The Federal Trade Commission (“FTC”) recently issued the final revisions to its “Guides for the Use of Environmental Marketing Claims” (“Green Guides” or “Guides”). Initially introduced in 1992 and last revised in 1998, the release of the Green Guides culminated a five-year process of review, analysis, and collecting of comments by the Federal Trade Commission (“FTC”). The Green Guides are designed to help marketers avoid making claims about the environmental attributes of a product that are unfair or deceptive. The final Green Guides marks the first time the FTC has cautioned marketers about environmental marketing claims in both the energy industry and business-to-business transactions.

What is New in the Green Guides

For the first time, the FTC clarified that the Guides will also apply to business-to-business transactions involving products that will ultimately be used by consumers. Also, for the first time the revised Guides address renewable energy, renewable materials, renewable energy certificates (RECs) and carbon offsets. The Green Guides also include significant restrictions and qualifications in the use of important terms such as “recyclable,” “recycled content,” “free-degradable” and “compostable,” as well as provide guidance regarding the use of general “green” and “eco-friendly” claims and environmental certifications and seals. Consistent with past practice, the FTC has continued to avoid defining or qualifying the use of some more contentious terms including natural, organic, sustainable and life cycle analysis, but did address “non-toxic” and “free of” claims. The Green Guides contain numerous new and extensively revised examples illustrating the FTC’s view of the application of the Guides in particular circumstances. Since the FTC made clear it is unlikely to revisit the Guides for another decade, marketers can expect that the final revised Guides and the analytical approach set out to interpret their application will remain the basis for guidance for many years. Familiarity with the Guides is important to all consumer product marketers, including those in the energy and food and drug industries, as well as business-to-business marketers who market products that will end up being used by consumers.

General Environmental Benefit Claims

The final Guides caution marketers not to make broad, unqualified claims that a product is “green” or “environmentally-friendly,” or “eco-friendly,” because the FTC’s consumer perception study confirms that such claims are likely to suggest to consumers that the product has specific and far-reaching environmental benefits. The Green Guides state that very few products, if any, have all the attributes consumers seem to perceive from such claims, making the claims nearly impossible to substantiate. Further, if these broad environmental marketing claims are used, the FTC is likely to apply its usual rule that every marketing claim must be analyzed for all its reasonable interpretations, and that the marketer must have substantiation of reliable and competent scientific evidence for each reasonable interpretation.

Environmental Certifications and Seals of Approval

The final Guides state that unqualified environmental certifications and seals of approval should not be used because they may likely convey general environmental benefit claims. If environmental certifications and seals of approval are used, qualifying language must be included that is clear and prominent, and must clearly convey the specific and limited benefits which the certification/seal denotes.

With respect to third-party certifications and seals, the Guides expressly state that these also constitute endorsements that require compliance with the FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising. This means that a marketer using a certification must clearly and prominently disclose any material connections between itself and the certifying organization that are likely unexpected by consumers. For example, the Guides provide that the connection should be disclosed if the marketer is a dues-paying member of the relevant organization, or if the certifying organization is an industry trade association (whether or not the marketer is a member).

In addition, the final Green Guides state that third-party certification does not eliminate a marketer’s obligation to ensure that its substantiation for all

claims reasonably communicated by the certification should be limited to the specific product attributes for which there is substantiation, and care should be taken to avoid implications that an organization has conducted a product evaluation if it has not.

Renewable Energy, Renewal Materials, RECs and Carbon Offset Claims

For the first time, the revised Guides address renewable energy, renewable materials, RECs and carbon offsets. The Green Guides, in each instance, is limited to setting out only a few key principles.

The principles primarily are aimed at encouraging claims to be qualified based in part on information that the meaning of these claims is unclear to consumers. The final Guides state that “made with renewable energy” claims should not be asserted unless virtually all of the significant manufacturing processes are powered with renewable energy or conventional energy offset by renewable energy certificates and should not be made if any fossil fuel-derived power is used.

Regarding carbon offsets, the final Guides note that they are complex and state that competent and reliable scientific methods should be used to properly qualify carbon reductions and to ensure that the same reduction is not counted more than once. The Guides state that there must be clear and prominent disclosure that the carbon offset represents emission reductions that will not occur for two years or longer.

In addition, the Green Guides say carbon offsets should not be based on emission reductions that are required by law so as not to distinguish one marketer’s product from another. Based on its consumer research, the FTC concluded that unqualified claims “made with renewable materials” are likely to be interpreted to mean such products were made with recycled content or content that is recyclable and bio-degradable. Accordingly, the FTC says these claims need to be fully substantiated and prominently qualified.

