ECM BioFilms, Inc. v. Federal Trade Commission

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit I.O.P. 32.1(b)

File Name: 17a0060p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

ECM BIOFILMS, INC., ┐

Petitioner, │

│

> No. 15-4339

v. │

│

│

FEDERAL TRADE COMMISSION, │

Respondent. │

┘

On Petition for Review of an Order

of the Federal Trade Commission.

No. 9358.

Argued: July 28, 2016

Decided and Filed: March 16, 2017

Before: WHITE and STRANCH, Circuit Judges; MICHELSON, District Judge.

_________________

COUNSEL

ARGUED: Jonathan W. Emord, EMORD & ASSOCIATES, P.C., Clifton, Virginia, for

Petitioner. Theodore Metzler, FEDERAL TRADE COMMISSION, Washington, D.C., for

Respondent. ON BRIEF: Jonathan W. Emord, Peter A. Arhangelsky, EMORD &

ASSOCIATES, P.C., Clifton, Virginia, for Petitioner. Theodore Metzler, FEDERAL TRADE

COMMISSION, Washington, D.C., for Respondent. Steven J. Grossman, GROSSMAN,

TUCKER ET AL, Manchester, New Hampshire, for Amicus Curiae.



The Honorable Laurie J. Michelson, United States District Judge for the Eastern District of Michigan,

sitting by designation.

No. 15-4339 ECM BioFilms v. F.T.C. Page 2

_________________

OPINION

_________________

JANE B. STRANCH, Circuit Judge. ECM BioFilms, Inc. manufactures an additive that

it claims accelerates the rate at which plastic biodegrades. In October 2013, the Federal Trade

Commission (FTC) filed an administrative complaint against ECM, which alleged that several of

ECM’s biodegradability claims were deceptive. The full Commission ultimately found that three

of ECM’s claims were false and misleading under § 5 of the FTC Act (15 U.S.C. § 45). ECM

appeals the Commission’s decision with regard to only one of the claims, arguing that it was

unsupported by substantial evidence. ECM also contends that the Commission violated its rights

under the First Amendment, the Administrative Procedures Act (APA), and the Due Process

Clause of the Fifth Amendment. We disagree and DENY the petition for review.

I. BACKGROUND

More than half of all plastic waste ends up in landfills, where it can take thousands of

years to biodegrade. In recent years, some environmentally-conscious consumers have turned

away from traditional plastics in favor of products that biodegrade at a more rapid rate. In

response to this trend, manufacturers of plastic products have begun to look for ways to increase

the biodegradability of their products. ECM BioFilms sells an additive that it claims will

accelerate the biodegradation of plastics manufactured with the additive (which we will refer to

as “ECM plastic”).

A. ECM’s biodegradability claims

ECM’s claims regarding the biodegradability of ECM plastic have changed over the

years. Before 2009, ECM did not market a specific time frame for biodegradation, but did

represent that ECM plastic would biodegrade “in timeframes that would be similar to things like

wood or pieces of sticks.” Responding to industry demands for specific time frames, in 2009 or

2010 ECM began advertising that ECM plastic would “fully biodegrade” in a “landfill” within

nine months to five years. ECM placed this representation on its marketing materials and

website. The administrative law judge (ALJ) overseeing this case concluded this claim was false

No. 15-4339 ECM BioFilms v. F.T.C. Page 3

and unsubstantiated. As the ALJ observed, “All of the experts in this case agreed that ECM

Plastics do not fully biodegrade in 9 months to 5 years in a landfill.” The Commission also

concluded that “the clear consensus among both parties’ experts” was that “ECM lacks

substantiation for its express and implied claims that ECM Plastics fully biodegrade in landfills

within 5 years.” ECM no longer contends otherwise.

ECM also provided plastic manufacturers with material to market their products as

biodegradable, including a logo marked “ECM Biodegradable” against a tree design. Millions of

plastic products were manufactured with this representation or similar representations, including

“plastic dinnerware, straws, and ‘clam shell’ carry-out containers, restaurant and grocery bags,

trash bags, and shampoo and conditioner bottles.” Some of ECM’s plastic-manufacturer

customers also advertised that their plastics would biodegrade in nine months to five years in a

landfill.

In 2012, the FTC revised its “Green Guides,” which are intended to “help marketers

avoid making environmental marketing claims that are unfair or deceptive under Section 5 of the

FTC Act.” 16 C.F.R. § 260.1(a). The previous version of the Guides, issued in 1996, advised

that an unqualified claim that a product is biodegradable “should be substantiated by competent

and reliable scientific evidence that the entire product or package will completely break down

and return to nature . . . within a reasonably short period of time after customary disposal.”

Guides for the Use of Environmental Marketing Claims, 61 Fed. Reg. 53311, 53318 (Oct. 11,

1996) (emphasis added). The 2012 Guides advised that “[i]t is deceptive to make an unqualified

degradable claim for items entering the solid waste stream if the items do not completely

decompose within one year after customary disposal.” (16 C.F.R. § 260.8(c) (emphasis added).

Additionally, with regard to items customarily disposed of in landfills, the 2012 Guides advised

that any unqualified biodegradable claim would be deceptive “because these locations do not

present conditions in which complete decomposition will occur within one year.” Id.

After the FTC issued the 2012 Guides, ECM revised its marketing materials and logo.

ECM placed an asterisk next to the word “biodegradable” and clarified that “[p]lastic products

manufactured with [the ECM additive] will biodegrade in any biologically-active environment

(including most landfills) in some period greater than a year.” However, ECM continued to

No. 15-4339 ECM BioFilms v. F.T.C. Page 4

make the “nine months to five years” claim on its website until late 2013, and in direct

communications with customers until January 2014.

B. Scientific tests of ECM plastic

Scientists disagree on the precise definition of the term “biodegradable.”

