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Imagine this scenario: A company is promoting its own products by claiming that its key competitor’s product is ineffective. The competitor’s sales force and marketing department are enraged. The competitor’s long-term customers are calling with difficult questions regarding its product. But the first company’s claim is false-what should the competitor do? Companies have long struggled with the problem of false and deceptive advertising. Few things can damage well-planned marketing efforts more than the distortions of a competitor. Often, a clever marketer can get away with misstating the performance of its own products, or those of its competitors, by simply counting on the fact that litigation is expensive and regulators are overwhelmed. Rarely is an act of false advertising worth hundreds of thousands of dollars in litigation costs. Moreover, it is often difficult to gain the support and the assistance of the Federal Trade Commission (FTC) or state attorneys general to address the random acts of unfair competition that occur every day. There does exist, however, a quick, cost-efficient mechanism for resolving false advertising disputes, which many of America’s largest companies have been using for years. The National Advertising Division (NAD) of the Council of Better Business Bureaus is a forum of choice for many sophisticated advertisers, including S.C. Johnson & Son, Colgate Palmolive Co., Kimberly-Clark Corp. and many others. These corporate giants know what many other, smaller companies have not yet realized-that the NAD is a fast, relatively inexpensive way to challenge the advertising claims of one’s competitors. The NAD uses alternative dispute resolution The NAD is a self-regulatory body, staffed by experienced and technically savvy attorneys who review advertising submitted to them by competitors and consumers alike. On occasion, the NAD may on its own challenge the claims of an advertiser. The NAD uses a unique form of alternative dispute resolution to determine whether advertising claims are proper. After carefully reviewing briefs submitted by the parties to the dispute, and conducting a thorough investigation (often involving a meeting with the parties), the NAD renders a decision establishing whether the advertising was properly substantiated. If the claims were not properly substantiated, the advertiser is required to promptly modify or withdraw the disputed claims. While the NAD has no power of its own to enforce its decisions, it has a significant weapon in its arsenal-the FTC. If an advertiser refuses to submit to an NAD challenge, or if it refuses to accept the decision of the NAD, that advertiser will rapidly find itself referred to the FTC or another agency for investigation. Recently, for example, the NAD referred the investigation of claims made by Bremenn Research Labs LLC to the FTC because Bremenn failed to provide a substantive response to the NAD’s investigation of its claims. Similarly, the NAD referred the investigation of claims made by Biologicalmiracle.com to the Food and Drug Administration due to the advertiser’s failure to provide a substantive response to the NAD’s investigation. Mary Engle, associate director of the FTC, stated at an NAD conference that “NAD referrals immediately go to the top of the pile,” and that NAD referrals are taken very seriously by the FTC. For that reason, the vast majority of companies that receive challenges from the NAD submit to the self-regulation process, and, currently, the NAD has a 96% compliance rate with its decisions. In the event that an advertiser does not comply with the NAD’s decision, a compliance proceeding may be instituted, such as the proceeding recently brought by The Procter & Gamble Co. against Playtex Products. Playtex Products Inc. (Playtex Beyond Tampons), Report No. 4364C (October 2005). In its underlying decision, the NAD had determined that certain aspects of Playtex’s testing methodology and analyses were problematic, given the breadth of the overall preference claims made by Playtex in the advertisement at issue. Accordingly, in July 2005, the NAD recommended that the advertiser discontinue the challenged superior comfort and preference claims in its advertisements. However, nearly two months following the NAD’s recommendation, Playtex continued to use advertisements containing the challenged claims and, accordingly, the challenger requested a compliance proceeding before the NAD. A challenge begins when a company submits a detailed complaint, describing the advertisement(s) and the disputed claims, to the NAD. The advertiser is then required to respond by providing substantiation for its claim. Each party is then permitted to submit a reply. The parties typically meet with the NAD, in New York, to answer questions or further explain their positions. The NAD subsequently provides a written decision, usually within 15 business days after the final meeting. Thus, a litigation process that could take years and cost the parties a great deal of time, money and distraction becomes a three-month