Many false advertising disputes are decided outside the federal and state court systems. Administrative proceedings before the National Advertising Division (NAD) and the National Advertising Review Board (NARB) are a relatively fast and cost-effective alternative to litigation when false advertising disputes arise.

The National Advertising Review Council

The NAD and the NARB are part of the National Advertising Review Council. The National Advertising Review Council is an independent self-regulatory body that was formed in 1971 through an alliance of three advertising trade associations—the Association of National Advertisers, the American Association of Advertising Agencies, and the American Advertising Federation—along with the Council of Better Business Bureaus. The NAD reviews advertising disputes and the NARB reviews the NAD’s decisions.

Advertising directed toward children, which is beyond the scope of this article, is handled by the council’s Children’s Advertising Review Unit (CARU). Like NAD decisions, CARU decisions are reviewed by the NARB.

The National Advertising Division

The NAD is the investigative arm of the National Advertising Review Council and is charged with responsibility for monitoring and evaluating national advertising.

The NAD employs a unique form of alternative dispute resolution. After reviewing briefs submitted by the parties, conducting its own investigations, and often meeting directly with the parties, the NAD renders a decision as to whether the advertising in question is “properly substantiated.”

An advertiser who receives an adverse decision from the NAD has three options: (1) comply with the NAD’s recommendations; (2) appeal to the NARB; or (3) refuse to comply. Although NAD decisions are nonbinding, noncompliant advertisers risk referral of the matter to an appropriate law enforcement agency. Noncompliant advertisers also risk private litigation likely to address the NAD’s findings and the advertiser’s noncompliance with those findings. As a result, noncompliance with NAD recommendations is rare.

Types of Claims Reviewed in NAD Proceedings

The NAD generally reviews advertising that is national in scope or disseminated on a broad regional basis. The NAD reviews television, radio, magazine, newspaper, and Internet advertising, as well as advertising delivered directly to homes or offices. Representative examples of the types of claims the NAD reviews include product performance claims, superiority claims against competitive products, and scientific and technical claims.

The NAD has deemed a number of types of claims inappropriate for review. The NAD will not review disputes regarding the “good taste” of an ad, moral questions about a product offered for sale, or political or issue advertising. The NAD will also decline to review claims that are the subject of pending litigation, court orders, or federal government agency consent decrees or orders. The NAD will usually suspend or drop claims if related litigation ensues while the claims are pending.

Further, if an advertiser provides written assurances that the advertisements at issue will not be used in the future and the advertisements are withdrawn prior to the date of the complaint, the NAD will not proceed with the claims. The NAD may also refuse to review claims it deems to be too technical. Finally, the NAD has discretion to decide whether a claim lacks sufficient merit to warrant the expenditure of its resources.

Procedure in NAD Proceedings

To file a challenge with the NAD, the challenging party submits a letter complaint, along with supporting exhibits containing the advertisements at issue. Discovery and motions to compel discovery are not permitted, but the NAD may request additional information if necessary for its decision.

NAD proceedings follow a strict timetable. The NAD issues a written decision within 60 days of the filing of the complaint. If the NAD determines that the challenged advertisement has not been properly substantiated, the advertiser has five business days to submit a statement indicating whether it will modify or discontinue the advertisement or appeal the decision.

All information received by the NAD in reviewing a case is kept confidential. The only information made public is the challenger’s and advertiser’s positions, the NAD’s decision, and a statement by the advertiser.

The National Advertising Review Board

Advertisers may appeal NAD decisions to the NARB. The NARB is currently made up of 70 professionals—40 advertiser members, 20 advertising agency members, and 10 other members, including academics and lawyers.

When the NARB Chair grants review of an NAD decision, a panel consisting of five members—three advertiser members, one advertising agency member, and one other member—holds a hearing. No new evidence is considered during the panel hearing and all arguments are limited to the issues under review in the case record. The panel may affirm, modify, or reverse the NAD decision. Appeals to the NARB are generally affirmed.

While the NARB panel’s recommendations are nonbinding, most advertisers accept the panel’s findings for the same reasons they generally accept NAD decisions.

All NARB proceedings are confidential. However, the NARB panel’s report is released to the press and NARB subscribers.

Advantages and Disadvantages of NAD/NARB Proceedings

As with any type of proceeding, there are several disadvantages to NAD/NARB proceedings. NAD and NARB proceedings are based on information voluntarily submitted by the parties. Thus, the parties run the risk of not having access to enough information in factually complicated or highly technical cases. Another disadvantage of NAD/NARB proceedings is that the NAD and NARB have no power to award monetary damages or invoke equitable remedies, thus limiting the NAD/NARB’s ability to redress past wrongs and deter future misconduct. Further, NAD/NARB decisions are not legally binding. Accordingly, it may be necessary to engage in litigation to resolve certain disputes even after participating in NAD/NARB proceedings.

However, there are several advantages to NAD/NARB proceedings over litigation. The main benefit is that they are relatively fast compared to litigation. For example, federal court proceedings involving false advertising claims may take years to resolve. In contrast, NAD/NARB proceedings may be resolved in a matter of months. Further, NAD/NARB proceedings are generally far less expensive. NAD/NARB proceedings are also more accessible because they are based on broader standing requirements. Unlike Lanham Act claims, NAD/NARB claims need not be based on a showing of “commercial injury.” Another advantage of NAD/NARB proceedings is that most information concerning the proceedings is kept confidential, reducing the risk that the proceedings will result in adverse public relations consequences. Finally, NAD/NARB cases are decided by experienced attorneys and panelists, reducing the risk of poor decisions and increasing confidence in the overall process.

Thus, when confronted with false advertising campaigns by competitors, companies may wish to consider NAD/NARB proceedings as a relatively quick and cost-effective alternative to litigation.