Most commonly, scientists define biodegradable material as material that can be broken down by

biological agents, such as bacteria or fungi. Biodegradability is a property of a material, similar

to color, weight, or density. A material’s rate of biodegradation depends on the environment in

which biodegradation occurs. Because biodegradation occurs at different rates in different

environments, in evaluating the biodegradability of a material, scientists focus on its “intrinsic

biodegradability.” That is, they do not estimate the time for complete biodegradation, but

instead evaluate the material’s rate of biodegradation in various environments, as well as how

this rate compares with other biodegradable materials.

The most practical and widely-used scientific method for measuring the intrinsic

biodegradability of a material is gas evolution testing. Of the available gas evolution tests, the

D5511 protocol provides the best approximation of plastic biodegradation in landfill conditions.

Landfills are predominantly anaerobic environments, and the D5511 method measures “the

degree and rate of anaerobic biodegradation of plastic materials.” The D5511 protocol provides,

however, that claims of performance are to be limited to the numerical result obtained in the test

and are “not be used for unqualified ‘biodegradable’ claims.” It also provides that results are not

to be extrapolated past the actual duration of the test.

A number of different laboratories performed D5511 biodegradation tests on plastics

manufactured with ECM’s additive. ECM points to nineteen laboratory tests that, it claims,

demonstrate that ECM plastic biodegrades at a faster rate than traditional plastic. In one test, for

instance, ECM plastic biodegraded 49.28% over 900 days, whereas traditional plastic

biodegraded just 0.1152% over the same time. The FTC, in turn, points to thirteen tests that, it

alleges, indicate that ECM’s additive does not accelerate biodegradation.

No. 15-4339 ECM BioFilms v. F.T.C. Page 5

C. Consumer understanding of biodegradability claims

Both ECM and the FTC rely on consumer surveys to establish consumer understanding

of biodegradability claims. The FTC’s survey was conducted by Dr. Shane Frederick,

a professor of marketing at Yale University’s School of Management.1 Using an online survey

tool available through Google Consumer Surveys, Dr. Frederick asked respondents one of

60 different questions, collecting nearly 29,000 responses.2 Dr. Frederick found that, at a

minimum, adding a “biodegradable” label to a plastic bottle increased the percentage of

respondents who believed the bottle would fully decompose within five years from 13% to

between 44% and 49%. Similarly adding a “biodegradable” label to a plastic “Tupperware”

container increased the percentage of respondents who believed the container would fully

decompose within five years from 16% to 44%; and adding a “biodegradable” label caused an

additional 20% of respondents to believe that a plastic bag would fully decompose within five

years (increasing the percentage from 21% to 41%).3 This data led the Commission to conclude

that adding the biodegradable label leads a “significant minority of reasonable consumers to

believe that the plastic product will biodegrade within five years.”

ECM’s survey was conducted by Dr. David Stewart, a professor of marketing and

business law at Loyola Marymount University. Dr. Stewart surveyed 400 respondents by

landline telephone asking five questions, some of which contained one or more sub-questions. In

one question, respondents were asked, “If something is biodegradable, how long do you think it

1

Complaint counsel offered two other consumers surveys that were rejected by the Commission and are not

at issue on appeal.

2

When the tool used by Dr. Fredericks is employed, “an internet user encounters a ‘pop-up’ survey

question when attempting to access desired content on a website; the user is blocked from access to the desired

content unless he or she answers the survey question or pays for access to the desired content without answering.”

3

A portion of respondents did not respond with a number and unit of time. Dr. Frederick’s original survey

did not “code” these responses, thus excluding them from his analysis, and ECM argued that this omission biased

his results. In its review of these arguments, the Commission observed that “[o]mitting the uncoded responses

would only affect the results if the respondents whose answers were not coded as a group held different views on

biodegradation times than the remainder of the population; however, there is no reason to believe that is the case

here.” Nevertheless, the Commission recalculated Dr. Frederick’s results by counting every uncertain, ambiguous,

or unclear response as “stating an expectation that biodegradation will take more than five years.” The Commission

found that “even if all of the responses excluded by Dr. Frederick’s coding rule were included in the denominator

with no adjustment to the numerator . . . the results still support Dr. Frederick’s findings.” We rely on the more

conservative, recalculated survey results.

No. 15-4339 ECM BioFilms v. F.T.C. Page 6

would take for it to decompose or decay?” Of the respondents who provided an answer to this

question with a number and unit of time, 64% said that it would decompose within five years.

By Dr. Stewart’s own calculations, these respondents represented 23% of the survey’s

400 respondents.4

D. Procedural history

In October 2013, the FTC filed an administrative complaint alleging that ECM’s

biodegradability representations were false and misleading, and thus violated § 5 of the FTC Act.

The complaint asserted that ECM’s express representation that ECM plastic would completely

biodegrade within nine months to five years was unsupported by scientific evidence. It also

alleged that “[c]onsumers likely interpret unqualified degradable claims to mean that the entire

product or package will completely decompose into elements found in nature within a reasonably

short period of time after customary disposal.” Because ECM plastic does not fully biodegrade

within a reasonably short time, the complaint alleged, this implied claim was misleading.

An ALJ held a three-week trial in August 2014. The ALJ concluded that ECM’s express

claim that ECM plastic would completely biodegrade in a landfill within nine months to five

years was false and unsubstantiated. He also determined, however, that the FTC had failed to

prove that ECM’s remaining biodegradability claims were misleading because the FTC failed to

prove ECM had made an “implied one year claim.” The ALJ’s decision was based, in part, on

perceived methodological problems with Dr. Frederick’s survey.

The parties then filed cross appeals to the Commission. In October 2015, the

Commission affirmed the ALJ’s decision with regard to ECM’s express claim that ECM plastic

would fully biodegrade within five years. The Commission reversed on the other

biodegradability claims, finding that ECM had made implied claims that ECM plastic would

fully biodegrade within a reasonably short period of time, i.e., within five years. Commissioner

Maureen K. Ohlhausen partially dissented from the Commission’s order.

4

This is a conservative figure. The Commission calculated 119 responses of five years or less, which

would constitute 30% of the 400 survey respondents. “To be conservative,” the Commission noted that it relied

“only on the smaller figure cited in the text and validated by Dr. Stewart.” Additionally, Dr. Frederick reviewed the

“verbatim responses from Dr. Stewart’s survey,” and found 138 responses of five years or less, which would

constitute 35% of the 400 survey respondents.

