United States: Is The NAD The Right Forum For You? Arguing Advertising Disputes Before The National Advertising Division Of The Council Of Better Business Bureaus

I. General Overview

The National Advertising Division (NAD) of the Council of Better Business Bureaus (CBBB) is the investigative arm of the National Advertising Review Council (NARC). The NARC is an independent self-regulatory body which was established in 1971 as a forum for self-regulation in advertising. The NARC provides guidance and standards of truth and accuracy for national advertisers, and sets policy and procedures for the NAD. To ensure the credibility of and impartiality in the self-regulation system, the advertising review process operates under the administrative purview of the CBBB.

The NAD is charged with the responsibility of monitoring and evaluating truth and accuracy in national advertising. Most of its lawyers have had substantial experience in advertising law. The current NAD director, Andrea C. Levine, was a consumer law attorney with the New York Attorney General's Office prior to joining the NAD in April 1997.

Though most cases are brought by competitors, consumers may also submit complaints about national advertising campaigns to the NAD. Further, the NAD has the ability to initiate challenges based on its own routine monitoring of advertising. Following published procedures, the challenger and advertiser in an NAD proceeding submit arguments and evidence supporting their respective positions and, within about 60 days, the NAD renders a decision as to whether the challenged claims are substantiated or should be modified or discontinued.

The NAD publishes its decisions, which are available by subscription from the Council of Better Business Bureaus and the NAD. The decisions of the NAD are not legally binding on the parties, but instead are considered recommendations. However, if the NAD recommends that advertising be modified or discontinued and the advertiser does not comply with the NAD's recommendation, the NAD can refer the matter to an appropriate governmental body for further action.

The National Advertising Review Board (NARB) reviews NAD decisions upon request. It is composed of industry and consumer interest individuals, and is also administered and funded by the NARC. NARB decisions are also published and available by subscription. As with the NAD, the NARB can refer matters to an appropriate governmental body if the advertiser chooses not to abide by the NAD/NARB ruling.

II. Procedure

Matters brought before the NAD are governed by a published set of policies and procedures. The following section discusses key rules with which any party to an NAD proceeding needs to be familiar.

A. Standing

Parties do not have to be CBBB members to file a complaint with the NAD. Complaints may be submitted by competitors or consumers, or by the NAD based on its own monitoring of advertising. Proceedings may also be commenced based on complaints from local Better Business Bureaus. A complaint originating with the NAD may proceed only after the General Counsel of the NARB has reviewed the proposed complaint and determined that there is sufficient basis to proceed.

B. Types of Claims

1. Appropriate Claims for NAD Review

The NAD will review advertisements involving product performance claims, superiority claims against competitive products, comparative advertising claims, and scientific and technical claims. The advertisements must be national in scope or disseminated on a broad regional basis. Examples of advertisements subject to NAD review include ads that are disseminated via broadcast or cable television, radio, print media, direct mail, and the Internet. The advertisements at issue can be addressed to consumers, professionals or business entities.

2. Inappropriate Claims for NAD Review

The NAD does not review challenges regarding the "good taste" of an ad, moral questions about a product offered for sale, or political or issue advertising. The NAD will also decline review of challenges regarding specific language in an advertisement, or on product packaging or labels, when that language is mandated or expressly approved by federal law or regulation. Claims that are the subject of pending litigation, an order by a court, or a federal government agency consent decree or order are also inappropriate for review by the NAD. If litigation concerning the claims at issue ensues while an NAD challenge is pending, the NAD will usually suspend or drop the case. Significantly, the NAD will not review advertisements that have been withdrawn from use prior to the date of the complaint if the NAD receives written assurance from the advertiser that the advertising claim(s) at issue will not be used by the advertiser in any future advertising for the product or service. Similarly, a claim that is permanently withdrawn even after the complaint is filed will usually short-circuit an NAD proceeding. The NAD may refuse to review claims it deems too technical for it to be able to conduct a meaningful analysis of the issues. Finally, the NAD, in its discretion, can decline review of claims it deems to lack sufficient merit to warrant the expenditure of its resources.

C. Parties to an NAD Proceeding

The parties involved in an NAD proceeding are: (i) the NAD acting in the public interest; (ii) the advertiser acting in its own interest; and (iii) the challenger(s).

D. How to Bring a Challenge

1. The Complaint

The party bringing the advertising to the NAD's attention is known as the "challenger." The challenger need only identify where the advertising ran, the claims it is questioning, and the grounds for the challenge. The challenger should provide copies of the advertisement(s) at issue. NAD fees are $2,500 for CBBB members; $6,000 for non-members with gross revenues under $400 million; $10,000 for non-members with gross revenues between $400 million and $1 billion; and $20,000 for non-members with gross revenues greater than $1 billion. The challenge is typically initiated in the form of a letter to the NAD setting forth the reasons that the claims are or may be false or misleading. Non-consumer (e.g., competitor) complaints (and subsequent filings by both sides) must be submitted in duplicate hard copy and in electronic format (including all evidentiary exhibits, if possible). Complaints and all subsequent filings should ideally be limited to 8 double-spaced typewritten pages (excluding evidentiary exhibits), and should address only the most significant issues raised by the advertising.

