Ad Law Access : Washington D.C. Advertising Lawyer & Attorney : Kelley Drye & Warren Law Firm : New York, Chicago, Connecticut, New Jersey, Brussels

On March 27, 2013, the Supreme Court held five to four in Comcast Corp. v. Behrend, No. 11-864 (Mar. 27, 2013) that the district court improperly granted certification in an antitrust class action because of the plaintiff’s failure to provide a damages model capable of measuring damages on a classwide basis. While the dissent argued that the decision “breaks no new ground on the standard for certifying a class action” and should be limited to its facts, the decision could lead to increased scrutiny for class certification, regardless of the substantive cause(s) of action, under Federal Rule of Civil Procedure 23.

The proposed class consisted of more than two million current and former Comcast subscribers and alleged damages based on Comcast’s anticompetitive conduct. Specifically, the plaintiff alleged that Comcast violated Sections 1 and 2 of the Sherman Act by entering into unlawful swap agreements whereby Comcast would “swap” customers with another cable provider’s customers to concentrate its operations in the Philadelphia region, and in turn raise rates.

While the plaintiff set forth four unique theories of antitrust impact, the district court accepted only one -- “the overbuilder theory” -- which alleged that Comcast’s anticompetitive actions reduced the level of competition from companies that build competing cable networks. In holding that class certification was improperly granted, the majority asserted that the plaintiff “would be entitled only to damages resulting from reduced overbuilder competition, since that is the only theory of antitrust impact accepted for class-action treatment by the District Court.”

It follows then, the Court held, that the plaintiff’s failure to differentiate damages resulting from all antitrust violations from those specific to overbuilder competition meant that class action certification was improper under Rule 23. In other words, Rule 23 required the plaintiff to set forth a methodology for calculating damages that would be just and reasonable, and only a methodology isolating damages resulting from overbuilder competition would suffice in this case.

The dissent disagreed with a number of premises on which the majority based its decision, and found that the peculiarities of the case meant that the “Court’s ruling is good for this day and case only.”

Associate Donnelly L. McDowell contributed to this post.

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Last month, in Gaul v. Bayer Healthcare LLC, the U.S. District Court for the District of New Jersey dismissed a class action lawsuit predicated on a National Advertising Division (“NAD”) decision that found that substantiation for Bayer Healthcare’s labeling claims was unreliable. The District Court relied heavily on a 2010 Third Circuit decision – Franulovic v. Coca Cola Co. – which held that allegations that a defendant lacks substantiation are insufficient to satisfy the “falsity” element of a New Jersey Consumer Fraud Act (“NJCFA”) claim.

In another recent New Jersey decision, Scheuerman v. Nestlé Healthcare Nutrition, Inc., the District of New Jersey granted Nestlé Healthcare Nutrition’s motion for summary judgment in a false advertising class action alleging that Nestlé lacked substantiation for express and implied claims made in conjunction with its “BOOST Kid Essentials” probiotic drink product. The court held that the plaintiffs could not prevail on their theory of liability – that Nestlé lacked substantiation for the challenged advertising claims at the time the claims were made (sometimes referred to as the “prior substantiation doctrine”). Rather, the plaintiffs were required to come forward with evidence actually demonstrating that the challenged advertising claims were affirmatively false, not merely that the claims were not supported by competent and reliable scientific evidence. The Gaul decision is consistent.

These are two in a series of decisions over the past three years in which federal courts have dismissed class actions brought under state consumer protection and false advertising laws premised on the theory that a claim is false simply because the defendant has not offered adequate substantiation. While these decisions are no doubt a welcome relief to advertisers, it remains to be seen whether they will slow down the pace of follow-on class action filings or merely signal to the plaintiffs’ bar that something more than an FTC complaint or NAD case decision will be needed to overcome a motion to dismiss.

For more on these cases, see the Kelley Drye client advisory.

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The NAD recommended that Toys “R” Us modify or discontinue its price-matching claim: “Price Match Guarantee — Spot a lower advertised price? We’ll match it.” The claim was accompanied by a disclosure informing consumers to “see a Team Member for details.” A consumer complained after store employees informed him of limitations to the guarantee. Toys “R” Us explained that it matches prices on its competitor’s print ads, but that (with limited exceptions) it doesn’t match online prices.

The NAD observed that although consumers may understand that certain limitations may apply to a price-matching offer, most consumers would not expect the Guarantee to exclude online pricing for competitive toys. The disclosure informing consumers to “see a Team Member for details” didn’t help because the limitations conveyed by the Team Members directly contradicted the main message conveyed by the Guarantee.

This decision serves as a reminder of two important points: (1) it’s not always possible to point consumers to a disclosure in a different medium; and (2) a disclosure isn't sufficient to cure an overly-broad claim.

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In a decision issued last week, the NAD held that even trademarked phrases are subject to advertising laws. A company that makes dishwasher products was asked to substantiate the phrase “Outshines the Competition.” The company argued that because the phrase was a trademark, it didn’t require support. It also argued the phrase constituted puffery. The NAD disagreed, holding that when “a trademark appears as an advertising claim, an advertiser must provide a reasonable basis for that claim.”

The NAD also determined that although the phrase might constitute puffery when it stands on its own, the claim appeared in conjunction with other performance claims, such as a statement that the product “removes the toughest spots and film while keeping your dishwasher sparkling clean.” In that context, the trademark constituted “an objectively provable superior performance claim.”

This isn’t the first case to address this issue. Indeed, the FTC recently alleged that the name of a product conveyed a claim that required substantiation. But the case serves as a reminder of two key points. First, just because a something is a trademark doesn’t mean it’s outside the scope of advertising laws. Objective claims require substantiation. Second, context is important to determining whether something is puffery. A statement that may be puffery on its own will take on a different meaning if it appears near other performance claims. 

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For marketers facing challenges to their promotional pricing strategies, a new ruling could bolster their defenses.  Earlier this week, a federal judge in New Jersey granted Jos. A. Bank's Motion to Dismiss in a proposed class action alleging deceptive pricing.  The judge ruled that the plaintiffs failed to show specific unlawful conduct or actual loss under the New Jersey Consumer Fraud Act ("NJCFA").

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The Alabama Supreme Court recently held in Wyeth, Inc. v. Weeks, – So.3d –, No. 1101397, 2013 WL 135753 (Ala. Jan. 11, 2013) that a drug company may be held liable for fraud or misrepresentation (by affirmative misrepresentation or omission), based on statements it made in connection with the manufacture and distribution of a brand-name drug, by a plaintiff claiming physical injuries from the ingestion of a generic drug manufactured and distributed by a different company.

