Green litigation: growing beyond the US?
This article outlines the legal basis on which complaints and claims against greenwashing companies can be brought in the US and the UK, and considers recent and prospective developments in both jurisdictions.
Over the past 12 months, the US has seen a marked increase in the number of actions against companies for making false or unsubstantiated claims about the environmental benefits and attributes of their products or services. This rise in green litigation, or claims against "greenwashing", has alerted lawyers to the need to be clear and specific in their advice to clients. Companies that have so far faced the brunt of these claims have mostly been consumer goods manufacturers, such as the makers of cleaning products, white goods and cars.
While the last year has heralded a wave of claims in the US, in Europe, lawyers tell a different story. In the UK, for example, practitioners note that although consumer complaints against greenwashing are on the increase, they are on a smaller scale than in the US, and are being dealt with by regulatory agencies such as the Advertising Standards Authority and the Office of Fair Trading, rather than by private litigation.
This article outlines the legal basis on which complaints and claims against greenwashing companies can be brought in the US and the UK, and considers recent and prospective developments in both jurisdictions.
US: home to greenwashing litigation
At a federal level, the US has two pieces of legislation and a trade body to deal with false environmental claims. These are:
The Federal Trade Commission Act (FTC Act) (see FTC Act).
The National Advertising Division of the Better Business Bureau, which oversees national self-regulation.
There is another level of legislation at state level, which has been instrumental in the recent rise in high-profile individual and class actions against alleged greenwashing companies.
Brooks Beard, litigation partner in Morrison and Foerster's San Francisco office, explains that at a federal level, the Federal Trade Commission (FTC) had been looking into regulating green claims for a number of years. However, he comments that, "Until President Obama's administration brought in new players at the FTC, there had been very little effort to enforce the FTC Act in the context of green or environmental claims. As a result, businesses did not have much in the way of real-world guidance regarding what was acceptable and what was not". Since the change in administration, the new FTC chair appears to be placing a greater emphasis on enforcement and regulation of companies making environmental claims in their marketing and advertising materials.
The FTC Act states that "unfair or deceptive acts or practices" and "unfair methods of competition" in commerce are unlawful (section 5). With respect to green claims, Beard comments that it is the consumer's perspective that matters. If consumers are misled or deceived by the advertising, it may result in a breach of the FTC Act. If the environmental claim cannot be substantiated through proper evidence, the advertisement may be declared unlawful. The FTC Act's powers of enforcement include cease and desist orders, civil penalties and fines.
Running alongside the FTC Act are the FTC's Guides for the Use of Environmental Marketing Claims (also known as the Green Guides) (see Green Guides (FTC)). These state that any environmental claims made by companies about their products or services should be substantiated with reliable and competent evidence (see Part 260.7, Green Guides (FTC)). They also provide guidance on the use of certain key words and phrases, such as "recyclable," "ozone friendly" and "biodegradable".
The FTC Act was not used between 2000 and 2008. According to its then Commissioner, companies had been abiding by the Green Guides, and self-regulation and other federal laws such as the Lanham Act (see below) were dealing effectively with greenwashing claims. However, following the recent change in administration, the FTC Act has been used against a number of consumer goods companies including:
Kmart, a US supermarket, regarding its paper plates.
Tender Corp, a manufacturer of moist wipes.
Dyna-E, a paper towel manufacturer.
The FTC challenged each of these companies' claims that their products were biodegradable (see FTC press release, 9 June 2009). The matters brought against Kmart and Tender Corp were settled, while the challenge against Dyna-E was to be taken to court. However, on 2 July 2009, Dyna-E and the FTC applied to withdraw the case from adjudication to consider a proposed consent agreement.
In August 2009, the FTC brought a number of further actions against other companies claiming green credentials for their products (see FTC press release, 11 August 2009).
In view of the recent growth of green claims, the FTC has announced that it will be revising its Green Guides a year earlier than previously planned (see FTC Reporter Resources: The FTC's Green Guides). The updated guides will include:
Clearer guidance on and definitions of existing phrases included in the guides.
Definitions of newer terms that are starting to be used more often in advertising and marketing campaigns, such as "carbon neutral", "carbon offsetting" and "renewable energy".
