Transcript Can You Substantiate That? Alerting Marketers to

Can You Substantiate That?
Alerting Marketers to Increasing FTC Scrutiny
Jeffery D. Knowles
Roger A. Colaizzi
© 2008 Venable LLP
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MARCH 11, 2012
Types of Advertising Claims
Jeffery D. Knowles
Roger A. Colaizzi

Express Claims
– The claim is specifically stated.

Implied Claims
– The claim is not specifically stated, but the
message is conveyed to the consumer
– May be literally true but impliedly false.

Establishment Claims
– Tests prove claim
• “Lab tests prove . . .”
• “Studies show . . .”
• 70%
© 2012 Venable LLP
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Types of Advertising Claims
Jeffery D. Knowles
Roger A. Colaizzi

Comparative Claims
– Comparative performance
• Better, stronger, faster
– Comparative superiority
• The best
• #1
– Comparative preference
• “9 out of 10 doctors prefer . . .”

Disparagement Claims
– Product X is obsolete
– Throwing a product in the trash on the air
© 2012 Venable LLP
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The Meaning of Advertising Claims
Jeffery D. Knowles
Roger A. Colaizzi

To be deceptive the claim must be likely to mislead
reasonable consumers.

Advertising claims must be material

“Net impression”
– Advertisements are evaluated as a whole to determine
how reasonable consumers are likely to respond.
– Thus, in advertising the Commission will examine “the
entire mosaic, rather than each tile separately.”
– http://www.ftc.gov/bcp/policystmt/ad-decept.htm
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Government Challenges
Jeffery D. Knowles
Roger A. Colaizzi

Federal Trade Commission
– The Federal Trade Commission is the nation’s
consumer protection agency
– Authority derives from Section 5 of the FTC Act
• “Unfair methods of competition in or affecting
commerce, and unfair or deceptive acts or
practices in or affecting commerce, are hereby
declared unlawful.”
– The FTC’s Bureau of Consumer Protection works
for the consumer to prevent fraud, deception, and
unfair business practices in the marketplace
• http://www.ftc.gov/bcp/index.shtml
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Government Challenges
Jeffery D. Knowles
Roger A. Colaizzi

States attorneys general
– The Attorney General’s Office in each state
generally has a consumer fraud and protection
division, or its equivalent, that prosecutes
businesses and individuals engaged in fraudulent,
misleading, deceptive or illegal trade practices
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Marketplace Challenges
Jeffery D. Knowles
Roger A. Colaizzi

Competitor
– Just as you review your competitor’s advertising,
competitors in the market will scrutinize your
advertising claims
– There are many paths competitors can take to
challenge claims
• Competing PR campaign
• FTC trade complaint
• National Advertising Division of the Council of
Better Business Bureaus
• Electronic Retailing Self-Regulation Program
• Federal/state litigation
© 2012 Venable LLP
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Marketplace Challenges
Jeffery D. Knowles
Roger A. Colaizzi

Consumer
– Aggrieved consumers regularly bring claims
against marketers for false advertising
• FTC complaint
• Better Business Bureau complaint
• Consumer class action
• Other litigation remedies
– Uniform Deceptive Trade Practices Act
– “Little FTC” Acts
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Varying Levels of Substantiation
Jeffery D. Knowles
Roger A. Colaizzi

The substantiation required for a claim varies
according to the type of claim and the forum in which
the claim is challenged

FTC/State attorneys general
– Companies must have a “reasonable basis” for
any/all claims – express and implied –
communicated by the advertisement from the
perspective of a reasonable consumer as
determined by the FTC or state AG
– Advertisers need the level of proof they claim to
have – “Clinical tests prove…,” “Dentists agree...,”
“Laboratory studies show…” before making the
claim
© 2012 Venable LLP
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Varying Levels of Substantiation
Jeffery D. Knowles
Roger A. Colaizzi

FTC/State attorneys general
– Objective product claims must be supported by
“competent and reliable evidence” before making
the claim
– For health, safety, or efficacy claims, the standard
is “competent and reliable scientific evidence”
• Reliable scientific evidence generally means a
double blind placebo study where applicable
© 2012 Venable LLP
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Prior Substantiation Doctrine
Jeffery D. Knowles
Roger A. Colaizzi
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Federal regulations require that an advertiser have
substantiation for its advertising before making an
advertising claim
– “[A] firm's failure to possess and rely upon a
reasonable basis for objective claims constitutes
an unfair and deceptive act or practice in violation
of Section 5 of the Federal Trade Commission Act.”
http://www.ftc.gov/bcp/guides/ad3subst.htm

