Articles
USA: Learn more about advertising dispute resolution as an alternative to litigation
06/02/2009
By Hugh Latimer and John W. Kuzin, Wiley Rein LLP, Washington, D.C.
The National Advertising Division of the Council of Better Business Bureaus (NAD) has become the advertising dispute resolution forum of choice for companies contesting allegedly misleading national advertising claims because it is a faster, simpler, and less costly alternative to litigation. These factors, coupled with the current economic climate that may lead companies to overstate advertising claims, have caused the number of NAD cases to rise dramatically.
Many Fortune 500 companies and countless smaller entities have been involved in NAD cases. The Wall Street Journal reported that, in August 2008 alone, the NAD received 15 complaints involving allegedly misleading performance claims, as compared to six such complaints in the same timeframe in 2007. Complaints filed in September 2008 likewise were up 50 percent over the prior year. The agency handled a total of 176 cases in 2007, and easily exceeded that number in 2008.
The advertising industry created the NAD in 1971 as a self-regulatory body to resolve complaints from any source involving the truth or accuracy of national advertising. Since then, the NAD has developed a recognized expertise in resolving advertising disputes and routinely handles issues that figure prominently in today’s news as indicated in the two "case studies" presented below. Federal courts, the Federal Trade Commission (FTC), and the National Advertising Review Board (NARB, which hears appeals from the NAD) respect NAD decisions. While it is a voluntary forum, most parties comply with NAD decisions because those that do not are referred to the FTC or other appropriate government agency for enforcement. As detailed below, the NAD offers a confidential, quick, and low-cost advertising dispute resolution forum.
NAD Case Study #1: GP Plastics Corporation
Continental Products challenged environmental advertising claims of GP Plastics, a competing provider of plastic bags used to deliver newspapers to subscribers (GP Plastics Corp., NAD Case #4944, Dec. 4, 2008). Among the claims challenged were that GP’s plastic bags are: "100% oxo-biodegradable" and "completely recyclable" as well as general claims of environmental benefits, such as "eco-friendly," promising a "green tomorrow," and "saving the planet." The NAD ruled that GP did not provide adequate substantiation for any of the claims and recommended their discontinuation.
The NAD recognized the importance of eliminating false and deceptive environmental advertising claims: "consumers cannot typically verify for themselves the truth of environmental claims, advertising self-regulation is playing an increasingly significant role in ensuring that environmental claims are truthful, non-misleading and adequately substantiated."
The disposition of plastic bags is a prominent and contentious environmental issue in numerous states, including New York, California and Minnesota. GP Plastics currently is the largest distributor of newspaper delivery bags. Each day, approximately 100 million people read newspapers, many of which are delivered in GP plastic bags. Following the NAD decision, the New York Times said that it would not use the bags until more research was done. The NAD currently has pending other "green" advertising claim cases, which is "an area of unfolding advertising law."
NAD Case Study #2: The Winning Combination
GlaxoSmithKline Consumer Healthcare, a maker of smoking-cessation aids, challenged claims regarding the efficacy of The Winning Combination’s (TWC’s) Resolve to Stop Smoking Aid (The Winning Combination, NAD Case #4912, Sept. 2, 2008). TWC had claimed that its product offered "clinically tested stop smoking results" that enabled smokers to stop smoking "with far less stress and anxiety" "in as little as three weeks."
NAD determined that TWC’s study was insufficient to support the broad smoking cessation claims, and concluded that the claims should be discontinued. NAD further determined that the advertiser did not establish, by competent and reliable evidence, that users of TWC’s product experienced less stress or anxiety than users of competitive smoking cessation products. TWC complied with NAD’s decision.
The NAD Process
Filing an NAD Challenge. Filing a challenge with the NAD is straightforward. Parties submit a letter complaint and filing fee ($2,500 for CBBB members or $6,000 for non-members), along with supporting exhibits that include the challenged ads. The advertiser responds within 15 business days, followed by the challenger’s reply 10 business days later, and the advertiser’s final response 10 business days thereafter. As there is no discovery (e.g., no document requests, interrogatories, or depositions), there are no motions to compel. The challenge thus proceeds in a timely manner.
