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Looking for Fast, Reliable, Low-Cost Resolution of Advertising Disputes? Consider Using the National Advertising Division

Tuesday, February 5, 2013
By Claudia M. Vetesi, Morrison & Foerster LLP

Chances are you've never heard of the National Advertising Division (NAD) of the Council of Better Business Bureaus. So, you might be surprised to learn that the NAD is an independent self-regulatory body devoted to issues regarding truth and accuracy in national advertising in general, and comparative advertising in particular. But why would—or should—you consider using the NAD for your advertising disputes? Because it may deliver a faster, more efficient, non-public and dispositive resolution of difficult cases. Here's how it works.

The NAD:Regulating Honesty in Advertising

“We're the fastest.” “Book now and save 50%.” “Keeps food fresher up to five times longer.” These are just a few examples of the types of advertising claims that the NAD deals with on a regular basis. Created in 1971 in response to consumers' concerns about honesty in advertising, the NAD is a self-regulatory body that examines and evaluates advertising claims. While the NAD monitors advertising and can initiate its own challenges, the bulk of its cases are disputes between rival brands.


All matters are on the papers—there is no lengthy, expensive, and distracting discovery—and result in a quick and efficient decision in the form of a recommendation, which is backed by referral to the FTC or other regulatory agency if the advertiser fails agree to abide by the recommendation. Another benefit: there are no counterclaims.

NAD Plays by Its Own Rules

NAD matters are governed by a published set of policies and procedures. Here are the basics:

Who may bring a claim?

Pretty much anyone. Complaints may be submitted by competitors or consumers, and the NAD may also initiate an investigation. The majority of NAD matters are brought by competitors.

Types of claims.

From tooth whiteners to computer software products, the NAD will review product performance claims, superiority claims against competitive products, and all kinds of scientific and technical claims. But the NAD only reviews national advertisements or those disseminated on a broad regional basis. This includes advertising placed on broadcast or cable television, radio, magazines, newspapers, on the Internet (or in apps) or commercial online services, or provided direct to the home or office.


A couple of important exceptions: the NAD does not review challenges regarding the “good taste” of an advertisement, moral questions about products that are offered for sale or political or issue advertising.

How does it work?

The NAD provides a forum for voluntary self-regulation. The process is confidential and involves a series of written submissions, and a meeting with the NAD.


A party may initiate an NAD matter by filing a complaint and paying the required fees. The complaint is generally in the form of a letter to the NAD setting forth the reasons that the claims are or may be false and misleading. If the NAD accepts a case, it will send a letter to the advertiser responsible for the advertisement in question. The NAD generally accepts most cases as long as they meet the published policies and procedures.


The advertiser then has 15 days to respond to the NAD's letter and the complaint. The response should include substantiation for the advertising, any other objections, and copies of all advertising relating to the matter. The response may not include a counter challenge. If the advertiser wants to bring its own claim, it has to file a separate case.


The challenger has the opportunity to reply to the advertiser's response within 10 days. If a reply is filed, the advertiser has 10 days to submit a final response to the NAD. Once the submissions are complete, the NAD will generally meet with each party in person or by phone.

The NAD's decision

The NAD first presents its “final case decision” to the parties and gives the advertiser five days to prepare and submit an “Advertiser's Statement.” The advertiser must state it agrees to modify/discontinue the challenged advertising or chooses to appeal the decision. The NAD will then publish the decision in a press release and post it in the next issue of NAD Case Reports. One important rule to remember: by agreement, the parties are not allowed to publicize an NAD decision.

What are the likely outcomes of a n NAD decision?

The NAD is likely to make one of three determinations for each claim at issue: (1) the evidence provided by the advertiser substantiates the claim; (2) substantiation is not sufficient to support the claim and the NAD recommends modification in current and future advertisements; or (3) the evidence is totally insufficient and the NAD recommends that the claim be discontinued. There is no other relief available (e.g., no damages!).

Who exactly decides the matter?

The NAD has a number of advertising review specialists who are attorneys with expertise in claims substantiation, advertising and trade regulation, litigation and arbitration.

Can you appeal a n NAD decision?

Yes. You can appeal an NAD decision to the National Advertising Review Board (NARB). Each party, as well as the NAD, has the opportunity to submit a letter in support of its position. There is generally a hearing with all parties present.

What if an advertiser doesn't want to participate?

Believe it or not, the NAD has a voluntary compliance rate of 95 percent plus. An advertiser can avoid participating in the process if it has already pulled the advertising before the complaint is filed and provides written assurance that it will not run the same claims again (or it can pull the advertising immediately after the complaint is filed and hope the NAD closes the matter). The NAD can also refer a matter to the Federal Trade Commission (FTC) or other appropriate agency (such as in cases involving industries over which the FTC has no jurisdiction, such as national banks) should an advertiser refuse to participate or comply after a decision.

The NAD as a Lower-Cost Alternative to Litigation

Advertisers (and their counsel) should keep the NAD in mind as a lower-cost alternative to litigation. Here's a score sheet for keeping track of some of the pros and cons.

Pros:


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  • Significantly less expensive than litigation  

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  • Transparent and confidential process  

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  • No discovery  

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  • NAD rules provide for strict timetables  

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  • NAD attorneys have advertising expertise  

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Cons :


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  • NAD decisions are recommendations; they have no strict legal binding authority (though the threat of a federal regulatory referral makes compliance extremely high)  

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  • Process is voluntary  

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  • No injunctions  

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  • No damages  

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The bottom line: bringing a claim before the NAD may be a way to get a rival to pull or modify a false or misleading advertisement without ensnaring you in litigation, including discovery, higher costs, and the potential for counterclaims. Unless you need immediate results, the NAD might be the right process for you.

Conclusion

Advertisers and their counsel should take some time to consider the NAD for any current or future advertising disputes. It may deliver a victory in their next advertising battle without resorting to an all-out war.


Claudia M. Vetesiis a litigation associate in Morrison & Foerster LLP's San Francisco office. She currently represents clients in matters before the National Advertising Division of the Council of Better Business Bureaus and the National Advertising Review Board.© 2013 Morrison & Foerster LLPDisclaimerThis document and any discussions set forth herein are for informational purposes only, and should not be construed as legal advice, which has to be addressed to particular facts and circumstances involved in any given situation. Review or use of the document and any discussions does not create an attorney-client relationship with the author or publisher. To the extent that this document may contain suggested provisions, they will require modification to suit a particular transaction, jurisdiction or situation. Please consult with an attorney with the appropriate level of experience if you have any questions. Any tax information contained in the document or discussions is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code. Any opinions expressed are those of the author. The Bureau of National Affairs, Inc. and its affiliated entities do not take responsibility for the content in this document or discussions and do not make any representation or warranty as to their completeness or accuracy.

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