Green Marketing Claims Regulations and Potential Liability Presented by William C. MacLeod, Kelley Drye & Warren LLP

feestock zero-impact feedstock content ECO-SMART eco-friendly sustainable sustainability renewable renewable resource life cycle recycled recyclable biodegradable degradable photodegradable compostable RENEWABLE BIO-BASED NATURAL CONTENT environmentally friendly earth-friendly ozone-friendly cradle to cradle cradle to grave CARBON OFFSETS renewable energy credits carbon neutral carbon footprint CLEAN ENERGY environmentally preferable environmentally safe naturally derivednon-toxic energy intensity energy efficient Bioenergy greenhouse gases environmental management systems (EMS) alternative fuels green purchasing

New Buzz Words Reach Washington: Green Purchasing Jan. 24, 2007: President Bush signs Executive Order 13423, requiring federal agencies to procure goods and services that include biobased, environmentally preferable, energy efficient, water-efficient and recycled-content products.

Standards for Green Advertising Claims FTC’s Green Guides – 16 C.F.R. Part They do not have the force of law, but provide a safe harbor for advertisers. They help advertisers understand how the FTC intends to apply Section 5 of the FTC Act.

What Does the FTC Require for all Ad Claims? Consumer Perception: What claims does the ad convey to reasonable consumers? Substantiation: Does the advertiser have “competent and reliable evidence” to substantiate those claims?

General Principles of the FTC’s Green Guides Principle #1: Qualifications and disclosures necessary to avoid misleading consumers must be clear, prominent, and understandable. Example: A company advertises its building product as “environmentally friendly” but does not explain how it is friendly for the environment. Using the phrase without specific qualifying language explaining what environmental qualities the building product has is deceptive if it leads consumers to believe that the product has far-reaching environmental benefits that the company cannot substantiate.

General Principles of the FTC’s Green Guides Principle #2: Claims must be presented in such a way as to make it clear whether they relate to a product, the packaging, and/or the company’s practices. Example: A cleaning product is labeled “biodegradable.” Although the chemical cleaner is biodegradable, the spray bottle is not. By itself, the claim may be deceptive if consumers understand the claim to mean that the entire product, including the packaging, is biodegradable. To avoid potential deception, it should be qualified to say, for example, “the chemical cleaning solution is biodegradable.”

General Principles of the FTC’s Green Guides Principle #3: A claim must not overstate an environmental attribute or benefit, either expressly or by implication. Example: A home building company advertises its new energy efficient homes as “guaranteed to provide a 30% decrease in utility bills.” This claim likely overstates the benefit because there are other factors that increase the cost of a utility bill, including utility rates, consumer behavior, and long-term maintenance costs. The company might consider instead saying that its new energy efficient homes “may be up to 30% more energy efficient than a typical 10-year old home (as defined by the U.S. Department of Energy’s Building America Program),” provided the company can substantiate such a claim.

General Principles of the FTC’s Green Guides Principle #4: Comparative environmental claims must be presented in a way that makes the basis for the comparison clear. Example: A washing machine is advertised as “30% more efficient.” This claim is ambiguous because it could be a comparison to the advertiser’s immediately preceding washing machine or to a competitor’s washing machine. The marketer should make the basis for the comparison clear, saying, for example, “30% more efficient than typical washing machines were in 2006.”

Types of Advertising Claims in the Green Guides General environmental benefits Degradable, biodegradable, and photodegradable Compostable Recycled content Recylcable Source reduction Refillable Ozone safe/ozone friendly Non-toxic

Environmental Seals and Certifications Independent from advertiser Professional expertise in area Certification does not insulate advertiser Avoid broad claims

Climate Change Renewed attention on the Green Guides

FTC’s Workshops on Green Guides – 2008 FTC Workshops on Specific Topics Under Review: Carbon Offsets and Renewable Energy Certificates (“RECs”) – January 8, 2008 Green Packaging – April 30, 2008 Green Buildings and Textiles – July 15, 2008

How the Green Guides May Change FTC’s current review of the Green Guides focuses on new claims that are not covered by the current Guides: Sustainable Renewable Carbon Footprint Carbon Neutral Bio-Based

States Are Monitoring Green Advertising Many states, like California, Maine, Michigan and Rhode Island, have adopted standards consistent with the FTC guidelines. » California’s Original Approach: required compliance with state- specific definitions of environmental terms (adopted by states including Indiana) » New York’s Approach: official state emblems or seals designate compliance with state definitions of environmental terms.

Potential Legal Consequences Of Deceptive Advertising Cease and desist orders Refunds for consumers (redress) Disgorgement of ill-gotten gains Informational remedies – such as corrective advertising, disclosures in future ads or on product labeling

Thank You! Questions? William C. MacLeod (202)