FTC Explores Environmental Claims and Civil Penalty Rulemakings

On May 23, 2023, the Federal Trade Commission hosted a national workshop designed to consider the current state of recycling practices and recycling-related advertising.

This follows an FTC announcement in December 2022 that the agency was seeking public comment on potential updates and changes to its ‘Green Guides’ for the use of environment marketing claims.  The Green Guides help marketers avoid making environmental marketing claims that are unfair or deceptive under Section 5 of the FTC Act.

Updates to ‘Green Guides’

In December 2022, the FTC announced that it would seek public comment on potential updates to its “Green Guides” for the use of environmental marketing claims.  FTC attorneys seek to update the Green Guides based on increasing consumer interest in buying environmentally friendly products.  The comment period was extended through April 24, 2023.

“Consumers are increasingly conscious of how the products they buy affect the environment, and depend on marketers’ environmental claims to be truthful,” said FTC lawyer and Bureau of Consumer Protection Director Samuel Levine.  “We look forward to this review process, and will make any updates necessary to ensure the Green Guides provide current, accurate information about consumer perception of environmental benefit claims.  This will both help marketers make truthful claims and consumers find the products they seek.”

The Green Guides were first issued in 1992 and were revised in 1996, 1998, and 2012.  They provide guidance on environmental marketing claims, including how consumers are likely to interpret particular claims and how marketers can substantiate these environmental claims to avoid deceiving consumers.  The guidance also provides general principles that apply to all environmental marketing claims and how marketers can qualify their claims to avoid deceiving consumers.

The FTC’s most recent update of the Guides was designed to make them easier for companies to understand and use.  The changes include new guidance on marketers’ use of product certifications and seals of approval, claims about materials and energy sources that are “renewable,” “carbon offset” claims, and “green” certifications and seals.

The Federal Trade Commission’s revised “Green Guides” are designed to help marketers ensure that the claims they make about the environmental attributes of their products are truthful and non-deceptive.  The revisions to the FTC’s Green Guides reflect a wide range of public input, including hundreds of consumer and industry comments on previously proposed revisions.

In revising the Green Guides, the FTC modified and clarified sections of the previous Guides and provided new guidance on environmental claims that were not common when the Guides were last reviewed.  Among other modifications, the Green Guides caution marketers not to make broad, unqualified claims that a product is “environmentally friendly” or “eco-friendly” because the FTC’s consumer perception study confirms that such claims are likely to suggest that the product has specific and far-reaching environmental benefits.  Very few products, if any, have all the attributes consumers seem to perceive from such claims, making these claims nearly impossible to substantiate.

The Green Guides also:

• advise marketers not to make an 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.

As touched upon, above, the Green Guides also contain new sections on:

• certifications and seals of approval
• carbon offsets
• free-of claims
• non-toxic claims
• made with renewable energy claims, and
• made with renewable materials claims.

The new section on certifications and seals of approval, for example, emphasizes that certifications and seals may be considered endorsements that are covered by the FTC’s Endorsement Guides, and includes examples that illustrate how marketers could disclose a “material connection” that might affect the weight or credibility of an endorsement.  In addition, the Green Guides caution marketers not to use environmental certifications or seals that do not  clearly convey the basis for the certification, because such seals or certifications are likely to convey general environmental benefits.

Finally, either because the FTC lacks a sufficient basis to provide meaningful guidance or wants to avoid proposing guidance that duplicates or contradicts rules or guidance of other agencies, the Green Guides do not address use of the terms “sustainable,” “natural,” and “organic.”

The FTC has recently sought general comments on the continuing need for the Green Guides, their economic impact, their effect on the accuracy of various environmental claims, and their interaction with other environmental marketing regulations.  The Commission also seeks information on consumer perception evidence of environmental claims, including those not in the guides currently.

Specific issues on which the FTC sought public comments include:

• Carbon Offsets and Climate Change: The current Green Guides provide guidance on carbon offset and renewable energy claims.  The Commission invites comments on whether the revised Green Guides should provide additional information on related claims and issues.

• The Term “Recyclable:” Among other things, the FTC seeks comments on whether it should change the current threshold that guides marketers on when they can make unqualified recyclable claims, as well as whether the Green Guides should address in more detail claims for products that are collected (picked up curbside) by recycling programs but not ultimately recycled.

• The Term “Recycled Content:” Comments are requested on whether unqualified claims about recycled content – particularly claims related to “pre-consumer” and “post industrial” content – are widely understood by consumers, as well as whether alternative methods of substantiating recycled content claims may be appropriate, and

• The Need for Additional Guidance: The Commission also seeks comment on the need for additional guidance regarding claims such as “compostable,” “degradable,” ozone-friendly,” “organic,” and “sustainable, as well as those regarding energy use and energy efficiency.

A list of recent cases brought relating to topics covered by the Green Guides can be found on the FTC’s website.  Chair Lina M. Khan issued a separate statement.  In part, Chair Khan noted that “[t]o be effective, the Green Guides have to keep up with developments in both science and consumer perception.  That’s why the Commission is commencing a regulatory review of the guides.”

