Posted on May 26, 2011 by Douglas J. Wood

The UK and the USA -- A Special Relationship

As President Obama visited Ireland and England this week enroute to the G8 meeting in France, much was said about the "special relationship" between the United States and England. Coincidentally, I happened to be in our London office participating in one of the firm's Consumer Goods and Brands Group Breakfast Seminar Series. The topic was the Advertising Standard Authority's new jurisdiction over digital advertising (website, mobile, etc.). The ASA is Great Britain's self-regulatory body akin to the National Advertising Division in the United States. At the conclusion of the session, I was struck, not so much by the special relationship between our two nations, but by how countries can be so divided when it comes to self-regulation.

Attending was Malcolm Phillips, the CAP (Committee of Advertising Practice) Code Policy Manager. (The CAP Code is independently administered by the ASA.) Mr. Phillips outlined how the ASA is proceeding with its new jurisdiction over digital content. I was there to provide the U.S. perspective. What was fascinating to me was how Mr. Phillips and I compared the two self-regulatory systems. Whatever our special relationship may be, when it comes to self-regulation, it's my impression that we're on two different planets. And the UK is in a far smarter place than the United States.

In the United States, one of the ways we tout the success of our self-regulatory system is to cite the level of compliance by advertisers with NAD rulings. Indeed, compliance is well into the 90 percentile. Impressive. The ASA compliance is just as effective, if not better. In the United States, we also cite the many supportive statements by federal regulators, most notably the FTC, about the efficiency and effectiveness of our self-regulatory system. On that level, both the UK and the Unites States are on the same page. But unlike the United States, the UK regulators mean what they say and have a true hands-off attitude with respect to ASA proceedings. While U.S. regulators and legislators are quick to compliment the NAD and its sister organizations within the National Advertising Review Council (NARC), those compliments are increasingly followed by calls for more regulation and greater governmental intrusion into free markets. Not so in the UK, where regulators and legislators take a clear "wait and see" approach and do not second-guess ASA rulings, but instead give them increasing authority to oversee marketplace activities. Contrast that with the developing trend in the United States that fails to give self-regulation a chance to mature and adjust to the marketplace before the government steps in, either from a bully pulpit or, worse, with its own regulations. As a result, self-regulators are forced to become overly aggressive where little or no proof exists that doing so will promote better consumer protection. In the UK, self-regulation is allowed to grow and adjust. Not so in the United States.

Moreover, the UK is not plagued with the specter of class actions and multi-state attorneys general actions that may spin off from self-regulatory rulings. This obviously makes dealing with self-regulators in the United States far more complicated than dealing with them in the UK (and most other countries that depend on self-regulation). Nor are advertisers in the UK faced with anywhere near the financial exposure present in the United States, where a challenged advertising claim can lead to millions in settlements, fines and other costs. In the UK, once the ASA rules against an advertiser, that's pretty much the end of it, particularly since media cooperates with the ASA and declines to run advertising the ASA has found unsubstantiated.

All this leads me to ask which system is better. Are consumers better-protected in the United States by an approach that depends on a hydra of protagonists and financial Armageddon, as opposed to one self-regulatory body? I think not. Consumers in the UK are just as smart as any U.S. consumers. Or, alternatively, they can be misled in the same fashion. Yet in the UK, brands, regulators, and consumers have come to truly respect self-regulation, resulting in a far less complex marketplace and, by definition, a more open market. In the end, that's all to the consumers' benefit.

So to all the U.S. federal regulators, state attorneys general, and judges in class actions, I say "Back off!" Give self-regulation a true chance and not just lip service. Because it really does work. Just take a look at the UK. Or is our special relationship truly divided only by a common language of consumer protection?

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Posted on March 8, 2010 by John P. Feldman

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.

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Posted on August 10, 2009 by John P. Feldman

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.

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Posted on March 26, 2009 by John P. Feldman

Be a Good Sport!

As anyone who has been through a case at the National Advertising Division (“NAD”) can tell you, bragging’s not allowed. One of the cardinal rules in self-regulation is that you cannot use an NAD decision for advertising purposes. What if you just send the decision around to, say, customers of the competitor you challenged? You didn’t actually say anything promotional.

Nope. Won’t work. You can’t send the decision around as if it’s the hot news off the presses. You can’t even send the press release around without a significant degree of risk. Risk of what? Of an embarrassing press release calling you out as a violator of NAD procedures.

Last year, GP Plastics Corp., the maker of PolyGreen plastic bags, made some “green” claims. It was challenged by Mexico Plastic Company, doing business as Continental Products. The NAD eventually recommended that GP Plastics stop making the “green” claims because consumers were likely to misinterpret the claims and take away an unsupported message. GP even started to appeal the decision, but in the end, agreed to change its ads.