If a complaint challenges advertising for more than one product or service, the NAD may request that separate complaints be submitted for each of the advertised products/services. If a complaint is too broad in scope, The NAD may either ask the challenger to limit the issues or claims to be considered in the review proceeding or advise the challenger that the matter will require an extended schedule for review.

A challenger must agree to make available to the advertiser any materials it submits to the NAD, including all data, or the NAD will not review such materials. Studies, tests, polls and other forms of research submitted by the parties should be sufficiently complete to permit expert evaluation of such research. The NAD may decline to accept additional data provided by a party if it determines that the party's failure to submit complete information in the first instance was without reasonable justification.

If the NAD accepts a challenge case, it will then send a letter to the advertiser responsible for the advertisement in question.

2. The Advertiser's Response

The advertiser has 15 days to respond to the NAD's letter and the complaint (which the advertiser receives together). The response should include substantiation for any advertising claims or representations challenged, all applicable objections to the proceedings on jurisdictional grounds, and copies of all advertising related to the campaign that includes the challenged advertising. The response may not include a counter-challenge requesting review of advertising claims made by the challenger. Such a "counter-claim," while typically brought in a single court proceeding, must be brought as a separate challenge before the NAD.¹

An advertiser may request that trade secrets or otherwise proprietary information submitted to the NAD not be made available to the challenger. In order to take advantage of this procedure, the advertiser must: (i) clearly identify the parts of the submission that it is requesting be kept confidential; (ii) redact any confidential portions from the duplicate copy submitted to the NAD for forwarding to the challenger; (iii) provide a written statement setting forth the basis for the request for confidentiality; (iv) affirm that the identified information is not publicly available and consists of trade secrets and/or proprietary information or data; and (v) prepare a summary of the confidential information in order for the challenger to understand the principle arguments in support of the advertiser's position. Note that the NAD does not consider consumer perception test data regarding the advertising in question to be eligible for confidential treatment.

3. The Challenger's Reply

The challenger has 10 days to reply to the advertiser's response. The reply should include a short executive summary summarizing the key points in the challenger's position and citing to any supporting evidence in the record.

The challenger has the option to request an expedited review by waiving its right to reply to the advertiser's first substantive written response. To do so, the challenger must notify the NAD in writing that it elects to waive its right to add to the record. If the challenger elects expedited review, additional information from either party may be submitted only upon request from the NAD.

In practice, a challenger will rarely waive the opportunity to file a reply to the advertiser's response. In fact, the best strategy is usually to have the initial complaint be akin to a "notice pleading," alleging deceptive or misleading advertising practices without providing much supporting evidence. The burden then shifts to the advertiser to substantiate the challenged claims in the response. Accordingly, the challenger's reply is a critical opportunity for the challenger to provide a legal and factual basis for the challenge, perhaps via competing consumer perception or scientific studies, and by citing NAD, Federal Trade Commission, or court precedent.

If no reply is submitted by the challenger, the NAD will then proceed to decide the case after the expiration of the reply submission period.

4. The Advertiser's Final Response

If the challenger chooses to submit a reply, the advertiser has 10 days to submit a final response to the NAD. The final response should include a short executive summary summarizing the key points in the advertiser's position and citing to the supporting evidence in the record.

5. Meetings with the NAD

The NAD will typically agree to participate in a meeting, either in person or via teleconference, with either one or both parties. This meeting, which is usually ex parte, is an invaluable advocacy opportunity that should not normally be passed up. It can help focus the issues and expose weaknesses in one's own case and/or one's opponent's case. If the meeting is ex parte (as is usually the case), the NAD will notify the other party and provide a summary of the substance of the meeting. If feasible, the NAD will schedule its meeting with the advertiser after its meeting with the challenger. Meetings are supposed to be held within 15 business days of NAD's receipt of the Advertiser's Final Response. No new evidence may be submitted for inclusion in the record at the meeting.

6. Procedural Information

The time period for all submissions begins on the first business day following the delivery date of the triggering document, but does not include Saturdays, Sundays or Federal holidays. Time periods may be, and often are, extended by agreement of the NAD and the parties.

The NAD may request additional information from either side, and will allow reasonable extensions of time as needed. If the NAD requests further comment or data from a party, the solicited party normally has 6 business days to submit a written response to the NAD's request. Any time the challenger submits information after its reply, usually in response to an NAD request for more information, the advertiser receives an equal amount of time to respond.

The parties to an NAD proceeding agree that the materials are provided exclusively for the purpose of furthering the review process and that circulation should be restricted to persons directly involved in the inquiry. They also agree to return all materials at the completion of the proceeding.