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On January 16, 2013, the Federal Trade Commission (“Commission”) issued an Opinion In the matter of POM Wonderful LLC upholding in part and overruling in part Chief Administrative Law Judge D. Michael Chappell’s May 2012 initial decision regarding advertising claims for POM Wonderful (“POM”) products. In pertinent part the Commission opinion, issued by Commissioner Maureen Ohlhausen, ruled the following:

• Thirty-nine of POM’s 43 ads made efficacy claims and were false and misleading;
• Two well-designed, well-conducted, double-blind, randomized controlled clinical trials (RCTs) are required to substantiate claims that a food can treat, prevent or reduce the risk of “serious diseases;”
• The proposed order does not violate POM’s 1st or 5th amendment rights;
• The past COO and President of POM Wonderful who, at the time of his employment, was responsible for the operations of the marketing team, “both participated directly in and had the authority to control the acts or practices at issue,” and thus should be held individually liable and subjected to a Final Order along with Steward and Lynda Resnick; and
• FDA-preapproval is not warranted as part of the remedy in the POM action.

The Commission also agreed with the ALJ’s conclusion that the Respondent’s actions were serious and deliberate. Two concurring statements were included: a statement by Commissioner Ohlhausen (rejecting the two RCT standard and concluding that extrinsic evidence should have been used to determine whether some of POM’s ads made implied disease claims) and a statement by Commissioner J. Thomas Rosch (agreeing with the majority opinion but noting that “having served as a Commissioner for seven years and having been a trial lawyer for nearly 40 years before… [he is] somewhat skeptical of relying so heavily on the opinions of experts who are paid by both Complaint Counsel and Respondents”).

The Commission ruling provides helpful insight into the Commission’s position regarding health-benefit claims and the level of substantiation required to make claims that a food or beverage product treats, mitigates or prevents a “serious disease.” The decision also reflects the Commission’s intent to pursue individual liability for company officers believed to play an integral role in the development of health-benefit related marketing campaigns.
 

More information regarding the ruling and related proceedings can be found here.

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We’ve posted several entries about lawsuits involving continuous sales and promotional pricing. (Click here and here, for examples.) This week, the NAD announced a decision involving similar issues.

Lowes frequently advertises “10% Off Major Appliances” and includes an expiration date on the offers. The Home Depot argued that, despite the expiration date, Lowes promoted this type of offer indefinitely. According to the complaint, this practice misleads consumers into thinking they need act soon in order to take advantage of a discount, and it damages the goodwill of competitors by making it appear that Lowe’s provides deeper discounts off the bona fide regular price for appliances.

In response to NAD’s inquiry, Lowe’s stated that it has ended the promotion and related ads. The NAD deemed this decision to be appropriate, and recommended that future sales promotions observe stated expiration dates.

This case serves as yet another reminder that companies should closely review their pricing policies to ensure their sales and discounts do not violate pricing laws. 

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Two recent Ninth Circuit Court of Appeals decisions in Yeager v. Bowlin, Nos. 10-15297 and 10-16503 (9th Cir. Sept. 10, 2012), a Lanham Act and right-of-publicity dispute between legendary test pilot Gen. Charles Yeager and purveyors of aviation memorabilia incorporating Yeager’s name and/or likeness, highlight several important issues relevant to false-advertising and related litigation.

The Circuit Court affirmed the District Court’s summary judgment of all of Yeager’s claims, primarily for untimeliness. It appears that the defendant persuaded the District Court to dispose of the case on statute of limitations grounds, and Yeager failed to preserve this issue for appeal by omitting to argue at the District Court level that the Lanham Act has no statute of limitations. The Ninth Circuit therefore affirmed without resolving whether a statute of limitations applies to the Lanham Act. In other circuits, it is generally accepted that the Lanham Act has no statutory limitations period, and untimeliness therefore is typically asserted by defendants in the form of a laches or equitable estoppel defense. In any event, the Ninth Circuit affirmed the untimeliness ruling where the plaintiff sued in January 2008 over content published on a web site in October 2003.

For purposes of determining the elapsed time, the court considered the application of the “single publication” rule to a typical web site that is updated piecemeal. “The single-publication rule limits tort claims premised on mass communications to a single cause of action that accrues upon the first publication of the communication, thereby sparing the courts from litigation of stale claims when an offending book or magazine is resold years later,” the court explained, quoting Roberts v. McAfee, Inc., 660 F.3d 1156, 1166-67 (9th Cir. 2011). Yeager contended that the defendants’ web site was republished in its entirety whenever any part of it was updated, but the court held that the specific part of the web site that was the basis of the was “not republished unless the statement itself [was] substantively altered or added to, or the website [was] directed to a new audience.” This is a ruling of obvious relevance to any advertiser seeking to establish the date when the courts will deem specific advertising claims on its web site to have been published for purposes of the timeliness of litigation challenges.

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Last month, the FTC issued a revised version of their Green Guides and a warning that they would closely scrutinize environmental claims. If you think the odds that the FTC will find your claims is low, you should remember that the FTC isn’t the only entity that can challenge you -- your competitors can, too. In fact, the NAD just reviewed green claims for cookware in a challenge brought by the advertiser’s competitor.

The NAD’s decision involved many of the claims the FTC addressed in its Guides. For example, the NAD took issue with the advertiser’s “eco-friendly” claims. Quoting the FTC, the NAD noted that unqualified environmental claims are likely to convey far-reaching environmental benefits that an advertiser cannot support. Accordingly, the NAD recommended that the advertiser stop claiming that its products are “eco-friendly.”

The FTC has also warned advertisers not to overstate environmental or savings benefits. In the NAD case, the advertiser claimed that the use of its cookware could reduce energy costs. Although the advertiser presented evidence that its products could reduce energy use, the NAD found no evidence that the reductions would result in meaningful savings on energy bills. Therefore, the NAD recommended that the advertiser stop making its savings claims.

As companies become more familiar with the Green Guides and scrutinize their competitors’ claims, it’s likely that these types of challenges will increase. Accordingly, you should make sure you review the Green Guides and scrutinize your own claims first. 

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Over the past year, several companies have entered into high-profile settlements with the FTC over allegations that their products didn’t work as advertised. For example, Skechers agreed to pay $40 million to settle charges that it made unsubstantiated claims about its toning shoes. Although the terms of those settlements provide valuable insights for all advertisers, it’s not always easy to understand how the settlements apply to other products.

