Saturday, June 20, 2009

ABA Consumer Protection conference, green marketing and internet issues

Green Marketing: Communicating Environmental Benefits to Effect Change and Sell Product

Moderator: Nancy J. Felsten, Davis Wright Tremaine LLP, New York, NY

There’s a green gap: most consumers believe they understand the terms, but half think that “environmentally friendly” confers a positive environmental benefit. They think biodegradable products decompose anywhere, in under a year, and are great for the environment. TerraChoice found that almost all “environmental” products committed at least one sin—especially labels with no meaning or third-party verification behind them. How do we atone for our carbon footprints? How can we even measure them?

New terms that weren’t around when the Green Guides first came out: sustainability, renewability, life cycle, carbon offsets, renewable energy credits, carbon footprint, carbon-neutral, bio-based, third party certification, organic textiles, green buildings.


James A. Kohm, Associate Director, Division of Enforcement, FTC

Tent poles of FTC action: Business guidance; enforcement; consumer education. Business guides are focused on the Green Guides, which are under review. We were hopeful we were going to get more consumer perception evidence from our hearings than we did. We are concerned about chilling legitimate claims as well as avoiding bad claims; we intend to conduct our own consumer research as soon as OMB approves it.

Two categories: people who step over the line and people who live over the line. Guides are not a big constraint on the latter; the former step over the line, generally, with implied claims. Example: K-Mart and biodegradability claims for things like paper plates. They probably biodegrade in an ideal setting. But we know consumers understand such claims to mean that the product will break down into natural components in a reasonably short period of time, and nothing you throw into the trash breaks down that way because essentially nothing breaks down in a landfill.

Note that FTC regulates green business-to-business claims as well.

Best advice for general environmental benefits/life-cycle analysis: stay away from it; difficult to understand; who knows what consumers take from it?

David G. Mallen, Associate Director, NAD, National Advertising Review Council

Role of self-regulation. NAD has been fairly active both in monitoring and reviewing competitor challenges. Green marketing is prevalent and powerful. Guilt: consumers want to feel better about their consumption. Thus, there’s a potential for abuse.

Green claims at NAD: (1) general environmental benefit; (2) comparative claims (we are greener than our polluting competitor); (3) biodegradable and degradable; (4) third-party certification. Companies will seize upon a true attribute and attempt to parlay that into a broader claim that can’t be substantiated. Essentials: no petroleum-based cleaners, only plant-based soaps. This was literally true. Also claimed “more sensible” for the environment. Concern: this isn’t substantiated—may not be a better choice—the complex surfactants have environmental issues even if plant-derived. They can tout plant-based and non-petroleum, but not broader.

Pets for the Planet (2008): reduce your carbon pawprint. The company was prepared to walk us through the supply chain, the feedlots/husbandry. They took a step towards lifecycle analysis—the kinds of things you need to think about to make a very broad environmental claim, even knowing substantiation is difficult.

Challenge: what claims require that kind of analysis? Broad claims require broad support. Panasonic plasma case: no lead, but consumes lots of energy = not “environmentally friendly.” Mythic paint: complied with industry standards on low-VOC, but tagline was “If you knew what their paint was doing to you, it’d take your breath away. Literally.” A lot of competitors have only slightly greater levels of VOC, and there’s no evidence of danger from them. Had to modify the ads.

Certification: who’s doing the certifying? Are the criteria meaningful and verifiable? Does the certification give rise to further implied claims? NAD will be increasingly involved in this, he predicts.

Ellen Goodman, Rutgers University (Camden)

5 sources of federal regulation of green claims, including EPA and Dep’t of Energy. Different agencies stress different reasons for regulating. Consumer protection is one, but regulation through information is another—change consumer preferences, habits, get producers to change products and production processes. This can work even without increasing demand for green products, because the very fact of imposing a label can get producers to reformulate products: when the FDA adopted trans fat regulations, producers reformulated the products subject to them.

