique comments (more than 5,000 comments were submitted), the final Guides track fairly closely to the draft version issued two years ago. The final Guides therefore include significant restrictions and qualifications in the use of important terms, such as "recyclable," "recycled content," "free of," "degradable," and "compostable," as well as provide guidance regarding the use of general "green" claims and the environmental certifications and seals. In addition, the Guides now provide limited guidance regarding claims about renewable materials and energy, as well as Renewable Energy Certificates (RECs) and carbon offsets. The FTC has continued to avoid defining or qualifying the use of some more contentious terms, including "natural," "organic," "sustainable," and "life cycle analysis" (LCA). The FTC further clarified that the Guides also will apply to business-to-business transactions.
The final Guides contain numerous new or extensively revised examples illustrating the FTC's view of the application of the Guides in particular circumstances. As the FTC made clear that it is unlikely to revisit the Guides for another decade, marketers can expect that the new Guides and the analytical approach set out to interpret their application will remain their basis for guidance for many years. In view of the increasing use of such claims and the interest in them by consumers, familiarity with the Guides is important to all consumer-product marketers, including those in the energy and food and drug industries, and business-to-business marketers and their counsel.
Notable Changes in the Guides
General environmental benefit claims
The Guides now expressly state that marketers should not make unqualified general environmental benefit claims. The wording of the Guides also has been strengthened to caution that products bearing such unqualified claims may be perceived by consumers not just as possibly conveying specific and far-reaching environmental benefits, but as being likely to do so, and that such claims may also imply that a product has no negative environmental impact. These changes are based on consumer perception research conducted on behalf of the FTC in which a very high percentage of surveyed consumers interpreted terms such as "green," "environmentally friendly," or "eco-friendly" to convey one or more specific attributes (e.g., made with recycled or renewable materials, made with renewable energy, recyclable, biodegradable, nontoxic, or compostable) and to suggest there was no negative environmental impact made by products bearing these claims. As a result, the FTC views general environmental benefit claims as almost impossible to substantiate and suggests qualifying them as to specific attributes.
The Guides include examples of qualifications to general claims in order to prevent deception. As with disclaimers in other contexts, the FTC expects qualifications to be clear and prominent, in close proximity to the claim being qualified, and adequately substantiated. The Guides also note that the context must not otherwise imply other deceptive claims. When focusing on a specific attribute to qualify a general claim, marketers also should analyze the trade-offs resulting from the attribute to prove the claim. Illustrating that it may be difficult to effectively qualify a general environmental claim, the Guides specify that qualifying a product as having an "environmentally friendly improvement" because its plastic bottles have "25% less packaging" likely conveys that the bottles are more environmentally beneficial overall because of the source reduction. In the FTC's view, this may be deceptive if the manufacturing of the new bottles significantly alters the environmental attributes of the product either earlier or later in the bottles' life cycle (e.g., if more energy or a different type of plastic is required), suggesting that overall environmental impact should be considered. As a result, the process of crafting general environmental product claims is likely to continue to be challenging. The FTC declined to endorse the use of an LCA to substantiate broad environmental claims or to recommend any particular standards for LCA substantiation purposes. As the example above suggests, however, there may be times when a more comprehensive analysis of environmental impacts through analysis of a product's life cycle may be warranted for claim substantiation purposes.
Environmental certifications and seals of approval
In a completely new section, the Guides similarly state that unqualified environmental certifications and seals of approval should not be used because they likely convey general environmental benefit claims. In this context, the qualifying language may be included as part of the certification or seal itself, should be clear and prominent, and should clearly convey the specific and limited benefits to which the certification/seal denotes. With respect to third-party certifications and seals, the Guides expressly state that these also constitute endorsements that require compliance with the FTC's Guides Concerning the Use of Endorsements and Testimonials in Advertising. This means that counsel should advise a marketer using a certification to clearly and prominently disclose any material connections between itself and the certifying organization that are likely unexpected by consumers.