7. The Decision

The NAD formulates and presents to the parties its "final case decision" within 15 days of the filing of the last document from the parties. The advertiser then has 5 days to prepare and submit a response, called the "Advertiser's Statement." The Advertiser's Statement may not exceed one double-spaced page in length and includes a statement as to whether the advertiser agrees to modify/discontinue the challenged advertising or chooses to appeal the decision. The statement may also include an explanation of why the advertiser disagrees with NAD. Generally, the advertiser expresses gratitude to the NAD for its review and, to the extent some changes are recommended by the NAD which the advertiser is willing to undertake, commits to taking the NAD's recommendations into account in future advertising. The NAD reserves the right to edit the Advertiser's Statement for length or inappropriate content. Note that if the advertiser does not submit an Advertiser's Statement, the NAD may refer the matter to an appropriate government agency for review and possible law enforcement action.

Upon receipt of the Advertiser's Statement, the NAD will provide copies of the final case decision to both parties and make the decision available to the public through press announcements and publication of the decision in the next issue of NAD Case Reports. These Reports and are available by subscription, in print (published 10 times per year) and through a searchable online database. In 2008, the NAD reported 173 decisions. Through the end of March 2009, the NAD has reported 31 decisions for the year.

8. Failure to Respond/Non-Commitment to Comply

In some cases, an advertiser chooses to ignore the NAD and does not submit a timely response. More infrequently, some advertisers, after receiving the final case decision, express disapproval of the NAD's decision and indicate they will not comply. In either scenario, the NAD may refer the matter to the appropriate federal or state law enforcement agency, most often the Federal Trade Commission.

9. Appeals to the NARB

A small proportion of NAD cases are appealed to the NARB. Review by the NARB is automatically granted to an advertiser who requests it. However, when a challenger who initiated the case is unhappy with the NAD's decision, the NARB has discretion as to whether to hear an appeal. An appeal must be accompanied by a fee of $1,500 for CBBB members or $2,500 for non-CBBB members.

If a challenger seeks review, it should submit a letter explaining the reasons the NARB should alter the NAD's decision. The letter should include any relevant attachments from the case file. The challenger's appeal must be filed within 10 business days of the receipt of the final case decision and be limited to 20 double-spaced pages. The advertiser and the NAD then have 10 business days to submit a response to the NARB Chair. The response should not exceed 20 double-spaced pages. No other submissions may be made thereafter. Within 10 business days after the deadline for the final submission, the Chair will appoint a panel to review the case, unless he or she determines that there is a substantial likelihood that the NARB Panel will reach the same conclusion as the NAD.

Once it is determined that an appeal is appropriate, a panel is selected consisting of one public interest person, one advertising agency person and three "advertiser" members, meaning persons from any entity that uses national advertising to promote goods or services. The Chair prepares a packet of material for each panel member and schedules a hearing. The case record is considered closed upon the publication of the final case report; thereafter, no additional evidence may be brought into the NARB proceeding (except under limited circumstances).

If a panel is appointed, the appealing party will then receive the case record prepared by the NAD and, within 10 business days of receipt, must submit a letter (not to exceed 30 double-spaced pages) to the NARB Chair explaining its position. The opposing party will then have 10 business days to submit a response (not to exceed 30 double-spaced pages) to the NARB.

Importantly, at this stage, the non-appealing party may appeal any other aspect of the NAD decision, notwithstanding the fact that the original deadline for such an appeal has already expired. For example, it may be that a challenger was not entirely happy with the breadth of the NAD's ruling with regard to an advertising claim that was found to be deceptive. Nevertheless, the challenger may have decided to live with the decision rather than go through the time and expense of an appeal. However, now that the advertiser has appealed, the challenger has the opportunity to re-think its decision and instead appeal that portion of the NAD decision with which it was originally unsatisfied. In essence, the non-appealing party gets another bite at the apple. In order to do so, the (formerly) non-appealing party would pay the filing fee ($1,500 for CBBB members or $2,500 for non-CBBB members) and submit a letter to the NARB requesting the appeal and specifying the additional issues it wishes to appeal. The deadline for this letter is, for the challenger, within 5 business days after receipt of the final case decision with the advertiser's statement indicating it has elected to appeal and, for the advertiser, within 5 business days after receipt of the NARB Chair's determination granting the challenger's request to appeal.

Written submissions to the NARB may not contain any factual evidence, arguments or issues that are not in the NAD case record forwarded to the NARB. If the Chair determines that information outside the scope of the case file is included in an appeal submission, the Chair may allow the submitting party 3 business days to correct the submission, or he/she may remand the case to the NAD for additional consideration.

Once the panel has reached its decision, it notifies the Chair and provides a written rationale within 15 business days. The Chair relays the written decision to the parties, and the advertiser then has 5 business days to respond, indicating its acceptance or rejection, along with any comments.

10. Closing a Case

Upon indication that an advertiser will abide by the recommendation of the NAD or the NARB, the case is closed and no further materially similar complaints on the claims in question will ordinarily be accepted by the NAD or the NARB, although they retain the latitude to revisit the advertising in question, particularly where compliance may be an issue.

