In This Issue:

• With a Little Nudge from the FTC—NAD Able To Take a Closer Look at "Smarter Reviews" Advertising
• New York Attorney General Has a Beef With "Deceptive" JBS "Net Zero" Advertising Claims, Suit Alleges
• The Meaning of "Carbon Neutral": Does It Truly Mean Net Zero? Bottled Water Case Could Become a Cautionary Tale
• NAD Narrows Biossance "Clean" Beauty Claims, Upholds Efficacy Claims

With a Little Nudge from the FTC—NAD Able To Take a Closer Look at "Smarter Reviews" Advertising

Following a referral to the FTC, a "review" site suspected of improperly making advertising claims that look like editorial content has done an about-face and agreed to participate in the National Advertising Division's self-regulating process. NAD's inquiry—brought as part of its self-monitoring program—raised questions about the independence of the site from the products it reviews and the sufficiency of related disclosures.

NAD first opened its inquiry in late spring 2023, questioning whether rankings and product reviews (as well as advertising) that appeared on and related to the Smarter-Reviews.com website were independent, objective rankings as they appeared, as distinct from paid content. Smarter Reviews declined to participate and the matter was referred to the FTC. Following some apparent pressure from the FTC, Smarter Reviews returned to the fold and agreed to participate, having actually made some changes to its disclosures.

As it turned out, Smarter Reviews and the cosmetic products being reviewed were all owned by the same company—Scale Media, Inc. Despite the additional disclosures, NAD remained concerned that the website did not clearly and conspicuously reveal the nature and extent of the existing very material connection between the advertiser and the site.

The primary claim NAD took issue with involved a Smarter Reviews article regarding eye cream: "2023's Top Eye Treatments for Refreshed, Youthful-Looking Eye - We reveal the top 5 products for reducing & preventing the look of aging skin around the eyes." The article was accompanied by a disclosure that read: "Sponsored Advertising Content" at the top of the page, and another disclosure below the article heading as a hyperlink titled "Advertiser Disclosure." In small print a light gray-colored disclosure also stated: "This website is owned and operated by a company that has ownership interest in this product."

During the course of NAD's investigation, Smarter Reviews made some changes to its disclosures. NAD assessed whether these attempts at making the disclosure more robust sufficiently identified the claim as advertising. First, the company added the disclosure: "Owned and operated by Scale Media, Inc." below the Smarter Reviews logo. It also made a change to the page headline so that it now reads "Advertising Sponsored by the makers of Eye Elixir." It included a disclosure below each product ranking that read "*We may earn a commission if you click on the link and make a purchase," and made other changes in a similar vein. The company further removed language about its assessment of the products, such as "quality of ingredients" and "customer satisfaction." A reference to "eye elixir" also took ownership of the product, calling it "our product."

In the context of a review site that appears to be editorial content, where consumers "may assess the credibility of a neutral, unbiased review differently from a review paid for by the advertiser," were these revised disclosures enough? NAD ultimately found that they were not. To NAD, these changes did not sufficiently clarify that the content is advertising.

First, the reference to "Advertising Sponsored by the Makers of Eye Elixir" at the top of the page was not sufficiently conspicuous. It was featured in "markedly smaller font." Further, the text below the disclosure explained that it was a guide to the best eye serums and provided details about what that guide entailed. In this way, "[t]he reviews and rankings on the webpage appear to be the product of a dispassionate, independent analysis conducted by an editorial team," wrote NAD.

Ultimately, "when review websites are controlled by advertisers, a disclosure, even if clear and conspicuous, may not be sufficient to alert consumers visiting that the review is created or sponsored by the advertiser and advertising websites," wrote NAD.

What seems to have tipped the scale for NAD was that the site did not merely feature the advertiser's product but appeared to be an independent ranking and review of the featured products. This use of a review format "can cause confusion to reasonable consumers."

Additionally, NAD referred to the Federal Trade Commission's (FTC) updated Endorsement Guides, which provide that whenever an ad represents that the endorser is an expert with respect to the message, the endorser must actually have that expertise. Nothing in the Smarter Reviews site showed that the site had the expertise that it purported to have in product quality or efficacy.

"Indeed," concluded NAD, "the advertiser appears to concede that the ranking is entirely an advertisement."

Key Takeaways

Review sites are a hot topic for NAD as well as the FTC. As the FTC engages in rulemaking, NAD has issued decisions that go well beyond the FTC's efforts to date. When looking at review sites—whether owned by the advertiser directly or where third parties accept pay for play—form and substance go hand in hand. Advertisers would be well-advised to review these cases closely.

