Consumer class action plaintiffs remain very active in California, with cases continuing to be filed against food manufacturers and suppliers regarding alleged misleading labeling and marketing claims. Just this week, plaintiffs filed a class action lawsuit against Trader Joe’s alleging that it falsely advertised and sold cookies and apple juice as “All-Natural” even though the products contained synthetic ingredients. In the past few months alone, several other large companies have been sued over allegedly false “All Natural” claims in lawsuits involving ice cream, juice, granolas, energy bars, and cereal. In the same time period, other class actions have been filed in California regarding the marketing of products that are made from genetically modified plants and grains, such as cooking oil.

These actions are most commonly brought under California’s unfair competition law (referred to as the “UCL” or § 17200 of the California Business and Professions Code). The problem for companies sued under California’s UCL is that it is difficult to get claims dismissed at an early stage. Lawsuits frequently survive the pleading stage because claims are evaluated from a subjective, and not objective, standard. Cases are allowed to proceed even though only one plaintiff establishes standing to sue by showing they actually relied on a company’s statement. Finally, preemption defenses are frequently inapplicable.

Companies should get proactive in light of this litigation trend, which isn’t going away, and examine their labels to minimize the risk of litigation. Those that have been sued should consider creative ways to address these class actions by developing and preserving constitutional challenges. Despite recent California cases making it easier for plaintiffs to maintain their lawsuits at an early stage, aggressive discovery may prevent plaintiffs from certifying the proposed class.

For event details and logistics, click here. Admission to the live event in downtown Portland, Oregon is free. A telephone number and passcode will be provided for attendees unable to attend in person.

For more information on reguation of environmental marketing, see the Stoel Rives Green Guides Resource Page.

According to the California consumers, Fiji’s carbon offsets are misleading because they  rely on “forward crediting,” a method of accounting for carbon offsets based on future offsetting activities.  The complaint explains that this method of carbon offsetting is unreliable and speculative according to the Stockholm Environment Institute, an independent scientific think tank.  

Fiji claims that its products are “carbon negative,” based on the purchase of carbon offsets equal to 120% of the company’s carbon emissions.  Even if Fiji can prove that its carbon offsets will ultimately meet that goal, expect the plaintiffs to argue that the carbon negative claim is still deceiving, on the theory that consumers were not apprised of the fact that offsets will occur in the future.  If Fiji’s future carbon offsets are found to be mismanaged, disorganized, or even false, consumers may succeed in obtaining a substantial judgment at trial, or a cash settlement.

The question of whether Fiji Water has actually deceived consumers will certainly be the focus of litigation in the California proceeding for at least a couple years.  In the meantime, while the Federal Trade Commission’s proposed new Green Guides, released last fall signal increasing federal enforcement against greenwashing, the Fiji Water case is an important reminder that environmental marketing claims may also be challenged by private parties.   

Another interesting aspect of this case is that while the California Consumers do not make reference to the FTC’s new Green Guides, the theory of their case is consistent with FTC policy.  The proposed new Guides tell marketers that they should “clearly and prominently disclose if [their] carbon offset represents emission reductions that will not occur for two years or longer.”  FTC regulations are not California law, but California’s consumer protection statute actually makes reference to the Green Guides, establishing a legal defense for companies if they can prove that their marketing claims comply with the Guides.  

Finally, regardless of how the Fiji water case proceeds, it teaches another valuable lesson.  Whether the claim is for carbon offsets, renewable energy, or another type of green claim, marketers must follow the key principles of clarity and disclosure.  A bare claim is risky –  but clear, concise disclosure can reduce and potentially eliminate that risk.
 

The TerraChoice report offers several other interesting insights.  TerraChoice found that big box stores do a substantially better job than other retailers when it comes to putting more green products on the shelves, and big box stores do a better job of finding and selling products that are backed up with bona fide green claims.  Another interesting finding addresses the problem of false and bogus green certification labels.  TerraChoice notes that roughly a third of the greenwashing sins were based on false certifications.  TerraChoice even found meaningless certification marks for sale on the internet, including one titled “Green – Certified Environmentally Conscious,” which TerraChoice claims can be licensed by any interested manufacturer or retailer for only $15.

TerraChoice has made a name for itself over the past few years issuing annual “Greenwashing” reports that identify false and misleading green claims on consumer products.  TerraChoice is of course not a government agency, but it bases its “seven sins of greenwashing” on the FTC’s Green Guides, rules issued by the Competition Bureau of Canada, and the International Standards Organization (ISO) standard for environmental marketing, ISO Standard 14021.  TerraChoice administrates the “Ecologo” program, which was originally developed by the Canadian government, and in August of this year the firm was acquired by Underwriters Laboratories, which offers its own “UL Environment” certification program. 