Publicizing an NAD or NARB decision for competitive gain is not within the spirit of the self-regulatory process and is forbidden. If a party advertises or publicizes to third parties not directly related to the case the fact that specific advertising will be, is being, or has been referred to the NAD for resolution, the NAD may refuse to initiate or continue to handle the challenge.

E. Compliance

The NAD process has an enviable voluntary compliance record. Since 1971, more than 4,000 cases have been handled,² and almost all advertisers have voluntarily complied with NAD decisions. One recent example involves GP Plastics Corp.'s agreement to modify or discontinue certain advertising claims for its PolyGreen plastic bags in accordance with the NAD's recommendations.³ It is interesting to note that, from 1971 to 1985, no advertiser refused to comply with the NAD's decisions.⁴ A more recent review of compliance rates has the NAD claiming a compliance rate of about 95 percent.⁵

The NARC's set of Policies and Procedures (at Section 4.1) provides basic rules for further action that can be taken if an advertiser fails or refuses to comply with an NAD decision. The rules contain no hard and fast timetable. At any time following a decision, the NAD may request that an advertiser report back on the status of disputed advertising and explain the steps taken to bring the advertising into compliance. The NAD's request may be prompted internally or by the complaints of a challenger or a third party. The NAD then reviews and evaluates the advertiser's response. If the advertiser fails to respond, the NAD independently evaluates the current advertising. If the NAD determines that the advertiser, after a reasonable amount of time, has not made a bona fide compliance effort, the NAD may refer the file to government authorities and publicize the matter. According to the rules, the amount of time considered reasonable will vary, depending on the advertising medium involved.

The NAD may determine that reasonable correction efforts were made, but still remain concerned about the truthfulness and accuracy of the modified advertising. In that case, NAD will write to the advertiser, detailing these concerns. The advertiser will have 10 business days to respond. Within 15 business days of its receipt of the response, the NAD will make a compliance determination. The NAD will notify the advertiser if it has determined that further modifications are needed to bring the advertisement into compliance with the original panel decision. If the advertiser agrees to suspend the disputed advertising until making the recommended modifications, the NAD will note this in the Case Reports and continue to monitor the situation. Alternatively, the advertiser may, within 5 business days after receiving the NAD's notification letter, submit a statement documenting its disagreement. The rules state that where the advertiser's response (or non-response) places its compliance with the NAD panel decision at issue, the NAD will refer the matter to the NARB Chair for consideration by a second panel or, alternatively, the NAD will refer the file to government authorities and publicize the matter.

For example, the NAD recently referred Mead Johnson Nutritionals' advertisements for ENFAMIL LIPIL infant formula to the Federal Trade Commission.⁶ The NAD initially recommended that the advertiser make clear that ENFAMIL LIPIL has not been shown to outperform SIMILAC ADVANCE with respect to mental and/or visual development, and either discontinue its comparative advertisement between the ENFAMIL LIPIL and SIMILAC ADVANCE products or modify it by removing the comparison to SIMILAC ADVANCE.⁷ The NAD had opened three compliance reviews related to the same or similar advertising claims between June 2008 and February 2009, and found that the ENFAMIL LIPIL advertising did not comply with the NAD's prior decision. As a final recourse, the NAD referred the matter to the FTC for further review, pursuant to section 4.1.B. of the NARC Policies and Procedures.

The NAD can also refer matters to other appropriate government agencies, such as the Food and Drug Administration (FDA), the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), the United States Alcohol and Tobacco Tax and Trade Bureau (TTB), the United States Department of Agriculture (USDA), and state governors or attorneys general offices. In one case, the NAD referred Central Coast Nutraceuticals' advertising for its COLOTOX product to the FTC and the FDA for further review, following the company's failure to respond to an NAD inquiry.⁸ In another case, the NAD referred print, television, and online advertising for Guinness UDV of North America, Inc.'s SMIRNOFF ICE malt beverage to the FTC and the ATF for possible law enforcement action, following the company's decision not to participate in the NAD's self-regulatory process.⁹ The NAD has also referred matters to the TTB, for instance, a matter involving the truth and accuracy of claims made by Miller Brewing Company in advertisements for its MILLER LITE and MILLER GENUINE DRAFT beers, when the company declined to participate in a challenge before the NAD.¹⁰ Further, the NAD referred a matter to the USDA and its Agricultural Marketing Service where the International Dairy Foods Association declined to participate in the NAD's self-regulatory review process concerning a "Got Milk?" print advertisement.¹¹ In addition, the NAD referred billboard, radio and television advertising by Hawk Communications, LLC, for its JOI EXPRESS internet service to the Georgia Governor's Office of Consumer Affairs after the company stated that it did not intend to comply with NAD's recommendations.¹²

F. Precedential Value of NAD Case Reports

The NAD's case reports are published about once a month. Each case report sets forth: (1) the basis for the inquiry; (2) the challenger's contentions; (3) the advertiser's position; (4) the NAD's decision; and (5) the advertiser's statement. Before 1981, the case reports consisted of very short summaries of the claims at issue and the NAD's decision, with very little information about the parties' arguments. Whereas early case reports would present two or three cases on each page, today's case reports embody cases summaries that are typically three or four pages long, and sometimes much longer.

