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HISTORICAL NOTE
Based on Library of Congress Material
The representation of Uncle Sam on the cover is “the most
famous poster in the world,” according to its creator, James
Montgomery Flagg.
Originally, it was published as the July 6, 1916, cover of
Leslie’s Weekly with the title “What Are You Doing for
Preparadeness?” It then was used for advertising.
In 1917, the words “I WANT YOU for the U.S. ARMY ENLIST NOW” were added to Uncle Sam’s picture. Over
four million copies were printed as the United States
entered World War I. The poster was later adapted for use
in World War II.
Flagg served as his own model for the face of Uncle Sam.
This booklet is based on information believed to be accurate and reliable. However,
statutes, regulations, and administrative and judicial decisions are subject to change.
This information is not intended as, and does not constitute, legal advice for particularized facts. Legal counsel should be consulted for advice on specific compliance issues.
Defending and
Challenging
Advertising
A Refresher for
Corporate Counsel and
Regulatory Executives
Richard J. Leighton
©2005
Defending and Challenging Advertising
Table of Contents
Introduction
I. KEY TERMS AND CONCEPTS ..................................................................1
A. “COMMERCIAL ADVERTISING” ..........................................................1
B. CLAIMS IN ALL “MEDIA” AND FORMS CAN BE
“ACTIONABLE”..........................................................................................................1
1. “Promotions” ......................................................................................2
2. “Placements” ......................................................................................2
3. “Endorsements” and “Testimonials” ..................................................2
4. “Demonstrations” ..............................................................................3
C. CLAIMS MUST BE “MATERIAL” TO BE ACTIONABLE ..............3
D. MATERIALLY “FALSE” CLAIMS USUALLY
ARE ACTIONABLE ....................................................................................4
1. The “Puffery” Exception ....................................................................4
2. Falsity by Necessary Implication ......................................................4
3. The “Establishment Claim” Exception to Proving Falsity ................5
E. “DECEPTIVE” CLAIMS OFTEN ARE ACTIONABLE ......................5
1. “Deceptive” Ad Claims ......................................................................5
2. “Substantial” Deception ......................................................................6
F. “UNFAIR” CLAIMS USUALLY ARE ACTIONABLE ........................6
G. “UNSUBSTANTIATED” CLAIMS CAN BE ACTIONABLE ............6
H. UNINTENDED CLAIMS USUALLY ARE ACTIONABLE;
INTENTIONAL CLAIMS CAN INCREASE LIABILITY ..................7
I. CLAIMS USUALLY WILL BE INTERPRETED
WITHIN CONTEXT ....................................................................................7
J. LIKELY AUDIENCES CONTROL CLAIM INTERPRETATION ......7
1. In General ..........................................................................................7
2. Children and Other Potentially Vulnerable Audiences ......................7
K. COMPARATIVE ADS ................................................................................8
1. “Direct[ly] Comparative Advertisements” ........................................8
2. “Indirect[ly] Comparative Advertisements” ......................................8
3. “Superiority Claims” ..........................................................................9
4. “Parity Claims” ..................................................................................9
5. Superiority and Parity Claim Combinations ......................................9
Table of Contents
6. “Line Claims” ....................................................................................9
L. SPECIALIZED STATUTES, REGULATIONS, AND POLICY
STATEMENTS MAY CONTROL CLAIMS ..........................................10
II. CHALLENGING FALSE, DECEPTIVE, AND UNFAIR ADS ........11
A. REGULAR MONITORING AND REPORTING ..................................11
B. USUALLY, IT IS BEST TO BEGIN THE CHALLENGE PROCESS
WITH LESS FORMAL REQUESTS TO THE COMPETITOR............11
1. Company-to-Company and Same-Level Communications..............11
2. Demand Letters ................................................................................11
3. Confirmation Letters ........................................................................13
C. INFORMAL AND FORMAL CHALLENGE OPTIONS ....................13
1. Seeking Mediation............................................................................13
2. Complaining to a Legislative or Regulatory Body ..........................13
3. Complaining to the Television Networks ........................................14
4. Complaining to a Self-Regulatory Body (NAD and CARU) ..........14
5. Seeking Arbitration ..........................................................................15
6. Filing Suit in Court ..........................................................................15
Defending and Challenging Advertising
INTRODUCTION
This booklet is designed to be a handy reference that will allow in-house corporate counsel and corporate regulatory affairs executives to refresh their recollection of
the major requirements and options applicable to defending advertising claims made
by their company and deciding whether and how to challenge those made by competitors. Part I outlines key terms and concepts relating to good and required advertising
practices. Part II evaluates major options for challenging improper advertisements.
I. KEY TERMS AND CONCEPTS
A. “COMMERCIAL ADVERTISING”
The scope of this booklet is limited to “commercial advertising,” a form of
communication that differs from political and other noncommercial advertising. In
commercial advertising, an individual or entity (the “advertiser”) pays for a communication (the “advertisement” or “ad”) to be presented to an audience for the
purpose of ultimately benefiting the advertiser economically.
