Decision Also Reiterates Appropriate Standards for Consumer Perception Surveys

On February 6, 2015, Chief Administrative Law Judge D. Michael Chappell announced his decision (“Initial Decision”) in the case of FTC vs. ECM BioFilms.  The Initial Decision rejects the FTC’s position codified in the FTC’s Guides for the Use of Environmental Marketing Claims (“Green Guides”) that “[i]t is deceptive to make an unqualified degradable claim for items entering the solid waste stream if the items do not completely decompose within one year after customary disposal.”   Judge Chappell was unpersuaded by the survey results submitted by the FTC to support its interpretation of unqualified “biodegradable” claims, ruling that the survey design “fails to comport with generally accepted standards for survey research, as well as the legal standards used by the Commission, and is insufficiently reliable or valid to draw any material conclusions.”    

Background

On October 18, 2013, the FTC filed an administrative complaint against ECM BioFilms alleging that the company, which markets additives under the trade name MasterBatch Pellets (“additives”), falsely claims that its additives can make plastic products (“ECM Plastics”) biodegradable.  According to the administrative complaint, ECM BioFilms advertised its additives as biodegradable via its website, marketing materials made available to distributors and manufacturers that incorporate ECM additives into their products, and “Certificates of Biodegradability of Plastic Products” issued to its customers.  Until 2013, ECM BioFilms advertisements also included express claims that plastic products containing the additives were proven to fully biodegrade in a landfill in nine months to five years. 

The administrative complaint charged that (1) ECM BioFilms’ additives do not biodegrade within a reasonably short period of time after disposal in a landfill or the specified nine month to five year time frame; (2) ECM BioFilms does not possess substantiation to support its claims that its additives make plastic products biodegradable; and (3) ECM BioFilms distributes promotional materials to its customers and independent distributors that provide them with “the means and instrumentalities” to disseminate the false and misleading biodegradability claims downstream to others in the ECM BioFilms supply chain.  

The trial began on August 5, 2014 and concluded on August 29, 2014.  The FTC had the burden of proving its case by a preponderance of the evidence. 

Overview of Decision and Order

According to the Initial Decision, the FTC demonstrated the following:

  • ECM BioFilms claimed that ECM Plastics were proven to completely biodegrade in a landfill in a time period ranging from nine months to five years and that these claims were deceptive, in violation of Section 5 of the FTC Act; and
  • ECM BioFilms provided the means and instrumentalities for these “deceptive” marketing claims to be conveyed to others in the ECM BioFilms supply chain, in violation of Section 5 of the FTC Act.

The Initial Decision determined, however, that the FTC failed to prove that ECM BioFilms’ unqualified biodegradable claims implied that ECM Plastics would completely biodegrade within one year of customary disposal—a claim that, if made, would have been unsubstantiated.     

The Meaning of “Biodegradable”

Both parties introduced extrinsic evidence regarding consumers’ understanding of the term “biodegradable.”  The FTC primarily relied on a Google Consumer Survey to support its position that consumers understand “biodegradable” to mean that a product will fully decompose within a year.1  The FTC submitted that, based on several questions in the Google survey, between 25% and 52% of respondents believed that a plastic product  labeled “biodegradable” will take less than one year to decompose.  Judge Chappell gave little weight to the Google Consumer Survey, noting in the Initial Decision that the survey “fails to comport with generally accepted standards for survey research, as well as the legal standards used by the Commission, and is insufficiently reliable or valid to draw any material conclusions.”  Fatal flaws in the Google Consumer Survey highlighted by the Initial Decision include use of a “pop-up” survey, where consumers were forced to fill out the survey in exchange for obtaining desired content; use of a “single-question” design, which the Judge Chappell deemed inappropriate to obtain consumer perception of the term “biodegradable”; improper coding of the results; and failure to establish that the Google survey sample was representative of the relevant population for ECM BioFilms’ advertising. 

In support of its position that consumers do not understand “biodegradable” to convey that a product will completely decompose within a year of disposal, ECM BioFilms offered a telephone survey that, according Judge Chappell, was conducted and designed “in accordance with the well-established principles of survey research offered in litigation, as articulated in the Manual for Complex Litigation.”  Not one respondent to the survey understood biodegradation to mean the complete breakdown of the substance into elements in nature within one year of customary disposal.  Instead, the survey indicated that consumers interpret the term ‘biodegradable’ to mean the process by which a product breaks down or decays, which varies in duration by product and is not restricted to decomposition processes that occur within one year. 

Judge Chappell also considered dictionary definitions of biodegradable and noted that the “plain meaning of the word ‘biodegradable,’…does not include any particular time frame for complete decomposition, much less complete decomposition, into elements found in nature, in a landfill, in one year.” 