No. 15-4339 ECM BioFilms v. F.T.C. Page 7

The Commission’s order prohibits ECM from making biodegradability claims “unless

such representation is true, not misleading, and, at the time it is made, respondent possesses and

relies upon competent and reliable scientific evidence that substantiates the representation,” and

I.A.i. the entire item will completely decompose into elements found in nature

within five (5) years after customary disposal; or

ii. the representation is clearly and prominently and in close proximity

qualified by:

a. Either (1) the time to complete decomposition into elements found

in nature; or (2) the rate and extent of decomposition into elements

found in nature, provided that such qualification must disclose that

the stated rate and extent of decomposition does not mean that the

product or package will continue to decompose; and

b. If the product will not decompose in a customary disposal facility

or by a customary method of disposal, both (1) the type of non-

customary disposal facility or method and (2) the availability of

such disposal facility or method to consumers where the product or

package is marketed or sold.

(App. at 4–5, 403–04)

The Commission’s order specifies the “competent and reliable scientific evidence”

needed to substantiate a biodegradability claim, setting different standards for unqualified claims

(that is, claims that simply use the term “biodegradable”), and qualified claims (claims that cabin

the meaning of the word, such as by referring to the rate of degradation and the circumstances of

disposal). To make an unqualified biodegradability claim, “any scientific technical protocol (or

combination of protocols) substantiating such claims must assure complete decomposition and

simulate the physical conditions found in landfills, where most trash is disposed.” (Id. at 3)

Results from the D5511 protocol, the order explains, “are not competent and reliable scientific

evidence supporting unqualified claims, or claims of outcomes beyond the parameters and results

of the actual test performed.” (Id.) (emphasis added) To make a qualified biodegradability

claim,

any scientific technical protocol (or combination of protocols) substantiating such

claims must both:

i. assure the entire product will (1) completely decompose into

elements found in nature in any stated timeframe . . . ; or

No. 15-4339 ECM BioFilms v. F.T.C. Page 8

(2) decompose into elements found in nature at the rate and to the

extent stated in the representation; and

ii. simulate the physical conditions found in the type of disposal

facility or method stated in the representation or, if not qualified by

disposal facility or method, the conditions found in landfills, where

most trash is disposed.

(Id.) The order does not bar ECM from using results of D5511 tests to substantiate a qualified

biodegradability claim.

Lastly, because “ECM’s violations were serious, repeated, and deliberate,” the

Commission’s order also includes “fencing-in relief to prevent the company from engaging in

deceptive practices that are ‘like and related’ to the violating practice ‘as a prophylactic and

preventative measure.’” (App. at 404 (quoting FTC v. Mandel, 359 U.S. 385, 393 (1959))

Specifically, the order prohibits ECM from claiming that any product “offers any environmental

benefit, unless the representation is true, not misleading, and, at the time it is made, respondent

possesses and relies upon competent and reliable evidence, which when appropriate must be

competent and reliable scientific evidence, that substantiates the representation.” (App. at 5,

403–04)

II. ANALYSIS

On appeal, ECM contends that the Commission’s order was not supported by substantial

evidence—and, therefore, that the Commission should not have found ECM liable for violating

§ 5 of the FTC Act—and that the Commission’s order violated the First Amendment, the APA,

and the Due Process Clause of the Fifth Amendment. We address each of ECM’s challenges in

turn.

A. Section 5 of the FTC Act

We begin by reviewing the Commission’s holding that ECM’s marketing materials

violated § 5 of the FTC Act.5 In conducting this review, “[t]he findings of the Commission as to

5

ECM does not expressly contest the Commission’s order under § 5. Instead, it argues that the

Commission violated the APA. Most of ECM’s APA arguments, however, amount to assertions that the

Commission lacked adequate evidence to support its findings under § 5. Those arguments are addressed here.

ECM’s remaining APA arguments are addressed in a later section.

No. 15-4339 ECM BioFilms v. F.T.C. Page 9

the facts, if supported by evidence, shall be conclusive.” 15 U.S.C. § 45(c). This standard is

“essentially identical” to the “‘substantial evidence’ standard for review of agency factfinding.”

F.T.C. v. Ind. Fed’n of Dentists, 476 U.S. 447, 454 (1986). “Substantial evidence is evidence

that a reasonable mind might accept as adequate to support a conclusion,” ProMedica Health

Sys., Inc. v. F.T.C., 749 F.3d 559, 564 (6th Cir. 2014) (internal quotation marks and citation

omitted), which “requires more than a mere scintilla but less than a preponderance,” Miller v.

Comm’r of Soc. Sec., 811 F.3d 825, 833 (6th Cir. 2016) (internal quotation marks omitted).

Section 5 of the FTC Act prohibits the use of deceptive advertising in commerce and

empowers and directs the Commission to prevent such advertising. See 15 U.S.C. § 45(a). The

Commission determines whether an advertisement is deceptive by engaging “in a three-step

inquiry, considering: (i) what claims are conveyed in the ad, (ii) whether those claims are false,

misleading, or unsubstantiated, and (iii) whether the claims are material to prospective

consumers.” POM Wonderful, LLC v. F.T.C., 777 F.3d 478, 490 (D.C. Cir. 2015), cert. denied,

136 S. Ct. 1839 (2016). Because the FTC “deals continually” with deception cases, “the

Commission is often in a better position than are courts to determine when a practice is

‘deceptive.’” F.T.C. v. Colgate-Palmolive Co., 380 U.S. 374, 385 (1965); see also Buchanan v.

Northland Grp., Inc., 776 F.3d 393, 398 (6th Cir. 2015) (quoting Colgate-Palmolive for this

proposition). Accordingly, “the Commission’s judgment is to be given great weight by

reviewing courts,” and “[t]his admonition is especially true with respect to allegedly deceptive

advertising since the finding of a § 5 violation in this field rests so heavily on inference and

pragmatic judgment.” Colgate-Palmolive, 380 U.S. at 385.

