There is nothing actually wrong with naming the competition in advertising. Roughly speaking, the legal standard under the Federal Trade Commission Act is that true statements that can be substantiated, and are neither expressly nor implicitly deceptive, even through omission, are okay.
However, it’s a very combative strategy, with risks and rewards from both a marketing and legal standpoint. Marketers should not rush in without weighing all the factors and anticipating some blowback.
From a Marketing Viewpoint
It can work very well. Taco Bell’s recent campaign featuring 38 real-life Ronald McDonalds created quite a buzz. It can also backfire, creating free publicity for the competitor, turning off consumers as mean-spirited or exposing unattractive aspects of the industry. The recent spat between Pizza Hut and Papa John’s left everyone thinking about terrible pizza sauce and worse crust. Some suggest that comparative advertising works better in price-based print ads than it does on television, where the audience may be more easily distracted.
From a Legal Viewpoint
In 1979 guidance, the Federal Trade Commission actually encouraged name brand comparisons, reasoning that truthful and non-deceptive contrast could be a source of important information to consumers, helping them make rational purchase decisions.
Advertising that names names will provoke a response, though, and the battle may be fought in the regulatory or legal arena rather than the marketplace. An aggrieved competitor may respond in a variety of escalating ways before resorting to litigation under Section 43(a) of the Lanham Act.
Four Alternatives Short of Litigation
Whether your business uses or feels abused by comparative advertising, it is important to be aware of four potential non-litigation responses to claims thought to be false or misleading.
An attorney’s demand letter, also known as a cease-and-desist, is the least expensive of the alternatives and a likely prelude to any other move. It sets out the legal argument against the truth of the claim and demands modification or discontinuation of the advertisement. Occasionally that is all that’s necessary, but it does nothing to address the harm that may have been done by false claims.
In an effort to comply with their internal policies, broadcast outlets and publishers will usually take an offending advertisement down in response to a well-constructed argument with supporting evidence demonstrating that an advertising claim is false or misleading. The same is true of search engines, like Google, which recently took down deceptive pregnancy center ads in response to an investigation by NARAL Pro-Choice America.
Proceeding Before NAD
The advertising industry established the National Advertising Division of the Council of Better Business Bureaus as a forum for industry self-regulation. NAD may review national advertising directed at adults. It looks particularly at whether advertiser claims may be substantiated. With respect to disparaging comparative claims, the issue is whether the comparison is factually accurate and the distinction meaningful to consumers.
A decision in a NAD proceeding is made on the basis of briefs submitted by both sides. An advertiser may appeal an adverse NAD decision to the National Advertising Review Board, but NARB will not consider an appeal unless its decision is likely to be different.
In the end however, complying with a NAD recommendation is completely optional. It’s only enforcement tool is its reputation as the industry watch dog.
State or Federal Regulatory Investigation
Challengers can also ask the FTC or state regulators to investigate comparative advertising claims. Regulators, however, will focus whether the consumer is being harmed, not on the scuffle between competitors.
Among the factors to be considered will be whether there have been consumer complaints, whether a health and safety issue is involved or whether the activity complained of falls under some current regulatory priority such as green marketing or consumer privacy.
This option may still be cheaper than litigation, but it can take years and even if successful is more likely to lead to a change in industry practices than immediate relief for the challenger.
Litigation under the Lanham Act
On the other hand, a challenger under the Section 43(a) of the Lanham Act can ask for an immediate injunction if the advertisement is false or misleading and likely to cause irreparable harm. This is also the only avenue that may lead to money damages if the challenger can show that consumers were actually deceived or confused and that claim affected consumer behavior in a way that harmed the business. It is a very difficult showing to make.
There is the strategic problem with litigation, though. It can look like sour grapes and may actually make the harm suffered by the challenger worse by bringing public attention to the dispute. This may be one reason that suits against Yelp reviewers are still relatively rare.
Comparative advertising is just part of rough and tumble commerce. Market responses may be admirably deft, as was McDonald's response to Taco Bell, or they can be fumbling and awkward and simply make a bad situation worse.
Challengers who want to make a legal response may not want to do anything more than necessary to stop immediate harm. Steps short of litigation may be sufficient to accomplish that goal. The nuclear option, or litigation under Section 43(a) of the Lanham Act, may be expensive and time consuming, but can be a powerful tool for bringing about a settlement, halting deceptive advertising or recovering damages for harm to a business.