NAD case reports officially have no precedential value, although the body of NAD decisions has created an advertising jurisprudence in addition to that of Federal Trade Commission decisions and Lanham Act cases. Over the last ten years, the NAD has tried to present its decisions in the context of advertising principles, applying the facts of the case to such principles. The result is a case report that bears resemblance to a judicial holding. This is not surprising, given that the decisions and reports are written by lawyers. The parties present their positions based on general principles of advertising law, and often cite to prior NAD decisions as examples of how the NAD construes those principles.

Federal courts have recognized the benefit of the NAD process in advertising cases for many years. For example, one court noted that the value of a settlement reached through the NAD "lies largely in the particular experience and skill of the NAD as a resolver of disputes. [S]ince its formation, the NAD has developed its own process of reviewing complaints of deceptiveness, coupling relative informality and confidentiality with safeguards to ensure procedural fairness."¹³ FTC officials and other government officials have expressed similar respect for the NAD, indicating that cases referred by the NAD are taken seriously and go to the top of the pile, ahead of corporate complaints that have not gone through the self regulatory process.¹⁴

III. Deciding Whether to Choose the NAD

A. General Benefits of the NAD Process

In general, the NAD provides a cheaper, easier, and faster alternative to suing a competitor for false or deceptive advertising in federal or state court. Challenges are decided by NAD staff, which is comprised of lawyers with expertise in advertising law. The process is similar to arbitration, in that each party to the dispute has an opportunity to explain its position and provide supporting data, without getting bogged down in expensive discovery and motions practice. The NAD process is cost-effective and is usually completed within 3-5 months. This is in contrast to an FTC complaint and investigation, which normally takes many months or years to be resolved,¹⁵ or filing an action in federal court for false advertising under §43(a) of the Lanham Act, which is often a lengthy and expensive endeavor, requiring discovery, motions, a trial, and (at times) an appeal.

The NAD process reduces governmental involvement in advertising, and arguably helps to maintain a level playing field for settling disputes among competing advertisers. NAD activity over the past three decades has likely resulted in:

• less time and money spent by participants in settling disputes involving competitors' advertising;
• reduced consumer complaints about false claims in advertising;
• less government involvement in advertising issues (less than five percent of all NAD cases have been referred to government regulators);
• increased consumer confidence in the truthfulness of advertising messages—and greater trust in advertisers; and
• renewed respect for advertising's strength in the brand-building process.

While NAD decisions are considered recommendations and are not legally binding on the parties, participants typically comply with the decisions, as the NAD can refer the advertising to the Federal Trade Commission or another appropriate government agency for investigation. The NAD may also refer the case to a government agency if the advertiser declines to state whether it intends to comply with the decision or refuses to participate at all in an NAD inquiry. Referrals to government agencies often receive considerable press coverage. FTC involvement can result in consent decrees, fines, and ongoing compliance requirements (such as periodic reports to the FTC). The threat of an NAD referral to a government agency and its perception by industry as a fair self-regulatory forum have contributed to the NAD's 95% compliance rate.¹⁶

B. The Challenger's Perspective

As noted above, in an NAD proceeding, initially, the challenger need only raise reasonable questions as to the support for specific advertising claims. Ultimately, however, the challenger must demonstrate to the NAD that the substantiation provided by the advertiser is inadequate, or that the advertising claim is otherwise false or misleading. In federal or state unfair competition litigation, the burden weighs more heavily on the challenger/plaintiff to prove its case by a preponderance of the evidence.

The identity of the challenger will affect the forum where that party is able to bring an advertising challenge. In a federal Lanham Act case, only a competitor will typically have standing to file a false advertising suit. In contrast, consumers and other affected parties can file an NAD challenge or a complaint with the FTC. Initiating a state court action for common law unfair competition or under a state "Little FTC Act" (where a private right of action is allowed) is typically less effective and hence less common when national advertising is being challenged. A complaint to a state governor or attorney general's office may be desirable in certain situations, for example, in a particularly aggressive state such as New York or Minnesota, and could result in enforcement action at the state level where consumers' interests are deemed to be at stake. However, the state offices will usually not become involved in a dispute between competitors.

As will be discussed below, considerations such as the ability of each party to substantiate its position, cost, remedies sought, the need for expeditious action, and strategic/leverage issues will all play a part in the challenger's decision as to which forum is best for the challenge.

C. The Advertiser's Perspective

In both an NAD and an FTC proceeding, as opposed to a federal or state court case, the initial burden falls on the advertiser to substantiate its claims. That is, while the challenger merely needs to allege serious concerns about the truth and accuracy of an advertisement, the advertiser must demonstrate that it possesses suitable substantiation for each challenged claim. Successful advertisers follow precedent and have adequate substantiation in hand prior to publishing controversial or provocative ads, including current scientific testing and consumer perception evidence, as appropriate. If an advertiser submits a study to support its challenged claims, the NAD will scrutinize the research protocol and determine the sufficiency of the study based on several factors, including the propriety of the sample universe, the sample size, the statistical significance of the results, the fairness of the questions, and the controls used to minimize bias.

