FTC’s Green Guides: Final Revisions and Enforcement Actions

42nd Annual Advanced Business Law Conference, Virginia CLE

October 12, 2012

Thomas A. Cohn, Partner, LeClairRyanThomas.Cohn@LeClairRyan.com

http://www.leclairryan.com/thomas-a-cohn/

Background of FTC Green Guides The FTC issued the Green Guides, 16 CFR Part 260, to help

marketers avoid making environmental claims that are unfair or deceptive under Section 5 of the FTC Act, 15 U.S.C. 45.

The FTC issued the Green Guides in 1992, 57 FR 36363, and subsequently revised them in 1996 (61 FR 53311) and 1998 (63 FR 24240).

Industry guides such as these are administrative interpretations of the law. Therefore, they do not have the force and effect of law and are not independently enforceable.

The FTC can take action under the FTC Act, however, if a business makes environmental marketing claims inconsistent with the Guides….

In any such enforcement action, the FTC must prove that the act or practice at issue is unfair or deceptive.

Background of FTC Green Guides The Green Guides outline:

• general principles that apply to all environmental marketing claims; • how consumers are likely to interpret particular claims, and how marketers

can substantiate these claims; and • how marketers can qualify their claims to avoid deceiving consumers.

For all claims, the Guides advise:• that qualifications and disclosures be sufficiently clear and prominent to

prevent deception;• that marketers make clear whether their claims apply to the product, the

package, or a component of either; • that claims not overstate an environmental attribute or benefit, expressly

or by implication; and• that marketers present comparative claims in a manner that makes the

basis for the comparison sufficiently clear to avoid consumer deception.

Background of FTC Green Guides

The Guides then specifically address: general environmental benefit claims, such as “environmentally friendly”; degradable claims; compostable claims; recyclable claims; recycled content claims; source reduction claims; refillable claims; and ozone safe/ozone friendly claims.

For each of these claims, the Green Guides explain how reasonable consumers are likely to interpret them. The Guides also describe the basic elements necessary to substantiate claims within each category, and present options for qualifying specific claims to avoid deception.

The illustrative qualifications provide “safe harbors” for marketers who want certainty about how to make environmental claims, but do not represent the only permissible approaches to qualifying a claim.

Proposed Revisions to FTC Green Guides FTC Commissioner Ramirez, March 2011: “Green” marketing . . . [is an] area of growing importance to consumers.

Green claims tend to be “credence” claims — in other words, consumers often can’t determine for themselves if the claims are truthful or substantiated. As a result, the Commission’s Green Guides play an important role in ensuring that consumers can make well-informed decisions about their environmental choices, and that sellers fulfill their promises.”

Previous Version of FTC Green Guides (1998): http://www.ftc.gov/bcp/grnrule/guides980427.htm.

“Since Guides were last revised in 1998, green claims have become virtual fixture in marketing of all types of products and services.

Unfortunately, this explosion of green claims has led to “greenwashing” — phenomenon by which consumers grow skeptical or even become numb to these types of claims, because some marketers stretch meaning of “green” too far.”

Oct. 2010: Proposed Revisions to FTC Green Guides

Against this backdrop, FTC decided it was time to update Guides. FTC held 3 public workshops, elicited comments, and conducted consumer perception study to see how consumers interpret different types of green claims.

October 2010: FTC proposed updated guidance, suggested that advertisers should qualify general claims to focus consumers on the specific environmental benefits that can be adequately substantiated.

Proposed Revisions to Green Guides: http://www.ftc.gov/os/fedreg/2010/october/101006greenguidesfrn.pdf

Proposal also included new section addressing use of certifications and seals of approval: emphasizes they’re considered endorsements and should thus comply with principles contained in FTC Endorsement Guides.

Also, FTC advised marketers to accompany seals or certifications with clear and prominent language limiting implied general environmental benefits to particular attributes that can be substantiated.

FINAL Revisions to FTC Green Guides – Oct. 2012: For Release: 10/01/2012 FTC Issues Revised "Green Guides" Will Help Marketers Avoid Making Misleading Environmental Claims FTC has issued revised “Green Guides” designed to help marketers ensure

that claims made re: environmental attributes of their products are truthful and non-deceptive.

Revisions reflect wide range of public input, including hundreds of consumer and industry comments on previously proposed revisions.  Include updates to modify and clarify existing Guides, and new sections on use of carbon offsets, “green” certifications and seals, and renewable energy and renewable materials claims: claims that were not common when Guides were last reviewed.

