Caution Is the Cornerstone of Comparative Ads
Posted on Friday, February 22, 2019 Share
Not that long ago, it was considered distasteful to mention a competitor's name or show its trademark in ads. Instead the advertising industry came up with phrases like "Brand X" and "The Leading Brand."
Diluting a Trademark
Another issue to deal with in comparative ads is the trademark.
It has long been understood that a competitor's trademark can be used in ads. The "fair use" doctrine of the Copyright Act makes some exceptions to a trademark owner's exclusive right to the mark. Even the most prestigious marks can be used in comparative ads and news stories.
However, many states have laws against trademark dilution — treating a trademark in a way that tarnishes it and lessens its distinctive quality.
John Deere won a trademark dilution suit against a maker of pesticide sprayers for its use of green and yellow on its equipment. Deere registered that iconic color scheme as a trademark in 1998 and has been aggressive about enforcing it in court. The complaint alleged trademark dilution as well as federal trademark infringement and unfair competition
Today, many ads go right for the gut: Hardly a day passes that you can't go a day without seeing bar graphs, taste tests and surveys directly comparing products by name.
The Federal Trade Commission (FTC) doesn't discourage these types of ads. The agency's policy statement on comparative ads says in very clear terms that neither industry self-regulation nor broadcasters should make any effort to restrain the use of truthful comparative ads. The statement goes on to say: "comparative advertising encourages product improvement and innovation, and can lead to lower prices. ... For these reasons, the commission will continue to scrutinize carefully restraints upon its use."
But the FTC's position doesn't mean you should press the pedal to the metal if your company is planning a comparative ad campaign. Speed traps lay ahead if you create, sell or accept ads or advertise via traditional media, the Internet, direct mail or email. Without a thorough understanding of the laws and regulations involving comparative ads — and good legal advice — you run the risk of being slapped with expensive lawsuits and penalties by the FTC.
First, the FTC restricts what you can say. Basically, the ads must be "truthful and nondeceptive," and contain:
Objective truth, based on supportable data demonstrating normal use, or
Subjective truth that isn't aimed at misleading or deceiving (and there should be no potential confusion about the source of the ad).
But there's more. You must comply with the Lanham Act, a federal law that regulates trade practices and is the basis for most private lawsuits over advertising claims. Primarily, the law bans two kinds of comparative ads: false claims about an advertiser's own product and false or misleading claims about a competitor's product.
To succeed in a claim under the Lanham Act you must show that an offending ad:
Contains false and misleading statements.
Tends to deceive a substantial segment of consumers.
Is likely to influence purchasing decisions.
Is likely to cause declining sales and loss of good will.
Comparative ads can certainly be effective and there is no reason to avoid them. But keep these principles in mind before you launch a campaign:
1. Keep it honest and challenge-proof. Present the comparisons fairly. Avoid any claim you can't prove and any statements that could be interpreted as deceptive. The FTC asks three key questions to determine deception: Is there a claim? Is the claim likely to mislead a reasonable consumer? And is the claim material?
2. Disparage with a light touch. While the FTC says there's no law that prevents a seller from demonstrating the advantages of its products over others — even if it has the effect of disparaging the competition — this isn't an invitation to all out name-calling. If the statement is so absurd it's unbelievable, you may be safe. But you could be brought to court for making a statement that is both untrue and believable by a "reasonable person."
3. Substantiate claims. You must have evidence to support both express and implied claims. Use an independent testing service and keep the results as documentation if needed. The ultimate FTC question: Is the ad false or deceptive? It's determined on a case-by-case basis and the FTC vigorously enforces this requirement.
4. Know state and international laws. If you advertise in several states or on the Internet, you're subject to the laws of individual states and countries, which treat advertising differently. For example, most countries overseas either discourage or impose an outright ban on comparative ads.
5. Consider the overall impression. Certainly you don't deliberately set out to make untrue claims, but the overall impression can become an issue because it isn't substantiated. Make sure all the stats you use are checked and rechecked and the methodology is sound.
Comparative advertising can be complicated and you may need legal assistance. With sound advice and precautions, you'll reap the benefits of your advertising — and avoid the prohibitive expense of a lawsuit.
Posted in Tax Topics For Individuals, Tax And Accounting Topics For Business
Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.