New York Attorney General Has a Beef With "Deceptive" JBS "Net Zero" Advertising Claims, Suit Alleges

New York Attorney General Letitia James has filed another greenwashing lawsuit—this time against the American subsidiary of JBS, a giant of the beef industry based out of Brazil. It alleges that the world's largest beef producer is deceptively advertising that it can achieve "Net Zero" greenhouse emissions by 2040.

JBS's claims are a bunch of hot air, claims the lawsuit. According to the Attorney General, the company knows it, and it's deliberately falsely advertising the sustainability and "net zero" claims to capitalize on consumers' desire to shop sustainably and their willingness to pay more for sustainable products. The complaint alleges that the company is well aware that it is not feasible for it to accomplish its stated goals.

The lawsuit claims JBS's advertising is false, unsubstantiated, and misleading environmental marketing in violation of New York's General Business Law Sections 349 and 350, which regulate false advertising in the state. The lawsuit seeks injunctive relief to stop the alleged fraudulent and illegal environmental marketing practices in violation of the GBL.

As the complaint alleges, beef production is one of the top contributors to the carbon footprint and to global climate change, with the highest greenhouse emissions of any major food commodity. As a top producer of beef, JBS is a significant contributor to that carbon output, AG James alleges, which is purportedly amplified by the company's use of land in the Amazon, whose deforestation significantly contributes to the company's carbon footprint.

Nonetheless, JBS has made "sweeping representations" that it is committed to reducing its greenhouse gas emissions and specifically advertised that it will be "Net Zero by 2040." The complaint alleges that the company has no "viable" plan to achieve that goal. James further alleges that JBS admitted it made this commitment without calculating most of its greenhouse gas emissions. Even if the company had made a plan to meet this goal, it could not "feasibly meet its pledge" because there aren't any "proven agricultural practices" to do so.

JBS's marketing strategy is deliberate because it knows that sustainability and the carbon impact of purchase decisions are of increasing importance to consumers, according to the suit. New York alleges that JBS "knows that if consumers perceive its products as unsustainable, it could reduce consumer demand and harm" the company's U.S. business.

In support of this argument, James also adds that the National Advertising Division (NAD) determined in 2022 that the company's "Net Zero by 2040" is unsubstantiated. NAD found that the company had no reasonable basis for this claim. The National Advertising Review Board (NARB) upheld NAD's decision.

AG James is asking the court to stop JBS from engaging in the allegedly false and misleading marketing, to pay for all ill-gotten profits and penalties, and to put in place a third-party audit of the company's compliance with New York's consumer protection statutes.

Key Takeaways

It is interesting not only that the NYAG has brought an action regarding the inability of a company to meet its prospective ESG goals, but that it has cited the NAD in doing so. NAD procedures make clear that their cases have no precedential value and are not to be cited by the parties in court. Separately, AG James has made clear that alleged greenwashing is a key prosecutorial initiative for her office, as seen most recently in a "hallmark case" she filed alleging that PepsiCo has misled consumers about the efficacy of its plastic recycling.

The Meaning of "Carbon Neutral": Does It Truly Mean Net Zero? Bottled Water Case Could Become a Cautionary Tale

A New York federal court refused to dismiss a class action lawsuit alleging that Danone's "carbon neutral" claims for its Evian water constitute false advertising. The court concluded that based on the complaint, it could not rule out the possibility that a reasonable consumer could be misled by the "carbon neutral" representation on the product label.

The plaintiffs alleged that they and others who purchased the upmarket water had been misled by the sustainability claim on the bottle label that the Evian water bottle is "carbon neutral." They alleged that the "carbon neutral" representation is false and misleading because "reasonable consumers reading the label would believe that the product is sustainable and doesn't leave a carbon footprint." The plaintiffs also alleged that they had made the decision to purchase the Evian water based on the "Carbon Trust" seal on the label which reads "Carbon Neutral."

Danone denied the allegations, arguing that the claim was not misleading because "no reasonable consumer would interpret carbon neutral to mean the Product does not emit any carbon dioxide whatsoever during its entire life cycle." Rather, the company said, the product label merely and accurately states that an independent third party certified the product as "carbon neutral." The company also referenced the dictionary definition of "carbon neutral," which describes the use of offsets to balance emissions, rather than the lack of emissions.

The court disagreed and held that a reasonable consumer could plausibly be misled by the "carbon neutral" claim, pointing to a second dictionary definition which describes the term as "resulting in no net addition of carbon dioxide to the atmosphere."

"It is plausible then that the ambiguous term 'carbon neutral,' a technical word not within the average consumer's common parlance and carrying multiple meanings, could mislead a reasonable consumer." Given that the reasonable lay consumer could interpret the term multiple ways, a court could not as a matter of law conclude that the reasonable consumer would not be misled.

