Challenging Competitors' g g p Comparative Advertising Evaluating - - PowerPoint PPT Presentation

Presenting a live 90‐minute webinar with interactive Q&A

Challenging Competitors' g g p Comparative Advertising

Evaluating Legal Options to Respond to Competitors' False or Misleading Marketing

T d ’ f l f

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific TUES DAY, JANUARY 11, 2011

Today’s faculty features: Barry M. Benj amin, Partner, Kilpatrick Townsend & Stockton, New Y

• rk

Christopher A. Cole, Partner, Manatt Phelps & Phillips, Washington Randall K. Miller, Partner, Arnold & Porter, McLean, Va.

The audio portion of the conference may be accessed via the telephone or by using your computer's

• speakers. Please refer to the instructions emailed to registrants for additional information. If you

have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.

Continuing Education Credits

FOR LIVE EVENT ONLY

For CLE purposes, please let us know how many people are listening at your location by completing each of the following steps:

• Close the notification box
• In the chat box, type (1) your company name and (2) the number of

attendees at your location

• Click the blue icon beside the box to send

Tips for Optimal Quality

S d Q lit S

• und Quality

If you are listening via your computer speakers, please note that the quality of your sound will vary depending on the speed and quality of your internet connection. If the sound quality is not satisfactory and you are listening via your computer speakers, you may listen via the phone: dial 1-866-869-6667 and enter your PIN when prompted Otherwise please send us a chat or e mail when prompted. Otherwise, please send us a chat or e-mail sound@ straffordpub.com immediately so we can address the problem. If you dialed in and have any difficulties during the call, press *0 for assistance.

Viewing Qualit y

To maximize your screen, press the F11 key on your keyboard. To exit full screen, press the F11 key again press the F11 key again.

“Challenging Competitor Comparative Advertising Claims” January 11, 2011

Barry M. Benjamin Bbenjamin@kilpatricktownsend com Bbenjamin@kilpatricktownsend.com 212.775.8783

4

INTRODUCTION

• Comparative Ad claims rising not just in ways
• Comparative Ad claims rising, not just in ways

that hit major media

• Generic drugs – database equivalency

g q y claims, patent overlay

• Regulated industries like construction and

building materials competitor claims non- building materials, competitor claims non compliance with building codes

• Woodworking tool manufacturer’s former

bl d li d ti d t ll blade supplier advertises awards, actually tool maker that won awards

5

• Competitor X rolls out offending ads,

your marketing clients are screaming at you ‘DO SOMETHING!!’

• What do you do?

6

1. Do Nothing. Least expensive in terms of l l f b t t d it? legal fees, but can company stand it? 2. Non-legal remedies – counter advertising i campaign 3. Legal remedies:

C d D i t l tt / Pi k T l h

• Cease and Desist letter / Pick up Telephone
• Network Challenge
• Drop a Dime: Squeal to the government
• Drop a Dime: Squeal to the government
• NAD
• Federal Action

7

• 1. Do Nothing. Least expensive in terms
• f legal fees, but can company stand

it? Does General Mills Does General Mills have to do anything in response to this? in response to this?

8

• Kelloggs’ ads - cereal “clinically shown to

improve kids’ attentiveness by nearly 20%” improve kids attentiveness by nearly 20%

• Study actually showed - Only half showed

any improvement in attentiveness; only 1 in 7 i d b 18% d l 1 i 9 improved by 18% or more and only 1 in 9 improved by 20% or more

• Kids who ate Frosted Mini-Wheats were

compared against kids who ate nothing or

• nly had water
• FTC settlement (April 2009) and $10 5
• FTC settlement (April, 2009) and $10.5

million class action settlement (Nov. 2010) (plus $$$ for lawyers in the amount of ???)

