Challenging Competitors' g g p Comparative Advertising

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       g g     p
Challenging Competitors' 
Comparative Advertising
Evaluating Legal Options to Respond to Competitors' False or Misleading Marketing


1pm Eastern   |   12pm Central | 11am Mountain     |   10am Pacific

                                                                           Today’s f l f
                                                                           T d ’ faculty features:

                        Barry M. Benjamin, Partner, Kilpatrick Townsend & Stockton, New York
                              Christopher A. Cole, Partner, Manatt Phelps & Phillips, Washington
                                          Randall K. Miller, Partner, Arnold & Porter, McLean, Va.

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“Challenging Competitor Comparative
          Advertising Claims”

         January 11, 2011

         Barry M. Benjamin
   Bbenjamin@kilpatricktownsend com

•                           rising
    Comparative Ad claims rising, not just in ways
    that hit major media
•   Generic drugs – database equivalency
                 g               q        y
    claims, patent overlay
•   Regulated industries like construction and
              materials,                  non
    building materials competitor claims non-
    compliance with building codes
•   Woodworking tool manufacturer’s former
    bl d supplier advertises awards, actually
    blade       li   d ti          d     t ll
    tool maker that won awards

• Competitor X rolls out offending ads,
  your marketing clients are screaming at
  you ‘DO SOMETHING!!’
• What do you do?

1. Do Nothing. Least expensive in terms of
   legal f
   l           but              t d
       l fees, b t can company stand it?
2. Non-legal remedies – counter advertising
3. Legal remedies:
  •   Cease and D i t l tt / Pi k up T l h
      C        d Desist letter Pick  Telephone
  •   Network Challenge
  •   Drop a Dime: Squeal to the government
  •   NAD
  •   Federal Action

1. Do Nothing. Least expensive in terms
   of legal fees, but can company stand
                        Does General Mills
                        have to do anything
                        in response to this?

• Kelloggs’ ads - cereal “clinically shown to
            kids                          20%
  improve kids’ attentiveness by nearly 20%”
• Study actually showed - Only half showed
  any improvement in attentiveness; only 1 in 7
  improved b 18% or more and only 1 i 9
  i        d by                  d l      in
  improved by 20% or more
• Kids who ate Frosted Mini-Wheats were
  compared against kids who ate nothing or
  only had water
                   (April             $10.5
• FTC settlement (April, 2009) and $10 5
  million class action settlement (Nov. 2010)
  (plus $$$ for lawyers in the amount of ???)

2. Non-legal remedies – counter
   advertising campaign

•   November 18, 2009: “AT&T loses
    request for injunction against
    Verizon's Map for That ads”
•   The next day:

Before discussing Legal Remedies, consider
   important issues before taking action:
   i     t ti       b f    t ki     ti
1.   Most likely result – offending ad stops, that’s it
2    M t
     Monetary d               ibl b t t lik l
                damages possible, but not likely
3.   Legal action expensive, likely won’t recover legal fees,
     costs for surveys, etc.
4.   Counterclaim guaranteed
5.   Insurance coverage issues
6.   Discovery is painful
7.   Prepare for publicity

• Legal remedies:
  – Cease and Desist letter / Pick up
  – Network Challenge
  – Drop a Dime: Squeal to the government
  – NAD
  – Federal Action

Cease and Desist letter / Pick up
  T l h
• Counterpart at competitor, develop
      d l ti     hi
  good relationship
• Inexpensive; No publicity
• No enforcement, ad continues to run
  during negotiations
• No surprise if file action
• If no resolution, lost time
Network Challenge
• Inexpensive
• Confidential
• Enforcement – if successful network will require
  changes to ad
• No discovery, sophisticated reviewers, no surveys
• BUT: only applies to specific network
• Inconsistent decisions among networks w/r/t same ad
• Huge number of channels not under Network

Drop a Dime: Squeal to the Gov’t
     t k      b     ’t d lik l t
• If taken up by gov’t, ad likely stops
• Confidential while investigation conducted,
  but public when complete or if administrative
  complaint filed
       p                  g
• Inexpensive to challenger
• BUT: will gov’t be interested?
                          g            p
• No control over investigation, no updates
  from gov’t on what they are doing
• S…….L…….O…….W…….

NAD Challenge
• National Advertising Division of the Council of
  Better Business Bureaus
• Relative to Federal court litigation,
• Experienced lawyers on staff
          3-4 months,
• Takes 3 4 months possibly longer
• Voluntary tribunal, need advertiser’s consent
  to participate
     p      p
• Only get two submissions and one meeting
  with NAD lawyer

NAD Challenge
• Filing fees in the $$$ thousands
• No discovery, no depositions, no subpoenas
• No monetary damages
• Non-binding decisions, but if non-compliance,
  NAD may refer to FTC
  Burden f         f    l h th      d l i
• B d of proof – only whether ad claims
  were substantiated or not, disting. from
  Lanham Act where B/P is falsity y
• Proceeding confidential, but decision is not
• Consumer survey evidence optional

Federal Action – Lanham Act
• “Nuclear Option”
• Most publicized most expensive but if
       publicized,       expensive,
  successful, best results
• Turn things over to Randy to discuss….

