RAISING THE BAR
DARE TO COMPARE?
The Risks of Comparative Advertising by HOWARD N. ARONSON, managing director, Lackenbach Siegel LLC YOUR COMPANY MAY HAVE LOOKED AT cheeky ads that name competitor toys and make claims of superiority and wondered if you can do this, too. Sprint got attention when the character known as the “Test Man” in Verizon commercials appeared in Sprint ads to tout Sprint’s advantages: “I used to ask if you ‘can hear me now’ with Verizon. Not anymore. I’m with Sprint now, because guess what? It’s 2016 and every network is great. In fact Sprint’s reliability is now within 1 percent of Verizon and Sprint saves you 50 percent over Verizon, AT&T, and T-Mobile’s rates.” Comparison advertising can be tricky. Federal and state laws allow competitors to sue if the competitor’s trademark is used incorrectly, even if the ad is true. Consumers have brought class-action lawsuits based on faulty comparative advertising claims. But, the law also strongly protects comparative advertising: under the federal Trademark Law, trademark dilution excludes “advertising or promotion that permits consumers to compare goods or services.” ARE THEY PAYING ATTENTION? Research has shown that comparative advertising works only when claims about a product make a real difference to customers and when data proves the claims true. (“Aspirin can irritate the stomach lining… Fortunately, there is Tylenol”) or when the ad is humorous (“So some smartphones are smarter than other smartphones?”). WHAT’S THE RISK? Seek legal review of promotions to avoid being subject to liability for false advertising or unfair competition. Even sophisticated ad agencies provide incorrect advice about what comparative advertising allows, so consult your Intellectual Property counsel before claiming that your product is superior to the other guy’s. You may have to defend your ad in court if it uses a competitor’s name, mark, logo, or likeness and contains disparaging, unfair, baseless, incomplete, or false comments and comparisons of competitors’
products, or if it makes a false or misleading claim about its own or a competitor’s products, ratings, benefits, services, or other characteristics. Damages for false advertising can include the defendant’s profits, the plaintiff’s actual damages, and the costs of the action. In exceptional cases (where the infringement is intentional) the court may award attorneys’ fees to the prevailing party or, in some cases, a court has the discretion to award up to three times the amount of actual damages. In addition to federal claims for false advertising, a competitor can assert various state law and common law claims to challenge another’s advertising. Such claims could include unfair competition, fraud, commercial disparagement, or violation of right of publicity. Consumer protection laws that mirror the scope of the Federal Trade Commission Act may allow state attorneys general and individual consumers to sue for false advertising. The Advertising Self-Regulatory Council (ASRC) of the Better Business Bureau receives and attempts to resolve complaints about comparative advertising. (The Federal Trade Commission (FTC) isn’t bound by decisions of the ASRC, however, as an ASRC decision can be anti-competitive.) GO AHEAD, NAME NAMES You can lawfully use a competitor’s trademark to compare a competing brand with yours—on price or other factors—claiming superiority, or just parity with the competition. You can identify a competing brand by its name, or by illustrations, for example. You can truthfully highlight your strengths and the weaknesses of your competition without exposing your company to liability. The law encourages comparison advertising because it allows consumers to evaluate products and services. The FTC stated that comparative advertising “when truthful and non-deceptive, is a source of important information to consumers and assists them in making rational purchase decisions.” Before 1979, when the FTC issued its statement,
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advertising that compared by name (as opposed to as “Brand X”) was discouraged by broadcasting companies and the advertising industry’s self-regulation bodies. Furthermore, the federal dilution statute exempts from liability “advertising or promotion that permits consumers to compare goods or services.” STICK TO THE TRUTH Comparative advertising—whether in ads or on packaging—must be truthful and non-deceptive. Comparative advertising that is false or misleading can violate the false advertising provisions of federal Trademark Law. An advertiser must be able to substantiate all claims, whether or not the claims directly refer to the competition. Use of a third party’s trademark must be for comparison purposes only. A company can’t use its competitor’s trademark in a way that suggests affiliation with the competitor. A comparative ad can’t misrepresent the competitor’s trademark, or its products or services. A plaintiff can establish a false advertising claim under Trademark Law by proving either that an ad is false on its face or that the ad is true or ambiguous, but likely to mislead and confuse customers. For example, in a case involving The Clorox Co., Proctor & Gamble’s ads for a detergent claiming that “whiter is not possible,” Clorox sued, asserting that the advertisements were false and misleading. Tests proved that chlorine bleach whitens better than detergent used alone. Proctor & Gamble claimed that the ads were mere puffery and not likely to be taken literally by the public. But, the Court of Appeals found that the ads could reasonably be interpreted as making a claim of superiority over chlorine bleach, a claim that was false on its face and therefore, not mere puffing. In another case, Avon Products sued S.C. Johnson for ads, including one that stated, “Avon Skin-So-Soft is not registered with the E.P.A. as an insect repellant.” The Court found that the ad was false, because the product was registered with the E.P.A. But S.C. Johnson’s claim that its brand was “100