Many major advertisers have resorted to comparative claims of product superiority in an effort to stretch shrinking marketing budgets. In advertising, sales kits, and especially on websites of business-to-business marketers, more aggressive claims are being made. You should anticipate your marketing department coming to you (the trade regulation and competition lawyer in your legal department) with demands for immediate legal action to stop your competition from denigrating your product or service. As the lawyer familiar with your industry's codes and trade association, as well as marketing practices such as coop advertising (and, e.g., Robinson-Patman issues) – or maybe just the smartest lawyer left in your down-sized legal department – you're it. And oh yes, since the object of the exercise is to force a competitor to enter into an agreement with you to limit its competitive activities, perhaps you want to be consulted. So what should you tell them?
The Competitor's Claim
Any claim made in advertising about a product or service must be substantiated. The tricky part is that an advertiser must have substantiation for each of the meanings taken away by would-be purchasers exposed to an ambiguous claim. Thus, the competitor may have substantiation for the intended message or may be relying on an inadequate disclaimer to correct the "misunderstanding" of the claim. So, the first inquiry is: "Is it a good ad?" Your marketing people – or your CEO – who are no doubt outraged by the competitor's denigration of your beloved product or service should be counseled to consider whether forcing the competitor to fix what is wrong with its communication is the best course. Remember, they will not stop advertising; they will merely correct their advertising.
How Do Consumers Understand The Competitor's Claim?
Some claims are literally false. No evidence of consumer perception is necessary. More often, however, it is the implication of the message that is at issue. You need to determine whether there is a potential evidentiary problem which requires a consumer perception test to determine what is communicated to the audience to whom the advertising is directed. A preliminary test may be helpful to determining whether a full consumer perception test will be useful. (Consider having outside counsel commission any of these tests, as attorney work product privilege may shield unhelpful test results from discovery).
Cease And Desist?
It is distinctly possible that your competitor has published unsubstantiated claims without consulting their legal department. (I know it is shocking that a marketing department would fail to consult its own legal department – but they sometimes refer to their lawyers as the "Sales Prevention Department."). It is also possible that the competitor is trying to gauge how far they can push the envelope, and is hoping that all they will suffer is a cease and desist letter to which they plan to accede. So, before going to war (over an advertising claim that might be easily fixed), consider a cease and desist letter to the CEO or General Counsel. Frequently the response is: "While we disagree, the advertising in question has completed its schedule and will not be used in the future." Case closed. Problem solved. Minimal expenditure of resources. Battle lines not yet drawn.
What Next?
Now you have three choices: industry self-regulatory proceedings, complain to the government, or bring a lawsuit.
NAD
The National Advertising Division of the Council of Better Business Bureaus provides a ready means to mediate comparative advertising disputes. Well-trained lawyers well-versed in advertising substantiation and claims stand ready to mediate your dispute. They will determine the claims made without the need for a costly consumer perception survey. They will evaluate the advertiser's substantiation and the challenger's objections to that substantiation. They will render an intelligent and understandable opinion as to what modifications, if any, are necessary for the advertising to be continued. There is no opportunity for invasive discovery. The proceeding will likely take months, but certainly not years. The legal fees should be proportional to the matters at issue and in all likelihood your competitor will ultimately comply. Best of all, the proceedings will not get beyond your control. They will not explode in terms of unintended consequences, adverse publicity, runaway legal fees, or start a war with your competitor that goes on for thirty years and many many millions of dollars in legal fees. At a minimum, you do not want to go to government regulators or Federal Court without at least mentioning this alternative to your CEO.
The Government Is Your Friend?
You can always complain to the Federal Trade Commission or the State Attorney General. This is the seemingly low cost option. Your tax dollars at work. The only problem is that once stirred to action, they usually will listen to your competitor's assertion of the need for a "level playing field" requiring whatever applies to them should apply to you. And, of course, consumer protection sits next to antitrust – both at the FTC and the state Attorney General. Once you have brought scrutiny to your industry, will that generate interest in the state of competition in your industry? This is another reason you, as the antitrust watchdog in the legal department, want to know at the outset what your company is doing in attacking your competitor's marketing practices.
Making A Federal Case Out Of It
The Lanham Act provides fabulous remedies for false advertising by a competitor: TRO, preliminary injunction, treble damages, attorneys' fees. To stop false advertising immediately, go to Federal Court. However, TROs are rarely granted against speech. (There is that tricky First Amendment.). So you should plan for a preliminary injunction hearing. You may need a fifty thousand dollar consumer perception survey and an expert witness to defend it in order to prove the false implication. Counterclaims are the best defense to a false advertising claim. (In my first defense of a truthful advertising claim thirty years ago after a five-day hearing, the judge interrupted the summation with "Counselor, your client wouldn't have spent all this money on advertising just to tell the truth."). Advertising loses in Federal Court. No judge wants to be perceived as so gullible as to believe advertising is true. So, expect a counterclaim and protracted discovery. Before going to court, review your own advertising, marketing materials and website. Warn your marketing department about discovery. Also, point out the costs of consumer perception surveys, expert witnesses and litigation fees. Whose budget is covering this? If your marketing budget is bigger (a smaller percentage going to legal costs), if your advertising substantiation is in order, and if your CEO really cares about stopping the competitor in his tracks, AND if you have the will to litigate all the way to damages, the Lanham Act is a beautiful piece of legislation. Just remember, like all litigation, a settlement short of driving your competition into bankruptcy (yes it has been accomplished) is likely. That settlement is an agreement between your company and its competition potentially in restraint of trade. Shouldn't you be there to make sure it is done in compliance with the antitrust laws?
In Sum
Hold off and evaluate your competitor's objectionable communication. Is this one that it makes sense to go after? In most circumstances, a cease and desist letter is the best way to begin. Give careful consideration to industry self-regulatory proceedings. Think twice about going to the FTC or the State Attorney General. Evaluate your own marketing communications before going to Federal Court. If you start a lawsuit, how will it end?
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