Electronic Retailer - June 2011 - 51

Marketers who let themselves be lulled into a false sense of security do so at their own peril because NAD is more than willing to refer matters to the FTC, which does have the authority to make marketers pay.

the advertiser to promise to correct its advertising. If the advertiser does change its evil ways, then that’s usually the end of it. But if an advertiser refuses to respond to a challenge filed with NAD or continues to make claims that NAD has found to be deceptive, NAD will refer the matter to the appropriate government agency – usually the Federal Trade Commission. The FTC doesn’t always take action based on NAD referrals, but it always takes a close look at those referrals. Often, the FTC does conduct a formal investigation of the advertiser. Sometimes that investigation results in FTC action – as it did here. Our story begins in February 2008, when NAD recommended that Halo Technologies, Inc., the marketer of an ultraviolet vacuum cleaner, qualify its germ-killing claims. NAD also recommended that Halo discontinue certain superiority claims the company used in its advertising. The NAD investigation had been initiated following a complaint by one of Halo’s competitors. NAD recommended that Halo: • discontinue claims that involved traditional vacuum cleaners because of the absence of comparative testing. • qualify any “germ-killing” claims by explaining that ultraviolet light can kill bacteria and allergens after a certain amount of exposure, but it said that Halo should stop implying that the vacuum instantly kills all germs and dust mites embedded in the carpet, reduces or eliminates the incidence of allergies, or provides any health benefit.

In May 2008, NAD issued a press release noting that Halo had made some limited changes to its advertising, but that those changes fell far short of what was necessary to correct the claims that NAD had criticized. NAD said that because Halo’s changes were “grossly inadequate and do not constitute a bona fide attempt to comply with NAD’s recommendations,” NAD was referring the matter to the appropriate government agency, in this case the FTC, for possible law enforcement action. In July 2008, Oreck purchased the Halo trademark and certain other assets from Halo Technologies. Oreck’s subsequent advertising for its Halo vacuum continued to make germ-killing claims. Shortly thereafter, a different competitor brought Oreck’s advertising to NAD’s attention. When NAD asked Oreck to respond to the competitor’s allegations, it declined to do so. Oreck told NAD that it had revised its advertising for the Halo with NAD’s recommendations in mind, and had commissioned additional testing (some by independent third parties) to support its claims. According to NAD, Oreck also told it that the company was “presently cooperating with FTC to address its advertising,” and that was why Oreck had chosen not to respond to the second competitor’s NAD challenge. Because Oreck declined to participate in the new NAD proceeding, NAD sent the matter to the FTC once again. It appears from Oreck’s response to NAD that it was already in the soup with the FTC. So the second NAD referral probably didn’t make things much worse.

But it’s likely that the first referral back in 2008 did get the agency’s attention. When Oreck bought the Halo, it probably also bought an FTC investigation. The fact that the FTC ended up bringing a case against Oreck indicates that it had some problems with Oreck’s post-acquisition advertising. Oreck may have, in fact, done additional testing and cut back on the claims for the Halo. But it’s obvious that the FTC was not satisfied. There are two lessons to be learned from the Oreck saga. The first one is an old lesson, and one that any advertiser should have learned already: A company must have scientific evidence that matches up very closely with the advertising claims it is making, especially if those claims are health-related. The second lesson is that companies must take NAD decisions seriously. It’s one thing for a company to tell NAD that it will modify advertising in accordance with an NAD decision. It’s another to take a hard look at the claims and make the kind of significant revisions that may be required. Simply slapping on a fine-print disclosure or two may not be enough. It is easy for marketers to believe that the NAD process can be ignored because the body does not have the power to impose monetary penalties. However, marketers who let themselves be lulled into a false sense of security do so at their own peril because NAD is more than willing to refer matters to the FTC, which does have the authority to make marketers pay. In this case, Oreck eventually paid $750,000 for ignoring the NAD process and not cleaning up the Halo vacuum’s advertising before it was too late. Jeffrey D. Knowles and Gary D. Hailey are partners at Venable LLP’s advertising, marketing and new media group. Knowles is chair of the group. Contact Knowles at (202) 344-4860 or at jdknowles@venable.com. Contact Hailey at (202) 344-4997 or at gdhailey@venable.com. 51