Practical Law Company asked me to answer some of the key questions advertisers have about advertising law, including what types of claims need to be substantiated, how much substantiation is required, whether the laws are different for social media, and how to challenge competitors. You can read the questions and answers here. 

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In increasing numbers, courts have granted summary judgment to the defendants in (or dismissed) consumer class actions in which the plaintiffs have alleged that certain advertising claims are false, deceptive, and/or misleading because the defendants do not possess “prior substantiation” for the claims (i.e., the advertisers do not have a reasonable basis for making the challenged claims in the first instance). These “piggyback” cases often were filed shortly after the defendants entered into settlement agreements with the Federal Trade Commission (“FTC”) resolving the agency’s investigations into the defendants’ respective advertising and marketing campaigns; and the complaints did little more than parrot the FTC’s allegations of falsity and deception.

The issue of piggyback class actions was discussed in a previous blog post. A new article authored by John Villafranco and Dan Blynn, which appears in Nutritional Outlook magazine – "The Case of the Piggyback Class Action"  – examines recent developments and issues relating to piggyback class actions, such as which party bears the burden of proof in such cases, what evidentiary showing is required, and how courts have responded to plaintiffs who have attempted to place the burden on the defendants to prove that their advertising claims are substantiated and/or not deceptive.

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On July 16, 2012, the United States District Court for the District of New Jersey granted summary judgment in favor of Nestlé Healthcare Nutrition, Inc. in Scheuerman, et al. v. Nestlé Healthcare Nutrition, Inc., No. 2:10-cv-03684 (D.N.J.), a putative nationwide class action challenging Nestlé’s advertising and marketing campaign for its BOOST® Kid Essentials Drink (“BKE”) product. BKE is a nutritionally complete drink supplement for children, which formerly was sold in a carton attaching a separately-packaged straw containing the probiotic, Lactobacillus reuteri.

In Scheuerman, the plaintiffs alleged that Nestlé committed common law negligent misrepresentation and violated the New Jersey Consumer Fraud Act (“NJCFA”), California’s Unfair Competition Law (“UCL”), False Advertising Law (“FAL”), and Consumer Legal Remedies Act (“CLRA”), and Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (“UTPCPL”). They argued that Nestlé made express and implied claims that BKE provided a number of health benefits, including, among other things, immunity protection; a strengthened immune system; reduced absences from daycare or school due to illness; reduced duration of diarrhea; and protection against cold and flu viruses. They also claimed that Nestlé advertised that those challenged health benefits were “clinically shown.”

The court held that the plaintiffs could not prevail on their NJCFA, UCL, FAL, or CLRA claims on their theory of liability – that Nestlé lacked substantiation for the challenged advertising claims at the time the claims were made (sometimes referred to as the “prior substantiation doctrine”). Rather, the plaintiffs were required to come forward with evidence actually demonstrating that the challenged advertising claims were affirmatively false, not merely that the claims were not supported by competent and reliable scientific evidence.

Continue reading about the significance of this decision with respect to "clinically proven" or "clinically shown" advertising claims...

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Facebook has agreed to pay $10 million and make various changes to its terms in order to settle a lawsuit alleging that the company's Sponsored Stories violates members' rights of publicity.

With Sponsored Stories, when a Facebook member "likes" a company, checks-in at one of its stores, or performs certain other actions, that member's profile picture and name may appear as an ad for the company in the right-hand column of Facebook, along with other paid ads. Facebook Chief Executive Mark Zuckerberg called Sponsored Stories the "Holy Grail" of advertising because the implied endorsement from consumers leads to more clicks. The plaintiffs were less enthused, however, and alleged that Facebook had unlawfully misappropriated their names and likenesses without their consent, in violation of California's right of publicity laws.

In addition to paying $10 million, Facebook agreed to make certain changes to its site for at least two years. Among other things, the company agreed to (a) revise the Facebook Statement of Rights and Responsibilities to clarify that members' names and likenesses may be used as sponsored stories, (b) provide a mechanism to allow members to see and control which actions will lead to their being featured in Sponsored Stories, and (c) take steps to ensure the company secures consent from the parents of minors before using the minors names and likenesses.

This settlement serves as a reminder that you should obtain consent from individuals before using their names or images in ads. You should also be aware that Facebook isn’t the only company that has been challenged over Sponsored Stories -- some plaintiffs have also targeted advertisers who use the service. Once Facebook implements its changes, it may be harder for plaintiffs to bring these challenges, but you should discuss the risks with your counsel before moving forward. 

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We reported on May 23 on Chief Administrative Law Judge Chappell's initial decision in the FTC's action against POM Wonderful. On June 4, all parties filed notices of appeal. The FTC staff's notice states that it is appealing "(1) The failure to find that certain of the challenged advertisements made the claims alleged in the Complaint; (2) The level of substantiation required for the challenged advertising claims; and (3) Certain provisions of the Order entered by Judge Chappell." POM's notice (and the me-too notice filed by individual respondent Tupper) state that they are appealing "(1) all portions relating to the finding of liability against Respondents in their entirety and (2) all portions relating to the imposition of a remedial order against any and all Respondents, in their entirety" as well as "certain procedural, evidentiary, and substantive rulings relating to the findings of fact and law and remedial relief."

The notices are terse, but if there is a surprise anywhere in them, it is the FTC not explicitly appealing Judge Chappell's finding that the appearances of POM principals such as Lynda Resnick to promote POM on news and talk shows are not within the FTC's reach as "advertising" by reason of not having been paid for. Conceivably, however, such a theory could be lodged within the first part of the staff's statement, together with a challenge to Judge Chappell's interpretation of some of the challenged POM advertisements as not communicating specific disease treatment, prevention, mitigation or cure claims. As expected, the FTC staff also appeals Judge Chappell's rejection of the two-clinical-study requirement that the staff sought to impose on ads making such claims. POM and Mr Tupper simply appeal everything in the decision that didn't go their way.

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This week, consumers filed a class action lawsuit against JoS. A. Bank, alleging that the clothing company engages in deceptive advertising by misrepresenting its regular and sales prices, in violation of New Jersey law.

The plaintiffs allege that JoS. A. Bank has promoted a continuous stream of back-to-back sales, and that by using phrases such as “2 Days Only,” “Final Day,” and “Final Hours,” the company misleads consumers into believing merchandise will return to its regular price at the end of the sale. However, the merchandise never returns to its regular price, as the company immediately places it back on sale under different terms. The plaintiffs allege that this practice is deceptive because it creates the false impression that consumers are being offered a discount.

