Risky Business: A Focus on Comparative Advertising

Focus on comparative advertising

Risky business Kate Dennis Nye and Lee Barrington Stark explore the varied risk landscape of comparative advertising law in the US

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ften marketers want to know: can we name our competitor in this advertisement? As always, when you ask a lawyer, the answer is, “It depends”.

As a baseline, nominative fair use permits use of competitor trademarks in advertising, so long as the advertisement is truthful and not misleading. But the bounds of what is “misleading” are often unclear and, depending on the forum, can be drawn slightly differently.

This article reviews representative cases from the three main forums for advertising cases – federal litigation under the US Lanham Act, action by the Federal Trade Commission (FTC), and challenges in the Better Business Bureau’s National Advertising Division (NAD).

Because the risk associated with comparative advertising comes from these three different angles, it is critical that advertisers are aware of the body of case law and carefully vet any comparative claims.

Federal Lanham Act litigation Comparative advertising falls under the Lanham Act’s false advertising rubric, under which a plaintiff must establish, among other elements, that the defendant’s commercial advertising contained a false or misleading representation of fact that was likely to cause confusion about the defendant’s products or services and that injured the plaintiff.1 To show a qualifying false or misleading statement, a plaintiff must demonstrate that the defendant’s statement was either (1) literally false or (2) literally true or ambiguous but implicitly false, misleading in context, or likely to deceive.2 Many advertisers are likely familiar with and rely upon the doctrine of nominative fair use, which generally permits use of competitor trademarks in comparative advertising.3

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However, when proven false, comparative advertisements are presumed to do harm to the target competitor because they necessarily constitute disparagement.4 The presumption arises from the fact that “[a] misleading comparison to a specific competing product necessarily diminishes that product’s value in the minds of the consumer”, as opposed to the general industry harm that might occur in a multi-player market.5

“The bounds of what is ‘misleading’ are often unclear and, depending on the forum, can be drawn slightly differently.”

Advertising need not even name the competitor to be potentially deemed a disparaging comparative ad. For example, in Merck Eprova AG v Gnosis SpA6 the parties were direct competitors, and indeed, the only competitors, in the market for synthetic dietary folate. The defendant advertised its product to supplement manufacturers as a “purer” form of folate, while the plaintiff did in fact sell a pure form. The court held that the defendant was thereby making a false comparison to its sole direct competitor, the plaintiff, even

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though plaintiff was never named.

Likewise, the Tenth Circuit in General Steel Domestic Sales, LLC v Chumley,7 affirmed that the defendant’s claims that it sold “general steel” products were literally false, over the defendant’s arguments that the claims were merely ambiguous, in that they could be read to mean all-purpose steel products and not the products of General Steel. Plaintiff’s advertisements contained side-by-side images of its own products next to its rival’s, and plaintiff presented no “credible” evidence that “general steel” was used in the industry to describe any products other than those of General Steel.

Indeed, the products at issue do not even need to be direct competitors to be potential targets for Lanham Act cases. In McNeil-PPC Inc v Pfizer Inc,8 a mouthwash manufacturer published print and television ads stating that its mouthwash is “as effective as floss at fighting plaque and gingivitis.” This claim was based in large part on studies that found that floss was less effective than the experts anticipated largely because participants in the studies failed to floss consistently. The leading manufacturer of dental floss sued, alleging false advertising and unfair competition. The court granted a preliminary injunction, holding that though the floss manufacturer was not named, and the studies did show a high rate of noncompliance with regular flossing, the advertisement was a false and misleading comparison.

The FTC The FTC is a federal regulatory body that adjudicates advertising in the context of consumer protection. As such, it prioritises ameliorating the effects of false advertising on consumers above making individual litigants

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Focus on comparative advertising whole, as Article III courts do. In addition, as a regulatory body, the FTC is flexible in its policy priorities and may adopt particular priorities depending on the economic climate.

For example, in the 1960s and 1970s, the FTC heard many challenges to comparative television commercials, a popular format at the time.

However, the FTC, unlike other regulatory bodies in countries outside of the US, does not discourage the use of comparative advertising.

Indeed, at times the FTC encourages it as an important contributor to the forces of competition within the American economy.

For example, in a series of cases in the 2010s, the FTC ordered that various nonprofit associations (eg, the National Association of Animal Breeders and the National Association of Teachers of Singing) could not issue internal regulations prohibiting their members from engaging in truthful and non-deceptive comparative advertising.

According to the FTC, an advertisement is deceptive if: • A representation, omission, or practice is likely to mislead the consumer acting reasonably; • It affects the consumer’s conduct or decision regarding a product or service; and • The advertiser does not have substantiation at the time the representation, omission, or practice is made or conducted.