“The introduction of environmentally friendly products into the marketplace is a win for consumers who want to purchase greener products and producers who want to sell them,” said FTC Chairman Jon Leibowitz. “But this win-win can only occur if marketers’ claims are truthful and substantiated.  The FTC’s changes to the Green Guides will level the playing field for honest business people and it is one reason why we had such broad support.”

Final Revisions to FTC Green Guides Final revised Guides take into

account over 300 unique comments and more than 5,000 total comments received since FTC issued proposed revised Guides in Oct. 2010.  They also include information gathered from three public workshops and study of how consumers perceive and understand environmental claims.

Green Guides are not agency rules or regulations; they describe types of environmental claims FTC may or may not find deceptive under Section 5 of FTC Act. Under Section 5, FTC can take enforcement action against deceptive claims, which ultimately can lead to Commission orders prohibiting deceptive advertising and marketing, and fines if those orders are later violated.

Final Revisions to FTC Green Guides

Your written materials provide info on the revised Guides, in “four convenient sizes”:• Statement of Basis and Purposes, with complete analysis of the

comments and final guidance [314 pages];• Federal Register Notice, with reasons for revising guides and final

revised guides [48 pages];• Text of final revised guides [36 pages]• Concise summary of changes to guides [4 pages].

Links to all four, at FTC website – press release: http://www.ftc.gov/opa/2012/10/greenguides.shtm

• General Environmental Benefits (e.g., “green”)• Final revised Guides caution marketers not to make

broad, unqualified claims that a product is “environmentally friendly” or “eco-friendly.”

• Why? FTC’s consumer perception study confirms that such claims are likely to suggest that the product has specific and far-reaching environmental benefits.

• Very few products, if any, have all the attributes consumers seem to perceive from such claims, making these claims nearly impossible to substantiate, and thus deceptive.

I. Revisions to Claims Previously Addressed by Guides

I. Revisions to Claims Previously Addressed by Guides General Environmental Benefits (e.g., “green”):

• Marketers should qualify general claims with specific environmental benefits. Qualifications for claim should be clear, prominent, and specific.

• When marketer qualifies general claim with specific benefit, consumers understand benefit to be significant. So marketers shouldn’t highlight small or unimportant benefits.

• **If qualified general claim conveys that product has overall environmental benefit because of specific attribute, marketers should analyze the trade-offs resulting from attribute, to prove claim [do benefits outweigh costs?].

– EXAMPLE: Claiming “Green, made with recycled content” may be deceptive if environmental costs of using recycled content [e.g., shipped from afar, made via toxic process] outweigh environmental benefits of using it.

• This change could have big impact on areas like green chemistry, where sometimes replacement is as bad as or worse than what’s being replaced. Now you must prove that it’s “better” to make new claim.

• But don’t necessarily have to do lifecycle assessment! Whether marketer should examine complete life cycle of product or conduct more limited analysis, depends on context of claim.

I. Revisions to Claims Previously Addressed by Guides

• Degradable: Final revised Guides:

– advise marketers not to make unqualified degradable claim for solid waste product unless they can prove that entire product or package will completely break down and return to nature within one year after customary disposal (previous version of guides said “within reasonably short period of time after customary disposal”), and

– caution that items destined for landfills, incinerators, or

recycling facilities will not degrade within 1 year, so marketers should not make unqualified degradable claims for these items.

I. Revisions to Claims Previously Addressed by Guides

• Compostable - Marketers:– who claim product is compostable need competent and

reliable scientific evidence that all materials in the product or package will break down into — or become part of — usable compost safely, and in about the same time as the materials with which it is composted.

– should qualify compostable claims if product can’t be composted at home safely or in timely way.

– also should qualify claim that product can be composted in a municipal or institutional facility, if the facilities aren’t available to a substantial majority of consumers.

I. Revisions to Claims Previously Addressed by Guides

• Ozone-Safe/Ozone-Friendly:

– Deceptive to misrepresent that product is ozone-friendly or safe for ozone layer or atmosphere.

– Example cautions marketers not to make “environmentally friendly” claims for non-ozone refrigerants, because all current ones are greenhouse gases and also consume substantial amount of energy.

I. Revisions to Claims Previously Addressed by Guides

• Recyclable:– Marketers should qualify recyclable claims when recycling

facilities are not available to at least 60 percent of the consumers or communities where product is sold.

– Sliding scale: the lower the level of access to appropriate facilities, the more a marketer should emphasize limited availability of recycling for product.

– Examples:– If recycling facilities for product aren’t available to at least

60% of consumers or communities, marketer can state, “This product may not be recyclable in your area.”

– If recycling facilities for product are available to only a few consumers, marketer should use stronger qualifying language: “This product is recyclable only in the few communities that have appropriate recycling programs.”