This is not the first time JoS. A. Bank has come under fire for deceptive promotional pricing. In 2004, New York Attorney General Elliot Spitzer investigated allegations that the company engaged in deceptive sales tactics. The company settled the investigation, agreeing to change its advertising practices.

As we’ve mentioned before, states remain dedicated to enforcing their deceptive trade and consumer fraud statutes. Companies should continue to review their promotional pricing practices to avoid deceptive pricing lawsuits.
 

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The Washington Attorney General recently announced that a settlement with RealNetworks over the company’s free trials. According to the AG, more than 500 consumers had complained to the AG’s office and the Better Business Bureau about unauthorized charges for services they had never ordered. In many cases, consumers who signed up for free trials did not realize they would automatically be charged unless they canceled before the end of the trials. Many consumers also claimed they had a hard time canceling the services.

Under the settlement, RealNetworks is required to: (a) stop using pre-checked boxes to obtain consent for purchases; (b) clearly disclose the terms of any free-to-pay trial; (c) provide an online method of cancellation; (d) send reminders to consumers with cancelation instructions; (e) process cancellation requests within two days; and (f) inform consumers who called to cancel a subscription of additional subscriptions on their account. The settlement also provides for a $2 million claims-based pool to provide restitution for consumers and requires RealNetworks to pay $400,000 in attorney’s fees.

As we’ve noted before, regulators closely scrutinize free trials in which consumers are required to cancel in order to avoid charges. If you offer a free-to-pay trial, make sure you clearly and conspicuously disclose the material terms of the offer — including any obligation to cancel — before consumers sign up. You should also consider having consumers affirmatively check a box to indicate they agree to the terms.

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On May 17, Chief Administrative Law Judge Michael Chappell issued his Initial Decision in the FTC's case against POM Wonderful, accusing POM of making unsubstantiated claims that its pomegranate juice and pomegranate extract supplement pills can prevent, treat, cure or mitigate heart disease, prostate cancer, erectile dysfunction, and other medical conditions. The decision found POM, its parent company Roll Global, and individual principals Stewart and Lynda Resnick and Matthew Tupper to have violated the FTC Act, and imposed a 20-year injunction against making such unsubstantiated claims in connection with any food, drug or dietary supplement product.

At the outset, the court determined the evidentiary standard to be applied to claims that a food product prevents, treats, mitigates or cures diseases. Here, in the portion of the decision that dominates POM's own press release, POM succeeded in convincing Judge Chappell that the FTC does not require an advertiser to have either (1) prior FDA approval of the product for treating such diseases or (2) at least two solid, randomized clinical trials, as would normally be required for FDA approval of a new drug, before making such claims. The judge instead adopted the more flexible standard that the appropriate level of substantiation depends on the specific facts and on what experts in the field would consider adequate, relying on past Commission case law (e.g., In re Pfizer, Inc., 81 F.T.C. 23 (1972); FTC v. Direct Marketing Concepts, Inc., 624 F. 3d 1 (1st Cir. 2010); Removatron Int'l Corp. v. FTC, 884 F.2d 1489 (1st Cir. 1989)) and on the status of pomegranate juice as a non-hazardous food that is not marketed as a substitute for other medical treatment. In certain cases, he conceded, the FTC's flexible standard might parallel that of the FDA. See, e.g., FTC v. Nat'l Urological Group, 645 F. Supp. 2d 1167 (N.D. Ga. 2008).

The real crux of the opinion, however, was that even under the flexible substantiation standard, POM could not

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A panel of the Ninth Circuit Court of Appeals ruled May 17 on an appeal from summary judgment in a case filed by pomegranate juice maker POM Wonderful against the Coca-Cola Company's Minute Maid division. The dispute was over a Minute Maid pomegranate-blueberry juice blend that POM alleged misrepresented itself on its label as containing a far higher proportion of pomegranate juice than was present in the beverage. According to POM, this overselling of pomegranate falsely communicated to consumers that the juice blend conferred the unique health benefits of pomegranate juice -- benefits which, themselves, have been heavily advertised by POM but called into question by the FTC and litigants. POM's deceptive labeling claims against other marketers of juice products touched off a network of related competitor, class action, and FTC cases that have become known as the "Juice Wars".

Coca-Cola successfully moved for summary judgment on the ground that FDA regulations issued under the Food, Drug & Cosmetic Act comprehensively govern the content of juice labeling, including permitting marketers of juice blends to identify the products through the juice name and pictures by the juices that provide their characterizing flavors, regardless of whether these juices predominate by volume. Affirming, the Ninth Circuit panel concluded that "Pom’s challenge to the name 'Pomegranate Blueberry Flavored Blend of 5 Juices' would create a conflict with FDA regulations and would require us to undermine the FDA’s apparent determination that so naming the product is not misleading" and that " forc[ing] Coca-Cola to alter the size of the words on its labeling so that the words “Pomegranate Blueberry” no longer appear in larger, more conspicuous type on Coca-Cola’s label than do the words 'Flavored Blend of 5 Juices' … would again undermine the FDA’s regulations and expert judgments." Under the preclusion doctrine, the challenge was therefore barred.
 

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Last year, we posted that Reebok had agreed to pay $25 million to settle charges that it had made unsubstantiated claims about its toning shoes. This week, the FTC announced that Skechers agreed to pay a record $40 million to settle charges that the company deceived consumers by making unfounded claims that its toning shoes would help people lose weight, strengthen and tone their muscles, and improve cardiovascular health.

Under the settlement, Skechers is barred from making certain claims for its shoes, unless the claims are backed by “competent and reliable scientific evidence.” As with other recent settlements, the FTC describes what evidence is required. For example, for strengthening claims, the company needs “at least one adequate and well controlled human clinical study of the [products] that conforms to acceptable designs and protocols, is of at least six-weeks duration, and the result of which, when considered in light of the entire body of relevant and reliable scientific evidence, is sufficient to substantiate that the representation is true.” Other claims require different levels of support.

Advertisers should pay attention to the FTC’s settlement in this case and other recent cases. Not only is the FTC raising the bar on what type of substantiation is needed to support certain types of claims, they are also raising the stakes with higher settlement amounts.

