With the increased awareness of climate change, many modern consumers are willing to pay a premium for products and services that won’t harm the environment. This is a real opportunity for a business that can offer new products and technologies that will satisfy this customer demand. However, a business offering a new product or technology which it wants to promote to customers as being “green” needs to be careful. Using “green” terms like “eco-friendly”, and “sustainable” in the wrong way can subject a business to legal liability for false advertising or deceptive marketing claims.

“Greenwashing” is a term that refers to the practice of making false, misleading, unsubstantiated, or deceiving environmental marketing claims when promoting a product or service. Greenwashing can mislead consumers into a false belief that a product, service or technology isn’t as bad for the environment as it actually is. Greenwashing is illegal, and the mere public allegation of it can seriously damage the reputation of a business with its customers. To avoid facing allegations of “greenwashing” a new product or technology a business should take steps to ensure compliance with relevant federal and state laws. An overview of the major laws is provided below.

U.S. FEDERAL LAWS OF ENVIRONMENTAL MARKETING

The Federal Trade Commission Act (FTC Act) and the Federal Lanham Act are the main federal laws which regulate greenwashing and impose penalties for violations.

The Federal Trade Commission

The FTC Act establishes the Federal Trade Commission, which is a bipartisan agency of the U.S. government with a mission to protect consumers and promote competition. The FTC protects consumers by stopping unfair, deceptive or fraudulent practices in the marketplace.

The FTC has the legal authority to bring legal claims against “unfair methods of competition” and “unfair or deceptive acts or practices.” Only the FTC itself can bring a claim against a business for violating the FTC Act. There is no cause of action under the FTC Act available to private citizens. However, any private citizen may report an alleged act of greenwashing to the FTC who may then investigate. According to the FTC, under the FTC Act all environmental marketing claims made by businesses must be substantiated with competent and reliable scientific evidence.

To succeed in any claim the FTC brings against a business, the FTC must prove the likelihood that a reasonable consumer of a product or service would be misled by information from the business selling the product or service. The misinformation must be material enough to affect the purchasing decision of a reasonable consumer. If the FTC proves its case, penalties for violating the FTC Act may include cease and desist orders, civil penalties, and fines. The FTC has prosecuted a number of cases against businesses for environmental marketing.

The FTC Green Guides

The FTC has published non-binding regulations called “Guides for the Use of Environmental Marketing Claims” (The “Green Guides”). The Green Guides provide direction to businesses to help them avoid making what the FTC would consider a misleading “green” claim about products or services. The Green Guides are found in the U.S. federal code of regulations at 16 CFR §260 et seq.

While found in the code of federal regulations, the Green Guides do not have the force of law. They “set forth the Federal Trade Commission's current views about environmental claims” and “do not confer any rights on any person and do not operate to bind the FTC or the public." See 16 CFR § 260.1. The failure of a business to comply with what is set forth in the Green Guides is not by itself a violation of the law: The FTC would still need to prove, independently of what is set forth in the Green Guides, that the particular accused practice of a business constitutes an “unfair or deceptive act” under the law. Similarly, compliance by a business with what is stated in the Green Guides, while a prudent precaution, does not legally prevent the FTC from taking an enforcement action.

Under the FTC Green Guides, a business should:

• Not overstate any environmental attribute or benefit, expressly or by implication.
• Not omit material information, such that an otherwise technically accurate statement is misleading or deceptive.
• Avoid unqualified general environmental benefit claims (e.g., “eco-friendly”).
• Be able to substantiate any claims with competent and reliable evidence.

Accordingly, following the Green Guides can help a business minimize the risk that the FTC will allege that statements or acts of the business are a violation of federal law.

The Federal Lanham Act

A business engaged in greenwashing may also be held legally liable through a private lawsuit alleging violations of the federal Lanham Act. The Lanham Act generally provides a private cause of action for statements made in interstate commerce that “misrepresents the nature, characteristics, qualities, or geographic origin of . . . goods, services, or commercial activities.” So a business who has evidence that it has been damaged (e.g., is losing sales) because of a competitor's false or misleading "green" claims about goods or services can file a lawsuit against the competitor. A successful claim will generally require proof of the following five elements:

1. The defendant made false or misleading statements of fact concerning a product;
2. The statement deceives a substantial portion of the intended audience;
3. The statement will likely influence the deceived consumers’ purchasing decisions;
4. The statement was introduced into interstate commerce; and
5. There is some causal link between the challenged statement and harm to the plaintiff.

If successful in proving its case, then a federal court may order injunctions, disgorgement of profits, and payment of damages, costs and attorney fees.

STATE LAWS OF ENVIRONMENTAL MARKETING

All 50 states and the District of Columbia have laws prohibiting unfair or deceptive conduct, which government authorities and private plaintiffs have used to bring greenwashing claims. A very common source of litigation over green claims comes in the form of consumer class actions, which typically assert violations of state laws, such as false advertising. Many of these types of lawsuits are filed in California.

With respect to greenwashing California law specifically makes it “unlawful for any person to make any untruthful, deceptive, or misleading environmental marketing claim, whether explicit or implied.” California Business & Professions Code § 17580.5(a). California requires that any person who represents in advertising or on the label or container of a consumer good that the consumer good that it manufactures or distributes is not harmful to, or is beneficial to, the natural environment must maintain in written form the following information and documentation supporting the validity of the representation:

1. The reasons why the person believes the representation to be true.
2. Any significant adverse environmental impacts directly associated with the production, distribution, use, and disposal of the consumer good.
3. Any measures that are taken by the person to reduce the environmental impacts directly associated with the production, distribution, and disposal of the consumer good.
4. Violations of any federal, state, or local permits directly associated with the production or distribution of the consumer good.
5. Whether or not, if applicable, the consumer good conforms with the uniform standards contained in the Federal Trade Commission Guidelines for Environmental Marketing Claims (i.e., the Green Guides) for the use of the terms “recycled,” “recyclable,” “biodegradable,” “photodegradable,” or “ozone friendly.”

The above information and documentation must be furnished by the business to any member of the public upon request. See California Business and Professions Code §17580.

California is at the forefront of environmental marketing laws and litigation, and not every business with a green new product or technology may be subject to California law. However, in today's global e-commerce marketplace a business should be aware that it could, depending on the particular facts, be found subject to the jurisdiction of the laws of any state where its products and services are available to consumers.

CONCLUSION

There is ever increasing demand from modern consumers for new products, services and technologies that are environmentally beneficial. This demand can help drive innovation to provide consumers with such new products, services and technologies. However, when competing in an increasingly crowded marketplace of allegedly “green” products and technologies a business should be cautious and take appropriate steps to minimize the risk of facing allegations that it has made unlawful claims about its new product or technology being “green”. Such steps should include:

• Taking guidance from the FTC Green Guides;
• Being aware of the applicable state law requirements;
• Conducting the appropriate independent testing;
• Maintaining all required records;
• Carefully scrutinizing all claims made about the product or technology for both accuracy and substantiation; and
• Considering how a consumer might argue that the product failed to live up to the claims made or meet consumer expectations.