Beard notes that the revised guides are eagerly anticipated by lawyers, consumers and competitors alike, "They are likely to provide additional guidance beyond that offered by the current version, and will be used as a roadmap by companies for their green marketing efforts".
However, while the FTC Act is high profile and important, it only allows the FTC to bring a claim, excluding consumers and competitors.
Another layer of federal legislation relevant to green claims is the Lanham Act. This states that companies can be held liable for advertising that misrepresents "the nature, characteristics, qualities or geographic origin" of goods and services (see section 43(a)(1)(B), Lanham Act). Competitors and the state can bring a claim under this Act. Penalties for breach include:
The liable company paying out its profits, as well as paying for the plaintiff's damages and costs.
In a few exceptional cases, the liable company being ordered to pay its opponent's lawyers' fees.
Up to three times the amount of damages, if the court considers this to be "just".
Beard comments that the Lanham Act has not been used regularly in the context of green marketing claims. He points out that, "Companies bringing a claim under this Act are also often faced with counterclaims challenging their own advertising efforts". This can have equally damaging repercussions for their own businesses.
The National Advertising Division of the Better Business Bureau (NAD) is a self-governing body representing the advertising industry. Its remit is limited to regulating national advertisements. Action taken by NAD is usually initiated by competitors and generally viewed as an alternative to litigation, although NAD itself can initiate action for the purposes of industry monitoring. NAD decisions are not binding. Despite this, Beard comments that there is a 95% compliance rate with NAD's written rulings.
NAD rulings can recommend that companies change the wording of claims in advertisements, or take them out altogether. In the past, it has recommended that broad statements and claims regarding, for example, environmental "friendliness" and product effectiveness should be amended or taken out if they cannot be proven.
For example, in 2008, NAD gave a high profile ruling regarding Panasonic's advertisements that claimed that their plasma televisions contained no lead or mercury, and were "environmentally friendly". NAD did not challenge the fact that the TVs had no lead or mercury in them, but did rule that the term "environmentally friendly" should not be used.
The decisions NAD makes in respect of green claims are generally used as a reference guide by companies planning to make claims about the green attributes of their products or services.
A number of states have state consumer protection laws in place, also known as "mini-FTC Acts", which reflect the FTC Act's provisions and Green Guides. Significantly, these laws can be enforced by a wider range of people than the federal legislation, including the government, competitors and consumers. Californian and New York state laws, in particular, have been used recently to bring high-profile lawsuits against well-known consumer brands, including Windex (a manufacturer of household cleaning products), Fiji Water and Coca-Cola (see box, Recent claims made in California and New York).
Peter Hsiao, a Los Angeles-based environment partner with product liability and litigation expertise at Morrison and Foerster, comments that "California and New York tend to be the forum for the most high-profile claims because of the large size of their markets, and because of their sympathetic attitudes towards environmental issues". He states that California, in particular, "has a progressive outlook in terms of class actions and environmental matters", which is why a number of the green litigation claims reported in the media have stemmed from there.
The statutes relied on to bring actions in California include the Unfair Competition Law, the False Advertising Law and the Consumers Legal Remedies Act. Under these laws, remedies against companies found to have "greenwashed" include damages, restitution, payment of lawyers' fees, injunctions and civil penalties.
Although it has not been reported that other states have experienced a marked rise in lawsuits in this area, partly because of the different way in which each state's Supreme Court interprets the relevant state law, Hsiao expects that there will be an increase in the future.
US: the future
Beard notes that the outcomes of currently pending class action claims in New York and California (see box, Recent claims made in California and New York) will have a significant impact on how companies will behave in the future regarding green claims. He comments, "Although companies and clients are obviously aware of the rising trend for litigation in this area, there are unlikely to be any significant changes to green advertising and marketing practices until an example has been set - perhaps with a large damages award against a company for making overly broad green claims that influenced consumers to buy a product based on its perceived green attributes".
The eagerly anticipated updated Green Guides from the FTC are expected to provide companies with clearer guidance on what they can and cannot say. Ultimately, both Beard's and Hsiao's main advice to their clients at this stage is to ensure that whatever claims they make can be substantiated by credible and reliable evidence.
Hsiao suggests that all companies making environmental claims about their services and products should, in any case, have an organised system in place for dealing with any green lawsuits.