Most often, the intent of commercial advertising is to ultimately induce a sale
or other transaction with respect to what is advertised. Sometimes, the advertiser
directs claims to “influencers” such as physicians, stockbrokers, and retailers in the
hope that they will praise or recommend the purchase of its product or service.
Sometimes, the advertiser merely tries to create valuable good will toward itself or
its products or services through “institutional advertising.”
If the ad is part of a process that involves or affects commerce within more
than one state (“interstate commerce”), it is potentially subject to federal advertising statutes, as well as state and local laws. If the effect of the ad is limited to
commerce within a state, it is potentially subject to state and local advertising laws.
B. CLAIMS IN ALL “MEDIA” AND FORMS CAN BE
“ACTIONABLE”
The laws make advertising claims “actionable” when they authorize regulators,
competitors, or purchasers to challenge the claims in court or elsewhere. Under the
laws that make an advertiser liable for improper claims, it makes no difference
what “medium” is used to convey the claims, if other legal criteria are met.
Advertising “media” are the vehicles used to communicate the ad to its intended
audience, including broadcasting or cablecasting, magazines, newspapers, the
Internet, telephones, facsimile machines, indoor and outside signs, labels, direct
mail, handouts, and even airplane banners.
It also makes no difference in terms of legal liability what form of communication is used to make advertising claims. Unless stated otherwise, “advertising” as
used here includes ads not only in obvious forms (such as 30-second broadcast
commercials and print ads in magazines and elsewhere), it consists of all forms,
including the following:
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Key Terms and Concepts
1. “Promotions”
Some differentiate the term “promotion” from “advertisement,” but both are
actionable under the same legal criteria. A promotion usually is a short-term marketing effort to boost interest in goods or services (especially new ones). Often,
promotions relate to a special value or event.
For example, promotions include providing coupons in newspaper free-standing inserts (“FSIs”) for price discounts, giving away toys or other premiums with a
sale, running sweepstakes and contests, and having special displays or demonstrations in stores.
2. “Placements”
“Placements” (often called “product placements”) are a form of promotion in
which an advertiser pays to make its product or service part of a larger work or
event that will be seen by an audience. This usually is done without calling attention to the fact that the placement was paid for by the advertiser, a practice that has
led some to seek greater regulation of placements. As with other advertisements,
care must be taken to assure that the placement does not communicate a false or
deceptive message about the qualities or capabilities of the product or service that
has been “placed.”
For example, placements include identifiable branded clothing in sporting
events or on television shows and identifiable restaurants or makes of cars in
movies or video games.
3. “Endorsements” and “Testimonials”
“Endorsements” and “testimonials” mean the same thing: Representations
made in an ad by a real, identifiable individual or organization that are likely to be
perceived as the views of that “endorser,” rather than just those of the sponsoring
advertiser. An endorsement can be in any form, including spoken or written words,
a signature, a photograph showing the endorser using the product or service, or an
organization’s seal. The message inferred by the audience is the key to determining
whether the representation is an endorsement.
Payment or other actual or promised consideration given by the advertiser to
the endorser and any other fact that likely would be material must be conspicuously
revealed where such fact would not reasonably be assumed by the audience. Issues
involving endorsements also include whether typical consumers, organizations, or
experts make them, and whether the reported experiences are typical. However, the
key point is that an endorsement must reflect the honest and non-deceptive view of
the endorser at the time the audience sees it. The endorsement must be discontinued
if the advertiser learns that the endorser has adopted a materially different view.
[The following examples are based on Federal Trade Commission guidelines.]
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Defending and Challenging Advertising
For example, representations considered to be endorsements include a commercial for golf balls that showed a famous golfer hitting the balls (without any
other personalized statement) and a print ad containing parts of a previously published movie review by famous reviewers.
For example, representations considered not to be endorsements include a
commercial showing two unidentified actors posing as consumers having a conversation about the benefits of a detergent and a commercial in which non-personalized statements (on screen and in “voice-over”) about the benefits of a pain reliever
were made by an announcer well known for making such commercials for the
advertising company.
For example, a material fact was considered as a necessary disclosure related
to a documentary-like commercial done in a restaurant. Actual restaurant customers were asked on-camera for their “spontaneous” opinions about a new product. However, the customers were warned before entering the restaurant that they
likely would be interviewed about the product for a commercial. Disclosure of that
warning was considered necessary, since the opinions likely were not “spontaneous.” (If there were no prior warning and the customers did not know they were
being recorded until after the interviews, no disclosure would have to be made,
even if reasonable payments were given the customers for their “air time.”)
4. “Demonstrations”
“Demonstrations” (often called “product demonstrations”) of a product’s or
service’s performance, appearance, or other effects can be stand-alone events or
part of a larger advertisement. An advertiser is allowed to artificially create
impressions for demonstrations of its product or service to show it at its best advantage, so long as the impressions are consistent with the experiences that typical
purchasers would have. It is improper to depict a product or service as materially
faster, more effective, bigger, meatier, stronger, or as having other important qualities that are superior to what the advertised product or service actually has.
