Consumer Advertising Law Blog

WEBINAR: Competitor False Advertising Litigation: A Mock TRO Hearing

The editors of the Consumer Advertising Law Blog want to let our readers know about an upcoming online event that may be of interest to you, entitled, "Competitor False Advertising Litigation: A Mock Temporary Restraining Order Hearing." [Full disclosure: Our firm, Arnold & Porter LLP, is sponsoring the event]

The participants in the event will include:

• The Honorable Liam O’Grady, District Judge, United States District Court for the Eastern District of Virginia
• Jerry Wind, The Lauder Professor and Professor of Marketing, The Wharton School, University of Pennsylvania
• Jeffrey A. Fiarman, Executive Vice President and General Counsel, Weight Watchers International, Inc.
• David Mallen, Assistant Director for Legal Affairs, National Advertising Division (NAD) of the Council of Better Business Bureaus
• Nicholas DePalma, Associate, Arnold & Porter LLP
• Randall Miller, Partner, Arnold & Porter LLP

These leading attorneys and professionals in false advertising disputes along with a sitting Federal District Court Judge will present a seminar containing:

• A mock temporary restraining order (TRO) hearing and a judge's viewpoint on successful Lanham Act advocacy
• Strategies for both the affirmative case and defenses in the TRO context
• Planning for the follow-on preliminary injunction hearing (e.g., witnesses, documents, experts, costs)
• How to approach expedited discovery
• Implementing a survey in a short time frame
• The NAD perspective

The event will take place on Tuesday, September 21, 2010 from 8:00–10:00 AM EDT.

If you interested in viewing the event, click here.

The Nuclear Option - NAD Declines to Recommend Product Name Change

ACT Total Care mouthwash recently dodged a big bullet at NAD. NAD reviewed and recommended that the company discontinue claims that its product kill bad breath germs (the advertiser had already voluntarily discontinued claims that its product fights unsightly plaque). However, without specific evidence of consumer confusion, NAD declined to recommend discontinuing use of "Total Care".

A requirement that an advertiser discontinue or tweak claims in advertising (or even labeling) is regrettable, but doable given sufficient time and money. Changing a product name, however, puts at risk a company’s considerable investment in brand equity. While brand names are sometimes found to convey unsubstantiated claims, the problem is often solved through disclosure. For example, the product Aspercreme was required to disclose that it did not contain aspirin.

However, there are a few instances where the advertiser has been required to change the name of its product. In a case prohibiting an aftermarket brake system from using “ABS” as part of a product name or logo, the FTC explained “brand name excision is a remedy that is available to the Commission when a less restrictive remedy, such as a required affirmative disclosure, is insufficient to eliminate the deception conveyed by the name.” The FTC also prohibited use of the trade name Dollar-a-Day by a rental car company when the cost to rent a car was more than a dollar per day. Courts also have broad equitable power to enjoin use of trade names if found to be inherently false and misleading. While the NAD has no power to enjoin advertising, it does make recommendations, including as to product names. For example, NAD once recommended one company discontinue reference to “All Day” in its One A Day All Day Energy supplement.

Major product repositioning can be a great thing -- when it is voluntary (although not always, see New Coke). Forced reinvention by trade name excision is perhaps the harshest of all remedies and is used, albeit sparingly, by enforcers, courts and in the self-regulatory process. To avoid this risk, particular care should be given to review and assessment of the product’s trade name to make sure it does not convey any unsubstantiated express or implied claims.

- Amy Mudge and Randy Shaheen

NAD Process Too Brittle for Wedding Band Wars?

What’s the right metal for your wedding ring? In recent years some jewelers have been encouraging couples saying their “I-dos” to forgo traditional options like gold or platinum in favor of tungsten carbide. Also used in industrial machining and armor-piercing ammunition, this metal is especially popular with grooms--according to a consumer survey by The Knot, almost one in five men’s wedding rings sold in 2009 was made with tungsten carbide. Jeweler Scott Kay, however, recently challenged tungsten carbide’s suitability for use in wedding bands. After refusing to participate in an NAD proceeding brought by Frederick Goldman, Inc., Kay’s claims about tungsten carbide rings may now be under review by the FTC.

It all began last October when Scott Kay held a press conference for the jewelry industry trade press to contest some of the claims being made about tungsten carbide wedding bands. In order to show that these rings are not “hard" and “indestructible”, which he said some unnamed internet retailers have claimed, Kay literally bashed tungsten carbide, shattering a number of tungsten carbide rings by throwing them onto a piece of marble tile and hitting them with a pair of pliers. He later posted a video of his demonstration which declares, “It is the opinion of Scott Kay that carbide is not a practical metal for the use of bridal jewelry.” Kay’s website also depicts magnified images showing that tungsten carbide is porous, which he maintains puts it “at risk of cracking, chipping, or shattering.” Reasoning that a material subject to breaking is not appropriate to symbolize matrimonial commitment, Kay also advertised that “Brittle is NOT for Bridal Jewelry.” The ads urge knot-tiers to choose Kay’s own new line of cobalt alloy rings instead. (Apparently neither Kay nor its competitors think that couples should consider contemporary divorce rates when choosing a wedding band.)