Greenwashing in the UK
Environment and product liability partner Nicholas Rock from Dewey & LeBoeuf in London comments that the UK has seen a subtle mirroring effect of what has been happening in the US, but on a smaller and less litigious scale. Andrew Austin, a dispute resolution expert from Freshfields Bruckhaus Deringer, remarks that "While the US has a tendency to litigate, Europe instead regulates", and UK companies have felt the impact of regulation rather than individual or class actions.
There are two main ways in which greenwashing complaints in the UK are dealt with:
For complaints regarding press and television adverts, the industry is self-regulated by the Advertising Standards Authority (ASA) and the Committee of Advertising Practice (CAP) (see PLC Environment, Practice note, Making green claims in advertising (www.practicallaw.com/7-382-2493)).
For all types of marketing and advertising complaints, including non-broadcast adverts and product packaging and website issues, the Consumer Protection from Unfair Trading Regulations 2008 (CPRs) apply. The CPRs implement the European-wide Unfair Commercial Practices Directive (2005/29/EC)(UCPD). The UK's Office of Fair Trading (OFT) and Local Authority Trading Standards Services enforce the Regulations (see PLC Corporate, Practice note, Consumer Protection from Unfair Trading Regulations 2008 (www.practicallaw.com/2-381-1492)).
The Committee of Advertising Practice (CAP) produces various codes on advertising practices. In addition to providing general guidance on what claims can be made in advertising materials, it can provide pre- and post-publication guidance on specific adverts.
The CAP has published codes that apply to environmental claims made in print and on television. The current codes provide that environmental claims must be clear, substantiated and not misleading (see Rules 49.1 to 49.5, CAP Code). In March 2009, a consultation on draft revisions of these codes was published, to ensure that they will be up to date and clear (see PLC Environment, Legal update, Consultation on revised advertising code to prevent greenwashing (www.practicallaw.com/3-385-5131)).
The ASA is responsible for making sure the CAP codes and regulations are adhered to by all its members. Competitors, as well as consumers, can complain to the ASA, which then investigates the complaint. In 2007, it received the highest number of complaints to date about environmental claims made in adverts in the UK (see pages 8 and 18, ASA Annual Report for 2008). If the ASA thinks a code has been breached, it runs an adjudication and invites the advertiser to respond and explain how its environmental claims have adhered to that code.
Although the ASA does not have the authority to force advertisers to comply with its decisions, it has a high compliance rate (see ASA Annual Report for 2008), as it is considered a very powerful body in the advertising industry. As dispute resolution partner Jonathan Isted from Freshfields Bruckhaus Deringer explains, "The findings of the ASA are very important to companies because, if the ASA finds that an advertiser has not been able to justify or defend its environmental claims, it can ask the advertiser to withdraw its advert or change the wording, which can be a very costly exercise".
If a company does not adhere to the ASA's decisions, it will be difficult for it to get advertising space in the future, or to become a member of a trade association. The ASA also has the ability to stop companies from being entered for trade and media awards. All ASA decisions are also published on its website, which can have a knock-on effect on the company's reputation and, ultimately, its sales and financial performance.
In the rare case of a company not following the ASA's decision to amend or withdraw its printed adverts, the ASA can refer the company to the OFT, which can obtain an injunction to prevent the advert, and future adverts, from making the offending claims.
As noted above, the UCPD has been implemented in the UK by the CPRs, which help ensure that consumers are protected from unfair sales practices. The CPRs apply to all environmental claims made within and outside an advertising context, so can include claims made on product packaging and websites.
The CPRs generally prohibit any unfair commercial practices (regulation 3). There are also specific prohibitions concerning misleading and aggressive practices (regulations 5 to 7). The CPRs also list 31 practices considered automatically unfair, which are considered a breach of the regulations even if they have not affected a consumer (schedule 1). This list is broad but those relevant to environmental claims include:
Having a quality mark or logo that the company does not have authorisation to display.
Stating that the company has signed up to a code of conduct when it has not.
Claiming that a company has signed up to a code of conduct that has been endorsed or approved by a public body when it has not.
Claiming that the company or product has an endorsement or the approval of a public or private body, when it does not.