The other agencies do use the language of consumer protection, melding these two goals. The consumer protection idea is that there are information deficits; these are credence claims, unverifiable by consumers, giving sellers an incentive to greenwash. When policy seeks to address regulatory gaps, it’s a different type of market failure: failure of market to deal with negative externalities like pollution. Regulators lack information, enforcement tools/will, etc. Information provision through labeling is a way to get movement on the substance without direct regulation—animal welfare, for example.

We usually think that addressing information deficits protects consumers and reduces externalities. But policies that enhance consumer decisionmaking might not reduce externalities—it only works if consumers care about the externalities they inflict. Likewise, information disclosure may get producers to reformulate, even if consumers turn out not to care. Policymakers may have to choose which goal they want to achieve.

Policy levers: False advertising; point of purchase labeling programs (voluntary or mandatory; logos like USDA Organic or narrative information like the EnergyGuide); and also information reporting, which isn’t point of purchase but does generate a record.

Pros of advertising law: flexible and low cost. Gov’t labels: unified standards; transparent and fair. Disclosure: flexible; educational; mobilizing. Cons: Advertising law: post hoc. Gov’t labels: regulatory capture is a risk; inflexible and resistant to information. Disclosure: unclear.

Organic label example: mid-level protection in terms of definition; preemptive effect—label occupies the field for “organic”; certification structure makes it difficult to upgrade/differentiate—the rules prohibit the third-party certifiers from having higher standards; you’d have to pay again to get a higher standard and then there’d be a problem of information clutter. Organic is a very successful label, but with tradeoffs in retarding innovation. Similar process for USDA labeling of meat/animal products with animal welfare/environmental issues.

USDA just adopted a new label for grass-fed/naturally raised animals. The standards are quite lax, not what most people would think those terms meant. There was a conscious agency decision to have a very narrow meaning for the logo, to encourage market segmentation. “Grassfed” means that the animals are given hay in confinement; if you want to say your animal was pastured, you can say that. Maybe we’ll see that, but government labels have a lot of power.

Logo labels are simple, useful, widely adopted; tradeoff is regulatory effect—tend to be relatively weak, sticky standards that are difficult to supplement. (Ties in to Levy’s discussion of satisficing.) Narrative labels give greater potential for consumer education—and even if consumers don’t read them, remember effects on manufacturers and intermediaries. Consumer research shows the Energy Guide label has been much less consumer-friendly than the Energy Star logo, which conveys less information; consumers want a thumbs-up/thumbs-down.

Simplicity v. information tradeoff. EPA wanted to show how well vehicles did v. their class. UCS said they should show how vehicles did v. all vehicles, because then it’s obvious that even a really fuel efficient SUV is terribly wasteful. Turns out consumers didn’t like the more extensive disclosure—more information; they said they were shopping within the vehicle class anyway.

Felsten: Sounds like consumers want cheap and easy info. Consumers don’t just want to know what carbon-neutral means; they want standards. Whose role is this? Government? Should there be safe harbors for following industry standards?

Kohm: The FTC isn’t a standard-setting body, even though that can be a legitimate government function. The keystone is consumer perception. If the EPA or another body set standards, that could be useful in moving consumer perception or giving us a basis to regulation.

Mallen: NAD thinks similarly. We don’t rate companies on green-ness.

Kohm: Consumers interpret “please recycle” as “this is recyclable (where you are)”—producers have to be careful about what they say.

Q: recent congressional hearing at which testimony was that consumer had bought a fridge based on the label, but Consumer Reports testing found gross inefficiency; turned out the seller just accepted the manufacturer’s report.

Goodman: There definitely have been problems with verification.

Kohm: Self-reporting is the rule; we think there are competitive reasons to be accurate. The DOE standard had a loophole, which arguably allowed them to turn off the icemaker when they tested the energy consumption. The DOE has now closed that loophole. Competitors check this kind of thing!

Felsten: how long do we need to wait for Green Guides copy testing?

Kohm: We put it out for comment; the comment period is now over. We are nearly through the first OMB approval period of 60 days. It will take 2-3 weeks to run once it happens. Looking at consumer perceptions of specific terms. We had to make choices and focused much more on new terms in our testing—sustainable, etc.