process without depositions, motions and multiple court appearances. In those instances when an advertiser does not agree with the decision of the NAD requesting that it discontinue or modify its claims, the advertiser can appeal the NAD’s decision to the National Advertising Review Board (NARB). Once an appeal is received by the NARB, the chair of the NARB appoints a panel of qualified NARB members consisting of one “public” member, one “advertising agency” member and three “advertiser” members. If the panel finds that the advertiser’s claim has not been substantiated and the advertiser fails to indicate that the specific advertisement will be modified or withdrawn, the matter will be referred to the appropriate government agency. To date, several thousand cases have been handled by the NAD. Accordingly, the NAD has developed its own body of precedent. Nonetheless, the NAD often must analyze certain statutes and regulations applicable to the disputed claims. In a recent proceeding instituted by EPS Molders Association, the NAD considered and applied the testing standards of the American Society for Testing and Materials and applicable trade regulations, along with its own precedent, to evaluate various claims made by Dow Chemical regarding its Styrofoam-brand insulation. The Dow Chemical Co. (Styrofoam Brand Insulation), Report No. 4383 (August 2005). In other cases, the NAD may rely almost entirely on its own precedent to reach a conclusion. In a recent proceeding, Verizon Communications Inc. challenged various television commercial claims of Adelphia Communications Co., arguing that the claims went beyond mere “puffery.” Adelphia Communications Co. (High-Speed Cable Internet Service), Report No. 4384 (August 2005). According to its precedent, the NAD considers several factors, including provability, testability, specificity of the representation at issue and the message likely to be conveyed to consumers, to determine whether an advertising claim amounts to puffery. Nestle USA (Good Start Supreme Infant Formula), Report No. 4214 (August 2004). Obvious hyperbole, exaggerated displays of a manufacturer’s pride in its product and other clearly nonprovable claims are deemed acceptable puffery. ConAgra’s Foods Inc. (Hunts Ketchup), Report No. 4194 (June 2004). Relying on precedent, the NAD found that Adelphia’s claims that Verizon’s DSL Internet service is only “a little quicker” than dial-up, along with accompanying images of walking and driving, amounted to more than mere puffery because the statement “a little quicker” is quantifiable, whereas puffery consists of grandiose rhetoric. Further, Adelphia’s claim that its product had “lightning high speed,” displayed with the image of a flying airplane, went beyond mere puffery because of the overly comparative context associated with the airplane. As a result, the NAD recommended that Adelphia permanently discontinue these two representations. In Adelphia, the NAD also recommended that Adelphia discontinue various other claims made regarding its high-speed cable Internet service and Verizon’s DSL Internet service. Not all false ads cases can, or should, go to NAD The NAD only reviews national advertising, not local or regional advertising; however, the NAD does review both ads directed to consumers and ads directed to the trade. The NAD does not address concerns about the “good taste” of ads, moral questions about products that are offered for sale or political ads. Recent cases have included disputes over the fire-retardant capabilities of different building materials, vacuum cleaner performance and the effectiveness of dietary supplements. No claim subject is too technical or obscure for the NAD. Despite the advantages of NAD proceedings, some cases remain more appropriate for litigation. Disputes with potentially significant damages or the need for an immediate injunction should be litigated, as the NAD cannot award monetary damages or invoke a temporary restraining order. Additionally, some cases that are factually complex are better suited for litigation, as NAD proceedings do not provide for discovery. These situations are, however, relatively rare in the false advertising arena. Given that most advertising campaigns have a relatively short life span, a false or misleading advertisement may run its course before litigation could provide an appropriate and adequate remedy. Thus, it is generally imperative to stop the competitor from making a specific claim as soon as possible. Damages in most false advertising cases are somewhat speculative, and only in the most egregious cases will an injunction be issued. Moreover, filing a lawsuit in state or federal court may be cost-prohibitive for many companies. The NAD offers a faster, more cost-effective option for those seeking to challenge a competitor’s claims. With its own extensive body of precedent, it is the ideal option for resolving most distortions and deceptions of the market. Darren S. Cahr is a partner in the intellectual property department of Chicago-based Gardner Carton & Douglas.

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