For example, likely allowable demonstrations include using a “food stylist” to
prepare a turkey for filming by giving it a “roasted look” with suntan lotion or to
put mashed potatoes in ice cream cones where ice cream would melt under the set
lights.
For example, an improper demonstration was used in an advertisement to extol
a car’s strength and safety by showing a huge big-tired vehicle running over a line
of cars, crushing the roofs of all except the advertiser’s. What it did not show was
that the advertiser’s car was the only one that had been “reconstructed” for the ad,
with added internal posts and other materials to support the roof.
C. CLAIMS MUST BE “MATERIAL” TO BE ACTIONABLE
A claim is “material” when it likely would motivate reasonable members of its
audience to do or not do something relatively important, such as purchase what is
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Key Terms and Concepts
being advertised or not purchase something that is compared unfavorably in the ad.
Generally, a claim must be material to be challenged successfully. In some jurisdictions, materiality is presumed where the claim is literally false, false by necessary
implication, intentionally deceptive, directly comparative, or about important attributes such as price, quality, or safety. Trivial mistakes or statements in an ad that
audience members likely would not notice or rely on usually may not be the basis of
a challenge to the claim, even if the mistakes or statements make the ad inaccurate.
D. MATERIALLY “FALSE” CLAIMS USUALLY ARE
ACTIONABLE
An advertising claim is “false” when it expressly asserts something that is
untrue. Such representations are sometimes called “literally false” or “facially
false” because the falsehood is an explicit part of the claim, not something that the
audience has to infer. Where the asserted falsity is material to a significant proportion of its audience, the claim usually is actionable.
For example, the simplified claim “TESTS PROVE THAT CONSUMERS
PREFER BRAND X OVER BRAND Y” would be false if no such tests ever were
done.
1. The “Puffery” Exception
“Puffery” is not actionable. But it also is not easily definable outside the context of a particular advertisement. Essentially, a “puff” is an obviously false or
unprovable representation that is not material to its audience. It is something that
reasonable people would not rely on in making decisions with respect to what is
advertised.
Typically, puffery encompasses claims that appear to be merely the boastful
opinions of the advertiser or seller, rather than assertions of fact that can be proved
by measurement or some other objective and tangible means. For example, the
claim “AMERICA’S FAVORITE PASTA” has been found to be a nonactionable
puff.
The context in which the claim is made can change non-actionable puffery into
actionable falsity or deception. For example, in one leading case, the claim “BETTER INGREDIENTS. BETTER PIZZA” was found to be non-actionable puffery
when displayed standing alone (as on a pizza box or in a store sign). But it was
found to be an actionable assertion of fact when it was part of a television commercial about the ingredients used in the advertiser’s pizzas.
2. “Falsity by Necessary Implication”
Some jurisdictions treat as false a literally true or ambiguous advertising claim
that is “false by necessary implication.” This implication is found when the only
message the audience reasonably could take away from the claim is false.
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Defending and Challenging Advertising
For example, in such jurisdictions, the simplified claim “TESTS PROVE
THAT CONSUMERS PREFER BRAND X OVER BRAND Y” likely would be
considered to be false by necessary implication where the tests did not show that
more consumers preferred Brand X over Brand Y. That numeric superiority likely
would be held to be the reasonable and necessary implication of the claim. This is
so even though the representation would be literally true where fewer (e.g., 20%)
preferred X and more (e.g., 80%) preferred Y; that is, all the claim literally says is
that some consumers prefer X.
3. The “Establishment Claim” Exception to Proving Falsity
An “establishment claim” (or “tests prove claim”) expressly or impliedly asserts
that there is a valid testing or similar scientific basis that establishes the truth of the
asserted fact (such as a survey/test that proves consumers prefer the advertiser’s product). Such a scientific basis generally is considered to be a highly persuasive motivator.
If the test or other scientific process that is the basis of the establishment claim
does not support the asserted fact, the claim is false. This is so even though the
underlying fact (such as the existence of a consumer preference) has not been
shown to be false by the challenger — and may even be true. Such an establishment claim is false because the asserted testing or scientific basis, itself, is part of
the claim and is being represented as reliable proof when it is not. (And, as will be
seen later, the failure to have a reasonable basis for the claim prior to that claim’s
publication is an independent problem for advertisers in some jurisdictions.)
For example, the simplified claim “TESTS PROVE THAT CONSUMERS
PREFER BRAND X OVER BRAND Y” would be false and actionable if those
tests were shown to be invalid due to faulty sampling. The challenger would not
have to conduct its own preference tests to prove that there was no preference.
E. “DECEPTIVE” CLAIMS OFTEN ARE ACTIONABLE
1. “Deceptive” Ad Claims
A true or ambiguous advertising claim is “deceptive” (called “misleading” in
some laws) when it implies a message that is untrue. Words, pictures and other
non-verbal representations can cause deception. It also may be caused by the omission of important facts or explanations that, had they been included, likely would
affect purchase decisions or other important actions.