Frederick Goldman, the leading manufacturer of tungsten carbide bands, was none too pleased with Kay’s public metallurgy seminar, and challenged Kay’s claims about the alleged weakness of tungsten carbide and the superiority of cobalt before the NAD. Characterizing Kay’s demonstrations as contrived parlor tricks, Frederick Goldman argued that both Kay’ express claims about tungsten carbide’s brittleness and his implied claim that tungsten carbide bands are not durable enough to withstand a lifetime of normal consumer use were false. Frederick Goldman also challenged Kay’s claims that cobalt rings are produced through a green process and that they can be easily and safely removed in an emergency.

Kay decided against participation in the NAD process, which, of course, is entirely voluntary. Kay maintained that the NAD was not the appropriate forum for this dispute because Kay’s claims “merely respond to” advertising by Frederick Goldman and other tungsten carbide manufacturers, and NAD procedures do not allow for counterclaims. Accordingly, Kay expressed its willingness to defend its advertising in a judicial forum, “where Goldman’s own advertising may be examined in the same light and simultaneously as Scott Kay’s.”

Under the NAD’s procedures, however, “[i]f the advertiser fails to file a substantive written response . . . [NAD] may refer the file to the appropriate government agency . . . .” Faced with Kay’s non-participation, the NAD did just that, sending the matter over to the FTC for further review. Most companies, even if they are confident their comparative claims are substantiated, do not want their file to land on the FTC’s desk. For this reason, among others, voluntary compliance with a NAD investigation is high -- over 90% of companies agree to participate in the process and most of those voluntarily comply with the NAD’s recommendations. The FTC is a public supporter of the NAD and self-regulation generally, and takes NAD referrals seriously. The FTC, however, also recognizes the value of truthful, nondisparaging comparative advertising. Other companies prefer to participate in the NAD process to avoid the more costly airing of the grievance in federal court in a Lanham Act false advertising case (including full blown discovery and in many cases the need to retain survey experts), something Kay apparently welcomes so the fact finder can consider simultaneously both sides of the story. It raises an interesting question of whether the NAD process would be improved or unduly hampered by allowing simultaneous counter challenges.

- Amy Mudge and William Perdue

Apples to Oranges: NAD Recommends Fruit2O Water Discontinue Certain Implied Nutrition Claims

During these hot summer months, nothing beats a cold, refreshing drink of water. Unless maybe that water was fortified with extra nutrients, similar to those found in healthy fruits? Sunny Delight created a water-based beverage, Fruit2O, that they claim does just that- provides refreshment, flavor, and the added benefit of fortified nutrients. Sunny D claims that Fruit2O contains “5 [or 4] nutrients equal to 2 servings of fruit” and touts the beverage as having “The wonders of fruit. The refreshment of water.” Campbell’s Soup Company found exception with the advertising, and asked NAD to examine the claims.

Campbell’s argued that while Fruit2O is fortified with certain nutrients, many are in significantly smaller amounts than in the relevant fruits. As a result, any implied claims that drinking Fruit2O gives consumers the same benefit as eating two servings of fruit are misleading. NAD concluded that Sunny D adequately established that the amount of certain highlighted nutrients present in Fruit2O are at least equal to the amounts found in two servings of fruit.

However, not all the news was sunny. NAD noted the importance of not exaggerating health and nutritional benefit claims for products and expressed concern that Sunny D’s claims drew direct comparisons between drinking Fruit2O and eating two servings of fruit- implied claims that it determined were inaccurate. Even if a product contains certain nutrients in amounts equal to that found in fruit, NAD stated, a consumer cannot be led to believe that drinking Fruit2O will provide the same overall nutritional benefit of consuming two servings of fruit. The implied message of nutritional equivalence was problematic to NAD and it recommended that the “equal to 2 servings of fruit” claims be discontinued. In addition, NAD also advised that the Fruit2O tag line “The wonders of fruit. The refreshment of water” be discontinued as well, because it contributes to the implied message that the beverage is nutritionally equivalent to two servings of fruit.

The takeaway message here is that advertisers should be wary of making apples-to-apples nutritional claims when adding discreet nutrients to foods and beverages. NAD was clear that this type of claim (i.e., that the enhanced product provides the same nutritional benefit as consuming actual fruit) can be problematic. Moreover, NAD noted that these types of claims may be reasonably interpreted by consumers as meaning that nutritionally enhanced products provide the same overall benefits as consuming whole products (like fruits and vegetables) simply because they contain some of the same nutrients. Because whole fruits and vegetables may provide other additional benefits that may not be present in the enhanced product, such advertising may be considered misleading. It is unclear what NAD’s view would be on the relatively common claim that a fruit or vegetable juice product provides the equivalent of a certain percentage of the recommended daily servings of fruit and vegetables.

- Randy Shaheen and Danielle Garten

NAD: In The Land Of The Free, Goods “Like Free” Better Mean Really Free

As we get ready in the USA to celebrate our July 4th Independence Day, we thought it appropriate before we head out of town for the long weekend to ponder being free in the commercial sense or how to substantiate “free” claims. Following a challenge by Office Depot to the advertising claims of Staples and OfficeMax, the National Advertising Division of the Council of Better Business Bureaus has recommended that both companies discontinue their claims of “free” supplies.

The challenged claims included print and Internet advertisements made in connection with the companies’ respective “rewards” programs. The Staples advertisements stated “Buy ANY of these office supplies, get 100% back in Staples Rewards” and “It’s like getting supplies for FREE.” The Staples Rewards program allowed customers who registered for the program to redeem Staples Rewards for future supplies if used within a limited time period.