ECM appeals the Commission’s findings with respect to only one of its claims: its

representation that ECM plastic is “biodegradable” without reference to any time frame—that is,

its “unqualified biodegradability claim.”6 The Commission rejected ECM’s argument that the

6

The Commission held ECM liable for two other representations, neither of which is raised on appeal.

First, ECM claimed that plastics manufactured with its additive would biodegrade in a landfill within nine months to

five years. The ALJ ruled that this claim was false and unsubstantiated, and ECM did not appeal that ruling to the

Commission, though it did argue that this claim was not material. The Commission rejected this argument, holding

that the claim was material. ECM has not appealed the Commission’s finding.

Second, ECM claimed that plastics manufactured with its additive would biodegrade in “most landfills” in

“some period greater than a year.” The Commission ruled that this claim was facially deceptive because the claim’s

No. 15-4339 ECM BioFilms v. F.T.C. Page 10

term “biodegradable” conveys only that a product is “intrinsically” biodegradable, and concluded

that the preponderance of the evidence showed that ECM’s unqualified biodegradability claim

implied that ECM plastics “will completely break down in landfills within a reasonably short

period of time, i.e., within five years.”

ECM does not dispute that this implied claim, if made, was false. Nor does it dispute that

this implied claim would be material to its customers. Accordingly, we limit our analysis to

whether substantial evidence supports the Commission’s finding that ECM’s unqualified

biodegradability claim did, in fact, convey the implied claim that ECM plastic completely

biodegrades within five years. See POM Wonderful, 777 F.3d at 491; see also Removatron Int’l

Corp. v. F.T.C., 884 F.2d 1489, 1496 (1st Cir. 1989) (“The Commission’s findings with respect

to what representations are made in advertisements are factual.”).

The Commission “will deem an advertisement to convey a claim if consumers acting

reasonably under the circumstances would interpret the advertisement to contain that message.”

POM Wonderful, 777 F.3d. at 490 (citation omitted). In making this determination, the

Commission “examines the overall net impression of an ad,” and may rely on both its own

viewing of the ad and extrinsic evidence. See Kraft, Inc. v. F.T.C., 970 F.2d 311, 314, 318 (7th

Cir. 1992). “An interpretation may be reasonable even though it is not shared by a majority of

consumers in the relevant class, or by particularly sophisticated consumers.” FTC Policy

Statement on Deception, 103 F.T.C. 174, 177 n.20 (1984). The Commission thus “considers

whether at least a significant minority of reasonable consumers would likely interpret the ad to

assert the claim.” POM Wonderful, 777 F.3d at 490 (internal quotation marks omitted); see also

Fanning v. F.T.C., 821 F.3d 164, 171 (1st Cir. 2016) (“Liability may be imposed if at least a

significant minority of reasonable consumers [would be] likely to take away the misleading

claim.”) (internal quotation marks omitted). We have previously expressed unwillingness “to

overturn the deception findings of the Commission” where an ad misleads “15% (or 10%) of the

reference to one year had an “anchoring effect” conveying the message that the time for biodegradation would be

reasonably short—perhaps longer than a year, but not a lot longer. The Commission supported this facial analysis

with findings from the consumer surveys of Dr. Stewart and Dr. Frederick. Dr. Stewart found that 24% of

respondents inferred that the plastic would biodegrade in one year. Dr. Frederick found that 54% of respondents

who provided a time period inferred that the plastic would biodegrade in less than five years and, of this subset of

respondents, 23% clustered around one year. ECM has not appealed the Commission’s finding with respect to this

claim either.

No. 15-4339 ECM BioFilms v. F.T.C. Page 11

buying public.” Firestone Tire & Rubber Co. v. F. T. C., 481 F.2d 246, 249 (6th Cir. 1973); see

also In re Telebrands Corp., 140 F.T.C. 278, 291 (2005) (range of 10.5% to 17.3% “was

sufficient to conclude that the challenged claims were communicated”), aff’d, 457 F.3d 354 (4th

Cir. 2006).

Here, the Commission relied on two consumer surveys—a valid form of extrinsic

evidence. Telebrands Corp., 140 F.T.C. at 291. It relied on Dr. Frederick’s survey, which found

that, at a minimum, adding a “biodegradable” label caused an additional 31% to 36% of

respondents to believe that a plastic water bottle would fully decompose within five years; an

additional 28% to believe that a plastic “Tupperware” container would fully decompose within

five years; and an additional 20% to believe that a plastic bag would fully decompose within five

years. The Commission also relied on the survey of ECM’s own expert, Dr. Stewart, which

found that 23% of respondents expected something biodegradable to fully decompose within five

years. Thus, both consumer surveys would appear to support the Commission’s finding that

ECM’s unqualified biodegradability claim conveyed the implied claim to a significant minority

of consumers.

ECM argues that the Commission’s finding was not supported by substantial evidence for

two reasons. ECM first argues that Dr. Frederick’s survey is unreliable. However, the

Commission convincingly rebutted each of ECM’s criticisms, in detail and with extensive

citation to the record. Evaluation of consumer survey evidence is within the Commission’s

expertise, and we accord its judgment “great weight.” See Colgate-Palmolive, 380 U.S. at 385.

Thus, Dr. Frederick’s survey constitutes substantial evidence in support of the Commission’s

finding. Furthermore, ECM does not contest Dr. Stewart’s survey results, which also support the

Commission’s finding. Throughout its brief, ECM extols Dr. Stewart’s expertise and survey

methodology. Because Dr. Stewart’s survey constitutes substantial evidence on its own, the

alleged deficiencies in Dr. Frederick’s survey are immaterial.