Lanham Act
L h    A t

      Randy Miller, Arnold & Porter LLP
Lanham Act -- more potent over past 10 years

 Courts more willing to find liability
 Courts more willing to enjoin major campaigns

    Rise of Necessary Implication Doctrine
   Prilosec “One Pill. 24 Hours. Zero Heartburn”
   Mylanta Nighttime
   Nicoderm Sleep Disturbance
   2d Circuit adopts -- Time Warner Cable

“Advertising” is Broadly Defined
l   Traditional advertising
l   Other promotional
     l Verbal statements

     l Emails

     l PowerPoint Presentations

Greater P   ibilit f M   D       i
G t Possibility of Money Damages in
          Lanham Act Cases
 PBM / Infant Formula
 Bracco / X-Ray
 Splenda Settlement

         Just                 floss
        “Just as effective as floss”

         Splenda: “Made From Sugar”
“Artificial Sweetener”
 Artificial Sweetener                          p
                         “More Natural Than Competition”

       Lanham Act Hurdles to Entry
 Winter case
 Irreparable harm will not be presumed, must be
  supported with evidence
 Surveys usually needed, surveys more
          ibl    Daubert
  susceptible to D b attack    k
 Defenses of unclean hands, voluntary cessation

  p            g
Rapid Pace Litigation

   TRO/Pl

   Expedited Discovery

   Advance Planning Desirable

    Cost of Lanham Act Cases / Many Reasons to
             Avoid Lanham Act Lawsuit
   Rambo tactics
   expedited discovery
   fast-paced motions practice
   intense and fast moving battle of experts
   p blicit / counterclaims / class action la ers
    publicity co nterclaims                 lawyers

    Sometimes You Have to Litigate

 Unreasonable adversary
 Compromise not
  possible / Impasse
 Need to “send
  – To adversary
  – To other potential

Sometimes You Have to File Lanham Act
S   ti    Y H       t Fil L h     A t
         Suit Despite Costs
 Need for speed
 Adversary’s campaign causing too much
  Adversary s
  immediate market loss


Managing the Three-Ring Circus

        NAD, agencies and the courts

 Christopher A. Cole
 Ch i t h A C l
Possible scenarios where NAD is not the end of the matter           34


                  Advertiser does   Advertiser does
Advertiser does                                       NAD closes case
                   not comply.       comply and is
  not comply.                                          d i i      i l
                    Challenger          sued or
 NAD refers to                                        and other things
                    sues under        investigated
 FTC/agency.                                              happen.
                   Lanham Act.          anyway.
Possible roads to NAD closure                              35


                       Advertiser gets       Advertiser
Advertiser sues
Ad ti
                     sued in class action   investigated
   for D.J.
                       or Lanham Act.       By FTC/AG
Lesson 1: prepare as though NAD may not end the dispute                                               36

• NAD rules provide that the record is confidential and proceedings may not be
  disclosed or publicized. The parties must also agree not to subpoena NAD
     its t ff
  or it staff.
• BUT, the NAD case record is certainly discoverable during litigation against a
  participant to an NAD proceeding, just as any other business record would
• What does this mean in practice?
   1. While you can pick and choose evidence to submit to NAD, do not cherry-pick or lie. Your next
   opponent might uncover the fact.
   2. Follow litigation protocols regarding communicating with experts. Don’t assume that because
   this is an NAD matter, communications will not be found out by the other side.
   3.                                                              court,
   3 Testing that may be good enough for NAD may not win in court so prepare yourself for the
   potential that your testing may wind up in front of a judge/jury.
Example 1: hypothetical NAD case involving health product                          37

• 2006 – NAD files self-monitoring case regarding Health Product A.
  Advertiser defends. Hides evidence; overplays testing. NAD affirms claims.
  Advertiser thrilled and emboldened by NAD victory
• 2008 – Advertiser challenges competitor at NAD on grounds that only its
  product has been found to be “clinically proven” to work (as affirmed by
  NAD) Competitor asks NAD to reopen prior case against advertiser NAD
  NAD).                                                       advertiser.
  refuses, leaving competitor no choice but to resort to other means….
• 2009 – Advertiser is sued in class actions in three states. FTC/AG’s initiate
  investigation.                  subpoenaed.
  investigation NAD records are subpoenaed
• 2010 – Advertiser settles FTC investigation, class actions, AG investigations.
  Ceases claims. Pays big fine. Endures terrible press.
Lesson 2: using the NAD’s jurisdictional rules to your advantage.                  38

• NAD Procedure §2.2(B)(i)
  If, at the commencement or during the course of an advertising review
  proceeding, NAD/CARU concludes that the advertising claims
  complained of are: . . .(b) the subject of pending litigation or an order by
  a court; (c) the subject of a federal government agency consent decree
        d       NAD/CARU h ll d i the h ll                that the
  or order . . .NAD/CARU shall advise th challenger th t th complaint i l i t is
  not, or is no longer, appropriate for formal investigation in this forum.
  Upon making such a determination, NAD/CARU shall advise the
           g                            p     ,
  challenger that a case will not be opened, or in the event that an
  advertising review proceeding has already been commenced, shall
  administratively close the case file and report this action in the next issue
  of the Case Reports.
Example 2: Miller Brewing Company/Miller Genuine Draft and
Miller Lite Beer, NAD Case Report 4290 (Feb. 2005)                 39

