Litigating & Resolving Advertising Disputes, part 1

Takeaway: very interesting presentations; it’s good to hear from in-house and outside counsel both.

Keynote Address: Randal S. Milch, Executive Vice President and General Counsel, Verizon Communications

Telecom is at the cusp of big changes—regulation as common carriers, cybersecurity, privacy, and more. Internet ecosystem has many players, from telecom providers to equipment and application providers, bound together by broadband. Verizon has invested $80 billion in wireless and wireline over the past years. Consumers have increasingly more choices. Existing authority has proved sufficient to protect consumers, though challenges on privacy and access to lawful content remain. Notice, transparency, ability to control information are key to consumers. Government isn’t built to address this sort of dynamic marketplace, so players have to act for self-correction; customer issues are often resolved quickly, before regulators can react—Facebook attempting to deal with customer privacy issues. Government couldn’t make Facebook act that quickly, or in multiple iterations. (Comment: if that’s your best example, I am worried.)

Verizon has joined with others, including Google, to form a broadband internet technology advisory group on network management practices. Won’t tell you that private action is perfect; there is a limited role for government. (1) Separate real issues that consumers care about: privacy, security, quality of service—from trumped-up issues like net neutrality where activists, unbelievably, suggest that the First Amendment requires regulation. Freedom from government protects the First Amendment. (2) Government’s role is ensuring market runs efficiently and fairly—government should be even-handed backstop. Using existing legal and regulatory mechanisms, such as FTC’s actions against bloggers who fail to disclose pay-to-play arrangements. Now bloggers face stiff penalties if they don’t disclose—this is a level playing field. There’s scant evidence of discrimination from broadband providers, but significant evidence about search engine organization; government should be even-handed. (3) Perspective. We are not witnessing the death of the internet as we know it: highly competitive and exceedingly open. Easy to cast network operators as evil, or wrongly profit-motivated—the internet is not a pristine environment to be plundered. The private sector jumpstarted and shaped today’s internet.

Only 5 years ago, hardware and content and distribution were siloed, but now they’re not; that’s good for consumers. Innovation won’t come from imposing limits on tech.

Overcoming the Challenges Faced by In-House Counsel when Advertising in an Era of High Risk

Katherine Nordberg, Vice President, FBC Legal Affairs, Fox Broadcasting

In-house means a variety of different hats, from legal counselor to marriage or camp counselor.

Multiple stakeholders within a company have thoughts about what makes an effective, competitive ad. How do you make sure the appropriate people are involved?

Chris Roblyer, Senior Managing Counsel, Strategic Marketing, Coca-Cola North America

It takes a village to have an ad campaign. Looks back with envy at his predecessors, when you could sell product with catchy slogans/jingles. So few landmines! In this hypercompetitive economy, we have precious few ad campaigns like that. Now that we’re a total beverage company, we don’t just sell a lifestyle or a taste, but often something that provides a functional benefit—juices, sports drinks, energy drinks. As a consequence, you need more than just a lawyer to figure out what you can and can’t say. He deals with bioengineers now. Big strategy: spot issues/claims early on and make sure the right people are around the table from day one. Marketing clients go off and deal with the ad agency—no rules in their initial sessions, but pretty quickly we have to bring in people to ensure substantiation—scientific and regulatory affairs community; outside scientists who conduct studies with appropriate sample sizes and controls and tests for statistical significance. Even then, you have to go one step further as a food and drug company: FDA has pretty clear distinctions between marketing a food and marketing a drug. Moral: marketers, agencies, legal, science, and regulatory affairs have to be involved very early in the game and consistently throughout the process--ad campaigns start off at point A and sometimes you don’t see it again, as counsel, until point E; all stakeholders need to be involved at all those iterative steps.

Nordberg: the ad people love that, right?

Ruth Lebed-Rofes, Corporate Counsel, S.C. Johnson & Son

Legal is sometimes known as “sales prevention department.” Ad agencies have closer relationship with marketing than legal department does. We have one primary agency, meaning a very strong relationship, but sometimes she wonders who works for whom. Sometimes she thinks it’s not as fun to start with the products and see what they do! Marketing people try to be friends by meeting with legal and then meeting with regulatory etc. That game of telephone doesn’t work. Her words sometimes get told very differently from what she thought she was saying.

Whose risk is it to take? Is it legal’s role to say no, this is too risky, or marketing’s job to get the risk assessment and make the decision? Outside counsel’s role is easier: lay out the risk and the client decides; she could lose her job for balancing interests wrongly. Need to avoid risks the company isn’t willing to take.

Dr. Bruce Isaacson, President, MMR Strategy Group

Small nuances in how questions are formed or data gathered can make a huge difference in later substantiation issues. The true cost of a marketing person isn’t salary, but all the ways they think of to spend money! Thus research should be involved early on; small differences in phrasing can make a huge difference later down the road. “No other brand beats our brand” is a very different statement from “our brand beats all other brands.” Seem similar to a marketing eye, but very different substantiation-wise.

