FTC Green Guides Have Marketing Impact

The FTC announced the revised Green Guides in a highly public manner, which suggests that policing environmental claims will be a priority, said Neil Austin, partner, Foley Hoag LLP. “We've seen this pattern before, such as with guidance about testimonials and endorsements in 2009. When the FTC releases new guidance and follows up with a news conference, it shows it's going to be the focus of enforcement activity,” said Austin. “The writing should be on the wall for marketers at this point; the FTC is telling companies that they need to read these Guides and understand them.”

Possibly the most important aspect of the latest Green Guides is that they require marketers to have “competent” and “reliable” scientific evidence to back up express and implied environmental claims, said Austin. “Those are the magic words, and they indicate that the FTC will require a high burden of evidence to back a claim. It also shows that the FTC believes, based on its review of market research, that environmental claims are very persuasive for consumers.”

Alongside those general principles for making environmental claims, the Green Guides include detailed explanations and examples of how to make (or not make) particular types of environmental claims. Every aspect of the new guidelines will affect at least a few franchisors, starting with a prohibition on unqualified and general environmental benefit claims, such as “green” or “environmentally friendly,” or visual images that suggest broad environmental benefits, such as a forest or the earth. The Green Guides state that those terms and images can confuse consumers.

Specifics are the name of the game, and those must be backed up with solid evidence. “Marketers should not imply that any specific benefit is significant if it is, in fact, negligible,” wrote Perkins, adding, “To avoid deception, marketers should use clear and prominent qualifying language that limits the claims to specific benefits. ' The examples show how marketers can qualify their claims to avoid deceiving consumers. Marketers must ensure that all reasonable interpretations of their claims are truthful, not misleading, and supported by a reasonable basis before they make the claims.”

Although the Green Guides do not discuss how marketers can use the terms “organic,” “sustainable,” or “natural,” they do address many other terms that are commonplace in making environmental claims. For example, the Guides discuss the use of the term “compostable,” which many restaurants and food service providers have claimed about their cups, plates, and dining utensils. The Green Guides clarify that a restaurant (as well as the manufacturer that supplies the products) needs reliable scientific evidence that all materials in the item will break down into usable compost. Moreover, the Guides add that the marketer must indicate if there is limited access to composing facilities in the particular geographic area where the item is sold, so franchisors and franchisees need to understand conditions in each local market where they are making claims about compostability.

Similarly, for claims of degradability, the marketer must have reliable scientific evidence that the entire item will completely break down and return to nature within one year after “customary disposal.” Otherwise a claim must include specific qualifications. “Items destined for landfills, incinerators, or recycling facilities will not degrade within a year, so unqualified degradable claims for them should not be made,” Perkins added.

For franchises that rely on seals of approval and other types of certification of the “green” status of their operations or supplies that they purchase, the new Green Guides spell out how the source of those seals must be identified. “If a seal is awarded to a product by the marketer itself rather than by an independent, third-party certifier, then the marketer, in order to avoid a deceptive claim, must indicate in its advertisement that it awarded the seal to its own product,” wrote Perkins. “Marketers should disclose any material connections to the certifying organization.”

Furthermore, a third-party certification does not eliminate a company's obligation to substantiate all claims in clear and prominent qualifying language that limits the claim to the benefits for which there is substantiation.

Businesses that wish to state that their products or packages are “recyclable” must be able to show that they can be separated from the waste stream through an established recycling program and then re-used for the manufacture or assembly of another item. If the availability of recycling centers is in question, then the marketer must add qualifications. For claims about the “recycled content” contained in manufactured products, marketers should “clearly” and “prominently” indicate the amount or percentage, by weight, of recycled content in the finished item.

Businesses that wish to promote their use of renewable energy should specify the source of the energy and the proportion that is renewable. The marketer cannot make unqualified claims if fossil fuels are used for providing any part of the advertised service, unless it has purchased renewable energy certificates to offset all of the non-renewable energy use.

A few more major environmental claims highlighted in the Green Guides include:

• Refillable. The marketer should provide a system for the collection and refill of the package. Alternatively, it can sell a refilling device. Otherwise, it should state clearly that it is not providing the refilling capability.
• Renewable materials. Claims about renewable content should include specific information about which type of renewable material has been used, and qualifications should be added unless the product or package is made entirely with renewable materials (excluding minor or incidental components).
• Free-of. Strict limits on use of the term “free-of” are suggested. These include prohibition if the product has more than trace amounts of background levels of a substance that consumers typically associate with harm, or if that substance was added to the product intentionally. Marketers should not claim that a product is “free-of” a substance that never was associated with the product.
• Non-toxic. Claims must be backed with competent and reliable scientific evidence.
• Ozone-safe and ozone-friendly. To make this claim, a product cannot contain any ozone-depleting substance.
• Carbon offsets. Marketers should disclose whether the carbon offset purchased by the marketer will pay for emissions reductions that will take more than two years to complete. They cannot claim offsets for carbon reductions that are required by law.

