Presented by the Consumer Protection, Private Advertising Litigation and Trade, Sports & Professional Associations Committees
Session Chair: David L. Meyer, Morrison & Foerster LLP, Washington, DC
Moderator: William J. Baer, Arnold & Porter LLP, Washington, DC
Government is part of the issue: Energy Star ratings are being awarded to products like a gas-powered alarm clock and an “efficient cleaning device” that’s just a mop. How do standard-setters, manufacturers, and retailers provide consumer-attractive and responsible green claims? There are antitrust issues involved.
Lauren S. Albert, Axinn Veltrop Harkrider LLP, New York, NY
Basics of the antitrust issues: coming up with a certification is considered standard-setting. When competitors get together to do that, that implicates §1 of the Sherman Act. Initial question: was this per se illegal? The law now uses the rule of reasons, balancing pro and anticompetitive effects. But per se is still around. Never (1) agree on prices or (2) agree on output restrictions, though neither of those should come up in green certification.
Issues: standard-setting process and then results. Best way to insulate them: make them neutral, objective, and verifiable. Someone who can’t get a certification can get a good explanation of why. Even better: don’t just have competitors, but have customers part of the process.
Implementation: again—verifiable and neutral. If someone’s product isn’t certified, it should still be able to get to market. If it can’t, you have a §1 issue. If a group of retailers got together and said they wouldn’t buy widgets that didn’t meet the standards, then the nonconforming widget maker would have a group boycott claim.
Michelle Mauthe Harvey, Project Manager, Corporate Partnerships Program, Environment Defense Fund, Bentonville, AR (works on-site with Wal-Mart)
We have, through an open process with suppliers and NGOs, developed screening processes where third parties come in and evaluate a product. Now Target, Sears, K-Mart etc. are looking into using the same third party. If they say “your Greenworks score has to be over 50” before we’ll buy, is there a problem?
Albert: Not if they’re doing it independently. If each makes that decision and the market moves, it’s ok; they can even talk about it, they just can’t agree.
Baer: to what extent is FTC paying attention to the antitrust/green intersection?
James A. Kohm, Associate Director of the Enforcement Division, Bureau of Consumer Protection, Federal Trade Commission
He doesn’t speak for the FTC as a whole or any particular commission. He doesn’t have a lot of interaction with antitrust folks on this issue. Green claims are very important in the marketplace, and thus his brethren on the other side would be looking at important areas. But these are credence claims that are hard for consumers to confirm; hard for the market to reward/punish good/bad claims. This is relevant to enforcement concerns. But remember that antitrust is separate from the Bureau of Consumer Protection.
David Antonioli, Chief Executive Officer, Voluntary Carbon Standard Association, Washington, DC
Carbon sector: issues not related to antitrust as much as green/greenwashing claims. Three different levels: ingredients, procedure, and completed results. His world: criteria for carbon offsets—do they have to be third-party audited? Can they be ex post or ex ante (tree planted today counting today, or only at maturity)? Concerns over who monitors, how to avoid double-counting, etc. Are the reductions actually meeting a threshold level of credibility that they wouldn’t have happened if not for the existence of a carbon market?
Baer: How do you deal with standard-setting organizations when working with Wal-Mart?
Harvey: Clarification: She’s speaking on her own behalf, not for Environmental Defense Fund, and EDF does not take any money from Wal-Mart—a voice in the belly of the beast. Wal-Mart, like individual consumers, is equally confounded by claims of sustainability. Looking for credible programs: multistakeholder, transparent, appeals process, chain of custody documentation. Shouldn’t be able to buy one’s way into them; assessment process should be uniform. Very small number of organizations tend to pass this. We’re not really crazy about certification as the answer for sustainability, because certification standards rarely drive environmental improvements. Rather they verify them. They rarely push for continuous, incremental improvement. Personal preference: developing purchasing standards that are transparent, straightforward, reflect scientific input (sustainable growing, food). Certification layers cost; creates flow of auditors auditing auditors; can take years to reach consensus among stakeholders whereas standard can be imposed more quickly by Wal-Mart. She sees more use with things like carbon where it’s even harder to tell.