This rule holds true for each type of advertising claim
© 2012 Venable LLP
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Varying Levels of Substantiation
Jeffery D. Knowles
Roger A. Colaizzi

National Advertising Division of the Council of Better
Business Bureaus
– Only reviews national advertising campaigns
– Companies must substantiate all claims – express
and implied – communicated by the advertisement
• Advertisers are obligated to support all
reasonable interpretations of its claims, not just
the message or messages it intended to convey
• In the absence of consumer perception
evidence, NAD routinely steps into the shoes of
the consumer to determine what implied
messages, if any are conveyed by an
advertisement
© 2012 Venable LLP
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Varying Levels of Substantiation
Jeffery D. Knowles
Roger A. Colaizzi

National Advertising Division
– The advertiser has the initial burden of presenting
a reasonable basis for its claims. If NAD finds that
an advertiser has provided a reasonable basis for
its claim, the burden shifts to the challenger to
show either that the advertiser’s evidence is fatally
flawed or that the challenger possesses stronger,
more persuasive evidence reaching a different
result
– Advertisers need the level of proof they say they
have – “Clinical tests prove…,” “Dentists agree...,”
“Laboratory studies show…” before making the
claim
© 2012 Venable LLP
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Varying Levels of Substantiation
Jeffery D. Knowles
Roger A. Colaizzi

National Advertising Division
– Unqualified superiority claims must be supported
by testing against all relevant competitors in the
market that existed before the claim was made
– Claims that expressly or implicitly disparage a
competing product must be truthful, accurate, and
narrowly drawn
© 2012 Venable LLP
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Varying Levels of Substantiation
Jeffery D. Knowles
Roger A. Colaizzi

Federal/state court litigation
– Companies must substantiate all claims – express
and implied – communicated by the advertisement
• A challenger must prove the message or claim
the advertisement conveys to the ordinary
consumer
• The challenger must then prove that the
message communicated is false*
• Challenged advertisements must be material to
the consumer’s purchasing decision
*J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition§27:55 (4th ed. 2011)
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Varying Levels of Substantiation
Jeffery D. Knowles
Roger A. Colaizzi

Federal/state court litigation
– Misrepresentations must be factual and not opinion
to fall under the purview of the Lanham Act
– Surveys are regularly used to determine the
message communicated by advertising as well as
whether consumers are deceived by the
advertising claims
© 2012 Venable LLP
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Qualifying Claims
Jeffery D. Knowles
Roger A. Colaizzi

Advertisers can use supers or disclaimers to clarify
advertising claims

If a disclosure is necessary to prevent an ad from
being deceptive, the disclosure must be “clear and
conspicuous”
© 2012 Venable LLP
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Qualifying Claims
Jeffery D. Knowles
Roger A. Colaizzi
FTC
“[Disclaimers] should be presented clearly and
conspicuously so that consumers can actually notice
and understand it. . . . [A]dvertisers [cannot] use fine
print to contradict other statements in an ad or to
clear up misimpressions that the ad would leave
otherwise.” http://business.ftc.gov/documents/bus35advertising-faqs-guide-small-business
© 2012 Venable LLP
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Qualifying Claims
Jeffery D. Knowles
Roger A. Colaizzi
NAD
“While disclosures may be used in advertising to
reduce the potential for consumer confusion, they
cannot be used to change the express meaning of a
claim or to render truthful an otherwise misleading
advertising claim.” AT&T Services, Inc. v. Verizon
Wireless, Case #5411 (January 5, 2012)
© 2012 Venable LLP
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Qualifying Claims
Jeffery D. Knowles
Roger A. Colaizzi
Federal court
One cannot escape liability for a literally false claim
by pointing to a later disclaimer. QVC INC. et al v.
YOUR VITAMINS INC., 439 Fed.Appx. 165, 168
(3rd Cir. 2011)
“If the advertisement contains a definition or
disclaimer which purports to change the apparent
meaning of the claims and render them literally
truthful, but which is so inconspicuously located or in
such fine print that readers tend to overlook it, it will
not remedy the misleading nature of the claims.”
American Home Products Corp. v. Johnson &
Johnson, 654 F. Supp. 568 (SDNY 1987)
© 2012 Venable LLP
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Regulatory Guidance Regarding
Specific Types of Claims
Jeffery D. Knowles
Roger A. Colaizzi

