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FTC Green Guides Enforcement Actions: Are You Protected?

Imagine the impact on your business from a Federal Trade Commission (FTC) enforcement action against not only your company, but your customers, too.  That’s exactly what happened to ECM Biofuels in October 2013.

According to the FTC, ECM used false and misleading unsubstantiated environmental benefit claims in marketing its plastics additive to manufacturers. The FTC’s new-found interest in enforcing rules against environmental claims that are allegedly false, misleading, or unsubstantiated springs from its revised “Green Guides”, finalized in late 2012 after two years of study and public comment.  Recognizing that consumers prefer environmentally friendly products, the FTC is cracking down on “greenwashing” marketing practices, which erode consumer confidence and undermine companies that sell by the rules.

At issue in the FTC’s action against ECM is ECM’s claim that its “Master Batch” pellets “Transform any Plastic into Biodegradable Plastic!” in approximately nine months to five years.  ECM’s customers, eager to appeal to environmentally-conscious consumers, incorporated the additive into their products and ECM’s environmental claims into their marketing.  As a result, ECM and two of its customers – American Plastic Manufacturing and CHAMP – recently faced complaints from the FTC. American Plastic Manufacturing and CHAMP settled their cases by entering into consent orders with the FTC. ECM is still fighting.  In December 2015 it won a stay of the FTC’s order pending review of the case by the Sixth Circuit Court of Appeals.

Since early 2013 when enforcement of the 2012 Green Guides began, the FTC has filed twenty-eight actions related to environmental marketing.  Initially, the FTC focused on plastic additives.  In addition to ECM, American Plastic Manufacturing, and CHAMP, two other companies faced complaints related to biodegradable plastic claims:  Clear Choice Housewares sold food storage containers under the brand “FARBERWARE® EcoFresh” and Carnie Cap, Inc. makes plastic cap covers for rebar.  Both entered into consent orders in late 2013.

Next up in the FTC’s cross hairs:  Relief-Mart Inc.,  EcoBaby Organics Inc. and Essentia Natural Memory Foam Company, Inc. for claims that their mattresses were free of “VOCs” and other “chemicals.”  All three entered into consent order settlements with the FTC.

Other enforcement actions involved claims related to LED light bulbs“recyclable” lumber made from “recycled” plastic (when in truth, the recycled content was low and recycling centers could not accommodate the product), “biodegradable” baby diapers and wipes that do not biodegrade in landfills, and “flushable” toilet wipes that destroy plumbing.

The FTC scored two clear victories for consumers cheated by false energy efficiency claims.  A federal judge awarded the FTC $800,000 from Green Foot Global LLC (and the company’s individual owners) for false and misleading claims that its “eco-friendly” fuel additive boosted fuel economy and reduced emissions.  Green Millionaire LLC coughed up $1.9 million after scamming consumers with its “free gas for life” e-book.  Consumers who bought these products will be partially reimbursed.

The FTC also pursued a two-time offender.  In 2013,  AJM Packaging Corporation paid a $450,000 civil penalty for violating a 1994 FTC consent order that required it to have “competent and reliable evidence” to substantiate claims that its products are biodegradable, compostable or recyclable.  As with the other consent orders, AJM did not admit the violations.

Most recently, in December 2015, the FTC filed complaints against J.C. Penney, Nordstrom, Bed, Bath and Beyond, and Backcountry.com for claims that bamboo fabric chemically altered into rayon was still “bamboo.”  Potential fines total $1.3 million. These companies might have saved some money if they’d been paying attention.  In 2013, the FTC fined Amazon.com, Leon Max, Inc., Macy’s, and Sears, Roebuck and Co./ Kmarta total of $1.23 million for the exact same misleading claim.

It’s clear that greenwashing – once a standard marketing practice – faces heightened scrutiny either from FTC-initiated action or from complaints to the FTC from consumers or competitors.

While the underlying issues may vary, the Green Guides do not.  Whether your products are “compostable”, “recyclable”, “non-toxic”, “free of . . .”, “made with renewable energy”, “carbon offset” or “eco-friendly” you need competent and reliable scientific evidence supporting your unqualified claim before you make it. Third-party certifications can supplement your scientific evidence, but not replace it, and if you have any material connections to the certifying organization, you must disclose it.

If you don’t have the data, be sure your claim is accurately qualified so that overly general claims don’t trigger a compliance issue.  Do not claim a “free from . . .” benefit when the missing substance isn’t there to begin with; “gluten-free rice” is a misleading claim because all plain rice is gluten-free.  Qualifying language may be especially important for more complex claims related to recyclability, compost-ability, renewable/ recycled materials, or products made using renewable energy.  Likewise, you should give careful thought to the physical placement of symbols because they could result in complaints that you are misleading customers.

Sustainability and its environmental stewardship component are now mainstream business management practices.  Mounting evidence shows that companies with robust sustainability initiatives reap significant operational and strategic benefits.  With the right measurement tools in place, sustainable companies can generate the supporting evidence needed to make green marketing claims in compliance with FTC regulations.  Now that the FTC is vigorously enforcing the rules against greenwashing, “green” marketing is just one more advantage enjoyed by highly sustainable companies.

Tricia Dunlap is a business attorney and sustainability consultant with particular expertise in sustainability accounting, disclosures, and reporting.  She focuses on how companies and investors can measure, track, and manage non-financial business risks.  In September 2015, she left McGuireWoods LLP and launched her own law and consulting firms.  She frequently speaks and writes on sustainability and business issues.

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