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

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.
 

• Email This
• Print
• Share Link

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.

• Email This
• Print
• Share Link

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.

• Email This
• Print
• Share Link

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.

• Email This
• Print
• Share Link

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.”

• Email This
• Print
• Share Link