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The FTC's Revised Green Guides: Red Lights, Yellow Lights, and Green Lights for Marketers

Friday, October 5, 2012

By Mary Ann Mullin and Daniel J. Deeb, Schiff Hardin LLP
 

Introduction

On October 1, 2012, the Federal Trade Commission (FTC) released the finalized revisions of the “Green Guides,” guidance to businesses that market their products or services as environmentally friendly.

This guidance substantially revises the Green Guides, which were first published in 1992 and last revised in 1998. The proposed draft of this most recent update was released in 2010.

While the final version of the revised Green Guides mirrors the proposed draft in many respects, there are significant modifications of note. This article (1) discusses how the latest iteration differs from the 1998 guidance; (2) identifies key changes from the 2010 draft proposal; and (3) comments on the practical implication of these changes on marketers.

The Green Guides themselves are not agency rules or regulations, but are instead intended to set forth the FTC's current view of the types of environmental claims the agency may find deceptive under Section 5 of the Federal Trade Commission Act. 15 U.S.C. §45. The reach of the Green Guides, however, is broader than solely the FTC's authority. Several states, including California, incorporate the Green Guides into state law. In addition, the National Advertising Division, an industry self regulatory body, uses the Green Guides to evaluate disputes between competitors about the legality of environmental marketing claims.

Significant Differences from 1998 Version

In keeping with an evolution in environmental policy and developments in environmental engineering, the most significant change ushered in by the Revised Green Guides is the data standards business must meet to support a claim of environmental benefit.

Since 1998, there has been an evolution in environmental policy to examine the life-cycle impacts of a product or service and to consider environmental trade-offs between different products or services. Environmental scientists have kept pace with this development and created a wide range of tools to conduct such evaluation.

In the finalized guidance, the FTC has embraced this approach. While the FTC has taken the position in the various iterations of the Green Guides that environmental claims must be specific and supported by reasonable and competent scientific evidence, the bar for when the evidence is sufficient has risen considerably. For instance, in order to make a claim of environmental benefit, marketers must have analyzed trade-offs resulting from that benefit. The FTC takes the position that before a general claim of environmental benefit is made the marketer must be ready to prove that there is no negative environmental impact created during the product's life-cycle.

Some of the specific examples of how much data a business is expected to have on-hand before an environmental claim is made appear for the first time in the final version of the Green Guides. One of the new examples specifies that a trade-off analysis must be conducted to substantiate a claim that less packaging is used in making a plastic bottle, even if that claim in and of itself is true, if the manufacturing process of the new packaging significantly alters environmental attributes earlier or later in the bottle's life-cycle, i.e., manufacturing the product would require more energy than the previous process.

In addition to the heightened data requirements throughout the Green Guides, the FTC takes a number of new positions, including the following:

•  Blanket Statements. Businesses should not make any blanket, general claims about environmental benefits associated with a product or service (e.g., “environmentally friendly,” “green,” “eco-friendly,” etc.). In its 1998 guidance, the FTC stated that businesses may make those types of claims as long as the claims can be substantiated. The FTC now states that those types of claims must always be clearly and prominently qualified in addition to being substantiated.

•  Seals of Approval. Businesses should not use unqualified certifications or seals of approval that do not specify the basis for the certification. The FTC likened those seals of approval or certifications to the unqualified blanket marketing claims described above. In addition, businesses should disclose any material connections between the business and the certifying entity. The FTC takes the position that reference to an industry standard is only permissible if the standard is developed and maintained by a voluntary consensus standard body. Seals of approval are discussed further in the section below.

•  Compostable or Degradable. Businesses should not make unqualified claims that a product is “compostable” or “degradable” unless the product will completely decompose within a safe and timely manner. For “compostable” products, that means the item should decompose within about the same amount of time as the other materials with which the product is composted. “Degradable” products should decompose within one year after customary disposal. Businesses should not state that items are degradable if the items are generally destined for disposal in landfills, incinerators or recycling facilities because decomposition will not occur within one year after disposal in those types of facilities.

•  Renewable. Businesses should not make unqualified “renewable energy” claims if power used to manufacture any part of the product was derived from fossil fuels. With regard to other claims about the use of “renewable materials” and “renewable energy,” businesses should provide specific information about the materials and energy used.

•  Carbon Offsets. Businesses should employ reliable scientific and accounting methods to measure their claimed emission reductions. Businesses should not advertise their use of “carbon offsets” if the activity that produces the offset is already required by law. In addition, if the business will not purchase emission reductions for two years or more, the business cannot merely claim that an emission reduction has either occurred or will occur in the near future. Instead, the business must disclose when in the future the offsets will occur.

•  “Free Of”. Businesses should not make claims that a product, package or service is “free of” a particular substance if the product, package or service contains or uses a substance that poses the same or similar environmental risk as the substance the product, package, or service advertises that it does not contain.

Consumer Protection and Antitrust Risks
The release of the revised Green Guides will likely lead to more enforcement by the FTC as well and an increase in actions between competitors to force compliance with the guidelines.

