Free: 'Green' Is So Appealing

http://www.law.com/jsp/nylj/PubArticleNY.jsp?id=1202424493387

The marketing community has discovered the power of "green marketing." Over the last year, brands have invested heavily in advertising devoted to promoting products, services and brands as being "eco-friendly," "carbon-neutral" and environmentally "sustainable," among other environmental buzzwords. Consumers are urged to buy "green" not only for their own sake, but also for the very survival of the earth and its climate. For example, they are bombarded with glossy ads touting the environmental improvements in energy production, automobile manufacture and forestry. And, they are offered cleaners and detergents that contain only biodegradable, non-toxic ingredients.

Such ads often seek to convince consumers that they can help the environment, while making little personal sacrifice. The premise is that the consumer can buy the advertised eco-friendly product instead of the environmentally inferior alternative, while obtaining equivalent or better product performance at a comparable price. Presented with a choice between two such comparably performing products, consumers will often choose and even pay more for the product that best fulfills their personal desire to improve the environment. Green marketers have succeeded in adding environmental performance to the list of factors consumers will consider before purchase, even for those products never before marketed with environmental claims.

While green marketing claims can be a highly effective marketing tool, many consumers unfortunately lack the information or knowledge necessary to assess these claims on their own.

Green marketing claims are considered "credence claims," to borrow Federal Trade Commission parlance. In other words, the consumer must take the advertiser's word for it that the product is environmentally friendly. While the average consumers can determine on their own whether a "non-toxic" cleaner removes stains, they are not capable of verifying whether that cleaner kills germs as well as a traditional brand, or whether the multi-syllabic ingredients on the label are really "environmentally friendly."

Advertisers are struggling with the lack of published guidance regarding how to substantiate and accurately describe the environmental benefits of their products. Present regulation and guidance is outdated, having been written at a time when the only common green marketing claims were terms like "recyclable," "biodegradable" and "ozone safe." This first generation of environmental marketing claims was relatively easier to understand, define and support.

Today, not only have technologies and materials changed, but consumer concern for the environment reaches far earlier into the product life cycle. Consumers' purchase decisions may be driven as much by the externalities of product production as by what happens to the product after it is thrown away. Many consumers pay attention to pollution, raw materials, ingredients, and energy consumption both in production and transport to market.

This shift in consumer attitudes, and marketers' intense focus on environmental issues has outpaced the development of regulation. The gap may be narrowing, however, as we discuss below.

First, the Federal Trade Commission is developing updated standards for environmental advertising claims. Second, private industry has begun to police itself in the green marketing area through self-regulation and private standard-setting organizations. And third, private false advertising litigation has kicked into gear against alleged instances of deception.¹ We examine each development in more detail below.

FTC Revisions to Green Guides

The Federal Trade Commission polices advertising claims under Section 5 of the FTC Act. This includes most environmental marketing claims.

As with all other advertising claims, green marketing claims must comply with the longstanding rules, articulated in FTC's Deception Policy Statement, that an advertiser must have substantiation for all reasonable interpretations of the advertising claims it makes, and that this substantiation must consist of a competent and reliable basis for the claims.

In 1992, the FTC issued the first edition of its industry guides regarding environmental marketing claims, which is still in effect. Now commonly called the "Green Guides," these guides specifically define terms such as "recyclable" and "biodegradable" and provide examples of how to phrase and substantiate such claims in a variety of situations. Another area the Guides address in detail is claims regarding chlorofluorocarbons and "ozone-friendly" products. This was a hot issue in 1992, on the heels of the Montreal Protocol, but is relatively insignificant today due to the successful phaseout of CFC-depleting products.

More recently, in response to the new wave of green marketing claims such as "sustainable," "eco-friendly" and "carbon neutral," the FTC has begun the process of updating the 15-year-old Green Guides. It has convened a series of public workshops to gather information on current issues and concerns relating to environmental claims.

The first workshop, which took place in January 2008, focused on the entirely new category of green claims relating to global warming issues, such as renewable energy and carbon offsets. The second, a few months later, dealt with green packaging claims. And the third, which took place in July, addressed green buildings and textiles.

Efforts to update the Green Guides may not be easy; illustrating the difficulty is the now-ubiquitous marketing term "sustainable." While this word is often used loosely by marketers to convey a general sense of products or production practices that do not degrade the environment over time, certain industries have adopted very specific and quantifiable definitions.