ECM also argues that these consumers, even if a significant minority, were not “acting

reasonably under the circumstances.” POM Wonderful, 777 F.3d at 490. ECM contends that

these consumers are not acting reasonably because “nothing biodegrades within five years” and

their understanding of biodegradability is unscientific. But the scientific validity of a consumer’s

No. 15-4339 ECM BioFilms v. F.T.C. Page 12

belief is not the standard for reasonableness. Rather, “[i]n considering charges of false and

deceptive advertising, the public’s impression is the only true measure of deceptiveness.” F.T.C.

v. Brown & Williamson Tobacco Corp., 778 F.2d 35, 39–40 (D.C. Cir. 1985); see id. at 41

(noting that in Zauderer v. Office of Disciplinary Counsel of Sup. Ct. of Ohio, 471 U.S. 626, 652

(1985), the Supreme Court implied that “in situations involving ‘technical . . . terms,’ it may

become reasonable to assume that members of the public may be ‘unaware of the . . . meanings

of such terms’ and that ‘substantial numbers’ might be misled”); see also In re Thompson Med.

Co., Inc., 104 F.T.C. 648, 839 & n.33 (1984) (concluding that scientific understandings are not

the measure of reasonableness because “scientific and popular understandings are known to vary

on occasion” and “average consumers” might not understand the representation “as would a

scientist”), aff’d, 791 F.2d 189 (D.C. Cir. 1986). Moreover, ECM itself represented to plastic

manufacturers that ECM plastic would biodegrade within five years. Certain of these plastic

manufacturers found the claim reasonable enough to include on their products. If these

sophisticated consumers accepted ECM’s claims, it stands to reason that it was reasonable for an

average consumer to do the same.

We thus conclude that the Commission’s finding that ECM violated § 5 of the FTC Act

was supported by substantial evidence.

B. APA challenges

The APA “requires us to uphold agency action unless it is ‘arbitrary, capricious, an abuse

of discretion, or otherwise not in accordance with law.’” Nat’l Truck Equip. Ass’n v. Nat’l

Highway Traffic Safety Admin., 711 F.3d 662, 667 (6th Cir. 2013) (quoting 5 U.S.C.

§ 706(2)(A)). An agency decision is arbitrary and capricious if

the agency has relied on factors which Congress has not intended it to consider,

entirely failed to consider an important aspect of the problem, offered an

explanation for its decision that runs counter to the evidence before the agency, or

is so implausible that it could not be ascribed to a difference in view or the

product of agency expertise.

Id. (quoting Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S.

29, 43 (1983)). In conducting this analysis, “our role is limited to reviewing the administrative

record to determine whether there exists a rational connection between the facts found and the

No. 15-4339 ECM BioFilms v. F.T.C. Page 13

choice made.” Nat’l Truck Equip. Ass’n, 711 F.3d at 667 (internal quotation marks omitted).

We “appl[y] a harmless-error rule to APA cases, such that a mistake that has no bearing on the

ultimate decision or causes no prejudice shall not be the basis for reversing an agency’s

determination.” Sierra Club v. Slater, 120 F.3d 623, 637 (6th Cir. 1997); see also Rabbers v.

Comm’r Soc. Sec. Admin., 582 F.3d 647, 654–55 (6th Cir. 2009).

ECM raises several APA challenges.7 First, ECM argues that the Commission ignored

dispositive scientific evidence and erroneously concluded that thirteen tests undermined ECM’s

biodegradability claims. But the Commission did not rely on this finding to hold that the

unqualified biodegradability claim was misleading; it relied on the finding that ECM plastic

cannot fully biodegrade in a landfill within five years, which is undisputed. Accordingly, even if

ECM is correct, the Commission’s error was harmless.

Second, ECM argues that the Commission erroneously failed to explain significant

departures from the ALJ’s factual findings, including the credibility findings regarding the

experts and the ALJ’s related conclusions regarding the survey evidence. However, “under both

the Administrative Procedure Act and [the FTC’s] regulations, the Commission may exercise, on

appeal from an initial decision by an administrative law judge, all powers which it would possess

if it made the initial decision itself.” Chrysler Corp. v. F.T.C., 561 F.2d 357, 362 (D.C. Cir.

1977); see 16 C.F.R. § 3.54(a). The Commission explained its departure from the ALJ’s findings

regarding the survey results, and thus the record does not support the conclusion that the

Commission’s decision “fail[s] to reflect attentive consideration to the [ALJ’s] decision.”

Morall v. Drug Enf’t Admin., 412 F.3d 165, 177 (D.C. Cir. 2005). True, “[w]hen the

Commission overrules the ALJ and substitutes its own findings, we should carefully scrutinize

the Commission’s determinations of fact.” In re Detroit Auto Dealers Ass’n, Inc., 955 F.2d 457,

469 (6th Cir. 1992). But that does not change the standard of review. Our task remains “to

determine whether the Commission’s findings are supported by substantial evidence,” and we

uphold those findings if they are. Id. For the reasons given in our discussion of ECM’s Section

7

As discussed in footnote 4, ECM characterized its substantial evidence arguments as APA challenges.

These arguments are better addressed through the framework of the FTC Act.

No. 15-4339 ECM BioFilms v. F.T.C. Page 14

5 challenge, we are satisfied that there is substantial evidence to support the Commission’s

decision to partially reverse the ALJ’s decision.

Third, ECM contends that the Commission misapplied the factors from In re Pfizer Inc.,

81 F.T.C. 23 (1972). The Pfizer factors are used to examine the substantiation needed for a

claim. See POM Wonderful, 777 F.3d at 490–91. But the parties agreed at trial that the

appropriate level of substantiation was “competent and reliable scientific evidence”—the

standard the Commission applied on appeal. ECM has thus waived this argument. And, in any

event, any error was harmless. It is now undisputed that no evidence supported the claim that

ECM plastic would fully biodegrade within five years, so ECM would be liable under any level

of required substantiation.

Fourth, ECM makes a passing reference to the Commission’s fencing-in relief, arguing

that it was unnecessary because “there was no evidence of any actual purchase by an end-use

consumer” of plastic manufactured with the ECM additive. But the record showed that the

reason plastic manufacturers want to produce biodegradable plastic is to satisfy end-use

consumer demand, which stems from environmental concerns. For instance, a representative

from one plastic manufacturer testified that plastic manufacturers “were looking for a product

they could mark as degradable to say that they were being, you know, environmentally

sensitive.” Another testified that “[p]eople . . . don’t want to pollute the environment and this

[biodegradable plastic] is what they choose to buy.” Accordingly, there was a rational

connection between the facts in the record and the fencing-in relief.

