FTC fails to show lack of substantiation because court reads ASTM standards as nonrestrictive

Federal Trade Comm’n v. Innovative Designs, Inc., 2021 WL 3086188, --- Fed.Appx. ----, No. 20-3379 (3d Cir. Jul. 22, 2021)

Another FTC loss, this time for failing to prove that IDI’s claims about its Insultext House Wrap were false or unsubstantiated. Insultex (which I can’t help reading as “insult-ex”) is “a weather-resistant barrier used in building construction.” IDI’s ads tout its R-value, a measure of the product’s ability to restrict the flow of heat. The higher, the better it is at insulating. The standard test for insulation is set forth in ASTM C518. 

“IDI advertises that ASTM C518 testing revealed that Insultex has an R-value of either R-3 or R-6, but “standard” ASTM C518 testing conducted on Insultex has not yielded those results.” Instead, IDI used “modified” ASTM testing. “IDI also advertises that Insultex provides energy savings to its users based upon its claimed R-values, but it has conducted no energy savings studies.”

The district court held that R-value testing results could be admitted only with expert testimony explaining them; it then held that the FTC’s expert’s opinions weren’t reliable or fit under Daubert. Because the FTC couldn’t show that the modified testing didn’t conform to ASTM standards, it hadn’t shown falsity, and because of that, it hadn’t shown that the energy savings claims were unsubstantiated, because IDI relied on the Federal Register statement that a high R-value leads to energy saving.

At the time IDI made its advertising claims, relevant regulations provided that R-values in labels and promotional materials “must be based on tests done under the methods listed below.” The regulations stated stated one of those methods is “ASTM C 518[ ],” and that such a test “must be done on the insulation material alone (excluding any airspace).” (The modified test used an air gap.)

When the FTC brings a lack-of-substantiation claim, it must show materiality and must also “(1) demonstrate what evidence would in fact establish such a claim in the relevant scientific community; and (2) compare [ ] the advertisers’ substantiation evidence to that required by the scientific community to see if the claims have been established.” If an advertising claim “states a specific type of substantiation,” as some of IDI’s claims at issue here, the “advertiser must possess the specific substantiation claimed.”

The problem here was that the FTC failed to prove “that use of a modified ASTM test is not ASTM C518 testing.” The standard itself “sets forth a standard test and explicitly contemplates that variations of the standard method may be acceptable,” nor does it bar alternative tests with air gaps. [It doesn’t actually say that variations would satisfy ASTM: The exact language is “[s]tandardization of [the ASTM C518] test method is not intended to restrict in any way the future development of improved or new methods or procedures by research workers” (emphasis added). That plus the "must" be done "excluding airspace" would have led me to the opposite conclusion. I suppose the rationale is that one needs an expert to interpret ASTM standards--no matter what?]

Thus, “the use of such testing could provide substantiation that satisfies ASTM C518.” The FTC would have had to prove that consumers believed otherwise to prevail, and, in the absence of expert or even lay testimony, it couldn’t. The FTC argued that the modification-permitting language of the ASTM Guidance was intended to cover future standards developed by “standard-setting bodies” and “research workers,” not any modifications that “individual marketers” might wish to make.  That does seem to be the far more natural reading of the guidance, but the court found that the FTC didn’t meet its burden of proof, which I guess means that admissible expert testimony about what ASTM C518 means could have fixed the problem.

The burden was on the FTC to show that IDI’s substantiation evidence would not satisfy the relevant scientific community, not on the defendant to do more than possess evidence that plausibly was sufficient to satisfy the relevant community.

Thus, both the falsity and substantiation theories failed. The FTC failed to show that the modified ASTM C518 unit did not accurately measure Insultex’s R-values.