On July 22, 2021, the Third Circuit ruled against the FTC in its case against Innovative Designs, a company that manufactures and sells a product called Insultex House Wrap, a weather-resistant barrier used in building construction. As we discussed last year, the FTC has targeted companies that produce insulation or building materials and make claims that these materials have more insulating power than they actually do. The court’s rejection of the FTC’s view on what constitutes reliable testing for purposes of substantiation underscores that courts often are more flexible than the FTC in determining whether an advertiser has a reasonable basis for a claim.
Originally, the FTC filed a complaint in the District Court for the Western District of Pennsylvania stating that Innovative Designs falsely claims that its products have a higher R-value than they do. An R-value is a measure of the product’s ability to restrict the flow of heat. So, the higher the R-value, the higher the product’s insulation power. According to the FTC a misleading R-value could prompt customers to purchase a product that will not perform in the way it was advertised. Furthermore, the FTC claimed that Innovative Designs did not use the proper standardized testing, ASTM C518, to make its claims about the product’s R-value.
During a bench trial in December 2020, the District Court found that the FTC had not sufficiently proved that the testing used by Innovative Designs was inadequate. As a result, the FTC had not shown that Innovative Designs made false claims about its products’ R-value. While the industry standard cited by the FTC provides a test for determining the R-value of insulation, it explicitly contemplates that variations of the standard method could be acceptable, by stating that “[s]tandardization of [the] test method is not intended to restrict in any way the future development of improved or new methods or procedures by research workers.” Since the standard contemplated other testing, the District Court found that the FTC had not proved its claims and ruled in favor of Innovative Designs.
The FTC appealed this decision to the Third Circuit, which found that the FTC failed to show that Innovative Design’s R-value claims were not substantiated. In its decision, the Third Circuit found that the FTC failed to prove that the modified test used by Innovative Designs was not scientifically sound. According to the Court, the burden was on the FTC to affirmatively prove that Innovative Design’s substantiation evidence failed to meet the relevant scientific standards, as it was not enough to simply state that they did not use the ASTM C518 standard test. In order to succeed on its claims, the FTC needed to show that Innovative Designs’ modified test could lead to inaccurate results. Because it failed to do so, the Third Circuit affirmed the District Court’s ruling in favor of Innovative Designs.
Parties dealing with the FTC on questions of substantiation often believe the FTC’s approach is too rigid and not reflective of multiple ways to substantiate claims. In this instance, the Court agreed. How much insulation this decision gives other marketers, however, remains to be seen.