Finally, ECM argues that the Commission’s order should not be enforced because it

impinges on the Environmental Protection Agency’s (the EPA) authority to manage solid waste

disposal. See 5 U.S.C. § 706(2)(C) (“The reviewing court shall . . . hold unlawful and set aside

agency action, findings, and conclusions found to be . . . in excess of statutory jurisdiction,

authority, or limitations . . . .”). ECM alleges that the Commission’s order will coerce the

plastics industry to abandon products that biodegrade in more than five years; the plastics

industry will either produce more traditional plastics or develop plastic that biodegrades within

five years; rapidly biodegrading plastic produces more methane gas, which is worse for the

environment; and the EPA is engaged in an effort to collect methane gas at landfills, which

No. 15-4339 ECM BioFilms v. F.T.C. Page 15

would be frustrated by rapidly-biodegrading plastics. By shifting market incentives, ECM

concludes, the Commission will set national waste policies and thus invade the EPA’s

jurisdiction.

This far-fetched scenario is unworthy of serious consideration. No evidence in the record

supports ECM’s speculation about the possible effects of the Commission’s order. More

importantly, Congress “empowered and directed” the Commission to prevent deceptive acts and

practices in the marketplace, FTC Act § 5, 15 U.S.C. § 45(a), and gave “the Commission an

influential role in interpreting § 5 and in applying it to the facts of particular cases,” Colgate-

Palmolive, 380 U.S. at 385. Exercising such authority will invariably have marketplace effects.

That does not render the initial Commission action—which was unquestionably within its

statutory authority—unlawful.

C. First Amendment

We now turn to ECM’s First Amendment challenge to the Commission’s order. ECM

contends that the Commission’s order is an unconstitutional restriction on biodegradability

claims, specifically ECM’s right to disseminate truthful scientific information. It also argues, in

the alternative, that its proposed disclaimer would have cured any deception and that the

Commission’s required disclaimers are unduly burdensome.

1. Standard of review for the Commission’s factual findings

Before reaching the merits of ECM’s First Amendment challenge, we must first decide

the appropriate standard of review for the Commission’s factual findings. ECM argues that in

the First Amendment context, we must review the Commission’s factual findings de novo,

pointing to Bose Corp. v. Consumers Union of U.S., Inc., 466 U.S. 485 (1984), and Peel v.

Attorney Registration & Disciplinary Commission of Illinois, 496 U.S. 91 (1990). ECM is

fighting an uphill battle: Both the D.C. and Seventh Circuits considered the same argument and

rejected ECM’s reading of Bose and Peel, see, e.g., POM Wonderful, 777 F.3d at 499 (citing

Novartis Corp. v. FTC, 223 F.3d 783, 787 n.4 (D.C. Cir. 2000)); Kraft, Inc. v. F.T.C., 970 F.2d

311, 317 (7th Cir. 1992), and no circuit has adopted ECM’s reading.

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We decline to apply de novo review for the reasons identified by the D.C. and Seventh

Circuits. First, the Supreme Court provided no indication that it intended Bose or Peel to

overrule the substantial-evidence standard for the Commission’s factual findings. See Ind. Fed’n

of Dentists, 476 U.S. at 454; United States v. O’Brien, 560 U.S. 218, 224 (2010) (“If a precedent

of this Court has direct application in a case, yet appears to rest on reasons rejected in some other

line of decisions, the Court of Appeals should follow the case which directly controls, leaving to

this Court the prerogative of overruling its own decisions.”) (citation omitted). To the contrary:

as both the Seventh Circuit and the D.C. Circuit observed, Bose was a libel case, and the Bose

Court “itself suggests that commercial speech might not warrant the higher standard of review

established for libel cases.” Kraft, 970 F.2d at 317 (citing Bose, 466 U.S. at 504 n.22); see also

Brown & Williamson Tobacco Corp., 778 F.2d at 41 n.3 (same). Moreover, Bose and Peel

“involved review of court decisions, and courts generally lack the Commission’s expertise in the

field of deceptive advertising.” Kraft, 970 F.2d at 317. Thus, while there was little reason to

defer to the factual findings of the lower courts in Bose and Peel, “Commission findings are

well-suited to deferential review because they may require resolution of ‘exceedingly complex

and technical factual issues.’” Id. (quoting Zauderer, 471 U.S. at 645). Given that this

complexity is present in “virtually any field of commerce,” Zauderer, 471 U.S. at 645, ECM’s

argument that the Commission lacks expertise in biodegradation science is not persuasive.

Finally, unlike the “prophylactic regulation” in Peel that “completely prohibit[ed] an entire

category of potentially misleading commercial speech,” here “the issue is whether an

individualized FTC cease and desist order, prohibiting a particular set of deceptive ads, passes

constitutional muster.” Kraft, 970 F.2d at 317. Like the Seventh Circuit, “[w]e find the

restriction at issue in Peel and the one here sufficiently distinct to justify differing levels of

appellate review.” Id. at 317–18.

We thus review “the Commission’s factual finding of a deceptive claim under the

ordinary (and deferential) substantial-evidence standard.” POM Wonderful, 777 F.3d at 499.

That is to say, the same standard under which we reviewed the Commission’s finding that ECM

violated § 5 of the FTC Act.

No. 15-4339 ECM BioFilms v. F.T.C. Page 17

2. Restrictions on biodegradability claims

We review prohibitions on commercial speech under the four-part test set forth in Central

Hudson Gas & Elec. Corp. v. Public Serv. Comm’n of N.Y., 447 U.S. 557 (1980), and disclaimer

requirements under Zauderer. See Int’l Dairy Foods Ass’n v. Boggs, 622 F.3d 628, 635–36,

640–42 (6th Cir. 2010).

