Friday, June 18, 2010

Litigating & Resolving Advertising Disputes, part 6

Making an Effective Case Directly to the TV Networks

Jennifer Santos, Vice President, Ad Standards, NBC

History of network challenges: 1971, FTC started encouraging comparative advertising. The major networks have guidelines, some written and some unwritten. Main guidelines: claim substantiation is where a lot of challenges come from. All advertisers must provide a reasonable basis for all express and implied claims. Establishment, comparative, clinically proven, preference, and doctor recommended claims get challenges—have to provide the studies; we love double-blinded, placebo-controlled trials. When there’s no competitor named (Brand X whitens 40% better!), you have to provide support for a comparative claim against the top 85% of the relevant market. We usually don’t allow “clinically proven” without two double-blinded studies, or “clinically shown” without one. For preference claims, prefer central testing location to home use results. For preference claims, the gap must be statistically significant. Must be at least 20% of doctors for doctor recommended—some recent challenges on this.

Other things we look at: taste and decency. Complaints here come from viewers, rarely from advertisers.

Chrysse Spathas, Director – Commercial Standards, ABC

We review, but we only have access to one side. Thus, any commercial we broadcast may be challenged. Take viewer complaints seriously, though they’re rare. ABC’s procedures/guidelines are similar to other networks’. User-friendly—can pick up the phone and we’ll walk you through the process. One nuance for ABC: The advertiser-challenger must first contact the advertiser and make a good-faith attempt to resolve concerns. All we’d require is a letter to the competitor.

Every challenge is reviewed de novo; the supporting materials submitted by the advertiser don’t automatically come into the challenge proceeding; you’d have to resubmit. They remain confidential, as does the challenge proceeding as a whole. Process is similar to that at the NAD. Challenging letter with supporting data. Review for merit, send to advertiser who has 10 days to respond. We don’t do paper transfer—you are required to send the same materials to the advertiser. As an advertiser, you have the right to declare some data confidential if there’s a legitimate interest. Further iterations/hearing have 10-day timeframes. If there’s a revision, would work with advertiser on timeframe for revised creative. Advise challenger of the outcome. There may be expedited review—5 days if there is good reason.

ABC typically permits a challenged ad to continue unless enjoined, it’s voluntarily withdrawn, the advertiser refuses to participate, or there’s been an adverse decision in some relevant forum.

Bob Bourque, Simpson Thacher & Bartlett LLP

Outside counsel’s perspective: the network option is strategically important where a controversial commercial has just begun airing. The process moves relatively quickly, so networks may be good at getting prompt action. Also cost-effective, especially by comparison to federal court action. High quality of review: networks have expertise on the issues. Also it’s confidential, and there’s no discovery. Nobody has to see the raw data submitted to the networks, which can be advantageous. Assume that your adversary is calling the networks and explaining why the ad should stay on the air; call to talk yourself. You want a hearing; can be done by phone, but he’d go in person. You can bring an expert or an employee who’s good at presenting information and answering questions.

Don’t assume that you’ve got every one of the networks covered. If there’s an ad on MSNBC, they have their own clearance procedure.

Mary Jane Saunders, former General Counsel, Subway Franchisee Advertising Fund Trust

Ask what you’ll need to do to educate the networks to see the problems with an ad. Often the problems are below the surface: whether the people in the ad being portrayed as real consumers are hired actors. The way the product is being presented, or the way a study is being interpreted. Thus, you need to know the competition and the product lines. Need to know their usual claims and identify the differences. Sometimes big flaws are subtle and you can show the networks how to see them. Also you have to make sure your own house is in order—how do you interpret studies in your own ads, etc. Decide who in the company will be handling the challenge—lawyers may not be best in dealing with networks; media people can talk salesperson to salesperson. If it’s a lawyer, must understand both the science and the business impact.

Also need to know who to contact at each of the networks. Know that ads appear on different networks—an ad on the CW may not appear on ABC.

