FTC Gets Tough on Green Guides and “Cracks Down” on Misleading and Unsubstantiated Environmental Marketing Claims

On October 29, 2013, the Federal Trade Commission (FTC) announced six enforcement actions concerning misleading and unsubstantiated environmental marketing claims. In a case imposing a $450,000 civil penalty, FTC filed a complaint and consent order against a company for violating a 1994 FTC order prohibiting it from making unsupported green claims for its paper plates and bags. In the five other actions, FTC addressed biodegradable plastic claims for the first time. In one case, FTC filed a complaint against a company for marketing an additive that it claims makes plastic products biodegradable. In the other four cases, FTC announced complaints and proposed consent orders against companies that marketed various plastics with allegedly false and unsupported claims that their products were biodegradable. More information is available online. These cases are in addition to recent settlements with paint manufacturers and mattress manufacturers regarding claims their products were free of volatile organic compounds (VOC). As discussed below, all these cases, and the related guidance documents that FTC has issued, telegraph to the business community FTC’s keen interest in ensuring compliance with FTC’s recently revised Guides for the Use of Environmental Marketing Claims (Green Guides).

Background

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 Section 5, FTC can take enforcement action against deceptive claims, which could lead to FTC orders prohibiting deceptive advertising and marketing and fines if those orders are later violated. The Green Guides emphasize and provide guidance to ensure that companies making environmental claims, whether express and implied, limit claims to the particular product attributes for which the marketer has substantiation. More information regarding the Green Guides is available in our October 3, 2012, memorandum.

Plastics Matters

FTC filed a complaint against ECM Biofilms, Inc., which markets its additives under the trade name MasterBatch Pellets. ECM advertises its additives, which allegedly make plastic products biodegradable, on its website and through marketing materials. According to the complaint, ECM also issues its own “Certificates of Biodegradability of Plastic Products,” which ECM allegedly uses to convince its customers and end-use consumers that its additive makes plastic products biodegradable.

FTC states that it charged ECM with violating the FTC Act by misrepresenting that: (1) plastics made with ECM additives (ECM plastics) are biodegradable and will completely break down within a reasonably short period of time after customary disposal; (2) ECM plastics are biodegradable in a landfill; (3) ECM plastics are biodegradable in a stated qualified timeframe; and (4) that various scientific tests prove ECM’s biodegradability claims. Finally, FTC charged ECM with providing its customers and independent distributors, through the distribution of its promotional materials, with the means to deceive consumers. The notice order attached to the complaint would prohibit ECM from engaging in each violation alleged in the complaint. An FTC administrative law judge will hear the case, with the proceeding scheduled to begin June 18, 2014.

FTC’s complaints against the following four companies charge them with misrepresenting that plastics treated with additives are biodegradable, biodegradable in a landfill, biodegradable in a certain timeframe, shown to be biodegradable in a landfill, or that various scientific tests prove their biodegradability claims. FTC also claims that the companies lacked reliable scientific tests to back up these claims.

• American Plastic Manufacturing (APM) was an ECM customer until at least December 2012. FTC alleges that APM advertised its plastic shopping bags on its website as biodegradable, and sold them to distributors nationwide. APM’s marketing materials claimed that its products were biodegradable based on the use of the additives sold by ECM;
   
• CHAMP was also an ECM customer, and advertised on its website that its plastic golf tees were biodegradable. CHAMP sold the tees both online and in brick and mortar stores throughout the U.S. The company’s marketing materials claimed that the ECM additive made its products biodegradable;
   
• Clear Choice Housewares, Inc. was a customer of an additive manufacturer called Bio-Tec Environmental. Clear Choice sold what it claims are biodegradable, reusable plastic food storage containers on its website, as well as in retail stores nationwide. Clear Choice’s marketing materials claimed its products were biodegradable based on the application of a Bio-Tec product called Eco Pure. FTC alleges that Clear Choice made false and unsubstantiated claims that Eco Pure made its products “quickly biodegradable in landfills”; and
   
• Carnie Cap, Inc. incorporated Eco-One, an additive manufactured and marketed by Ecologic, into its plastic rebar cap covers. Carnie Cap advertised the caps on its website and sold them through various distributors nationwide. It claimed, with no qualification, that the Eco-One product makes its plastic rebar cap covers “100 % biodegradable.”

