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NAD: The Plug Stops Here

Welcome to a day in the life of the National Advertising Division, an arm of the national Council of Better Business Bureaus that, outside of advertising's legal circles, is pretty much unknown to the public. But since 1971 the NAD, an adjudicative body made up of fewer than 10 attorneys, has had one of the most powerful and influential jobs in the marketing universe: It gets to tell brands what they can and cannot say in their advertising.

When a company objects to what one of its competitors is claiming on TV or in a print ad, the dispute usually ends up here -- specifically, in the NAD's nondescript conference room, where hundreds of advertisements are dissected, argued over, tested and ultimately ruled on each year. "Brands send their marketers, lawyers and scientists to come with the facts -- and if I can keep the lawyers from shutting them up, we can get somewhere," says NAD executive director Andrea C. Levine (pronounced "la-vine"). "It gets very interesting in this room."

Lately, it's gotten very busy, too. The NAD's caseload is up by 30 percent over last year, a year that saw a 40 percent jump over 2007's manifest. The reason (as though it even needs stating) is the recession. After last year's economic meltdown vaporized $13 trillion in wealth from U.S. households, the spending austerity that has resulted has left brands in a veritable bar brawl for customers. To get them, they're willing to float ever-bolder claims in their ads -- claims that their competitors often consider to be, in less-than-legal terms, a load of bull.

"Tolerance for what [competitors] perceive as denigrating -- or anything that would affect market share -- has really been reduced," Levine says. "Nobody's letting anything go."

In the case of the pet hair, it was 3M that wouldn't let it go. Commercials produced by competitor Pledge -- showing a white sofa being lowered into a glass box provisioned with 20 black cats -- claimed that the Pledge Fabric Sweeper removed as much pet hair as "145 sticky lint roller sheets." 3M (which happens to make sticky lint roller sheets) cried foul, arguing that Pledge's method was "fatally flawed" because it tested only one brand of roller sheet, should have evaluated the pet-hair pickup by weight instead of surface-area fillage and "employed an inappropriately large amount of hair" in its commercial, hence exaggerating real-life circumstances.

And it is hairsplitting details like this that fill the NAD's daily roster. In January alone, for example, the NAD pondered whether Hunt's "all-natural, vine-ripened tomatoes" were substantively the same as "fresh unprocessed tomatoes," whether Michelin misled motorists by claiming that its radials saved them money "on the road" based on tests that were actually conducted in a laboratory and whether Dannon erred by claiming its yogurt had "50 percent more fruit" without specifying 50 percent more fruit than what.

Despite the obvious complexities, Levine's view of NAD's work is linear and succinct. "We try to assess what messages were reasonably conveyed, the substantiation and whether there's a good fit between them," she explains. "To the extent there is not [a good fit], we can recommend that a claim be discontinued." The forum "is not meant to be negative or punitive," and NAD's decisions, Levine says, "are just intended to provide guidance on how to do it better."

Indeed, most in the advertising field will agree. But according to the NAD's critics, this is exactly where the trouble begins. Insofar as the NAD exists to help the advertising industry police itself -- only the Federal Trade Commission possesses actual punitive power -- some contend that offenders are let off easy.

If the NAD finds a commercial to be misleading, the most it can do is ask a brand to please cut it out. The efficacy of the NAD's rulings depends on both parties complying voluntarily -- which, on some notable occasions, brands have refused to do. What's more, to the extent that the FTC has left the NAD to mind the store, as it were, some argue that the public welfare cannot be adequately served when the entire advertising beat -- TV, print and the Internet -- is patrolled by what's essentially a small law office.

On the whole, as one critic characterized it, the problem is not so much the NAD as the idea of the NAD: "The advertising industry likes to claim that they are adequately regulating themselves to avoid government regulation," says Bruce Silverglade, legal director for consumer-advocacy group the Center for Science in the Public Interest. "And that's a myth."


To understand how and why the NAD came into being, it helps to be over 40. Back in 1971, Ralph Nader had emerged as the white knight of consumer protection, jousting evildoing brands everywhere. His seminal book Unsafe at Any Speed had already exposed and humiliated the mighty General Motors before Congress, and "Nader's Raiders" had declared open season on big brands and their marketing claims. For its part, the advertising industry realized that if it didn't get proactive about things, the government would. Thus was the NAD born of -- and fiscally supported by -- the ad industry itself. And it's been doing its thing ever since.

For an adjudicative body with so much influence, the NAD generates surprisingly little press. Most of the 300 or so cases that it decides each year -- published monthly in soft-cover booklets that are required reading for most any attorney with an advertiser client -- scarcely win a mention in the major media. Levine has been the NAD's director for 13 years. She's a former assistant attorney general for New York State and once argued before the U.S. Supreme Court in a case concerning airline advertising. Her legal experience, firecracker personality and irrepressible sense of humor forms the intellectual glue that has held the NAD together through cases often stultifying in their tedium.

