Presenting a live 90‐minute webinar with interactive Q&A
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Evaluating Legal Options to Respond to Competitors' False or Misleading Marketing
TUESDAY, JANUARY 11, 2011
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
January 11, 2011
Barry M. Benjamin
Comparative Ad claims rising, not just in ways
that hit major media
• Generic drugs – database equivalency
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claims, patent overlay
• Regulated industries like construction and
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
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
• 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
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
• FTC settlement (April, 2009) and $10 5
million class action settlement (Nov. 2010)
(plus $$$ for lawyers in the amount of ???)
2. Non-legal remedies – counter
• November 18, 2009: “AT&T loses
request for injunction against
Verizon's Map for That ads”
• The next day:
Before discussing Legal Remedies, consider
important issues before taking action:
i t ti b f t ki ti
1. Most likely result – offending ad stops, that’s it
2 M t
Monetary d ibl b t t lik l
damages possible, but not likely
3. Legal action expensive, likely won’t recover legal fees,
costs for surveys, etc.
4. Counterclaim guaranteed
5. Insurance coverage issues
6. Discovery is painful
7. Prepare for publicity
• Legal remedies:
– Cease and Desist letter / Pick up
– Network Challenge
– Drop a Dime: Squeal to the government
– Federal Action
Cease and Desist letter / Pick up
T l h
• Counterpart at competitor, develop
d l ti hi
• Inexpensive; No publicity
• No enforcement, ad continues to run
• No surprise if file action
• If no resolution, lost time
• Enforcement – if successful network will require
changes to ad
• No discovery, sophisticated reviewers, no surveys
• BUT: only applies to specific network
• Inconsistent decisions among networks w/r/t same ad
• Huge number of channels not under Network
Drop a Dime: Squeal to the Gov’t
t k b ’t d lik l t
• If taken up by gov’t, ad likely stops
• Confidential while investigation conducted,
but public when complete or if administrative
• Inexpensive to challenger
• BUT: will gov’t be interested?
• No control over investigation, no updates
from gov’t on what they are doing
• National Advertising Division of the Council of
Better Business Bureaus
• Relative to Federal court litigation,
• Experienced lawyers on staff
• Takes 3 4 months possibly longer
• Voluntary tribunal, need advertiser’s consent
• Only get two submissions and one meeting
with NAD lawyer
• Filing fees in the $$$ 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
successful, best results
• Turn things over to Randy to discuss….
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”
Nicoderm Sleep Disturbance
2d Circuit adopts -- Time Warner Cable
“Advertising” is Broadly Defined
l Traditional advertising
l Other promotional
l Verbal statements
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
“Just as effective as floss”
Splenda: “Made From Sugar”
Artificial Sweetener p
“More Natural Than Competition”
Lanham Act Hurdles to Entry
Irreparable harm will not be presumed, must be
supported with evidence
Surveys usually needed, surveys more
susceptible to D b attack k
Defenses of unclean hands, voluntary cessation
Rapid Pace Litigation
Advance Planning Desirable
Cost of Lanham Act Cases / Many Reasons to
Avoid Lanham Act Lawsuit
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
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
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
Lanham Act. anyway.
Possible roads to NAD closure 35
Advertiser gets Advertiser
sued in class action investigated
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 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
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 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
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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 You have a laches defense in court
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
• Stoli moves to stay the case in order to allow
NAD to resume. Court grants motion:
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“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
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
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advertiser, e.g., to demonstrate a pattern of “cheat and retreat” or
noncompliance with NAD recommendations.
Example 5: Expedia, Inc. v. Priceline.com, 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.
• 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 ?