Hunton Retail Law Resource

We have written here about the work of the NAD, the National Advertising Division of BBB National Programs. The NAD offers independent self-regulation and dispute resolution services for members of the national advertising community. NAD examines advertising to determine whether the evidence provided by the advertiser fully supports the advertising claims at issue in an NAD review. NAD’s findings and recommendations are detailed in a final written decision and outlined in an accompanying press release.

Participation in NAD proceedings is voluntary, and advertiser compliance with an NAD decision is generally quite high. If the NAD finds against an advertiser, the company is given the opportunity to confirm whether it intends to comply with the decision or to appeal it. If the advertiser refuses to comply, NAD will refer the matter to the appropriate regulatory agency, most often the Federal Trade Commission. Such referrals are announced by the NAD in its press release reporting the decision.

Two recent matters out of NAD highlight the jeopardy a company can find itself in when it refuses to comply with a NAD decision. The first involves a challenge against Larose Industries LLC, operating under the names Roseart and Cra-Z-Art. Larose claimed its pencils were “Proudly Made in USA,” displaying its products alongside American-themed imagery in ads. According to the challenger, Larose’s pencils are made from components sourced from China and involve foreign manufacturing and assembly. Larose refused to participate in the NAD proceedings; accordingly, the NAD referred the matter to the FTC for review and potential enforcement action. The NAD also indicated in its press release that it would notify the platforms with whom NAD has a reporting relationship to assess compliance with platform standards. The second case involves Relish Labs LLC, doing business as Home Chef, which has been before the NAD on several occasions. This round, the NAD investigated Home Chef for its “#1 in Customer Satisfaction” claims. Home Chef declined to make the changes NAD requested, prompting NAD to refer the matter to the FTC. And as in the Larose decision, NAD also indicated it would notify the various platforms of its decision.

The FTC has been a vocal supporter of the NAD process, prioritizing referrals it receives. When an NAD case is referred to the FTC, the FTC will first encourage the advertiser to go back to the NAD to participate in the self-regulatory process. At that point, many companies agree that reengaging with the NAD makes more sense than facing FTC scrutiny. If the company declines, FTC staff will undertake a more substantive review, applying its own applicable legal standards. In some instances, this review leads to formal law enforcement action; in others, the FTC may exercise its discretion (based on resources and priorities) not to open an investigation. In any event, once the FTC’s review is completed, the agency publicizes on its website the resolution of all referrals received from the NAD.

A decision to decline to follow NAD’s recommendations is highly specific to each company under investigation and is rarely made lightly. Businesses that do so can expect additional attention from, and engagement with, the FTC as the agency considers how to proceed.