For example, soon after entering P.T. Barnum’s museum of freaks and curiosities, customers saw a prominent and literally true sign: “THIS WAY TO THE
EGRESS.” It misled many to go through a self-locking door, end up out on the
street, and pay another quarter to reenter and finish their tour. A more modern example of deception would be a television commercial that uses pictorial demonstrations
and voice-overs to extol a product’s superior benefits, but uses unreadable superimposed text (usually called a “super”) to disclaim many of the implied benefits.
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Key Terms and Concepts
2. “Substantial” Deception
Because a deceptive claim is not literally false or false by necessary implication, two questions arise: (a) how do you know it is conveying an untruthful message, and (b) how much of its audience must it likely (or actually) deceive before it
becomes actionable? The Federal Trade Commission, National Advertising
Division of the Council of Better Business Bureaus, and other agencies that regulate or self-regulate advertising are recognized as having the expertise to answer
those questions themselves on a case-by-case basis.
Where a competitor sues a competitor, however, the challenger of the advertisement usually has the burden of proving that the ad was (or likely was) communicating
a deceptive message to a “substantial” (or “not insubstantial”) portion of the intended
audience. This usually is proved through a perception survey that tests a representative sample of the appropriate audience and shows that at least 15 percent of the audience was taking away a deceptive message. That percentage may vary depending on
the circumstances, but 20 percent would seem safe in virtually all federal courts.
Some courts have recognized 12 percent or less as being substantial, especially when
the number of potential purchasers is large. Some may recognize an even smaller percentage in certain cases, such as where there is the potential for physical harm.
F. “UNFAIR” CLAIMS USUALLY ARE ACTIONABLE
Some of the applicable federal and state laws on false or deceptive advertising
evolved out of trademark statutes and were based on the principle of protecting
competitors (and sometimes consumers) from “unfair competition.” The Federal
Trade Commission, however, has expanded this concept with its “unfairness doctrine.” This doctrine is a catchall policy under which the agency regulates advertising and other practices that are not necessarily false or deceptive when viewed by
conventional analysis.
Ads that are “unfair practices” under this doctrine include those where the benefits of allowing the representations to be made are outweighed by their likelihood
to cause substantial harm that cannot be reasonably avoided. Also included in
FTC’s definition of what is unfair is conduct that falls into the broad categories of
being immoral, unethical, oppressive, or unscrupulous, or that otherwise violate
public policy.
For example, unfairness determinations include a television commercial that
showed beer drinking in a fast-moving powerboat; the direct mailing of sample
razor blades to residences (where children might be given “junk mail” to play
with), and attempts to sell children 900 telephone numbers.
G. “UNSUBSTANTIATED” CLAIMS CAN BE ACTIONABLE
The Federal Trade Commission and a growing number of other authorities
hold that a claim is deceptive or otherwise illegal if the advertiser did not have adequate substantiation of the claim’s truth, in the form of a reasonable factual basis,
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prior to publication of the claim. This finding of illegality will remain even where
the claim might be shown to be true by subsequently acquired proof.
H. UNINTENDED CLAIMS USUALLY ARE ACTIONABLE;
INTENTIONAL CLAIMS CAN INCREASE LIABILITY
The advertiser is liable for any advertising claim that is materially false or
deceptive, whether or not the falsity or deception is intended. Where it is proved
that the advertiser intended to issue a false or deceptive claim, the consequences
can be more severe.
The potential consequences of issuing an intentionally false or deceptive ad
include having to pay enhanced damages (e.g., punitive damages to consumers or
competitors under state law or up to three times actual damages to a competitor
under federal law); disgorgement of all profits associated with the claim to a challenging competitor or to a public treasury; payment of the challenger’s legal fees
and costs; required publication of “corrective advertising,” and, in certain rare situations, seizure of products and imprisonment.
I. CLAIMS USUALLY WILL BE INTERPRETED WITHIN
CONTEXT
The falsity or deception of a challenged claim will be interpreted by viewing
the claim within the context of the entire ad in which it appears and, where relevant, within the context of a series of ads or other related stimuli.
J. LIKELY AUDIENCES CONTROL CLAIM INTERPRETATION
1. In General
The knowledge and experience of an advertisement’s likely audience usually
will control how the ad should be interpreted during any challenge. Care must be
taken to differentiate the likely audience from the intended audience. That is, care
must be taken to assure that the claim’s audience does not contain a substantial proportion of unanticipated members who might be deceived by claims that would not
mislead the intended audience.
Thus, an advertisement in a medical journal subscribed to by physicians usually would be viewed through the eyes of those knowledgeable doctors who, for
example, would be unlikely to be deceived by unexplained medical terms used in
the ad. Similarly, an advertisement in a flyer distributed to retailers or other members of “the trade” usually would be viewed with the understanding that such an
audience had specialized knowledge that the general public did not have.
