This series, “It isn’t easy being green,” provides a brief overview of the major legal issues associated with “green” marketing claims and offer a practical framework for analyzing and reducing risk. This is part three of three. Read parts one and two.
Adequate and meaningful environmental or “green” communication presupposes a solid knowledge base internally, coupled with up-to-date knowledge of the external science supporting product attribute substantiation. Navigating the evolving risks associated with green advertising requires companies to stay current and informed and to assess existing knowledge and disclosure practices internally and externally. Green communications—wherever and however they appear—should be centrally reviewed for accuracy. As part of this process, companies should conduct a thorough audit and risk management of the accuracy of what is included in and omitted from all public statements (including advertising) related to climate change, sustainability and green attributes. Consistency is key. Companies should ensure consistency between risk and opportunity in Securities and Exchange Commission filings and other public disclosures, including sustainability and climate change reports and marketing materials. To achieve these goals, here are a few “do’s” to consider:
- Do review all public statements related to sustainability and green attributes for accuracy, balance and fairness
- Do conduct a thorough audit and risk assessment of the accuracy and completeness of all public statements on green issues
- Do have easily accessible actual dates for the substantiation of green claims—it is a powerful shield in both the regulatory and litigation arena
- Do be honest about the whole product without exaggerating any product feature or attribute expressly or impliedly
- Do learn from others—keep current on greenwashing pitfalls and avoid them, and be prepared to explain and substantiate any green claim
- Do centralize sustainability communications outside the public relations department and implement fact-based/scientific checks on all green related marketing materials
- Do beware the seven deadly sins of greenwashing
The litigation outlook
An increase in green claims on products and services coupled with a lack of detailed guidance regarding the boundaries of green advertising is likely to result in more enforcement actions and private litigation. Despite a more stringent regulatory environment and a predictable surge in “piggyback” civil suits, an emerging trend in California may put the brakes on some copycat civil filings by applying a heightened pleading standard coupled with the prior substantiation doctrine to private false advertising claims.
One recent case illustrates the point. In Fraker v. Bayer Corp. the court rejected the plaintiff’s attempt to ground a false advertising claim on the prior substantiation doctrine. The defendant, Bayer, advertised that its One-A-Day supplements would increase metabolism, help prevent weight gain associated with age-related metabolism decline and help users control their weight by enhancing their metabolism. Upon finding that the claims were not substantiated by reliable scientific evidence, the Federal Trade Commission (FTC) imposed a civil fine and required Bayer to sign a cease and desist agreement.
A class action followed and the plaintiff lifted its factual allegations directly from the language of the FTC complaint. Bayer moved to strike a number of these allegations on the grounds that merely lifting the factual allegations from the FTC complaint was in violation of the attorney’s duty to assure that the factual contentions have evidentiary support after a reasonable opportunity for further investigation of discovery. The court reasoned that a regulation under the Federal Tort Claims Act does not create a private right of action, and that a plaintiff cannot style his or her false advertising claim as one for unsubstantiated advertising. Plaintiffs still bear the burden of proof that the claims are false or misleading.
In rejecting these prior substantiation claims, courts have reasoned that the Food and Drug Administration (FDA) and FTC retain exclusive jurisdiction to prosecute “no substantiation” claims and that in a private civil action, the burden is on the plaintiff to demonstrate falsity and reliance, irrespective of regulatory action. The rejection of the prior substantiation claim as an independent basis for civil liability avoids plaintiffs attempting to short-cut proof and causation problems by relying entirely on agency actions.
In the event a “green” related claim does materialize, consider insurance coverage. Companies targeted by the increasing number of lawsuits and regulatory enforcement actions related to green disclosures should consider the insurance policies that they have purchased over the years that may respond to such claims. These policies include comprehensive general liability policies, directors and officers policies, or even errors and omissions policies. Insurance coverage will depend on the specific language of the policies and the nature and scope of the allegations pursued by the plaintiffs and/or enforcement agencies, however, given the scope and stake of potential green claims, an insurance review is a prudent early step for a false advertising defendant. Company risk managers, or those individuals tasked with risk management functions, should always be assessing whether their insurance matches their risks given the current litigation and regulatory landscape.
Although there is no single risk free approach to green advertising and/or disclosures, these simple ground rules, coupled with rigorous, consistent, coordinated and informed review of all public statements are useful first steps in litigation and regulatory enforcement prevention.