Timing of a challenge also important—it’s at least 30 days. Must communicate with each network individually. May be more than the useful life of an ad, especially if there’s any extension.

Is the ad worth challenging? Marketing will tell you that any competitor’s ad is bad. But the networks are in the business of accepting ads, and sometimes it’s not worth a challenge even if they’re attacking or poking fun at you. Are you actually being hurt somewhere else than your pride? Are sales being affected? Many competitor-challenged ads have no positive impact for the advertiser. Maybe you want to challenge to show the competitor you’re paying attention, but you don’t need to react to every one. Compete up, not down. Competitors below you in sales/size will attack up. But they don’t always do a good job. Consumer surveys: consumers like you to focus on your products. They don’t really care if you think you’re better than the guy down the street. They want to make up their own minds about the comparison. Know your consumer base to know whether an ad is worth attacking.

In tough economic times, there will be more comparative ads. Often a sign of desperation. You aren’t getting the customers into the store, so attack the others. If it isn’t moving the needle, then you may not need to take your guns out of the holster.

Is the network challenge the best approach? Some networks won’t listen: Fox will send you to NAD. Challenge may not get ad off the air, but may increase network sensitivity to future ads. If you’re in the middle of a network challenge, some networks will refuse to approve additional ads in the same genre from that advertiser. The moment they get wind of an NAD proceeding, most networks will freeze a network challenge. They’ll follow the NAD. Sometimes that means you’re halfway through the 30 days and starting over. Must consider whether what matters more to you is time, sending a message, or influencing future ads. For real speed, try for a TRO. Network challenge costs less than NAD; she recommends building into budget funds for NAD and network challenges, and allocation beforehand of cost between legal and marketing departments.

Canada and Australia: US humor works well in Australia, and people are interested in aligning with Canadian adverising. Don’t assume that US comparative advertising will be ok in Canada. Canadians are extremely literal. Puffery standard is very narrow. You have to establish that the claim is so exaggerated that no one in his/her right mind would believe that it was factual. Move carefully with “made in Canada” claims; use of the Canadian flag, maple leaf, Mounties—things you can get away with in the US won’t fly there. Very sensitive to ads that play on superstitions and fears—might be able to use people’s fears of bugs in the US, but not so in Canada.

There is a Canadian code of advertising standards, primarily looking for accuracy and clarity. Comparative claims can’t unfairly disparage or attack others or exaggerate the nature or importance of competitive differences. Often very useful if you want to go after a competitor—you can argue that just about anything exaggerates the nature or importance of competitive differences. Be careful of IP traps that would be perfectly fine in the US. You can get a claim of copyright infringement if you use your competitor’s label in your ad.

Australia: Broadcast Advertising Clearance Centre preclears most ads, requires substantiation for everything. If you get it through that, competitor challenge will probably fail. There is detailed guidance for comparative advertising, and a commercial television industry code of practice. Don’t ignore consumer complaints, no matter how bizarre. Your ad makes fun of overweight people: respond to the complaint. Your ad is encouraging bad eating habits: respond to the complaint. Your ad made my grandchild afraid of clowns: respond. Otherwise you will end up prevented from airing regular ads by default. Tailor to Australia—use flavour and colour. Make sure your references/evidence are Australia-oriented.

Q: what if the NAD rules and the advertiser refuses to comply, what will you do?

Spathas: we’ll come to our own conclusion. We have the utmost respect for the NAD but it’s not our duty to enforce NAD rulings.

Santos: We’d make you go through the challenge process, but we can expedite it. We’ve done that before and agreed with some of the NAD decision and disagreed with some. We will suspend a challenge until the NAD decides if one is pending, but we’ll restart it if you come back.

Q: what happens if you receive a subpoena from a class action lawyer—what then for confidentiality?

Spathas: We’ve never had that happen. The idea is to preserve the clearance and challenge process, so we’d very seriously treat the information as confidential and do our best to maintain it as such.

Q: what’s the volume of challenges?

Spathas: a fraction of what NAD sees. Maybe 20 a year.

