FDLI Publishes Stoel Rives Guidance on Environmental Marketing

The Food and Drug Law Institute's ("FDLI") Update Magazine just published our article addressing the FTC's proposed regulations on green marketing:  "New Green Guides Lay Out Rules for Environmental Marketing," available here.  Authored by Ken Odza, Anne Glazer, and Joseph Eckhardt, the article reviews the scope of the new proposed Green Guides and describes best practices to avoid challenges to green marketing claims. 

TerraChoice Issues Timely 2010 Greenwashing Report

Just a few weeks after the Federal Trade Commission unveiled its proposed new Green Guides for public comment, environmental consulting firm TerraChoice chimes in with its 2010 report, “Sins of Greenwashing – Home and Family Edition.”  In our increasingly green economy, TerraChoice makes a couple unsurprising, if not disappointing, findings.  First, using the same survey sample of 24 retailers located in Canada and the United States, TerraChoice found green claims on 4,744 products in 2010, compared to 2,739 in 2009.  Clearly, the tidal wave of green marketing in our economy is still on the rise.  Second, based on the “seven sins” of misleading green marketing claims defined by the firm, 95% of the green products it examined made some form of false or misleading environmental claim.

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.
 

New FTC "Green Guides" Are Out of the Gate

 

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. 

 

Aurora Dairy Organic Milk Case: Eighth Circuit Preempts Some Claims And Remands Others

As we reported some time ago, a class action suit was pending in the Eastern District of Missouri against Aurora Dairy, its organic certifier and certain retailers for violation of state consumer protection laws. The district court had dismissed the case on the grounds that all claims were preempted by the Organic Foods Production Act of 1990 (OFPA), and the plaintiffs appealed to the court of appeals for the Eighth Circuit. On September 15, the Eighth Circuit affirmed the dismissal of some of the claims and remanded the remaining claims to the district court.

Nineteen class action suits across the nation had been consolidated into a single action in the Eastern District of Missouri. In a consolidated class action, the plaintiffs made claims against Aurora Dairy Corporation, a certified organic dairy located in Boulder, Colorado, QAI, Inc., a certifying agent under the National Organic Program administered by the USDA, which had certified Aurora’s milk as organic, and certain retailers who had sold Aurora’s milk under Aurora’s brand as well as under their own store brands. A total of 57 counts were brought against the several defendants, on theories ranging from violation of state consumer protection laws to violation of implied warranties under the Uniform Commercial Code to unjust enrichment and negligence per se. The district court dismissed all the claims on the grounds of so-called “conflict preemption”, where allowing states to regulate an area would conflict with Congress’s regulation scheme.

The Eighth Circuit agreed with the conflict preemption analysis as it related to QAI, the certifying agent, which was dismissed from the case in full, and as it related to the labeling of the products as “organic” based on the certification by QAI.

To the extent the class plaintiffs, relying on state consumer protection or tort law, seek to set aside Aurora’s certification, or seek damages from any party for Aurora’s milk being labeled as organic in accordance with the certification, we hold that state law conflicts with federal law and should be preempted.

The court of appeals disagreed, however, with the district court on other claims, stating,

Preempting state law claims unrelated to the decision to certify, and certification compliance, does not advance the purpose of establishing national standards for organic foods. Nor does preemption of the facts underlying certification advance the goals of assuring consumers that organics meet a consistent standard, or in facilitating interstate commerce in organics.

The court remanded the case to the district court to determine, based on the standards in its decision, which claims would survive against Aurora and the retailers. This was due in part to the district court having not decided, on the grounds that it was moot, motions by the defendants to strike the consolidated complaint and by the plaintiffs’ motion to the amend it. Thus, the district court’s first task would be to decide those motions before it can determine what claims, if any survive.

Nitty-Gritty on Menu Labeling Regulations and What Can Be Done to Stem Consumer Litigation

As restaurant chains operating in King County, Washington are readying to comply with the new menu labeling law, serious questions arise. Does each menu item have to be sent to an expensive lab for testing? How accurate does the nutritional information need to be? How does a restaurant account for the inevitable variables of made-to-order meal preparation (an extra tablespoon of cooking oil can add 120 calories to a dish)?  Does a restaurant that complies with the King County law open itself to consumer labeling claims because its nutritional information cannot be 100 percent accurate?

According to the Seattle Post Intelligencer (“PI”), the question concerning the tools that can be used by a restuarant  chain to determine nutritional information may have been resolved in King County. The article reports that restaurant chains in King County have been given authority to “use nutritional software to calculate what was in each menu item rather than the pricey proposition of sending every dish off to a laboratory.”