Additional Impacts

While the high-profile issuance of the Green Guides indicates that the FTC might increase its enforcement activity, Austin observed that the Guides also give a road map for others who might challenge a marketer's claims. Class actions for deceptive marketing ' “which have risen sharply in the past several years,” Austin said ' might further increase as law firms that specialize in those actions will be able to identify specific alleged violations on which to file their claims.

As a hypothetical example, he said that a company could be manufacturing trash bags that will degrade in about 18 months and promoting them as “degradable.” Prior to the issuance of the revised Green Guides, that would not have stirred a complaint. Now, with the guideline that 12 months is the standard for degradability, the manufacturer could be vulnerable to a class action lawsuit. However, Austin also noted that a complaint brought in such a situation is far from a guaranteed victory for a class action lawyer. “Many state and federal court judges will look at the Green Guides and say, yes, these are based on what consumers believe. But many other judges will view the Guides as just that: guidelines,” he said. Even if a judge held up the Green Guides as the legal standard, the class action would still have to show a good-faith basis for asserting that the trash-bag manufacturer engaged in false advertising, and that the conduct has caused compensable harm.

A more likely scenario is that additional challenges to environmental claims will come from complaints lodged by a competitor. “In the advertising world, a competitor is your most likely adversary: It knows data about the products, because it makes similar ones, and it's in the best position to challenge the claims,” he said.

Usually, those complaints go through the advertising industry's self-regulatory system, such as the National Advertising Division (“NAD”), established by the Advertising Self-Regulatory Council. Thus, the NAD might see an uptick in allegations of deceptive ads based on standards in the Green Guides. “Working through the NAD is the quickest way to resolve a complaint,” said Austin. “If the NAD adopts the Green Guides, which it has done with other guidelines, it could have a major impact.”

Kevin Adler is associate editor of FBLA. He can be contacted at [email protected].

The Federal Trade Commission (“FTC”) released the final revised Guides for the Use of Environmental Marketing Claims (16 C.F.R. Part 260), commonly referred to as the “Green Guides” in October 2012, adding another layer of clarity to how marketers can justify “green” marketing claims. Originally issued in 1992 and updated several times since that time, the latest Green Guides present a road map for franchisors and franchisees to make environmental claims that might be highly appealing to customers, while not running afoul of regulations about deceptive or unfair advertising found in Section 5 of the FTC Act (15 U.S.C. ' 45). “While the Green Guides are non-binding, the FTC can take action under the FTC Act if a marketer makes an environmental claim inconsistent with the Guides,” wrote Martha L. Perkins, partner, Whiteford Taylor & Preston LLP, in a blog post analysis of the Green Guides.

The Green Guides cover claims that could be made in labeling, advertising, promotional materials, and any other forms of marketing in any medium, through words, symbols, logos, depictions, and product brand names. The guidelines apply to business-to-business transactions, as well as business-to-consumer transactions. For franchises, the business-to-business aspect is an important development because it potentially will give them greater confidence that the “green” materials they purchase from third-party vendors are environmentally beneficial.

Priority Issue for FTC

The FTC announced the revised Green Guides in a highly public manner, which suggests that policing environmental claims will be a priority, said Neil Austin, partner, Foley Hoag LLP. “We've seen this pattern before, such as with guidance about testimonials and endorsements in 2009. When the FTC releases new guidance and follows up with a news conference, it shows it's going to be the focus of enforcement activity,” said Austin. “The writing should be on the wall for marketers at this point; the FTC is telling companies that they need to read these Guides and understand them.”

Possibly the most important aspect of the latest Green Guides is that they require marketers to have “competent” and “reliable” scientific evidence to back up express and implied environmental claims, said Austin. “Those are the magic words, and they indicate that the FTC will require a high burden of evidence to back a claim. It also shows that the FTC believes, based on its review of market research, that environmental claims are very persuasive for consumers.”

Alongside those general principles for making environmental claims, the Green Guides include detailed explanations and examples of how to make (or not make) particular types of environmental claims. Every aspect of the new guidelines will affect at least a few franchisors, starting with a prohibition on unqualified and general environmental benefit claims, such as “green” or “environmentally friendly,” or visual images that suggest broad environmental benefits, such as a forest or the earth. The Green Guides state that those terms and images can confuse consumers.

Specifics are the name of the game, and those must be backed up with solid evidence. “Marketers should not imply that any specific benefit is significant if it is, in fact, negligible,” wrote Perkins, adding, “To avoid deception, marketers should use clear and prominent qualifying language that limits the claims to specific benefits. ' The examples show how marketers can qualify their claims to avoid deceiving consumers. Marketers must ensure that all reasonable interpretations of their claims are truthful, not misleading, and supported by a reasonable basis before they make the claims.”