In the forestry industry, for example, competing organizations have published standards that include detailed definitions of "sustainable forestry." There are sustainability standards issued by the Sustainable Forestry Initiative (SFI), Canadian Standards Association (CSA), and the International Organization for Standardization (ISO). SFI, for example, will license the use of its certification label to a licensee that substantiates claims regarding the percentage of fiber obtained from independently certified forests adhering to sustainable forestry practices.

The FTC likely does not want to substitute its judgment here for that of forestry industry experts, and representatives of the forest industry who submitted comments at the workshop generally asked that FTC not disrupt their own efforts at self-regulation. It is likely the FTC will endorse such efforts, and continue to monitor the standard-setting organizations and standard-setting process. The question remains, however, whether the marketing buzzword will retain any meaning beyond those specific applications.

Another thorny area involves the advertising of claims related to carbon offsets and Renewable Energy Credits (RECs). Carbon offsets are the process for mitigating or offsetting the emissions of carbon dioxide, a greenhouse gas. Advertisers sometimes sell products promising to offset the greenhouse gas emitted in the production or use of a product by funding or engaging in projects like wind farms, tree planting, or methane-capture facilities. Advertisers also may promise that the product was produced with RECs offsetting conventional fossil fuel energy sources. RECs are tradable commodities representing proof that a certain amount of electricity was generated from an eligible renewable energy resource.

Although the FTC said, in comments leading up to the workshops, that it believes use of the term "carbon offsets" in advertising could be inherently misleading if the ad does not specify the particular manner in which reductions in carbon emissions have been obtained, adopting a specific standard for such disclosures may be tricky.

As one participant in the workshops pointed out, there are currently four proposed U.S. regional greenhouse gas cap-and-trade programs,² nearly 30 mandatory state regional energy portfolio standards (and more possibly on the way), and voluntary REC and carbon offset markets, all with varying, and sometimes conflicting requirements. Thus, the standards for what is a "carbon offset" and REC are not uniform, and may not be for many years. Will it be sufficient for an advertiser to include a disclosure referencing one of these evolving programs? For now, this seems the only solution.

Extensive debate also continues to focus on the concept of proving emissions offset "additionality." In other words, would the claimed carbon offset or emission reduction have occurred even if the consumer had not engaged in the transaction with the advertiser? The issues surrounding measurement, verification and proof are highly complex, and the FTC will need to consider a broad array of potential claims.

For example, can an energy company claim in advertising that it is reducing or offsetting carbon emissions based on using more nuclear energy instead of fossil fuels? Can a petroleum refiner make such claims if it employs greenhouse gas sequestration technologies? Can an electronics manufacturer make such claims if it fosters demand-reduction programs by consumers? How does one even count the pounds of carbon offset per transaction?

Debate also surrounds the use of reforestation efforts in order to offset carbon emissions. While live trees remove carbon dioxide from the air, decaying trees re-release that carbon to the atmosphere. Furthermore, not all trees, and not all latitudes, provide equivalent carbon removal. Must an advertiser specify the type and location of the trees planted? Would such a disclosure have any meaningful impact on the average, reasonable consumer?

The FTC also proposes to address claims of general environmental benefit, such as "eco-friendly," "green" and logos that imply such ideas. Under the existing Guides, such claims are permissible, so long as they are accompanied by qualifying language limiting the representation to the attribute or attributes for which the claim can be substantiated. The FTC's current standards here permit an advertiser to tout the "eco-friendly" benefit of one aspect of the product, such as its packaging, while never mentioning the overall environmental impact of product production and use.

Some bottled water sellers promote the use of thinner plastic bottles that use less plastic, thereby reducing the amount of plastic that gets landfilled or recycled. The FTC is now considering whether they can continue to emphasize this "environmental friendly" aspect in marketing, while omitting any mention of the overall environmental costs associated with the production, transportation and disposal of plastic water bottles.

In light of these uncertainties, it seems likely that the FTC will chart a careful course. Since the agency's goal is to preserve and support proper market functioning, it is unlikely to set prescriptive performance requirements that would have the effect of constraining emerging markets for renewable energy credits and carbon offsets. The FTC will likely articulate general standards of substantiation and clarity of disclosure and communication, while reserving the ability to assess each claim on a case-by-case basis in the future.

For marketers, this means that the updated Green Guides will not conclusively answer many important questions. Even after the Guides are reissued, advertisers will have to make judgment calls about substantiation for environmental claims, particularly in the evolving areas of RECs and carbon offsets, lifecycle assessments, and sustainability.