The Commission’s order prohibits ECM from representing that ECM plastic is

biodegradable “unless such representation is true, not misleading, and, at the time it is made,

respondent possesses and relies upon competent and reliable scientific evidence that

substantiates the representation,” and

I.A.i. the entire item will completely decompose into elements found in nature

within five (5) years after customary disposal; or

ii. the representation is clearly and prominently and in close proximity

qualified by:

a. Either (1) the time to complete decomposition into elements found

in nature; or (2) the rate and extent of decomposition into elements

found in nature, provided that such qualification must disclose that

the stated rate and extent of decomposition does not mean that the

product or package will continue to decompose; and

b. If the product will not decompose in a customary disposal facility

or by a customary method of disposal, both (1) the type of non-

customary disposal facility or method and (2) the availability of

such disposal facility or method to consumers where the product or

package is marketed or sold.

(App. at 4–5, 403–04) Thus, the Commission’s order imposes two levels of restriction based on

the results of “competent and reliable” scientific testing. First, if ECM possesses scientific

evidence that ECM plastic will completely decompose within five years, then it may use the

word “biodegradable” in its advertisements without any restriction whatsoever. Second, if ECM

does not possess scientific evidence that ECM plastic will completely decompose within five

years, but does possess scientific evidence that ECM plastic will decompose at some other rate,

then it may use the word “biodegradable” only if it also includes certain disclaimers.

ECM contends that the first level of restriction—which permits ECM to represent that

ECM plastic is biodegradable without disclaimers if ECM possesses scientific evidence that

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ECM plastic will completely decompose within five years—actually amounts to a prohibition

because “nothing biodegrades within five years in a landfill.” As ECM points out, the record

shows that all of the experts in this case thought that most, if not all, waste will not biodegrade in

a landfill within five years, and no expert thought that ECM plastic could achieve that rate of

biodegradation. One expert, for instance, estimated that ECM plastic would take 30–100 years

to biodegrade in a landfill. Thus, ECM contends, the Commission’s order effectively prohibits

ECM from making “unqualified biodegradability claims”—that is, prohibits ECM from using the

word “biodegradable” in its advertisements without disclaimers.

We agree with ECM’s description of the expert testimony, but disagree with ECM’s

characterization of the ensuing restriction. Because ECM has not provided—and in all

likelihood cannot provide—scientific evidence that ECM plastic will completely decompose

within five years after customary disposal (i.e. in a landfill), the Commission’s order effectively

requires that any use of the word “biodegradable” be accompanied with disclaimers. This

restriction is not a prohibition on speech; it does not ban ECM from using the word

“biodegradable” (or any other word) in its advertisements. Nor are the disclaimer requirements

so onerous that they effectively preclude ECM from making qualified biodegradability claims.

The Commission’s order permits ECM to use results from gas evolution testing—including the

D5511 protocol—to substantiate qualified biodegradability claims. ECM may need to specify

the disposal conditions simulated by the test; and, if the tests are not run until complete

decomposition, ECM may need to specify the rate and extent of decomposition supported by the

test. But such requirements do not effect a prohibition.

It is true that the Commission’s order prohibits ECM from speaking in a certain manner:

it prohibits ECM from representing that ECM plastic is biodegradable without explanatory

disclaimers. But disclaimer requirements always restrict speech in this way. Adopting ECM’s

characterization of the Commission’s restrictions would render any disclaimer requirement a

prohibition on speech. We decline to collapse the distinction the Supreme Court has made

between these two types of restrictions. See Zauderer, 471 U.S. at 651 (“[I]n virtually all our

commercial speech decisions to date, we have emphasized that because disclosure requirements

trench much more narrowly on an advertiser’s interests than do flat prohibitions on speech,

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‘warning[s] or disclaimer[s] might be appropriately required . . . in order to dissipate the

possibility of consumer confusion or deception.’”) (citation omitted).

The Commission’s disclaimer requirements are evaluated under the more lenient standard

set forth in Zauderer. See Int’l Dairy Foods, 622 F.3d at 640–42. Disclaimer requirements must

be “reasonably related to the [Commission’s] interest in preventing deception of consumers” and

cannot be “unjustified or unduly burdensome.” Zauderer, 471 U.S. at 651. We have already

concluded that substantial evidence supports the Commission’s finding that ECM’s unqualified

biodegradability claim was misleading. In conducting this analysis, then, we are mindful that the

FTC Act grants the Commission “wide discretion in determining the type of order that is

necessary to cope with the unfair practices found.” Colgate-Palmolive, 380 U.S. at 392. Having

violated the FTC Act, ECM “must expect some fencing in,” and the Commission may “frame its

order broadly enough to prevent respondents from engaging in similarly illegal practices in

future advertisements.” Id. at 395.

The Commission’s order permits ECM to represent that ECM plastic is biodegradable if

accompanied by certain disclaimers. ECM’s unqualified biodegradability claim was misleading

because it implied a rate of complete biodegradation not “substantiated by competent and

reliable scientific evidence.” The Commission’s disclaimer requirements are reasonably related

to preventing this deception. They require ECM to disclose the rate and extent of biodegradation

that is actually supported by its scientific testing. And, if tests show that ECM plastic will not

biodegrade in a landfill (or other customary disposal method)—as some evidence in the record

indicated—ECM must disclose that information as well.

ECM argues that the deception also would be cured by the disclaimer it proposed:

“There is no scientific test that establishes the rate within which this product will achieve

complete biodegradation.” Because this disclaimer is less restrictive, ECM contends, the

Commission’s required disclaimers are unduly burdensome.

We disagree for two reasons. First, as the Commission observed, ECM’s proposed

disclaimer “offers only a vague allusion to variations in conditions and/or the imprecision of

available substantiation techniques,” and “addresses neither the rate nor extent of biodegradation

No. 15-4339 ECM BioFilms v. F.T.C. Page 20

that consumers perceive in ECM’s representations.” It is thus inadequate to neutralize the

deception. Second, the Commission was not required to adopt the least restrictive disclaimer.