Kohm: Haven’t seen complaints about green standards precisely because they are credence claims: can’t go to Hungary to see the tree allegedly planted on their behalf; can’t insure it’s been single-counted; can’t measure its CO2 effects. FTC is concerned, though, because there is no ability to protect oneself. But the FTC is neither nor a standard-setting organization. We’re looking at ensuring that consumers have accurate information, whether environmental or not. We wouldn’t get involved in the science, ex post v. ex ante and that sort of thing. There are ways to do ex ante setasides that at least appear legitimate on their face. We definitely want to avoid double-counting. If you have 20 tons of carbon scrubbed and sell it twice, there’s no doubt that’s fraud, regardless of the Green Guides. Additionality is extremely tricky; FTC have a role with “regulatory additionality”—there are lots of reasons for capturing methane; if you have to capture it by law, then you probably can’t claim it as an offset.
Baer: How do you go about evaluating a manufacturer’s green claim, whether standard-based or not?
Harvey: Dependent on particular issue. A lot of what she works with are scientific questions about better alternatives: a chemical component of bioplastic v. what it is supposed to replace. Is it improving the situation or is it just different? Use lifecycle analysis; a lot of work particularly around carbon. Bioplastics tend to take more energy to generate than the plastics they replace, leading to greater carbon impact, though this issue is being addressed—the assumption that something grown is better is not necessarily true.
Waiting for Green Guides: someone is making a claim, and the question is whether it’s over the top. Wal-Mart has a packaging expo for Wal-Mart buyers and suppliers; packaging vendors were making claims, and 75% of them didn’t pass Green Guide review. Most of the people weren’t “living over the line,” but the marketing people got excited and the scientist who designed the feature would have been appalled by the scope of the claim. Even the salesperson trying to sell the product may not understand what’s going on.
Baer: do you run into bad certification processes?
Antonioli: Look at the evolution of the carbon market. Started with Kyoto Protocol’s compliance regime: voluntary activity was unregulated, so a lot of programs developed, all of which had different approaches. Consumers are starting to understand differences (I’d sure like to see this evidence). A lot of private sector activity: carbon market is trying to foster a sense of credibility. If you’re destroying methane at a pig farm, it’s very intangible. Credibility is key to being able to charge more for the service!
There are new developments every once in a while, but we’re not seeing as many as we used to. Standards are complicated. Credibility does require multiple stakeholders and broad information. Increasingly competitive market: start to gravitate to what already works.
Harvey: Cautionary tale: There are several organizations defining “green campus” and doing rankings. For students this can be very influential. We’ve done a little work on this: people are coming and saying that their product doesn’t qualify for a university because it’s not biodegradable—but nothing degrades in a landfill, and there’s very little commercial compost. Changing the product doesn’t necessarily produce environmental benefits, but people are starting to embed well-intentioned, questionable claims. Without scientific rigor and transparency of criteria, it doesn’t work.
Kohm: Legally, transparency isn’t required, though there may be good reasons to do it. The key is substantiation of the claim, and of things reasonable people would take away from that claim. FTC has had cases against K-Mart and others on biodegradability claims: theoretical biodegradability is not enough.
Baer: What claims are you seeing that are most troubling?
Kohm: Outside the line: 2 recent cases that claim to make your car a “hybrid,” with nuclear fusion or magnets (would have to be the size of Jupiter to work). More interesting: folks who are trying to live within the bounds, but because of competititve pressure or gray lines cross over. Competitor seems to be making ever-moving claims, and pretty soon everyone is over the line. Or as with carbon offsets people have trouble finding the line. FTC is not going to pick where the line ought to be; that would be standard-setting. Instead, FTC is marking a line between deception and nondeception, focused on reasonable consumers. So we can let marketers know what consumers think the lines are. Recently: a set of cases on bamboo and biodegradability, using the Green Guides to demarcate the lines. K-Mart had substantiation that their plates biodegraded under certain circumstances, but people believed that biodegradability meant under ordinary disposal circumstances. In the case of paper plates that’s the trash and then the landfill. Nothing biodegrades without light, air and water, and those are three things not present in landfills. So what the FTC is focused on is determining consumer understanding.