The National Advertising Division

The National Advertising Division (NAD) is an industry self-regulation arbitration forum set up under the auspices of the Council of Better Business Bureaus. The NAD's staff of full time advertising attorneys reviews and decides advertising challenges brought by industry competitors, public interest groups, consumers, and NAD itself through its self-monitoring program. Although the NAD process is voluntary and the NAD cannot directly enforce compliance with its written recommendations, advertisers comply over 95 percent of the time.

The NAD has heard a number of significant and interesting challenges regarding green marketing claims in the last two years, which will have an important impact on how such claims are made in the future.

The NAD's watershed case involving environmental claims involved advertising for household cleaning products. Seventh Generation, Household Cleaning Products, NAD Case #4488 (05/08/2006). Among other things, Seventh Generation claimed in ads that its products "don't create fumes or leave residues that may affect the health of your family or your pets," the way "traditional counterparts can." Seventh Generation's ads also urged consumers to stop using chlorine bleach and to buy Seventh Generation's chlorine-free bleach alternative instead, because chlorine bleach is "toxic."

The ads were challenged by Clorox, which argued that the claims were overbroad and unsupported, citing extensive evidence that sodium hypochlorite bleach, as formulated for home use, is not known to cause adverse health effects. Clorox provided evidence that the vapors of chlorine bleach, and even drinking bleach, are not as harmful as may commonly be believed. As Clorox argued, the LD50 (a measure of acute toxicity) for sodium hypochlorite is equivalent to that for Seventh Generation's competing product.

In its decision, the NAD adopted an approach that characterizes all of its subsequent decisions on environmental claims. The issue, in NAD's view, was less about the benefits of an environmentally friendly product, than about the advertiser's broad and denigrating comparative claims. The NAD ultimately held that Seventh Generation's claims overstated the risks from using sodium hypochlorite bleach, and recommended that the advertiser discontinue express and implied claims that traditional bleaches are hazardous or cause health risks.

A second, more complicated environmental dispute played out in the NAD forum just a few months later. In Born Free, LLC, BornFree Baby Bottles, NAD Case #4626 (2/1/2007), the American Chemistry Council challenged advertising claims for a brand of baby bottles that had been manufactured without bisphenol A (BPA), a chemical that has been alleged to cause endocrine disruption.

The advertiser, citing emerging data regarding the health risks of BPA at low doses, made a variety of claims designed to convince parents that its BPA-free bottles were a "safer," "healthier" and less hazardous choice for babies than bottles made with BPA. The challenger attacked these claims as overbroad, unqualified and unsubstantiated, and argued that the claims were supported merely by the "Precautionary Principle" and not concrete clinical evidence.

In resolving the case, the NAD was faced with a wealth of contradictory data and argument regarding the health risks of BPA. Rather than attempting to resolve in the first instance the broad and difficult question of whether BPA is really harmful to babies, the NAD charted a narrower course.

It found that there was adequate evidence that BPA, as a stand-alone ingredient or chemical, could be reasonably characterized as an endocrine disruptor (based on studies of BPA effects in animals and humans). However, it also concluded that the advertiser had inadequate evidence that BPA could leach from baby bottles at levels found in the published literature to cause this type of harm. It therefore recommended that the advertiser discontinue claims suggesting that polycarbonate bottles containing BPA are comparatively riskier to babies, absent direct, comparative clinical evidence of health outcomes.

Clorox itself more recently became the defendant in an NAD advertising challenge lodged by S.C. Johnson & Son. In that case, SCJ challenged claims for Clorox's new GreenWorks(tm) line of cleaning products in which Clorox advertised in various ways (both in words and through visuals) that "GreenWorks cleaning products work just as well as traditional cleaners." At issue in the case was not the environmental benefit of using the GreenWorks product, which has been endorsed by the Sierra Club in an unusual partnership, but rather the more pedestrian issue of whether the GreenWorks products in fact cleaned as well as ordinary cleaners.

After reviewing reams of competing tests on soil and grease removal, NAD concluded that Clorox could indeed continue to claim parity of cleaning in all but one respect - antibacterial effect. With respect to germ-killing benefit, NAD recommended that, since most consumers have come to expect their hard surface cleaners to kill germs, Clorox should make clear that its product does not necessarily kill germs as well as the more traditional alternatives.

These initial NAD cases suggest that, absent more precise guidance, the NAD does not seem inclined at present to set specific standards governing environmental claims. NAD remains focused on the truthfulness of the product efficacy claims, and seems unwilling to create new or different rules for green marketing.