An advantage of the NAD process is that an advertiser may utilize the NAD's procedure for protecting confidential information and seek to limit the scope of the NAD's inquiry where possible. In that way, the advertiser can support several claims with the same substantiation. In the end, however, it is crucial that every issue raised by the NAD in its initial letter be answered.

Because of the informality of the NAD proceeding, ongoing ex parte contact with the staff attorney assigned to the case is common. A delicate balance of friendliness and assertiveness is necessary in order to push the matter toward resolution and keep the attorney focused on the advertiser's case, even though other cases may be pending. Allowing the attorney to wait to focus on the crucial issues in a challenge until after the other party's reply is submitted can result in surprise conclusions. Moreover, if an advertiser has notice of the staff attorney's concerns early enough, the advertiser can perform additional studies before the NAD renders a decision. In short, the possibility of cultivating a cooperative relationship with the NAD attorneys is another benefit of the NAD process.

D. Research and Studies

Although the NAD process is generally informal, the NAD has come to demand high quality research, and holds the research to standards set forth in FTC and Lanham Act cases. The NAD will scrutinize research protocols and determine the sufficiency of studies based on several factors, including the propriety of the universe, the sample size, the statistical significance of the results, the fairness of the questions, and the controls used to minimize bias.

Scholarly articles are accepted by the NAD, so long as they are on point. The NAD looks for research that meshes with actual consumer experience. For example, articles or studies that focus only on the efficacy of ingredients but do not address the product as a whole usually will not be given significant weight.

E. Cost

Legal fees associated with an NAD challenge are typically much lower than Lanham Act litigation fees. Preparing for an NAD challenge is similar in some respects to preparing for litigation, but once the proceeding commences, it is considerably less expensive in view of its streamlined time-frame and lack of discovery, motions practice, and trial.

F. Remedies

One major difference between NAD proceedings and litigation concerns remedies. Decisions reached by the NAD are, in a sense, akin to equitable relief handed down by a court. Although they are couched in terms of "recommended modifications to advertising claims," they carry with them the threat that non-compliance means referral to the appropriate government agencies for further review and possible legal action. NAD decisions also have teeth because they are published, raising the possibility of bad press for the challenged advertiser. While there is no guarantee that a matter referred from the NAD will be pursued by the government agency, past actions taken on referred matters provide enough of a threat to encourage most advertisers to comply with the NAD's recommendations. Also, an advertiser's voluntary modification of advertising as a result of the review process is not to be construed as an admission of impropriety, providing a further incentive to comply.

Nevertheless, it should be recognized that the NAD lacks the power to compel participation in its process or compliance with its decisions. Its decisions are not injunctions, and cannot be filed with a court for enforcement. If any court action ensues, it will be a trial de novo, and the court will not be bound by any of the facts or conclusions reached by the NAD. There is nothing akin to a preliminary injunction or a TRO at the NAD, and neither monetary damages nor attorneys' fees can be awarded. Finally, the prohibition against publicly exploiting an NAD victory -- whether it be success for a challenger or exoneration for an advertiser -- should also be considered when deciding if the NAD is the best forum.

G. Comparison of the NAD Process with the FTC and State Consumer Protection Statutes

As an alternative to instituting an NAD proceeding, a challenger may file an administrative complaint with the Federal Trade Commission. Similar to an NAD action, an advertiser in an FTC proceeding is required to substantiate its advertising claims, and the challenger is not required to offer proof of consumer deception. Unlike the NAD, which usually adjudicates challenges between competitors, the FTC prosecutes the case against the advertiser. FTC resources are limited, however, and, often, the FTC will exercise its discretion not to take action on a challenger's complaint. Typically, there needs to be a strong consumer protection purpose behind an FTC proceeding, and the Commission will not become involved in disputes that are primarily among competitors, with little effect on consumers. Even if the FTC pursues the challenger's complaint, the time to reach a resolution is generally much longer than that of an NAD case, often many months or years.

The FTC has jurisdiction to regulate unfair or deceptive acts or practices in advertising under Section 5 of the FTC Act.¹⁷ To successfully prove an advertisement is deceptive, the FTC must establish that the advertisement at issue: (i) contains a material representation, omission, or practice, (ii) that is likely to mislead consumers acting reasonably under the circumstances, (iii) to consumers' detriment. To successfully prove that an advertisement is unfair, the FTC must establish that: (i) an act or practice is likely to cause substantial injury to consumers; (ii) the injury is not reasonably avoidable by consumers; and (iii) the injury is not outweighed by countervailing benefits to consumers or competition produced by the practice.

The Federal Trade Commission can institute an administrative action, to be tried before an Administrative Law Judge, which seeks a cease and desist order prohibiting the challenged practice and related practices. FTC remedies can include corrective advertising, informational disclosures in advertising, consumer education, and product warnings. The FTC may seek civil penalties and injunctions in federal court for violations of its cease and desist orders.