Even before the revised Green Guides were finalized, the FTC had stepped up its enforcement efforts against businesses that make environmental marketing claims that it considers to be false or deceptive. Recent enforcement actions include actions against businesses that market paper products, such as paper plates and paper towels, as “biodegradable.” The FTC contends that those types of claims are false because a substantial majority of household waste is disposed of in landfills, incinerators or recycling facilities which do not generally present conditions that would allow any waste to decompose within a relatively short period of time. Similar actions have been brought recently against businesses that market textiles as being made of “bamboo” or “bamboo fiber” using “environmentally friendly processes” when those textiles are actually made of rayon by processing cellulose found in any plant or tree—including bamboo—with a harsh chemical that releases hazardous air pollutants. These recent actions suggest that this will be an area of heavy enforcement in the future.

Now that the revisions to the Green Guides are final, the FTC will likely feel emboldened to broaden its enforcement effort. Even though the Green Guides themselves are not agency rules or regulations, they describe the kinds of claims the FTC may find deceptive under Section 5 of the Federal Trade Commission Act. The FTC can bring actions against companies if the FTC can show that a reasonable consumer would be deceived by the marketing claim. The FTC has now armed itself with a broad based survey of consumer beliefs about the meaning of typical green claims. This data could give the FTC's enforcement increased traction as well as potentially requiring businesses to arm themselves with their own data on consumer understanding of a green claim.

However, companies can also benefit from the revised Green Guides by restraining competitors from using deceptive advertising. Although the guides are not regulations, companies will most likely rely upon them to police each other. If a company is crossing the line, its competition can reference the guidelines, using them as a mechanism to bolster their position. If necessary, competitors can use violations of the revised Green Guides to bring claims before the National Advertising Division.

One of the key questions in disputes with the FTC or disputes among competitors about whether an environmental claim is deceptive will be the data the marketer relied upon in making the claim. Many companies will, out of necessity, rely upon third party certifications about the environmental attributes of a product even though the FTC takes the position in the revised Green Guides that a third-party certification does not eliminate a marketer's obligation to ensure that all claims communicated by the certification have reasonable substantiation. In the revised Green Guides, the FTC takes the position that a reference to a certification from an industry trade association is permissible if the standards have been developed and maintained by a voluntary consensus standard body. This caveat was not included in the 2010 draft proposal.

For the definition of voluntary consensus standard bodies, the FTC cites to a 1998 OMB Circular on federal participation in the development and use of voluntary consensus assessments. OMB's memo defines voluntary consensus standard bodies as organizations which plan, develop, establish, or coordinate voluntary consensus standards using agreed-upon procedures and including the following attributes: (i) openness; (ii) balance of interest; (iii) due process; (iv) an appeals process; and (v) consensus, which is defined as general agreement, but not necessarily unanimity, and includes the process for attempting to resolve objections by interested parties. Memorandum for Heads of Executive Departments and Agencies on Federal Participation in the Development and Use of Voluntary Consensus Assessment Activities, February 10, 1998, Circular No. A-119 Revised, Office of Management and Budget.

While a marketer may find reliance upon a certification from a voluntary consensus organization appealing, the marketer should be mindful of their participation in these cooperative endeavors to ensure that participation is structured to comply with antitrust standards. While the creation and use of joint standard setting initiatives opens a avenue for benchmarking and complying with the scientific data requirements in the new Green Guides, there are well-recognized antitrust concerns that flow from these joint activities.

The lawfulness of voluntary consensus standard body arrangements will depend on a fact-specific evaluation of the purpose, power and effect of the joint activity. See e.g., Fashion Originators' Guild v. FTC, 312 U.S. 457 (1941). Because the information sharing inherent in standard setting creates the potential for future anti-competitive behavior, courts impose a balancing test to determine whether the pro-competitive results of sharing sensitive information (e.g., an overall reduction in the use of hazardous chemicals) outweigh any resulting anti-competitive harm. The legality of an industry standard setting arrangement may depend on how the agreement is structured and enforced.

To comply with a voluntary consensus standard, companies may be required to make their supply chains “greener.” This often requires companies to work with their suppliers to implement new manufacturing standards. But companies should be careful to avoid making agreements with competitors that would have an anticompetitive effect in the marketplace. For example, boycotting a competitor that refuses to make such arrangements with its suppliers could run afoul of antitrust laws. Further, in certain circumstances, maintaining a shared list of approved suppliers could potentially raise red flags.

Another source of potential liability lies in the types of internal enforcement mechanisms selected by the voluntary consensus standard body to ensure that members adhere to their commitments. Some organizations may have procedures for holding members accountable and sanctions for those who fail to meet the joint standards. But, if members misuse these sanctions (for example, to unfairly target a competitor or to prevent a new player from entering the market), such acts are likely to be considered antitrust violations.

While the FTC has recognized the benefit of industry self-regulatory groups, the commission still monitors self-regulatory groups carefully for any signs of anti-competitive behavior that could violate antitrust law. And because the potential consequences of antitrust violations are substantial, including significant financial penalties and criminal prosecution, companies that want to participate in an environmental standard setting group should craft their involvement carefully.

In light of the issuance of the revised Green Guides, marketers should take a hard look at the “green” claims they make to ensure the claims are defensible. The FTC has raised the bar for the evidence marketers need to have on hand before a claim of environmental benefit is made.

Mary Ann Mullin is a partner in the environmental practice in the Lake Forest office at national law firm Schiff Hardin LLP.

Daniel J. Deeb is a partner in the environmental practice in the Chicago office at national law firm Schiff Hardin LLP.

Disclaimer

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