On December 19, 2019, the National Advertising Division (NAD) closed out the year with an announcement of its plans to “develop a fast-track process to more efficiently handle certain types of online and social media advertising claims.” These claims include insufficient disclosures, such as influencer posts that fail to disclose an influencer’s material connection with
An NAD Update
The 2019 National Advertising Division (“NAD”) closed out its Annual Conference with an update from Laura Brett, the Director of the NAD, and Alexander Goldman, an attorney with the NAD. The update focused on three main points: NAD statistics from the past year, NAD practice pointers, and the future of the types of cases being brought at NAD.
Statistics
First, competitor challenges are trending toward a one third growth for 2019 as compared to 2018, while simultaneously decreasing the time to decision on challenges from 113 days on average to 100 days. Needless to say, the NAD is committed to promptly moving cases through the process. Ms. Brett made a point to bestow some well-deserved praise on her team for their hard work throughout the last year.
Major product categories subject to NAD challenges continue to be: appliances/consumer electronics/household products, drugs and dietary supplements, food and beverage, and telecom/entertainment. Whereas some categories are noticeably absent from NAD proceedings including automobiles, clothing and cosmetics, industrial products/office supplies, and travel/lodging. In addition, Mr. Goldman made the point that there remains a noticeable lack of service-based challenges at NAD despite services accounting for a large part of the U.S. economy.
Mr. Smith Goes to New York: Takeaways from the Keynote Address of the FTC’s Director of the Bureau of Consumer Protection at the NAD Annual Conference
The National Advertising Division (“NAD”) held its Annual Conference in New York yesterday. Andrew Smith, the head of the Bureau of Consumer Protection for the FTC, delivered the keynote address and provided attendees with an excellent overview of the past year’s landmark decisions in FTC jurisprudence. For those who frequent this blog, it comes as no surprise that the hottest discussions focused on the recent trend among courts to question the FTC’s broad interpretation of its enforcement authority under Section 13(b), concentrating on rulings in the Shire ViroPharma decision from the Third Circuit, the LabMD decision from the Eleventh Circuit, and the recent Seventh Circuit decision in Credit Bureau Center.
In Shire ViroPharma, the Third Circuit ruled that, pursuant to the plain language of Section 13(b), to obtain an injunction under Section 13(b), the FTC must plead facts sufficient to show that a defendant “is” violating or “is about to” violate the law. Essentially, the Shire decision means that the FTC cannot use Section 13(b) to address wholly concluded past harm—a profound finding that could dramatically affect how the FTC pursues cases. For more analysis, see our past blogs on both the district court‘s and Third Circuit’s opinions. The FTC chose not to seek Supreme Court review of the Shire ViroPharma decision and instead appears to be trying to limit that case to its facts.
A Morning Cup of COPPA From the NAD Annual Conference
The National Advertising Division Annual Conference kicked off with Andrew Smith, the Director of the FTC’s Bureau of Consumer Protection, as the keynote speaker. Near the close of his remarks, Director Smith announced that the FTC will hold a workshop on the Children’s Online Privacy Protection Act (“COPPA”). For a refresher, COPPA is designed to protect the privacy of children by establishing certain requirements for websites that market to children. The FTC operates under the assumption that if children are the target demographic for a website, the website must assume that the person accessing the website is a child, and proper consent must be obtained. This assumption exists even if the website did not start with children as the target audience.
To illustrate this point, Director Smith discussed TikTok, a social media app that allows users to create and share short-form videos, which purchased Musical.ly, an app that allowed its users to post videos of themselves lip synching to songs. Musical.ly originally marketed to adults. However, as the website grew in popularity, it became clear that children used the website and that Musical.ly knew that children used the website. On February 27, 2019, the FTC brought a Complaint against Musical.ly alleging that Musical.ly collected information about children, but did not obtain the required parental consent to collect that information. In fact, child predators began using the website to obtain the location of children, though luckily, no child was hurt. As a result, TikTok agreed to pay $5.7 million to settle the FTC allegations.
FTC Hints It’s Feeling the Buzz
Last September, the National Advertising Division (NAD) published a decision assessing whether the editorial content surrounding an affiliate link constituted “national advertising” requiring substantiation. At issue were two statements in a BuzzFeed “shopping guide,” in which the author tested and recommended various skincare products. The NAD reviewed BuzzFeed’s internal procedures with respect to the editorial content and the affiliate link, and determined that the content did not constitute “national advertising” and was therefore outside the NAD’s jurisdiction.
But how would the FTC treat editorial content surrounding an affiliate link? The NAD acknowledged that the “FTC . . . does not directly address whether the act of placing an affiliate link next to content about the related product renders the content ‘advertising’ that requires substantiation.” The FTC recently ended its silence. In her remarks at the NAD West Coast Conference earlier this month, Mary K. Engle, the associate director of the FTC’s Division of Advertising Practices, indicated that the FTC would follow the same analysis the NAD conducted to determine whether “advertising” includes the editorial content surrounding an affiliate link.