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Continuing with the recent trend of dismissing false advertising complaints premised on a "prior substantiation" theory or granting summary judgment to defendants in such cases where the plaintiff fails to demonstrate affirmatively that a challenged advertising statement is false, in Stanley v. Bayer Healthcare, LLC, No. 3:11-cv-00862, 2012 WL 1132920 (S.D. Cal. Apr. 3, 2012), the Southern District of California held that an alleged lack of substantiation for an advertising representation is not sufficient to state a claim for violation of the California Unfair Competition Law ("UCL") or Consumer Legal Remedies Act ("CLRA"), or for breach of express warranty.

In Stanley, the plaintiff asserted that Bayer’s advertising claims for its “Phillips’ Colon Health Probiotic” (“PCH”) line of supplements, including that the products supported a healthy immune system, violated the UCL and CLRA because the health benefit claims “are not substantiated by the vast majority of generally accepted scientific literature currently available relating to probiotics.” The plaintiff also alleged that PCH labeling and advertising constituted express warranties and that Bayer breached those warranties. Bayer moved for summary judgment, arguing that “Plaintiff has not offered any evidence supporting her claim that [Bayer’s] advertising and packaging of [PCH] is deceptive, untrue, or misleading.” Bayer also argued that the plaintiff’s complaint was based entirely upon an alleged failure to substantiate, which is not actionable under California law. The Southern District of California agreed with Bayer and granted summary judgment on all of the plaintiff’s claims.

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It’s not too late to view content from Kelley Drye’s Privacy Law Symposium, which was hosted in Los Angeles on Monday. The program included presentations on privacy enforcement, consumer class action litigation, and insurance recovery in the data privacy context, including:

• Avoiding an FTC Privacy Investigation and What To Do When You Find Yourself the Target of One
• Top Issues in Class Action Lawsuits Arising Out of Privacy, Data Security, and New Media Technology
• Insurance Coverage for Data Privacy Liability – Do You Already Have It, and If Not, Can You Buy It?

Click here to view the webinar recording.
 

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The National Advertising Review Council announced that, as of April 23, 2012, it will be re-branded as the Advertising Self-Regulatory Council and have a new web address. Also as of that date, the CBBB National Partner filing fee for cases before the NAD will increase from $3,500 to $5,000. Non-partner filing fees are still: (a) $6,000 for a challenger whose gross annual revenues is less than $400 million; (b) $10,000 for a challenger whose gross annual revenue is more than $400 million and less than $1 billion; and (c) $20,000 for a challenger whose gross annual revenue is $1 billion or more.

Click here to learn more about our team’s experience before the NAD.

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A recent article, “Insurance Coverage for False Advertising Claims,” which was published in the March 2012 issue of Insurance Coverage Law Bulletin, discusses some of the caselaw holding that insurance companies are obligated to provide coverage for false advertising claims, particularly under the advertising injury section of a CGL policy.

Companies in a wide variety of industry sectors increasingly face lawsuits by competitors and customers alike under Section 43(a) of the Lanham Act, and similar statutes, based upon false advertising claims. These lawsuits typically allege that the defendant’s representations about its own product or a competitor’s products are false, misleading, or disparaging, and frequently include additional common law or statutory claims for unfair competition and disparagement.

It is vital that companies look to their standard liability insurance policies as a potential source of payment not only for judgments or settlements that might be incurred, but also for the legal fees and related costs of defense. Insurers frequently contend that no coverage exists by claiming that their policies do not cover business risks such as “false advertising,” and further contend that if there is any doubt whether the insuring clauses cover such claims, then policy exclusions eviscerate coverage in any event. All too often, policyholders accept the insurer’s position at face value and fail to pursue coverage. This is a costly mistake, as courts have often found coverage for these types of claims for companies who have chosen to fight the insurers' denials. The only way to determine whether a particular false advertising claim is covered is to examine closely the underlying lawsuit, the policy, and the caselaw in the relevant jurisdiction. The article referenced above discusses the general framework for advertising injury coverage under CGL policies, arguments in favor of coverage, and arguments against the applicability of the exclusions most frequently asserted by insurers to deny coverage.

For additional information on insurance recovery issues, don't miss the session, "Insurance Coverage for Data Privacy Liability -- Do You Already Have It, and If Not, Can You Buy It?", which will be presented at the Kelley Drye Privacy Law Symposium: Enforcement, Litigation and Risk Management event on April 23 in Los Angeles and via webinar.

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Live in Los Angeles or via webinar, please join Kelley Drye & Warren LLP on April 23 for an afternoon program covering privacy-related trends in enforcement, class action litigation, and insurance recovery. Click here to register for the webinar.

Privacy Law Symposium and Webinar: Enforcement, Litigation and Risk Management

Avoiding an FTC Privacy Investigation and What To Do When You Find Yourself the Target of One
A number of data practices are clearly catching the FTC’s eye. Kelley Drye privacy attorneys Dana B. Rosenfeld and Alysa Z. Hutnik will discuss which business practices are most likely to draw the FTC’s attention, and practical steps that businesses can take to reduce their risk of becoming the next target of an FTC privacy investigation or improve their defenses if businesses are investigated. And for those companies that do find themselves at the center of an investigation, learn key practice pointers that should go into every business’s strategy when determining how best to respond to the investigation.

Top Issues in Class Action Lawsuits Arising Out of Privacy, Data Security, and New Media Technology
California is a hotbed for consumer class action lawsuits, and business practices involving the collection and use of personally identifiable information can often prompt class actions. Kelley Drye litigators Keri E. Campbell and Lauri A. Mazzuchetti will discuss the top issues at play in class action suits involving privacy, information security, mobile applications, and related areas.

Insurance Coverage for Data Privacy Liability - Do You Already Have It, and If Not, Can You Buy It?
Companies suffering data security breaches have had varying degrees of success in their efforts to obtain insurance coverage for their liabilities and costs of defense. Kelley Drye insurance recovery lawyers Edward E. Weiman and Richard D. Milone will provide an overview of the types of insurance coverage potentially available in the data privacy context, focusing on which types of policies might apply, which arguments are likely to prevail to establish coverage, and what practical steps a company should take to maximize its insurance recovery in the event of a data breach.

Date:
Monday, April 23, 12:00 – 3:00 PM Pacific
Lunch begins at noon, with formal program to start at 12:30 PM.

Location:
Kelley Drye & Warren LLP
10100 Santa Monica Blvd.
Twenty-third Floor
Los Angeles, CA 90067
(301) 712-6199

RSVP:

To attend live in LA, email adlaw@kelleydrye.com or contact Cassidy Russell at 202.342.800.

To attend remotely by webinar, click here to register.