OfficeMax was challenged for claims made in connection with a similar rewards program. The OfficeMax advertisements stated, "It's like getting one FREE," followed by the disclosure, "Pay $34.99 plus earn $35 in MaxPerks Bonus Rewards". However, OfficeMax’s Bonus Rewards were subject to certain restrictions and limitations: customer couldn't use the reward points for 30 days; the points were subject to cancellation at any time; and the points expired after 90 days. In its challenge to its competitors’ use of the word “free”, Office Depot cited the FTC Guide Concerning use of the Word “Free” and Similar Representations, which states that “when making ‘Free’ or similar offers … all of the terms, conditions and obligations should appear in close conjunction with the offer of ‘Free’ merchandise or service.” Office Depot argued that Staples’ and OfficeMax’s “free” claims violated both the spirit and letter of the FTC Guide because the advertising did not include the conditions and major limitations of its offer clearly and conspicuously.

In response, both Staples and OfficeMax argued that all of the conditions and limitations of their offers were made both clear and conspicuous. Additionally, OfficeMax argued that they had not claimed that the merchandise was “free”, just “like free”.

The National Advertising Division did not find Staple’s and OfficeMax’s arguments convincing, however, and in two June decisions, they emphasized that goods are not free when they come with too many strings attached. The NAD stated “Simply put merchandise is either free or its not”. The NAD added that the word “free” has “cachet with consumers and should be reserved for offers that are truly without cost…”. The NAD recommended that both companies discontinue its’ claims of “free” supplies.

Both Staples and OfficeMax, Inc. have stated that they respectfully disagree with the position taken by NAD and have indicated that they will appeal the decisions.

The Consumer Advertising Law Blog wishes you enjoy a happy holiday weekend, completely 100% with no disclaimers needed free from stress and distraction!

- Amy Mudge and Tiana Russell

"We're Number One" -- Well, Prove It!

I am swept up along with most everyone else in March Madness (North Iowan Ali Farokmanesh's three pointer and the unexpected upsets -- go Big Red!) As we wait for the Sweet 16 round to begin tonight, my thoughts turn to products claiming to be No. 1 rather than chanting collegiate hoop fans.

Sometimes courts view "No. 1" or "favorite" claims as puffery. An oft cited example is the 8th Circuit's opinion regarding "America's Favorite Pasta." The NAD has recently found a particular No. 1 claim, however, to be a claim and not mere puffing and required substantiation based on sales, market share or consumer perception data.

In sports, determining who's No. 1 isn't always so cut and dry and even winning doesn't always end the debate. The same it appears is true in marketing. In the Evercare case, the Company claimed that its lint roller products were the "#1 Selling Roller in the USA" and "America's #1 Selling Lint Roller* Based on independent national retail sales data." A competing lint roller company (You probably didn't realize there was more than one) argued that sales data showed it was the better selling brand. Both companies relied upon IRI data, which shows retail unit and sales information. However, IRI only covered about 50% of the retail stores where lint rollers are sold causing NAD to find that the parties could not rely upon IRI data alone. However, NAD found the data to be sufficient once it was supplemented by point-of-sale data from major retailers such as Wal-Mart and Petco that do not report to IRI. NAD rejected offered shipping data finding that shipping data only reflects wholesale and not retail pricing and does not show how long product stays on the shelf or whether it was returned. NAD also rejected the challenger's position that the No. 1 claim should be based on unit sales rather than dollar sales. NAD based its position on the fact that the price differential between the products was not that significant and also the fact that the products came in varying sizes so that dollars and not units was likely a more accurate measure of popularity.

So what's the post-game locker room message here? Simply this, when promoting your product as No. 1, first determine if you're making a claim and if you are, parse through the data carefully for both completeness and relevance.

- Amy Mudge

NAD Finds Fabric Conditioner "Up To" Claim Substantiation and Disclaimer Too Soft

Earlier this month, NAD announced a decision in a challenge by P&G over Colgate Palmolive's packaging claims for Suavitel Fabric Conditioner. The decision is a good opportunity to review the standards for making "Up To" performance claims and for clear and conspicuous disclaimers on package labeling.

The challenger asserted the express claim on the front of the softener jug of "Up to 34 Loads*" was an unsubstantiated express claim. The advertiser used a disclaimer on the back of the package labeling that said "as measured for small loads." The challenger asserted the claim also falsely implied that consumer would get more loads out of Suavitel than competitive products.

FTC cases and guidance provide that "up to" claims should not rely on an unusual or "outlier" test result. The advertised result should be one that the average consumer can reasonably expect to achieve. NAD cases have opined the "up to" result must be actually experienced by a significant number of consumers, at least ten percent. NAD rejected the challenger's position that the industry standard was to look at usage for regular sized loads, concluding it was not NAD's role to determine an industry standard but instead looked to a reasonable consumer takeaway from the claim in context. NAD considered evidence that less than 10% of customers regularly or routinely wash using small loads so determined the "up to" claim had not been substantiated.

NAD also found the disclaimer that the "up to 34 loads" claim was measured in small loads not clear and conspicuous as it was on the back of the label in small type while the "up to" claim was on the front of the label. While dosing instructions may typically be appropriate for the back of the label, it was found to be material information necessary to qualify the "up to" claim. It leaves open the question as to when, if ever, a claim on a package label can be limited clearly and conspicuously with disclaimer information appearing on a different panel of the label. While everything is reviewed in the context as a whole, material qualifying information on a label typically should appear on the same panel as the claim.

