Multifront wars are never easy, as the Germans discovered when they invaded Russia. Many advertisers and marketers of consumer products are feeling the pain these days of waging war on multiple fronts against those alleging that their claims are false or unsubstantiated. A company could be required to respond to a FTC investigation, defend the same campaign in a hearing before the NAD, comply with simultaneous investigation requests brought by states attorneys’ general, and argue the merits of the advertising campaign in plaintiffs’ class action litigation – all in an overlapping time frame and each resulting from the same advertisement.
There have been battles fought and won or lost along the way – Nestle’s recent successful defense of a follow-on FTC class action and the recent debate over whether to accept settlements with a denial of liability are examples of both. However, an end to multifront advertising wars is nowhere in sight.
With all this action it can be hard to keep track of the moving pieces involved, but the consequences of defending an advertising dispute in multiple forums are significant. To help keep things clear, we’ve listed some of the most important issues to keep an eye on if you think this kind of dispute could be looming.
One of the biggest challenges of multi-forum enforcement is that it’s unclear how much weight a NAD decision carries with the FTC. In some cases the FTC will give a company credit for making the changes that the NAD recommended, but other times the FTC will continue its case against a company regardless of a favorable NAD outcome. The NAD rules currently do not provide for dismissal of a case if an FTC investigation is pending, so a simultaneous FTC challenge will not excuse a company from a NAD inquiry. This raises the question of whether advertisers should voluntarily proceed with the NAD and hope for a favorable outcome or withdraw from NAD scrutiny.
Another issue is how plaintiffs’ class actions factor into the mix. Class action complaints are often filed either immediately prior to or directly following the announcement of an FTC investigation, so companies should anticipate the possibility that class action counsel and the FTC will cooperate and share information. With respect to NAD cases, there has been a growing trend of class action complaints filed directly after a NAD announcement.
It’s also important to expect that matters in different forums may not move forward at the same pace, which raises strategic questions for companies and their attorneys to consider. Is it preferable to settle the class action cases and the FTC cases together? Does this put pressure on class counsel to reduce fees so that more money goes to consumer redress? Would this mean any net savings to the company?
Also keep in mind that combined settlements also make it nearly impossible to have significant non-monetary compensation as part of the settlement; the FTC typically takes a strong stance against non-monetary settlements. The question here becomes whether class claims settled with non-monetary compensation are only delaying the inevitable, and whether the company will be obligated pay actual dollars at a later point to settle with either the states or the FTC.
Managing and coordinating the defense of multi-forum advertising cases also presents unique challenges if only one of the pending cases is ripe for settlement. How hard should a settlement be pushed if settling in other forums would be premature? Considerations such as the likelihood of class certification and the probability that the FTC will move forward to seek relief can help with this determination.
From a compliance standpoint, if settlements are not simultaneous, companies run the risk of inconsistent or additional compliance obligations. This type of risk is probably the greatest if the class litigation is settled first, but certain measures can be taken to limit exposure. If setting compliance deadlines in the class settlement, for example, it’s best to allow plenty of time for the other proceeding to conclude. In addition, allowing for modifications of class settlement to conform to FTC and state settlements is a good way to avoid inconsistent agreements. Also remember that FTC compliance obligations begin with the effective date of the order, so if more lead time is necessary, consider the possibility of asking the agency to delay approval of the settlement.
Overall, the FTC is not the only one policing advertising claims — companies face the possibility of multi-forum actions involving the states’ attorneys’ general, plaintiffs’ counsel, and the NAD. Defending the Blitzkrieg bop of advertising disputes can be a challenge. But by considering multi-forum cases from different angles, a company can limit its exposure and ultimate payout to settle false advertising claims.