Consumers Confronted by Old Challenges, New Technologies: Learning From Last Year’s Mistakes


Thomas F. Zych, Thompson Hine LLP, Cleveland, OH

Legal responses to new tech developments: so far we haven’t heard much call to throw out the rules and start over again. But here we have an opportunity to ask whether the law is able to keep up with what’s happening and what we might do about it.


Eric Goldman, Santa Clara University School of Law

230 contemplates a world divided between first-party content and third-party content. Simply: an online actor isn’t liable for third-party content. There are exceptions, and bright lawyers start working on them. Exceptions—federal criminal enforcement, IP (DMCA covers copyright). Still, a robust and strong rule that befuddles lawyers because it’s contrary to what we know about tort law. It’s the flagship of cyberspace exceptionalism.

(1) Nothing has changed for first parties. A website that makes its own marketing representations can be liable under standard theories. (2) But some representations might be rendered untrue by third-party actions. Suppose a site says it offers a “safe” environment. So possibly, applying the principle of 230, sites might not be liable for first-party representations when rendered untrue by third-party conduct. (3) Barnes v. Yahoo!: a site may be liable for promissory estoppel if it promises to remove the content and then doesn’t do so.

What about when the site is intrinsically involved with the content? 230 still generally protects the website—even if the ToS say that the website “owns” the content submitted. SEC said that companies could be responsible for information they linked to. For criminal enforcement, there’s no problem, but civil enforcement is preempted by 230. What about when websites run third-party ads? Attempts to hold sites liable for content they’re paid to run—230 still protects them.

Workaround: site can lose 230 if it encourages illegal content/requires users to input illegal content. FTC action is testing this theory—case against an access provider helping customers engage in illegal activity; the theory is that the provider was more than a conduit. Criminal liability is certainly available. But a civil action premised on illegal conduct involved in being a conspirator or some other type of joint party, 230 is relevant though not an obvious killer. Troubling: when a civil action is based on providing services to third-party customers and plaintiffs try to fit into the Roommates exception.

Two takeaways: (1) There’s a basic division between first and third party content sounds great in theory, but is muddled in practice. (2) Agencies need to rethink some expansive liability approaches. Can’t hold everyone up and down the chain liable for that bad action. 230 may force you to be much more granular and let some people go or choose criminal enforcement if appropriate.

Zych: Has 230 caused problems for regulators?

Genaro Fullano, Deputy Chief, Enforcement, FCC

Hasn’t come up yet but we’re in a very early stage of our enforcement.

C. Brad Schuelke, Assistant Attorney General, Office of the Texas Attorney


Has to fundamentally disagree with Goldman’s last point—need to continue to push and try to get around 230. The state of the law doesn’t look really good for regulators, but those aren’t necessarily rightly decided or what the law was intended to do. We need to enforce the laws as we think appropriate, at least to get Congress to clarify. Background: legislative history doesn’t suggest this broad a reading. Was passed in reaction to Stratton Oakmont, a defamation case holding an ISP liable as a publisher because it reviewed postings on its website. Prodigy ended up having greater liability for acting as a Good Samaritan. Congress wanted to avoid that problem. They shouldn’t be considered publishers or speakers of third-party content, but there are other ways of characterizing them that would allow liability in certain circumstances. Congress wanted to encourage monitoring, but it’s actually discouraging ISPs from monitoring their sites. It’s worth regulators pushing some.

Like the FTC, we’ve encountered 230 numerous times, though haven’t litigated it yet. Julie Brill talked about Facebook & MySpace. The states in general were hamstrung by what they could do because of FB etc.’s ability to disclaim liability for what’s done on their sites; less leverage to force changes. Similarly with Craigslist: used for prostitution and other things, and they know it. In a normal, non-230 world, their knowledge and failure to act might give them liability, but 230 puts a wrench in that.

Goldman: It’s equally important to recognize what the courts are doing when they read the statute broadly. It’s a philosophical divide. If you know that there are legal limits on liability, it might not be the right thing to do to test the limit because you can damage the targets of your enforcement by litigating what may turn out to be lawless theories. The FTC has done a pretty good job, but not all agencies have; some seem to look for trouble. It’s embarrassing for the government to get told by judges: what were you thinking? The law was clear.