TerraChoice is certainly not a disinterested party in the green labeling game.  The organization has a financial interest in selling its consulting services and in the success of the Ecologo and UL Environment certification programs.  Given this bias, it’s probably safe to say that not all of the products that TerraChoice finds guilty of greenwashing (95% of all reviewed products) could be successfully challenged by the FTC, state attorneys general, or consumers.  That said, the 2010 report is a good indicator of the greenwashing problem that pervades environmental marketing today.  More importantly, the efforts of TerraChoice, as well as regulators like the FTC and interested consumer groups, demonstrate that interested stakeholders take green marketing claims very seriously – unlike many other marketing messages, which are tolerated as mere “puffery.”  The growth of green marketing claims may be rapid, but scrutiny and regulation of such claims appear to be catching up.
 

Following several years of development, and much anticipation in recent months, the Federal Trade Commission has finally released “Proposed, Revised Green Guides.”  The new Green Guides will be open for public comment until December 10, 2010.  Thereafter, according to the agency’s press release, the FTC will determine if and how to issue the new Guides. 

The proposed, revised Green Guides are summarized here and published with substantial analysis and comment here; the FTC invites submissions of public comments here.

The current official Green Guides, last updated in 1998, provide non-binding “interpretations” of federal consumer protection laws, including Section 5 of the FTC Act (15 U.S.C. § 45), which is the law that empowers the agency to punish deceptive practices.  In general, the Guides establish that false or deceptive environmental marketing claims can be challenged under the FTC Act.  The Green Guides also provide instruction and interpretations of marketing buzz words that were popular in 1998, such as “biodegradable,” “compostable,” “recyclable,” “refillable,” and “ozone safe.”   

The proposed new Green Guides address the terms found in the 1998 edition, but also address several new issues that arise in present-day green marketing, including:

• environmental seals of approval,
• “free-of” and “non-toxic” claims,
• carbon offsets,
• claims concerning renewable energy, and 
• claims about renewable materials. 

The proposed Green Guides reinforce and restate the FTC’s reasonable policy position that environmental marketing claims should be supported by credible scientific evidence.  In addition, the proposed Guides expressly discourage sweeping unqualified claims.  For example, the Guides explain that an unqualified claim that a product is “eco-friendly” is inherently deceptive.  In contrast, a simple clarification – if it can be substantiated – may be acceptable.  The proposed Guides state that a claim such as “eco-friendly:  made with recycled materials” is not deceptive if the clarification is prominent, and can be proven.

For the most part, the proposed Green Guides do not represent a radical shift from the 1998 version of the Guides.  And on a careful reading of the revised Guides and the preceding 186 pages of analysis and comment provided by the FTC, it’s clear that the fundamental issue is deception.  It’s deceptive to say your product has 50% more recycled contents than it used to, when your product only increases recycled content from 2 to 3 percent.  It’s deceptive to mark your product with your own green “seal of approval” and not disclose that you made up the seal yourself.  It’s deceptive to claim that you’ll plant trees to offset carbon emissions from your products, when it will take 10 years for the trees to get big enough to actually offset those emissions.

Ultimately, it does not appear that the FTC is proposing a major shift in regulations.  The key question for any environmental marketing claim remains:  is the claim “deceptive” under Section 5 of the FTC Act?  The bigger question is, how will enforcement change?  Last February, The New York Times reported that the FTC has filed seven complaints concerning environmental marketing claims since President Obama took office (compared to zero during the prior administration).  If enforcement remains at that level, there cannot be substantial application of the new Green Guides.  Then again, given the rapid growth of environmental marketing claims in recent years, the FTC’s renewed interest in this subject, and the threat of state consumer fraud actions, it would be imprudent to disregard the new Guides. 

 Anyone who has recently set foot in a convenience store or watched late night cable television knows how valuable the energy drink business has become. To get an idea of how this market has grown, take a look at the wall of energy drinks displayed at the screamingenergy.com product review web site.  Perhaps the most valuable spot in that market is in the two-ounce “energy shot” space, on the counter next to the cash register, where customers are willing to pay $3.50 for two ounces of an elixir that will “help you feel sharp and alert.”  (By comparison, a consumer will seldom pay more than 99 cents for a 12 ounce can of caffeinated cola.)   And the consensus is that 5-Hour Energy dominates this category. 

The 8-Hour Energy defense team may have a good argument that 5-Hour Energy is the king of the convenience store counter, but the Eastern District of Michigan issued an Order last week slapping down 8-Hour Energy’s monopolization claim. 8-Hour Energy argued that 5-Hour Energy engages in anticompetitive tactics to control the market, but failed to convince the court that those tactics actually harm 8-Hour Energy.  For example, the court noted that anything 5-Hour Energy did to exclude 6-Hour Energy from the market couldn’t have harmed 8-Hour Energy.  Ultimately, 8-Hour Energy should be able to argue that any anticompetitive conduct is relevant to prove that 5-Hour Energy has harmed competition – this may be an issue that 8-Hour Energy can exploit on appeal. 

The court’s order provides a good example of the risks associated with raising antitrust counterclaims.  Here, the Eastern District of Michigan dismissed 8-Hour Energy’s monopolization counterclaim for failure to convincingly plead the claim.  If 8-Hour Energy somehow revives the claim, the next hurdle will be definition of the relevant market.  Is there an exclusive market of 2-ounce energy drinks?  If Red Bull, Coca Cola, or coffee are reasonable substitute “energy drinks,” 8-Hour Energy’s monopolization case doesn’t have a chance.
 