I. Revisions to Claims Previously Addressed by Guides

Recycled content – Marketers:– should make recycled content claims only for materials

recovered or diverted from waste stream during manufacturing process or after consumer use.

– should qualify claims for products or packages made partly from recycled material • for example: “Made from 30% recycled material.”

– whose products contain used, reconditioned, or re-manufactured components should qualify their recycled content claims clearly and prominently to avoid deception about the components.

I. Revisions to Claims Previously Addressed by Guides

Source reduction claims:–Marketers should clearly and prominently qualify

claim that product or package is lower in weight, volume, or toxicity, to avoid deception about amount of reduction and basis for comparison.

–For example: rather than saying product generates “10 percent less waste,” marketer could say product generates “10 percent less waste than our previous product.”

II. New Guidance for Claims Not Addressed Before by Guides – Certificates and Seals: New Section FTC recognizes that environmental certifications from associations or others can

benefit consumers by providing consistent definition of “green” attributes of products/services, as well as verification that technical claims are true.

But, FTC also believes seals of approval can confuse or even mislead public; new section gives detailed guidance on how to avoid deceptive claims re: environmental certifications and seals.

Certs. and seals may be considered endorsements that are covered by FTC’s Endorsement Guides, and includes examples to illustrate how marketers could disclose “material connection” to certifying entity, i.e., one likely to affect weight or credibility of endorsement.

Example: marketers featuring certs. from 3rd-party certifiers need not disclose payment of reasonable cert. fee if that is only connection to certifier, because consumers likely expect that certifiers charge reasonable fee for services.

And: if independent certifier administers industry trade ass’n cert. program by objectively applying “voluntary consensus standard” (i.e., process in developing cert./seal is open and transparent), then connection between industry group and marketer-member would not likely be “material”.

Green Guides re: Certs and Seals: New Section ALSO: Guides caution marketers not to use environmental certifications or

seals that don’t clearly convey the basis for the certification, because such seals or certifications are likely to convey general environmental benefits.

How to convey the basis? Marketers can qualify certifications based on attributes that are too numerous to disclose.• Example: “Virtually all products impact the environment. For details on

which attributes we evaluated, go to [website that discusses this product].”

The marketer should make sure that website provides the referenced information, and that the info is truthful and accurate.

To prevent deception, marketers using seals or certifications that don’t convey the basis for the certification should identify, clearly and prominently, specific environmental benefits.

AND remember: 3rd-party cert. or seal doesn’t eliminate marketer’s duty to have substantiation for all claims conveyed, express and implied!

Green Guides re: Certs and Seals: New Examples FTC’s new examples in final revised Guides section on

environmental certs/seals help illuminate its thinking.

FTC offers hypothetical scenarios to help explain new section; examples:

• don’t imply independent evaluation if in fact only membership;

• don’t imply independent certifier if industry can veto changes in standards.

Examples are reprinted in FR Notice publication of final revised Guides, in your written materials.

II. New Guidance / New Sections of Guides

• Carbon Offsets – Marketers:– should have competent and reliable scientific

evidence to support carbon offset claims.– should use appropriate accounting methods to

ensure they measure emission reductions properly and don’t sell them more than once.

– should disclose whether the offset purchase pays for emission reductions that won’t occur for at least 2 years.

– should not advertise a carbon offset if the law already requires the activity that is the basis of the offset.

II. New Guidance / New Sections of Guides“Free-of” and “Non-Toxic” Claims:

– Free of:– Marketers can make free-of claim for product that contains some

amount of substance if:• 1. product doesn’t have more than trace amounts or background levels of

the substance; • 2. amount of substance present doesn’t cause harm that consumers

typically associate with substance; and • 3. the substance wasn’t added to the product intentionally

– Deceptive to claim that product is “free-of” a substance if it is free of one substance but includes another that poses a similar environmental risk.

– If product doesn’t contain substance, may be deceptive to claim it’s “free of” substance if it has never been associated with that product category.

– Non-toxic: Such claims likely convey that an item is non-toxic for both humans and the environment generally.

– Marketers who claim their product is non-toxic need competent and reliable scientific evidence that it’s safe for both people and the environment.

II. New Guidance / New Sections of GuidesMade with Renewable Materials:• Unqualified claims about renewable material may imply that

product is recyclable, made with recycled content, or biodegradable.

• One way to minimize that risk is to identify material used clearly and prominently, and explain why it is renewable.

– Example: “Our flooring is made from 100% bamboo, which grows at the same rate, or faster, than we use it.”

• Marketers should qualify renewable materials claims unless item is made entirely with renewable materials, except for minor and incidental components.

