The Federal Trade Commission has long supported advertising industry self-regulation as a means of promoting truthfulness and accuracy in advertising. One of the key aspects of this success has been threat of referral to the FTC: Advertisers that refuse to participate in the self-regulatory process or refuse to comply with recommendations after participating are referred to the appropriate government entity, usually the FTC’s Division of Advertising Practices, which will review the claims at issue. Over the years, the specter of a National Advertising Division referral to the FTC has prompted most advertisers to participate in the self-regulatory process and comply with the final decision.

Law360 published the article “NAD Referrals To FTC: How Big Is That Stick?,” co-authored by partner John Villafranco and senior associate Donnelly McDowell.  The article provides an analysis of recent NAD cases that suggests referrals to the FTC are on the rise over the past two years and discusses advertiser commitment to the self-regulatory process. Are advertisers turning their back on self-regulation and rolling the dice at the FTC? And are they doing so based on an assessment of the risk that a referral could result in a major FTC investigation or enforcement action?

To read the article, please click here.

Last Friday, our friend August Horvath of Foley Hoag presented at an Advertising Self-Regulatory Council (ASRC) conference on consumer perception surveys.  Among the many interesting observations made by August were the following:

  • Over a 5+ year period, June 2013 to present, only 36 cases or 8 percent of total NAD cases, included reference to a consumer perception survey.   I would have expected it to be slightly higher.
  • 42 surveys were submitted in support of the challenger and 10 were submitted by the advertiser.  This distribution makes sense, given that the challenger has the time to design and field a survey prior to filing, whereas the advertiser must submit its response in accordance with the briefing schedule.
  • In 28 percent of cases decided, the NAD mentioned “the absence of consumer perception evidence,”  suggesting that NAD would be receptive to more extrinsic evidence as it considers cases involving implied claims.  Of course, this could simply be boilerplate introduction for the case reviewer’s unaided interpretation of the message being conveyed.
  • Where the NAD has rejected a survey, the most-cited reasons have been leading closed-ended questions, issues with the control question or improper control stimulus, and questionable coding of open-ended questions.
  • In assessing surveys, NAD frequently states that (1) the control stimulus should closely resemble the test stimulus, (2) test results from one ad will not be applicable to another ad, even if claims are substantially similar, (3) when testing an ad, it should be presented in the same context as it is viewed in the marketplace. 
  • Surveys that focus on the issue of materiality or whether a claim is puffery are of little use at NAD.   The former is of no surprise, given that materiality does not enter in to an assessment of whether a claim is truthful or accurate, but the finding on puffery was unexpected.  I would have thought there would be more instances where a party attempted to support its assertion that a claim was subjective and incapable of measurement (puffery) with extrinsic evidence.

In addition to August’s presentation, we heard from survey experts Daniel Ennis, Hal Poret, and Joel Steckel, as well as NAD attorrneys Annie Ugurlayan, Hal Hodes, Martin Zwerling, and Kat Dunnigan, who touched on generally accepted survey structure and principles, common flaws, and recent NAD cases involving consumer perception.

Most Popular Ad Law Access Posts of 2017

As reported in our Ad Law News and Views newsletter, Kelley Drye’s Advertising Law practice posted 106 updates on consumer protection trends, issues, and developments to this blog in 2017. Here are some of the most popular:

Ad Law News and Views is produced every two weeks to help you stay current on advertising law and privacy matters. You can subscribe to it and other Kelley Drye Publications here and the Ad Law Access blog by email or RSS feed.

2018 Advertising and Privacy Law Webinar Series 

Please join Kelley Drye in 2018 as we continue our well attended Advertising and Privacy Law Webinar Series. Like our in-person events, this series gives key updates and provides practical tips to address issues faced by counsel as well as CLE credit. This webinar series will start again in February 2018. Please revisit the 2017 webinars here.

