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By Racquel Palmese
The Federal Trade Commission is about to release a new set of Green Guides that will
tighten standards for the use of terms like “biodegradable,” “carbon
neutral” and “recyclable” in advertising and on packaging.
Christopher Cole, an advertising law specialist at Manatt, Phelps & Phillips, feels that these new regulations could render obsolete some of the 300 or so environmental seals of approval and certifications now in place. The guides will address “greenwashing” controversies, offering marketers rules on how far they can go when making claims about their products’ negative impacts on the environment.
In a conversation with Green Technology Magazine, Cole explains how the FTC rulemaking works and how far-reaching the new Green Guides might be.
What is the Federal Trade Commission’s role?
Their role is to protect consumers and competition, keeping the playing field level and making sure that consumers are not misled by false claims. They're also trying to protect the vulnerable people, those who may not be that well educated in these areas. And they’re trying to keep companies from unfairly competing with each other.
The FTC is creating standards regarding terms like “sustainable,” “natural,” and other eco-terms. How will they regulate the use of these terms?
The FTC regulates advertising, broadly speaking, across the country. A lot of the states also have their own trade commission regulations under which they more or less import the FTC guidelines into their own laws so the state Attorneys General can enforce a version of what the FTC is doing. Because states explicitly incorporate this federal standard by reference, whatever the FTC does in the advertising area ends up becoming enormously influential for the rest of the country.
The FTC periodically issues guidance, which doesn't have the force and effect of law. Rather it says, "here you go industry, this is how we interpret the law, and in the future if we decide to take enforcement, these are the criteria that we're going to look at when we're bringing an enforcement case. This is how we think you should behave if you’re complying with the law.“
The FTC has broad authority under Section 5 of the FTC Act to take action to stop unfair or misleading advertising or practices in commerce.
How does the FTC bring enforcement?
It can bring enforcement in many different ways. A lot of times what they do is they just simply request information from an advertiser - sort of like a subpoena. They get a lot of information and then will often bring the situation quietly to a close. Sometimes, however, they'll end up with an agreed order in place that requires the advertisers to stop the bad acts. Other times they'll even go into litigation and actually sue. They can demand penalties up to $10,000 per violation. They can also demand refunds that would go to consumers or to others whom they determine were hurt by the misleading statements. These penalties can reacho well into millions of dollars. The FTC has pretty powerful enforcement authority, and industry pays close attention to what they do.
How does this relate to advertising about the environmental friendliness of products?
For many years the FTC published guides that told companies who want to advertise about environmental benefits how to do it properly. These were known as the Green Guides. The original version came out back in the eighties, when the first wave of environmental advertising began. A lot of the claims that were in vogue then, and still are to some degree, were about recyclability and biodegradability and things of that nature.
The FTC devoted a big portion of the guides to telling companies how they could correctly advertise that something could be recycled. For example, one of the things they said was that you could say it's recyclable only if there are facilities that consumers can access to recycle the product that you’re claiming is recyclable. It may be theoretically recyclable, but if there is nowhere that a consumer can bring the product to get it recycled then it's not really recyclable in practice.
In another example, lots of things are claimed to be biodegradable, but when you put them in a landfill they really don't biodegrade within any reasonable period of time. So the FTC set out some general guidelines by which you would have to substantiate those kinds of claims. Generally speaking, this kind of guidance fits in with the overall FTC mandate that when you make an advertising claim you need to have support for it before you make the claim in commerce. By support, I mean adequate and reliable scientific evidence that people in the field would consider to be adequate. Not just junk science. They've been pretty rigorous about enforcing that scientific evidence requirement.
What are some examples?
The dietary supplement area is an example. The FDA [Food and Drug Administration] has enforcement over dietary supplements to the extent that companies claim that their products can, for example, cure cancer. Then it becomes a drug claim and the FDA gets involved. But if a company makes a dietary supplement and says that their product will make you feel healthier, that it will increase your metabolism by 50 percent, the FTC regulates that. They would require the company to have clinical evidence that that product works in the way the company is claiming.
There are lots of claims that escape review; there are just so many products out there and the FTC has limited resources, so you'll see many dubious claims. But the FTC catches up to a lot of them, and they issue some pretty severe penalties when they do.
Does it take someone actually filing paperwork with the FTC before the agency will look at it? Or do they actively seek out spurious claims?
They catch companies in a variety of ways. There are actual internet surf days, where staffers will go online and literally surf the internet looking for abuses. Sometimes a staffer, or even the commissioner sees a doubtful ad in a newspaper. There is a complaint form available on the FTC website, and consumers fill those out and will also write to the FTC reporting claims they feel aren’t truthful. Companies also turn each other in sometimes - anonymously and with attribution. Lots of companies are afraid to be quoted, because they don't want the FTC to come looking at them.
What are the criteria the FTC uses to judge these complaints as valid?
There are a couple of different criteria. Is it [the advertisement or label] really defrauding consumers? Are people losing money? The FTC is primarily out to protect consumers and competition. Another criteria would be does the wording in question inherently cause an imbalance to competition such that there's not a level playing field? Is the advertising so unfair that other competitors are really at a disadvantage?
So now the FTC is updating its Green Guides?
