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From Antitrust Law Daily, March 17, 2017

FTC decision that plastics additives maker made false biodegradability claims confirmed

By E. Darius Sturmer, J.D.

The U.S. Court of Appeals in Cincinnati upheld an October 2015 FTC Opinion concluding that a plastics additives manufacturer’s express and implied biodegradability claims about one of its products were unlawfully deceptive. Arguments by the company—ECM BioFilms, Inc.—that the decision lacked sufficient evidentiary support with respect to one claim and that the FTC violated its constitutional and procedural rights lacked merit, in the appellate court’s view. Therefore, the court denied ECM’s petition for review (ECM BioFilms Inc. v. FTC, March 16, 2017, Stranch, J.).

FTC proceedings. According to the Commission’s administrative complaint, ECM made a number of express and implied biodegradability claims that plastics containing its "MasterBatch" Pellets would: biodegrade, biodegrade in some period greater than a year; and completely biodegrade in a landfill within a period of nine months to five years. However, the agency contended, plastics containing the additive did not fully biodegrade within five years in a landfill.

An administrative law judge’s (ALJ’s) January 2015 order concluded that ECM’s express claims of biodegradation within nine months to five years were false, misleading, and material, in violation of Section 5 of the FTC Act. The order also held, however, that the Commission failed to prove that ECM’s representations—that plastics containing MasterBatch are "biodegradable" and "biodegradable in some period greater than a year"—implied that those plastics would completely biodegrade in a landfill within one year.

The Commission Opinion that followed agreed with the ALJ that ECM’s express claim of biodegradation within nine months to five years was false and misleading. However, the Commission disagreed with the ALJ’s determinations that complaint counsel failed to prove the manufacturer’s implied biodegradation claims. The agency found that ECM had made implied claims that ECM plastic would fully biodegrade within a "reasonably short period of time, i.e. within five years."

ECM challenged the FTC’s findings only with respect to the company’s claim that its plastic is "biodegradable" without reference to any time frame. It did not dispute that the implied claim, if made, was false or immaterial to customers, the court noted.

Sufficiency of evidence. Consumer surveys showing that adding "biodegradable" to a label caused an additional 20 to 36 percent of respondents to believe that those plastic products would fully decompose within five years appeared to support the commission’s finding that the unqualified biodegradability claim conveyed the implied claim to a significant minority of consumers. Each survey constituted substantial evidence in support of the agency’s finding. The company’s objections to the survey evidence’s reliability were convincingly rebutted by the Commission in detail and with extensive citation to the record, the court observed. ECM’s further assertion that the affected consumers "were not acting reasonably under the circumstances" was belied by its scientifically oriented customers’ acceptance of the false claims. "If these sophisticated consumers accepted ECM’s claims, it stands to reason that it was reasonable for an average consumer to do the same," the appellate court stated.

Constitutional, procedural objections. Contentions by ECM that the Commission violated its rights and the Administrative Procedures Act, the First Amendment, and the Due Process Clause of the Fifth Amendment were repudiated by the appellate court. Even if ECM was correct that the FTC ignored scientific evidence and erroneously concluded that certain tests undermined the biodegradability claims, such error was harmless because the agency did not rely on this finding, but instead on a different finding non-biodegradability, which was undisputed. The Commission also committed no error in reaching different conclusions than the ALJ on the credibility of experts and survey evidence, the appellate court said. The agency did not misinterpret the level of substantiation required for the claim, the court added. There were a rational connection between the facts in the record and the fencing-in relief ordered by the Commission.

The Commission’s order did not amount to "an unconstitutional restriction on biodegradability claims," the appellate court decided. The order imposed two levels of restriction: ECM could use the word "biodegradable" without limitation if it possessed scientific evidence that its plastic would completely decompose within five years, or it could use the word with the inclusion of certain disclaimers if it possessed scientific evidence that the plastic would decompose at some other rate. The order’s effective requirement for disclaimers was not a prohibition on speech, the court explained. Disclaimer requirements always restrict speech, the court noted, but were not unduly burdensome in this case because they were "reasonably related to preventing the deception."

Finally, ECM’s due process claim was without merit, the court remarked. The complaint provided ECM with adequate notice to prepare a defense. Although it did not define "reasonably short period of time" as a specific time period, that level of detail was unnecessary to reasonably apprise the company of the issues in controversy.

The case is No. 15-4339.

Attorneys: Jonathan W. Emord and Peter A. Arhangelsky (Emord & Associates, P.C.) for ECM BioFilms, Inc. Theodore Metzler, Federal Trade Commission.

Companies: ECM BioFilms, Inc.

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