The Green Guides are not agency rules or regulations.  Instead, they describe the types of environmental claims the FTC may or may not find deceptive under Section 5 of the FTC Act. Under Section 5, the agency can take enforcement action against deceptive claims, which ultimately can lead to Commission orders prohibiting deceptive advertising and marketing and fines if those orders are later violated.

The FTC has brought several actions in recent years related to deceptive recyclability, biodegradable, bamboo, and environmental certification claims as part of its overall effort to ensure that environmental marketing is truthful and substantiated.

Educational Resources Designed to Help Marketers Understand the Green Guides

The FTC has released several business and consumer education resources designed to help users understand the Green Guides.  These include: 1) “Environmental Claims – Summary of Green Guides,” a four-page summary of the changes in the Guides, and a page on the FTC Business Center, with links to legal documents.

Recyclable-Related Advertising Practices Workshop

The Federal Trade Commission hosted a public workshop on May 23, 2023 examining  “recyclable” advertising claims.  The workshop was a component of the Commission’s recently announced regulatory review of the Guides for the Use of Environmental Marketing Claims (the “Green Guides,” 16 C.F.R. Part 260).

The FTC brought together a range of experts to discuss issues around deceptive environmental claims.  Speakers included local and state law enforcers, environmental advocates, industry representatives, and other experts.

Specific areas of discussion included the current state of recycling practices and recycling-related advertising in the U.S., consumer perception of current and emerging recycling-related claims, and the need for any updates or other changes to the Green Guides related to recycling claims.

Noteworthy areas of discussion included a “substantial majority test.”  The Green Guides provide that a marketer can make an unqualified “recyclable” claim, as long as a substantial majority (defined as 60%) of communities or consumers where a product is marketed have access to recycling facilities that will accept the material.  It appears as though the FTC may be interested in revisiting this test.

Also discussed was an emerging area of inquiry – chemical recycling – a process that uses heat or chemical reactions to transform plastic material to additives.  According to the industry, advanced recycling can result in a “circular” plastics economy and a reduction in the need to access and utilize fossil fuels.

Additionally, panelists stated that advertisers should not be permitted to disseminate “recyclable” claims unless they have evidence that a product actually is, in fact, recycled into something new.  Query whether reasonable consumers would understand ‘100% recyclable’ to mean that the entire product will always be recycled, in contrast to meaning that a product is merely capable of being recycled.

The term “circular economy” was raised repeatedly by panelists.  The phrase denotes  reusing products.  Panelists shed light on growing momentum vis-à-vis this concept and how products should be designed with recycling and end use in mind.  A panelist from The Recycling Partnership noted that the organization provides helpful guidance for product design.   It is possible that the Green Guides may very now provide examples of how marketers may substantiate claims pertaining to the promotion of a circular economy.

Resin identification codes and how reasonable consumers might interpret them was also discussed.  Specifically, whether consumers may interpret an RIC to mean a package is recyclable.  As per the Green Guides, marketers are advised to place it in an inconspicuous location.  Panelists suggested that for plastics that are generally not recyclable, companies should be required to include a disclosure stating that a product is not recyclable.  Currently, if a product may be recycled by only a few consumers, companies must include appropriate qualifying language.  Consult with FTC advertising compliance counsel for further guidance.

Note that in California, for example, a new law has been designed to impose limitations on companies’ abilities to make recyclability claims or use the popular “chasing arrows” symbol.  The new law may create challenges for marketers because it is likely that a product that could be advertised as “recyclable” under the FTC’s Green Guides will not be able to be advertised as such in California.

Lastly, and perhaps most importantly, FTC counsel was keenly interested in hearing from panelists on whether the FTC should engage in formal rulemaking or if the Green Guides are sufficient.  Rulemaking has increasingly become an important avenue for the FTC to seek civil penalties and/or consumer redress in wake of the Supreme Court’s decision in AMG.

FTC Rulemaking Authority, Pending Rulemakings and Civil Penalties

The FTC may use rulemaking to address unfair or deceptive practices or unfair methods of competition that occur commonly, in lieu of relying solely on actions against individual respondents.

The Commission’s rulemaking authority comes from Section 6(g) of the FTC Act, 15 U.S.C. Sec. 46, which authorizes the Commission “to make rules and regulations for the purpose of carrying out the provisions of this subchapter.” See Nat’l Petroleum Refiners Ass’n v. FTC, 482 F.2d 672, 693 (D.C. Cir. 1973), cert. denied, 415 U.S. 951 (1974) (Commission has authority to require octane labels on gasoline pumps).

In 1975, Section 18 of the FTC Act, 15 U.S.C. Sec. 57a, became the Commission’s exclusive authority for issuing rules with respect to unfair or deceptive acts or practices under the FTC Act; Section 6(g) continues to authorize rules concerning unfair methods of competition.

