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So Sue Me: Why Big Brands Are Taking Claims to Court

The marketing industry has historically gone to great lengths to keep its ad-claim skirmishes quiet, using self-regulation to settle squabbles between rivals. But lately, a lot of national marketers are airing their dirty laundry in the courts and the court of public opinion.

The reasons are many for this seeming about-face. The economy has raised the stakes on market-share battles, narrowing the window for self-regulation, which normally takes some 90 days. While litigation can take years, it offers the bonus of free publicity as the warring parties tell their sides of the story to the media. But perhaps the biggest reason for the shift is this: in the era of social media, consumers have become the ultimate arbiter in deciding claims.

"In exigent times, extreme actions are taken, and while trade associations can help in the main, this is a time when people want to fight publicly," said Michael Kassan, CEO of MediaLink. "When one big brand sues another big brand, it's big news the day it happens. It hits the internet and it's tweeted about in 30 seconds."

There have been a number of high-profile lawsuits in the past year alone. AT&T and Verizon fought over cell coverage and other issues, Gatorade and Powerade battled over the definition of a "complete sports drink," and Sara Lee's Ball Park sued Oscar Mayer over a taste-test claim.

Filing suit "really shows that you mean business or you want lots of publicity and [makes sense if] you have a lot of money and your opponent doesn't," said Michael McSunas, a partner at Chattanooga, Tenn.-based Chambliss, Bahner & Stophel. "It shuts them down early." Suing can also work when both advertisers are high-profile and well funded, he said, citing AT&T and Verizon. "How much mileage did they get out of that?"

Caveats

Advertising lawyers agree that, for companies that can afford it, big-time litigation makes sense when your brand and sales have taken meaningful hits, the culpable advertising is likely to continue for an extended period, and you can prove your case. If these factors exist, courts are likely to grant preliminary injunctions to stop a competitor's ads. But those are hard to get. Courts can also grant damages for marketers that win their cases, but that can take years -- and hundreds of thousands of dollars.

"A lot of times advertisers find they're using a sledgehammer where a scalpel might be a better tool," said David Balser of McKenna Long & Aldridge.

Liisa Thomas, a partner at Winston & Strawn, advised to "make sure, whatever you do, have your house in order" before heading to court. That can mean first going to the National Advertising Division of the Council of Better Business Bureaus. The National Advertising Review Council sets policies and procedures for the organization. Through Dec. 18 there had been 84 competitive challenges opened for the calendar year, up from 63 in 2007 and 52 in 2006.

NAD takes nearly 200 cases annually, but competitive challenges take priority. The decisions aren't legally binding, but they have a 95% compliance rate. That doesn't include roughly 10% of all cases in which the companies decline to participate; NAD refers those matters to the Federal Trade Commission.

Going to NAD does not preclude a marketer from going to court. After AT&T challenged Verizon's ads at the NAD last year, Verizon filed suit. Ultimately, AT&T requested a stay in the litigation so NAD could proceed but Verizon declined to participate. Separately, Verizon challenged Comcast's ads for its fiber-optic network through NAD. Comcast declined to participate; NAD referred the claim to the FTC. NAD was also involved in the Campbell vs. Progresso MSG dust-up and Domino's vs. Subway taste-test campaign.

Out of court

NAD challenges are confidential until a decision has been made, which generally happens within 90 days. That's faster than the average preliminary injunction from court. But given many brief campaign windows, both forums can be too slow. The NAD process is also much less expensive, with filing fees between $2,500 and $20,000.

"There may be business reasons why a company chooses to use a court, like immediate injunctive relief," said NAD spokeswoman Linda Bean. "But, as far as analysis of claims, companies and the outside counsel who work for them would acknowledge they're not going to get a more expert opinion."

Of course, some marketers prefer to slug it out in paid media. When Domino's got a cease-and-desist letter from Subway pertaining to its taste-test campaign, the company burned the letter in a TV ad. Domino's CMO Russell Weiner came from PepsiCo, where he oversaw the second Pepsi Challenge. "We didn't need to cease or desist because we knew the facts were on our side," he said. Burning the letter was a statement to Domino's confidence in its claims -- and it didn't hurt the company's toasted-sub launch.

"That really catapulted the campaign," he said. "This was just a perfect kind of exclamation point on a campaign that maybe [would have] had a period."

Trouble of another kind ...

If potential litigation weren't enough to cause sleepless nights, the food industry has additionally been plagued by increasing government intervention. Better-for-you cereals have been a particular area of scrutiny, as President Obama's Food & Drug Administration has reiterated that products making health claims are asking to be regulated as drugs. So far, the agency's results have been mixed. But if 2009 -- and its sharp increase in warning letters -- is any indication, this may be just the beginning.

CHEERIOS: In a widely derided move, the FDA sent a letter to General Mills in May, citing "serious violations" in marketing for one of America's best-loved cereals. The office took issue with Big G's claim that Cheerios, eaten in conjunction with a heart-healthy diet, can help reduce cholesterol by 4% to 6% within six weeks. The FDA's warning -- which was initiated by a regional field office -- seemed to become a source of embarrassment for the agency, which took a beating over it in social media and the press. Since then, the agency acknowledged that General Mills' science seems to be holding up, and the marketer said in November that discussions with the FDA are continuing. Cheerios marketing remains unchanged.

FROSTED MINI-WHEATS: Early last year, the FDA settled a claim with Kellogg that Frosted Mini-Wheats can increase a child's attention by 20%. The company now says that the product boosts attention by 11% and memory quality by 23% compared to kids who skipped breakfast.

SMART CHOICES: The package-food industry's attempt at a standard front-of-pack labeling that identifies certain better-for-you attributes in each product ceased in October, when the FDA announced that it would create its own standard front-of-pack label. In so doing, the agency acknowledged that most consumers ignore nutrition information panels.

COCOA KRISPIES: Parents acted as the FDA in a recent scuffle with Kellogg, which advertised that a breakfast of Cocoa Krispies could boost a child's immunity by 11%. Mommy bloggers cried foul, and suggested that the company was playing on H1N1 concerns. Kellogg respectfully disagreed, but removed the claim.

 

Emily Bryson York and Natalie Zmuda, Advertising Age. January 4, 2010

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