This issue of SalesWatch will examine the history and status of environmental marketing claims, and the enforcement activities of the Federal Trade Commission ("FTC") in this arena. Since the 1992 adoption of its Guides for the Use of Environmental Marketing Claims ("Guides"), the FTC has continued to enforce its statutory mandate to prohibit false and misleading claims through a case-by-case approach to environmental claims relating to consumer products. In the past three years, the FTC has entered into twenty-two consent orders with a variety of companies and individuals, settling charges that they made false or unsubstantiated environmental claims about their products. The advertising claims challenged in these cases include all of the green marketing terms near and dear to the hearts of all marketers such as "environmentally safe," "recyclable," "recycled," "ozone friendly," "degradable," "recyclable via municipal composting," "practically non-toxic," and "chlorine-free process."
Throughout the late 1980s and early 1990s, consumer interest in environmentally compatible products grew dramatically. Various consumer polls showed that shoppers change their purchasing decisions based on concerns about the environment. The data indicated three trends: (1) consumers avoided purchasing a product because they believed the product or package was environmentally harmful; (2) consumers purchased a product specifically because of environmental advertising or labeling; and (3) consumers were willing to pay more for products perceived as environmentally preferable. Given these strong statements of consumer concern and preferences, it is not surprising that marketers increased their advertising and labeling of "environmentally friendly" products.
When environmental marketing mushroomed in the late 1980s and early 1990s, many of the claims were exaggerated and unsubstantiated. Many agencies and organizations expressed concerns that there was little truth in environmental advertising. The FTC addressed this problem by investigating individual cases of possible false advertising, such as plastic bags and diapers that claimed to be biodegradable, and aerosol sprays that contained ozone-depleting chemicals yet claimed to be ozone friendly. Initiating individual cases, however, was simply not enough.
Because of the lack of formal regulation at the federal level, some states enacted consumer protection statutes restricting what manufacturers, marketers, and advertisers could say in green marketing claims. In addition, the National Association of State Attorneys General in 1990 formed a task force to examine the regulation of environmental marketing claims. This eleven member task force issued two reports, Green Report and Green Report II, that provided recommendations for regulating environmental marketing claims.
Faced with many, and sometimes conflicting, environmental marketing statutes at the state level, several industry trade associations, environmental groups, and state and local law enforcement agencies called for federal action. Some concluded that across-the-board guidance to advertisers was necessary. Such guidance could clarify to advertisers when the FTC would or would not bring an enforcement action against an environmental claim -- in other words, provide a level playing field for advertisers wishing to promote the environmental attributes of their products. Responding to this call, in July 1992 the FTC issued its Guides for the Use of Environmental Marketing Claims ("Guides"), which are codified at Title 16 of the Code of Federal Regulations, Part 260.
The Guides were adopted by the FTC on July 28, 1992, and published in the Federal Register on August 13, 1992 (57 FR 36,363 (1992)). The FTC promulgates industry guides "when it appears to the Commission that guidance as to the legal requirements applicable to particular practices would be beneficial in the public interest and would serve to bring about more widespread and equitable observance of laws administered by the Commission." 16 CFR 1.6. Like other industry guides issued by the FTC, the Environmental Marketing Guides "are administrative interpretations of laws administered by the FTC for the guidance of the public in conducting its affairs in conformity with legal requirements. They provide the basis for voluntary and simultaneous abandonment of unlawful practices by members of industry." 16 CFR 1.5. Conduct inconsistent with the Guides may result in corrective action by the FTC if the conduct is found to be in violation of applicable statutory provisions.
The Guides indicate how the FTC applies Section 5 of the Federal Trade Commission Act ("FTC Act") in the area of environmental marketing claims.1 (Section 5 of the FTC Act prohibits unfair or deceptive advertising claims.) The Guides encompass all forms of product marketing to the public, whether through labels, package inserts, promotional materials, and all other forms of marketing, asserted directly or by implication, through words, symbols, emblems, logos, depictions, product brand names, or through any other means. The Guides are applicable to any claim about the environmental attributes of a product or package in connection with the sale, offering for sale, or marketing of such product or package for personal, family or household use, or for commercial, institutional or industrial use.
