"Compare our product to the leading brand!" is a familiar refrain in the advertising world. Using a competitor's trademark in your company's advertising can be a highly effective positioning tool and may lead to significant economic gains. Under certain conditions, use of a competitor's trademark in your advertising is legal in the United States. This type of use can showcase specific strengths or features of your company's products or services, in direct relation to those of your competitor. When well-executed, such an advertising campaign may result in increased market share and revenue. However, because comparative advertising may cast your competitor's trademark and related products or services in a less favorable light or highlight qualities that your competitor does not want to emphasize, comparative advertisements are often closely scrutinized.
Use And Misuse
Under U.S. law, use of a competitor's trademark in accurate and non-deceptive comparative advertising is legal and does not constitute trademark infringement. In fact, truthful comparative advertisements - even those that display a competitor's trademark, are considered to be informational for consumers and beneficial to competition, provided that the competitor's mark is accurately depicted. Legally permissible comparative advertising must unequivocally convey that the competitor's products or services sold under its mark(s) are independent from yours, and your advertising reference to a competitor's trademark must neither imply an affiliation nor explicitly or implicitly endorse your products. When using your competitor's trademark in advertising, your company should consider the following:
- Always accurately depict your competitor's trademark. Do not alter it in any form.
- Do not prominently position or otherwise highlight your competitor's trademark in any manner that implies an affiliation with or sponsorship by your competitor.
- Where possible, include proper trademark notice ("TM" or "(r)") and add a footnote stating that the trademark is owned by your competitor.
- Ensure that all claims associated with the use of your competitor's trademark, such as the content or effects of the trademarked product or service that your company's advertisement refers to, can be substantiated.
On the other hand, what should you do if your company's trademark is unfavorably featured in a comparative ad? If your company believes that its trademark has been misused in connection with a competitor's ad, there are several venues in which it may seek relief, including: the Federal Trade Commission ("FTC"), the National Advertising Division of the Council of Better Business Bureaus ("NAD"), and the courts (under state or federal trademark and anti-dilution laws). Each of these bodies has different oversight authorities and offers different remedies.
As the federal agency with primary responsibility for regulating trade, the FTC encourages comparative advertising, including use of a competitor's mark and only restrains comparative advertising that constitutes "unlawful or deceptive acts or practices in or affecting commerce." Allegations that a company is engaging in unfair or deceptive advertising may come to the attention of the FTC from several sources, including complaints from competitors, consumers, other governmental agencies, or the FTC's own monitoring and investigative efforts. Regardless of the source of a comparative advertising claim, the FTC ultimately has the sole authority to determine whether to investigate or take any enforcement action.
In order for the FTC to bring an enforcement action for deception, it must determine that (1) a representation, omission or practice exists that is likely to mislead consumers; (2) the representation is misleading from the perspective of the consumer acting reasonably under the circumstances; and (3) the representation, omission or practice is "material", that is, likely to affect the consumer's conduct or purchasing decision with regard to a product or service. Once the FTC has determined that it has sufficient basis for proceeding with an enforcement action, it may act in one of two ways:
- Consent decrees/cease and desist orders - an advertiser charged with deceptive advertising can agree to a settlement with the FTC by signing a consent order, which is an agreement to stop the practice or advertising in question and (sometimes) pay a fine to the FTC. This agreement is for settlement purposes only and does not constitute an admission of guilt by the advertiser. A signed consent order is the most common outcome of an FTC action.
- Hearings - A hearing can be requested by the advertiser before an administrative law judge. The decision may be appealed in federal court. Since the appeal process may be lengthy, the FTC has authority to issue a cease and desist order mandating the advertiser pull all advertising containing the subject pending resolution.
Apart from the FTC, other federal and state entities, including the federal Food and Drug Administration and state Attorneys General, have the power to regulate trade practices. As part of their investigative and enforcement authority, these entities may impose monetary fines and/or curtail objectionable trade practices through consent decrees. Given that the standards of unfair or deceptive trade practices impact the enforcement actions of all these entities, the FTC comparative advertising guidelines discussed above offer practical guidelines for generally avoiding an enforcement action.
NAD Self-Regulatory Process
In an effort to provide an alternative to government oversight of advertising and to maintain consumer trust in advertising, the National Advertising Division of the Better Business Bureau (the "NAD") was created as a self-regulating body. The NAD provides an opportunity for competitors and consumers to challenge the truthfulness or accuracy of an advertisement and to resolve issues efficiently (NAD challenges typically last 60 days). The NAD will only consider advertising that is national in scope and is not the subject of a pending litigation, court order or government agency consent decree. Anytime after a complainant has filed an NAD challenge, the respondent advertiser may withdraw the advertisement at issue. If the advertiser also confirms in writing at this time that it will not run similar ads, the NAD will not take further action. If, however, a challenge proceeds, the NAD will review materials submitted by both parties and will issue a decision. Although a decision by the NAD is not binding - it is considered a "recommendation" - the NAD works closely with the FTC and may refer the subject advertising if it believes its decision has not resolved the underlying issue(s).