Lanham Act Litigation

Environmental advertising claims have also been challenged in private false advertising litigation, brought under §43(a) of the Lanham Act. 15 U.S.C. §1125(a).

In one recent notable case, Lexmark, a company that manufactures and remanufactures computer printer toner cartridges, was accused of falsely advertising to consumers that all or most of the printer ink cartridges that they return to Lexmark will be remanufactured or recycled. Static Control Components Inc. v. Lexmark International Inc., 487 F. Supp.2d 861 (E.D. Ky. 2007).

Evidence showed that consumers believed that the program was created to encourage recycling and improve the environment. Yet discovery demonstrated that a great many of the returned cartridges were actually incinerated, and not recycled in the ordinary sense of the word.

The court nevertheless denied a plaintiff's motion for summary judgment against Lexmark, finding that there was a factual dispute to be resolved at trial regarding whether incineration could be properly characterized as "thermal recycling." The court also left for jury decision the issue of whether the "environmentally friendly" message of the cartridge return program was literally or implicitly false.

In a pitched battle of bottled water producers, Vermont Pure sued Nestle, which produces Poland Spring brand bottled water, for allegedly misrepresenting in advertising the purity and source of Poland Spring waters. Vermont Pure Holdings, Ltd. v. Nestle Waters North America Inc., 2006 U.S. Dist. LEXIS 13683 (D.Mass. 2006). Vermont Pure alleged that Poland Spring water had never been extracted from the actual "Poland Spring" in Maine, nor did it derive from "some of the most pristine and protected sources deep in the woods of Maine," as advertised.

Rather, alleged Vermont Pure, the water used in bottling Poland Spring was actually obtained from a series of gravel packed wells from four different places, and also trucked in from undisclosed out-of-state sources. Moreover, the plaintiff alleged, the method of water extraction used by Nestle actually contaminated ground and well water.

Finally, plaintiff also alleged that the bottled water was not "pure" as advertised, but had been found to contain various contaminants, including fecal coliform bacteria.

The court denied Nestle's motions to dismiss these claims on grounds of FDA preemption. The case later settled, with Nestle continuing to deny liability, but paying to Vermont Pure the amount of $750,000.

Another prominent recent litigation involved Merisant's allegations that McNeil Nutritionals, the makers of Splenda(r) brand sucralose sweetener, had misled consumers with its longstanding claim that Splenda was "Made from sugar so it tastes like sugar." Looming large in the dispute was the core allegation that Splenda had been positioned as an "all-natural" sweetener, when in fact it was created through a process involving chlorination of the sugar molecule. Merisant and McNeil settled their case for undisclosed terms, but a separate lawsuit against McNeil, brought by the Sugar Association, is still pending.

Future Trends

Because green marketing claims are appealing to consumers, their use by marketers is likely to increase even further.

Once the FTC reissues the Green Guides, or perhaps even before that time, the FTC will likely begin a series of targeted enforcement actions designed to send a message to marketers that the more egregious falsehoods should be stopped. If past history is any guide, enforcement actions will likely be targeted at a few brand name companies that will draw greater attention to the issue. At the same time, private litigants will continue to police each others' claims through the mechanisms of the NAD and Lanham Act litigation.

Thus, while standards applicable to the currently "hot" environmental claims are still in development, marketers would be well advised to ensure that, as with all advertising claims, they have a reasonable basis for the eco-friendly benefits they tout.

In particular, to the extent that green marketing claims are made for a product, marketers should be careful to indicate, which if any components of the product the benefits relate to and marketers should avoid exaggerating the overall environmental benefits of their products based on the presence of a specific eco-friendly attribute. These are the kinds of claims that have gotten marketers in trouble in the past and are likely to continue to attract scrutiny while more particularized standards are being developed.

Christopher A. Cole and Linda A. Goldstein are partners at Manatt, Phelps & Phillips. Mr. Cole, from the Washington, D.C. office, is a litigator specializing in advertising issues. Ms. Goldstein, from Manatt's New York office, is the chair of the firm's advertising, marketing and media group.

Endnotes:

1. Due to space limitations, we do not address numerous class action complaints regarding allegedly false green marketing claims. There is every reason to believe that these consumer fraud class actions will continue to proliferate.

2. The whole concept of trading credits for greenhouse gases and other pollutants may itself be in turmoil in light of the D.C. Circuit's blockbuster decision in North Carolina v. EPA, No. 05-1244 (July 11, 2008), which vacated and remanded EPA's proposed Clean Air Interstate Rule (CAIR), which would have created a trading program for sources contributing to particulate and ozone pollution.