9

• 2. Non-legal remedies – counter

advertising campaign

• November 18, 2009: “AT&T loses

request for injunction against request for injunction against Verizon's Map for That ads”

• The next day:
• The next day:

10

11

Before discussing Legal Remedies, consider i t t i b f t ki ti important issues before taking action:

1. Most likely result – offending ad stops, that’s it 2 M t d ibl b t t lik l 2. Monetary damages possible, but not likely 3. Legal action expensive, likely won’t recover legal fees, costs for surveys, etc. y , 4. Counterclaim guaranteed 5. Insurance coverage issues 6. Discovery is painful 7. Prepare for publicity

12

• Legal remedies:

– Cease and Desist letter / Pick up Telephone – Network Challenge – Drop a Dime: Squeal to the government – NAD – Federal Action

13

Cease and Desist letter / Pick up T l h Telephone

• Counterpart at competitor, develop

d l ti hi good relationship

• Inexpensive; No publicity
• No enforcement, ad continues to run

during negotiations

• No surprise if file action
• If no resolution, lost time

14

Network Challenge

• Inexpensive
• Confidential
• Enforcement – if successful network will require

Enforcement if successful, network will require changes to ad

• No discovery, sophisticated reviewers, no surveys

required required

• BUT: only applies to specific network
• Inconsistent decisions among networks w/r/t same ad

g

• Huge number of channels not under Network

umbrella

15

Drop a Dime: Squeal to the Gov’t If t k b ’t d lik l t

• If taken up by gov’t, ad likely stops
• Confidential while investigation conducted,

but public when complete or if administrative but public when complete or if administrative complaint filed

• Inexpensive to challenger

p g

• BUT: will gov’t be interested?
• No control over investigation, no updates

g p from gov’t on what they are doing

• S…….L…….O…….W…….

16

NAD Challenge

• National Advertising Division of the Council of
• National Advertising Division of the Council of

Better Business Bureaus

• Relative to Federal court litigation,

g inexpensive

• Experienced lawyers on staff
• Takes 3 4 months possibly longer
• Takes 3-4 months, possibly longer
• Voluntary tribunal, need advertiser’s consent

to participate p p

• Only get two submissions and one meeting

with NAD lawyer

17

NAD Challenge

• Filing fees in the $$$ thousands
• Filing fees in the $$$ thousands
• No discovery, no depositions, no subpoenas
• No monetary damages

No monetary damages

• Non-binding decisions, but if non-compliance,

NAD may refer to FTC B d f f l h th d l i

• Burden of proof – only whether ad claims

were substantiated or not, disting. from Lanham Act where B/P is falsity

• Proceeding confidential, but decision is not
• Consumer survey evidence optional

18

Federal Action – Lanham Act

• “Nuclear Option”
• Most publicized most expensive but if

Most publicized, most expensive, but if successful, best results

• Turn things over to Randy to discuss
• Turn things over to Randy to discuss….

19

L h A t Lanham Act

Randy Miller, Arnold & Porter LLP Randall.Miller@aporter.com 703.720.7030

20

Lanham Act -- more potent over past 10 years

• Courts more willing to find liability
• Courts more willing to enjoin major campaigns

21

Rise of Necessary Implication Doctrine

• Prilosec “One Pill. 24 Hours. Zero Heartburn”
• Mylanta Nighttime
• Nicoderm Sleep Disturbance
• 2d Circuit adopts -- Time Warner Cable

22

“Adver “Advertisin tising” is

is Broadl Broadly Defined Defined

g

y

l

Traditional advertising

l

Traditional advertising

l

Other promotional communications

l Verbal statements l Emails l PowerPoint Presentations

23

G t P ibilit f M D i Greater Possibility of Money Damages in Lanham Act Cases

• PBM / Infant Formula
• Bracco / X-Ray
• Splenda Settlement

24

LISTERINE:

“Just as effective as floss” Just as effective as floss

25

“Artificial Sweetener” “More Natural Than Competition”

Splenda: “Made From Sugar”

Artificial Sweetener p

26

27

Lanham Act Hurdles to Entry

• Winter case
• Irreparable harm will not be presumed, must be

supported with evidence

• Surveys usually needed, surveys more

ibl D b k susceptible to Daubert attack

• Defenses of unclean hands, voluntary cessation

28

Ra Rapid Pace id Pace Liti Litigation ation p g

• TRO/Pl
• Expedited Discovery
• Advance Planning Desirable

29

Cost of Lanham Act Cases / Many Reasons to Avoid Lanham Act Lawsuit

• Rambo tactics
• expedited discovery
• fast-paced motions practice
• intense and fast moving battle of experts

p blicit / co nterclaims / class action la ers

• publicity / counterclaims / class action lawyers

monitoring

30

Sometimes You Have to Litigate

• Unreasonable adversary
• Compromise not

Compromise not possible / Impasse

• Need to “send

Need to send message”