Unlike the NAD, the FTC has the authority to demand the attendance and testimony of witnesses, answers to interrogatories, and the production of documents.¹⁸ With respect to confidential information, the FTC is required to safeguard from disclosure any confidential information and documents that a challenged advertiser is required to produce. Documents produced to the FTC pursuant to compulsory process or voluntarily in the course of an investigation are exempt from the disclosure requirements of the federal Freedom of Information Act.

In addition to the FTC, most individual states have so-called "Little FTC Acts," generally mirroring the prohibition against unfair and deceptive trade practices found in Section 5 of the FTC Act. These state consumer protection statutes are enforced by state attorneys general. A minority of these statutes provide for a private right of action by consumers or, in some cases, competitors. In many states, class actions are authorized.

These typically might not be the most effective options for challenging national advertising. However, a party wishing to challenge locally focused advertising should consider state authorities, especially since the NAD will not become involved in such cases.

H. Comparison of the NAD Process with Lanham Act Cases in Federal Court

A competitor may have standing to file an action in federal court for false advertising under §43(a) of the Lanham Act, 15 U.S.C. Sec. 1125(a). This option is likely to take more time and be much more expensive than an NAD proceeding, but the parties will be able to take discovery and file motions, which is helpful if complex issues are involved. The availability of preliminary and permanent injunctive relief, as well as monetary damages and, in certain egregious cases, attorneys' fees, are critical advantages of federal litigation. Unlike an NAD a proceeding, in federal court, a challenger is generally required to prove that the advertising is false. Unless a challenged ad is literally false, the challenger is required to offer proof that the challenged advertising is actually deceiving consumers (a false implied claim), which can take the form of consumer perception survey evidence. To be admissible, a consumer survey must meet a number of well established standards, including use of an appropriate control. Surveys are expensive and will add significantly to the cost of the case.

If a challenger considers immediate relief from false or deceptive advertising to be crucial, then court litigation will be the only option. The challenger will generally be able to obtain a decision on a motion for a temporary restraining order or a preliminary injunction from a court in a shorter time frame than it could obtain a decision from the NAD. There are also important strategic considerations in choosing federal court over the NAD. Initiating federal litigation would usually demonstrate to the other party a greater seriousness, determination and confidence in one's case (and willingness to commit substantial resources) than would the initiation of an NAD proceeding.

Finally, participants in an NAD proceeding are limited to addressing only false commercial advertising claims. In a federal Lanham Act case, however, corporate defamation and product disparagement causes of action may also be pled, although the standards of proof for these claims are considerably higher than for false advertising under the Lanham Act.

IV. Conclusion

The NAD review process is often the best forum in which to challenge misleading claims in a competitor's advertising. First, the process is straightforward and streamlined, and is based on standard principles of advertising law. Second, the process is usually relatively inexpensive. The costs involved are typically much lower than litigation due to the abbreviated nature of the proceeding, and there is usually no need for the challenger to present consumer survey or other scientific evidence. Finally, the process provides fairly quick results (although not as quick as can be obtained via a preliminary injunction or a TRO). Although compliance with NAD decisions is voluntary, advertisers generally comply due to the threat of adverse publicity and referral of the matter to an appropriate government agency for non-compliance. In general, the NAD review process is a good option where the goal is to eliminate the challenged advertising before it causes too much damage, without expending a lot of resources.

Sources

Russian Standard Vodka (USA), Inc. v. Allied Domecq Spirits & Wine USA, Inc., 523 F.Supp.2d 376 (S.D.N.Y. 2007)

AMF Inc. v. Brunswick Corp., 621 F. Supp. 456, 461 (S.D.N.Y. 1985)

In re GP Plastics Corporation, NAD Case No. 4944 (3/5/09)

In re Central Coast Nutraceuticals, NAD Case No. 4962 (1/21/09)

In re Mead Johnson & Company, NAD Case No. 3381 (4/1/97)

Abbott Laboratories / Ross Products Division, NAD Case No. 3418 (11/1/97)

In re Mead Johnson & Company, NAD Case No. 3971 (10/22/02)

In re Ross Products Division of Abbott Laboratories, NAD Case No. 3976 (10/15/02)

In re Mead Johnson & Company, NAD Case No. 4019 (02/21/03)

In re Ross Products Division of Abbott Laboratories, NAD Case No. 4022 (03/03/03)

In re Mead Johnson & Company, NAD Case No. 4091 (09/10/03)

In re Ross Products Division of Abbott Laboratories, NAD Case No. 4274 (01/03/05)

In re Mead Johnson Nutritionals, NAD Case No. 4822 (04/02/08)

In re Abbott Nutrition, NAD Case No. 4849 (05/15/08)

In re Hawk Communications, LLC, NAD Case No. 4131 (1/8/04)

In re International Dairy Foods Association, NAD Case No. 3999 (1/12/03)

In re Guinness of North America, Inc., NAD Case No. 3879 (2/12/02)