2. Children and Other Potentially Vulnerable Audiences
The policy of interpreting advertising through the eyes and ears of its likely
audience can have significant ramifications when an ad’s audience has a significant
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Key Terms and Concepts
number of members who are recognized as potentially vulnerable to falsity, deception, or unfairness. Special care must be taken in such circumstances, whether or
not an ad is specifically intended for vulnerable members of the audience.
Chief among such vulnerable audiences are children under 12 years of age.
Children often are impressionable and their cognitive skills usually have not been
fully developed. In developing ads that are likely to be perceived by a substantial
number of children, advertisers should, at a minimum, adhere to television network
standards and the Self-Regulatory Guidelines for Children’s Advertising published
and updated by the Children’s Advertising Review Unit of the Council of Better
Business Bureaus.
Depending on the situation, other vulnerable audiences can include the elderly,
the infirm, and those suffering from a personal tragedy (e.g., the death of a loved
one). In some cases, federal, state, or local regulations may apply limitations on
how to sell products or services to such groups; in other cases, the law as it has
developed in court cases or self-regulatory bodies can provide guidance.
K. COMPARATIVE ADS
1. “Direct[ly] Comparative Advertisements”
A “direct[ly] comparative advertisement” contains a “direct comparison”
between one or more of the advertiser’s expressly named products or services and
at least one other expressly named product or service (usually directly competitive
ones). Needless to say, claims such as these get the attention of the competitor and,
often, are challenged in court or elsewhere.
For example, these simplified claims are directly comparative:
• “CONSUMERS PREFER COKE® OVER PEPSI®”
• “CONSUMERS PREFER PEPSI® OVER COKE® AND 7-UP®”
2. “Indirect[ly] Comparative Advertisements”
An “indirect[ly] comparative advertisement” compares one or more of the
described or expressly named advertiser’s products and at least one other described
or implied, but not expressly named, product or service (usually directly competitive ones).
For example, these simplified claims are indirectly comparative:
• “CONSUMERS PREFER PEPSI® OVER THE LEADING
BRAND”
• “COKE®: SHOWN TO BE THE BEST TASTING SOFT DRINK
IN THE REGION”
• “NO ONE BEATS OUR PRICES”
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Defending and Challenging Advertising
3. “Superiority Claims”
A “superiority claim” asserts that the advertiser’s product or service is better in
some or all respects than other product(s) or service(s) that are directly or indirectly
described or named in the ad.
For example, these are simplified superiority claims:
• “CONSUMERS PREFER COKE® OVER PEPSI®”
• “CONSUMERS PREFER PEPSI® OVER THE LEADING
BRAND”
• “THE FASTEST DELIVERY SERVICE IN THE AREA”
• “THE ONLY FORK WITH TEFLON® COATING”
• “LESS FAT”
4. “Parity Claims”
A “parity claim” asserts that the advertiser’s product or service is at least equal
in some or all respects to the product(s) or service(s) that are directly or indirectly
described or named in the ad. The comparison usually is stated as positively as
possible.
For example, these are simplified parity claims:
• “NO ONE BEATS OUR PRICES”
• “THERE’S NOTHING BETTER FOR CLEANING POTS”
• “AS EFFECTIVE AS THE LEADING BRAND”
• “UNSURPASSED”
5. Superiority and Parity Claim Combinations
It is not unusual to see a combination of superiority and parity claims to promote two attributes. For example, here is a combination parity and superiority
claim: “JUST AS EFFECTIVE AS THE LEADING BRAND, BUT FAR LESS
EXPENSIVE.”
6. “Line Claims”
A “line claim” asserts that a number of the advertiser’s products or services
(such as the advertiser’s entire “line” of shoes) is, in some or all respects, equal to
or better than the product(s) or service(s) that are directly or indirectly named or
described in the ad.
Often, an advertiser unintentionally implies a line claim, thereby opening itself
to liability where it has no substantiation applicable to more than one product. This
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Key Terms and Concepts
can happen when a brand name that applies to many products is carelessly used in a
claim intended for only one of those products or when a graphic representation of a
line of the advertiser’s products is shown in an ad designed to make express claims
for only one of those products.
For example, here are several fictional variations of line claims based on
some that have been challenged [supplied background material necessary for
comprehension]:
• “X-CELL®, NOW WITH 10% LESS FAT THAN Y-NOT®! *”
[Background: This is a large headline in a print ad above a photo of a
can of X-Cell brand Chicken Soup. That soup is part of a line of six
varieties of X-Cell brand soups (chicken, tomato, etc.), all of which compete with a line of Y-Not brand soups (chicken, tomato, etc.). The asterisk refers to a small footnote that states: “Based on 2005 tests of X-Cell
Chicken Soup and Y-Not Chicken Soup. Y-Not is a trademark of Y-Not,
Inc.” A consumer perception test done for Y-Not, Inc., shows that 30
percent of potential soup purchasers take away the message that ALL XCell brand soups have 10 percent less fat than ANY Y-Not brand soup,
which is not true.]
