Reopening a Case
One of these revisions was teased by NAD in advance of the conference and reported in our blog post here. As expected, NAD altered its rules governing an advertiser’s submission of additional substantiation materials after a NAD decision or NARB appeal. The revision adds a new Section 3.9, “Reopening a Case,” to the Procedures.
As in the past, a case may only be reopened under “extraordinary circumstances,” which are now clarified to be in the sole discretion of the NAD Director. The Director will take into account (1) the advertiser’s compliance with NAD’s recommendations, (2) a showing that new evidence is available that was not reasonably available at the time the NAD record was closed, (3) whether that new evidence would likely have changed NAD or NARB’s decision materially, and (4) “whether the request has sufficient merit to warrant the expenditure of NAD resources.”
The reopening will essentially be treated as if a new challenge had been filed on the reopened claims, commencing with an invitation to the original challenger (which will have been supplied with the advertiser’s new evidence submitted with the petition to reopen) to file a new challenge, and then proceeding through NAD’s usual procedures through to a new decision. The main difference is that in this round, the advertiser pays the tab. An advertiser’s petition to reopen the case will cost $5,000 just for the request, and if granted, the advertiser must additionally pay the balance of the full fee that it would have cost to initiate a challenge.
A conforming change to Section 4.1 of the Procedures, governing post-decision compliance challenges, provides that a petition to reopen is one of the advertiser’s options upon receiving a NAD request for a compliance report, and the compliance inquiry is suspended while the NAD Director decides whether to reopen the case.
Implications of the Reopening Procedure
It will be interesting to see how this reopening procedure is received by participants. There will certainly be some that will be unhappy with having to go through a whole, full-blown matter again, and to have to pay the full challenge fee to defend their own advertising. They would have a valid argument that if NAD has already evaluated the interpretation of the challenged claims and the previously existing body of substantiation, then the extra work needed to examine a modest amount of additional substantiation often could be handled in a more streamlined and less costly process, perhaps more akin to a compliance challenge.
One intriguing thing that I notice about the new Section 3.9 is that, as written, the “new evidence” proffered as a basis for reopening the matter would not necessarily be limited to new research substantiating the claim. It could, in theory, also be new consumer perception survey evidence seeking to establish that a claim NAD found to be implied by the advertising, in fact, never was implied. An advertiser could attempt to use this procedure to correct deficiencies found by NAD in its original consumer survey, or to introduce a survey that it had not conducted during the original challenge. Whether the NAD Director would ever regard evidence of this kind as meeting the criteria for reopening a matter remains to be seen.
Some other points occur to me from reading the new rule:
(1) The fact that the advertiser’s compliance with NAD’s previous recommendations is the first factor to be considered by the NAD Director in evaluating the position suggests that a petition to reopen will be more favorably received if the advertiser had discontinued the claims and promises not to resume them unless blessed by NAD.
(2) No time limit is provided for how long, after the original decision has been issued, it is still possible or necessary to petition for reopening. Unlike FTC consent orders, NAD decisions do not have sunset clauses causing them to expire after a period of years.
(3) No deadline is provided by which the challenger must prepare its renewed challenge, if it elects to do so, once a petition to reopen is granted. This may have been overlooked in drafting the revision, and perhaps should be added to Section 3.9. It seems fair to use the same 15-business-day period that is given to advertisers to respond to a challenge.
(4) If the challenger declines to submit a new challenge after a case is reopened, NAD will conduct the challenge as if it were bringing the case pursuant to its own monitoring program. (Section 3.9(D).) This could lead to an unusual dynamic in cases where the original challenger declines to participate. Given that NAD will have already considered, in reopening the matter, that the new evidence is likely to change its conclusion, and the original challenger evidently no longer cares enough to participate, how aggressive might NAD be in stepping into the challenger’s shoes?
Filing Fee Increase
Speaking of fees, the new procedural revisions include a change in NAD’s filing fee structure (Section 2.2(A)), introducing a new category of challengers that are National Partners of the Council of Better Business Bureaus, but have been so for one year or less. Those CBBB newcomers now must pay $17,500 per challenge compared with $15,000, which had previously been the fee for all CBBB National Partners regardless of tenure. The purpose appears to be to make it less economically rational to join the program for a year just for the discount on anticipated NAD filing fees (currently $20,000 for non-Partners with gross annual revenues less than $1 billion or $25,000 for non-Partners with gross annual revenues greater than $1 billion) and then letting the membership lapse in later years when no NAD challenges are contemplated. CBBB National Partner membership fees are staggered based on size of company, and while the new fee increase makes it uneconomic for a company in any revenue band to join the National Partners program for one year just for the fee discount on one NAD challenge, companies should still consider becoming a National Partner if they plan to file at least two NAD challenges in the coming year, especially if their gross annual revenues are below $10 billion.
No More Declining to Comply
Another interesting change, noted in NAD’s press release on the procedural revisions but not described there, involves Rule 2.9(B), governing the Advertiser’s Statement that the advertiser submits for inclusion at the end of the published decision if NAD has found at least some of its advertising not to be substantiated. The change is not described in NAD’s press release, so I had to look back at the previous version of the Procedures (revised 02/01/2016) to find out. The previous version of the Procedures provided, in relevant part, that in the initial section of the Advertiser’s Statement, the advertiser states whether it:
(1) agrees to comply with [NAD’s] recommendations,
(2) will not comply with [NAD’s] recommendations, or
(3) will appeal all or part of [NAD’s] decision to the NARB as specified in Section 3.1.
The change in the newly revised rules is to eliminate the second option! Advertisers no longer have the option to state that they won’t comply, but also won’t appeal. This is not a trivial change. I haven’t counted how often advertisers selected the second option as to at least some of their advertising claims – although I will, so stay tuned for this information in a future post – but I know it happened pretty regularly. I can only speculate as to the reason for this change, but perhaps it is related to the new reopening process – an attempt to foreclose the option of an advertiser bolstering and then resuming its marketing claims without going back to NAD for permission to do so.
It may also be intended to stem or prevent an increase in advertisers refusing to comply, and thereby accepting that NAD’s file will then be referred to the Federal Trade Commission, by forcing them into the NARB appeal practice if they will not abide by NAD’s determinations. Or, NAD may simply be making it clear that it is a violation of its Procedures for an advertiser to agree to participate in a matter, but then walk away from compliance when NAD finds its advertising claims unsubstantiated.
NAD’s new reopening procedure is welcome but, because of the cost and time involved, it may continue to be tempting for some advertisers to generate new substantiation evidence and then resume making their marketing claims without seeking NAD review. We might need to see a few reopened cases, to assess whether the win-loss record of advertisers on reopening differs from their rather poor record in regular NAD challenges. Then we’ll have a better sense of whether the new procedure is a viable option or could benefit from further tweaks.