Santos: 10-15 a year. We’ve recently seen some challenges in categories we’ve never seen before.

Q: Is there ever a standing issue on challenges? If they don’t mention me, can I challenge their ad?

Spathas: Yes. Not limited to comparative ads.

Santos: we’ve allowed non-direct competitors to challenge ads.

Q: what about the TV ad that Kellogg ran that the FTC went after? The FTC’s position seems to have been that the ad was obviously flawed.

Spathas: was not on our radar.

Santos: we get a lot of complaints about things run locally that never ran nationally.

Saunders: ads are generally cleared through the agency. Local ads: you can’t go to these guys for ads in just one market.

Q: what’s the percentage of success in challenges?

Spathas: majority of cases, they work with advertisers to modify the ad. Ads have lots of variations—supers, disclaimers, exclusivity claims/no exclusivity claims.

Bourque: almost every one in his experience ends up with some sort of modification.

Santos: networks don’t talk to each other about challenges. That separation is important to us.

Q: How much weight to you give to disclaimer supers? In-house counsel thinks: NAD and FTC don’t like them, but networks have type and size and duration requirements that are less restrictive.

Spathas: those are minimal requirements, that doesn’t mean we blindly use a super as a coverall fixit. We give it the weight it warrants depending on the gravity of the underlying claim. How important is the disclosure? If it’s sufficiently important we ask for audio.

“Pushing the Envelope”—Case Studies Examining Advertising that has been the Focus of Recent Adversarial Proceedings

Linda Goldstein, Manatt Phelps & Phillips LLP

Trends: battles increasing in numbers and intensity, and increased diligence about competitors’ ads even if it doesn’t ripen into a challenge. More elongated strategic process—up to a year in advance thinking about possible offensive and defensive strategies. Challenges are not limited to TV ads. Internet, print, sometimes packaging/labeling even without a broadcast ad. That’s significant because marketers take greater risks on the internet than in broadcast because of assumptions about ease of fixing and attention paid by competitors. Finally, viral component to brand wars. C&Ds can end up on the internet; think about public opinion.

NAD: caseload higher than ever, but they’re trying to tighten deadlines—she can’t get the kinds of extensions she used to. NAD perhaps more than the courts is becoming increasingly stringent about surveys—at least at the level of a §43(a) case; increasingly rejecting surveys based on flaws. Product testing continues to be subject to rigorous review. Disclaimers: NAD has never seen a disclaimer that it likes. They’re tolerated, but not a cure for an ad. In certain areas where there aren’t industry standards, the NAD is stepping in with testing, standards, definitions. Strange procedural interplay between courts and NAD—used to have a predictable path, and now there are monkey wrenches.

Lanham Act trends: more aggressive litigation; more companies are going for damages in reaction to difficulty getting PIs. Economy makes companies wary of litigation, but increase in filings in Q4. Courts are responding by making it harder to win—tightening standing, injury requirements for PIs; eliminating presumptions of harm. Increasingly difficult to get a PI—now the exception instead of the norm. Many cases go beyond the PI stage—it used to be that you gave up if you didn’t get the PI, but that’s less true.

Christine Haas, Editor, Broadcast Standards and Practices, ABC Inc.

We’ve seen a sharp increase in comparative ads. The number of challenges is remaining consistent. Challenges span all product categories, but most challenges tend to come from the most competitive claims—OTC drugs, automotive, and food products. Unlike NAD, we haven’t seen network challenges regarding environmental/green claims, probably due to their noncompetitive nature. Arguments made to us during the challenge: we see increasing use of consumer surveys and requests to interpret implied messages.