In one such FTC case, Kroger Co,9 the FTC found that Kroger’s price comparison ads were deceptive because they were not methodologically sound, and issued an order requiring such comparisons to be either random or a representative sample. This remains the law today and good practice when making comparisons to large swaths of competitors on price or other metrics.

NAD Unlike the FTC, NAD confines its assessment to the truth of the advertising, and whether the advertiser had a reasonable basis to support its messages, a burden the advertiser bears once challenged. It does not examine whether consumers were actually deceived, whether an advertiser has violated the law, or whether an advertiser has engaged in false or unfair advertising practices. Its opinions are issued in the form of “recommendations” rather than mandates.

An exemplary case is NAD 6235: Hellmann’s REAL Ketchup (2018). Against the backdrop of a sponsored social media campaign featuring influencers admonishing viewers to stay away from other brands’ “evil” and “fake” ketchups, Hellmann’s published advertisements characterising its product

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as “real” and describing its lack of high fructose corn syrup (HFCS). The case touched on a number of relevant issues in modern comparative advertising.

First, the case highlights the need for advertisers to keep a watchful eye on influencer statements. Hellmann’s was forced to distance itself from the influencer statements that HFCS is “fake and evil,” asserting that the statements were “rouge” and outside of its messaging instructions, and that it was in the process of voluntarily modifying the posts.

Secondly, the case highlights that even seemingly non-comparative statements about the advertiser’s own product can be interpreted as comparing to other products on the market. Specifically, the parties disagreed about the comparative value of the term “real”. Hellmann’s argued that calling its own product “real” did not imply anything about any other product. Heinz argued that, while the term is commonly used with respect to mayonnaise to distinguish mayonnaise from imitation mayo, “real” takes on a different meaning with respect to ketchup, because no imitation ketchup product exists on the market.

While Heinz did not dispute the literal truth of the term “real” as applied to the Hellmann’s ketchup ingredients, it urged that the juxtaposition of the claim “real” with negative statements about HFCS implied that HFCS is not “real” and, by extension, less healthy.

Stating that an advertiser is responsible for all reasonable interpretations of its messages, NAD found that the term “better for us” in this context rises above mere puffery and reasonably implies that Hellmann’s ketchup is healthier than all ketchups before it. NAD recommended that Hellmann’s discontinue the use of this statement.

By contrast, Hellmann’s product label, which included both “real” and “no high fructose corn syrup,” satisfied NAD that Hellmann’s had “sufficiently separated” the two claims on its packaging by presenting them in different fonts and with the latter presented in a circle of a different colour from the rest of the packaging.

Finally, the case highlights the need for a close “fit” between a claim and its substantiation. In other advertising, Hellmann’s made the claims “Moms prefer to serve their children Hellmann’s Real Ketchup over Heinz Original Ketchup” and “Moms prefer Hellmann’s over Heinz.” However, the comparison study on which these preference comparisons were made only showed that respondents preferred the ingredient lists for the two products, rather than conducting the more common taste test comparison, and NAD

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recommended the claims be discontinued for lack of “fit” between the claim and the substantiation.

Summary Comparative advertising, which calls out a competitor’s products and compares them to the advertised products, is incredibly powerful.

When truthful, and not misleading, it informs consumers about the relative quality of competitors’ goods or services and can have an outsized impact on sales. For these exact reasons, comparative advertising can be risky – competitors do not appreciate being called out and having sales diverted. Moreover, the varied risk landscape makes it more critical than ever that advertisers are mindful of the potential pitfalls before beginning a comparative campaign.

Footnotes 1.

15 USC section 1125(a); Sally Beauty Co v Beautyco, Inc, 304 F.3d 964, 980 (10th Cir 2002).

2.

Hot Wax, Inc v Turtle Wax, Inc, 191 F.3d 813, 820 (7th Cir 1999).

3. Smith v Chanel, Inc, 402 F.2d 562, 565–66 (9th Cir 1968) (“use of another’s trademark to identify the trademark owner’s product in comparative advertising is not prohibited by either statutory or common law, absent misrepresentation regarding the products or confusion as to their source or sponsorship.”).

4. Time Warner Cable, Inc v DIRECTV, Inc, 497 F.3d 144 (2d Cir 2007).

5. Merck Eprova AG v Gnosis SpA, 760 F.3d 247, 259 (2d Cir 2014).

6. 760 F.3d 247 (2d Cir 2014).

7. 627 F App’x 682, 686 (10th Cir 2015).

8. 351 F Supp 2d 226 (SDNY 2005).

9. 98 FTC 639 (1981), order modified by 100 FTC 573 (1982).

Authors

Kate Dennis Nye is a partner in Neal Gerber Eisenberg’s IP practice group.

Dennis Nye’s practice encompasses a broad range of IP and advertising matters.

Lee Barrington Stark is a member of Neal Gerber Eisenberg’s IP and technology transactions practice group.

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