Demystifying the NAD Referral Process
What does it mean when the National Advertising Division refers a case to the Federal Trade Commission? At this year’s NAD Annual Conference, Mary K. Engle, the associate director of the FTC’s Division of Advertising Practices, and NAD director Laura Brett sorted fact from fiction about NAD referrals and shared their perspectives from both sides of the process. Read on to learn more about the referral process and the key takeaways from their discussion.
To start, Ms. Brett acknowledged that in an ideal world, parties would voluntarily participate in and comply with the NAD review process, which would eliminate the need for referrals to the FTC. Although referrals constitute a small percentage of the work the NAD does, Ms. Brett views referrals as a failure of the self-regulatory process. Ms. Brett went on to explain that referrals arise from one of two main scenarios: (1) failure to file a substantive written response or (2) failure to comply with a NAD or NARB decision. That latter category can be further broken down into situations where (a) the advertiser has not agreed to comply with a decision, or (b) the advertiser has not complied by failing to make a bona fide attempt to bring its advertising into compliance with NAD/NARB recommendations after a reasonable amount of time. Once a decision has been made to refer the case to the FTC, the NAD packages up the case file and sends it to the Advertising Practices Division (the “Division”).
Recent NAD Decision Largely Rejects Puffery Defenses and Consumer Testimonials that Disparage Competition
It seems like we (and the NAD) can’t get enough of “best.” In a recent case, the National Advertising Division (NAD) ruled that the advertiser, Mahindra USA, Inc., could not claim its products were superior without reasonable evidence.
Deere & Company, Inc. challenged Mahindra’s tractor advertisements as unsubstantiated superiority claims. Mahindra’s ads included “Best” claims such as: best-selling, best value, best warranty, best performance, “toughest tractors,” and superior engine oil. Additionally, Mahindra advertised consumer testimonials that expressed disappointment in the quality of John Deere tractors compared to Mahindra tractors.
Of course, context is king and “Best” advertisements can either be substantive claims, or considered mere “puffery.” (See here for a discussion on NAD and “best” claims). For some of the challenges in this case, Mahindra conceded its ads were substantive claims and argued that they were factually supported. For instance, Mahindra argued its best-selling claims were based on unbiased data. NAD agreed that a reasonable basis existed for the claims (although additional disclosures were necessary). For the majority of the challenged advertisements, however, Mahindra argued its statements were puffery. NAD rejected this defense in all but one instance and recommended discontinuation of the ads.
Simply the Best, Better Than all the Rest: Superiority Claims and Substantiation
Do you have the best wireless provider? If so, best in what sense—the best contract, the best devices, the best connectivity, the best value? That was the issue NAD recently addressed when it recommended that T-Mobile discontinue its “Best Unlimited Network” claim. AT&T challenged T-Mobile’s tagline in a recent NAD case, arguing that it was an unqualified superiority claim that T-Mobile couldn’t substantiate.
Now, the advertising world is no stranger to the word “best,” which we discussed in an earlier post on The Absolute Best Puffery Panel Ever. The problem arises when “best” is meant as a measurable claim, including its use here in connection with the phrase “unlimited network.” As NAD pointed out in this T-Mobile decision, wireless service providers should be able to tout the advantages that their innovations provide, but their claims must be substantiated to avoid misleading consumers. NAD reiterated in the T-Mobile decision that broad superiority claims (like “best” or “largest”) must be supported by reliable market data.
NAD Okays Use of Non-Industry Standard Test
Many of you are no doubt familiar with ANSI testing, which is often touted as the gold standard in assessing product performance. However, other types of third-party tests exist, even if they have not risen to the level of being an “industry standard.” A recent NAD decision sheds some light on when and how advertisers can use such tests in their advertising.
Epson America, Inc. was challenged by Texas Instruments, Inc. (TI) for advertising its 3-chip 3LCD projectors as superior to TI’s 1-chip DLP imagers. 3LCD and 1-chip DLP are the two leading types of projectors and compete based on a number of attributes. TI alleged that Epson improperly relied upon Color Light Output (CLO) as a measure of brightness performance. (CLO is a relatively new method of assessing the brightness of individual colors which can then be compared to the overall lumens, or white brightness of a projector. (Still with us?)). TI also alleged that Epson made overall image superiority claims even though it only tested specific performance attributes. Finally, TI also alleged that Epson inadequately disclosed its affiliation with native advertising websites.
“Everyone Does It” Doesn’t Fly at NAD
When a widespread industry practice comes under regulatory scrutiny, companies that end up in the crosshairs sometimes fall back on the “everyone does it” defense. This argument has an intuitive appeal in the consumer-protection context—consumers are presumably aware of practices that are common across an entire industry, the thinking goes, and they make purchasing decisions with knowledge of these practices.
The online ticket reseller StubHub recently tried this approach at NAD. It didn’t go over so well.
NAD launched an inquiry into StubHub’s fee-disclosure practices to determine whether consumers were being misled about the total cost of tickets sold on the site because StubHub does not disclose the service fees when it initially displays the ticket price. StubHub discloses the fees, which can range from 24% to 29% of the ticket cost, only at the time of checkout, after the consumer has already made the decision to buy the tickets. NAD was concerned that consumers do their comparative shopping when they see the initial price display—not at the time of checkout, when the true cost of the ticket is revealed—and thus are misled into believing that the StubHub tickets are cheaper than they are.