– To adversary – To other potential adversaries

31

S ti Y H t Fil L h A t Sometimes You Have to File Lanham Act Suit Despite Costs

• Need for speed
• Adversary’s campaign causing too much
• Adversary s campaign causing too much

immediate market loss

32

33

Managing the Three-Ring Circus

NAD, agencies and the courts

Ch i t h A C l Christopher A. Cole ccole@manatt.com 202.585.6524

34

Possible scenarios where NAD is not the end of the matter

NAD CHALLENGE Advertiser does l Advertiser does not comply. Advertiser does comply and is NAD closes case d i i i l not comply. NAD refers to FTC/ agency. not comply. Challenger sues under Lanham Act. comply and is sued or investigated anyway. administratively and other things happen.

35

Possible roads to NAD closure

NAD CHALLENGE

Ad ti Advertiser gets Advertiser Advertiser sues for D.J. g sued in class action

• r Lanham Act.

investigated By FTC/ AG

36

Lesson 1: prepare as though NAD may not end the dispute

• NAD rules provide that the record is confidential and proceedings may not be

disclosed or publicized. The parties must also agree not to subpoena NAD it t ff

• r its staff.
• BUT, the NAD case record is certainly discoverable during litigation against a

participant to an NAD proceeding, just as any other business record would be.

• What does this mean in practice?
• 1. While you can pick and choose evidence to submit to NAD, do not cherry-pick or lie. Your next
• pponent might uncover the fact.
• 2. Follow litigation protocols regarding communicating with experts. Don’t assume that because

this is an NAD matter, communications will not be found out by the other side. 3 Testing that may be good enough for NAD may not win in court so prepare yourself for the

• 3. Testing that may be good enough for NAD may not win in court, so prepare yourself for the

potential that your testing may wind up in front of a judge/jury.

37

Example 1: hypothetical NAD case involving health product

• 2006 – NAD files self-monitoring case regarding Health Product A.

Advertiser defends. Hides evidence; overplays testing. NAD affirms claims. Advertiser thrilled and emboldened by NAD victory Advertiser thrilled and emboldened by NAD victory.

• 2008 – Advertiser challenges competitor at NAD on grounds that only its

product has been found to be “clinically proven” to work (as affirmed by NAD) Competitor asks NAD to reopen prior case against advertiser NAD NAD). Competitor asks NAD to reopen prior case against advertiser. NAD refuses, leaving competitor no choice but to resort to other means….

• 2009 – Advertiser is sued in class actions in three states. FTC/AG’s initiate

investigation NAD records are subpoenaed

• investigation. NAD records are subpoenaed.
• 2010 – Advertiser settles FTC investigation, class actions, AG investigations.

Ceases claims. Pays big fine. Endures terrible press.

38

Lesson 2: using the NAD’s jurisdictional rules to your advantage.

• NAD Procedure §2.2(B)(i)

If, at the commencement or during the course of an advertising review If, at the commencement or during the course of an advertising review proceeding, NAD/CARU concludes that the advertising claims complained of are: . . .(b) the subject of pending litigation or an order by a court; (c) the subject of a federal government agency consent decree d NAD/CARU h ll d i th h ll th t th l i t i

• r order . . .NAD/CARU shall advise the challenger that the complaint is

not, or is no longer, appropriate for formal investigation in this forum. Upon making such a determination, NAD/CARU shall advise the challenger that a case will not be opened, or in the event that an g p , advertising review proceeding has already been commenced, shall administratively close the case file and report this action in the next issue

• f the Case Reports.

39

Example 2: Miller Brew ing Com pany/ Miller Genuine Draft and Miller Lite Beer, NAD Case Report 4290 (Feb. 2005)

• Following unsuccessful network challenge, A-B simultaneous

challenges Miller’s “more taste” claims at NAD and at the TTB. g

• Miller notifies NAD of TTB proceeding, invokes NAD Procedure

2.2(b). Seeks administrative closure at NAD.

• NAD closes, referring matter to the TTB for decision.
• TTB determines claims are appropriate.

40

Lesson 3: if you are the advertiser, consider bucking the conventional wisdom and go to court instead of proceeding at NAD.