Right. In 2007, the FTC decided that the Green Guides, which were at that point nearly 20 years old, needed to be updated to reflect current claims, phraseology that is now in vogue, as well as new technologies and new attributes that companies were starting to advertise. These include terms like “carbon neutral,” “renewable energy credits” and “carbon offsets.” You see the word “sustainable” a lot, and “environmentally friendly.”
There’s also proliferation of third party seals that are out there, created as means for certification or verification of claims. Some are better than others, so the FTC recognizes the potential for confusion with that proliferation, particularly among consumers who aren’t generally able to sort out which are reputable which are not.
The agency set about to define some of these terms and to provide clear guidance to industry. Companies struggle with some of these issues. What is environmentally friendly? What is sustainable? How far back in the life cycle do you have to look when you make some of these claims? How much negative output do you have to take into account before you can no longer say environmentally friendly? Can you advertise a company as being a green company or environmentally friendly company when maybe the company does some things that aren't so environmentally friendly? How do you do that balancing?
The FTC is looking at a lot of these issues. And they're also taking a second look at some of the things they previously defined, like biodegradable and recyclable to see whether those definitions still hold true. And they will be issuing new guidelines probably any week now.
You’re an advertising law partner. What is your focus in all this?
I advise clients and handle litigation primarily involving the advertising of products and services. We help companies decide whether they are in compliance with the law in what they plan on advertising and if the way they are saying is truthful and not misleading. We also evaluate false claims by competitors or defend allegations that our clients are saying things that are false. Very frequently we deal with claims in industries that are heavily regulated, such as food and drugs and environmental products and services - things that are partly regulated by the Environmental Protection Agency, the FDA or other agencies. There is a patchwork of laws - state, federal and even local governments in some cases - and many different areas that touch on advertising. We have to keep our clients aware of all this.
Are there laws in California that might trump the FTC regulations?
There's a very robust consumer class action bar there, and there's a lot of litigation under California’s Unfair Competition law, 17200 and 17500 in the Business and Professions Code, under which plaintiffs bring what I would call private attorney general type actions to false advertising. They have to show that they've purchased the product and were injured in some way, or at least allege an injury. A lot of states have those laws, but in California the number of suits and activity of the plaintiffs bar probably far exceeds any other state. California is very much out in the forefront at the state agency level in the area of green claims, green chemistry and others.
You have stated that you believe perhaps more than 300 environmental seals of approval now being used on packaging and products might be nullified by the new FTC regulations. Why do you think so?
I don't mean to say they will all be nullified, but I do think there has been a big proliferation of seals. I was told that there were 300 different seals or certification programs out there. Let’s play it out: You have a seal program that has a definition for sustainability, and you have certified 20 companies operating under sustainable practices, and they have paid to go to through that certification process. To the extent the FT issues a revised definition of sustainability that is different than the one you use, that will cause you to have to redo the certification, and the rules also undermine the need for your seal.
If the FTC has defined the term, there may be a need for a reputable third party inspector to say they inspected the company and they’re okay. But I think part of the reason a lot of these organizations sprung up in the first place is because there were no definitions in place.
Are you familiar with the US Green Building Council’s LEED certification for green buildings? Would this type of certification be affected by the FTC’s rulings?
I wouldn't anticipate the FTC would upset any of the existing LEED definitions. The agency did have a whole series of workshops, including issues on green building, and they've taken a lot of data in this area, but I don't expect that they're going to change the rules of the road on LEED.
So what you’re talking about the most are product designations, the ones that companies pay for? Many of these have gotten more rigorous over the years, with third party testing as well. Do you think these will be undermined by the FTC guidelines?
I think any service that offers independent testing and verification, and does it in a rigorous, reputable, scientifically valid way, is offering a good service, and that's something I think the FTC would support. The standards should be transparent, and people should know what it takes to get the seal, that the criteria makes sense and that there's fair access to it. The certification or designation should not only be available to a few. All these things, I think, the FTC would probably support. I don't think they have any beef against the reputable business doing that kind of service, as consumers find that valuable and it adds value to the product marketing.
Which certifications or seals do you think would come under fire?
I can give you an example that the FTC went after very recently. There was a group of cereal manufacturers that got together and put out some products under what they called the “Smart Choices” label. They would put a logo, with a check mark, on the front of the cereal box in the Smart Choices program, and the FTC felt it essentially implied that this was an overall healthy product. But certain cereals that carried the mark had more than 12 grams of sugar per one cup serving. The state attorneys general went after them, and the FTC brought pressure to bear and made them cease using the label.
New terms related to green technology and the environment are being created all the time. How do you think we can keep up with accountability and truth in messaging?
The core principles of transparency and good science should always apply. By that, I mean that the regulatory agencies that oversee advertising, and the lawyers working for these advertisers, ought to insist on clear disclosure of definitions, even for new or cutting edge terminology. We also should require rigorous proof of claims that give rise to such new terminology. Proof of the claims must conform to sound scientific methods, even if those methods are still developing.
It's important, however, to encourage innovation and to reward first movers. That means we should be flexible in permitting the use of new terms and technologies, while requiring solid proof of the concept. Permitting meaningless claims to proliferate, however, will only undermine consumer confidence and devalue even the valid environmental claims.
Thank you.
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