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A disturbing trend has emerged in false advertising litigation: plaintiffs are filing class action complaints that are virtually identical to or rely heavily on FTC complaints or FDA warning letters. Those complaints allege that certain advertising claims are false, deceptive, and/or misleading because the defendants do not possess “prior substantiation” for the claims, i.e., the advertisers do not have a reasonable basis for making the challenged claims in the first instance.

Recently, however, both federal and state courts have dismissed cases that do little more than echo FTC complaints or FDA warning letters, and have simply alleged that the defendants lacked substantiation for the challenged advertising claims, on grounds that those allegations fail to state a claim. More specifically, courts have explained that the allegations in those cases impermissibly attempt to shift the plaintiffs’ burden of proving falsity onto the defendants to show that the challenged claims, in fact, are substantiated.

A new article authored by Dana Rosenfeld and Dan Blynn that appears in the ABA’s Antitrust magazine, “The ‘Prior Substantiation’ Doctrine: An Important Check On the Piggyback Class Action,” discusses the “prior substantiation” defense to class-action lawsuits, which attempt to piggyback off of FTC pleadings and FDA warning letters.

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Earlier this year, the FTC and the Colorado Attorney General filed a lawsuit against a company that sells a wealth-building program. The company’s infomercials included testimonials from consumers who purportedly made money through the program and fine print disclosures stating that results would vary. The regulators recently announced they had obtained a court order that, among other things, requires the company to highlight the low success rate of its customers.

As we’ve mentioned in previous posts, two years ago, the FTC updated their guidelines on endorsements and testimonials. Under the new guidelines, a company can no longer feature testimonials with atypically good results and simply use a “Results Not Typical” disclaimer. Instead, a company must either feature testimonials that show typical results or include a disclosure that clearly explains the results that a typical consumer can expect to achieve.

As part of the court order, the infomercial company is forced to “clearly and prominently” include the following statement in all ads and infomercials: “Most of our customers will earn little or no money.” The order includes detailed requirements about how, when, and how often the disclosure must be made in various types of ads. In addition, the company is prohibited from representing that consumers are likely to quickly and easily make a lot of money.

This case serves as a reminder that advertisers need to ensure that all claims in their ads -- including claims that are made by consumers -- are truthful and not misleading. And companies need to be particularly careful that claims made by consumers are either representative of typical results or that the ads otherwise clearly disclose the typical results. Otherwise, a much more onerous disclosure may be forced on them by a court.

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Between January 2006 and June 2011, the National Advertising Division (NAD) of the Better Business Bureaus found that 71 percent of the consumer perception surveys introduced by parties to an NAD proceeding were unreliable and, therefore, had little or no impact on the final outcome of case. The NAD's standards for a well-executed survey are exacting, yet the NAD does not use a set formula to evaluate consumer perception evidence and may find that a survey is either reliable or fatally flawed based upon the survey design, survey questions, and the statistical significance of the survey results. Given the time and resources required to conduct a credible survey, parties to an NAD proceeding should carefully consider the factors that influence the NAD's analysis of survey evidence.

A new article in Privacy & Consumer Protection Law360, "Not All Surveys Are Created Equal," discusses the primary reasons why the NAD discounts the large majority of consumer perception surveys introduced during challenges, describes the framework by which the NAD analyzes survey evidence, and outlines the survey design characteristics that have the greatest influence on generating a reliable survey.

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On August 4, the United States Court of Appeals for the Third Circuit rendered its unanimous decision in Pernod Ricard USA, LLC v. Bacardi USA, Inc., holding that a consumer survey need not be considered when a label or other advertisement, on its face and taken as a whole, leaves no room for a reasonable consumer to be misled. The decision follows the Seventh Circuit's reasoning in Mead Johnson, stating that "never before has survey research been used to determine the meaning of words, or to set the standard to which objectively verifiable claims must be held."

This decision may indicate growing judicial skepticism of survey evidence and lead to a decline in the use of consumer surveys in false advertising cases. For more about this case, read the Kelley Drye client advisory.

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Effective today, the NAD has increased its filing fees for appeals and cross-appeals at the National Advertising Review Board to $12,000. This is the first increase in NARB filing fees since 2007. According to the NAD’s notice, “the increase is aimed at ensuring that a greater share of the actual cost of the appellate process is reflected in the filing fee so that we can maintain the high levels of timeliness and quality that participants in the self regulatory system expect.”

Click here to learn more about our team’s experience before the NAD. 

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On March 28, the Northern District of Illinois held that a single in-person sales pitch is not commercial advertising and therefore the speaker cannot be liable for a false advertising suit under the federal Lanham Act. Specifically, the court dismissed Oshkosh Corporation’s claim against Control Solutions LLC for representing to the U.S. Army that Control Solutions’ power door system was being used on All Terrain Vehicles that Oshkosh had begun making for the U.S. Army. Because the communication was targeted to a potential purchaser and thus was not made in an anonymous fashion, the court held that it was not a commercial advertisement.

This case serves as a reminder that some courts interpret federal false advertising law as applying only to a classic advertising campaign, in which a message is conveyed to many potential purchasers through a mass-marketing campaign by direct mail, television, radio, the internet, or other channels. However, other courts have held that communication to a “sufficient” portion of the purchasing public, regardless of anonymity or formality, can constitute commercial advertising under the Lanham Act.

Because courts apply flexible standards as to how much dissemination is “sufficient,” and the standard varies by industry, marketers should take the same care when they communicate with an individual as when they kick off a mass-marketing campaign. In addition, marketers should be mindful that their communications may also be governed by state laws whose standards may differ from federal standards.

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On Friday, February 4, 2011, Judges Calabresi, Lynch, and Wesley of the U.S. Court of Appeals for the Second Circuit heard oral argument in FTC v. Bronson Partners, LLC, No. 10-878.  The district court had found that appellant Bronson Partners violated the FTC Act by making deceptive claims in advertising for two weight loss products, and, in addition to awarding injunctive relief, ordered the company to pay nearly $2 million in "equitable restitution."  On appeal, Bronson Partners challenged the propriety of the district court's award of consumer redress.  

Bronson Partners' appeal argues, first, that monetary relief is not even a permissible remedy under Section 13(b) of the FTC Act.  Indeed, Section 13(b) only specifically identifies injunctions and temporary restraining orders as relief that the FTC may obtain in such actions.  However, despite the plain language of the statute, various courts have awarded the FTC  monetary relief - typically either restitution or disgorgement - under the courts' inherent equitable powers.  While several other Circuit Courts of Appeal have ruled that monetary relief is available under Section 13(b), the Second Circuit has not yet  decided that issue. 