Although the Green Guides do not discuss how marketers can use the terms “organic,” “sustainable,” or “natural,” they do address many other terms that are commonplace in making environmental claims. For example, the Guides discuss the use of the term “compostable,” which many restaurants and food service providers have claimed about their cups, plates, and dining utensils. The Green Guides clarify that a restaurant (as well as the manufacturer that supplies the products) needs reliable scientific evidence that all materials in the item will break down into usable compost. Moreover, the Guides add that the marketer must indicate if there is limited access to composing facilities in the particular geographic area where the item is sold, so franchisors and franchisees need to understand conditions in each local market where they are making claims about compostability.

Similarly, for claims of degradability, the marketer must have reliable scientific evidence that the entire item will completely break down and return to nature within one year after “customary disposal.” Otherwise a claim must include specific qualifications. “Items destined for landfills, incinerators, or recycling facilities will not degrade within a year, so unqualified degradable claims for them should not be made,” Perkins added.

For franchises that rely on seals of approval and other types of certification of the “green” status of their operations or supplies that they purchase, the new Green Guides spell out how the source of those seals must be identified. “If a seal is awarded to a product by the marketer itself rather than by an independent, third-party certifier, then the marketer, in order to avoid a deceptive claim, must indicate in its advertisement that it awarded the seal to its own product,” wrote Perkins. “Marketers should disclose any material connections to the certifying organization.”

Furthermore, a third-party certification does not eliminate a company's obligation to substantiate all claims in clear and prominent qualifying language that limits the claim to the benefits for which there is substantiation.

Businesses that wish to state that their products or packages are “recyclable” must be able to show that they can be separated from the waste stream through an established recycling program and then re-used for the manufacture or assembly of another item. If the availability of recycling centers is in question, then the marketer must add qualifications. For claims about the “recycled content” contained in manufactured products, marketers should “clearly” and “prominently” indicate the amount or percentage, by weight, of recycled content in the finished item.

Businesses that wish to promote their use of renewable energy should specify the source of the energy and the proportion that is renewable. The marketer cannot make unqualified claims if fossil fuels are used for providing any part of the advertised service, unless it has purchased renewable energy certificates to offset all of the non-renewable energy use.

A few more major environmental claims highlighted in the Green Guides include:

• Refillable. The marketer should provide a system for the collection and refill of the package. Alternatively, it can sell a refilling device. Otherwise, it should state clearly that it is not providing the refilling capability.
• Renewable materials. Claims about renewable content should include specific information about which type of renewable material has been used, and qualifications should be added unless the product or package is made entirely with renewable materials (excluding minor or incidental components).
• Free-of. Strict limits on use of the term “free-of” are suggested. These include prohibition if the product has more than trace amounts of background levels of a substance that consumers typically associate with harm, or if that substance was added to the product intentionally. Marketers should not claim that a product is “free-of” a substance that never was associated with the product.
• Non-toxic. Claims must be backed with competent and reliable scientific evidence.
• Ozone-safe and ozone-friendly. To make this claim, a product cannot contain any ozone-depleting substance.
• Carbon offsets. Marketers should disclose whether the carbon offset purchased by the marketer will pay for emissions reductions that will take more than two years to complete. They cannot claim offsets for carbon reductions that are required by law.

Additional Impacts

While the high-profile issuance of the Green Guides indicates that the FTC might increase its enforcement activity, Austin observed that the Guides also give a road map for others who might challenge a marketer's claims. Class actions for deceptive marketing ' “which have risen sharply in the past several years,” Austin said ' might further increase as law firms that specialize in those actions will be able to identify specific alleged violations on which to file their claims.

As a hypothetical example, he said that a company could be manufacturing trash bags that will degrade in about 18 months and promoting them as “degradable.” Prior to the issuance of the revised Green Guides, that would not have stirred a complaint. Now, with the guideline that 12 months is the standard for degradability, the manufacturer could be vulnerable to a class action lawsuit. However, Austin also noted that a complaint brought in such a situation is far from a guaranteed victory for a class action lawyer. “Many state and federal court judges will look at the Green Guides and say, yes, these are based on what consumers believe. But many other judges will view the Guides as just that: guidelines,” he said. Even if a judge held up the Green Guides as the legal standard, the class action would still have to show a good-faith basis for asserting that the trash-bag manufacturer engaged in false advertising, and that the conduct has caused compensable harm.

A more likely scenario is that additional challenges to environmental claims will come from complaints lodged by a competitor. “In the advertising world, a competitor is your most likely adversary: It knows data about the products, because it makes similar ones, and it's in the best position to challenge the claims,” he said.

Usually, those complaints go through the advertising industry's self-regulatory system, such as the National Advertising Division (“NAD”), established by the Advertising Self-Regulatory Council. Thus, the NAD might see an uptick in allegations of deceptive ads based on standards in the Green Guides. “Working through the NAD is the quickest way to resolve a complaint,” said Austin. “If the NAD adopts the Green Guides, which it has done with other guidelines, it could have a major impact.”

Kevin Adler is associate editor of FBLA. He can be contacted at [email protected].