Litigating & Resolving Advertising Disputes, part 2

Determining the Appropriate Forum for Challenging Your Competitors’ Ads

Jeanne O’Neill, Marketing Counsel, Frito-Lay

Frito-Lay doesn’t do a lot of comparative advertising and doesn’t end up with many disputes with competitors or regulators—we do fun; informative ads about ingredients; sustainability with Sun Chips. An ad: “an excellent source of potato chips” is unlikely to lead to a challenge, though their research showed that many people didn’t realize that potato chips came from potatoes. They did use consumers to generate Super Bowl ads, which raised regulatory issues.

Negotiation/NAD: advantages—minimal time, minimal cost, private resolution (don’t want to be perceived as bully picking on smaller competitors), preserves business relationships (retail customers often have private label brands who are then competitors as well as customers). Disadvantages: no mandatory time frame for response, no process to compel response, no discovery mechanism, more likely to compromise on result/time frame; no process to enforce resolution. Imminent market threat means you’re much more likely to go to court.

Steven Tugentman, SVP & Deputy General Counsel, Verizon Communications

NAD dispute Verizon brought: competitor claimed to have most reliable network; Verizon disagreed. Useful because you don’t necessarily want all your engineering studies out in public. NAD allows meetings with back-and-forth, different from courtroom/depositions. NAD can be good at scientific evidence and its relation to consumer perception. On the other hand, while the NAD often is speedier than trial, it’s not speedier than a TRO. Took many months to win. The claim we thought was deceptive ran for month after month. The other side appealed; another 2 months passed. Felt a little like Pyrrhic victory.

NAD has advantages in speed (v. full litigation) and money. What is the true objective? The people who handle these disputes are a pretty small group; can develop a relationship, understand what’s in a competitor’s mind. Remember: NAD has no injunctive relief, limited discovery, voluntary compliance.

NAD will take every reasonable interpretation of an ad, whereas a court will sharply distinguish between express and implied claims. Comparative v. monadic claim goes to cost of challenging/testing.

David M. Moss, Assistant General Counsel, Consumer Health, Pfizer

All our products are OTC, but we have a diverse portfolio, many leading brands. Advil, from the moment of its introduction, has been involved in litigation—Tylenol, Aleve, Excedrin; a competitive category where challenges can be expected.

Going to the networks: to begin a formal complaint at the major networks regarding a competitor’s ad. Fox no longer adjudicates claims and sends parties to the NAD. Key advantages: relatively inexpensive—two rounds of written submissions followed by a meeting, which he likes to do when possible. Speed: it can be fast, around 3 months, faster than NAD and full-blown litigation. Adjudicators are the same people clearing ads every day; they’re very savvy and versed in ad law issues. You don’t know what judge you’ll get in a Lanham Act case, but networks have experienced adjudicators.

Key downside: limited remedy; win applies only to the network; competitor can continue elsewhere, including cable, radio, print, internet.

Going to the regulators: FTC, state AGs. If you can get the FTC interested, this is a grand slam, not just a home run: potential for 20-year consent decree, follow-on class action. FTC and many state attorneys are really experienced lawyers; if they dig in, they’ll do a good job. That said, this usually isn’t the chosen option. It’s very unpredictable. You can spend tens of thousands of dollars developing a great complaint and you may never hear again; never really know what will motivate the government to act. Also, even if the FTC is looking into the matter, there’s not much transparency about where they are in the process or how serious they are. Potentially significant time commitment/delay in action while the ad continues to run.

When would you do it? A safety related claim or a health claim; a claim that could hurt your product for years if allowed to stand. What’s the consumer element? The government won’t act if it views the issue as two competitors sniping. If there’s consumer harm, the government is more likely to step in.

Tom M. Monagan III, Kirkland & Ellis LLP

(Unfortunately, I had to step out during his discussion of the Lanham Act, which supplemented the other presentations.) Hypothetical: GNS, a supplement company, creates UPS-20, a wildly successful supplement that increases jumping ability by 20%. The biggest competitor runs an ad: HOPS-40, proven to increase vertical leap by 40%—don’t settle for the inferior performance of UPS-20. Fly twice as high with HOPS-40.” Your client says it’s tested the product and at best it’s only equivalent.