The OFT and its trading standards officers enforce the CPRs. As with the ASA, there is no restriction on who can complain about a company's greenwashing claims, so complaints to trading standards officers can come from both competitors and consumers, but they cannot bring a direct claim against a company themselves (see box, UK: proposals to allow individual claims). The CPRs can be enforced by way of civil proceedings in the magistrates’ court or, for the most serious breaches, by criminal proceedings in a crown court.
If a company is found guilty of breaching the CPRs, the penalties can be severe. In the most serious cases, an unlimited fine may be imposed, and a manager or officer of the company can be found personally liable and imprisoned for up to two years.
Isted and Austin comment that they have not yet heard of any high-profile prosecutions occurring under the CPRs for misleading green claims. However, Isted observes that, "Although the ASA will usually take the lead on dealing with claims made in advertising, trading standards offices across the country are also responsible for enforcing the regulations more generally - a well-publicised prosecution will come sooner or later." This is particularly possible in light of a growing number of investigations, and increasing scrutiny from consumer and environmental organisations.
Finally, Isted and Austin confirm that the types of enforcements so far this year, according to the government's Department for Business, Innovation and Skills (formerly the Department for Business Enterprise and Regulatory Reform), have been against small and medium-sized businesses and mostly for misleading offers, rather than for overtly incorrect environmental claims.
UK: the future
Lawyers tend to agree that the majority of companies and clients making environmental claims behave well and work within the limits of the applicable regulations and codes available. Rock does not expect a significant upsurge in the number of greenwashing claims coming to his practice. He remarks, "Companies, along with consumers, are becoming more sophisticated in their approach to green issues, which are viewed as increasingly important".
Isted agrees that, with clear ASA standards on compliance and increasing business awareness of the rules on making green claims, "Companies are generally navigating the issues well". He has noticed, however, an increase in the number of his clients asking about these issues, wanting to be prepared and forewarned of the risks.
Echoing the advice that lawyers such as Brooks Beard and Peter Hsiao give in the US (see above, US: the future), Isted says that his recommendations to clients are simple, "Make sure claims are substantiated; be specific and clear and do not overstate the claims". He also comments that it will be interesting to see how European moves towards making class actions easier to bring at an EU and UK level will impact on greenwashing claims and the CPRs, as well as on companies' liability risks.
Recent claims made in California and New York
An ongoing high profile case in California is the class action filed in March 2009 against SC Johnson & Son, the manufacturer of the cleaning product Windex. It is claimed that the company misled consumers in its use of a "Greenlist" trademark for the product. The trademark allegedly looked like a third party endorsement of the product's green credentials, but was actually a trademark owned by SC Johnson itself, which had not been independently endorsed. Other recently reported Californian claims include a lawsuit brought by a soap manufacturer, Dr Bronner's Magic Soaps, against some of its competitor soap and beauty brands claiming to be organic.
In February 2009, in New York, a group of environmental and public safety campaigners filed a lawsuit against Procter & Gamble and Colgate Palmolive, well-known manufacturers of household cleaning products Tide and Ajax. They are being required to substantiate their claims that their products are environmentally friendly, and to reveal what chemicals are contained in them.
The companies being sued are not just manufacturers of beauty and cleaning products. Other well-publicised law suits include a San Diego claimant suing Honda Motor Company for his Civic Hybrid car allegedly consuming more petrol than the company claimed it would, and therefore for not being as fuel efficient as he had been led to believe. It has also been widely reported that ExxonMobil and Toyota's luxury car brand Lexus have been on the receiving end of complaints about their green credentials. (See the reports of these claims at Green Patent Blog, and the National Law Journal).
At the time of writing, the above cases and complaints were yet to be resolved.
UK: proposals to allow individual claims
At present, UK consumers cannot bring compensation claims against greenwashing companies although there are plans underway for the government to consider this (see PLC Financial Services, Legal Update, Law Commission advises BERR on private right of redress for unfair commercial practices (www.practicallaw.com/7-384-3551)).
The European Parliament has been critical of the UK, and other member states, where consumers do not have a direct right of action against companies breaching the law on unfair commercial practices, and in early 2009 introduced a resolution for these states to change their laws (see section 12, European Parliament resolution, 13 January 2009).
There is also some debate within the EU about making consumer class actions easier to bring at an EU and UK level.