What is not clear are what protections against consumer protection/tort liability a restaurant may have for “the natural variations that come with cooking restaurant food” or the variability between laboratory analysis and nutritional software. As one restaurateur said, “If you’re working by hand and making pasta, putting in cream and tossing in things as you go, it’s probably fairly close, but there are going to be variances because it’s not prepackaged . . . . Even if you’re cutting a meatloaf, if the specifications [sic] on the meatloaf is 12 ounces and (instead) cuts 13 ounces, it’s going to be off by 6 to 8 percent.”

Legal liability from variables in restaurant cooking is “not a theoretical fear.” As pointed out by the PI, “Applebee’s is facing a $5 million lawsuit over just that issue, after an independent lab found more calories and fat in a menu item than the chain’s nutritional information claimed.” One of the complaints filed against Applebee’s was by a person from the Seattle area.

Serious hurdles exist for any plaintiff’s attorney to prove liability and damages or certify as a class a nutritional labeling case against a restaurant:

1.  Menu labeling suits are based on the theory that the nutritional information disclosed was 80, 90 or even 95 percent accurate and not 100 percent accurate. Does a reasonable consumer really believe that nutritional labeling of restaurant menu items has no room for error? Given the inherent and obvious variabilities involved, isn’t 80, 90 or 95 percent accuracy for nutritional information reasonable?

 2. Even more significant, how does a plaintiff prove causation? Obesity, heart disease and other medical problems are complex medical problems. Even the medical community does not agree on causes of obesity. Surely, obesity , diabetes, and heart problems can't stem from a single meal or even a series of meals from just one restaurant that was 5 percent off in its estimate of nutritional information.

3. Even if liability can be established, class certification seems dubious. How can issues of liability or damages, which by definition vary with each person, ever be considered “common” or “typical” among a vast group of customers sufficient to justify class certification?

As we have seen over and over again in recent legal history, none of these barriers will deter every lawyer. The potential recovery and the targets (i.e. large restaurant chains) are too big not to try. Already, multiple putative class actions have been filed against Applebee’s.

Practically, several things should happen to protect restaurants doing their best to disclose nutritional information to their customers. First, restaurants should be advised to make sure their customers appreciate the variabilities and room for error in their nutritional information. The better a restaurant can prove that a plaintiff was not reasonable in reliance on 100 percent accuracy, the better its chance of having the plaintiff’s claims dismissed.

Second, there should be a legislative solution. The state legislature should exempt from the state consumer protection statute claims for nutritional labeling that meet an accepted standard. Why should restaurants that make their best efforts to disclose nutritional information to their customers be penalized? Without legislation, tort law and consumer protection statutes have the perverse effect of discouraging restaurants from providing disclosures to their customers.

Court to Rule on Consumers' Expectations For Organic Cosmetics

Dr. Bronner’s Magic Soaps (“Dr. Bronner’s”) received a favorable ruling recently in its suit against competitors that it believes are misleading consumers by labeling cosmetic products as “Organic”. Part of Dr. Bronner’s claim appears to be that “Organic” standards established by the U.S. Department of Agriculture (“USDA”) set the bar for consumer expectations of "Organic" cosmetic products. The USDA’s National Organic Program (“NOP”) standards, according to the USDA, do not apply to “cosmetics, body care, or personal care products”.  Dr. Bronner’s argues in its complaint that “[p]ersonal care products labeled as in compliance with ‘Organic’ or ‘Made with Organic [up to three specified ingredients]’ under the NOP criteria reflect basic organic consumer expectations . . . .” (Brackets in original.)

Last week, a California Superior Court in San Francisco overruled the demurrer of Ecocert France (SAS) and Ecocert, Inc. A demurrer is essentially a request made to a court, asking it to dismiss a lawsuit on the grounds that no legal claim is asserted.

According to Dr. Bronner’s, the “Court turned aside the defendants’ arguments that Dr. Bronner’s, in its complaint filed with the Court, had not sufficiently spelled out how actual consumers, the company and competition in the organic personal care industry have been hurt by the defendants’ deceptive practices.” The court’s ruling does not necessarily mean that Dr. Bronner’s is likely to succeed, only that it has articulated colorable claims. The court did not rule on the merits of these claims.

This case should be watched closely by those in cosmetics and food industries. Dr. Bronner’s claims turn, at least in part, on its view of “consumer expectations.” Do consumers have expectations as to what “Organic” means? Does it mean something different for cosmetic products? These are just a few of the significant questions that may be addressed in the litigation.