All fine. Except Continental Products, the challenger in the case, (and NAD specifies that it was Continental Products’ lawyer who was actively involved), disseminated the decision to third parties, including customers of GP Plastics. To make matters worse, the dissemination happened before NAD even released the decision to the public. NAD announced that Continental Products was in violation of NAD procedures and chastised it, saying, “The self-regulatory process requires fair dealing on the part of both parties; the NAD procedures and participation agreement both note that parties are prohibited from using NAD decisions for promotional purposes.”

Why This Matters

Self-regulation works because industry believes in it. It can lose its integrity if it becomes a tool for promotion by one party against another. Therefore, NAD has to take a strong position against promotional use of decisions. If you want to get your victory in front of the right people, the right way to do it is to tell Linda Bean at the National Advertising Review Council to send the official NAD press release to the news organization you wish to know about your victory. She will send it along with access to, or a copy of, the decision. You get pretty much the same bang without the kick in the pants.

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Posted on October 16, 2008 by Douglas J. Wood

NAD Tells Juice Seller the Glass Is Half-Empty--To Discontinue Claims

In the heated contest for market share of antioxidant-rich drinks, it’s Pom Wonderful two, competitors nil.

The National Advertising Division recently reviewed claims by juice maker Bossa Nova Beverage Group, Inc. concerning its Acai Juice at the request of Pom Wonderful, LLC, which markets pomegranate juice drinks. The NAD concluded that Bossa Nova’s studies did not adequately substantiate claims that its drink was higher in antioxidants than Pom Wonderful’s drinks, and therefore should be discontinued.

Earlier this year, Pom Wonderful won a $1.5 million award in a false advertising suit against the Purely Juice company for claims the latter made concerning its “100% Pomegranate” drink.

The Bossa Nova case involved Bossa Nova Acai Juice, made from pulp from acai berries, which are indigenous to Central and South America.

The NAD reviewed claims such as:

“Bossa Nova sets the standard for antioxidant potency. The proof is in the numbers”

“Bossa Nova is higher in antioxidants and lower in sugars”

“highest antioxidant fruit”

Pom Wonderful argued that while the acai berries are indeed high in antioxidants, they deteriorate rapidly and therefore must be exported in a frozen, freeze dried or dried berry pulp form. The pulp then must be significantly sweetened and mixed with other ingredients to become palatable, the challenger claimed.

A chart on Bossa Nova’s website and its bottles listed the antioxidant content of the berries themselves rather than the drink, and therefore was misleading, Pom Wonderful argued. The label, “µmole TE/gram fresh fruit” did not cure the claim because consumers were unlikely to understand what it meant, the challenger stated.

Pom Wonderful also objected to express claims on Bossa Nova’s website that its juice has more antioxidants than any other juice, including POM Wonderful pomegranate juice.

In response, Bossa Nova introduced studies it commissioned at five laboratories to test POM Wonderful juice and acai juice.

Given the lack of industry consensus as to how to measure antioxidant content, the NAD questioned whether such studies could effectively support specific claims of superiority. In addition, the NAD found serious flaws with each of the studies introduced by Bossa Nova.

For example, one study took an average of several samples of Bossa Nova drinks, while only using one sample each of competitor juice products. Another study only tested one sample each— although there was consensus that the antioxidant content tended to vary widely between samples. In addition, there was no statistical difference between Bossa Nova’s Acai Juice drink and POM Wonderful’s product, so a claim of superiority could not be supported, the NAD said.

The NAD also criticized Bossa Nova for displaying the chart on its bottles that listed the antioxidant content in the acai berries themselves rather than the amount contained in the drink. Such a chart may be more appropriate for the website—if put in the proper context, the advertising authority stated.

The NAD concluded that Bossa Nova had not substantiated its claims, and requested that the company discontinue the challenged statements.

Bossa Nova responded that it “disagrees … with NAD’s findings that the testing procedures utilized on Bossa Nova’s product and the procedures utilized on its competitor’s products are not sufficiently similar to support a claim of antioxidant superiority.”

The juice market is likely to receive continued scrutiny from the NAD, which noted in its review the importance of claims concerning antioxidants.

“NAD has recognized for several years now that antioxidants have attracted the attention of researchers and marketers because of the potential role that antioxidants may play with respect to heart disease, cancer prevention and other health related issues,” the NAD stated. “At the same time, however, such claims communicate powerful messages to a vulnerable target audience.”

Why This Matters:  The Federal Trade Commission regards health-related claims as an area of particular sensitivity, and therefore the NAD carefully monitors these claims as well. According to the industry’s self-regulatory advertising guidelines, “[u]nqualified superiority claims as a general rule should be substantiated by head to head testing against a significant portion of the competing products on the market.”
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