- Amy Mudge

How Should Courts Treat the NAD Process? The Debate Continues

We recently blogged on a decision from the S.D.N.Y granting a stay of a declaratory judgment action to allow the NAD to issue its decision in the same dispute. Another court has now weighed in with a different view.

NAD was in the process of deciding whether Priceline’s claim that customers could save “half off” or “up to half off” of hotel prices compared to Expedia and Hotels.com was misleading, when Expedia filed a Lanham Act false advertising suit. (NAD had previously resolved a different dispute involving the same parties.) NAD closed the case because the dispute at issue was now the subject of pending litigation, but expressed its willingness to reopen the case and render a decision should the court remand the case to NAD. Priceline filed a motion to stay and submitted a declaration from NAD noting it “believed it would be beneficial to share with the parties the analysis it would have conducted had procedural considerations not required an administrative closing.”

While the Court (Western District of Washington) concluded it had the power to order the requested stay, it would only do so if there would be “some advantage in terms of efficiency or fairness.” The Court concluded there would be neither in this case finding:

“nor is it this Court’s role to safeguard the relevance and effectiveness of an industry self-regulatory body. If NAD’s rules allow a challenger to ‘opt out’ of the NAD process by filing a duplicative court action, the obvious remedy would be to amend the rules if the industry agrees that this is not an optimal use of the parties’ or the organization’s time and resources. This Court will not provide a ‘fix’ or attempt to send any sort of ‘message’ to other participants in the NAD process based on the limited information before it.”

Will we see a rule change from the NARB? Stay tuned.

- Amy Mudge

Memory Boosting No Laughing Matter at NAD

First, you need to watch this ad:

All of us can appreciate a commercial that makes us laugh but sometimes the claims still strike a serious note. The ad you just saw was reviewed by NAD as part of its internal monitoring program rather than based on a challenge lodged by a competitor. The ad, for Minute Maid Enhanced Juice Blend shows a young woman approach a man and say “I think you are the father of one of my children”. Man looks confused for a moment and says “Cancun, Spring break ‘99?” The announcer declares “Opps, someone forgot to boost” and a close up shot appears of the juice with the label that reads “5 nutrients to support brain and body.” The scene plays again, after the man takes a big gulp, but this time in response to the woman’s question, the man remembers she is the art teacher of one of his children.

The advertiser asserted that this was a classic structure/function claim in which the juice is fortified with nutrients to “help nourish your brain” and “with 5 ingredients to support brain and body”. Such claims, the advertiser asserts, are permitted by the FDA for dietary supplements and functional foods when the claims are supported by studies and limited to promoting the role the nutrients play in the structure and function of the body as opposed to any claims of curing disease. The advertiser points to numerous ingredient studies showing that the nutrients added to its juice, DHA, choline, Vitamins B12, C and E and glucose, all support the brain and body.

So far so good but NAD’s analysis did not end there. NAD found the ad included an implied claim that drinking the juice will result in substantially and immediate improved memory capabilities based on the fact that the man in the ad took a sip of his juice, got a boost and then was able to correctly recall the identity of the woman. While NAD agreed with the advertiser that the depiction was not a literal product demonstration, NAD concluded that the use of humor still can convey messages that require substantiation. NAD concluded that the proffered studies did not support the claim of improved memory in healthy adults but were generally limited to studies of elderly subjects with mild age-related cognitive decline and to effects in infants and children. NAD recommended that the advertiser discontinue the ad.

As this case demonstrates it is often difficult to draw the line between making a point with humor that is so exaggerated that no consumer would literally believe it (think Holiday Inn Express commercial where guest who sleeps there overnight can do amazing things the next morning) versus using humor to make your claim to consumers in a way they will find appealing. And, in today’s regulatory environment, claims relating to health and nutrition may be no laughing matter.

And just to prove there is nothing wrong with our memory, here’s another funny ad relating to memory that’s one of our favorites.

Advertising legend has it that while this ad met with industry approval, it was pulled after its showing during the 1997 Superbowl -- not because the claims weren’t true but due to protests from franchisees and a call in campaign from offended viewers.

- Amy Mudge

The Damage Caused by Bad Breadth

In a recent federal Florida decision, Smith v. W.R. Wrigley Jr. Co, the Court denied a motion to dismiss claims brought on behalf of a putative class alleging that Defendant Wrigley’s claims “that its Eclipse® gum brand is ‘scientifically proven to help kill the germs that cause bad breath’ as a result of the ‘natural ingredient,’ Magnolia Bark Extract (‘MBE’)” were false, deceptive, and likely to deceive. Plaintiff asserted two causes of action -- violation of Florida’s Deceptive and Unfair Trade Practices Act (“FDUTPA”) and breach of express warranty.

As to the FDUTPA claim, Wrigley argued that Plaintiff only made “conclusory allegations” that the gum caused her to suffer “actual damages.” Critical to the Court’s decision was the fact that Florida courts have allowed diminished value to serve as “actual damages” under the FDUTPA, and that Plaintiff had alleged that Wrigley was able to “charge a price premium” for the Eclipse® gum based on the allegedly false statements.