According to FTC, the proposed consent orders settling these complaints are essentially the same. The proposed orders would prohibit the companies from making biodegradability claims unless the representations are true and supported by competent and reliable scientific evidence. Consistent with the Green Guides, the companies must have evidence that the entire plastic product will completely decompose into elements found in nature within one year after customary disposal before making any unqualified biodegradable claim. For qualified claims, the companies must state the time required for complete biodegradation in a landfill or the time to degrade in a disposal environment near where consumers who buy the product live. Alternatively, the companies may state the rate and extent of degradation in a landfill or other disposal facility accompanied by an additional disclosure that the stated rate and extent do not mean that the product will continue to decompose. FTC states that the proposed consent orders also make it clear that ASTM D5511 (a test standard commonly used in the additive industry) cannot substantiate unqualified biodegradable claims or claims beyond the results and parameters of the test, and that any testing protocol used to substantiate degradable claims must simulate the conditions found in the stated disposal environment. FTC will publish a Federal Register notice announcing a comment period on the consent agreement packages. FTC states that the agreements will be subject to public comment for 30 days, ending November 29, 2013, after which it will decide whether to make the proposed consent orders final. Links to the dockets, which include the complaints and proposed orders, are available online.

Paper Products Civil Penalty Settlement

AJM Packaging Corporation manufactures paper products, including paper plates, cups, bowls, napkins, and bags, for sale throughout the U.S. FTC claims that AJM, through its recent marketing practices, violated a 1994 consent order barring it from representing that any product or package is degradable, biodegradable, or photodegradable unless it had competent and reliable scientific evidence to substantiate the claims. According to FTC, despite the terms of the order, AJM began making new environmental claims for a number of its paper products, including claims that they were “biodegradable,” “compostable,” or both. AJM made the claims for some of its most popular products, including Nature’s Own Green Label and Gold Label paper plates, AJM lunch bags, AJM grocery bags, and Bio-Save Lawn & Leaf Bags. The packaging for AJM’s paper plates also prominently stated that they are “recyclable.”

To settle the complaint, AJM agreed to vacate the prior order and enter into a new order containing new language and definitions that reflect updates to the Green Guides. Specifically, the new order bars AJM from making unsubstantiated claims that a product or package is biodegradable, compostable, recyclable, or offers an environmental benefit, and requires AJM to disclose information needed to qualify certain green claims to avoid deception. Under the order, AJM will pay a $450,000 civil penalty. FTC notes that it can seek additional penalties if AJM violates the new order in the future. More information is available online.

VOC-Free Settlements

In settlements issued in final in March 2013, two paint manufacturers, Sherwin-Williams Company and PPG Architectural Finishes, Inc. were prohibited from representing that the VOC level of a paint is zero, unless, after tinting, the VOC level is zero grams per liter, or they possess and rely upon competent and reliable scientific evidence that the paint contains no more than a “trace level of VOCs.” Based on these cases, FTC issued an Enforcement Policy Statement Regarding VOC-Free Claims for Architectural Coatings to discuss its definition of “trace level of VOCs. See online. FTC has thus clarified that if any marketer makes a VOC-free claim about an architectural coating that contains more than a trace level of VOCs, or lacks substantiation for such claims, it may pursue an enforcement action.

FTC also entered into settlement agreements with three mattress manufacturers, Relief-Mart, Inc., Essentia Natural Memory Foam Company, Inc., and Ecobaby Organics, Inc., after alleging that these claims make unsubstantiated claims that their mattresses were VOC-free and other similar claims (e.g., chemical-free, formaldehyde-free). In those proposed orders, the companies agreed to make VOC-free claims only if the VOC level is zero micrograms per cubic meter or the company relies upon competent and reliable scientific evidence that its mattresses contain no more than trace levels of VOCs. See online.

Resources for Green Marketing Consumer and Business Education

In its October 29, 2013, announcement, FTC states that it recently released several business and consumer education resources intended to help users understand the Green Guides and environmental marketing in general. These include: (1) “Environmental Claims — Summary of Green Guides,” a four-page summary of the changes in the Guides; (2) “The Green Guides,” a video explaining highlights of the changes; (3) a new page on the FTC Business Center, with links to legal documents, the Guides, and other “green” content; (4) a Business Center blog post; and (5) related consumer information. FTC also posted a new blog for consumers to help them understand the issues surrounding biodegradable plastics claims to make informed purchasing decisions. FTC also has new information for businesses, “Grading your degradability claims: The latest for green marketers.” These materials are all available online. FTC also issued its Enforcement Policy Statement to assist architectural coatings manufacturers in determining when VOC-free claims can be made.

These cases, their high penalties, and the issuance of guidance documents clearly demonstrate FTC’s interest in ensuring compliance with the Green Guides. Some have speculated that FTC may not be committed to enforcing the Guides and budget cuts may prevent that from happening even if it was. These cases prove otherwise, and companies should review the Green Guides and related guidance before making environmental claims. It is imperative to understand FTC’s views on the parameters of such claims and how best to substantiate them.