Second, Bronson Partners argued that, assuming monetary relief  were available in a Section 13(b) case, the particular monetary award in this case was not permissible. It is well-established that only equitable forms of  relief may be awarded under Section 13(b). However,  while the district court in this case labeled its award as "equitable restitution," Bronson contends that it was actually legal relief because  the FTC failed to "trace" the  consumer payments at issue into the defendant's current possession, as required for equitable restitution.   Bronson Partners argued that,  to the extent any monetary relief may be available to the FTC under Section 13(b), it should be limited to a disgorgement of  defendants'  profits, if any. 

Bronson Partners is represented on appeal by Lew Rose, Steven Caley (who argued on behalf of Bronson Partners before the Second Circuit), Dan Blynn, and Damon Suden of Kelley Drye & Warren LLP. A decision is expected within the next few months. 

The specific issues involved in the Bronson Partners appeal were discussed in more detail in a previous blog posting available here.  

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Yesterday, an en banc panel of the D.C. Court of Appeals upheld two separate trial court determinations that a plaintiff must suffer “injury-in-fact” before initiating a claim under the District of Columbia Consumer Protection Procedures Act (“CPPA”). The 8-1 decision resolved the appeals in Grayson v. AT&T, No. 07-CV-1264, and Breakman v. AOL, No. 08-CV-1089. The plaintiffs in both cases appealed trial court rulings that granted the respective defendants’ motions to dismiss based on the plaintiffs’ failure to allege personal injury-in-fact.

In 2004, Grayson sued telecommunications carriers under the CPPA for allegedly defrauding the D.C. government by failing to report as unclaimed property the unused portion of prepaid calling cards. Grayson purchased a prepaid calling card two years before filing his claim, yet his card remained active and eligible for his use. Breakman’s original claim alleged that AOL violated the CPPA by imposing deceptive pricing on its customers who live in the District. Breakman was not an AOL customer, but brought the claim solely in “a representative capacity on behalf of the interests of the general public . . .”

Both Grayson and Breakman argued on appeal that, because Congress created the D.C. court system under Article I of the U.S. Constitution, D.C. courts were not required to follow Article III standing requirements. To establish standing under Article III, a plaintiff must suffer an injury-in-fact; there must be a causal connection between the injury and the conduct at issue; and a favorable decision must be likely to redress the injury (as articulated in Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992)). The Court rejected the appellants’ argument based on the D.C. court’s consistent application of the Article III requirements.

The Court then considered whether a 2000 amendment to the CPPA expanded the scope of the current standing doctrine. The amendment changed the language concerning who was eligible to bring a CPPA from “any consumer who suffers any damage” to “a person, whether acting for the interests of itself, its members, or the general public.” The Court acknowledged that the 2000 amendment enlarged the category of persons authorized to bring a CPPA enforcement action. Nevertheless, it found that the amendment’s legislative and drafting history lacked clear intent to override the current standing requirement. The Court further remarked that overturning the long-held standing principle “would open [the] courts to any person from anywhere who decides to lodge a complaint...even though that person has suffered no injury-in-fact.” Thus, neither Grayson nor Breakman were relieved of demonstrating injury-in-fact.

The Court concluded that Breakman’s “mere interest” in the alleged unlawfulness of AOL’s practices was insufficient to give standing, and the trial court properly dismissed his claim.

The Court determined that Grayson, on the other hand, sufficiently alleged injury-in-fact because his injury could be “derived solely from a violation . . . of his statutory legal rights created by the CPPA.” The Court also held that Grayson’s allegations met the “causal connection” and “redressability” requirements in Lujan and, therefore, the trial court erred in dismissing Grayson’s claim based on lack of standing. The Court, nonetheless, upheld the dismissal of Grayson’s claim due to his failure to state a legally viable claim upon which relief could be granted.
 

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In October, we posted that the FTC had proposed revisions to the “Guides for the Use of Environmental Marketing Claims,” more commonly known as the “Green Guides.” Among other things, the FTC’s proposed revisions address carbon offset claims and environmental certifications. In recent weeks, there has been legal actions on both of these issues.

A consumer recently filed a class action lawsuit against Fiji Water Company, alleging that Fiji falsely claims its bottled water is “carbon negative.” In addition, Fiji advertised: “we will continue to offset 120% of our emissions. That means that we are not only mitigating our environmental impact but also making up for a little bit of someone else’s.” The plaintiff alleges that consumers understand Fiji’s claims to mean that Fiji’s current operations remove more carbon from the atmosphere than they release into it. According the complaint, though, this is not true. Instead, Fiji uses a “discredited” accounting method called “forward crediting.”

This week, FTC announced a settlement with Tested Green over the company’s environmental certification program. According to the FTC, Tested Green advertised and sold environmental certifications while claiming to be the “nation’s leading certification program with over 45,000 certifications in the United States.” The FTC alleged, however, that Tested Green never tested any of the companies it provided with environmental certifications, and would “certify” anyone willing pay a certification fee. The agency charged that the company violated the FTC Act by providing the means to deceive consumers.

There has been an increased focus on green claims in light of the FTC’s announcement last year. Companies should carefully examine their claims to ensure that they are aligned with the FTC’s guidance and that they do not overstate potential environmental benefits.

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For nearly 30 years, the Federal Trade Commission ("FTC") has sought, and federal courts have awarded, monetary redress for consumers in actions brought under Section 13(b) of the Federal Trade Commission Act ("FTC Act"). A recent article authored by John Villafranco and Dan Blynn entitled, "Consumer Redress Under Section 13(b): Correcting the Record," which was published in the November 2010 issue of Regulatory Affairs Professionals Society's Regulatory Focus magazine, clarifies what a court can and cannot award in Section 13(b) litigation.

The article (i) identifies the types of equitable monetary relief that typically are awarded in such actions, and distinguishes between equitable restitution (which may be awarded) and legal restitution (which may not); (ii) discusses the concept of “tracing,” which is a necessary prerequisite to an award of restitution; and (iii) explains why disgorgement of a defendant’s net profits generally will be the only proper form and measure of consumer redress in Section 13(b) litigation.