The Court distinguished Prohias v. Pfizer which involved allegations that advertising Lipitor as reducing the risk of heart disease in women or elderly patients was deceptive. The Court distinguished the Lipitor case on the grounds that, in that case, the court found that “the fact that [the plaintiffs] currently take Lipitor, in light of the information they have, requires me to conclude that they take Lipitor for its cholesterol-reduction or other undisputed health benefits, and therefore cannot claim to have suffered any damage from the alleged misleading statements about Lipitor’s coronary benefits.” Likewise, the Court distinguished Frye v. L'Oreal USA, a case where plaintiff alleged that the defendants marketed lipstick as “safe for use” when it contained dangerous amounts of lead, on the grounds that, in that case, there was “no allegation that the presence of lead in lipstick ha[d] any observable economic consequences.” Thus, the Court’s Wrigley decision appears to hinge on Plaintiff’s allegation of a “price premium” associated with the deceptive advertising.

Whether Plaintiff’s claims of paying too much for gum that does not prevent bad breath will survive remains to be seen, as it is one thing to allege damages based on a premium price and quite another to prove such damages on a classwide basis (a blog for another day). But the case represents another court’s attempt to clarify the allegations of damages sufficient to survive judgment on the pleadings, here under a Florida consumer protection statute, in a consumer false advertising case.

Another point of interest is that the Complaint in support of the false advertising allegations is based on a decision earlier this year by the National Advertising Division of the Council of Better Business Bureaus, Inc. (“NAD”) recommending modification of Wrigley’s campaign, which is on appeal to the National Advertising Review Board. While not the subject of the motion to dismiss decision, it is an interesting question as to what weight, if any, NAD decisions can or should be given by a court in either a Lanham Act false advertising challenge or a consumer fraud case. NAD can be an excellent low-cost, fairly speedy forum for resolution of competitor’s disputes over the truthfulness of advertising claims. When NAD issues a decision, however, it is based on an incomplete record limited to party submissions and issued quickly, albeit by NAD staff lawyers who specialize exclusively in this area, but lawyers working under the tight time constraints of the self-regulatory process. The NAD decisions are thoughtful and comprehensive, but they are hearsay. Whether and how courts consider NAD decisions in litigation is an emerging question we are watching with great interest.

- Rachel Chanin and Amy Mudge

You Say Biodegradable, NAD Says Compostable

As many of you know, most trash ends up in landfills and landfills are typically designed to prevent biodegradation because of really nasty things that can happen involving gas.  Thus it is often difficult to make a biodegradable claim because the FTC requires that products with such a claim biodegrade within a reasonably short period of time following customary disposal. If it won't breakdown in a landfill, but it will degrade in a backyard or commercial compost facility, it can likely be labeled "compostable." 

 Yesterday, the NAD posted a press release summarizing its findings in a challenge brought by Method Products about advertising claims made by Clorox for its Green Works Natural Cleaning Wipes, whereby Clorox described the wipes as “biodegradable” but then added qualifying language on the back of the container that said "biodegradability validated in typical compost conditions.”

In other words, the question before the NAD was, can you make a broader (and presumably more consumer friendly) claim of "biodegradable" but then qualify it to clarify that what you really mean is that the product is essentially compostable.  Because Clorox stated that it was transitioning to new packaging that would use the term "compostable", NAD did not have to directly address the issue, but noted that it "appreciated" Clorox's decision to discontinue the biodegradable claim in favor of a compostable claim.

- Randy Shaheen and Danielle Garten

FTC Looking to Regain Ground after Recent Substantiation Setbacks

At yesterday’s Roundtable Breakfast Series program on false advertising disputes hosted by Arnold & Porter LLP, Mary Engle, the FTC’s Associate Director for Advertising Practices, outlined the FTC’s plan to tighten up the substantiation requirement the agency includes in consent orders related to health claims. This comes after the FTC has suffered setbacks in its attempts to enforce such consent orders because courts have found that the advertisers were meeting their obligations to have competent and reliable scientific evidence substantiating their claims. Our analysis of one of these cases, Lane Labs, can be found here.

Mary Engle noted that the current substantiation requirement was meant to be tough while at the same time providing defendants flexibility in how they met it. However, some courts have not interpreted the standard in the manner intended by the FTC. She set out three primary goals for the new, tighter substantiation requirement that the FTC will roll out in future consent orders:

• It will be easier to enforce as a result of its greater specificity, which will also provide defendants greater clarity on what substantiation they need to possess.
• It will better harmonize with the laws and regulations of other agencies, such as FDA.
• It will address situations where the results of a single study relied upon by the advertiser are inconsistent with the weight of scientific evidence in the field.

We will monitor the FTC’s implementation of this new substantiation requirement for health-related claims and keep you up to date on developments.

Also presenting at the Roundtable program were David Mallen, Associate Director of NAD, who talked about current advertising issues in NAD cases, Michael Mazis, Professor Emeritus of Marketing at American University’s Kogod School of Business, who talked about methodological issues in consumer advertising surveys, and Randy Miller, a partner at Arnold & Porter LLP, who talked about Lanham Act false advertising litigation.

Materials from the Roundtable program can be found here.  Audio from the program is available here. 