Baer: what should the Green Guides be?
Kohm: FTC can make a difference—old Guides from early 90s; may be better research available now. Timing—how long does something have to take to biodegrade? New claims: double-counting and regulatory additionality are places where we can give guidance. Other claims may be too context-specific for guidance beyond substantiation/consumer takeaway. People get in a lot of trouble with general “green” claims—FTC is not happy with “eco-friendly” or “green”—it’s very hard to substantiate and consumers take lots of claims away from such claims that are very hard to substantiate. May be able to provide guidelines on more specific qualifications.
Baer: prior FTC concerns with Rambus, where Rambus pushes a standard with undisclosed patent interests. Is that a real concern here?
Albert: She isn’t seeing that with green claims. With Rambus, people didn’t realize they’d have to pay royalties to comply with the standard.
Harvey: Hasn’t seen that yet, but she can see the possibility in the way that tech is moving. Until now, the improvements have been low-hanging fruit. We’re now moving into an innovation phase.
Albert: so you’d need to be sure that there is adequate disclosure of interests in the standard-setting process.
Antonioli: Rulebook for counting impact—often requires public consultation. Some developers have been hesitant to publicize their methodologies (apparently they want them secret)—his organization has floated a proposal to compensate developers for others’ use of their methodologies.
Albert: Note that’s not patented.
Baer: envision a situation where a retailer and its trade association think that proliferation of claims has generated enormous consumer confusion. We want some standards. Can we adopt a rule that we won’t buy from a supplier that won’t meet X standard.
Albert: retailer client = no worries. Trade association: viable group boycott claim. It’s not per se illegal, but proceed with caution.
Q: We’ve seen state-level cooperation between environmental and consumer protection regulators. Do we foresee the FTC working with the EPA?
Kohm: Yes, but the lawyer answer is that it depends. EPA and DOE are commenting on the Green Guides because they have the expertise. It’s not a joint project or joint enforcement. EPA is looking to protect public from environmental hazards; we look to protect consumers from misleading claims.
Q: what’s the importance of the independence of the certifying body from the industry in funding etc? (See the recent OASIS Organic case.)
Kohm: That’s important—consumers care about it. That doesn’t mean you can’t have a body with close industry/entity ties. Disclosure is the remedy—the consumer needs to know that the manufacturer is a member of the trade association that certified the product as biodegradable.
Antonioli: Independence is important for our organization: we don’t do consulting/audits. We rely on accredited bodies under ANSI/ISO.
Q: What about a collaborative effort among companies to promote a standard, knowing that it would serve some legitimate public function but would also tend to be exclusionary because some other companies can’t meet the standard?
Albert: It’s rule of reason—balance pro and anticompetitive effects. If there is consumer benefit, as the question assumes, that would weigh heavily in its favor.
Q: Wait, what about biodegradability claims again?
Kohm: Nothing you throw in the trash is biodegradable in the US. A solid product that you don’t throw in the trash could be—a tomato plant in a cardboard-type container meant to be planted in the ground can be labeled biodegradable. Things that are thrown away in a liquid environment—detergents, toilet paper—may well biodegrade and thus may be labeled as such.
Baer: Possibly also if you urge people to litter!
Q: Compostable—can you say that knowing that only a tiny percentage of people will compost, and most will throw it away? Is that truthful or misleading, given that 95% of people might think it does some good even when thrown away?
Kohm: Probably ok. Not trying to promote composting. If it’s only compostable in a commercial facility, that’s a whole different issue, and there are a number of products like that. If you tell consumers what the requirements are, though (and the requirements are readily comprehensible), no consumer protection problem. (This is an example of a case in which there may be some misled consumers who think that even throwing the thing in the trash is better than throwing a noncompostable thing in the trash, but the cost of protecting them from that deception—removing the truthful information from people who’d use it properly—is greater than the benefits of protecting them, even though allowing the claim also will predictably distort the marketplace and possibly lead consumers to spend money inefficiently if the compostable product is more expensive. If we like composting, then the extra financial reward to the manufacturer may be a useful subsidy, but that depends on the substantive commitment and not on the idea that information is making the market work properly.)
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