June 2011 | electronicRETAILER



Electronic Retailer - June 2011

Table of Contents for the Digital Edition of Electronic Retailer - June 2011

Electronic Retailer - June 2011
Contents
Calendar of Events
Your Association, Your Bottom Line
Industry Reports
FTC Forum
eMarketer Research
IMS Retail Rankings
Jordan Whitney’s Top Categories
Lockard & Wechsler’s Clearance & Price Index
Ask the Expert
The Evolution of a Global Business
UK Home Shopping Finds Its Niche
Guest Viewpoint
Brendan Condon Wants it All
Managing an Order from Start to Finish
Radio
Legal
Support Services
Fulfillment
Member Spotlight
Advertiser Spotlight
Bulletin Board
Advertiser Index
Classifieds
Rick Petry
Electronic Retailer - June 2011 - Electronic Retailer - June 2011
Electronic Retailer - June 2011 - Cover2
Electronic Retailer - June 2011 - 3
Electronic Retailer - June 2011 - Contents
Electronic Retailer - June 2011 - 5
Electronic Retailer - June 2011 - 6
Electronic Retailer - June 2011 - Calendar of Events
Electronic Retailer - June 2011 - Your Association, Your Bottom Line
Electronic Retailer - June 2011 - 9
Electronic Retailer - June 2011 - Industry Reports
Electronic Retailer - June 2011 - 11
Electronic Retailer - June 2011 - 12
Electronic Retailer - June 2011 - 13
Electronic Retailer - June 2011 - FTC Forum
Electronic Retailer - June 2011 - 15
Electronic Retailer - June 2011 - eMarketer Research
Electronic Retailer - June 2011 - 17
Electronic Retailer - June 2011 - IMS Retail Rankings
Electronic Retailer - June 2011 - 19
Electronic Retailer - June 2011 - Jordan Whitney’s Top Categories
Electronic Retailer - June 2011 - 21
Electronic Retailer - June 2011 - Lockard & Wechsler’s Clearance & Price Index
Electronic Retailer - June 2011 - 23
Electronic Retailer - June 2011 - Ask the Expert
Electronic Retailer - June 2011 - 25
Electronic Retailer - June 2011 - The Evolution of a Global Business
Electronic Retailer - June 2011 - 27
Electronic Retailer - June 2011 - 28
Electronic Retailer - June 2011 - 29
Electronic Retailer - June 2011 - 30
Electronic Retailer - June 2011 - 31
Electronic Retailer - June 2011 - UK Home Shopping Finds Its Niche
Electronic Retailer - June 2011 - 33
Electronic Retailer - June 2011 - 34
Electronic Retailer - June 2011 - 35
Electronic Retailer - June 2011 - Guest Viewpoint
Electronic Retailer - June 2011 - 37
Electronic Retailer - June 2011 - 38
Electronic Retailer - June 2011 - 39
Electronic Retailer - June 2011 - Brendan Condon Wants it All
Electronic Retailer - June 2011 - 41
Electronic Retailer - June 2011 - 42
Electronic Retailer - June 2011 - 43
Electronic Retailer - June 2011 - Managing an Order from Start to Finish
Electronic Retailer - June 2011 - 45
Electronic Retailer - June 2011 - 46
Electronic Retailer - June 2011 - 47
Electronic Retailer - June 2011 - 48
Electronic Retailer - June 2011 - Radio
Electronic Retailer - June 2011 - Legal
Electronic Retailer - June 2011 - 51
Electronic Retailer - June 2011 - Support Services
Electronic Retailer - June 2011 - 53
Electronic Retailer - June 2011 - Fulfillment
Electronic Retailer - June 2011 - 55
Electronic Retailer - June 2011 - Member Spotlight
Electronic Retailer - June 2011 - 57
Electronic Retailer - June 2011 - Advertiser Spotlight
Electronic Retailer - June 2011 - Advertiser Index
Electronic Retailer - June 2011 - Classifieds
Electronic Retailer - June 2011 - 61
Electronic Retailer - June 2011 - Rick Petry
Electronic Retailer - June 2011 - Cover3
Electronic Retailer - June 2011 - Cover4
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