- Matthew Shultz

NAD’s Role in Evaluating Claims Underscored by District Court Stay

The U.S. District Court for the Southern District of New York made an interesting statement by granting a stay in furtherance of NAD’s jurisdiction in the case of Cellco Partnership (d/b/a Verizon Wireless) v. AT&T Mobility LLC. The case was initiated by AT&T filing an NAD challenge against Verizon regarding Verizon’s “most reliable network” claim. In response, Verizon filed a lawsuit in the Southern District of New York asking for declaratory judgment under the Lanham Act that the claims were not misleading. Following Verizon’s filing, NAD closed its investigation of the matter in accordance with its procedures that require it to close any case that is the subject of a pending litigation.

AT&T requested a stay in the litigation, arguing that NAD should be able to re-open the case and continue its investigation in furtherance of judicial economy. The court did not write an opinion, but “So Ordered” the stay, allowing NAD to re-open its investigation and continue in its evaluation of the claims.

The Southern District granted a similar request in the case of Russian Std. Vodka, Inc. v. Allied Domecq Spirits & Wine USA, Inc. in 2007. In that case, the court stayed a false advertising litigation to permit the NAD process to continue. These cases underscore the importance the courts are placing on NAD’s role in the investigation and evaluation of advertising claims, as well as the level of regard the courts have for NAD’s level of expertise.

Upcoming Webinar: False Advertising Disputes: Benefits, Challenges and Risks of Making and Defending Against False Advertising Claims

The editors of the Consumer Advertising Law Blog wanted to let our readers know about an upcoming webinar that may be of interest to you, entitled, "False Advertising Disputes:  Benefits, Challenges and Risks of Making and Defending Against False Advertising Claims". [Full disclosure: Our firm, Arnold & Porter LLP, is sponsoring the event]

Panelists at the event will include:

• Mary Engle, Associate Director Advertising Practices, Bureau of Consumer Protection, Federal Trade Commission
• David Mallen, Associate Director, National Advertising Division, Better Business Bureau
• Michael Mazis, Professor Emeritus of Marketing, American University School of Business
• Randy Miller, Litigation Partner, Arnold & Porter LLP (moderator)

The above attorneys and professionals in false advertising disputes will present an informal dialog on:

• Identifying and challenging implied claims in advertising litigation
• Lessons learned from recent cases -Comparison of the self-regulatory process to litigation
• How false advertising cases play out at the Federal Trade Commission (FTC) and the National Advertising Division of the Council of Better Business Bureaus, as well as those cases involving the Lanham Act, consumer class action, and state attorneys general
• The perspective of the regulators: recent developments at FTC
• How surveys are used (and misused) in advertising disputes
• Defenses: puffery, primary jurisdiction, voluntary cessation, truth, and counterclaim

The event will take place from 8:00 a.m to 10:00 a.m on October 22, 2009. For more information, please click here for a PDF flyer of the event (and RSVP link).

UPDATE: Audio from the program is available here. 

NAD Energy Drink Smackdown: 16 oz Equals One “Shot”

You’ve likely often heard the advice “don’t compare apples to oranges.” Well signs are beginning to emerge that at least when it comes to serving sizes that’s not always the case and that a more practical, real world standard may be taking hold.

NAD recently rejected a challenge by Hansen Beverages, makers of Monster, to an ad for 5 Hour Energy featuring heaping spoonfuls of white sugar being poured into a 16 ounce Monster Energy can while a voiceover touted the effects of 5 Hour Energy with its “zero sugar and only 4 calories.” Hansen argued that the ad constituted an “apples-to-oranges” comparison since the 16 ounce Monster Energy can contained two whole servings, while the 5 Hour Energy product was a mere single serving “shot” of liquid.

NAD looked at two questions: 1. Whether 5 Hour Energy could make the comparison at all in light of the obvious differences in serving sizes; and 2. If the comparison is consumer relevant, was the disclosure used by 5 Hour Energy about the serving sizes adequate? NAD began by noting that 16 ounce cans are the standard size in the industry and that consumers typically consume an entire can in one sitting. Moreover, NAD noted that it’s unlikely Monster Energy is meant to be drank over several sittings given that it is served as a carbonated beverage in a can; not particularly portable or good after sitting for long periods of time. As a result, NAD concluded that the comparison between the two products was consumer relevant given that 5 Hour Energy was intended for the same type of use. Moreover, NAD cited to the FDA Nutrition Labeling; Guidance for Industry, finding that one can is typically considered a single serving. NAD also pointed out that FDA has been encouraging manufacturers to be flexible with current regulations concerning serving sizes and consider representing a “single serving” as one that can be consumed at a single sitting.

NAD noted, however, that while it has “long held that, although advertisers are not required to limit their comparative claims to a competitor’s ‘most similar’ product, when making an apples-to-oranges comparison, the advertiser must clearly disclose any material differences between the products.” 5 Hour Energy had indeed included a tiny statement noting that the comparison was to a 16 ounce can of Monster and that each 16 ounce can contained two servings. After the initiation of the challenge by Monster, 5 Hour Energy agreed to increase the size of the disclaimer and leave it on the screen for a longer period of time. NAD was satisfied with this resolution.

Dare to Compare (Credit Cards) at NAD

We Americans love our freebies, and the competition for “what’s in your wallet” has never been more intense, with issuing banks focusing on wooing our loyalty with cash back, airline miles and points to get other free stuff as much or more often than focusing on credit terms. (I must confess I have no idea how the rate I am getting for my Disney Rewards Card compares but I reach for my “Mickey card” most often as I sure love my earned discounts when I go to the World!) NAD was asked to review a campaign for the US Bank FlexPerks Visa card, that gave side by side comparisons to American Express’ SkyMiles card, with claims such as “more value vs. less,” earn points “fast,” and “double points,” and recommended modifications to certain of the claims.

