The National Advertising Division (NAD) of the Council of Better Business Bureaus (CBBB) is the premier self-regulatory body for advertising cases in the United States. It handles the majority of contested false advertising cases every year, compared with actions brought under the Lanham Act. In fact, in 2008, the NAD handled 214 cases, including 84 challenges by competitors. Historically, the NAD has been funded by the CBBB entirely. Participants did not “pay to play.” In the early 1990s, the National Advertising Review Council (NARC), formed under the CBBB to administer the NAD and other self-regulatory programs, instituted fees to cover document duplication costs.
In 2001, NARC revised the NAD procedures and introduced the first filing fees to “challengers” to help defray the costs of the system. Currently, those fees are set at $6,000 for companies that are not ongoing financial supporters of the advertising self-regulation system (i.e., non-CBBB Corporate Partners) and $2,500 for CBBB Corporate Partners. According to the NARC, the current filing fee for non-CBBB Corporate Partner challenges pays for only part of the cost to NAD of a challenge case (i.e., a case in which there is a challenger, not just the NAD questioning an advertisement). The remainder comes from CBBB Corporate Partner dues. Thus, the CBBB members continue to subsidize a portion of the cost of challenges.
On July 27, 2009, the NARC announced a new fee schedule designed to be more equitable and to drive CBBB membership. Under the new plan, the filing fee for a non-CBBB Corporate Partner will be adjusted depending on its annual revenue.
- Non-CBBB Corporate Partners will remain at the current level of $6,000 for challengers with gross annual revenue of less than $400 million.
- The fee increases to $10,000 fornon-CBBB Corporate Partner challengers with gross annual revenue of more than $400 million and less than $1 billion.
- The fee increases to $20,000 for non-CBBB Corporate Partner challengers with gross annual revenue of $1 billion or more.
The filing fee paid by CBBB Corporate Partners remains at $2,500.
As is the case today, there is no fee for consumer challenges, and NAD policies will continue to provide for a waiver or modification of the filing fee on a showing of economic hardship.
Why This Matters
As a practical matter, this only affects those companies that wish to use the NAD system to challenge an advertisement, but that are not CBBB members. The cost of membership varies by size of the company. A large company that is a “frequent user” of the NAD process will likely be convinced to become a member. Indeed, based on the membership fees for the Council (companies with $1B to $2B in annual revenue generally pay about $11,000), becoming a CBBB member turns into a no-brainer if the company is a regular user of the NAD process. Thus, the increase in fees is clearly going to incentivize membership. It also may have the effect of making potential challengers think twice about their litigation choices, but I doubt that it will have a major impact on the caseload experienced by the NAD. One always has to evaluate the costs and benefits of pursuing an action in federal court or at the NAD. One of the key factors has been cost. For some large companies, the increase from $2,500 to $20,000 will probably make them spend more time trying to resolve the matter without any litigation; but even with an 800 percent increase in the top-level filing fee, the cost of pursuing a civil action in federal court is still much higher and is associated with much more risk (e.g., counterclaims, discovery, publicity). Thus, the increase will probably not significantly slow the use of the NAD, and will probably significantly increase CBBB corporate sponsorship.