It is Advertising Week in New York, and the time of year for the National Advertising Division's annual advertising law conference. The NAD, along with its sibling, the Electronic Retailing Self-Regulation Program (ERSP), provides a forum for self-regulation for advertisers, which is strongly supported by the FTC. The NAD provides a quick and relatively inexpensive process for a marketer to challenge the truthfulness of a competitor's marketing.
The NAD will review claims and recommend changes if they do not believe the claims are substantiated. Andrea Levine, Director of the NAD, and Leslie Fair, Senior Attorney with the FTC, spoke about the compliance expectations for an advertiser once the NAD has recommended changes to advertising.
Levine detailed that the NAD expects to see recommended changes to websites made "within days." Broadcast ads should be pulled and replaced rather than permitted to run their course. Print ads should be pulled and replaced "as soon as possible" with a recognition that due to contractual obligations, this might not be immediate. In cases where labeling changes are recommended, "what is on the shelf can stay on the shelf," but the NAD expects swift efforts at redesign and will not permit large inventories of product labels to be run out. Levine was candid that in cases where investigations are the result of competitor challenges, there is significant follow up on compliance. In cases where the NAD opens an investigation based on its own monitoring of the market, due to resource constraints there is often less follow up to make sure a marketer is complying with recommendations.
Cases where an advertiser does not cooperate will be referred to the FTC. Fair was clear that "every NAD referral is assigned to an FTC Staff lawyer to investigate." Most of the referrals are of advertisers who chose not to participate in the self-regulatory process. Other referrals are from companies that haves participated but indicate they do not intend to comply with the NAD's suggestions or companies that are not complying, Levine said "we view a referral to the FTC as a failure of the system." When asked if a NAD referral will result in FTC enforcement action, Fair was quick to point out cases where the referral resulted in consents or judgments with significant consumer redress (such as the 7 Day Miracle Cleanse with a multi-million dollar settlement and a ban for life of participating in future infomercials). She also said in some narrow cases where there was not clear consumer harm but purely competitive harm, the FTC may determine not to follow-up, but this is a relatively "narrow category." At the conference, Fair announced a new FTC policy of being more transparent with what happens to referrals from the NAD and ERSP, to the extent permitted by confidentiality rules and regulations. It will include public letters on its website that will be linked to by the NAD.
The bottom line is that before marketers should think carefully about snubbing the self-regulatory process if called by the NAD and choosing not to participate voluntarily or by determining not to follow NAD recommendations, as NAD's bigger more powerful friend, the FTC, likely will step in.