Several sources noted with great interest that Christine Varney, DOJ’s Assistant Attorney General in charge of the Antitrust Division, asked one poultry farmer to call her directly if he experienced intimidation from poultry processors. The farmer declared that he was concerned to appear in public speaking about the way poultry “integrators” contract with poultry farmers like himself, who actually raise chicks into broilers. The recently published transcript of the May 21 proceedings also contains a farmer’s anonymous statement that was read to the government lawyers by a farmer willing to speak on his colleague’s behalf.  

From a policy perspective, there was more to the May 21 workshop than fear and loathing. For example, Assistant Attorney General Varney asked about the prevalence of farmer cooperatives in the industry – to which farmers on the panel replied that poultry farmers do not generally work together in cooperatives. Large poultry integrators, therefore, deal with poultry farmers on a one-on-one basis. And as one can read in the transcript, poultry farmers present in Normal, Alabama generally felt that the large poultry “integrators” have too much power over them. Outside the context of the workshop, Poultry farmers recently sued processors for their alleged unfair practices, without success. On May 10, a federal appeals court upheld the dismissal of claims against Tyson Foods, because the poultry farmers failed to allege that the challenged tactics actually harmed competition – i.e., reduced output or increased prices.

That brings us back to Assistant Attorney General Varney’s question about the prevalence of farmer cooperatives. Because the Capper-Volstead Act enables farmers to band together and jointly negotiate with the large buyers without violating Section One of the Sherman Act, farmers could theoretically deal with poultry processors through a collective or cooperative organization.  

Leading up to the meeting, large-scale poultry producers prepared themselves for criticism from farmers. The National Chicken Council released a report by an agricultural economist that describes healthy, vigorous competition in the poultry industry. And while chicken farmers at the workshop complained about the “power” of large poultry integrators, the National Chicken Council report cited a 2001 study that found farmers were generally happy to raise chickens for integrators. Interestingly, the report also reviewed government reports that show much higher levels of concentration among beef and pork processors relative to the poultry industry, and the report showed modest declines in retail prices for chicken products over the past 18 years.

What’s the takeaway from this round of the USDA/DOJ meetings? It’s hard to say. As a general rule, the antitrust enforcement agencies hate to argue with falling consumer prices. But the transcript reveals certain concerns about the power of poultry integrators over the farmers. Though the government’s listening tour clearly shows that government lawyers from USDA and DOJ are listening, it’s not clear yet what they are thinking. Watch for more clues at the June 25 workshop in Madison, Wisconsin, when the DOJ and USDA will be examining competition in the dairy industry.

In 2008, the DOJ and 16 states challenged the merger of JBS and the National Beef Packing Company, leading the parties to abandon the deal. In its amended complaint filed against the transaction, the DOJ opposed the merger, claiming that it would have combined two of the four largest beef packing companies in the U.S. (“Post merger, over 80% of the nation’s fed cattle packing capacity would be controlled by a three-firm oligopoly. . . .”).

The DOJ’s concern about concentration in the meat packing industry apparently continues. As is often the case, a merger investigation educates regulators, and after the investigation concludes, the government’s lawyers maintain an interest in the industry. In March, the DOJ Assistant Attorney General for the Antitrust Division, Christine Varney, declared that in the near future we will see “unprecedented cooperation and collaboration between [the DOJ] and the USDA,” in her remarks at the first DOJ/USDA competition workshop, held in Ankeny Iowa. Varney noted that collaboration will include “taking full advantage of the authority that’s delegated to us in the Packer[s] and Stockyard[s] Act,” a 1921 statute that specifically addresses competition in the meat packing industry.

Earlier this month, the Associated Press reported that officials from the USDA’s Grain Inspection, Packers and Stockyards Administration (”GIPSA”) are speaking to cattle ranchers about competition and pricing in the meat packing industry. CEO of the Ranchers-Cattlemen Action Legal Fund (“R-CALF”), Bill Bullard, is quoted in the article, noting that ranchers in his organization have been frequently meeting with USDA officials in recent months. Ranchers argue that the country’s four biggest meat packing companies (Tyson Foods, JBS, Cargill, and National Beef) benefit from “buyer power.” They claim that buyer power drives down prices for the cattle that they raise. Economists would argue that such buyer power ultimately benefits customers.

In any event, does all this talk mean that aggressive enforcement of the Packers and Stockyards Act (to the benefit of ranchers) is on the horizon? A USDA official quoted in the Associated Press article suggests that may be true, corroborating the Assistant Attorney General’s comments above (“[W]hat we’re doing at GIPSA now is trying to . . . enforce the Packers and Stockyards Act . . . .”).

The DOJ and USDA are spending this entire year evaluating antitrust and competition policy in the agriculture industry, starting with a series of public workshops. There will be a workshop on the poultry industry on May 21, in Normal, Alabama. On August 27, the agencies will host a workshop in Fort Collins, Colorado, addressing “concentration in livestock markets, buyer power and enforcement of the Packers and Stockyards Act.”