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The Antitrust Implications of Green Building Legislation (Abstract)

California’s recent adoption of a state-wide green building code once again has green building legal practitioners focused on the legal issues surrounding green building legislation. Although the California legislation does not directly implicate it, one topic which has received mostly lip service to date is whether the mass adoption of LEED into state- and local-level building codes could raise antitrust problems. Last fall, I published an Article in the William & Mary Environmental Law & Policy Review which used the USGBC’s ongoing review of Credit 7 under the LEED 2009 New Construction rating system’s Materials and Resources Credit Category to take a closer look at federal case law where environmental standards promulgated by private third-party organizations – like USGBC – were challenged by stakeholders on antitrust grounds. (The citation for my full piece is 34 Wm & Mary Envtl. L. & Pol’y Rev. 239 (2009); I’d be happy to email you a copy of the full article if you’re interested in reviewing it).

As you may know, in order to earn LEED’s MR-7 credit, projects must “[u]se a minimum of 50 percent (based on cost) of wood-based materials and products that are certified in accordance with the Forest Stewardship Council’s principles and criteria for wood building components.” In other words, wood-based products that are not certified by FSC are effectively excluded from earning this credit under LEED 2009 for New Construction, Core and Shell, Commercial Interiors, and Schools. USGBC, however, expressly disclaims on its website that the organization “does not certify, endorse or promote products, services or companies, nor do we track, list or report data related to products and their environmental qualities. LEED is a certification system that deals with the environmental performance of buildings based on overall characteristics of the project. We do not award credits based on the use of particular products but rather upon meeting the performance standards set forth in our rating systems. It us up to project teams to determine which products are most appropriate for credit achievement and program requirements.”

Nevertheless, USGBC is currently reviewing proposed amendments to MR-7 which would create a USGBC Forest Certification System Benchmark. The Benchmark would recognize certain forest certification systems, and the credit would be awarded for only wood products that “use a minimum of 50 percent (based on cost) of wood-based materials and products that are certified in accordance with a forest certification scheme that is recognized after evaluation against the USGBC Forest Certification System Benchmark for wood building components.” More than 50 forest certification regimes currently exist globally; the four major players in the North American market are FSC, the Sustainable Forestry Initiative, the Certified Family Forest, and the American Tree Farm system. It’s unclear how many in addition to FSC the Benchmark would recognize.

The leading Supreme Court case in this space which I analogize in the Article to the ongoing issues with the MR-7 credit is Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492 (1988). In Allied Tube, a manufacturer of plastic electrical conduit claimed that a rival member of the National Fire Protection Association which manufactured steel conduit had packed the organization’s annual meeting with sympathetic interests in order to vote against the plastic manufacturer’s proposal to include plastic conduit in the Association’s National Electric Code. The Supreme Court noted that “private standard-setting associations have traditionally been objects of antitrust scrutiny,” that the Code was “the most influential electrical code in the nation,” and that many governments had adopted it into state- and local-level legislation by reference. It also suggested that “members of such associations often have economic incentives to restrain competition and that the product standards set by such associations have a serious potential for anti-competitive harm.” The significant factor for the Court in finding antitrust liability against the manufacturer of electrical conduit was the adoption of the Code into legislation. Although my Article does not suggest (nor am I suggesting here) that this sort of activity is taking place within USGBC, I do think the Supreme Court’s identification of legislation driving market effect in this context is an important consideration for policymakers.

What’s also interesting when reviewing the line of case law presented in my Article is that USGBC’s Antitrust Compliance Policy states that “from an antitrust standpoint, [USGBC] will be commonly referred to as a trade association. Trade organizations are subject to antitrust scrutiny because they involve meetings of competitors, but they frequently engage in a number of legitimate, pro-competitive and lawful activities. In order to avoid allegations of illegal price signaling, there should be no communications or discussions between any USGBC members either at USGBC meetings or at any other time about (a) current or future prices, pricing plans or production plans, or (b) announcements of price changes or output changes. . . . As a general matter, each member should be extremely careful and seek legal advice before engaging in any conduct that could possibly provide evidence to support allegations of collusion.”

As it turns out, though, the antitrust issues raised in my Article are more than just legal theory. As you may know, back in October,  the Coalition for Fair Forest Certification filed a complaint with the Federal Trade Commission (FTC) alleging anti-competitive behavior on the part of FSC and USGBC. Among other things, the complaint alleges that “the preference shown for FSC-certified products by the USGBC raises concerns about the viability of fair competition with other domestic certification programs. The Coalition submits that USGBC and FSC operate in tandem to disadvantage wood products certified by SFI and other certification systems. Thus, to the extent an investigation is warranted, the [FTC's] Bureau of Competition should look closely at the conduct of USGBC and its favoring of FSC certification.” It’s unclear what the current status of the complaint is and whether FTC has initiated any sort of investigation.

My Article concludes with some recommendations for policymakers, including a suggestion that the “LEED Certifiable” concept and general trend towards flexibility in how green building legislation is implemented may be an implicit acknowledgment of these emerging antitrust issues. I also present a number of other federal cases that are similarly interesting to review in light of current green building regulatory activity.  I would also note that the bases raised in my Article are by no means the only antitrust grounds on which LEED or other third-party systems might be challenged at some point.

Finally, I do expect many of these antitrust considerations to crystalize further during the course of 2010 as USGBC begins to evaluate various forest certification systems against its Benchmark and the Coalition for Fair Forest Certification’s complaint moves forward within the FTC.

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4 Responses to The Antitrust Implications of Green Building Legislation (Abstract)

  1. Timothy R. Hughes January 29, 2010 at 4:30 pm #

    Definitely an interesting issue. It will get a lot more interesting as localities step into the pothole of requiring LEED specifically as opposed to parallel equivalent systems.

    On a grander note, I hope the USGBC can overcome the underlying threshold question which is the FSC process … I hear it can be quite cost-prohibitive for smaller players.

    • Stephen Del Percio January 31, 2010 at 9:17 pm #

      Thanks, Tim. For all of the state and local governments that have incorporated LEED in some capacity into legislation, I think, right now, it would be difficult for a non-FSC manufacturer to demonstrate proof of market effect under the test set forth in Allied Tube. It’s an interesting analogy, though, that could become more serious as legislative activity continues and USGBC’s review of MR-7 proceeds.

Trackbacks/Pingbacks

  1. Study: Lack of FSC-Certified Wood Products Creating Green Construction "Bottleneck" in New York | Green Real Estate Law Journal - September 17, 2010

    [...] study is a timely addition to the antitrust aspects of the debate – which we’ve noted previously here at GRELJ – as USGBC reviews the most recent public comments to the proposed revisions to MR-7. [...]

  2. In Third Parties We Trust? The Growing Antitrust Impact of Third-Party Green Building Certification Systems for State and Local Governments (Abstract) | Green Real Estate Law Journal - June 28, 2012

    [...] may recall an earlier article that I published dealing with this topic, which had a much narrower focus than our current effort, where we explore antitrust issues in much [...]

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