When your marketing group is developing data for early product launch, data gathering can make a huge difference for statistical significance. Think about product rating for two shampoos—a 1-5 scale asking how they do on moisturization gives a lot more usable data than picking which one the tester likes best.

Nordberg: how do you translate that into ads?

Lebed-Rofes: Too often we help the marketers get together and then go away and wait for a challenge. You should be involved in filming. Make sure there are several iterations: she tries to get a risky, low-risk, and middle-risk version—you’ve spent so much money by the time the cameras roll, it makes sense to have various versions available so that if you need to pull something you can substitute it very quickly, because otherwise you may have ad time you’ve bought and nothing to show for it. Camerapeople: they’ll suggest that it would look better if we made that dust brighter. Unless you’ve seen the stuff in the lab, you don’t know whether that change is justified by the evidence—even if the product removes dust, are you showing something that would look like the product would produce in reality?

Ted Suzuki, Associate General Counsel, DIRECTV

We’re a fairly young company, and tend to do things very rapidly. Has to make risk judgments in the gray area. Competitors’ ads: are they really hurting your business/costing customers? Sometimes marketing/ad folks (his clients) get hung up on particular competitors or ads; they have an emotional attachment that they can’t let go. One response: counter-advertise if the competitor is misstating matters. At the same time, push competitors legally, through nastygrams or phone calls if necessary.

Lebed-Rofes: one of your best weapons is relationship with opposing counsel. We pretty much go against the same people every time—you know who’s bluff and who’s stuff. You don’t have to hate the other side (though you often do).

Nordberg: how do you identify goals and choose a forum, when different departments have different priorities?

Roblyer: if you want injunctive relief, you have to go to court. Assess irreparability of harm, quantifiability of damages. Trend to use the NAD more. It can be hard to quantify damages, and sometimes you have an irked client: you told me I couldn’t say this, and now they’re saying it, and I want action! Over time, you can build up relationships/history with NAD you’re unlikely to have with any particular judge. Oftentimes the NAD splits the baby—almost no NAD claim is going to proceed without a counterclaim. Industry self-regulation conserves resources; clients want something done but don’t want to sit in depositions. NAD is also nice because federal court makes you take the next step/police compliance, while NAD can refer things to FTC, which is useful when there’s a pattern of behavior.

Nordberg: Unclean hands: how big of a role does ability to withstand counterallegations play?

Suzuki: in marketing folks’ minds, they always have clean hands, so they want aggression. Legally, have to caution them that the other side can muddy the waters. Caution: there is a chance for a counterclaim. Business clients may not appreciate the boomerang possibilities. Video service industry: everyone’s been so aggressively going after each other, the NAD seems to be the preferred option because of lower risk of counterclaims—there are skeletons in many closets. May not be satisfactory in terms of speed/immediate remedy, but at least it doesn’t put your own campaign at risk.

Lebed-Rofes: She had marketers push her on a competitor’s totally false claim that the product repelled dust. Was it really hurting us? Not so much, but really aggravated the marketers. So we challenged it and won, but the other party then looked at years of our ads, and lo and behold we’d said “Pledge keeps surfaces looking less dusty longer,” and NAD made us reword it to be more clearly a perception claim—the competitor really was a tiny player in the market, and we wound up having to change longstanding ad claims.

Isaacson: distinction between different types of data involved in substantiation, worth recalling: technical/performance data that can be gathered by a machine. That comes usually from engineers, and doesn’t need specific people. Perception/sensory data: how people interpret a particular claim—(1) belief induced by particular ad claim in a reasonable consumer; (2) often related to damages—materiality. How does the belief matter? Materiality relates to purchase intent/likelihood of buying.

Lebed-Rofes: counsel are often afraid of the science, but you have to understand it because that’s where the debate centers. If you work with new counsel who aren’t familiar with the science, that puts a greater burden on in-house counsel to educate them. You need to get into the labs, understand the basis for the claims. Otherwise you’ll be at a real disadvantage, especially against in-house counsel who defend their own claims.

Suzuki: for us, a tech-based industry, claims tend to have a short shelf life. Time is your best ally!

Lebed-Rofes: notes that green claims are a real issue these days. NAD has come on its own—you might think you won’t get challenged because competitors are saying the same thing and no one wants to make bad law; that’s not protection! Also, we’re a global company. We get challenged everywhere. Sometimes you can get a heads-up abroad about what’s going to be happening here, and because of different rules you can often get different information about claims abroad. We have a tendency to let outside counsel there handle it because we’re not licensed there, but it’s worth it to pay attention to the nitty gritty details.

Isaacson: anywhere there’s a marketing dollar to spend, we will get called in. He’s been called by a prominent California official worried about infringement of his name.