– Example: “This package is made from 50% plant-based renewable materials. Because we turn fast-growing plants into bio-plastics, only half of our product is made from petroleum-based materials.”

II. New Guidance / New Sections of Guides Made with Renewable Energy:

• Marketers shouldn’t make unqualified renewable energy claims based on energy derived from fossil fuels unless they purchase renewable energy certificates (RECs) to match the energy use.

• Unqualified renewable energy claims may imply that product is made with recycled content or renewable materials. One way to minimize risk of misunderstanding: specify source of renewable energy clearly and prominently (e.g., wind or solar energy).

• Marketers shouldn’t make this unqualified claim unless all or virtually all significant manufacturing processes involved in making product are powered with renewable energy or non-renewable energy matched by RECs.

– If not, marketers should clearly and prominently specify % of renewable energy that powered significant manufacturing processes involved in making product.

• Marketers who generate renewable energy – e.g., by using solar panels – but sell RECs for all renewable energy they generate, shouldn’t claim they “use” renewable energy. Even using “hosting” would be deceptive, since consumers would reasonably interpret this to mean “uses renewal energy.”

III. Green Marketing Areas FTC Decided Not to Touch:

Either because FTC lacks sufficient basis to provide meaningful guidance, or wants to avoid proposing guidance that duplicates or contradicts rules or guidance of other agencies, final revised Guides don’t address use of terms “sustainable,” “natural,” and “organic.” 

Organic claims made for textiles and other products derived from agricultural products are covered by the U.S. Department of Agriculture’s National Organic Program.

IV. Recent FTC Green Claims Enforcement: Certs and Seals From FTC Blog “Let’s Make a Seal” re: Jan. 2011 settlement w/Tested Green: For many people, environmental considerations play important role in what they

put in their shopping carts.  But it's tough to know when green claims are credible.  Seals and certifications can be useful tool to help shoppers decide where to place their trust and how to spend their money — but only if they're backed by solid proof.

Demonstrates importance of ensuring that claims conveyed to consumers through seals and certifications are supported by sound science. 

Respondents advertised and sold Tested Green certification, touted as “nation’s leading certification program for businesses that produce green products or use green processes in the manufacture of goods and services.” Company’s website hyped program as “nation’s leading certification for green businesses with over 45,000 certifications in the US.”

TG said that to qualify for "Rapid” certification, companies had to “answer series of questions about green activities your business participates in.”  To qualify for “Pro” Certification, companies had to supply the same documentation, but TG required more: a possible site visit “to verify the green practices are legitimate and meet universal green standards.”

Certs and Seals: FTC Enforcement

Despite those claims, FTC said no applicant was required to answer series of questions about their business’ green activities, and no applicant for Pro certification was ever subject to site visit as condition of certification. 

According to FTC, only “green” activity company insisted on was ponying up $189.95 for Rapid certification or $549.95 for Pro version.

FTC charged that as soon as businesses paid the fee, TG sent them logo and “certification verification page” they could use to advertise their TG certified status.

Also, TG claimed that its program was endorsed by the “National Green Business Association” and the “National Association of Government Contractors.”

According to FTC, they were not independent industry groups, but businesses owned and operated by respondent Claeys.

Certs and Seals: FTC Enforcement

FTC’s complaint alleged that TG’s certifications conveyed false claim that products or services bearing the certification had been independently and objectively evaluated based on their environmental attributes or benefits. 

Additionally, by furnishing businesses with certification and tools to advertise it, TG provided them with what they needed to commit deceptive acts and practices – the “means and instrumentalities” – which is itself a deceptive act in violation of Section 5 of FTC Act.

FTC also charged that TG’s use of “endorsements” from National Green Business Association and National Association of Government Contractors was false and misleading, since they owned and operated both groups.  Failure to disclose relationship between two groups and TG was also alleged to be a deceptive practice.

Certs and Seals: FTC Enforcement

For Release: 01/11/2011 FTC Settlement Ends "Tested Green" Certifications That Were

Neither Tested Nor Green Company Allegedly Charged Up To $549.95 for Worthless

Environmental Labels From FTC PR announcing settlement: “It’s really tough for most people to know whether green or

environmental claims are credible,” said David Vladeck, director of the FTC’s Bureau of Consumer Protection.

“Legitimate seals and certifications are a useful tool that can help consumers choose where to place their trust and how to spend their money. The FTC will continue to weed out deceptive seals and certifications like the one in this case.”

FTC approved final Order on February 23, 2011.

