United States: 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.

Practice Pointers

Second, Ms. Brett and Mr. Goldman provided practice pointers in three areas: procedure, appeals, and testing and emerging science.

The NAD updated its procedures to require a challenger to specifically list all claims that are subject to the challenge. Since the procedural update, the NAD has been lenient on this requirement. However, moving forward, failure to adhere to this rule may result in requiring the challenger to update and resubmit their challenge to the NAD.

Ms. Brett provided advice on how a competitor should approach an appeal. Often, competitors focus too closely on the competitive aspect of an appeal and forget about the consumer’s perspective in their argument. This can lead to the consumer’s voice being lost from the argument, because NAD no longer argues appeals. Ms. Brett suggested that practitioners, on both sides of the appeal, should put themselves in the shoes of the consumer and include arguments from a consumer’s perspective when arguing before the NARB.

With regards to new testing and emerging science, Mr. Goldman stated that advertisers need to stay on top of new evidence and ensure that testing is up-to-date as it applies to a claim. He also suggested that advertising claims based on emerging technology be properly qualified to guarantee consumers understand the nature of the testing supporting the claim.

A Look Toward the Future

Finally, Ms. Brett and Mr. Goldman looked toward the future. Ms. Brett continues to expect strong support from the FTC and a bolstering of the NAD process. Ms. Brett also expects FTC referrals to continue to be timely resolved based on a study conducted earlier this year that focused on the last four years of NAD referrals to the FTC. Of the FTC referrals studied, 80% resulted in an inquiry from the FTC and the vast majority of those resulted in amended advertising claims. There have already been six referrals to the FTC in 2019. In all six of those challenges, the advertiser contacted NAD and agreed to participate in the process before the FTC could take its own action.

Ms. Brett also noted that NAD has seen an uptick cases involving “Made in America” claims; challenges where retailers are responsible for the advertising claims; challenges concerning consumer review; star ratings claims; and #1 claims. Ms. Brett and Mr. Goldman took this opportunity to expand on three of these types of claims.

As to challenges concerning consumer reviews, Ms. Brett noted advertisers should be careful not to use a consumer review to make a claim broader than what is supported by the consumer review. For star ratings claims, Ms. Brett stated that a disclosure is required if an advertiser incentivizes a consumer to provide a review, even when the star ratings are consolidated. Mr. Goldman explained that #1 claims tend to be very broad. Because of that, unit sales figures, not revenue, are typically the best substantiation for a #1 brand claim. Basing a #1 claim on revenue is not the best method, especially when the price of similar products may vary. Mr. Goldman went on to say that the brand category measured should reflect both the consumer’s and competitor’s view of the product category.

In sum, the NAD has been working harder and more quickly than ever. NAD enjoys strong support from the FTC and has benefitted from the FTC’s opening of investigations into advertisers who fail to participate in the NAD process. Increased efficiency and greater downside for failing to participate will continue to strengthen the NAD as an alternative dispute forum for advertising challenges.

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