There’s big news in the battle between consultants in the green building industry and the U.S. Green Building Council (“USGBC”). Following almost a year of litigation, it appears that the USGBC may have defeated a $100 million class action lawsuit brought by engineers and designers, according to a court order issued last week. The plaintiffs’ complaint filed last October argued that USGBC made false claims about the energy efficiency of buildings certified under its LEED program. According to plaintiffs, who were not LEED accredited professionals, the USGBC’s allegedly false claims about energy saving and energy efficiency deceived consumers into pursuing LEED certification, and along with it, hiring LEED accredited consultants. But the veracity of USGBC’s energy efficiency claims remains undecided for now, as the federal district court for the Southern District of New York has ruled that the plaintiffs lacked “standing” to pursue their case under both federal and state false advertising laws.
More precisely, the court found that engineers and designers were not in a position to claim that the alleged false advertising could have harmed them. The court rejected the plaintiffs’ injury claims. For one thing, engineers and designers are not direct competitors of USGBC – the Council certifies buildings, while the plaintiffs provide construction and design consulting services. Also, according to the court, the engineers and designers could not show that any alleged false advertising by USGBC caused them to lose clients, because the LEED building certification program does not require builders to use LEED accredited engineers or designers. Even if the USGBC deceived builders about the LEED program, the court reasoned, LEED didn’t preclude them from hiring plaintiffs.
Naturally, energy use is a critical component of the LEED program. And while the class of dejected New York plaintiffs may never get to challenge the truth of LEED’s past advertising, stakeholders involved in green building can draw some valuable lessons from this skirmish when it comes to green building certification and energy efficiency.
The court’s order briefly touched on the most important of these lessons. Citing USGBC’s own filing in the case, the court noted that green building certification doesn’t necessarily address energy performance so much as the potential for energy efficiency. In other words, LEED certification may establish the potential for energy saving, but it doesn’t prove it. Then again, the LEED program does award points for the use of renewable energy, for on-site generation of renewable energy, and for monitoring and reporting energy use. Bottom line – because so many different factors go into a green building score, a clean/renewable energy claim about a green building can be potentially misleading.
So what does this mean? For one thing, one shouldn’t discount the value of a green building certification, whether from LEED, National Association of Home Builders, Green Globes, or any other comparable program. Certifications provide a nice, simple way to prove the green credentials of a building. On the other hand, additional disclosure may be prudent, particularly for those who market or advertise certain green attributes of a building. Architects, builders, owners – and anyone else who might profit from such claims – must be careful to not overstate or misstate the significance of a green building certification. With respect to energy efficiency, for example, a good LEED score may be the result of significant energy efficiency, or it may not.
Finally, what about the New York plaintiffs and their $100 million claim against USGBC? While the merits of their case remain unproved, don’t be surprised if the plaintiffs appeal the district court’s order. If they can convince a higher authority that they may have lost business to the LEED program, they may get a second chance to go after USGBC’s energy efficiency claims.
Stoel Rives attorney Jay Eckhardt will give a presentation on April 21 addressing the proposed new FTC Green Guides. The presentation will focus on new FTC guidance and interpretations concerning renewable energy claims and carbon offset claims, as well as claims concerning renewable materials, and the use of green seals and certifications. Going beyond the Guides - the presentation will also review the broader enforcement environment. The program is sponsored by the Sustainble Future and Antitust & Trade Regulation Sections of the Oregon State Bar, and the Green Business Initiative at the University of Oregon School of Law.
For event details and logistics, click here. Admission to the live event in downtown Portland, Oregon is free. A telephone number and passcode will be provided for attendees unable to attend in person.
For more information on reguation of environmental marketing, see the Stoel Rives Green Guides Resource Page.
On the one hand, the FTC in the United States takes an enforcement approach, recently challenging a company that was marketing a sham certification program. In Europe and Canada, in contrast, regulators have done something different, appointing private firms to assess and certify "green" products and services.
Read the full column here.
The online newspaper Environmental Leader recently published a column by Stoel Rives' Joseph Eckhardt, addressing rules in the FTC's proposed Green Guides that address green energy and carbon offset certification, entitled "New Green Guides Suggest Best Practices for Renewable Energy, Carbon Offset Claims."
The article explains: "The FTC's proposed, revised Guides for the Use of Environmental Marketing Claims . . . for the first time address the issue of marketing green energy and carbon offsets. Producers, resellers, and consumers of 'green' certificates and credits should take notice."
Read the full column here.
The Fiji Water Company has attracted the attention of plaintiffs lawyers with its “carbon negative” bottled water. The Newport Trial Group, a law firm representing California consumers, sued Fiji Water last month, arguing that Fiji’s carbon offset claims are deceptive and misleading. The complaint against Fiji Water argues that the product is not necessarily carbon negative because Fiji’s offsets are premised on a speculative carbon offset method that “may or may not happen in the future.”
