1. 1 NABCA SYMPOSIUM MARCH 10, 2009 U.S. ADVERTISING LAW OVERVIEW Kenneth A. Plevan Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, NY 10036

2. 2 SOURCES OF ADVERTISING LAW FEDERAL TRADE COMMISSION  In re Pfizer, 1972, the “prior substantiation” doctrine  Advertiser must have a “reasonable” basis for all objective product claims  And the advertiser must have the substantiation in advance, i.e., before running the claims  At the FTC, if the advertiser submits acceptable substantiation, but it was generated after the fact (after the ad ran), in a formal proceeding it could be ruled inadmissible  What happened to the fundamental principles of American justice? (Right to remain silent; presumed innocent until proven guilty)

3. 3 SOURCES OF ADVERTISING LAW OTHER TRUTH-IN-ADVERTISING “POLICE”  State Attorneys General/local government enforcers  NYC Department of Consumer Affairs, for example  Generally apply the FTC’s substantiation principle, look to the advertiser to produce acceptable substantiation

4. 4 SOURCES OF ADVERTISING OTHER TRUTH-IN-ADVERTISING “POLICE  Competitors -- suing under Section 43(a) of the federal Lanham Act (the trademark statute)  Competitors usually sue for immediate injunctions, but there are a few cases with sizeable damage verdicts  Only competitors can sue for false advertising under Lanham Act -- consumers cannot  Burden to prove the advertising claim is false on the challenger

5. 5  Examples of recent Lanham Act lawsuits involving beverage alcohol products:  Pernod Richard USA LLC v. Bacardi U.S.A. Inc., 505 F. Supp. 2d 245 (D. Del. 2007)  Claims regarding the ownership of the mark “Havana Club”  Millenium Import Co. v. Sidney Frank Importing Co., 2004 WL 1447915 (D. Minn. 2004)  Belvedere Vodka/Grey Goose Vodka – taste test claims based on report by the Beverage Testing Institute of Chicago  SAB Miller v. Anheuser-Busch (E.D. Wisc. 2004)

6. 6 KING OF BEERS/QUEEN OF CARBS

7. 7 SOURCES OF ADVERTISING LAW OTHER TRUTH-IN-ADVERTISING “POLICE”  National Council of Better Business Bureaus  “National Advertising Division” (“NAD”) in New York City  Alternative dispute resolution  Network Clearance/Challenge Process  “Who gave the network staffs the right to reject our ads?”  Major networks have published rules/standards. Several of the staffs take their responsibility very seriously  Review and challenges (completely off the public record, as compared to NAD proceeding)  Network position on alcohol beverage advertising

8. 8 SOURCES OF ADVERTISING LAW OTHER TRUTH-IN-ADVERTISING “POLICE”  Specialized Agencies  TTB  FDA (for prescription drugs)  Your customer  Suing in state court, as a representative of a class of all of your customers in the state, or perhaps nationwide  These are “plaintiffs’ bar” lawsuits; lawyers are the real plaintiffs  Example of the NJ statute: provides for automatic recovery of attorney’s fees and treble damages for successful plaintiffs

9. 9 BASIC PRINCIPLES THREE TYPES OF ADVERTISING CLAIMS  A “level of proof” claim:  “A recent clinical study proves that Aleve relieves muscular pain better than aspirin”  Objective product claim:  “Campbell has more soups without MSG than Progresso has soups”

10. 10 BASIC PRINCIPLES THREE TYPES OF ADVERTISING CLAIMS  Puffery -- always a favorite topic of marketing executives  Classic definition of puffery: exaggeration, hyperbole, self- laudatory statements that consumers will not take seriously/will not expect to be substantiated with objective proof  In 1983, the FTC gave this as an example of puffery: “the sexiest European -- when used to describe an automobile”  Anecdotal definition – puffery is what we say; claims that need support are what our competitors say