“Organic,” “Sustainable,” “Natural,” “Non-toxic” and “Free of” Claims

The FTC declined to address the terms “organic,” “sustainable” and “natural,” but did address “non-toxic” and “free of” claims. Regarding “organic,” the FTC deferred to the expertise of the U.S. Department of Agriculture’s National Organic Program, which has issued standards for agricultural products. Regarding “sustainable” and “natural,” the FTC concluded that it did not have sufficient consumer perception data to provide general guidance and that these terms may be too fact-specific and dependent on context, referring to the definition of “natural” in the Meaning of Natural on the Label of Food of the U.S. Food and Drug Administration.

In contrast, the FTC concluded that it has sufficient evidence to state that “non-toxic” claims likely convey general environmental claims and require “competent and reliable scientific evidence” and qualification. The FTC updated its definition of such evidence to its current formulation of this standard, namely that it “should be sufficient in quantity and quality based on standards generally accepted in the relevant scientific fields, when considered in light of the entire body of relevant and reliable scientific evidence to substantiate that a representation is true.”

Regarding “free of” claims, the Guides state that they may be deceptive if another substance is present that poses a similar environmental risk or if the relevant substance has never been associated with the product category. The final Guides also add a three-part test to substantiate a “free of” claim: (1) the substances present only “trace contaminant” or background level of appearance, (2) the substance does not cause material harm that consumers typically associate with that substance at “that trace level,” and (3) the substance has not been added intentionally to the product. The Green Guides state that “trace contaminant” and “background level” are precise terms, and that their proper use will depend on the substance at issue and requires a case-by-case analysis. This expanded discussion in the new Guides will be of particular relevance in view of the increasing number of “free of” claims being made, such as “BP-free.”

Business-to-Business Claims

Significantly, the Green Guides now include for the first time language clarifying that they apply to “business-to-business transactions.” Companies selling to other businesses must be mindful that their marketing claims may be passed on to individual consumers and, accordingly, should be careful not to provide other businesses with the means and instrumentalities to engage in deceptive conduct. This is very significant “clarification,” as it has the potential to expand the application of the Green Guides well beyond consumer products sold at retail.

Clarification of Existing Guidance

The Green Guides also made clarification of existing guidance to:

  • Advise marketers not to make any unqualified, degradable claim for a solid waste product unless they can prove that the entire product or package will completely break down and return to nature within one year after customary disposal;
  • Caution that items destined for landfills, incinerators or recycling facilities will not degrade within a year, so marketers should not make unqualified degradable claims for these items; and
  • Clarify guidance on compostable, ozone, recyclable, recycled content and source reduction claims.

Legal Impact of the Guides

The Green Guides are not agency rules or regulations. Instead, they raise cautions about the types of environmental claims the FTC may find deceptive under Section 5 of the FTC Act. Under Section 5, the FTC can take enforcement action against deceptive claims, which ultimately can lead to FTC orders prohibiting deceptive advertising and marketing, and fines if those orders are later violated. In the past several years, the FTC has noticeably increased the number of enforcement cases based on marketing claims that are denounced in the Green Guides.

The Green Guides also discuss how they are intended to interact with international standards and federal, state and local laws. The FTC acknowledges that its efforts to harmonize the Green Guides with environmental marketing standards in ISO 14021 were not completely successful because the goals and purposes of the two sets of standards are not fully aligned. As a result, companies marketing products in both the U.S. market and foreign markets subject to ISO 14021 may need to modify marketing claims for each market to ensure compliance. With respect to federal, state and local laws, the Green Guides cannot directly conflict with, or preempt other legal requirements. While the FTC states that it will apply prosecutorial discretion when determining when to pursue enforcement, it also states that compliance with other laws is not a defense to FTC enforcement, and that the most prudent course is to comply with the most stringent requirements when faced with conflicting standards.

Implications

The final Green Guides raise many issues that must be given legal analysis in the specific context of the product or service being offered. Accordingly, experienced counsel should be engaged by marketers to analyze the Green Guides as applied to specific products or services and to draft appropriate disclosures and qualifications for use in advertising and marketing. Also, the FTC is not the only entity that may be scrutinizing environmental marketing claims based on the Green Guides. State Attorneys General may bring actions under Section 43(a) of the Federal Lanham Act to compel compliance with Section 5(a) of the Federal Trade Commission Act, while private consumers may use the Green Guides to indicate false or misleading advertising under one or more states’ false advertising, unfair competition or fraud laws. Additionally companies have, with increasing frequency, been bringing challenges regarding their competitors’ environmental marketing claims before the National Advertising Division of the Council of Better Business Bureaus which has self-regulatory powers to recommend compliance.