See Zauderer, 471 U.S. at 651 n.14 (rejecting the argument that courts “should subject disclosure

requirements to a strict ‘least restrictive means’ analysis under which they must be struck down

if there are other means by which the State’s purposes may be served”). Because the

Commission’s disclaimers are reasonably related to preventing the deception, they are

constitutional under Zauderer—even if a less-restrictive disclaimer is up to the task.

Finally, ECM objects to the order’s disclaimer requirement related to extrapolating test

results beyond the duration of the test. This restriction, however, is reasonably related to the

directives of ECM’s testing protocol (D5511), which expressly instructs that “results shall not be

extrapolated past the actual duration of the test.” It is therefore constitutional under Zauderer.

D. Due Process

ECM argues that the Commission’s order violated its due process rights. ECM contends

that in its Green Guides, 16 C.F.R. § 260.8(c), and during the proceedings before the ALJ, the

FTC defined “reasonably short period of time” for the purposes of the implied claim to mean

“complete biodegradation within one year after customary disposal.” Thus, ECM did not know

that the Commission interpreted a reasonably short period of time to mean five years, and

“lacked fair notice and an opportunity to develop facts to support its defense on that point.”

“The purpose of the administrative complaint is to give the responding party notice of the

charges against him.” L. G. Balfour Co. v. F. T. C., 442 F.2d 1, 19 (7th Cir. 1971) (citation

omitted). A complaint is adequate in this regard if the responding party is “reasonably apprised

of the issues in controversy, and any such notice is adequate in the absence of a showing that a

party was misled.” Id. (citations omitted). Additionally, an issue need not be raised in the

administrative complaint if the responding party receives fair notice and a full opportunity to

litigate the issue. See N.L.R.B. v. Mackay Radio & Tel. Co., 304 U.S. 333, 349–50 (1938)

(rejecting the argument that the agency’s “findings do not follow the pleadings” because “[w]hile

the respondent was entitled to know the basis of the complaint against it, and to explain its

conduct, in an effort to meet that complaint,” the record showed that it “understood the issue and

No. 15-4339 ECM BioFilms v. F.T.C. Page 21

was afforded full opportunity” to litigate the issue; Yellow Freight Sys., Inc. v. Martin, 954 F.2d

353, 358 (6th Cir. 1992) (concluding that an agency may base its decision on an issue “not raised

in pleadings” if the responding party “knew what conduct was in issue and had an opportunity to

present [its] defense”); see also Nat’l Realty & Const. Co. v. Occupational Safety & Health

Review Comm’n, 489 F.2d 1257, 1264 (D.C. Cir. 1973) (“So long as fair notice is afforded, an

issue litigated at an administrative hearing may be decided by the hearing agency even though

the formal pleadings did not squarely raise the issue.”).

The complaint here provided ECM with adequate notice to prepare a defense. It alleged

that ECM’s various biodegradability claims were false and misleading, and it identified specific

marketing materials containing these claims. It also informed ECM of the main issues in

dispute: the scientific validity of the claims; the rate of biodegradation of ECM plastics after

customary disposal; and whether consumers “interpret unqualified degradable claims to mean

that the entire product or package will completely decompose into elements found in nature

within a reasonably short period of time after customary disposal.” Although the complaint does

not define “reasonably short period of time” as a specific time period, that level of detail was

unnecessary to “reasonably apprise” ECM of the issues in controversy. See L. G. Balfour Co.,

442 F.2d at 19.

Moreover, ECM did, in fact, have ample notice of complaint counsel’s intent to use

“within five years” as a benchmark for “reasonably short period of time.” Before, during, and

after trial, complaint counsel defined “reasonably short period of time” as “a period close to one

year, or at least within 5 years.” We have previously held such elaboration over the course of the

proceedings sufficient to provide notice. See J. B. Williams Co. v. F. T. C., 381 F.2d 884, 888

(6th Cir. 1967) (holding that petitioner had sufficient notice of an issue even though the “specific

issue was not charged in the complaint, and Government counsel stated early in the proceeding

that this issue was not present”); see also L. G. Balfour Co., 442 F.2d at 19 (concluding that

petitioner had adequate notice because “[a]s the Commission case against petitioners unfolded,

there was a reasonable opportunity to know the claims of the opposing party and to meet them”

(internal quotation marks omitted)). ECM’s due process claim is thus without merit.

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The D.C. Circuit’s “fair notice” doctrine, relied upon by ECM, is not to the contrary.

This doctrine restricts the penalties agencies may impose when their regulatory interpretations

have not been announced with sufficient clarity. See Gen. Elec. Co. v. U.S.E.P.A., 53 F.3d 1324,

1329 (D.C. Cir. 1995); see also Gates & Fox Co. v. Occupational Safety & Health Review

Comm’n, 790 F.2d 154, 156–57 (D.C. Cir. 1986). However, this heightened notice standard only

applies when agencies seek to impose “sufficiently grave” or “drastic” sanctions. See United

States v. Chrysler Corp., 158 F.3d 1350, 1355 (D.C. Cir. 1998) (citation omitted); Gen. Elec.

Co., 53 F.3d at 1329. Examples of grave or drastic sanctions include denying the renewal of an

operating license, Trinity Broad. of Fla., Inc. v. F.C.C., 211 F.3d 618, 628–32 (D.C. Cir. 2000),

compelling a product recall, Chrysler Corp., 158 F.3d at 1354–55, and imposing a $25,000 fine,

Gen. Elec. Co., 53 F.3d at 1329–30. Here, by contrast, the Commission merely ordered ECM to

cease making certain representations that violate its interpretation of the FTC Act. This is not a

“grave” or “drastic” sanction. See id. at 1328 (“Had [the] EPA merely required GE to comply

with its interpretation, this case would be over.”).8 And, in any event, ECM received adequate

notice of the charges.

III. CONCLUSION

For the foregoing reasons, we DENY the petition for review.

8

Because the D.C. Circuit’s “fair notice” doctrine would not change the outcome in this case, we decline to

decide whether it should be adopted in this circuit.