The Guides provide examples of material connections that should be disclosed, such as if the marketer is a dues-paying member of the relevant organization or if the certifying organization is an industry trade association (whether or not the marketer is a member). In addition, the FTC states that third-party certification does not eliminate a marketer's obligation to ensure that it has substantiation for all claims reasonably communicated by the certification. Claims should be limited to the specific product attributes for which there is substantiation and care should be taken to avoid implications that an organization has conducted a product evaluation if it has not. It is not surprising that the FTC focuses on certifications, as certifications have increased and become a hot topic of enforcement action and litigation, including class actions.
"Recyclable," "recycled content," "degradable," or "compostable" claims
The Guides also propose significant revisions and qualifications to the use of the terms "recyclable," "recycled content," "degradable," and "compostable." The changes are based both on the results of the FTC's consumer research and on data regarding the recycling and disposal methods currently in use. The proposed Guides state that unqualified "degradable" claims—including any variations such as oxo-degradable and photo-degradable—are deceptive if the items do not completely decompose within one year after customary disposal. Further, such claims are always deceptive in the case of items that are customarily disposed of in landfills, incinerators, and recycling facilities because these locations do not present conditions in which complete decomposition will occur within one year. The one-year period was based on the FTC's interpretation of its consumer perception study. Similarly, new guidance on "compostable" claims requires substantiation that all the materials in the item will break down into or otherwise become part of usable compost and that all will break down in a timely manner, although no specific time limit is given.
Under the Guides, unqualified "recyclable" claims can be made only if (i) the entire product or package (excluding minor components) is recyclable and (ii) recycling facilities are available to a "substantial majority" of consumers or communities where the item is sold (the Guides now expressly state that "substantial majority" in this context means at least 60%, which is consistent with prior informal FTC staff interpretations). The Guides give examples of how to qualify claims not meeting these standards by specifying the particular components that are recyclable and/or explaining limitations on the availability of recycling facilities. The Guides also expand the discussion of recyclable claims for multilayer packaging, clarifying that such packages must specify the portion of the product that is not recyclable and disclose the limited availability of facilities that can process multilayer products or materials.
The Guides also maintain prior guidance that explains that the use of a three-chasing-arrows symbol (a Mobius Loop), as well as conspicuous use of the Resin Identification Code (RIC) (formerly known as the Society of the Plastics Industry's SPI code), likely conveys both a "recyclable" and "recycled content" claim and should be qualified unless the marketer has substantiation for these messages. This category of claims also has been the focus of substantial enforcement activity, including cases relating to disposable cups and dishes and plastic bags and bottles.
Renewable energy, renewable materials, RECs, and carbon offset claims
For the first time, the Guides address renewable energy, renewable materials, RECs, and carbon offsets. Although many comments submitted to the FTC urged a comprehensive approach to these claims, given the complexities involved, the FTC's initial foray into the energy area in each instance is limited to setting out a few key principles. The principles primarily are aimed at encouraging claims to be qualified, based in large part on information that the meaning of these claims is unclear to consumers. The Guides state that "made with renewable energy" claims should not be asserted unless virtually all of the significant manufacturing processes are powered with renewable energy or conventional energy offset by renewable energy certificates and should not be made if any fossil fuel-derived power is used.
Regarding carbon offsets, the Guides note they are complex and state that competent and reliable scientific methods should be used to properly quantify claimed emission reductions and to ensure the same reduction is not sold more than once. There must be clear and prominent disclosure if the carbon offset represents emission reductions that will not occur for two years or longer. In addition, carbon offsets should not be based on emission reductions that are required by law. Based on its consumer research, the FTC also concluded that unqualified "made with renewable materials" claims are likely to be interpreted to mean such products are made with recycled content or are recyclable and biodegradable and, accordingly, need to be fully substantiated or, more likely, prominently qualified.
"Organic," "sustainable," "natural," "non-toxic," and "free of" claims
The FTC declined to address the terms "organic," "sustainable," and "natural" but did address "non-toxic" and "free of" claims. Regarding "organic," the FTC deferred to the expertise of the U.S. Department of Agriculture's (USDA's) National Organic Program, which has issued standards for agricultural products and a recent fact sheet for finished textile products. Regarding "sustainable" and "natural," the FTC concluded that it did not have sufficient consumer perception data to provide general guidance and that the term may be too fact specific and dependent on context, also referencing USDA and Food and Drug Administration informal treatment of the term.