Nordberg: practice tips for the in-house: Get out of your office, embrace the science and research and let people see you’re involved. Build trust: you’re invested in the process, not just the person saying no all the time, and are collaborating on marketing.

Q: When you get a letter, assuming you have substantiation, do you provide it to the challenger?

Suzuki: We generally narratively explain the substantiation—describe it—but won’t go into any details.

Lebed-Rofes: comes down to trust. If you don’t know the person, don’t say much. If you know that what you say doesn’t matter and they’re just claiming to run out the clock, that affects your decision. Sometimes you know opposing counsel can be trusted; sometimes she’s provided information to opposing counsel and gets nothing in return. Redaction is becoming increasingly an issue, and the NAD has become increasingly willing to accept redacted data, which is a problem.

Roblyer: don’t assume that a response will make the problem go away. The lawyer is writing because of pressure from the client, and the client is going to think that the response is wrong/lying. Don’t bluff your way along, have substantiation, but if someone then complains, reply that you’re confident in your substantiation.

Lebed-Rofes: if you’re writing that complaint letter, you’ve better have figured out what’s wrong yourself and lay it out.

Suzuki: competitors may disagree about what’s subjective puffery and what’s quantifiable. You want to leave yourself room to argue either way.

Q: Ever had a situation where someone defaults before the NAD, and what happens?

Lebed-Rofes: little players, who might not do what the NAD says anyway.

Q: so what do you do?

Roblyer: you’re not supposed to have PR around a NAD proceeding.

Q: okay, but what then?

Lebed-Rofes: if it’s hurting you financially, you have to decide whether it’s worth the money to sue. It could be—sometimes small players can really muck up the industry. If it’s a health claim or a regulated industry, you may get more help than with a taste claim.

Q: do your companies have multiple required signoffs for substantiation and can you use that in your favor in NAD?

Lebed-Rofes: we have a huge, computerized process; every thing consumers see, she signs off on, globally. She’s never used that for the NAD and isn’t sure it would help—shows you haven’t acted recklessly, but that’s about it. She signs off on $.55 off coupons; what is she supposed to say about them?

Roblyer: we have a process too with multiple checkpoints, but that’s not going to satisfy NAD in itself.

Q: what percentage of cases are referred by NAD to FTC, and how often does the FTC follow up?

Lebed-Rofes: low; nobody is sure about statistics.

Q: NAD is lawyers, not scientists, so how do you deal with that?

Lebed-Rofes: NAD and courts both: how you present the science often becomes the entire scientific basis of their knowledge—world-building is important. What you put in becomes the totality of the reality, so spend the time to do it. The big difference between lawyers is those who get the science and can challenge the R&D folks and those who say “okay.” You need to be able to sense weakness and go off-script based on the stuff you get from the other side. More claims come down to science—bring in your statistician if you need that for the argument.

Q: How much of the challenge process is motivated by using it as a competition tactic?

Suzuki: it happens, with multimillion ad campaigns. But they’ve got to have some reason to challenge, and so do we. If we can shake up the competitors, distract them, influence them, that’s a win. We’ll use whatever tactics we have available.

Lebed-Rofes: that starts out as a motivation, but once you sit down with clients and explain to them what a challenge entails, including that RD&E (research, development and engineering) now works for the lawyers instead of for new initiatives, things change. You’re tying up your own resources too. Marketing people get into more comparative ads when things are tight; those are more likely to be challenged.

Q: Gatorade/Powerade lessons?

Roblyer: Gatorade sought a TRO based on a Powerade ad based on 4 electrolytes lost during exercise. Traditionally only 2 of the 4 had been in a typical sports drink. TRO was denied in part because Gatorade too was thinking about a similar formulation but decided not to.

Q: What’s the substantiation process for Suzuki in such a fast-moving field?

Suzuki: we don’t have a rigorous process like Coke; it’s partly because we have a very informal, fluid process for marketing/ad folks to make claims; what ends up happening is that they get information about our products/services and the marketing higher-ups get married to it. He has to backtrack and make sure everything is buttoned down. If it doesn’t get buttoned down, he won’t let the ad go. Make sure that the info given to marketing/ad folks is valid and doesn’t have anything missing. Marketing/ad folks tend to think that everything they see has been vetted.

My q: absolutely you want outside counsel to know the business/science. But you don’t necessarily want to pay for a week in your labs—what’s your best advice to outside counsel on steps to take to get up to speed without running up the bill to a relationship-destroying level?

Lebed-Rofes: At times she will pay for someone to get some education; but for a longterm relationship, outside counsel is going to have to invest/take a loss.

Q: what about people with whom you don’t have an attorney-client relationship?

Lebed-Rofes: she has a relationship with in-house counsel at the ad agency. You want them to look at their ad proposals first; don’t want to put a lot in writing. It’s easier for her in some respects because they have a long-term relationship with the agency, and harder because the marketing relationships are so strong; sometimes she only sees stuff after it’s been presented to the CEO, which is troublesome!