According to the California consumers, Fiji’s carbon offsets are misleading because they rely on “forward crediting,” a method of accounting for carbon offsets based on future offsetting activities. The complaint explains that this method of carbon offsetting is unreliable and speculative according to the Stockholm Environment Institute, an independent scientific think tank.
Fiji claims that its products are “carbon negative,” based on the purchase of carbon offsets equal to 120% of the company’s carbon emissions. Even if Fiji can prove that its carbon offsets will ultimately meet that goal, expect the plaintiffs to argue that the carbon negative claim is still deceiving, on the theory that consumers were not apprised of the fact that offsets will occur in the future. If Fiji’s future carbon offsets are found to be mismanaged, disorganized, or even false, consumers may succeed in obtaining a substantial judgment at trial, or a cash settlement.
The question of whether Fiji Water has actually deceived consumers will certainly be the focus of litigation in the California proceeding for at least a couple years. In the meantime, while the Federal Trade Commission’s proposed new Green Guides, released last fall signal increasing federal enforcement against greenwashing, the Fiji Water case is an important reminder that environmental marketing claims may also be challenged by private parties.
Another interesting aspect of this case is that while the California Consumers do not make reference to the FTC’s new Green Guides, the theory of their case is consistent with FTC policy. The proposed new Guides tell marketers that they should “clearly and prominently disclose if [their] carbon offset represents emission reductions that will not occur for two years or longer.” FTC regulations are not California law, but California’s consumer protection statute actually makes reference to the Green Guides, establishing a legal defense for companies if they can prove that their marketing claims comply with the Guides.
Finally, regardless of how the Fiji water case proceeds, it teaches another valuable lesson. Whether the claim is for carbon offsets, renewable energy, or another type of green claim, marketers must follow the key principles of clarity and disclosure. A bare claim is risky – but clear, concise disclosure can reduce and potentially eliminate that risk.
Following several years of development, and much anticipation in recent months, the Federal Trade Commission has finally released “Proposed, Revised Green Guides.” The new Green Guides will be open for public comment until December 10, 2010. Thereafter, according to the agency’s press release, the FTC will determine if and how to issue the new Guides.
The current official Green Guides, last updated in 1998, provide non-binding “interpretations” of federal consumer protection laws, including Section 5 of the FTC Act (15 U.S.C. § 45), which is the law that empowers the agency to punish deceptive practices. In general, the Guides establish that false or deceptive environmental marketing claims can be challenged under the FTC Act. The Green Guides also provide instruction and interpretations of marketing buzz words that were popular in 1998, such as “biodegradable,” “compostable,” “recyclable,” “refillable,” and “ozone safe.”
The proposed new Green Guides address the terms found in the 1998 edition, but also address several new issues that arise in present-day green marketing, including:
- environmental seals of approval,
- “free-of” and “non-toxic” claims,
- carbon offsets,
- claims concerning renewable energy, and
- claims about renewable materials.
The proposed Green Guides reinforce and restate the FTC’s reasonable policy position that environmental marketing claims should be supported by credible scientific evidence. In addition, the proposed Guides expressly discourage sweeping unqualified claims. For example, the Guides explain that an unqualified claim that a product is “eco-friendly” is inherently deceptive. In contrast, a simple clarification – if it can be substantiated – may be acceptable. The proposed Guides state that a claim such as “eco-friendly: made with recycled materials” is not deceptive if the clarification is prominent, and can be proven.
For the most part, the proposed Green Guides do not represent a radical shift from the 1998 version of the Guides. And on a careful reading of the revised Guides and the preceding 186 pages of analysis and comment provided by the FTC, it’s clear that the fundamental issue is deception. It’s deceptive to say your product has 50% more recycled contents than it used to, when your product only increases recycled content from 2 to 3 percent. It’s deceptive to mark your product with your own green “seal of approval” and not disclose that you made up the seal yourself. It’s deceptive to claim that you’ll plant trees to offset carbon emissions from your products, when it will take 10 years for the trees to get big enough to actually offset those emissions.
Ultimately, it does not appear that the FTC is proposing a major shift in regulations. The key question for any environmental marketing claim remains: is the claim “deceptive” under Section 5 of the FTC Act? The bigger question is, how will enforcement change? Last February, The New York Times reported that the FTC has filed seven complaints concerning environmental marketing claims since President Obama took office (compared to zero during the prior administration). If enforcement remains at that level, there cannot be substantial application of the new Green Guides. Then again, given the rapid growth of environmental marketing claims in recent years, the FTC’s renewed interest in this subject, and the threat of state consumer fraud actions, it would be imprudent to disregard the new Guides.