In contrast, the FTC concluded that it has sufficient evidence to state that "non-toxic" claims likely convey general environmental claims and require "competent and reliable scientific evidence" and qualification. The FTC updated its definition of such evidence to its current formulation of this standard, namely that it "should be sufficient in quality and quantity based on standards generally accepted in the relevant scientific fields, when considered in light of the entire body of relevant and reliable scientific evidence, to substantiate that a representation is true."
Regarding "free of" claims, the Guides state that they may be deceptive if another substance is present that poses a similar environmental risk or if the relevant substance has never been associated with the product category. The Guides also add a three-part test to substantiate a "free of" claim: (1) the substance is present at only a "trace contaminant" or background level of appearance, (2) the substance does not cause material harm "that consumers typically associate with that substance" at that trace level, and (3) the substance has not been added intentionally to the product. The FTC states that "trace contaminant" and "background level" are imprecise terms and that their proper use will depend "on the substance at issue, and requires a case-by-case analysis." This expanded discussion in the new Guides will be of particular relevance in view of the increasing number of "free of" claims being made, such as "BPA-free."
Designed to help advertisers, their counsel, and others maintain compliance with the FTC Act, the Guides are not binding law, but they do provide insight on the FTC's current thinking as to compliance with the FTC Act. As indicated above, the FTC relied heavily on consumer perception research to develop the final Guides. Although consumer surveys are regularly used in false advertising litigation under the Lanham (Trademark) Act, as well as in contentious administrative proceedings at the National Advertising Division of the Council of Better Business Bureaus, it has previously been uncommon for the FTC to conduct its own studies. It will be interesting to see how the Guides hold up as environmental claims, and consumers' perceptions of claims, evolve over time. The FTC does not plan to give the Guides a full-scale review for another 10 years, although it could review particular sections on an accelerated basis if it concludes that is justified.
Beyond the Guides, the FTC also issued a brief four-page summary, which provides a useful checklist of issues to consider, and a 314-page "Statement of Basis and Purpose," which explains in detail the analytical framework the FTC used to develop the Guides. The Guides and their framework, as well as the FTC enforcement actions applying them, likely will be referenced in other proceedings, including under the Lanham (Trademark) Act, federal and state regulatory and enforcement actions, administrative proceedings, National Advertising Division of the Council for Better Business Bureaus industry advertising review proceedings, and in consumer class action lawsuits under state consumer protection statutes that are similar to the FTC Act.
Unlike the FTC Act, state statutes that are similar to the Act typically provide for a private right of action; often confer different, and potentially significant, financial remedies not available for violations of the federal statute; and may have different definitions or different interpretations of the same definitions than the FTC regarding what constitutes an unfair and/or deceptive practice. For example, plaintiffs' class action attorneys have filed hundreds of putative class action lawsuits over the last several years against the food and pharmaceutical industries for alleged violations of such statutes. More recently, plaintiffs' attorneys have been filing "greenwashing" cases against companies for allegedly misleading or deceptive environmental marketing claims. Although the Guides do not eliminate the threat of class action lawsuits under state laws, they may provide advertisers and others with arguments to defend against state law-based consumer protection litigation relating to allegations of deceptive and misleading marketing claims. Some courts and state statutes give FTC guidelines significant weight. Thus, to the extent that an advertiser's marketing complies with FTC guidelines, a court may find that such marketing is not, as a matter of law, unfair or deceptive. Additionally, some state consumer protection statutes have "safe harbors," providing that certain promotional activities specifically permitted by federal guidelines are exempt from the state statute. Of course, plaintiffs' attorneys may also point to a company's failure to comply with the Guides as a basis for potential liability. Companies should be aware of these issues and carefully consider whether their marketing claims comply with the Guides and be aware of risks under state laws.
Any marketer making or developing environmental claims, whether through words or images, should take this opportunity to reassess them in view of the final Guides.
. View the revised Guides here.
. View the summary of the Guides here.
. View the Statement of Basis and Purpose here.