“Piggyback” Lawsuits Spur NAD To Clarify Purpose Of Investigations

Class-action lawsuits filed following National Advertising Division decisions raise concerns among firms participating in NAD’s self-regulatory process. The advertising industry’s voluntary self-regulation program clarifies that its findings do not indicate any laws have been violated.

In response to an increase in class-action litigation following National Advertising Division decisions, the Advertising Self-Regulatory Council board has updated NAD’s policies to clarify that its decisions “do not constitute a finding that the law has been violated.”

Furthermore, “voluntary participation in the self-regulatory process is not an admission and should not be interpreted to constitute an admission by the advertiser,” David Mallen, deputy director of NAD, said at the NAD annual conference in New York.

The newly inserted language is on ASRC’s website in a document titled “The Advertising Industry’s Process of Voluntary Self-Regulation: Policies and Procedures by the Advertising Self-Regulatory Council.”

The modification does not change much in NAD’s monitoring and review processes, but it helps to alert all companies, attorneys and judges as to “what the NAD self-regulatory process is about,” Mallen said during an Oct. 1 session titled “Self-Regulation and Consumer Lawsuits: Developments in False Advertising Class-Action Litigation.”

“It’s really about raising the bar in terms of ethical standards and truth and accuracy in advertising in a way that benefits consumers,” he said.

Attorney Lawrence Weinstein of Proskauer Rose, a participant in the panel discussion, was supportive of the measure. The updated policy statement “does nothing to affect the process at NAD but allows for a level of clarity for those of us that communicate reports, and I think it’s a great idea,” Weinstein said.

Mallen said “piggyback” class actions filed shortly after FTC complaints, FDA warning letters or NAD decisions are a growing trend.

“This understandably has caused some concern among advertisers and has raised some questions,” he said. “Does participating in the self-regulatory process mean that there is greater exposure for companies in the class-action arena?”

As a Council of Better Business Bureaus division, NAD functions as an investigative arm of the advertising industry’s voluntary self-regulation program and is considered a low-cost alternative to litigation to settle disputes. However, industry members are concerned that NAD decisions can act as a catalyst for lawsuits because they are made public, Mallen said.

With companies participating voluntarily in self-regulation, “it would be a great shame if because of the transparency of the process, they’re actually being punished twice and have to defend costly lawsuits, some of which may or may not have merit,” he said.

Mallen notes NAD recommendations do not constitute damning evidence in themselves.

“They don’t contain findings that advertisers were deceptive or that their advertising is unfair or even that the advertising is false,” he said. “It’s really about substantiation. ... If you’re a plaintiff’s attorney, yes, a NAD decision might give you an idea for a lawsuit, but it’s unlikely that it will give you what you need to meet your burden of proof in that lawsuit.”

Regardless of their outcome, class-action suits impose a considerable burden upon companies.

“I don’t mean to suggest that there’s nothing to worry about in terms of class-action lawsuits,” Mallen said. “I certainly recognize that even though these lawsuits are defensible, it can be costly to defend them.”

P&G/Crest Class Action Followed NAD Review

Procter & Gamble Co.was the target of one such suit, alleging the firm did not have reasonable basis for claims that Crest Sensitivity Treatment & Protection toothpaste “provides relief within minutes.”

The pleadings took language directly from the NAD decision, Mallen noted.

The case was filed on behalf of a consumer and similarly situated class members Dec. 13, 2011, less than two months after NAD’s Oct. 28, 2011, decision recommended that P&G discontinue the advertising claims of near-instant relief from sensitivity pain (Also see "Crest Claims Of Fast Sensitivity Relief Fail Colgate’s NAD Challenge" - Pink Sheet, 7 Nov, 2011.).

In the lawsuit, the plaintiffs also took issue with the “New!” identifier on the Crest Sensitivity product, asserting that the product is identical to Crest Pro-Health Sensitive + Enamel Shield and therefore not new to the market.

“In this case they were basically saying that this product is essentially the same as all the other products, it’s just the packaging, the color and the price that’s different, and it’s really not a new product,” said another attorney on the panel, Brian Heidelberger from Winston & Strawn. “This is an ongoing case but an interesting one and we’ll have to see where it plays out.”

He noted many class-action cases alleging false advertising crop up in the nutrition field, targeting marketers of food, health and weight-loss products.

“In those, they generally challenge the nutritional content claims, or the healthiness or naturalness of a product, or for weight loss they challenge the efficacy of the products,” Heidelberger said.

According to Weinstein, false-advertising class-action suits are often assessed based on the prominence of the advertisement and the materiality of the claim.

“The more a claim is material, the more prominent it is in an advertisement, the more likely that class action certification will be granted,” he said. “The less important it is to the inherent purpose of the product, the greater likelihood that class certification will be denied.”

Rulings often come down to the primary reason for consumer purchase, the attorney explained.

“If the claim goes to the inherent reason why people buy the product, that it cures headaches if you’re buying a headache remedy, the greater the chance that [class action] certification would be granted,” Weinstein said. “If [the claim] goes more toward an ancillary purpose, it’s much less important.”

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