The Guides reiterate the FTC's policy regarding the application of Section 5 to advertising claims generally, as enunciated in the FTC's Policy Statement on Deception,2 and its Policy Statement on the Advertising Substantiation Doctrine. Essentially, any party making an express or implied claim that presents an objective assertion about the environmental attribute of a product or package must, at the time the claim is made, possess and rely upon a reasonable basis substantiating the claim. "Substantiation," as defined by the FTC means that an advertiser has "competent and reliable scientific evidence" for any representations it makes. In the context of environmental marketing claims, the FTC defines "competent and reliable scientific evidence" as "tests, analyses, research, studies or other evidence based on the expertise of professionals in the relevant area, that has been conducted and evaluated in an objective manner by persons qualified to do so, using procedures generally accepted in the profession to yield accurate and reliable results."
The Guides approach environmental advertising claims from the consumer's perspective. Accordingly, they do not establish standards for environmental performance, nor do they even incorporate the technical, scientific definitions of terms. Instead, the Guides give claims the meaning that consumers give them.
The Guides outline four general principles that apply to all environmental marketing claims: (1) that qualifications and disclosures should be sufficiently clear and prominent to prevent deception; (2) that claims should make clear whether they apply to the product, the package or a component of either;3 (3) that claims should not overstate an environmental attribute or benefit, expressly or by implication;4 (4) and that comparative claims should be presented in a manner that makes the basis for the comparison sufficiently clear to avoid consumer deception. In addition, the Guides address eight specific categories of environmental claims: (1) general environmental benefit claims, such as "environmentally friendly" or "environmentally sensitive"; (2) "degradable" claims; (3) "compostable" claims; (4) "recyclable" claims; (5) "recycled content" claims; (6) "source reduction" claims; (7) "refillable" claims; and (8) "ozone safe/ozone friendly" claims. Each guide describes the basic elements necessary to substantiate the claim, including suggested qualifications that may be used to avoid deception. Additionally, each guide is followed by several examples that illustrate different uses of the particular term that do and do not comport with the Guides. In many of the examples, one or more options are presented for qualifying a claim. The Guides state that these options are intended to provide a "safe harbor" for marketers who want certainty about how to make environmental claims, but that they do not represent the only permissible approaches to qualifying a claim.
LePage's Inc., a Corporation, and LP Holdings, Inc. [File No. 912-3364; May 6, 1994]
LePage's manufactured a cellophane tape made from wood pulp and adhesive material called "Biodegradable Transparent Tape." The tape was sold with a hard clear non-foam polystyrene plastic dispenser and attached to a non-corrugated paperboard backcard. The FTC's complaint charged that LePage's represented without substantiation that its Biodegradable Transparent Tape would "completely break down and return to nature" (i.e., decompose into elements found in nature) within a reasonably short period of time after customary disposal as compared to other transparent tape. The complaint also asserted that the tape claimed to offer a significant environmental benefit after customary disposal. The complaint further charged that LePage's falsely represented that the plastic tape dispenser and paperboard backcard of LePage's Biodegradable Transparent Tape were recyclable. The FTC contended that the plastic tape dispenser and the paperboard package were not recyclable, because there were only a few collection facilities nationwide that would accept the non-foam polystyrene tape dispenser or the non-corrugated paperboard or cardboard backcard for recycling.
The proposed consent agreement prohibited LePage's from directly or impliedly claiming that any of its products or packages are degradable, biodegradable, photodegradable, or that any product or package offers any environmental benefits when consumers dispose of it as trash that is buried in a sanitary landfill, unless at the time of making such representation, LePage's possesses and relies upon competent and reliable scientific evidence that substantiates its claims. Similarly, the agreement also proscribed claims that any of LePage's products or packages are capable of being recycled, or that recycling collection programs for its products or packages are available. The agreement did allow recyclability claims if LePage's discloses clearly, prominently and in close proximity to the claim: (a) that the product or package is recyclable in the few communities with recycling collection programs for non-foam polystyrene or for non-corrugated paperboard or cardboard; (b) the approximate number of U.S. communities with recycling collection programs for the product or package; or (c) the approximate percentage of U.S. population to which recycling collection programs for such product or package are available, and in addition, in the case of any non-foam polystyrene product or package, the product or package itself bears a clear identification of the specific plastic resin(s) from which it is made. Lastly, the agreement required LePage's to distribute a copy of the proposed order to each of its officers, agents, representatives, and employees who prepared or placed advertisements, promotional materials, product labels or other sales materials.