Environmental claims
– http://business.ftc.gov/advertising-andmarketing/environmental-marketing

Health claims
– http://business.ftc.gov/advertising-andmarketing/health-claims
© 2012 Venable LLP
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Regulatory Guidance Regarding
Specific Types of Claims
Jeffery D. Knowles
Roger A. Colaizzi
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Online advertising and marketing
– Affiliate marketing
– http://business.ftc.gov/advertising-andmarketing/online-advertising-and-marketing
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Telemarketing
– http://business.ftc.gov/advertising-andmarketing/telemarketing
© 2012 Venable LLP
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Challenging Competitor Claims
Jeffery D. Knowles
Roger A. Colaizzi

A challenger has a number of options for filing an
advertising claim
– Selecting the appropriate forum depends on the
particular facts and goals of the challenge
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Considerations:
–
–
–
–
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Burden of proof
Timing
Evidence
Cost
Other issues
© 2012 Venable LLP
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Challenging Competitor Claims
Jeffery D. Knowles
Roger A. Colaizzi
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Cease and desist Letter
–
–
–
–

Should you notify the other side
Possibility of amicable resolution
Risk of declaratory judgment (“DJ”)
A letter may slow the process
The Advertiser's response to the demand letter
– Is the claim-in-question literally false
– Can execution of the ad be changed without
affecting campaign
– Possibility of seeking DJ or making a counterclaim
© 2012 Venable LLP
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Challenging Competitor Claims
Jeffery D. Knowles
Roger A. Colaizzi

FTC Trade Complaint
– Section 5 of FTC Act
– Only FTC can enforce FTC Act, but FTC will consider
complaints filed by market participants in determining
whether to bring action

Considerations
– FTC can be a useful tool against improper advertising
– Burden of proof is on the advertiser to provide a
“reasonable basis” for its claims
– Challenger “loses control” over the challenge
– Timing
– Agency’s concerns/incentives likely differ from
challenger’s
© 2012 Venable LLP
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Challenging Competitor Claims
Jeffery D. Knowles
Roger A. Colaizzi

National Advertising Division (NAD)
– Voluntary self-regulatory practice for advertisers
– No enforcement power, but FTC will often enforce
advertising violations NAD brings to its attention
– Electronic Retailing Self-Regulation Program
(ERSP) is a similar process

Considerations
– Burden of proof is on the advertiser to substantiate
all reasonable interpretations of its claims
– No survey required for implied claims
– NAD process can take longer than litigation
– Lack of discovery can be a disadvantage
© 2012 Venable LLP
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Challenging Competitor Claims
Jeffery D. Knowles
Roger A. Colaizzi

Commercial Litigation
– Lanham Act –15 U.S.C. 1125(a)(1)(B)
• (a) (1) Any person who . . . uses in commerce
any . . . false designation of origin, false or
misleading description of fact, or false or
misleading representation of fact, which—
• (B) in commercial advertising or promotion,
misrepresents the nature, characteristics,
qualities, or geographic origin of his or her or
another person’s goods, services, or
commercial activities, shall be liable in a civil
action by any person who believes that he or
she is or is likely to be damaged by such act.
© 2012 Venable LLP
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Challenging Competitor Claims
Jeffery D. Knowles
Roger A. Colaizzi

Commercial litigation
– State laws
– Temporary restraining order/preliminary injunction

Considerations
– How significant is the claim-in-question
– Timing
– Burden of proof on plaintiff to establish falsity of
claim
– Survey evidence may be required
– Risk of counterclaims
– Discovery can be both “good” and “bad”
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contact information
Jeffery D. Knowles, partner
[email protected]
t 202.344.4860
f 202.344.8300
Roger Colaizzi, partner
[email protected]
t 202.344.8051
f 202.344.8300
www.Venable.com
© 2012 Venable LLP
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