• Following unsuccessful network challenge, A-B simultaneous
  challenges Miller’s “more taste” claims at NAD and at the TTB.
• Miller notifies NAD of TTB proceeding, invokes NAD Procedure
  2.2(b). Seeks administrative closure at NAD.
• NAD closes, referring matter to the TTB for decision.
• TTB determines claims are appropriate.
Lesson 3: if you are the advertiser, consider bucking the conventional
wisdom and go to court instead of proceeding at NAD.                          40

• An advertiser might be better off in court than at NAD if:
  1 The challenger seeks to challenge implied claims which are tenuous
  1.                                           claims,         tenuous,
  and for which it has no consumer survey evidence.
  2. The challenger is unlikely to carry its burden of proof in court.
  3. Discovery would assist the defense, e.g., you suspect the challenger’s
  testing evidence is rigged.
  4. Your client has the financial wherewithal to fight in court, and the
  challenger does not.
  5. Your client has strong counterclaims or the defense of unclean hands,
  which closely relate to the merits of the challenged claim.
  6. Your claims are based closely on FDA-approved labeling and you may
  have a pre-emption defense not available to you at NAD.
  7.                             court.
  7 You have a laches defense in court
Example 3:
Evercare Co. v. 3M Company, No. 1:2007cv02215 (N.D. GA, 2007)                      41

• 3M files challenge at NAD regarding advertising for Evercare’s lint roller
• Evercare initially responds but then files declaratory judgment action against
  3M in N.D. Ga. 3M counterclaims for false advertising as well as trade dress
• When presented with the declaratory judgment complaint by Evercare, NAD
  agreed to administratively close the matter. The EverCareCompany/Lint
  Rollers, NAD Case Report 4724 (Sept. 2007).
Lesson 4: if you started at NAD, wanted to be at NAD, but were
pulled into court, don’t take “no” for an answer                   42

• As challenger, defend your choice of forum.
  Courts        decide to t the    di       ti l l
• C t may d id t stay th NAD proceeding, particularly if it
  is far along.
• Especially busy courts may be enticed by option to allow third
  party to resolve dispute, which may result in settlement and
  removal of case from docket.
• If third-party proceeding has resulted in NAD administrative
  closure, considering contacting that third party to encourage
  them to stay, non-suit, or never serve the complaint.
• This may not always work, and may backfire.
Example 4: Russian Standard Vodka, Inc. v. Allied Domecq Spirits
& Wine, USA, Inc., 523 F.Supp.2d 376 (S.D.N.Y. 2007)               43

• Stoli files NAD challenge to Russian Standard
  ads that allegedly disparaged Stoli’s “Russian
• RS files for declaratory judgment in SDNY.
  NAD administratively closes with specific “leave
  to re-open.”
• Stoli moves to stay the case in order to allow
  NAD to resume. Court grants motion:
            g              g y p
   “Allowing the NAD, a highly reputable institution, to
   provide its own expert view . . . would be extremely
   useful in resolving remaining claims in the complaint.
   This decision would promote judicial economy and be
   informative to the court in its own decision regarding
                                                  g      g
   the remaining claims. Furthermore, NAD’s decision
   would promote settlement between the parties.” 523
   F.Supp.2d at 385.
Lesson 5: be prepared to argue about whether NAD decisions are
admissible in court and for what purpose.                                          44

• NAD decisions are almost certainly not admissible to prove liability for false
  advertising. They do not have collateral estoppel effect.
• Facts adduced during the NAD proceeding and positions taken by each party
  are certainly fair game for discovery, and may be introduced into evidence.
• NAD recommendations (particularly if ignored) may be influential to courts in
  the context of preliminary injunction proceedings.
• NAD decisions are likely admissible to prove a course of conduct by an
            , g,                     p
  advertiser, e.g., to demonstrate a pattern of “cheat and retreat” or
  noncompliance with NAD recommendations.
Example 5: Expedia, Inc. v., 2009 U.S.Dist.LEXIS
109477, No. C09-0712RSL (W.D. Wash. Nov. 2009).                                45

• Expedia challenged Priceline ads at NAD. The case is fully briefed,
  submitted and respective parties have already met with NAD.
                      decision,             Priceline.
• While waiting for a decision Expedia sues Priceline It notifies NAD and
  requests administrative closure.
• NAD closes the case but writes an “advisory opinion” adverse on the merits
  to Expedia. Invites remand so decision can be made final.
• Priceline moves to stay, presenting the court with copy of NAD’s decision,
  and discussing ad nauseum in 20 pages of briefing.
  Court denies t but has damage b
• C t d i stay, b t h d              done?
                                been d   ?

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