In re Miller Brewing Company, NAD Case No. 1347 (8/15/78)

The Advertising Industry's Process of Voluntary Self-Regulation, NAD/CARU/NARB Procedures (effective as of Aug. 30, 2007)

David H. Bernstein, How to "Litigate" False Advertising Cases before the NAD, PLI Order No. G0-014P (2002)

Bruce A. Colbath, Defense Strategies for Handling FTC Investigations and Enforcement Actions, outline of presentation given at the National Advertising Review Annual Conference, Sept. 26, 2005

Hugh Latimer and Christopher Hale, NAD Procedures for Resolving Advertising Disputes: Simple, Swift and Effective, The Metropolitan Corporate Counsel, Inc., Vol. 9, No.7 (July 2001), available at http://www.wileyrein.com/docs/publications/11488.pdf (last visited 4/1/09)

Hugh Latimer and John W. Kuzin, Forum of Choice: Learn More about Advertising Dispute Resolution as an Alternative to Litigation, The Advertiser Online (February 2009), available at http://www.theadvertisermagazine.com/content/200902-forum-of-choice.php (last visited 4/1/09)

National Advertising Division website, located at www.nadreview.org/Membership.aspx (last visited 4/1/09)

Footnotes

1. In fact, it is not uncommon for a challenged advertiser to respond to an NAD challenge by filing a separate case with the NAD attacking the challenging party's own advertising claims. As one example, Abbott Nutrition and Mead Johnson Nutritionals, companies that sell competing infant formulas, have engaged in back and forth challenges before the NAD since 1997. See In re Mead Johnson & Company, Case No. 3381 (4/1/97); Abbott Laboratories / Ross Products Division, Case No. 3418 (11/1/97); In re Mead Johnson & Company, Case No. 3971 (10/22/02); In re Ross Products Division of Abbott Laboratories, Case No. 3976 (10/15/02); In re Mead Johnson & Company, Case No. 4019 (02/21/03); In re Ross Products Division of Abbott Laboratories, Case No. 4022 (03/03/03); In re Mead Johnson & Company, Case No. 4091 (09/10/03); In re Ross Products Division of Abbott Laboratories, Case No. 4274 (01/03/05); In re Mead Johnson Nutritionals, Case No. 4822 (04/02/08); In re Abbott Nutrition, Case No. 4849 (05/15/08). Similar alternating offensive/defensive NAD battles have taken place among competing high speed internet service providers (e.g., cable versus DSL) and medical support hose manufacturers.

2. See National Advertising Division website, located at www.nadreview.org/Membership.aspx (last visited 4/1/09).

3. NAD Decision and Press Release in In re GP Plastics Corporation, Case No. 4944 (3/5/09).

4. See AMF Inc. v. Brunswick Corp., 621 F. Supp. 456, 461 (S.D.N.Y. 1985).

5. Hugh Latimer and Christopher Hale, NAD Procedures for Resolving Advertising Disputes: Simple, Swift and Effective, The Metropolitan Corporate Counsel, Inc., Vol. 9, No.7 (July 2001), available at http://www.wileyrein.com/docs/publications/11488.pdf (last visited 4/1/09).

6. NAD Press Release, Following Third Compliance Review, NAD Refers Advertising for 'Enfamil' Infant Formula To FTC (Feb. 24, 2009).

7. NAD Decision and Press Release in In re Mead Johnson Nutritionals, Case No. 4822 (4/2/08).

8. NAD Decision and Press Release in In re Central Coast Nutraceuticals, Case No. 4962 (1/21/09).

9. NAD Decision and Press Release in In re Guinness of North America, Inc., Case No. 3879 (2/12/02).

10. NAD Decision and Press Release in In re Miller Brewing Company, Case No. 1347 (8/15/78).

11. NAD Decision and Press Release in In re International Dairy Foods Association, Case No. 3999 (1/12/03).

12. NAD Decision and Press Release in In re Hawk Communications, LLC, Case No. 4131 (1/8/04).

13. AMF Inc. v. Brunswick Corp., 621 F. Supp. 456, 461 (S.D.N.Y. 1985); see also Russian Standard Vodka (USA), Inc. v. Allied Domecq Spirits & Wine USA, Inc., 523 F.Supp.2d 376 (S.D.N.Y. 2007) (referring to the NAD as "a highly reputable institution").

14. Hugh Latimer and Christopher Hale, NAD Procedures for Resolving Advertising Disputes: Simple, Swift and Effective, The Metropolitan Corporate Counsel, Inc., Vol. 9, No.7 (July 2001), available at http://www.wileyrein.com/docs/publications/11488.pdf (last visited 4/1/09).

15. It is also important to note the limited resources of the FTC, which is able to pursue only a few of the numerous complaints it receives.

16. Bernstein, David H., How to "Litigate" False Advertising Cases Before the NAD, Practising Law Institute (Oct. 2002).

17. 15 U.S.C. Sec. 45(a).

18. 15 U.S.C. Sec. 49.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.