11. 11 BASIC PRINCIPLES  Examples from cases (there are hundreds of such examples):  Pizza Hut - Papa Johns Lanham Act lawsuit (5 th Circuit): “Better Ingredients, Better Pizza,” standing alone, was puffery (a slogan), not an objective claim  Except when used in a comparative ad comparing specific ingredients, as in: “Papa John's uses filtered water, Pizza Hut uses tap water, [tag line]: Better Ingredients, Better Pizza”  New World Pasta case: (8th Circuit) “America’s Favorite Pasta” was puffery HOW TO INTERPRET ADVERTISING  Literal claims vs. implied claims

12. 12 BASIC PRINCIPLES

13. 13 RECENT ILLUSTRATIVE EXAMPLE  Fraker v. KFC Corp. (Federal Court, San Diego, 4/30/07)  Statements on KFC Website:  “The good news is that all foods can fit into a balanced eating plan. That includes tacos, pizza, chicken, seafood and burgers”  “You can enjoy ‘fast food’ as part of a sensible balanced diet”

14. 14  KEY ALLEGATION:  KFC’s statements violate the Lanham Act as false advertising, given the high levels of trans fats in KFC’s products  COURT’S HOLDING:  Statements were non-actionable puffery: “No reasonable consumer would rely upon the statements as specific representations as to health, quality, or safety. The statements simply lack the sort of definite positive assertions of fact required to state a claim under any of the causes of action alleged by Plaintiff”

15. 15 Time Warner Cable, Inc. v. DIRECTV, Inc. (2d Circuit, 2007) Mr. Chekhov: Should we raise our shields, Captain? Captain Kirk: At ease, Mr. Chekhov. Again with the shields. I wish he’d just relax and enjoy the amazing picture clarity of the DIRECTV HD we just hooked up With what Starfleet just ponied up for this big screen TV, settling for cable would be illogical Mr. Spock: [Clearing throat] Captain Kirk: What, I can’t use that line? Announcer: For picture quality that beats cable, you’ve got to get DIRECTV” Announcer (Revised): “For an HD picture that can’t be beat, get DIRECTV”

16. 16  “IMPLIED” CLAIM AT ISSUE:  “With what Starfleet just ponied up for this big screen TV, settling for cable would be illogical”  COURT’S HOLDING:  Adopted “false by necessary implication” doctrine: “An advertisement can be literally false even though it does not explicitly make a false assertion, if the words or images, considered in context, necessarily and unambiguously imply a false message”

17. 17  INTERNET ADVERTISEMENT

18. 18  KEY ALLEGATION:  Side-by-side comparison was a total distortion  COURT’S HOLDING:  Advertisements were explicitly and literally false  But because images were so grossly distorted and exaggerated, no reasonable buyer would take them to be accurate depictions of Time Warner’s service  Thus, the comparison was non-actionable puffery

19. 19 Dr. Pepper Seven Up, Inc. (7 Up Plus with Calcium) (2006 NAD Decision)  Express Claim: “With real fruit juice, 10% of our daily calcium and only 10 calories in every 8 oz. serving, it tastes so good you can feel it in your bones”  Implied Claim (visual message): That the product contains a significant amount of real fruit juice

20. 20  NAD’S HOLDING:  The amount of fruit juice was 5% apple juice  The depiction of a wide variety of fruits was problematic because (i) the only fruit juice present was apple juice, while the other fruits were present only as a flavoring; and (ii) the large number of fruits could be understood to mean the product contains more fruit juice than 5%  Since consumers could reasonably interpret commercials to mean that the product contains a substantial amount of fruit juice, references to “fruit juice” should clearly and conspicuously disclose source and amount of juice

21. 21 INTERNET/WORD OF MOUTH  WOMMA (Words of Mouth Marketing Association)  Ethics Code  American Marketing Association “Best Practices” for word of mouth marketing  Tribute or Parody Advertising  Obligation to Police?  Remedies

22. 22 YOU ARE READY TO RUN!!!