In contrast to a federal Lanham Act case, where only direct competitors may file a false advertising suit, any party can file an NAD challenge. The NAD, however, addresses only false commercial advertising claims. In a federal Lanham Act case, corporate defamation and product disparagement causes of action may be pled, but the standards of proof for these claims are considerably higher than for false advertising under the Lanham Act.
The Burden of Proof. Both the NAD and the FTC place the burden of substantiating challenged claims upon the advertiser. Successful advertisers follow precedent requiring them to have adequate substantiation in hand prior to any questionable ads, including current scientific testing and consumer perception evidence, as appropriate.
Confidentiality Is Required. Parties to an NAD proceeding must agree to keep the proceedings confidential until a decision is issued and to not issue a press release or use the issued decision for promotional purposes. Parties also must agree to not subpoena witnesses or documents associated with the proceeding from the NAD and to pay NAD’s attorney fees if any such subpoena is served. While the New York Times, Wall Street Journal and advertising industry trade press often report on published NAD decisions, NAD rules expressly forbid a party to an NAD proceeding to use the decision in its advertising.
NAD Review and Decision. The NAD aims to issue its decision within 60 business days from the filing of the complaint. The agency may meet individually with the parties, either in person or via teleconference, before issuing its decision. No new material may be introduced during these meetings, and discussions with NAD are limited to the record evidence.
When the NAD decides that the challenged ads have not been substantiated, the advertiser has 5 business days from its receipt of the decision to submit an Advertiser’s Statement stating whether the advertiser will modify (or discontinue) the advertising or appeal. Appeals are heard by the National Advertising Review Board (NARB), which generally affirms the NAD’s decisions. In 2007, the NARB affirmed all ten NAD appeals that it decided.
The NAD recently has taken some steps to further expedite its review of cases in response to a user survey conducted in 2007. For example, it has limited a party’s ability to request extensions of time to respond. A party seeking an extension of four days or more must obtain the consent of the opposing party or the Director of the NAD, who will only grant extensions for good cause.
Compliance Record
Although the NAD’s self-regulatory process is "voluntary," compliance has been high. Indeed, the 2007 NAD user survey illustrated overall user satisfaction with the forum and fairness of NAD decisions. Where the advertiser refuses to cooperate with the NAD process or indicates that it will not comply with the NAD’s decision, the NAD forwards the decision to the FTC or other appropriate government agency for enforcement purposes.
By way of example, in a challenge to Johns Manville’s advertising for its fiber glass insulation products, the NAD determined that a number of the challenged claims should be discontinued (Johns Manville, Case #4395, Oct. 3, 2005). After unsuccessful negotiations between the NAD and Johns Manville (and further complaints by the challenger), the NAD sent the case to the FTC, advising that "Johns Manville continued to disseminate certain troubling advertising." The case was resolved following the FTC’s investigation when Johns Manville agreed to cease or modify its advertising claims so as to comply with the NAD decision.
Federal Court Recognition
Federal courts have recognized and relied upon the NAD in deciding advertising cases for more than two decades. As one court noted: "The [NAD’s] value ... lies largely in [its] particular experience and skill ... as a resolver of disputes. [S]ince its formation, the NAD has developed its own process of reviewing complaints of deceptiveness, coupling relative informality and confidentiality with safeguards to ensure procedural fairness" (AMF Inc. v. Brunswick Corp., 621 F. Supp. 456, S.D.N.Y. 1985; see also Russian Standard Vodka (USA), Inc. v. Allied Domecq Spirits & Wine USA, Inc., 523 F.Supp.2d 376, S.D.N.Y. 2007).
Hugh Latimer, chair of Wiley Rein’s Advertising Practice, has experience in a broad range of complex litigation involving advertising, sweepstakes, trademark, antitrust, trade regulation, international trade and other commercial law issues.
John W. Kuzin is a member of Wiley Rein’s Advertising, Communications, and Litigation Practices. He litigates disputes involving telecommunications equipment, consumer electronics, computer hardware, software and peripherals.
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