Regulatory DevelopmentsJune 27, 2014
The Federal Trade Commission (FTC) has stepped-up its enforcement initiatives and recently settled two cases with companies that market plastic lumber and related products. FTC alleged that these companies misled consumers in violation of Section 5 of the Federal Trade Commission Act (FTC Act) in their marketing materials regarding the environmental attributes of their products. Specifically, these cases hinge on claims related to the recycled content and post-consumer content of their products.
These cases demonstrate FTC's strong interest in ensuring compliance with its Guides for the Use of Environmental Marketing Claims (Green Guides). Information regarding the Green Guides is available in our October 3, 2012, memorandum, which is available online.
FTC issued a final complaint and consent order against one of the companies, N.E.W. Plastics Corp. (N.E.W.), in April 2014. The consent order in the second case against American Plastic Lumber, Inc. (APL) is open for public comment until July 21, 2014.
FTC released the long-awaited revised Green Guides on October 1, 2012. FTC intends the Green Guides to help marketers ensure that the claims they make about the environmental attributes of their products are "truthful and non-deceptive." While the Green Guides are administrative interpretations of law, and are not independently enforceable, they describe the types of environmental claims FTC may find deceptive under Section 5 of the FTC Act. Under the FTC Act, all marketers that make express or implied claims about their products must have a reasonable basis for their claims. What constitutes a "reasonable basis" requires competent and reliable scientific evidence. In various FTC rules and guides, FTC provides general principles with which claims must comply.
In its Green Guides related to environmental marketing claims, FTC set forth some general principles with which all environmental marketing claims must comply. These include:
Substantiation: Marketers must substantiate claims under a "reasonable basis" test;
Qualification and Disclosure: Marketers must qualify claims where the claimed environmental attribute relates only to a portion of the product (e.g., packaging) if the claim would otherwise expressly or impliedly overstate the attribute or benefit;
Display of Qualifying Language: Any qualification should be clear to prevent consumer deception; avoidance of overstated claims -- marketers should avoid implications of significant environmental benefits if the benefit is negligible; and
- Comparative Statements: Where marketing materials make explicit or implicit comparisons between the environmental attributes of different products, the materials should be clear to avoid consumer deception.
In its Green Guides, FTC includes specific guidance on certain environmental claims, for example, compostable, degradable, ozone, recyclable, and recycled content. With regard to recycled content claims, FTC states:
Marketers should make recycled content claims only for materials that have been recovered or diverted from the waste stream during the manufacturing process or after consumer use.
Marketers should qualify claims for products or packages made partly from recycled material -- for example, "Made from 30% recycled material."
- Marketers whose products contain used, reconditioned, or re-manufactured components should qualify their recycled content claims clearly and prominently to avoid deception about the components.
APL is a California corporation that distributes plastic lumber products, such as picnic tables, benches, trash bins, wheel stops, and speed bumps, to end-use consumers and businesses in the construction industry. In its complaint, FTC alleged that APL's advertisements and marketing materials implied that its products -- and the recycled plastics they contain -- were made virtually all out of post-consumer recycled content such as milk jugs and detergent bottles. The complaint states that these claims were deceptive and misleading, and that in reality the products contained less than 79 percent post-consumer content, on average. FTC further alleged that about 8 percent of APL's products contained no post-consumer recycled content at all, and nearly 7 percent of the products were made with only 15 percent post-consumer content.
N.E.W. (also doing business as Renew Plastics) is a Wisconsin company that manufactures plastic lumber products, including the Evolve and Trimax brands, which are used to make items such as outdoor decking and furniture. In its complaint, FTC alleges that N.E.W. claimed that: (1) Evolve products are made from 90 percent or more recycled content; (2) Trimax products are made from mostly post-consumer recycled content; and (3) both Evolve and Trimax are recyclable. FTC states that these claims were deceptive and misleading, because: (1) the Evolve products contained, at most, 58 percent recycled plastic; (2) the recycled plastic in Trimax, on average, contained less than 12 percent post-consumer recycled content; and (3) local recycling centers do not recycle Evolve and Trimax due to their non-plastic content.
The settlement agreements for both companies are very similar. With regard to recycled content and environmental benefit claims, APL and N.E.W.:
[S]hall not make any representation, in any manner, expressly or by implication, about:
nless such representation is true, not misleading, and, at the time it is made, respondent possesses and relies upon competent and reliable evidence that substantiates that the representation is true. If, in general, experts in the relevant scientific fields would conclude it is necessary, such evidence must be competent and reliable scientific evidence. For any representation that a product or package contains recycled content, such evidence must show that any recycled content in such product or package is composed of materials that have been recovered or otherwise diverted from the waste stream.
- The recycled content of any product or package;
- The post-consumer recycled content, such as milk jugs or detergent bottles, of any product or package; or
- The environmental benefit of any product or package;
The orders also require the companies to maintain and make available to the FTC for five years all of their advertising and promotional material making claims covered by the order, materials they relied upon in making such claims, as well as any tests, reports, studies, surveys, or other evidence that contradicts or calls into question any environmental claims they make.
The orders will expire in 20 years.
These cases are the latest illustration of the FTC's commitment to addressing false and misleading marketing claims in violation of FTC Act Section 5, and highlight the importance of having a thorough command of the FTC's environmental Green Guides. Other recent enforcement actions related to false or misleading recycling, biodegradable, and environmental certification claims. Although penalties have been components of other FTC settlements, no penalties appear to have been imposed against APL or N.E.W. These companies nonetheless incurred substantial out-of-pocket costs to address these matters with FTC, transactional costs incurred in modifying all marketing materials, and very consequential reputational damage occasioned by public relations and consumer confidence issues. Businesses should consult the FTC's Green Guides to understand what environmental claims they legally can and cannot make. For companies making or considering making recycled content claims, careful attention should be paid to how claims are qualified with the amount or percentage, by weight, of recycled content in the finished product or package.