Because the parties did not submit any consumer perception evidence, NAD put on its consumer hat and made its own determinations as to how a reasonable buyer would interpret the advertising claims. Any company bringing or defending an action at the NAD has to make the difficult choice as to whether to conduct consumer surveys, almost always an expensive proposition if done right and still subject to critique, or roll the dice with NAD’s interpretations.

NAD found that the “more value vs. less” claim stating that 20,000 FlexPoints are worth up to $400 of airline travel whereas 20,000 SkyMiles are only worth $200 worth of airline travel, misled consumers to believe that SkyMiles could only be redeemed with American Express’ “Pay with Miles” program. However, SkyMiles may be redeemed in a variety of ways and 20,000 SkyMiles have potential values greater than $200.00. US Bank did provide a parenthetical disclosure that the “more value for less” claim applies only to comparisons between US Bank’s “Awards Tickets” program and the American Express “Pay with Miles” program. However, NAD found the disclosure to be inadequate for two reasons: 1) many ordinary consumers would not understand these terms and the fact that the programs are qualitatively different, and 2) the parenthetical was too small and inconspicuous.

In addition, NAD found that there was no evidence that FlexPerks consumers earned points “fast” as compared to SkyMiles consumers. Further, FlexPerks consumers do not “always” earn “double rewards” on either gas, groceries or airline purchases because the “double rewards” program does not apply to such expenditures exceeding $12,000 per year; and SkyMiles redemptions are not subject to “blackout dates” because consumers could choose to redeem more miles to obtain tickets for certain flights that are unavailable at the general miles requirement level.

FTC and NAD Cut Down Bamboo Claims

Last week the FTC announced its latest actions in the agency’s reinvigorated environmental enforcement efforts.  In complaints against four companies -- Sami Designs, LLC (d/b/a Jonäno); CSE, Inc. (d/b/a Mad Mod); Pure Bamboo, LLC (website); and The M Group, Inc. (d/b/a Bamboosa) -- the FTC alleged that these companies made false and misleading statements about their products being made from “bamboo fiber,” the environmentally friendly nature of the manufacturing process, and the products’ biodegradability, as well as violated the Textile Act and Rules.  (And they scooped us on the best play on words using bamboo in their press release:  “FTC Charges Companies with ‘Bamboo-zling’ Consumers with False Product Claims.”)

Bamboo is popular in environmentally conscious circles for its ability to grow quickly without the use of pesticides.  (Long-term readers of this blog will recall that bamboo was a topic of interest during the FTC’s workshop on green building and textile claims in July 2008.)  The companies charged by the FTC advertised that their textile products were made of bamboo or bamboo fiber.  The FTC did not contest that bamboo was used as the raw material for the manufacture of the textiles used.  The FTC alleged that despite this, the final product was not bamboo or bamboo fiber but rayon that happened to be produced from cellulose derived from bamboo.  Thus, under the consent orders agreed to by Sami Designs, CSE, and Pure Bamboo, these companies are allowed to state that the source of cellulose for their textile is bamboo as long as they also state the recognized generic name of the fiber, e.g., “rayon made from bamboo.”  In addition to the Textile Act issue, this also emphasizes the need to be as specific as possible when making statements that might implicitly convey claims of environmental benefits.

Sami Designs and The M Group both included descriptions of the manufacturing process on their websites a couple of clicks from the main pages.  The FTC declined to find that sufficiently qualified the companies’ claims, alleging that these disclosures were not clear and conspicuous or in close proximity to the claims made.

The FTC also objected to these three companies making claims that their manufacturing processes were environmentally friendly when the processes used toxic chemicals and released hazardous air pollutants.  As we’ve discussed in this space many times before, general claims of environmental benefit, such as “environmentally friendly” or “green,” standing alone, are likely to be considered deceptive.

Pure Bamboo and The M Group also made biodegradability claims about their products.  Consistent with its recent enforcement actions, the FTC alleged that these claims are deceptive because textile products are usually disposed of by recycling or in a landfill, neither of which present conditions that will allow textiles to break down completely as required in the Green Guides.

Read This Blog and Save Up To an Unbeatable $700!!!

If you aim to woo consumers and their recession limited spending dollars with low prices, take extra care with substantiating your comparative pricing ads, make sure any needed disclaimers are clear and conspicuous and verify that any survey evidence is reasonably current.

The National Advertising Division recently reviewed the complaints of one of Wal-Mart’s local competitors about several of Wal-Mart’s value-focused ad campaigns: one of the challenged ads told consumers they could save $700 a year by purchasing their groceries at Wal-Mart, and another slogan referred to the store’s “unbeatable prices.” After considering the complaints, the NAD recommended modifications to the “unbeatable prices” campaign and the discontinuation of the $700 savings claims.

“Unbeatable Prices”
(along with the disclosure: “We’ll match the price of any local competitor’s printed ad for an identical product. See manager for restrictions.”)