Options: Call competitor and ask for substantiation; file suit and ask for TRO; file NAD complaint; what else?

Tugentman: goes to the core product, and can’t be taken lightly. First step is always to talk to the competitor. They could give useful information. Don’t take marketing client’s claims about their studies at face value. If you have a relationship with the competitor, you can assess its reliability and the seriousness of its substantiation. But if they’re buying $20 million and launching on American Idol, they’re probably not going to stop the ad based on contact, so it’s time to start getting the TRO ready.

Moss: Send over the draft complaint with a C&D. Now they know you’re ready to go to court; you may get a different result.

Ad #2: Ad shows a normal-size person making a dunk. “HOPS-40. The best supplement for vertical leap. Go higher with HOPS-40.”

O’Neill: is this puffery? Best alone probably, but combined with “go higher” there is a specific claim that requires substantiation. Start with a phone call.

Monagan: How significant is that it is a monadic claim and not a direct comparison?

Moss: Goes to burden. “Higher” may support an argument that the ad is comparative, but it will increase what you have to show—the burden of proof is critical. Proving falsity is very different from showing inadequate substantiation.

Ad #3: Advance copy of Sports Illustrated with photo. Two versions: “Proven to increase vertical leap by twice as much as UPS-20,” and “Proven to increase vertical leap by 40%.”

Moss: Takes networks out of equation; size of audience may matter—sometimes competitors dip their toes in the water to see our reaction. Chance to reach out to opposing counsel and make clear they’ve got to pull back. These are establishment claims, and quantified, which raises the bar for them and makes it easier for us to prevail. When we’re being called out by name we are more likely to act.

Monagan: slight changes to the ad can really change the competitor’s reaction to the ad.

Tugentman: another issue: quantifying harm.

Ad #4: LeBron James shown with “Go higher with HOPS-40.” You think he’s never used the product.

O’Neill: Start by calling LeBron’s people and asking if he’s using the product; remind them of his potential liability under the FTC endorsement guidelines if he’s not. Not a situation where you go to court for a TRO. Maybe the FTC would be looking for another big case on endorsement, so it’s worth thinking about.

Monagan: if the FTC isn’t going to act, do you focus on the violation of the FTC Guidelines?

O’Neill: need to be really sure he’s not using the product. If he’s not then you can be pretty sure his people will fix it.

Monagan: takeaway: investigation is critical to how you proceed.

Ad #5: “HOPS-40 is clinically tested to improve vertical leap.”

Moss: the networks have a white-coat rule: a non-doctor should not be wearing a white coat in an ad, and you could bring that to their attention if they missed it. Also a clinical claim raises the bar for substantiation.

Scenario 2: Coco-HOPS, competing with a protein bar that comes in full and reduced (artificial sweetener) calorie. Ad on website: “Coco-HOPS increases vertical leap and contains natural ingredients.” It also has artificial sweeteners. Startup company; you don’t know them and testing will take some months.

Moss: Merits a call, asking about natural ingredients—if the producer is new to category, may want to alert them to concerns about those kinds of claims; may want to make it a C&D.

Monagan: NAD is a great forum for this kind of challenge.

The Realities of Bringing and Defending a Lanham Act Case in Federal Court Part 1: Preparing an Effective Strategy

Lawrence Weinstein, Proskauer Rose LLP

Laura Buckland, Chief Litigation Counsel, T-Mobile

Just before filing: how to prepare and plan. Applying the law to the strategic decisions in a litigation context, even if you don’t end up in court. A serious problem going beyond initial communications with the competitor. You’re fairly convinced that it’s at the core of the product line and that it has a material impact on you/your competitor. Key: what result do you want, can you get it, and where? Winning the lawsuit is not necessarily the goal of the client, who can have, for example, the goal of buying or stealing time. Or deterring the competitor from expanding the scope of the ad campaign. Which federal court? Which judge? Where am I likely going to be sued if I’m on the defense side? Distinguish client’s visceral reaction to good competitive advertising from risk analysis.