FTC vs. Tested Green [cont’d]

Order settles FTC’s charges against respondents, prohibits them from misrepresenting that:• an outside party has evaluated a product, service, package, or

program based on its environmental attributes; • that they have or a third party has the expertise to evaluate the

environmental benefits or attributes of a product, service, package, or program;

• the number of certifications they have issued; and • that a product, package, certification, service, package, or program

is endorsed by any person or organization.

Order also bars respondents from helping anyone else make false or misleading statements in connection with conduct described above, and

Bars them from making representations about user or endorser unless they clearly/prominently disclose any connection they have w/endorser.

Order contains reporting obligations and other provisions to ensure compliance with its terms, and expires in 20 years.

Best Practices/Next Steps re: certs. and seals*Don’t state/imply independent endorsement/certification unless true.*Don’t use broad/unqualified certs or seals-they likely convey general envir. benefit claim; FTC: “highly unlikely” that advertisers can back them up.*Accompany cert/seal with clear/prominent language limiting implied general environmental benefits to particular attributes you can substantiate.

*Cert or Seal does NOT = substantiation; advertiser still must have substantiation for claim, BEFORE claim is made.*Certs/Seals DO = Endorsements, so Disclose any material connections between endorser and seller.

*More consumer companies will now seek out third-party certification:*Guides say they’re about stopping deception, not promotion of green claims, but in fact they are coming out in favor of credible 3rd-party certification programs and making that the norm.*Now when companies make cert/seal claims, they must make sure it's explained and relationships are disclosed; they can't make blanket claims and they can't certify themselves. These revisions will level playing field.

Other FTC Enforcement Actions vs. Deceptive Green Marketing

In addition to the Tested Green case, FTC has brought other enforcement actions recently re: green claims

FTC: these cases are “part of overall effort to ensure that environmental marketing is truthful and substantiated”

FTC Release: 02/22/2012Window Marketers Settle FTC Charges of Deceptive Energy Efficient/Cost Savings Claims 5 replacement window companies must stop

making exaggerated & unsupported claims about energy efficiency of their windows and how much $ consumers could save on heating/cooling bills by installing them [e.g., “cut energy bills in ½”], under settlements with FTC that prohibit these deceptive claims.

"Energy efficiency and cost savings are major factors for many consumers buying replacement windows," said David Vladeck, Director of FTC's Bureau of Consumer Protection. "The FTC is committed to making sure that the information consumers get is accurate and that marketers can back up the claims they make."

FTC also issued new consumer education publication, "Shopping for New Windows," providing info on factors that affect energy savings replacement windows are likely to provide; things to consider when shopping for new windows; and how energy performance rating labels can help consumers choose the best windows for their needs.

8/29/12: FTC Warns Replacement Window Marketers to Review Marketing Materials; Must Back Savings Claims With Scientific Evidence

FTC warned 14 window makers and 1 window glass maker that they may be making deceptive energy savings claims for replacement windows. Highlights of letters:

• FTC reviewed company’s website and found claims similar to those challenged in administrative complaints FTC filed earlier this year against 5 companies.

• Companies agreed to orders barring them from making exaggerated and unsupported claims about their windows’ energy efficiency and how much $ consumers could save on energy or heating/cooling bills by installing them.

• Energy savings claims [e.g., consumers will save more than 30%t on their energy or heating/cooling bills by installing replacement windows] that aren’t substantiated by competent and reliable scientific evidence, violate the FTC Act;

• FTC made no determination whether companies are violating the law, but urged recipients to review marketing materials with the following in mind:

Energy-savings claims must be backed by scientific evidence. Be specific about the type of savings consumers can expect. Avoid deception when making “up to” claims. Avoid deception when selecting home characteristics for modeling. Clearly and prominently disclose any assumptions. Exercise care in using testimonials or “case studies.” *Manufacturers may be liable for misleading or unsubstantiated claims made to

dealers or retailers, in addition to claims made directly to consumers.

•At National Advertising Division [self-reg arm of BBB for competitor challenges] annual conference, Oct. 1: FTC officials announced final revised Green Guides and stated that it

would follow up revised Guides with “aggressive” law enforcement. “Our purpose is to make sure consumers that want to buy green

products are getting truthful information,” said James Kohm, FTC’s associate director of enforcement.

"There are two kinds of companies; those that live over the line and those that step over the line. The Guides are written for companies that are trying to get it right.”

Revised Guides should be examined carefully; they’re guidance not laws, but marketers ignore them at their peril.

FTC will increase enforcement in environmental area, now that it’s finished updating the Guides.

And competitors now have more ammunition to bring NAD challenges.

QUESTIONS?Thomas A. Cohn, Partner, LeClairRyan

Thomas.Cohn@LeClairRyan.comhttp://www.leclairryan.com/thomas-a-cohn/