Antitrust Law Daily Wrap Up, ADVERTISING NEWS: ALJ rejects FTC’s request for sanctions, (Feb 6, 2014)

By Jody Coultas, J.D.

In an FTC administrative action against ECM BioFilms, Inc., challenging environmental marketing claims, the company was ordered by Chief Administrative Law Judge D. Michael Chappell to fully respond to an interrogatory issued by FTC lawyers. However, the judge declined to issue sanctions against ECM (In the Matter of ECM BioFilms, Inc., FTC Dkt. 9358, February 4, 2014, Chappell, D.).

The FTC alleged that ECM advertised its plastics additive, marketed under the name MasterBatch Pellets, as making plastic products biodegradable. However, according to the government, scientific tests relied on by ECM did not show that treated plastics would completely decompose as claimed, and did not replicate the physical conditions of either landfills, where most trash is disposed, or other disposal facilities stated in ECM’s claims.

ECM was charged with violating the FTC Act by misrepresenting that (1) plastics made with ECM’s additives are biodegradable and will completely break down within a reasonably short period of time after customary disposal; (2) ECM plastics are biodegradable in a landfill; (3) ECM plastics are biodegradable in a stated qualified timeframe; and (4) that various scientific tests prove ECM’s biodegradability claims. Finally, the complaint charged ECM with providing its customers and independent distributors with promotional materials that permitted them to deceive consumers. At the same time the FTC brought its case against ECM, the agency announced that it had reached settlements with former ECM customers and others for making false and misleading environmental claims in their marketing efforts.

On January 10, 2014, ECM was ordered to provide a complete customer list in response to an interrogatory. The FTC alleged that ECM violated the order by failing to provide a list of revenues by customer name, and requested sanctions.

An Administrative Law Judge may strike a pleading, direct that a matter be admitted or subjected to an adverse inference, prohibit certain objections to evidence, and administer other sanctions when a party fails to comply with any discovery obligation. One such obligation is that every interrogatory shall be answered separately and fully in writing, unless it is objected to, in which case the reasons for objection shall be stated in lieu of an answer.

ECM failed to adequately respond to the interrogatory, according to the ALJ. The interrogatory directed ECM to set forth, for each customer identified on its Customer List, the yearly revenues generated per customer per year. ECM opted to produce a document that reports ECM’s revenues by customer number only, rather than respond in narrative form. A document may be sufficient to answer an interrogatory only where the answer “may be derived or ascertained from” the documents provided. The documents provided identified customers only by number. It was impossible to derive customer name from the document provided, and the Customer List provided did not identify customers by number. Thus, the “revenue per customer … per year” “[f]or each customer … identified” was not provide by ECM as required.

The FTC’s requested sanctions were denied by the judge as unjust. A just order in this case, and at this stage, required ECM to promptly remedy its failure to fully answer the interrogatory.

Attorneys: Katherine Johnson and Elisa Jilson for FTC. Jonathan W. Emord (Emord & Associates, P.C.) for ECM Biofilms, Inc.

Companies: ECM Biofilms, Inc.

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