In the matter of Keyes Fibre Company, a corporation. [File No. 922-3045, May 24, 1994]
This case involved the labeling and advertising of the Keyes' Chinet(r) disposable tableware (paper plates and bowls). The FTC asserted that Keyes represented without substantiation that: (1) Chinet disposable tableware would "completely break down and return to nature" (i.e., decompose into elements found in nature) within a reasonably short period of time after customary disposal; (2) Chinet offered a significant environmental benefit after customary disposal; (3) Chinet, because it would completely break down and return to nature within a short period of time, would significantly reduce the amount of garbage in landfills; and (4) Chinet would completely break down and return to nature significantly faster than other paper plates, or plastic or foam products (and thereby provide a significant environmental benefit). The FTC further charged that Keyes falsely represented that Chinet was compostable through municipal solid waste composting. Notwithstanding the fact that Chinet is capable of being composted in municipal solid waste composting facilities, the vast majority of consumers could not compost the products in this way because there were only a few municipal solid waste composting facilities nationwide. Lastly, the complaint alleged that Keyes falsely represented that Chinet was recyclable after ordinary use, however, the vast majority of consumers could not recycle the products because there are virtually no collection facilities that accept used paper plates for recycling.
The agreement proscribed essentially the same conduct as the LePage's agreement. The agreement allowed Keyes to advertise products or packages as compostable if true, and, to the extent it claims compostability relating to municipal solid waste composting it must disclose: (1) that the product or package is compostable where municipal solid waste composting facilities exist, and the current number of municipal solid waste composting facilities in the U.S.; (2) that the product or package is compostable in the few communities with municipal solid waste composting facilities; or (3) the approximate percentage of U.S. communities or the U.S. population to which municipal solid waste composting facilities are available. Unlike the LePage's agreement, Keyes was allowed to advertise paper products or packages as degradable when disposed of in home compost piles or devices, or in municipal solid waste composting facilities, provided that Keyes "complies with the municipal waste composting facilities statistics," and in addition, disclosed clearly, prominently, and in close proximity to the claim that the product or package is not designed to degrade in landfills.
In the Matter of Benckiser Consumer Products, Inc. [File No. 932-3310; March 13, 1996]
The FTC's complaint charged Benckiser with engaging in unfair and deceptive acts in connection with the advertising and promotion of EarthRite household cleaning products. The EarthRite product line consisted of nine products, among them a glass cleaner, a tub and tile cleaner, and a dishwashing liquid. According to the FTC's complaint, a promotional hangtag attached to each of the EarthRite products contained the following statement: "One percent of EarthRite's proceeds are donated to non-profit organizations working to restore and preserve our natural resources." The FTC alleged that Benckiser had not donated any money to such groups since it began selling EarthRite products in 1992. The complaint also alleged that Benckiser falsely represented that, at the times it made the donation claim, it relied upon a reasonable basis which substantiated the claim.
The consent order prohibited Benckiser from representing that any portion of the revenues from the sale of any Benckiser household cleaning product is donated to any organization unless Benckiser discloses, clearly, prominently, and in close proximity to such representation, the method of calculating the amount of such donation. The order also requires Benckiser to distribute copies of the order to its operating divisions and to various officers, agents, representatives and employees of Benckiser.
"Cause-related marketing5 is an increasingly popular method of promoting a company, championing a cause, and boosting sales," said Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection. "A recent study6 showed that, price and quality being equal, nearly two-thirds of consumers would switch to a brand associated with a cause they support. The FTC's action against Benckiser makes clear that, because so many consumers rely on these claims, the companies making them must ensure that they are truthful and backed up by solid evidence."