Weinstein: in this economy, outside legal expenses can be critical, given the greater expense of litigation today. Outside counsel has to think about client’s goal first and foremost. Corporate buy-in to litigation is essential or your representation may be a one-off.

Buckland: Success internally in a company is much different than success in litigation: if I win a case but blow my budget, I’m in trouble.

Weinstein: for emergency relief, forum selection really matters; the Lanham Act is not uniform nationally in terms of procedure/TROs and PIs. Practice varies radically. SDNY: you can be in a PI hearing within a week or 10 days of filing. On the other side, he had a PI last month where the motion was in January 2009. Some circuits make speed difficult to come by, especially if the court isn’t interested in the merits on first look. Any time a client asks you to investigate emergency relief, you have a tightrope between ensuring that the evidence is complete and running afoul of sometimes rigorous application of delay as precluding a finding of irreparable harm. In a PI motion, often people neglect establishing an impliedly false claim because the law is generally clear that requires a survey, even at the PI stage. What often happens is that people try to shoehorn claims that aren’t literal and unambiguous into literal falsity.

Buckland: rule of thumb for communicating with other side: have a reason for doing so, which will often exist. Why tells you what information you need to share, what you should say, and what your goal is. So to bolster a TRO application you may need to have contacted the other side. Paper trail is the only reason in that case. If you really hope to stop them, or stop a wider dissemination, or you’re trying to change some piece of the ad, then the communication will be different—phone call rather than letter; provide further explanation/information.

Be careful what you wish/ask for. Smart people on the other side can make an ad both stronger and more legally defensible, but worse for competitor, if you play the language right.

Getting client buy-in is a deep process, not just litigation and marketing attorney in-house and not just the marketing client. Depending on the size of the issue, may need general counsel/finance. Do they understand the investment they’re about to make in resources, money, time and energy? Today that ad is really angering them; next week it will be a different ad; next month, we’re angering competitors. Look for longterm existence. But more often, disputes outlive ad campaigns and the interests of internal clients. Meanwhile, she needs witnesses and documents and engagement.

Weinstein: client’s tolerance for counterclaims (more and more common), negative publicity (less media attention than consumer-v-company cases, but major battles will still attract attention), producing confidential/harmful documents.

Rebecca Tushnet, Georgetown Law School: I provided color commentary, including my thesis about the growing anti-lawsuit-against-businesses orientation of the federal courts and the ways that affects business plaintiffs in false advertising cases, from Iqbal/Twombly to materiality and puffery. Tiffany v. eBay as an issue spotting problem: because it was litigated as a trademark case, with a false advertising tail, the litigation is protracted and now there’s a remand with possibly insufficient evidence of consumer deception, maybe only saved by falsity by necessary implication or perhaps evidence of intent (if it exists).

Weinstein: the most practical litigation is when the claim is concededly unambiguous, whether there’s substantiation or not. People can disagree on the distinction between ambiguous and unambiguous, and you have to make a careful assessment. The ad in DirecTV (settling for cable would be illogical) is very similar on a theoretical level to the Verizon ad (there’s a map for that), and you might argue that the judges simply saw them differently.

Harm can come from a bad expert witness: inexcusable! There are lots of choices before a lawsuit gets started. Check qualifications and ability to stand up to rigors of attack.

Buckland: goes to how much time you have and what your objectives are. As the plaintiff, you control the timing enough to find experts to be lined up.

Weinstein: make sure your experts are experts in the things you’re asking them to testify about. If you’re going to be bringing a particular expert before a jury/your client, you want high degree of confidence in performance.

When advertising is in an area you know is likely to be challenged, outside counsel should be involved earlier rather than later. You can pay me now or you can pay me later!

California is a leader in dismissing cases on the pleadings, which (given its historical plaintiff-friendliness) means that the nation will soon follow. May make counterclaims in particular harder to survive challenge, because counterclaims are often reflexive and the pleading may be insufficient—garden-variety challenges claiming falsity.

Q: risk of declaratory judgment/losing choice of venue from C&D?

Buckland: yes, take that into account when you’re being careful about what you say.

Q: letter v. email v. phone call?

Buckland: depends on whether you know them. Do you really hope to accomplish something informally? Hitting reply to an email is easier and could give you more to work with if you want info.