Goldstein: soup wars—Progresso v. Campbell’s Select Harvest—MSG and salt and other unpronounceable ingredients, which were actually typically found in foods (Goldstein represented Progresso). The blind taste test commercial implied better taste, implied that Progresso had a chemical taste; Campbell’s had naturally occurring MSG even if it didn’t have chemical MSG; overall the natural claim made Progresso look like the Love Canal. NAD likes to allow advertisers to tell consumers about their ingredients; Campbell’s argued that the ad was puffery. Progresso submitted a consumer survey showing reception of implied claims; NAD ripped it apart, but still concluded that the commercials did contain the implied claims and ordered the advertising discontinued. Victory, but it took a long time to decide the challenge—December to March, missing the height of the soup season. Takeaway: a lot of NAD precedent exists where advertisers disparaged competitors by making their products sound bad for you. Particularly where the advertiser has the survey, the NAD seems to give some deference and put more of a burden on the challenger to show the implied claims are being made. Humor is no defense though. In terms of trends: heavy heavy scrutiny of consumer perception surveys; NAD is always willing to determine implied claims on its own.

Haas: was challenged at the network, though details are confidential. We looked at technical data, consumer research, and implied messages.

Goldstein: NAD concerns about surveys: Universe—over or underinclusive? Beginning to accept online surveys but prefers mall intercept surveys unless it’s an online product where you can capture the universe. Close-end questions: NAD recognizes such questions often have to be used, but think they’re often biased, particularly if not preceded by filter questions. Proper control ads preferred to control questions. The control ad has to be something an advertiser might reasonably run. In one case NAD said the control ad had to be comparative; a monadic test ad wasn’t a valid control. Another case: In closed-ended questions, at least one question had to reflect the advertiser’s intended message.

Cox v. Verizon: “Trying something different is not always better.” Dear Cox: Verizon quoted me one price but charged another; Verizon installer didn’t show up/took 8 hours/etc. Verizon challenged Cox’s testimonials and Time Warner’s and Cox’s claims to be fiber optic networks. Cox and Time Warner were fiber optic 90%, but that only goes to a central location, and then coax connects to the consumer’s house. Verizon’s fiber optic goes the last mile to the consumer’s home. Cox argued that the industry considers it a fiber optic network, but Cox’s SEC filings recognized a distinction between pure and hybrid networks. No consumer survey evidence. Cox defended the testimonials because they didn’t convey any impression of typicality. Verdict at NAD: consumers could reasonably interpret “fiber optic” to mean “only fiber optic.” Testimonials did create an impression of typicality. Must either show results are typical or that there is no net impression of typicality; Cox tried the latter but lost.

But then: Time Warner challenged Verizon’s claims to be 100% fiber optic network (“pure, undiluted … follow light straight to your home”). Combination of aural with visuals—light going right to the computer/screen—implied that fiber optic cable goes directly to the modem/router/home, when in fact the fiber optic ends at the home and then there needs to be a connection. Is that material? NAD found these claims substantiated—commented on significant investment to create the FiOS network and determined that consumers weren’t likely to interpret the 100% claim as meaning that fiber optics would extend to every device.

If there is no industry standard/test, NAD will step in and define it. If you go to NAD, you’re putting not just your competitor’s ad at stake but also what the industry standard will be. This may be worth it; they’ve got a lot of expertise. But keep it in mind.

Bias to the incumbent in the sense that where an advertiser invests a lot in innovation and tech, NAD will respect that and be sensitive to other companies bootstrapping.

When you tout a benefit important to consumers, merely having that claim may not be enough because NAD may read the claim more broadly.

Sprint: America’s most dependable wireless network. Verizon claims most reliable. Is there a difference between those? Sprint relied on Nielsen tests measuring connection success and success in sending and receiving data. Verizon had a more recent test showing superiority on session reliability and connection success. Sprint argued that signal strength should also be taken into account, because that’s necessary indoors; submitted data on percentage of cell calls made indoors. NAD rejected Sprint’s argument. Claim has to be based on most recent testing. Not persuaded that signal strength should be included, and didn’t think Sprint’s test was a good measure of signal strength. Sprint did disclose basis of claim in the ad, including definition including signal strength, but disclaimers were insufficient. Most importantly, NAD decided what dependability meant.