In the Matter of Chemopharm Laboratory Inc., d/b/a CP Industries. [File No. 932-3135; September 27, 1994]
This case involved claims made for CP Industries' Superior Sno-N-Ice Melter product. According to the complaint, CP Industries represented that: (1) Superior Sno-N-Ice Melter did not harm or damage the environment; (2) Superior Sno-N-Ice Melter provided the environmental benefits of calcium magnesium acetate ("CMA"); (3) scientific studies of CMA demonstrated that Superior Sno-N-Ice was beneficial to the environment; and (4) it had a reasonable basis for these claims. In fact, Superior Sno-N-Ice Melter contained about 95% sodium chloride (i.e., rock salt) which is quite harmful to the environment. Not surprisingly, the FTC concluded that: (1) Superior Sno-N-Ice harmed the environment; (2) Superior Sno-N-Ice Melter did not provide the environmental benefits of CMA; and (3) scientific studies of CMA did not demonstrate that Superior Sno-N-Ice Melter was beneficial to the environment.
The FTC found that CP Industries' claims were false and misleading, and that it lacked a reasonable basis for making the claims. The consent order required CP Industries to cease representing that any product is "environmentally safe," "protects the total environment" or otherwise offers any environmental benefit, or that any product provides the environmental benefits of CMA, unless such representation is true and substantiated. The Order also prohibited CP Industries from misrepresenting the existence, contents, validity, results, conclusions, or interpretations of any test or study. Finally, the FTC required CP Industries to maintain materials relied upon to substantiate claims covered by the order, to distribute copies of the order to each of its operating divisions and to certain company officials, and to file one or more compliance reports.
In the Matter of Creative Aerosol Corp., a Corporation. [File No. 922-3197; October 31, 1994]
Creative Aerosol's children's bath soap, Funny Color Foam, was sold in an aluminum aerosol can with a plastic cap that was made from high-density polyethylene. The product contained the volatile organic compounds (VOCs) isobutane and propane and was subsequently reformulated by substituting for the VOCs Hydrochlorofluorocarbon -- chlorodifluoromethane (HCFC-22). The FTC alleged that Creative Aerosol made the following advertising claims while the product contained VOCs: "ENVIRONMENTALLY SAFE Contains no fluorocarbons. Non-Irritant. Non- toxic." The FTC asserted that through such claims, Creative Aerosol represented without substantiation that Funny Color Foam did not contain any ingredients that would harm or damage the environment. In fact, Funny Color Foam contained VOCs -- chemicals that under many atmospheric conditions contribute to the formation of ground level ozone, a major component of smog. The complaint also charged that Creative Aerosol claimed that its reformulated product contained "NO FLUOROCARBONS." The FTC alleged that through this claim, Creative Aerosol falsely represented that because Funny Color Foam contains no fluorocarbons, it would not deplete the earth's ozone layer or otherwise harm or damage the atmosphere. In fact, Funny Color Foam contained the harmful ozone-depleting ingredient chlorodifluoromethane (HCFC-22), which harms or causes damage to the atmosphere by contributing to the depletion of the earth's ozone layer. In addition, the FTC charged that Creative Aerosol falsely represented that Funny Color Foam's aluminum aerosol can and plastic cap were recyclable. While the aluminum can and plastic cap were capable of being recycled, the vast majority of consumers could not recycle them because there were virtually no collection facilities that accepted aluminum aerosol cans for recycling and only a few collection facilities nationwide that would accept the high-density polyethylene cap for recycling.
The proposed consent order contained provisions designed to remedy the violations charged and to prevent Creative Aerosol from engaging in similar acts and practices in the future. The term "volatile organic compound" (VOC) was defined in the consent order in accordance with the definition adopted by the Environmental Protection Agency (EPA) in a February 3, 1992, rulemaking. The proposed order required Creative Aerosol to cease and desist from representing that any product or package containing volatile organic compounds is "environmentally safe," "environmentally safe, contains no fluorocarbons," contains "no fluorocarbons," or through the use of any other term or expression, that any such product or package will not harm the environment or the atmosphere, unless it possesses competent and reliable evidence, which when appropriate must be competent and reliable scientific evidence, that substantiates the representation. The proposed order also required Creative Aerosol to cease and desist from representing that any product or package containing any Class I or Class II ozone-depleting substance contains "no fluorocarbons" or representing, in any manner, that any such product or package will not deplete, destroy, or otherwise adversely affect ozone in the upper atmosphere or otherwise harm the atmosphere.
