Challenging False Ads in the National Advertising Division

Your marketing team discovers a competitor’s ad. You want the ad taken down IMMEDIATELY. What are the options? Your first thought might be to sue in federal court.  The National Advertising Division (NAD) offers an alternative forum for challenging false advertisements. Multiple factors could determine whether traditional federal court litigation or a challenge in NAD is the better option, including cost; speed of relief; type of relief available; and publicity.

The cost of a NAD challenge from start to finish is substantially lower than the cost of federal court litigation. Unlike federal litigation, NAD challenges do not involve written discovery, depositions, or motions practice. However, the up-front cost is much higher:  the filing fee at NAD is $20,000 for companies with gross annual revenue of less than $1 billion, and $25,000 for companies whose gross annual revenue is $1 billion or more.  That’s a stark contrast to the $450 fee for filing a complaint in federal court.

Speed of Relief
NAD challenges take less time from start to finish than federal litigation. Generally, a challenge at NAD will conclude within three months of its inception, although it might take longer in cases involving a large number of advertising claims. Even a four month duration, however, is quite a bit shorter than federal court litigation, which can take up to two years.

Type of Relief
NAD, unlike a federal court, does not have the power to enjoin a false advertisement or to award monetary relief of any kind. It recommends modification or discontinuation of ads it finds to lack substantiation.  There are teeth to the recommendation, however. If an advertiser elects to ignore NAD’s recommendation, the matter can (and probably will) be referred to the FTC which does have the power to fine companies. Nonetheless, this aspect of NAD challenges is a trade-off for the lower cost and speedier, more streamlined process.

NAD challenges are entirely confidential until the time NAD issues its press release regarding its recommendation. Moreover, parties are prohibited from using the recommendation in promotional material in any way. By contrast, federal court complaints are accessible by the public and the press, and a prevailing party often touts its victory to the consuming public.

NAD challenges are quicker and less expensive than federal court litigation, but the up-front cost is substantially higher and the types of relief are different. Other differences between NAD and federal court also exist, including (1) the burden of proof rests on the advertiser to substantiate its advertisement (rather than on the plaintiff to prove that the advertisement is false); and (2) in the absence of consumer perception evidence, NAD will step into the shoes of the consumer to evaluate how the challenged advertisement is most reasonably interpreted, while a federal court will require survey evidence to prove falsity when an advertisement is ambiguous. One should carefully weigh the pros and cons of each forum before deciding where to litigate a dispute over an advertisement.

Kathy Schill hosted a complimentary webinar titled “Challenges to Advertising: National Advertising Division vs. Federal Court” in conjunction with the above article.

Click here to listen to the recording.

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