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.

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.