Creative Aerosol was also required to cease and desist from misrepresenting, in any manner, directly or by implication, the extent to which any product or package is capable of being recycled or the extent to which recycling collection programs are available. The order contained a proviso that allows Creative Aerosol to advertise high-density polyethylene caps and aluminum aerosol cans as recyclable, if it truthfully represents that such packaging is capable of being recycled; discloses clearly, prominently and in close proximity to such claim: (a) that such packaging is recyclable in the few communities with recycling collection programs for high-density polyethylene caps or aluminum aerosol cans; (b) the approximate number of U.S. communities with recycling collection programs for such packaging; or (c) the approximate percentage of U.S. communities or the U.S. population to which recycling collection programs for such packaging is available; and in addition, in the case of the high-density polyethylene cap, the cap itself bears a clear identification of the specific plastic resin(s) from which it is made.
In the Matter of Safe Brands Corporation, a corporation, Warren Distribution, Inc., a corporation, and ARCO Chemical Company, a corporation. [File No. 942-3012; December 12, 1995]
This case involved the labeling and advertising of Sierra Antifreeze-Coolant ("Sierra"), a propylene glycol-based automobile antifreeze marketed by Safe Brands Corporation and its parent company, Warren Distribution, Inc. The Commission's complaint alleged that ARCO Chemical Company sold the propylene glycol ("PG") used in the manufacture of Sierra and provided information for, participated in the preparation of, paid for, and reviewed and/or approved Sierra advertising and promotional materials. The complaint also alleged that ARCO Chemical itself disseminated advertisements under its own name for PG antifreeze generally. The FTC charged that the respondents claimed that compared to conventional, ethylene glycol-based antifreeze ("EG antifreeze"), Sierra and other PG antifreezes are safer for the environment generally.
Although respondents had a reasonable basis that Sierra and other PG antifreezes, compared to EG antifreeze, are less toxic, and therefore safer for that part of the environment that is composed of humans, pets, and wildlife that may accidentally ingest it, the respondents did not substantiate their claim that Sierra and other PG antifreezes are safer for the environment generally (e.g., the air, water, soil, plants, or aquatic life). The complaint also alleged that respondents represented without adequate substantiation that Sierra and other PG antifreezes were absolutely safe for the environment after ordinary use, and that because Sierra and other PG antifreezes were biodegradable, they were absolutely safe for the environment after ordinary use. The complaint stated that one reason these claims were unsubstantiated was that used antifreeze, whether EG or PG-based, may contain lead and/or other substances that are hazardous to the environment. Furthermore, the complaint alleged that the respondents represented without adequate substantiation that Sierra and other PG antifreezes were absolutely safe for humans and pets.
The FTC also charged that the respondents claimed without adequate substantiation that because Sierra and other PG antifreezes contain PG -- an ingredient designated by the Food and Drug Administration as "generally recognized as safe" and which is found in foods, drugs, cosmetics, and pet foods -- they were absolutely safe for people and pets. According to the complaint, although respondents had a reasonable basis that Sierra and other PG antifreezes are safer than EG antifreeze, respondents lacked substantiation for the claim that they were absolutely safe. Finally, the complaint asserted that the respondents falsely and without adequate substantiation represented that Sierra antifreeze and its plastic container were recyclable. While both Sierra and its container were capable of being recycled, the vast majority of consumers could not recycle either of them because there were few collection facilities nationwide that accepted PG antifreeze or high-density polyethylene plastic antifreeze containers for recycling.
The proposed order (which lasts for twenty years absent the filing of a complaint against respondents alleging a violation of the order) required the respondents to cease and desist from representing that any antifreeze, coolant, or deicer product will not harm the environment, is less harmful to the environment than other products, or offers any environmental benefit, unless the respondents possess competent and reliable evidence, which when appropriate must be competent and reliable scientific evidence, that substantiates the representation. The proposed order also required the respondents to cease and desist from making any representation about the safety or relative safety for humans or animals of any antifreeze, coolant, or deicer product, unless they possess competent and reliable scientific evidence that substantiates the representation.