It should be noted that some types of competitive advertising that reference a competitor's trademark will not require claim substantiation. A common example is known as "puffery," which is a general opinion statement that a consumer will not take literally. In one NAD challenge, Pepperidge Farm ran an advertising campaign challenging consumers to compare the ingredients in Pepperidge Farm and Heinz gravies, claiming that "Heinz would rather you didn't." Heinz brought a challenge before the NAD based in part on Pepperidge Farm's use of its name in the described manner. Pepperidge Farm claimed that this statement was classic salesmanship or puffery because no one would really believe that Pepperidge Farm would have actual knowledge of its competitor's mindset. The NAD agreed with Pepperidge Farm, and noted in its decision that the statement was puffery because it was just an "introduction" to the message being communicated in the commercials. See www.nadreview.org.
Under federal law, false suggestions of endorsement or sponsorship or misuse of a trademark are actionable under the Lanham Act, 15 U.S.C. §1125(a). The Lanham Act allows any person likely to be damaged by another's false or misleading representations of fact in commercial advertising or improper use of a trademark to sue in federal court, seeking injunctive relief, damages and, in exceptional cases, attorneys' fees. In order to obtain monetary damages, a plaintiff must show that consumers were actually deceived by the defendant's false advertising and that such advertising caused either actual economic loss to the plaintiff or a decrease in the value of plaintiff's trademark. As with cases brought before the NAD, statements that utilize a competitor's trademark but are otherwise of general opinion (including puffery) are not actionable under the Lanham Act. Additionally, there are other state trademark and federal and state anti-dilution laws under which a party may also seek relief from a competitor who inappropriately uses its trademark.
Courts consistently allow a competitor's trademark to be used in advertising where its use is accurate and not deceptive. For example, Nabisco planned to launch a new candy, LIFE SAVERS DELITES, that would compete with August Storck K.G.'s WERTHER'S ORIGINAL candies. The proposed LIFE SAVERS DELITES packaging was to bear the words "25 percent LOWER IN CALORIES THAN WERTHER'S ORIGINAL CANDY." Storck sued, claiming that Nabisco's planned use violated, among other things, the WERTHER'S ORIGINAL trademark. The court disagreed and allowed the LIFE SAVERS DELITES candy to proceed to market, holding that the proposed use would not cause a likelihood of confusion - namely, that consumers would understand that the WERTHER'S ORIGINAL trademark was on the LIFE SAVERS DELITES packaging merely to highlight the differences between the two candies. Thus, because the claim was accurate and informational regarding the distinctions between the products, the competitor's trademark was accurately reproduced, and no endorsement or sponsorship by the competitor was implied, the court allowed this competitive advertising use. See August Storck K.G. v. Nabisco, Inc., 59 F.3d 616 (7th Cir. 1995).
On the other hand, courts will regularly enjoin competitive advertising, even where the underlying claim or comparison was substantiated, if the competitor's trademark was altered and/or portrayed in a negative manner. For example Deere & Company, a well-known agricultural equipment manufacturer, had used a deer silhouette logo for over one hundred years. MTD Products, the manufacturer of a competitor lawn tractor, produced a commercial utilizing an altered version of Deere's deer logo without Deere's permission. The federal court, applying New York state anti-dilution law, noted that although using Deere's exact deer logo to compare the competitor's product to MTD's product might have been lawful, the disparaging alterations Ñ namely, changing the proportions of the logo and making the deer appear to run fearfully as it is pursued by the MTD tractor and a small barking dog Ñ could "risk the possibility that consumers will come to attribute unfavorable characteristics to a mark and ultimately associate the mark with inferior goods and services." Since the trademark was altered by a competitor, and the alteration was seen as a negative portrayal of that trademark, the use of the altered logo in the comparative advertising was prohibited. See Deere & Co. v. MTD Prods, Inc., 41 F.3d 39 (2nd Cir. 1994).
A basic understanding of the legal parameters surrounding the permissible use of a competitor's trademark in comparative advertising will assist those in your company charged with marketing responsibility to produce advertising that conveys the advantages of your company's products or services to the consumer, while minimizing the company's exposure to potential legal liability. Additionally, armed with information about the legal permissibility of comparative advertising, you can maintain vigilant watch over your company's trademarks to ensure they are not used by a competitor in a deceptive or misleading way, in order to obtain an unfair advantage in the marketplace.
Published October 1, 2004.