• “X-CELL® CHICKEN SOUP, NOW WITH 10% LESS FAT THAN
Y-NOT®! *”
[Background: The only thing changed was the addition of “CHICKEN”
in the headline. A consumer perception test done for Y-Not, Inc., shows
that 20 percent of potential soup purchasers take away the message that
X-Cell brand Chicken Soup has 10 percent less fat than ANY Y-Not brand
soup, which is not true.]
• “X-CELL® CHICKEN SOUP, NOW WITH 10% LESS FAT THAN
Y-NOT® CHICKEN SOUP! *”
[Background: Now the headline limits the express claim to chicken soup
vs. chicken soup, BUT there is a photograph of all six X-Cell soups at
the bottom of the ad under a sub-headline stating “TRY ONE TODAY!”
A consumer perception test done for Y-Not, Inc., shows that 15 percent
of potential soup purchasers take away the false messages that ALL XCell brand soups have 10 percent less fat than either (a) their counter-part
Y-Not brand soup (chicken vs. chicken, tomato vs. tomato, etc.), or (b) YNot chicken soup.]
L. SPECIALIZED STATUTES, REGULATIONS, AND POLICY
STATEMENTS MAY CONTROL CLAIMS
Many federal, state, and local requirements and guidelines apply to how and
when advertising and labeling representations may be made with respect to specific
subjects areas. These areas include nutrition, carcinogenic ingredients, funeral
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arrangements, textiles and textile care, used cars, loans and financing, telemarketing, direct mail, environmental attributes, sweepstakes, games, and contests, and
many others. It is beyond the scope of this booklet to delve into these.
II. CHALLENGING FALSE, DECEPTIVE, AND
UNFAIR ADS
A. REGULAR MONITORING AND REPORTING
It is a good practice for you and your marketing colleagues to regularly monitor your company’s and your competitors’ claims in point-of-sale promotions, trade
media, and public media, including the Internet. Outside counsel and other trusted
persons should be encouraged to be on the alert for potentially troublesome competitive claims, especially comparative ones, and to report them promptly.
B. USUALLY, IT IS BEST TO BEGIN THE CHALLENGE
PROCESS WITH LESS FORMAL REQUESTS TO THE
COMPETITOR
1. Company-to-Company and Same-Level Communications
Where practicable, it usually is best to complain about a competitive ad in a
personal company-to-company telephone call or meeting between employees of
roughly equal rank. Of course, the sooner that contact is made after publication of
the offending ad, the better.
For example, it usually is best to initiate communications about an offending
ad by having your company’s general counsel or in-house advertising counsel contact the advertiser’s counterpart general counsel or in-house advertising counsel, or
having your government affairs vice president or chief executive officer contact
their counterpart vice president or CEO, etc.
If outside counsel makes the initial communication, this often results in the
competing company asking its outside counsel to respond. Thus, one or two levels
of negotiation may have been lost. However, an initial complaint by outside counsel is one way to signal serious concern and resolve, which may be particularly
effective against a company that fears the expense and distraction of litigation.
2. “Demand Letters”
If the informal personal contact option is unsuccessful or is not implemented, a
so-called “demand letter” usually is the next step, assuming there is some hope of a
voluntary cessation. Such a letter typically demands cessation or modification of
the offending ad and expressly or implicitly threatens more formal action if the ad
is not discontinued or modified as requested. It usually is sent by a carrier that will
provide proof of receipt.
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Challenging False, Deceptive, and Unfair Ads
Where the informal personal contact option has not been used, it usually is
best for the demand letter to be on company stationery and between employees of
roughly equal rank. The more damaging the offending ad is, the higher the rank of
addressee and addressor should be. Where that personal contact option was
attempted unsuccessfully, it is best to show increasing urgency by having the
demand letter issue from a higher-ranking employee or from outside counsel to the
competitor’s general counsel or chief executive officer.
If the demand letter is unsuccessful and the claim is submitted for more formal
adjudication, a good demand letter likely will be offered on your company’s behalf
as evidence of its reasonableness and the challenged advertiser’s malice. If not
done well, the opposing advertiser might submit the letter to undermine your case.
The best demand letters usually have the following characteristics and contents:
• A stern, but civil, tone; few adjectives and no florid or personalized
rhetoric:
Yes: “We demand that you immediately discontinue the appended false
and deceptive commercial for X-Cell® Chicken Soup.”
No: “The appended commercial shows that your philosophy of stealing
business from honest companies such as ours through exploitive and
dishonest marketing knows no bounds. Pull it or my lawyers will
bury you.”
• Enclosure of a full copy of the offending advertisement, plus a photo
board for television and a script for radio commercials.
• A statement of where and when the ad appeared to the extent known:
“Among other possible appearances, the subject X-Cell® Chicken
Soup commercial was broadcast nationally on CBS during the
February 6, 2005, Super Bowl and on ….”
• The factual and legal basis that shows the ad to be improper and
potentially actionable [possibly with a request that the advertiser
share any (unlikely) substantiation of the claim]:
“The claim in the subject commercial that X-Cell Chicken Soup
contains 10 percent less fat than Y-Not Chicken Soup is false. All
of our independent laboratory tests since 1995, including one completed yesterday, demonstrate this falsity. [If you are aware of any
tests to the contrary, we request that all materials relevant to them be
made available to us immediately.]”
