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27 Antitrust 79 (2012-2013)
So you Want to Self-Regulate: The National Advertising Division as Standard Bearer

handle is hein.journals/antitruma27 and id is 185 raw text is: So You Want to Self-Regulate? The National Advertising Division As Standard Bearer BY JOHN E. VILLAFRANCO AND KATHERINE E. RILEY HE FEDERAL TRADE COMMISSION has been an active proponent of industry self-reg- ulation. The agency has recognized that industry cooperation can lead to efficiency, innovation, and the dissemination of useful information, which can benefit both consumers and competitors. Self-regulation also allows the FTC to conserve resources and direct them to high priority competition and consumer protection policy matters, while deferring to an industry that may be more capable of regulating its members than a government agency. Notwithstanding these benefits, a tension exists between industry self-regulation and competition law, in that certain cooperative activities can be ineffective substitutes for com- petition in promoting proper social policy, and industry cooperation can have exclusionary and anticompetitive effects. Because of this, the FTC has sought to limit its sup- port for industry self-regulation to sound self-regulatory efforts likely to yield efficient and nondiscriminatory results. Various self-regulatory initiatives recently have been pro- posed or currently are underway in diverse areas that include behavioral tracking, food marketing, and privacy and data security, among others. The National Advertising Division (NAD) of the Council of Better Business Bureaus, now in its forty-first year, is considered by many to be the standard against which these initiatives are compared. This article will discuss the strengths and weaknesses of the NAD, evaluate its performance in achieving its stated objective of promoting truthfulness and accuracy in national advertising, and con- sider how it effectively has managed to remain procompeti- John E. Villa franca is a partner in the Washington, DC office of Kelley Drye & Warren LLP and was Editor-in-Chief of Consumer Protection Law Developments (1st ed. 2009). He specializes in advertising and market- ing law. Katherine E. Riley is an associate in the Advertising Law Practice Group at Kelley Drye & Warren LLP. tive. The article will conclude with direction for the many industries that have proposed self-regulation as an alternative to legislation or agency regulation. The National Advertising Division How It Works. Governed by the Advertising Self-Regulatory Council (ASRC) and administered by the Council of Better Business Bureaus (CBBB), the NAD was formed to promote truthfulness and accuracy in national advertising. The NAD reviews complaints about advertising claims filed by com- petitors and consumers and identified through its monitor- ing program. NAD attorneys determine whether the adver- tising at issue is substantiated and, if not, recommend that the campaign be discontinued or modified. NAD rules do not allow for discovery, and the process remains confidential until publication of the final case report, accompanied by a press release. Each decision summarizes the position of the advertiser and challenger, states the NAD's conclusion based on relevant law, and includes a brief response by the adver- tiser to the decision indicating the advertiser's intentions regarding the NAD recommendation. The NAD reviews an average of 100 cases per year, and the entire process, from filing the complaint to its resolution, is intended to move more quickly (approximately sixty days to decision) and be less expensive than private litigation.' While participation is voluntary, the NAD may refer a case to the appropriate regulatory agency, most commonly the FTC, if a challenged advertiser declines to participate in the process. The NAD also may refer to government agencies any par- ticipant that fails to comply with a decision for any reason. FTC Commissioners have been consistent and vocal sup- porters of the NAD.2 As they have noted, the NAD allows the Commission to spend less time on general industry super- vision and devote its resources elsewhere.3 And when the Commission does act on matters previously before the NAD, the agency's actions, for the most part, have been consistent with the self-regulatory decision. For example, in 2008, the FTC settled with Airborne for $30 million, resolving allegations that the company made unsubstantiated claims that its effervescent tablets prevented colds.4 The FTC investigation and settlement followed a 2002 decision in which the NAD noted that, although Airborne had discontinued the advertising in question, all future advertising must comply with substantiation require- ments.5 In a 2008 speech, FTC Commissioner J. Thomas Rosch noted that the company had not complied with the substantiation requirements outlined in the NAD decision, implying that, if it had, the company potentially could have avoided FTC investigation and enforcement.6 ASRC Pres- ident and CEO (and former FTC attorney) Lee Peeler has noted that the referral relationship shows ongoing strong support by the FTC for self-regulation and a high degree of effectiveness while preserving the fundamental distinctions between self-regulation and government regulation.'7 Christopher Cole, Vice Chair of the ABA Section of Antitrust SPRING 2013 79

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