The challenger (H.E.B.) conducted a double-blind survey of Texas (where H.E.B. is located) shoppers, from which its survey expert concluded a statistically significant number of respondents took away a false message that Wal-Mart’s prices were the lowest. Setting aside problems with the survey method (e.g., it was limited to Texas while the Wal-Mart ads were national), the levels of confusion the survey showed were typically about 12%. NAD disagreed with the challenger’s position that where the test group demonstrates a higher level of confusion than the control group that a false message is conveyed. NAD stuck to its general presumption that studies must show a 20% or greater confusion rate for a conclusion that an ad is misleading. After it set aside H.E.B.’s survey as unreliable, NAD used its own expertise to step into the shoes of a reasonable consumer and concluded the plain meaning of Unbeatable Prices is a parity message, not a lowest price message, though it recommended the disclosures regarding price matching appear in larger size font with more contrasting background and placement closer to the main claim.

“Let’s say you spend $100 a week at the supermarket on these kinds of items. If you bought these kinds of groceries at Wal-Mart, you could save on average over $700 a year.”

This claim was based on a Global Insights study (Study available here) from a 2007 survey of packaged food and compared prices for categories of goods, not particular products (e.g., toilet paper of any variety, not just Charmin prices). It was not limited to pricing in supermarkets but included small and specialty retailers. For all of these reasons, NAD recommended discontinuation of this claim. The disclaimer of “local savings may vary” and the promise of “average” savings did not save Wal-Mart here, as NAD concluded that use of the word “you” “conveys the message that the advertised savings are obtainable by any given viewer now (not in 2007) regardless where he or she happens to live.”

So are you not sure if this blog post actually saved you $700 or that it was unbeatable? Even so, if we save you some time from defending an NAD pricing claim challenge, we think that we can substantiate that it is a real bargain!

Pet Joint Spray: It’s a Pain in the Ads, But NAD Stickler for Substantiation Prior to Making Claim

For the second time, an NAD compliance proceeding was held to evaluate the advertising of Dr. Frank’s Joint Pain Relief for Dogs and Cats.  In July 2008, NAD concluded that Dr. Frank’s did not provide adequate evidence substantiating its claims that a simple spray of the product in pets’ water would alleviate their joint pain.  NAD recommended that various claims made by Dr. Frank’s about the efficacy of the product be discontinued.  Dr. Frank’s agreed to implement NAD’s recommendations.

In an initial compliance proceeding, NAD noted that Dr. Frank’s ads were still being shown on television and were still unchanged on the website.  Dr. Frank’s informed the NAD that compliance was in progress.  NAD accepted the explanation and closed the compliance proceeding.

Fast forward several months.  Imagine the surprise of NAD when an unaltered Dr. Frank’s commercial appeared on television.  In response, NAD instigated a second compliance proceeding.  Dr. Frank’s stated that the commercial was actually “new” because it was based on new scientific developments and a recent study. 

In its case report, NAD noted that it did a side-by-side comparison of the two advertisements, and that they were, in fact, identical.  NAD also pointed out that it is “black letter advertising law” that substantiation must exist at the time ads are disseminated (and cited six of their own cases for the proposition).  Therefore, Dr. Frank’s after-the-fact study was useless for purposes of NAD compliance.  As a result of the advertiser failing to change its ads as promised, NAD stated that it would refer the matter to the appropriate government agencies for potential enforcement action. 
 
Advertisers should take special notice of NAD’s position:  even if an advertiser is able to substantiate a claim going forward, it doesn’t matter for purposes of NAD enforcement and recommendations for government intervention if the ad ran prior to the availability of the substantiation.  Similarly, the FTC’s policy statement regarding advertising substantiation states that firms should have substantiation before disseminating a claim and that “as a matter of law, firms lacking a reasonable basis before an ad is disseminated violate Section 5 of the FTC Act and are subject to prosecution.”  The FTC maintains that additional substantiating evidence may be considered, but cannot be used as a substitute for an advertiser’s prior substantiation.  

NAD Referees Dell-Apple Battle Over Green Claims

NAD recently issued a decision regarding Dell’s complaints about Apple’s green claims for its MacBook computers (the press release can be found here). The decision came after Dell instigated a battle with Apple, first in the blogosphere, then in the more formal forum of NAD. Dell’s complaint centered around Apple’s claims of having “the world’s greenest family of notebooks” and being the “world’s greenest.” Dell also had an issue with Apple using EPEAT ratings as the basis for their claims.

NAD issued a “halvsies” decision for both Dell and Apple. NAD acknowledged EPEAT as “recognized industry methodology” and that the information Apple touted should be freely communicated to consumers.

In a win for the Dell team, NAD did suggest that Apple alter its “world’s greenest family of notebooks” claim to make clearer that the basis of the comparison is between MacBooks and competitors’ notebooks rather than a comparison of entire product lines. Additionally, NAD suggested that Apple stop calling itself the “world’s greenest,” gently noting that the Toshiba Portégé notebooks actually have higher EPEAT ratings than the MacBooks. The NAD's decision once again demonstrates how difficult it can be to substantiate broad environmental claims.

The complaint by Dell comes on the heels of several green issues making headlines. A recent House subcommittee hearing entitled “It’s Too Easy Being Green” sought to address the onslaught of environmental marketing. At the hearing, FTC Bureau of Consumer Protection’s enforcement director James Kohm cautioned that, while there are plenty of valid, substantiated green claims out there, there is also a whole group of greenwashing bad apples.