Reduced to the basics, the process works like this. If Brand X makes a claim that Brand Y considers spurious, Brand Y will file a claim with the NAD. In turn, Brand X will be notified and submit its defense. The parties are invited to appear -- always separately -- but the process can be done over the phone or through the mail. The NAD will weigh the evidence (inviting outside experts if it feels that's necessary) and then rule -- usually in a few months. Compared to pushing a case through federal court, the process is quick and inexpensive, which is probably no small part of why the NAD enjoys a compliance rate of 96 percent.

The NAD can only weigh a claim that's objectively provable. The group can do nothing with a case of so-called puffery: opinion-based, fatuous statements that no reasonable consumer would take literally. Chewing gum that'll "rock your world," for example, cannot be adjudicated unless the company means that effect in an actual, seismic sense (and it had better not). Still, a brand that opts to use an opinion as an advertising claim is not necessarily freed from the burden of substantiation. "If you want to claim that you're [America's] favorite," Levine says, "you'd better prove it."

As in most cases of law, nothing here is black and white. Many of the NAD's cases involve implied claims. "Say I tell you my product is made only from the best cuts of meat and [a competing brand's] is made of scraps," Levine says. "Am I conveying the message that theirs is less healthy? That theirs is dangerous? Clearly, I'm saying mine is superior -- but am I also sending a denigrating message?"

Even when a claim is clear, the substantiation of it seldom is. Evaluating "clean" via the breakdown of molecular structure, for example, or the dishwasher brands fighting over whose machine leaves the fewest spots (yes, people count them). Or the dog food that claims that it's dogs' favorite. "What's the best test for that?" Levine asks rhetorically. "The dogs can't tell you! So, is it [their favorite] if they eat it first or if they eat the most of it?"

One emerging-and especially confounding -- area that NAD is starting to deal with is commercial claims made by bloggers or on various social-media sites. Unlike TV or radio, defining "advertiser" and "claim" in these areas can be sticky business. The FTC's recent ruling that compels bloggers to disclose when a brand gives them free products to review makes clear that the worlds of blogging and traditional advertising are beginning to meld, which is why Levine expects to see more of these cases.

Thus far, the NAD has dealt primarily with cases of "astro turfing" (laudatory testimonials supposedly written by consumers that turn out to be authored by company employees) and "stealth marketing" -- generally, YouTube videos that look like the usual slapstick junk but actually imply certain things about a product. NAD recently nailed a cell-phone headset brand for posting a video on YouTube showing a cell phone purportedly causing a kernel of corn to pop, the implication being that cell phones emit dangerous radiation. NAD ruled that when a company, even in stealth, is making an objectively provable claim (cell phones are dangerous, in this case), it must back it up.

By now, in fact, the NAD's long-established standards of proof are (or probably should be) known to most major advertisers: that "new and improved" can only apply to a product for a six-month period and the improvement must be measurable; that a given product has to have been selling at a higher price for at least half a year before a company can say it's "on sale."


For all its thoroughness, however, the NAD is not without its shortcomings. Take its lack of enforcement power. According to some, it creates a potentially renegade climate. Ivan L. Preston, professor emeritus of advertising at the University of Wisconsin-Madison, and author of books including The Great American Blow Up: Puffery in Advertising and Selling, says that when the worst thing likely to happen to a brand is a recommendation that it cease making a given claim, "it tells the advertiser, 'I can do such and such until I get caught, and then if I get caught, all I'll have to do is quiet down.'"

In theory, the punishment can be worse. If an offending advertiser chooses to ignore the NAD's finding, the NAD refers the case to the FTC and hopes that agency lowers the boom.

Often, it will do just that. According to Ron Urbach, an attorney who heads the advertising practice at New York law firm Davis & Gilbert, the FTC tends to take a protective view of the NAD. Or, as he puts it: "If you stick it to my little brother, I'm going to get pissed off and do something about it." In fact, if ever there was a regulatory body based on Theodore Roosevelt's maxim of speaking softly but carrying a big stick, the NAD is it. A hint of confident smugness creeps into Levine's voice as she explains that the FTC "has been incredibly effective in impressing upon a company that it might be a good idea to comply." Actually, that Teddy Roosevelt analogy is not really so far off; Levine herself refers to the FTC as "the stick that's in the background."

And a smack with the stick can hurt. About five years ago, a vitamin supplement called Airborne Effervescent Health Formula went on sale, claiming to boost immunity and help users avoid catching colds. "We called them in, recommended changes -- and they didn't comply," Levine says. Last year the FTC slapped a $30 million judgement on the brand. "If they just would have complied [with us]," Levine says, "they could have avoided it."