• A clear statement of the remedy demanded discontinuance, modification, issuance of corrective notices, etc.:
“We demand that you immediately cause the attached commercial
and any other claim that X-Cell Chicken Soup has 10 percent less
fat than Y-Not Chicken Soup be discontinued permanently.”
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Defending and Challenging Advertising
• A definite deadline by which the advertiser must have agreed to (or
implemented) the remedy, together with an unspecific notice of
potential further action:
“We request that you confirm in writing to me that you have caused
the subject commercial and claim to be discontinued immediately
and permanently. If I have not received such a confirmation before
9 a.m. (Eastern Time) March 1, 2005, we likely shall take appropriate action without further notice to X-Cell, Inc.”
Some companies seem to view demand letters as an invitation to stall and
obfuscate. Therefore, it is a good practice to establish, prior to sending a demand
letter, an undisclosed “action deadline” by which your company will take further
action on, or ignore, the offending ad if it has not been discontinued or modified to
your satisfaction. Such an action deadline will help avoid indecision on your company’s part if stalling tactics are employed.
3. Confirmation Letters
Should you come to agreement with the advertiser on a course of action as a
result of the personal contact or demand letter, that agreement should be reduced to
writing to avoid misunderstanding and protect against backsliding. Where the
advertiser’s counsel or other representative is reluctant to enter into a written agreement, it is best to reduce the agreement to writing and send it to that counsel or representative as your company’s understanding of the agreement. It also is a good
practice to include a final paragraph that states, in effect, “If you or your company
has a different understanding of what you agreed to, please advise me immediately
of all such differences.”
C. INFORMAL AND FORMAL CHALLENGE OPTIONS
Described below are other, more formalized, challenge options in ascending
order of formality, cost, and inconvenience.
1. Seeking Mediation
Mediation is a confidential settlement process that is facilitated by a “neutral”
(the “mediator”). Mediators experienced in advertising law are available through
the International Trademark Association/CPR Alternative Dispute Resolution Panel
of Neutrals. The primary advantages of mediation are that it is relatively quick and
inexpensive. The primary disadvantage of mediation is that both parties must
agree to mediation and to any settlement proposed therein.
2. Complaining to a Legislative or Regulatory Body
It is not unusual for an aversely affected company to complain to a regulatory
agency or legislative body and seek enforcement action, hearings, or other pressure
that will terminate continued use of the ad. The primary advantages of such
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Challenging False, Deceptive, and Unfair Ads
complaints and requests are that they are relatively inexpensive and may be pursued in
addition to other challenge options. Such complaints often can remain undisclosed, if
the proper precautions are taken. The primary disadvantages are that few such efforts
are successful, official investigations can take considerable time, and there is a risk
that any investigation and official action would expand beyond what is requested.
3. Complaining to the Television Networks
The major networks have developed procedures for the processing of competitive challenges to advertising being run by them. Each network has slightly different procedures, but the basic process is for the challenger to file a complaint in
writing with the network’s designated standards and clearance official, who then
transmits it to the advertiser for a response. There may be more written or oral
communications, as needed. If the advertiser cannot substantiate the propriety of
its ad, the network will withdraw it.
The primary advantages of such complaints are that they are relatively inexpensive and may be pursued in addition to other challenge options. The primary disadvantage is that few such efforts are successful. (The network, after all, probably
reviewed the advertisement for propriety and approved it before airing it.) In addition,
the prevailing advertiser likely will bring the network’s rejection of the complaint to
the attention of any other forum chosen, where it may have some influence.
4. Complaining to a Self-Regulatory Body (NAD and CARU)
The leading alternative to formalized adjudication for competitors is the filing of
a complaint before the National Advertising Division of the Council of Better Business
Bureaus (“NAD”) or, with regard to children’s advertising issues, the Children’s
Advertising Review Unit (“CARU”) of the Council. Filing fees are charged.
This is a self-regulatory process that is conducted primarily with submitted
materials. In addition, a party may make a separate in-person presentation to the
attorneys handling the case, and there may be telephone conversations with those
attorneys. Published NAD and CARU decisions are used as precedents. Where
there is a decision that recommends modification or discontinuance of the challenged ad, the advertiser is requested to file an “Advertiser’s Statement” as to
whether it will comply with the recommendation. The decision is then published
with that Advertiser’s Statement. If the advertiser fails to agree to the recommended action, the issue is turned over to the appropriate regulatory body for resolution.
(Most national advertisers agree to abide by the decision.)
Either party may appeal all or part of the initial decision to the industry’s
National Advertising Review Board (“NARB”) for a fee. If the appeal is not found
to be useless by the NARB Chair, a five-person panel will be appointed to review
submissions and hear an oral presentation by the parties and representatives of
NAD (or CARU). NARB panels consist of three representatives who are employed
by advertisers, one by an advertising agency, and one that represents the public
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Defending and Challenging Advertising
interest. Three concurring votes are needed to decide any substantive issue. There
is no appeal from the NARB decision.