Postscript: some of the quirky things with procedures and NAD/judicial interplay. Shortly thereafter, AT&T challenged Verizon’s most reliable claim. Verizon brought a DJ against AT&T with the intent of mooting NAD’s jurisdiction. AT&T requested a stay to allow NAD to decide, particularly since NAD was in the process of deciding the Sprint case. Court issued the stay, NAD reopened the investigation, Verizon refused to participate, and case was dismissed as part of a global settlement. Court showed some deference to NAD jurisdiction.

Lesson learned: faced with competing standards/tests, NAD is willing to pick. And the interplay between courts & NAD is becoming more complex. You may not be able to control the course of your challenge.

Priceline ad: says it beats Expedia (her client). Expedia had a pending NAD challenge when more aggressive iterations of the ad appeared. Expedia decided to go to court because of a history of noncompliance; NAD administratively closed the case. Priceline asked the court for a stay. The court declined. NAD technically closed the file but issued a decision anyway, because the case had already been briefed and the evidence was in. Again, the strategy of a company trying to move from NAD to court turned out with an unfavorable NAD decision.

Jenny Craig v. Weight Watchers: Lessons: what were they thinking? Comparative claims require head to head testing between current formulations of the products. Courts are increasingly reluctant to grant TROs and PIs—yesterday’s judge straight up said that just because consumers were misled didn’t mean the ads were misleading, which she’s still struggling with. Judges are tempted to tell the parties to fight it out in the market. Claims of literal falsity are most suited for TROs. Venue is also important, and the SDNY in many instances can be a better venue for judges experienced with §43(a) who are less frightened/reluctant to issue TROs.

Haas: we are concerned with diet ads with testimonials in particular. We review carefully to avoid overstatements of products’ abilities.

Infant formula wars: PBM v. Mead Johnson; Enfamil campaign suggested that you had to feed your baby Enfamil or she’d have bad vision. $13.5 million in damages for PBM. Summary judgment to PBM on the counterclaim—survey was flawed, but also claim barred by laches. Mead Johnson hadn’t exercised due diligence, and PBM had been prejudiced by the delay because it had invested heavily in the “compare to Enfamil” campaign. Laches has increasingly been raised, and though it’s not always accepted it’s worth thinking about strategically when deciding on options. You may look at a claim and think it’s not worth the money; you have to decide what happens if the claim grows and becomes more aggravating—will you compromise your ability to challenge it?

H&R Block ad about having someone do your taxes instead of doing it yourself with software—represented Intuit; ad began on YouTube but then migrated to networks. One thing she did was alert the networks to the issue so they’d know a challenge was coming. Ran in tax season; the only thing left was to go to networks because nothing else was fast enough and because the issue was an implied claim of typicality.

Final note on taste issues: showed ad with two guys making out which was supposed to run for the Superbowl and ad with voluptuous model for Lane Bryant rejected by Fox and ABC. Lane Bryant argued that it was no different from a Victoria’s Secret ad and that the decision discriminated against larger women. The networks said they don’t take VS ads during family hour either. Postscript: sometimes being rejected by the networks can bring more publicity than your 30 seconds of glory on broadcast TV. Many news programs covered the Lane Bryant ad (but, I would note, not the ManCrunch ad).

Lessons: traditional legal options may not be sufficient; marketing strategies might be the best offense; advance planning and contingency options are critical; don’t underestimate the court of public opinion.

Employing Effective Settlement Strategies

Neal H. Klausner, Davis & Gilbert LLP

As a mediator, he’s a big fan of settlement. Has heard a lot about the various costs of not settling. Cost of litigation is not necessarily within your control. Experts, third party witnesses, demands from the court. Costs associated with withdrawing an ad voluntarily. Do you want to start discussion if possible before a potentially adverse ruling? Before discovery starts? Before you have to produce executives for deposition? Perhaps you need some modest discovery to assess your likelihood of achieving a monetary award. Insurance may be an issue—may frequently be unavailable for false advertising, there may be ad agency liability insurance available, or a D&O policy for individuals named. IP type claims may well be covered by a policy. (Check your “advertising injury” provisions.)