Zych: 1996 law—crafting a media-specific solution at one point in time may have unintended consequences. Lessons for other sector-specific types of laws.

Fullano: Net neutrality from the consumer protection point of view. Standard disclaimer about his views. Things are literally happening as he speaks.

Madison River, telephone company, was reported to be blocking access to customers’ VOIP services. FCC investigated and the company settled, agreeing not to block VOIP ports and pay a nominal fine. Important: the central issue was whether Madison River’s behavior as a common carrier was “unjust and unreasonable.” The FCC used its general authority under the Telecom Act.

Questions of statutory interpretation: what authority does the FCC have? Internet Policy Statement: users’ rights to access lawful internet content, claiming Title I authority, allowing jurisdiction ancillary to regulating communication. Consumers are entitled to access lawful content, use legal devices, and have competition among providers of network access, content, services, and applications.

Complaint against Comcast (wasn’t really a “complaint”) about secret degradation of P2P protocols. FCC concluded that discrimination among applications had occurred; after an initial denial, Comcast argued it was just reasonable network management practices. FCC concluded that these practices were invasive and unacceptable. FCC threatened injunctive action; Comcast argued the FCC lacked statutory authority because there was no violation of rules, only the policy statement. The FCC responded by saying that Comcast’s practices effected Title II (common carrier) functions, and thus the FCC could exercise its ancillary jurisdiction. That’s still pending before the court of appeals. Comcast has cleaned up its act.

Now, we have the economic meltdown and much talk of the necessity of broadband deployment to promote recovery. Grants will have nondiscrimination and interconnection requirements. Thousands of initial comments have come in. Comcast argues that any openness regulation will undermine national broadband policy. Others like Public Knowledge take the position that every packet is equal. The ultimate question: will the internet be managed? Will people have to pay extra for extra broadband services?

The FCC asked to be informed about consumer protection issues related to the provision of service.

There’s little trust among commenters that network owners won’t engage in anticompetitive behavior. Comments: disclosure to the consumer is key. (Given what we know about disclosure, how can this possibly help? Does anyone seriously think that Comcast will offer you the option to buy unblocked access to P2P for a higher price if it’s allowed to discriminate?)

Goldman: Disruptive technologies—net neutrality is a microcosm—rapidly evolving tech, rapidly evolving business models, complex consumer decisions (what are you buying when you buy connectivity?).

Schuelke: Standard disclaimer of personal opinion. Everyone seems to agree that self-regulation isn’t working, in large part because many moves are invisible from a consumer perspective. More likely that something will have to change. One possibility for industry: states probably will try to act—you’ve already seen 3-4 states bring legislation to regulate behavioral advertising.

Zych: Web 1.0 thinking may not apply to web 2.0. Buying something at the store was never a truly private act—it occurred in public—but storage of data creates a scale problem and a persistence problem. Social networking: Europe’s Art. 29 working group has announced that applications on sites like FB (polls, etc.) can be held liable for violations of European privacy laws even if their transactions with FB are entirely within the US. What’s absent from the analysis is anthropology: we think of things from an e-commerce point of view, control over commercial transactions. But social networking is cultural.

Schuelke: Goes back to the FTC’s distinction between first-party behavioral advertising and third-party behavioral advertising: consumers aren’t as surprised to know that the website they’re on tracks them. Like going into the grocery store: consumer understands that the cashier sees the products; it’s troubling if the store shares that information with dozens of other sources and combines it with other purchasing decisions.

Goldman: fundamental assumptions about how people interact are breaking down, and the internet may finally put the stake in the heart of some distinctions, like personally identifying information and non-personally identifying information, or private and public. Distinction between commercial and noncommercial is also increasingly fraught. Things look commercial but may not be despite indicia.

Me again:

I would be remiss if I didn't give credit to John Villafranco, who took the laboring oar organizing the conference. Thanks to a great group!

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