In addition, the proposed order mandated that the respondents print two statements on the back of containers of all PG antifreeze or coolant products: "CAUTIONARY INFORMATION: This Product MAY BE HARMFUL IF SWALLOWED. STORE SAFELY AWAY FROM CHILDREN AND PETS. Do not store in open or unlabeled containers"; and "Clean up any leaks or spills." On the front of all such containers the following must be disclosed: "See Back Panel for CAUTIONARY INFORMATION."
It is interesting to note that, unlike cases involving consumer product claims (e.g., health claims, performance claims, etc.), the FTC has not imposed fines or penalties on any of the companies mentioned above for their environmental marketing claims. Many marketers may take some comfort in this, erroneously thinking that there is no down-side to making improper environmental marketing claims. You should be aware, however, that there are other potentially adverse ramifications to green marketing, such as backlash from consumers and environmental interest groups. In a recent poll, 40 percent of consumers said that all corporate claims were "just scams."7 Fewer than one in seven consumers believe the environmental claims they hear,8 and the proliferation of "environmentally friendly" items has caused increasingly savvy consumers to become skeptical.9 As one expert put it, "people have enormous ability to detect crap."10 As a sidenote, it is worth nothing that when the FTC issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $10,000 per violation per day. This same penalty can be imposed for a knowing violation, regardless of a pre-existing cease and desist order.
In addition to lawsuits brought by federal and state governments, actions may also be initiated by third parties. For example, a purchaser of a product may have a cause of action for damages in the amount of the purchase price if the purchase was induced by false or misleading green labeling. Because the cost of litigation would not justify a suit from a single consumer, such actions are likely to be filed as class action suits. Even a class action suit might not justify the cost of litigation, however, unless a damage multiplier were available, such as those under the federal racketeering statute (RICO) and some state consumer protection statutes.
Another party potentially injured by false or misleading green labeling is a competitor. It is significant to note that early complaints about Procter & Gamble's compostable diaper claims came not from an environmental interest group or individual consumers, but from a competitor, American Enviro Product, Inc., manufacturer of "Bunnies" disposable diapers. A competitor may bring suit under a number of state unfair trade practices laws and often may recover treble damages.
In any event, federal law in the environmental marketing arena will continue to develop, and we can be assured that the Guides will evolve further. On July 31, 1995, the FTC requested public comments regarding the operation of and the need for any modifications to the Guides. On November 13 and 14 of last year, the FTC conducted a public workshop-conference in Washington that generated over 600 pages of testimony.
In the final analysis, the best tactic is simply to assure that your environmental marketing claims meet the criteria set forth in the Guides.
1. 15 U.S.C. 45.
2. Federal Trade Commission Policy Statement on Deception, appended to Cliffdale Assocs., Inc., 103 F.T.C. 110 (1984).
3. The Commission settled a case with Mr. Coffee, where one of the allegations resulted from a failure to indicate whether the claim referred to the product or the package. On the side of the box of Mr. Coffee filters was the claim, "recycled paper." The Commission alleged that this claim meant that both the cardboard box and the coffee filters were made from recycled content. While the box was recycled, the filters were not.
4. For example, it would be deceptive to say that a product has "50% more recycled content than before," when the recycled content was increased only from 2% to 3%, since that represents an insignificant increase in the use of recycled material.
5. "Cause-related marketing" ties a company and its product to a popular issue or cause in an effort to improve sales while providing benefits to the cause.
6. According to a 1994 Cone/Roper Study, seven of 10 consumers believe that cause-related marketing helps solve social problems and nearly two-thirds of consumers think that it should be a standard corporate practice. In addition, the study indicates that when price and quality are equal, more than 65 percent of consumers would be likely to switch to a brand associated with a good cause, and more than half would pay more for a product if it were associated with a cause they care about.
7. Hyten, Debits and Credits to the Green Account, WorldPaper (Dec. 1991), p. 5.
8. Debunking Environmental Ad Claims, PR Newswire (Nov. 5, 1991).
9. Staanhuysan, Giving "EcoLawn" Room to Grow, Advertising Age (Oct. 28, 1991), p. GR-13.
10. Gordon, Green Marketing Tugs at Heartstring, Pocketbook, The Business Journal - Portland (Oregon), Aug 19, 1991, § 1, p. 21 (attributed to Len Bergstein, president of Northwest Strategies, Inc., a consulting and public relations firm).