Increase in NAD Fee for CBBB Members

Effective March 15, 2010, the Council of Better Business Bureaus (CBBB) will be raising the CBBB Corporate Partner filing fee to $3,500 from $2,500 for filing a NAD challenge.

This is the first increase in the Corporate Partner filing fee since 2005 and continues to represent a very significant discount to the filing fee charged to companies that are not CBBB corporate partners. Non-CBBB Corporate Partners pay between $6,000 and $20,000, depending on size of the company in terms of gross annual revenue. The CBBB states that the increase in the Corporate Partner filing fee will help it ensure that the NAD staff can continue to provide a high level of service to its users.

Why This Matters

This increase is likely to have no impact on a company’s decision whether to bring an action before the NAD. Using the NAD is a uniquely efficient way to resolve advertising disputes that cannot be resolved by a cease-and-desist letter. The cost of arbitration through commercial arbitration sources is far more expensive generally and does not offer the experience the NAD has with advertising cases. A civil action could cost three or four times as much just to get to a preliminary injunction hearing. There are many reasons why one might choose civil litigation under 43(a) of the Lanham Act rather than the NAD, but cost isn’t one of them.

NAD Challenger's Fees Go Up for Non-BBB Members

The National Advertising Division (NAD) of the Council of Better Business Bureaus (CBBB) is the premier self-regulatory body for advertising cases in the United States. It handles the majority of contested false advertising cases every year, compared with actions brought under the Lanham Act. In fact, in 2008, the NAD handled 214 cases, including 84 challenges by competitors. Historically, the NAD has been funded by the CBBB entirely. Participants did not “pay to play.” In the early 1990s, the National Advertising Review Council (NARC), formed under the CBBB to administer the NAD and other self-regulatory programs, instituted fees to cover document duplication costs. 

In 2001, NARC revised the NAD procedures and introduced the first filing fees to “challengers” to help defray the costs of the system. Currently, those fees are set at $6,000 for companies that are not ongoing financial supporters of the advertising self-regulation system (i.e., non-CBBB Corporate Partners) and $2,500 for CBBB Corporate Partners. According to the NARC, the current filing fee for non-CBBB Corporate Partner challenges pays for only part of the cost to NAD of a challenge case (i.e., a case in which there is a challenger, not just the NAD questioning an advertisement). The remainder comes from CBBB Corporate Partner dues. Thus, the CBBB members continue to subsidize a portion of the cost of challenges.

On July 27, 2009, the NARC announced a new fee schedule designed to be more equitable and to drive CBBB membership. Under the new plan, the filing fee for a non-CBBB Corporate Partner will be adjusted depending on its annual revenue.

  • Non-CBBB Corporate Partners will remain at the current level of $6,000 for challengers with gross annual revenue of less than $400 million.
  • The fee increases to $10,000 fornon-CBBB Corporate Partner challengers with gross annual revenue of more than $400 million and less than $1 billion. 
  • The fee increases to $20,000 for non-CBBB Corporate Partner challengers with gross annual revenue of $1 billion or more.

The filing fee paid by CBBB Corporate Partners remains at $2,500.

As is the case today, there is no fee for consumer challenges, and NAD policies will continue to provide for a waiver or modification of the filing fee on a showing of economic hardship.

Why This Matters

As a practical matter, this only affects those companies that wish to use the NAD system to challenge an advertisement, but that are not CBBB members. The cost of membership varies by size of the company. A large company that is a “frequent user” of the NAD process will likely be convinced to become a member. Indeed, based on the membership fees for the Council (companies with $1B to $2B in annual revenue generally pay about $11,000), becoming a CBBB member turns into a no-brainer if the company is a regular user of the NAD process. Thus, the increase in fees is clearly going to incentivize membership. It also may have the effect of making potential challengers think twice about their litigation choices, but I doubt that it will have a major impact on the caseload experienced by the NAD. One always has to evaluate the costs and benefits of pursuing an action in federal court or at the NAD. One of the key factors has been cost. For some large companies, the increase from $2,500 to $20,000 will probably make them spend more time trying to resolve the matter without any litigation; but even with an 800 percent increase in the top-level filing fee, the cost of pursuing a civil action in federal court is still much higher and is associated with much more risk (e.g., counterclaims, discovery, publicity). Thus, the increase will probably not significantly slow the use of the NAD, and will probably significantly increase CBBB corporate sponsorship.

Senate Committee Hears Disparate Messages on Food Marketing

Just before the market melt-down captured the attention of Congress, a subcommittee of the Senate Appropriations Committee held the latest in what has become a series of hearings on the state of food marketing to children and its links to the obesity epidemic.

In testimony that reads much like students reporting on the progress of long-term research assignments, the various constituencies-regulators, industry representatives and advocates-weighed in. Presiding was Sen. Tom Harkin (D-Iowa), who convened the public-private Joint Task Force on Media and Childhood Obesity, and who chairs the Appropriations subcommittee on Labor, Health and Human Services, Education and Related Agencies.

In testimony that mirrored a report submitted to the subcommittee in July, Federal Trade Commission Commissioner Jon Leibowitz cited with approval the food industry's self-regulatory efforts through an initiative established by the Council of Better Business Bureaus (CBBB). Under the CBBB initiative, participating companies develop individual pledges to limit their advertising to young children to healthier foods.

"Under the right circumstances, industry-generated solutions have the potential to address a public health problem of this magnitude quickly, creatively, and flexibly," Commissioner Leibowitz stated.

However, Patti Miller, Vice President of Children Now, disagreed as to the effectiveness of the CBBB initiative. "The initiative is insufficient for three main reasons," she stated. She cited the lack of uniform nutritional standards defining healthier foods and beverages, a "loop hole" that allows companies to advertise "better for you" foods that contain reduced amounts of sugar and fat, but are nonetheless not healthy, and the lack of participation by media companies.

Some media companies have taken steps to limit advertising to healthier foods, restrict licensing of their popular kids' characters to healthier foods, and provide healthy lifestyle messaging, testified Federal Communications Commission Chairman Kevin J. Martin.

Nonetheless, Chairman Martin also pronounced himself "disappointed in those media companies [that have] made no solid commitments in these areas." He cited the UK's communications authority, Ofcom, which has banned advertising of high fat, salt and sugar (HFSS) foods and beverages to children on children's television channels.

"While it was-and always is-my hope that we will not have to resort to actual requirements, and I strongly encouraged the media companies to propose some voluntary limitations on advertising targeting our children, in the end no widespread voluntary commitment on behalf of the media industry was forthcoming," he said.

Access the hearing testimony at appropriations.senate.gov.  

Read more about the issue at startribune.com.  

Read previous KidAdLaw coverage about the FTC's food marketing report