You'd think that precedents like that would frighten all brands into taking the NAD's word as law. But it hasn't. Most recently, Hewlett-Packard filed a complaint with the NAD over an ad from Kodak, which told consumers who bought its ink-jet printers that they save $110 annually-presumably because the printers used less ink. But when the NAD asked Kodak to supply proof for the claim, the brand refused. Accordingly, little brother called big brother, and now the case is in the hands of the FTC.

According to Preston -- who worked for the FTC prior to teaching advertising -- there seem to be more brands willing to go over the NAD's head. "[The NAD] got a tremendous amount of compliance" in the early days, he says. "More recently, over time, there's been some deterioration of that."

The NAD's funding -- both its source and its adequacy -- is cause for concern for others. "There's a finite amount of people and resources," observes Urbach.

"I don't think it's critical [right now], but it is an issue that needs to be dealt with. At a certain point, [the caseload may be] too much for them to handle." And Preston adds that so long as the NAD's funding comes from the ad industry (which it does) and that some involved in the adjudication process are members of the industry (which, in the case of the NAD's appeal arm, the National Advertising Review Council, they are), "it's almost certain they will not offend their advertiser friends. If they offend people, then they'll end up getting less funding. [So] it's just not independent."

Another drawback of the NAD's setup -- albeit a theoretical one -- is that some brands may refuse to report a case of suspicious advertising for fear of revenge. This is because, unlike the FTC, the NAD will not entertain anonymous challenges. "Not all [brands] want their competitors to know that they're squealing on them," relates Randy Shaheen, an attorney with Washington, D.C., law firm Arnold & Porter. "It initiates reprisals. I can go to the FTC and, by law, keep the fact that I've been there a secret. But [with] the NAD, everyone knows."

Then there's the matter of independent surveillance. Because the NAD is principally a reactive body -- taking up issues only after a claim is filed -- it can devote only a quarter of its time to sweeping the wide advertising landscape to nab everything that looks suspicious. How can it possibly do a job so huge?

"We subscribe to a lot of magazines," Levine explains. "And we're out there in the real world. I watch TV. I'm pretty attuned to this because I've been doing this for 30 years, and that's a long time."

No doubt. But isn't having eight attorneys monitor all of the ad world a bit like New York City enlisting a police force of 50 officers? "If you look at what the FTC has done over the last decade," Levine counters, "we've done so much more." The NAD has, in fact, resolved more than 3,700 cases in its lifetime. But in terms of consumer protection, the NAD's independent monitoring efforts do not impress people like CSPI's Silverglade. "The NAD is useful in a limited number of circumstances where you have one competitor complaining about another," he says. "But the NAD is in no position to tackle the tough consumer-protection issues raised in deceptive advertisements."


In fairness, however, tackling tough consumer-protection issues is not really the primary job of an arbitration committee; it's supposed to be the job of the FTC -- which only begs larger, and more difficult, questions: Is the FTC leaving too much of the heavy lifting to the NAD? Should it be doing more to protect the public?

Levine confronts that issue gingerly. The FTC, she says, "is doing cases where they feel they need to." Plus, she adds, "They don't have the resources to spend on [evaluating] this tooth whitener versus that tooth whitener."

Both the issue of brand noncompliance with the NAD and policing of the advertising landscape in general are matters that some believe will change with the recent ascent of David C. Vladeck, President Obama's new head of consumer protection at the FTC. "During the Bush years," CSPI's Silverglade says, the FTC all but ignored its role to protect the public from spurious or harmful advertising claims. In turn, he adds, brands figured "why should we comply [with the NAD]? The only threat was to turn them over to the FTC, and that's a joke."

Vladeck seems to have signaled a change in that policy. His recent speech at the NAD's annual conference "indicates to us that the FTC will resume its traditional role as the federal cop on the beat," Silverglade says, which, in his view, is a good thing: "When important matters are at stake, the NAD is relatively toothless."

Overall, it's much easier to find NAD fans than critics. "The NAD is a way to get a decision quickly," Shaheen says. "The compliance rate is quite high, and for those reasons a number of my clients think they're pretty effective."

"Academically, you can say that if someone has no real authority, what difference does it make? That's probably true in the abstract," Urbach adds. "But in this unique confluence of events, [the NAD] really does work. Could it work better? Yes. But in terms of the sophistication of the decisions and in terms of credibility, it has accomplished an awful lot."

Including that decision on the pet-hair remover. In the end, the NAD found that Pledge's claims were sound-that a visual inspection of pet-hair pickup was a reasonable test of a product's efficacy, and even that a white couch covered with black-cat hair was "within the range of typicality for the amount of hair found in consumers' homes."

Meanwhile, Levine says, the pet-hair experiment added to her personal knowledge of consumer-product testing and development which, thanks to her position at the NAD's helm, is probably the most diverse and unusual in the United States. "[This job] is really fun if you're curious about how things work," she says. "You can pick up a lot of cocktail party conversation here."

And, on some days, a lot of dog hair, too.


Robert Klara, Adweek. November 1, 2009

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