A federal judge has stayed Mitsubishi’s antitrust monopolization claims against General Electric in an Order issued this week. Opening a new front in the battle with General Electric over wind turbine technology, Mitsubishi tried to raise the stakes last May, claiming that General Electric’s patent infringement actions (proceeding in three other venues) were baseless, calculated to help General Electric maintain a monopoly in the market for variable speed wind turbines. Mitsubishi also filed its own patent claims against General Electric, in yet another court. As we reported when the claims were filed last spring, Mitsubishi’s antitrust claims were premised on the theory that General Electric’s patent infringement claims were a “sham.”
Not surprisingly, General Electric asked the court in the Western District of Arkansas to either dismiss Mitsubishi’s claims or stay the claims, pending the outcome of General Electric’s patent infringement lawsuits. On the motion to dismiss, the court found that “[n]either of [General Electric’s] arguments has merit” – holding that there is insufficient evidence in the record to definitively establish that General Electric’s patent infringement claims were not objectively baseless. The court held that pending the outcome of the ongoing patent infringement claims in other courts, Mitsubishi may be able to prove that General Electric engaged in sham litigation with the intent of excluding Mitsubishi from the variable speed wind turbine market. For this reason, it would be inappropriate to dismiss Mitsubishi’s antitrust claims, the court held.
However, the court also noted that Supreme Court precedent establishes that Mitsubishi’s sham litigation claim cannot proceed if General Electric ultimately prevails on one or more of its patent claims against Mitsubishi. Even if a favorable verdict of patent infringement is ultimately overturned, under controlling precedent, a favorable trial verdict is sufficient to establish a patent holder’s probable cause to file its underlying claim – and thus eliminates any sham litigation claim. Because there are pending patent claims before other courts where General Electric may ultimately prevail, the Arkansas court decided to stay Mitsubishi’s antitrust claims while General Electric’s patent claims proceed.
The gambit to raise an antitrust action against General Electric has suffered an initial setback. Much as Mitsubishi may have relished a concurrent antitrust counterattack against General Electric, the Arkansas court, sitting where Mitsubishi (not coincidentally) plans to build a major wind turbine manufacturing plant, has refused to put the cart before the horse. The good news for Mitsubishi of course is that its sham litigation claims survived the motion to dismiss. If Mitsubishi can ultimately prove that General Electric knowingly sued on fraudulently obtained patents, look for more action back in the Western District of Arkansas, but not any time soon.
The wind energy businesses at General Electric and Mitsubishi have come to blows over their competing wind turbine technology. At the center of the dispute are the companies’ patent portfolios. The New York Times reports that Mitsubishi opened up the battle on two new fronts on May 20, with an antitrust complaint filed in a U.S. District Court in Arkansas and a patent infringement complaint filed in a U.S. District Court in Florida. (Mitsubishi has put up a page on its web site devoted to the dispute, with media coverage and copies of its complaints.)
That two competing wind turbine manufacturers would develop a dispute over the scope of their patents is not terribly surprising. The technology involved requires substantial capital investments that are worth defending. What’s most interesting is that Mitsubishi has filed antitrust claims arguing that General Electric monopolized the wind turbines market through “baseless claims of patent infringement” – in other words, “sham litigation.”
The Supreme Court has recognized that filing lawsuits (including patent infringement suits) is a right protected by the First Amendment. One can only prevail on a sham litigation theory challenging a given suit by proving that the underlying claims were “objectively baseless.” In the patent context this typically means that a party must prove that the underlying patent was fraudulently obtained, or clearly did not cover the technology found in the “infringing” product. A Federal Trade Commission report explains that a sham litigation claim also requires proof that a defendant deliberately wielded baseless claims as an “anticompetitive weapon.”
Mitsubishi argues that General Electric filed baseless patent infringement claims that prevented Mitsubishi from selling its variable speed wind turbines for almost two years. At the same time, Mitsubishi’s counterattack includes a separate lawsuit arguing that General Electric infringes Mitsubishi patents. Mitsubishi’s theory of how General Electric monopolized the market is that General Electric used its patent infringement suits to scare developers away from Mitsubishi’s allegedly infringing wind turbines. The resulting lost sales, claimed by Mitsubishi, are in the billions. Then again, if General Electric’s patent claims were objectively reasonable (they don’t have to be ultimately successful), General Electric was within its rights to defend its patents.
In an industry requiring major capital for research and development, these types of disputes will not be uncommon. And where there are few competitors, it is easy to challenge an aggressive competitor as a “monopolist.” (Mitsubishi and General Electric share the large scale wind turbine market with only three other major competitors, Gamesa, Siemens, and Vestas.) If Mitsubishi can prove that General Electric’s patent infringement suits really did lack merit, expect Mitsubishi to hold out for a generous cash settlement. If Mitsubishi’s theory is not as strong as its press releases suggest, watch for a different type of settlement, perhaps a cross licensing agreement of Mitsubishi and General Electric patents – a deal which would allow the companies to compete head to head, while maintaining the right to sue other challengers using technology that might infringe the cross licensed patents.