On Monday, the FTC Commissioners issued an opinion and Final Order, finding that ECM BioFilms, Inc. ("ECM") made false, misleading, and unsubstantiated environmental claims about its chemical additive product. According to the FTC's Complaint filed in October 2013, ECM's advertisements and marketing materials claimed its product would cause plastics using its additive to: (i) biodegrade in a landfill within nine months to five years; and (ii) make the product biodegradable. The Complaint also alleged that ECM made deceptive establishment claims and that ECM provided the means and instrumentalities to its customers to make deceptive statements to consumers about finished products. We've written previously about similar challenges to biodegradability. What makes this opinion notable is the disagreement among the Commission about what claims can be inferred from an unqualified claim that a product is biodegradable, the reliability of a relatively new survey methodology, and what the "significant minority" language in the FTC's Policy Statement on Deception (the "Deception Statement") means in the context of extrinsic evidence.
In its opinion, the Commission affirmed Chief Administrative Law Judge D. Michael Chappell's Initial Decision that ECM made deceptive biodegradability claims that plastics treated with its additive will completely biodegrade within nine months to five years and that ECM encouraged its customers to pass on these deceptive claims to consumers. However, upon its own examination of the evidence, the Commission reversed the ALJ and held that ECM also made implied claims that were false and unsubstantiated regarding how plastics treated with ECM's product will biodegrade within a reasonably short period of time, or within one to five years by making a general biodegradability claim. The ALJ had found that the FTC failed to produce sufficient extrinsic evidence that ECM's marketing made such implied claims.
Both the ALJ's findings and Commissioner Maureen K. Ohlhausen's partial dissent question the majority's interpretation of the evidence presented. First, in a footnote, Commissioner Ohlhausen identifies how the majority addressed a different question than the ALJ regarding the implied claim of how long until complete degradation. Specifically, she points out how the majority interpreted ECM's implied claim to mean that plastics treated with its product will completely decompose within five years, while the ALJ held that FTC Counsel failed to prove that ECM had impliedly claimed complete decomposition within one year.
Second, the ALJ and Commissioner Ohlhausen argued that the Google consumer survey relied on by the FTC's expert was methodologically flawed. The Google survey tool was a relatively new survey instrument. The sixty-question survey contained variations of questions that asked respondents how much time they thought certain products, some labeled "biodegradable," would take to decompose. The ALJ rejected the reliability of the Google survey, finding that it: (i) did not comport with "generally accepted standards for survey research"; (ii) departed from legal standards FTC used; and (iii) was an unreliable foundation upon which to draw any material conclusions.
The majority recognized the survey as "experimental" and a "relatively new" tool, but found that it supported the position that attaching "biodegradable" to plastic products leads consumers to believe that the product will biodegrade within five years. In support of its reliance on the survey evidence, the majority found ECM's arguments attacking the survey's credibility unpersuasive, and added that the questions were clear and not improperly leading, and accepted how the survey results were coded and analyzed. Meanwhile, Commissioner Ohlhausen's dissent stressed how the survey has "no track record in litigation," has "little history in academic research," and has not produced any demographic information for approximately thirty percent of the respondents.
Third, Commissioner Ohlhausen also disagreed with the majority's use of the survey evidence ECM's expert presented. The majority agreed that this survey supported FTC Counsel's position that a "significant minority" of consumers would believe that if a product is labeled "biodegradable," it will decompose within a reasonably short period of time. Commissioner Ohlhausen attacked the credibility of this survey because it lacked an experimental control group, which is particularly important to distinguish between preexisting consumer misunderstanding about plastic biodegradability from any consumer misunderstanding ECM's claim caused. The majority countered, stating that no case law exists that requires separating an advertisement's meaning from preexisting beliefs. Furthermore, putting aside the methodological flaws in both consumer surveys, Commissioner Ohlhausen found the survey data inconclusive. She even warned the Commission to "be cautious in placing too much confidence in a methodology where the results appear to depend quite heavily on how the questions are asked, rather than on consumer opinion."
According to Commissioner Ohlhausen, another flaw in the majority's opinion was its misapplication of the Deception Statement. Under the Deception Statement, an alleged interpretation of advertising materials must be reasonable, and it is reasonable when that interpretation is held by the "average listener," the "typical buyer," or the "general populace." The majority found that the polled individuals were "average or ordinary members" of the public and thus are "reasonable consumers." As a result, the majority argued that because the surveys showed a "significant minority" of respondents found ECM's implied claim as deceptive, the interpretation was reasonable. Commissioner Ohlhausen disagreed, arguing that the majority incorrectly relied on the reasonableness of the survey respondent herself rather than whether her interpretation was reasonable. Under her reading, the Deception Statement provides that a claim interpretation is not reasonable merely because it is held by a "significant minority" of consumers and that if so, it would "swallow the 'average listener,' the 'typical buyer,' and the 'general populace' rule." She also argued that the FTC has never used extrinsic evidence of a "significant minority," alone to determine whether a claim's interpretation was reasonable. The majority addressed this counterpoint citing case law that Commissioner Ohlhausen allegedly found inappropriate. Furthermore, because the majority "[chose] the upper range of outcomes at nearly every turn," Commissioner Ohlhausen found that the majority's interpretation of the "significant minority" standard "facilitates cherry-picking data rather than considering results as a whole." This disagreement over what the "significant minority" standard means bears watching, especially in cases where the FTC seeks disgorgement for all sales based on evidence that a minority of consumers may have been misled.
Finally, the decision sheds light on the utility of the FTC's Green Guides in its enforcement, as well as to how marketers interpret these guidelines. The ALJ's findings show that ECM changed its marketing after the revised Green Guides were issued by omitting references to a biodegradation rate of "9 months to 5 years." The Commission then found that ECM biodegradable claim to be implied. The majority even stated in a footnote that its decision regarding ECM's implied claim "may raise certain broader issues about the Commission's Green Guides." Commissioner Ohlhausen recognized this issue, stating that the guidelines are "based on anemic, flawed evidence" about underlying consumer beliefs. This dialogue seems like an opening by those willing to litigate with the FTC over Green Claims about the validity of the consumer perception data that supposedly underlies the Green Guides.
The opinion continues the losing streak of respondents in administrative litigation before the FTC, which approximates that of the Washington Generals. Commissioner Ohlhausen's critique of the somewhat convoluted reasoning that the majority goes through to find for FTC Counsel on every aspect of the case might be a roadmap for an appeal. It also will be curious to see if the Commission is accepting of survey data respondents offer in future cases, particularly if that data uses the same methodology the Commission accepted here.
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