The National Advertising Division of the Better Business Bureaus, a self-regulatory body that polices national advertising, recently gave an a-OK to certain dietary supplement immunity claims. The action was initiated under NAD’s partnership with the Council for Responsible Nutrition against dietary supplement maker Olly Public Benefit Corporation.  CRN requested that NAD determine whether Olly had a reasonable basis for the message that its Kids Mighty Immunity product helps support immune health.  In particular, NAD assessed four immunity-related claims made on the product website:

  • “Formulated to help support little immune systems in the biggest way to help keep kids healthy and happy year-round.”
  • “Wellmune. These beta glucans support immune health by helping to promote built-in cellular defense mechanisms.”
  • “Elderberry. Respect your elders – this super food has been used for centuries to support the immune systems.”
  • “Zinc. An essential mineral that helps keep immune cells functioning in tip-top shape.”

In support of its general immunity message, Olly argued that the product is a good or excellent source of vitamins C, D, and zinc and also contains Wellmune beta glucan yeast. The advertiser presented studies and literature explaining the support roles played by vitamin C, vitamin D, and zinc in the immune system.  This evidence indicated that the nutrients – when taken in sufficient doses – “help form a physical and chemical barrier to keep out pathogens, and also support specialized adaptive immune system cells that work as part of the body’s natural processes to eliminate pathogens.”  NAD found that this data was sufficient, and Olly did not need to present a clinical study on its product, because the context of the webpage and the product packaging conveyed the message that these claims were based on the supplement’s individual ingredients and not testing of the final product.

In addition, Olly provided evidence in both adults and children demonstrating that, after oral digestion, Wellmune is bioavailable and binds to immune cells. NAD found this was a reasonable basis for the Wellmune claim.  Likewise, NAD found that the elderberry claim, supported by historical accounts citing elderberry for immune support, was sufficiently limited.

Importantly, NAD appreciated that the advertiser did not make any express or implied claims regarding the common cold or other illnesses and avoided imagery that implied cold prevention or cure, such as depictions of sick children, worried parents, or visits with health care professionals. It noted that evidence presented in other NAD proceedings failed to show a relationship between regular vitamin C supplementation and the reduction in the incidence of colds.

We have seen other examples of cases where immunity claims for foods and dietary supplements have been problematic for companies. However, as shown in this NAD matter, it is possible to effectively tailor claims to the available evidence so that they withstand regulatory scrutiny.

ASRC President & CEO Lee Peeler has announced the retirement of Andrea C. Levine, Director of the National Advertising Division (NAD). During her 20year tenure, the NAD published more than 2,600 case decisions and built what has been described as the largest body of advertising precedent in the United States.

In announcing the retirement, Mr. Peeler stated that Ms. Levine will be remembered for her transformative leadership, promotion of the competitor challenge process, and development of the NAD Annual Conference.

A search for her successor has begun and a position description will soon be posted on the CBBB website.   Ms. Levine will remain in her role as Director until a successor has been hired.  Expectations are that a new Director could be in place as early as this summer. 

 

The advertising industry’s self-regulatory system may be “voluntary,” but ignoring NAD’s recommendations—or declining to participate when asked—buys advertisers a prompt referral to the Federal Trade Commission. NAD often touts its close working relationship with the FTC. But what becomes of these referrals from the self-regulatory system? At NAD’s annual conference last month, Mary Engle, the FTC’s Associate Director for Advertising Practices, pulled back the curtain on the Commission’s treatment of referrals from NAD.

Engle noted that the FTC has received 50 referrals from NAD between January 1, 2011 and August 17, 2016. Not surprisingly, post-referral outcomes vary a great deal. In some cases, the FTC staff takes no action at all. Far more often, however, the FTC delves into NAD’s case file. Sometimes the Commission’s post-referral role involves urging advertiser back to NAD. Other times, FTC staff launches a formal investigation.

Looking back at referrals from NAD over the past five and a half years, Engle provided the following statistics:

  • 22%: Company returned to NAD at the FTC’s recommendation
  • 22%: Outcome unclear, or FTC staff decided to take no action
  • 20%: FTC staff resolved the matter short of an investigation
  • 14%: Matter remains under review by FTC staff
  • 8%: FTC staff initiated a formal investigation, which it subsequently closed
  • 8%: Matter related to existing FTC investigation/litigation
  • 2%: Referral resulted in FTC law enforcement action
  • 2%: FTC took no action because matter related to non-FTC litigation

The moral of Engle’s story? Don’t dismiss the self-regulatory body too quickly. Refusing to participate, or to comply with NAD’s recommendations, risks unwanted attention from the FTC.

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.

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.