Danone also argued that the plaintiffs could not rely on the FTC Green Guides to support its claims because these do not create a private cause of action. The court found that the FTC Green Guides are incorporated into the Massachusetts General Laws Ch. 93A. It added that Danone "misconstrued" the purpose of the Green Guides, which illustrate how the term carbon neutral could be unfair or deceptive. The way to look at it, said the court, was that the term "carbon neutral" could "plausibly deceive and mislead as a type of general environmental benefit claim that the FTC warns against."

The court upheld the Massachusetts and California consumer protection law causes of action, but the New York claim was dismissed for failing to satisfy the state's "nexus" requirement.

Key Takeaways

As the court noted at the outset of its decision, "[t]he increase in consumer demand of environmentally friendly products has led companies to engage in a marketing tactic called 'greenwashing,' which is 'the process of conveying a false impression or providing misleading information about how a company's products are environmentally sound.'" It's led to litigation from private and public plaintiffs challenging the alleged greenwashing claims. While the ultimate outcome of this case is still unknown, companies should consider the arguable vagueness of certain sustainability terms and should not rely on courts dismissing these sorts of claims early in litigation.

NAD Narrows Biossance "Clean" Beauty Claims, Upholds Efficacy Claims

Clean beauty is all the rage these days, but what does "clean" mean in an advertising context? And what message does the reasonable consumer take away from a qualified "clean" beauty claim?

Those were some of the questions before the National Advertising Division (NAD) recently when it analyzed a self-monitoring challenge NAD brought to challenge certain sustainability and "clean" beauty claims made by Amyris Clean Beauty about its Biossance Brand.

More specifically, Biossance claimed that its products use "clean ingredients and clean formulas—we ban over 2000 ingredients that are known to be toxic to the environment." Biossance qualified this claim, and NAD noted that the claim itself explained what "clean" means in this context—the absence of those toxic ingredients.

In support of its claims, Amyris referred NAD to statements made by multiple regulatory bodies, countries and trade associations that list these 2000 ingredients as harmful to human health. However, NAD rejected the proffered support, finding, inter alia, that most of these 2000 ingredients have never been used, nor would ever be used, as a cosmetic ingredient in the first place.

NAD looked to the FTC Green Guides, which provide that a truthful claim that a product is free of a certain substance "may nevertheless be deceptive if the substance has not been associated with that product category." Accordingly, NAD recommended that Biossance modify the claim to reflect the ingredients excluded by Biossance that are actually used in cosmetics.

Biossance also claimed that its products keep "2 million sharks safe each year from liver harvesting," a claim stemming from the company's use of the ingredient squalene derived from sugarcane rather than shark liver, the traditional source. Although NAD appreciated the company's goals, it found that the report on the number of shark deaths attributed to the cosmetic industry did not provide enough certainty about the number, so it recommended the claim be modified to avoid the numerical figure even as it could tout the source of its ingredient.

The advertiser also made a number of additional claims about ingredient sourcing. NAD found that the claim "Our 100% sugarcane derived squalane is ethically and sustainably sourced" was substantiated because Biossance based the claim on the certification standards of a non-profit with a stringent criteria for sustainable farming that were also—importantly—aligned with industry standards.

Biossance further claimed that all of its "ingredients are also ethically and sustainably sourced," relying on its Supplier Code of Conduct, which requires all suppliers to engage in ethical practices. NAD concluded that though it had in the past found that supplier codes can support aspirational claims, here the Supplier Code of Conduct was referenced to support a "broad, unqualified claim that all of the ingredients in the product are ethically and sustainably sourced." The Code demonstrated perhaps that the company was committed to ensuring sustainable ingredient sourcing, but, by itself, it was insufficient to demonstrate that all of the advertiser's ingredients were actually sustainably sourced.

Turning to Biossance's efficacy claims, NAD analyzed claims about the power of squalene to lock in moisture, protect, calm, and improve skin elasticity. In support it relied on three studies assessing the impact of squalane in the "form" and "amount" found in the Biossance products, all of which used objectively measurable attributes and had statistically significant results. Based on these results, NAD found that the claim that the product locks in "weightless moisture … and protects" was supported.

Likewise, NAD found the claims that the product calms the skin and improves elasticity—based on the same studies—were supported. The studies found statistically significant results in these areas and used accepted measurements to gauge the impact of the ingredient on the results, providing a reasonable basis for the claims.

Key Takeaways

Because "clean" is an undefined term in the same way that "natural" is, its context is critical for determining its meaning. Such claims should be carefully qualified to reflect their support and the extent to which "clean" is applicable to the product as a whole.

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