Whether a court awards restitution or disgorgement in a Section 13(b) action can have a substantial impact on the amount of money that a defendant who violates the FTC Act might be ordered to pay in consumer redress. For example, a company that spends a significant amount of money on product advertising, marketing, and promotion might have low net profits (the measure of a disgorgement award) despite, at the same time, having high gross revenues from product sales (typically awarded in restitution). In that case, the difference between an award of disgorgement or restitution could be the difference in a redress award totaling thousands rather than millions of dollars. Thus, companies and individuals who are named defendants in Section 13(b) actions should be aware of what form of consumer redress is awardable in such litigation and how that redress is measured, as it could impact settlement negotiations with the FTC and litigation strategy generally.

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Earlier this year, we posted that the Florida Attorney General had sued a company over allegations the company enrolled consumers in a monthly subscription program without the consumers’ knowledge or consent. According to the AG, consumers who signed up for a “free trial” were automatically enrolled in the program. Today, the AG announced a settlement with another company over similar issues.

The AG claims the company offered free trials of books and magazines and billed consumers if they did not return the books or cancel the magazine subscriptions, and then enrolled the consumers in automatic renewals of magazines or automatically shipped books to them without specific consent. As part of the settlement, the company has agreed to (a) clearly and conspicuously disclose the terms of its offers, (b) provide refunds to certain consumers, and (c) pay up to $1.3 million to the AG’s Office for attorneys’ fees and costs and for future investigation and enforcement.

Companies that use trial offers must clearly and conspicuously disclose the terms of the offers before consumers sign up and incur costs. Among other things, a company must disclose whether there are any costs associated with the offers and whether a consumer has to cancel to avoid future charges. Failure to clearly disclose this information is certain to lead to complaints from consumers and challenges from regulators. These challenges can often result in costly settlements. For example, in addition to today’s settlement, the FTC recently imposed a $7.8 million penalty on a company that failed to adequately disclose the terms of its free trial.
 

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One of the most powerful tools in a marketer’s arsenal is the word “free.” And it’s precisely because that word is so powerful, that consumers, regulators, and competitors, closely scrutinize how the word is used in ads and are quick to complain when they think the word is used inappropriately. Recently, Office Depot challenged ads in which OfficeMax and Staples claimed that participation in their rewards programs was “like” getting goods “free.” The National Advertising Division of the Counsel of Better Business Bureaus (the “NAD”) recommended that both companies change their ads.

OfficeMax advertised its rewards program with the phrase “It's like getting one FREE” and the following disclosure: “Pay $34.99 plus earn $35 in MaxPerks Bonus Rewards.” The Rewards, however, were subject to various restrictions. For example, customers couldn’t use reward points for 30 days, the points were subject to cancellation at any time, and the points expired after 90 days. Similarly, Staples advertised its rewards program with the following phrases: “Buy ANY of these office supplies, get 100% back in Staples Rewards” and “It’s like getting supplies for FREE.” The rewards program was also subject to certain exclusions and limitations.

Office Depot argued that both ads violated the FTC’s Guide Concerning Use of the Word “Free” and Similar Representations which states, in part, that when advertising a free offer, “all of the terms, conditions and obligations should appear in close conjunction with the offer of ‘Free’ merchandise or service.” The NAD agreed, noting that “merchandise is either free or it’s not” and that the word “free” has “cachet with consumers and should be reserved for offers that are truly without cost.” Both OfficeMax and Staples argued that no consumers were misled by the ads and indicated that they would appeal the NAD’s decisions.

Regardless of what happens with these cases on appeal, marketers should be careful when advertising that something is “free,” or even “like free.” If there are costs, requirements, or limitations associated with the free goods, those should be clearly disclosed so that consumers know exactly what they are getting.
 

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Last week, Best Buy filed a lawsuit against Ultimate Electronics over ads that compare Best Buy’s prices to Ultimate’s prices. According to the complaint filed in a Minnesota federal court, Ultimate’s ads make statements such as: “Every day, we shop . . . Best Buy, then adjust our prices to beat theirs, so you know we have the lowest electronics prices.” Best Buy alleges that Ultimate’s prices are frequently higher than Best Buy’s and, therefore, that consumers do need to comparison shop to obtain the lowest prices. Best Buy is seeking a permanent injunction, monetary damages, and that the court order Ultimate to run corrective advertisements.

Earlier this year, Best Buy had filed a complaint against Ultimate at the NAD, but Ultimate failed to respond to the inquiry. As a result, the NAD announced that it would refer the advertisements to the FTC for review.

Advertisers need to be careful when they make price comparisons against competitors. The NAD and NARB have both opined that generalized claims that an advertiser always offers the lowest prices are “difficult, if not impossible, to substantiate,” especially given how quickly prices can change. As this case demonstrates, if a competitor thinks that an advertiser’s price comparisons are not substantiated, the advertiser can find itself challenged in court, at the NAD, or by the FTC.

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Effective March 15, 2010, the Council of Better Business Bureaus will increase the fee it charges for CBBB Corporate Partners to file an NAD challenge from $2,500 to $3,500.  This is the first increase in the Corporate Partner filing fee since 2005.  Non-partners must pay between $6,000 and $20,000, depending on the gross annual revenue of the company.  A copy of the CBBB's announcement is available on the NAD website.

Despite this increase, the cost of bringing a challenge before the NAD is still significantly less than the cost of bringing a lawsuit under § 43(a) of the Lanham Act. Click here for an article that provides a detailed analysis of the options available to a company that wants to challenge a competitor’s claims.

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The law of comparative advertising covers advertising that compares alternative brands on price or other measurable attributes and expressly or impliedly identifies the alternative brand by name, illustration, or other distinctive information.

A new article in IP Litigator, “The Law of Comparative Advertising in the United States,” provides an overview, including the treatment of comparative advertising claims by the Federal Trade Commission and the National Advertising Division of the Council of Better Business Bureaus, Inc., and a discussion of some of the particular proof and burden-shifting issues triggered when comparative advertising claims are challenged under the Lanham Act. The article then provides practical guidance to in-house attorneys and outside counsel on strategies for challenging comparative advertising claims made by a competitor when the client contends that the claims cannot be substantiated.

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The news media have taken notice of the increase in advertising lawsuits and formal grievances filed against competitors. This month, The New York Times and The AmLaw Daily reported on the recent up-tick in false advertising challenges.

The New York Times article, “Best Soup Ever? Suits Over Ads Demand Proof” from November 22, 2009, noted that the number of cases appears to have grown as the economy has declined. Kelley Drye & Warren partner, John E. Villafranco, explained, “In this economy, where margins are a bit tighter, a lot of marketing departments have decided to become more aggressive in going after their competitors in the hopes that they can either protect their market position or capture additional market share.”

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