Under Section 18 of the FTC Act, 15 U.S.C. Sec. 57a, the Commission is authorized to prescribe “rules which define with specificity acts or practices which are unfair or deceptive acts or practices in or affecting commerce” within the meaning of Section 5(a)(1) of the Act.  These rules are known as “trade regulation rules.”  Among other things, the statute requires that Commission rulemaking proceedings provide an opportunity for informal hearings at which interested parties are accorded limited rights of cross-examination.  Before commencing a rulemaking proceeding, the Commission must have reason to believe that the practices to be addressed by the rulemaking are “prevalent.” 15 U.S.C. Sec. 57a(b)(3).

Once the Commission has promulgated a trade regulation rule, anyone who violates the rule “with actual knowledge or knowledge fairly implied on the basis of objective circumstances that such act is unfair or deceptive and is prohibited by such rule” is liable for civil penalties for each violation.  The Commission obtains such penalties by filing a suit in federal district court under Section 5(m)(1)(A) of the FTC Act, 15 U.S.C. Sec. 45(m)(1)(A).  In addition, any person who violates a rule (irrespective of the state of knowledge) is liable for injury caused to consumers by the rule violation.  The Commission may pursue such recovery in a suit for consumer redress under Section 19 of the FTC Act, 15 U.S.C. Sec. 57b.

These procedures apply only to rules with respect to unfair or deceptive acts or practices promulgated under authority of the FTC Act.  In addition, various other statutes authorize Commission rulemaking; such rulemaking is typically promulgated in accordance with section 553 of title 5, United States Code.  These statutes generally provide that a violation is treated as a violation of the FTC Act, and often provide that a violation is treated as a violation of a trade regulation rule promulgated under FTC Act Section 18. Section 22 of the FTC Act, 15 U.S.C. Sec. 57b-3, contains procedural requirements that apply to the Commission’s rules.  All Commission rules are published in Title 16 of the Code of Federal Regulations.

As of 2023, the maximum civil penalty dollar amounts for violations of the  rules that the agency enforces is $50,120, per violation (or, per day for ongoing violations).  Now that the Supreme Court unanimously held in AMG that the Federal Trade Commission cannot obtain equitable monetary relief, such as disgorgement or restitution, when it pursues district court litigation directly under Section 13(b) of the Federal Trade Commission Act, in order to obtain such relief, the FTC must first follow its administrative adjudication procedures under Section 5 of the Act.

FTC Rulemakings

As predicted, the FTC has now turned its attention to pursuing FTC rule violations because of the civil penalties attached to violations thereof.

• The Restore Online Shoppers’ Confidence Act (“ROSCA”)
• Made in USA Labeling Rule
• The Mail Order Rule
• Telemarketing Sales Rules

Importantly, the FTC has announced its intention to promulgate new FTC rules that come with civil penalties for violation thereof.  Pending rulemakings include, without limitation:

• Earnings Claims (potential disclosure, substantiation, and recordkeeping requirements)
• Reviews and Endorsements (potentially replace the Endorsement Guides with a rule)
• Biz-Op rule expansion to cover coaching, ecommerce and investment opportunities
• Impersonation of government/businesses (directly and “means/instrumentalities”)
• GLB Safeguards (covered entity notice to the FTC of certain security breaches)
• Noncompete Clauses (recent proposal to broadly ban noncompete clauses)

Other pending rulemaking proposals include, without limitation, a ban on deceptive pricing and surprise add-on products in the auto dealership industry (e.g., charging for any add-on product that “would not benefit” the consumer), regulation of “commercial surveillance” (e.g., data security and other privacy issues), a ban or stringent disclosure restrictions on “unnecessary, unavoidable, or surprise charges that inflate costs while adding little to no value” (i.e., “junk fees”), and regulation of funeral industry practices (e.g., requiring that prices for funeral services be posted online and distributed electronically).

See the FTC’s regulatory review calendar below that illustrates the agency’s schedule for reviewing existing rules.

See also the FTC’s list of federal register notices (that include new rulemaking proposals).

Digital advertisers should also know that the FTC has aggressively been issuing “Notices of Penalty Offenses” in an effort to seek civil penalties for those that knew conduct was unfair or deceptive in violation of the FTC Act, and the agency already issued a cease and desist order finding such conduct to be unfair or deceptive.  Engaging in the prohibited conduct after receipt of the “Notice of Penalty Offenses” could result in civil penalties of up to $50,120, per violation.

The FTC’s Penalty Offense Authority is codified in Section 5(m)(1)(B) of the FTC Act, 15 U.S.C. Section 45(m)(1)(B).  Recent “Notice of Penalty Offenses” have pertained to, without limitation, the use of testimonials and endorsements in advertising, and false money-making claims.

In order to minimize corporate and personal liability exposure, digital advertisers and marketers should consult with FTC advertising practices counsel in the event that their activities presently do or could potentially trigger potential monetary civil penalties.

Richard B. Newman is an FTC attorney at Hinch Newman LLP. Follow FTC defense lawyer on National Law Review.