After reviewing the extrinsic evidence Judge Chappell concluded that there was no basis for the FTC’s interpretation of “biodegradable” and that “rather, to find such an implied claim would be to ‘inject novel meanings into ads,’ which is improper.”  Judge Chappell then reviewed the ASTM D551 tests offered by ECM BioFilms in support of its position that the additives are biodegradable and concluded that they constitute competent and reliable scientific evidence demonstrating that ECM Plastics are biodegradable, including in a landfill, in the manner understood by consumers.

The Order

Judge Chappell’s decision narrows the proposed order included with the Administrative Complaint to solely cover misrepresentations regarding the time period in which complete biodegradation will occur using an ECM Biofilms additive product, rejecting the FTC’s position that broader provisions would be appropriate “fencing-in” relief.  Judge Chappell determined that the “the facts of this case militate against a broad remedial order,” noting that ECM BioFilms permanently ceased the claim found to have violated the FTC Act (the claim that products will fully decompose between nine months and five years); there was no evidence of economic harm to ordinary consumers; ECM BioFilms had no prior violations; and that, because the additive is the only product sold by ECM BioFilms, there is no risk that ECM BioFilms will make misleading claims about other products (described in the Initial Decision as “no issue of transferability”). 

The original order proposed by the FTC would have barred ECM BioFilms from making unqualified biodegradable claims or any environmental-benefit claims without possessing competent and reliable scientific evidence as defined by the order.  Judge Chappell rejected both provisions, concluding that they were not justified as fencing-in relief because the unqualified biodegradable claim was not reasonably related to the violations found to exist and ECM BioFilms’ use of general environmental-benefit claims was not litigated in the proceeding.  Judge Chappell also replaced the FTC’s proposed definition for “competent and reliable scientific evidence” with the longstanding definition traditionally used in FTC orders, stating “[a]s a matter of fundamental fairness, fencing-in relief must not include conduct that the government charged but could not prove.”  The FTC’s proposed definition—which it has included in other orders related to “biodegradable” claims—would have prohibited ECM BioFilms from making unqualified biodegradable claims absent competent and reliable scientific evidence that the product would fully decompose within one year of customary disposal. 

The order accompanying Judge Chappell’s ruling prohibits ECM BioFilms from “represent[ing], in any manner . . . that any product or package will completely biodegrade within any time period, or that tests prove such claims,” unless any such representation is true and not misleading, and at the time it is made, ECM BioFilms “possesses and relies upon competent and reliable scientific evidence that substantiates the representation.”  Under this order, ECM BioFilms would also be prohibited from providing others with the means and instrumentalities with which to make any false, unsubstantiated, or otherwise misleading representation – including through the use of endorsements or trade names – that any product or package will completely biodegrade within any particular time period, or that tests prove this representation.  The order has a duration of twenty years and includes the standard record-keeping, notification, and reporting requirements. 

The Appeals Process

Judge Chappell’s Initial Decision is subject to review by the full Federal Trade Commission on its own motion, or at the request of any party. An Initial Decision becomes the final decision of the Commission thirty days after it is served upon the parties, unless a party files a timely notice of appeal or the Commission places the case on its own docket for review.

Key Takeaways From the Initial Decision

While we expect the FTC to appeal Judge Chappell’s decision, it provides two important takeaways for all advertisers. 

Ensure Product Claims Align With Underlying Testing

The Initial Decision holds that ECM BioFilms possesses competent and reliable scientific evidence that its pellets are biodegradable but, nevertheless, violated the FTC Act by claiming that the pellets were proven to enable products to biodegrade within a specified time period (nine months to five years).  The ruling reinforces the importance of tailoring claims to align with the underlying science and only using quantified claims where competent and reliable scientific evidence confirms that the average product user could expect the specified results under typical conditions of use.

All Surveys Are Not Created Equal

Judge Chappell is critical of the FTC’s extrinsic evidence regarding consumers’ understanding of the term “biodegradable” in the Initial Decision, noting that not all surveys are appropriate for submission in a litigation as evidence of consumer understanding of a claim.  For example, when discrediting the Google Consumer Survey evidence submitted by the FTC, Judge Chappell states the following:        

"A Google Consumer Survey may well provide helpful information to those who need ‘to pre-test a marketing campaign, prioritize new product initiatives, or even gauge a reaction about a recent event [or]… track your brand to inform important business decisions,’ as claimed in Google’s marketing materials.  However, the Google survey is not of sufficient methodological quality to constitute probative evidence in litigation, under the Commission’s standards or the standards applicable to federal court in general."

Judge Chappell’s discussion of survey design reiterates the importance of confirming the intended use of a survey to ensure that the survey design conforms to legal standards that would be applied in future legal, regulatory, or arbitration proceedings.