• An advertiser might be better off in court than at NAD if:

1 The challenger seeks to challenge implied claims which are tenuous

• 1. The challenger seeks to challenge implied claims, which are tenuous,

and for which it has no consumer survey evidence.

• 2. The challenger is unlikely to carry its burden of proof in court.
• 3. Discovery would assist the defense, e.g., you suspect the challenger’s

testing evidence is rigged.

• 4. Your client has the financial wherewithal to fight in court, and the

challenger does not.

• 5. Your client has strong counterclaims or the defense of unclean hands,

which closely relate to the merits of the challenged claim.

• 6. Your claims are based closely on FDA-approved labeling and you may

have a pre-emption defense not available to you at NAD. 7 You have a laches defense in court

• 7. You have a laches defense in court.

41

Example 3: Evercare Co. v. 3M Com pany, No. 1:2007cv02215 (N.D. GA, 2007)

• 3M files challenge at NAD regarding advertising for Evercare’s lint roller

product.

• Evercare initially responds but then files declaratory judgment action against

3M in N.D. Ga. 3M counterclaims for false advertising as well as trade dress infringement.

• When presented with the declaratory judgment complaint by Evercare, NAD

agreed to administratively close the matter. The EverCareCompany/Lint Rollers, NAD Case Report 4724 (Sept. 2007).

42

Lesson 4: if you started at NAD, wanted to be at NAD, but were pulled into court, don’t take “no” for an answer

• As challenger, defend your choice of forum.

C t d id t t th NAD di ti l l if it

• Courts may decide to stay the NAD proceeding, particularly if it

is far along.

• Especially busy courts may be enticed by option to allow third

Especially busy courts may be enticed by option to allow third party to resolve dispute, which may result in settlement and removal of case from docket.

• If third-party proceeding has resulted in NAD administrative

closure, considering contacting that third party to encourage them to stay, non-suit, or never serve the complaint.

• This may not always work, and may backfire.

43

Example 4: Russian Standard Vodka, Inc. v. Allied Dom ecq Spirits & Wine, USA, Inc., 523 F.Supp.2d 376 (S.D.N.Y. 2007)

• Stoli files NAD challenge to Russian Standard

ads that allegedly disparaged Stoli’s “Russian authenticity.”

• RS files for declaratory judgment in SDNY.

NAD administratively closes with specific “leave to re-open.”

• Stoli moves to stay the case in order to allow

NAD to resume. Court grants motion:

“Allowing the NAD, a highly reputable institution, to g g y p provide its own expert view . . . would be extremely useful in resolving remaining claims in the complaint. This decision would promote judicial economy and be informative to the court in its own decision regarding g g the remaining claims. Furthermore, NAD’s decision would promote settlement between the parties.” 523 F.Supp.2d at 385.

44

Lesson 5: be prepared to argue about whether NAD decisions are admissible in court and for what purpose.

• NAD decisions are almost certainly not admissible to prove liability for false
• advertising. They do not have collateral estoppel effect.
• Facts adduced during the NAD proceeding and positions taken by each party

are certainly fair game for discovery, and may be introduced into evidence.

• NAD recommendations (particularly if ignored) may be influential to courts in

NAD recommendations (particularly if ignored) may be influential to courts in the context of preliminary injunction proceedings.

• NAD decisions are likely admissible to prove a course of conduct by an

advertiser, e.g., to demonstrate a pattern of “cheat and retreat” or , g , p noncompliance with NAD recommendations.

45

Example 5: Expedia, Inc. v. Priceline.com , 2009 U.S.Dist.LEXIS 109477, No. C09-0712RSL (W.D. Wash. Nov. 2009).

• Expedia challenged Priceline ads at NAD. The case is fully briefed,

submitted and respective parties have already met with NAD.

• While waiting for a decision Expedia sues Priceline

It notifies NAD and While waiting for a decision, Expedia sues Priceline. It notifies NAD and requests administrative closure.

• NAD closes the case but writes an “advisory opinion” adverse on the merits

to Expedia. Invites remand so decision can be made final. to Expedia. Invites remand so decision can be made final.

• Priceline moves to stay, presenting the court with copy of NAD’s decision,

and discussing ad nauseum in 20 pages of briefing. C t d i t b t h d b d ?

• Court denies stay, but has damage been done?