How to set up the agreeement: courts are scrutinizing class action settlements more carefully, and whereas clauses are a good way to educate the court about why you believe the settlement is fair. No admission of liability or wrongdoing—some states don’t permit those kinds of settlements. Settlement may provide it can’t affirmatively be used in a private action, though. For a civil suit, this will be a critical term—don’t want a Lanham Act case used against you in a class action. Monetary and non-monetary terms: devil is in the details. What are you agreeing to? What will you be able to say in the future? Defendant needs to be very careful, especially if facts/evidence might change in the future.

Corrective ads? Restrictions on future advertising.

Special provisions in a private action on inventory of ad and promotional materials—point of purchase, billboards, other literature already in the marketplace. Do they need to be retrieved? Do they just expire? Need negotiation.

Releases: scope, parties (make sure you get related parties), carve-outs.

Consent judgment: public document allowing court to retain jurisdiction over future disputes, with additional remedy for future wrongdoing: sanctions and contempt of court. Defendants mostly resist a consent judgment unless there’s some certainty that the ad/claim at issue will never be rebroadcast, in which case it might be an easy resolution.

Special issues in consumer class actions: increased vigilance of courts over class action settlements. Monetary terms v. nonmonetary (tellingly, he included coupons in this category along with injunctive relief). Defining the class for settlement purposes: as broad as possible! State v. nationwide class is an issue; get conditional class certification (if court disagrees with provisions, you want the right to back out of the certification) and notify (can negotiate who will pay and how it will be given, as well as type of proof required to be part of the class), with opt-out opportunity offered in the notice. Recite history of litigation to highlight fairness.

CAFA: coupon settlements are highly scrutinized, and situations where attorneys’ fees outstrip what the class gets. Strict requirement to notify states and federal officials to give them opportunity to appear at the fairness hearing—without notice, you may blow your release. Finally, fairness hearing and final court approval.

Roger A. Colaizzi, Venable LLP

How do you get the other side to think about settlement? Know the endgame: what’s important—market share, market segments, money damages, corrective advertising? For defendant: maintaining the advertising, maintaining market share.

Plaintiff: seek position of strength. Draft a complaint that is powerful and persuasive and complies with Iqbal and Twombly. Consult experts early; review substantiation; look for industry standards; draft complaint with specificity talking about the standard in that particular industry and showing that the defendant can’t meet that standard. Positive: immediately puts settlement on the table; negative—extra time and cost for drafting complaint.

Relatedly: emergency injunctive relief—laying the evidence out in the complaint in persuasive form may be enough to get you there.

Defendant: put plaintiff’s skin in the game. Think like a plaintiff considering a new action; emergency actions against plaintiff’s ad may be extremely effective if available. Research plaintiff’s ads, plaintiff’s products, applicable consumer regulations. Think outside the scope of the complaint, through letters and press releases—blog coverage.

As plaintiff or defendant, you need experts early, including early surveys.

Other ways to force settlement: settlement on appeal, in exchange for dropping of appeal. Agree to resolve using NAD or some other body. Offers of judgment: respond to these by filing your own. Offers of judgment put pressure on fees and costs if ultimate recovery is lower. Plaintiff has to decide what’s important to it.

Mediation: court-sponsored, court-ordered, and private mediation. Mediator tells each party about the weaknesses of its case. A good mediator, looking at the best case in the world, will say “you only have an 85% chance of winning,” because factfinders are unpredictable. Get a signed term sheet about the scope of the mediation. Very important to have the principals involved, and they often need to speak to each other without lawyers. Can often resolve the case by blaming the lawyers to get the deal done. Think also about creative business ways to settle—can be an opportunity to buy/license a product line. It’s not always about the ad claims.

Things to ask for that courts can’t provide: no comparative ads for a specified period; no trademark use even in fair use situations; no keyword ads. What testing can be used as support for claims.

Be careful: the offer of judgment has to be carefully worded so you’re offering to accept money rather than offering to pay it, if that’s what you’re doing.

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