Hunton Retail Law Resource

An important Federal Trade Commission (FTC) decision was announced yesterday that trains a spotlight on claims of “biodegradability.” The FTC found that a manufacturer’s unsubstantiated claims regarding the biodegradability of plastic pellets used as product additives deceived industry and end-use customers. The case reemphasizes the FTC’s intent to enforce the FTC Act against unsupported “green” claims. For retailers and consumer product manufacturers, this case and the recent increase in consumer false advertising class actions emphasizes the importance of:

• due diligence regarding product claims made by vendors – ask for and maintain material to back up the claims and stick to the claims that can be supported; and
• strong indemnities against false and deceptive advertising claims.

Background

The FTC originally brought suit against ECM BioFilms before an administrative law judge (ALJ) in the fall of 2013, alleging that ECM’s claim that plastics treated with its additive pellets generally were “biodegradable” was deceptive. Specifically, the FTC alleged that such plastics would not fully break down and decompose into elements found in nature within a reasonably short period of time after customary disposal, nor would they do so within the one-year timeframe implied in ECM’s marketing materials. The complaint also charged ECM with providing its customers and independent distributors, through the company’s promotional materials, its “Certificate of Biodegradability” and the ECM logo, with the means and instrumentalities to deceive consumers.

The ALJ issued his decision in February 2015, partially supporting and partially rejecting the FTC staff’s allegations. While accepting that plastics treated with ECM MasterBatch Pellets could biodegrade at some point, the judge rejected ECM’s claims that, as ECM’s marketing materials implied, such plastics could fully do so within nine months to five years in a landfill. At the same time, the judge outright rejected the FTC staff’s contention (based in part on a Google Consumer Survey) that that the terms “biodegradable” or “biodegradable … [in] some period greater than a year” implied that plastics treated with ECM MasterBatch Pellets would completely biodegrade within one year. Accordingly, the judge declined to bar ECM from making unqualified biodegradable claims for its products unless it could substantiate that they would completely decompose within one year. Both parties appealed the ALJ’s decision to the full Federal Trade Commission.

Yesterday’s Decision by the FTC

The Commission found that ECM’s express claims that plastics treated with the MasterBatch Pellets would biodegrade within certain time periods were not substantiated by the science presented at trial. Reversing the ALJ, the Commission also found that ECM’s general claim of biodegradability deceptively implied that such products would break down within a reasonably short period of time, or within five years. The Commission found credible the various surveys presented by complaint counsel as evidence at trial. Commissioner Ohlhausen dissented from this part of the Commission’s opinion. The Commission’s final order bars ECM from claiming that any plastic product or package is degradable, unless such claim is supported by scientific evidence and the product will completely degrade within five years after disposal, or unless the product is accompanied by a clear and prominent disclosure of the time or rate it takes to degrade, and any type of special disposal that might be needed.

Why the FTC’s Decision Matters

• This decision makes clear that companies make generalized “biodegradability” claims at their peril. The Commission found that reasonable consumers expect that plastic products labeled “biodegradable” will decompose within a reasonably short period of time (i.e., within five years). A company can use the term “biodegradable” only if it possesses reliable scientific evidence that its product will completely biodegrade within five years.
• The cost of obtaining reliable scientific evidence may not be prohibitive, however. The FTC gave significant weight to a large-scale online survey (here, Google Consumer Surveys) conducted by complaint counsel’s experts. As noted in the opinion, a well-designed survey has a number of advantages, including that it can be inexpensively conducted, cover a broad sample size and employ easy-to-view graphics that get to the heart of consumer protection.

Read the client alert.