The primary advantages of the NAD/CARU/NARB process are that it usually
is less expensive and less time consuming than arbitration or litigation and those
making the decisions usually are experts in advertising. It also is less intrusive,
since no depositions or other discovery is required, and the parties chose who, if
anyone, will attend presentations. The primary disadvantages are that temporary or
preliminary injunctive relief is not available, the decisions are not binding on the
offending advertiser, and it applies only to national advertising and advertising to a
substantial portion of the United States. Also, the challenger must agree to keep its
complaint and the review process confidential while it is pending, thus, not being
able to notify the public of the alleged falsity or deception. The parties also must
agree not to publicize any decision, although NAD and CARU usually do issue a
press release on their decisions.
5. Seeking Arbitration
Arbitration is a confidential adversarial legal process in which a single “neutral” (the “arbitrator”) or a panel of arbitrators (usually three) adjudicates a dispute
according to procedures agreed upon by the parties. Some competitors enter into
long-term agreements to resolve their disputes only by confidential arbitration.
The arbitration process is similar to a non-jury trial, except discovery and rules
of evidence usually are very limited. Usually, there is an exchange of documents,
followed by an evidentiary hearing, and a decision on liability and damages that is
binding on the parties. That decision is not appealable, but it is enforceable in
court. Arbitrators experienced in advertising law are available through the
International Trademark Association/CPR Alternative Dispute Resolution Panel of
Neutrals and the American Arbitration Association.
The primary advantages of arbitration are that it is confidential (therefore, others who might file subsequent suits or take regulatory action likely would be
unaware of the dispute). And, if the parties agree to appropriate procedures, arbitration can be less expensive, quicker, and less intrusive than litigation. (With
streamlined procedures, arbitration can be less time consuming than even the selfregulatory process.) The primary disadvantages of arbitration are that a party cannot be forced to arbitrate a dispute and arbitrators often do not grant temporary or
preliminary injunctions, unless the parties have agreed to such remedies. In addition, full discovery
which can be an advantage or disadvantage
usually is not
available unless the parties have agreed to it.
6. Filing Suit in Court
Litigation is an adversarial legal process in which a judge, or a judge and jury,
decide a dispute according to judicial rules of procedure and evidence. The initial
decision usually may be appealed to an appeals court by right; subsequent appeals
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Challenging False, Deceptive, and Unfair Ads
usually are discretionary with higher courts. Competitive advertising challenges
usually are filed in federal court under Section 43(a) of the Lanham Act, with related state and common law causes of action also being pled there as ancillary matters. The defending advertiser has the right to file a “counterclaim” against the
challenger alleging that the challenger was the one engaging in false or misleading
advertising.
Early motions for temporary restraining orders, preliminary injunctions, dismissal, and summary judgment are available to the parties, as is discovery through
depositions, requests for documents, interrogatories, and requests for admissions.
Potential final remedies include a permanent injunction against the offending
claims, an order that the advertiser issue corrective ads or notices, and a full range
of monetary awards and penalties. Monetarily, the losing party may be ordered to
pay the prevailing party the actual damages incurred by the prevailing party; up to
treble those damages under federal law and beyond that under some state punitive
damages laws; all of the profits resulting from the challenged advertisement(s), and
the legal fees and costs associated with the prevailing party’s suit.
The primary advantages of litigation are its potential availability of an early
temporary injunction, a permanent injunction and its full range of monetary awards.
Bringing suit may result in achieving an early settlement from an advertiser that is
not seriously invested in the challenged claims or has significantly less resources
than the challenger.
The primary disadvantages of litigation are its potential monetary and resource
costs, the intrusiveness of discovery, and the inability to unilaterally opt out of the
litigation after the defendant has filed a response to the complaint
especially if
that response includes a counterclaim. Awards of significant damages and orders to
issue corrective advertising are not common.
Indeterminate litigation factors that could be either positive or negative,
depending on the circumstances, include the ability to publicize the alleged falsities
or deceptions and the creation of a reputation that would make competitors think
twice about running directly comparative advertisements against your products or
services. Later, consumer class actions may be instituted against an advertiser that
has been found to have issued false or misleading ads. Where there is a counterclaim and each party shows the other to have issued improper ads, both may be
subject to subsequent suits by third parties.
***
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RICHARD J. LEIGHTON
Dick Leighton chairs the Litigation Group
at Keller and Heckman LLP. He has been
assisting large and small advertisers for
over 25 years, and has written numerous
articles and texts on the subject.
He is an active counselor, mediator,
arbitrator and zealous advocate for
advertisers before trial and appeals courts,
regulatory and legislative bodies, and
self-regulatory forums.
202-434-4220
[email protected]
KELLER AND HECKMAN LLP
www.khlaw.com
WA S H I N G T O N , D.C.
BRUSSELS
SAN FRANCISCO
SHANGHAI