NAD Reminds Industry That the Door Is Open for Competitor Prescription Drug Advertising Challenges

While pharmaceutical companies are most familiar with roles of the Food and Drug Administration (FDA)’s Office of Prescription Drug Promotion (OPDP) and Federal Trade Commission (FTC), prescription drug-focused companies may now also want to anticipate increased scrutiny of advertising by competitors via the National Advertising Division (NAD) of the Better Business Bureau (BBB)’s National Programs. This month, NAD released its first decision in years involving a prescription drug product, signaling the potential for increased utilization of the NAD challenge process by pharmaceutical companies to challenge competitor prescription drug advertising. Given this development, the following provides an overview of what pharmaceutical company counsel need to know about the NAD process. We also provide key takeaways for companies promoting prescription drug products, including potential use of NAD as a sword against non-compliant competitor advertising and the importance of reviewing current drug promotional practices with an eye towards FDA, FTC, and competitor scrutiny.

NAD and the NAD Challenge Process

Who is the NAD?

The NAD was established by the advertising industry in 1971 “as an independent system of self-regulation designed to build consumer trust in advertising.”¹ NAD handles about 150 cases each year and has published thousands of decisions over 50+ years, reviewing advertising in many industries and media types. NAD reviews challenges to advertising brought by consumers, businesses (including competitors), trade associations, or NAD itself.² While participation in the self-regulatory process is voluntary, if an advertiser refuses to participate in the process or refuses to comply with NAD’s recommendations, NAD will refer the matter to the appropriate regulatory agency, including the FTC and FDA. NAD is still working to strengthen its relationship with FDA; however, the FTC prioritizes NAD referrals and publishes how they are handled by the FTC on the FTC’s website.

What Standard Does NAD Use When Reviewing Advertising?

Importantly, NAD only assesses whether claims are truthful, non-misleading, and substantiated (i.e., supported by a reasonable basis). NAD’s substantiation standards greatly align with those of the FTC and the NAD is often deferential to FTC guidance. Like the FTC, NAD also does not assess compliance with the Federal Food, Drug, and Cosmetic Act (e.g., whether or not a product is misbranded, an unapproved new drug, or is promoted off-label). Instead, NAD focuses on whether there is a reasonable basis—or in the case of a health-benefit claim, competent and reliable scientific evidence—to support the claim. When there is an applicable federal regulation or a federal agency action that directly relates to the product or claim before NAD, NAD will attempt to harmonize its efforts with those of the appropriate regulatory agency. NAD also administratively closes cases if the challenged claims are the subject of pending litigation or is the subject of a federal government agency consent decree or order.

How Does One Challenge a Competitor’s Advertising Before the NAD?

Most challenges before NAD are filed by competitors. NAD offers three tracks for challenges filed by a competitor:³

• an expedited “Fast-Track SWIFT” track, reserved for cases that involve a single issue,⁴ which usually results in a decision in 20 business days;
• a Standard Track, appropriate for single or multi-claim cases, which can take approximately four to six months for a decision; and
• a Complex Track for cases with complex substantiation, where timing is determined by the parties.

Filing fees vary depending on a company’s revenue and partnership with the BBB, but generally range as follows: Fast-Track Swift: $10,000-$50,000; Standard Track: $8,000-$4,500; and Complex Track: $24,000-$75,000. NAD/NARB Policies and Procedures are available here.

What Types of Cases and Claims Does the NAD Typically review?

At NAD’s 2022 annual conference, it shared that, out of 102 cases over the past 12 months, telecommunications companies were involved in about one-third of cases. Other categories with a substantial number of NAD cases included drugs (14 cases), food and beverage (12 cases), dietary supplements (10 cases), and household products (10 cases). NAD evaluates a range of advertising claims and issues, including:

As announced at NAD’s 2022 annual conference, NAD has been focusing on advertising disputes related to sufficiency of disclosures, online rankings and reviews, social media claims, #1 claims, claims touting third-party awards and certifications, alleged puffery claims, and a new policy to focus on harmful and misleading stereotyping in national advertising.

What Happens Once a Challenge Is Filed?

Unlike in a court proceeding, in an NAD challenge, the burden of proof first lies with the advertiser to provide a reasonable basis for the challenged claims. If an advertiser provides a reasonable basis for its claims, the burden shifts to the challenger to establish that the advertiser’s support is fatally flawed or that the challenger possesses stronger evidence with a different result.

The briefing schedule for a challenge varies based on the track used for the challenge. For example, under the Standard Track, an advertiser is given 15 business days to respond to the challenge, after which the challenger is given 10 days to respond to the advertiser’s Substantive Written Response, and, finally, the advertiser is given 10 business days to submit a Final Response. The Standard Track also gives parties a chance to meet separately with NAD to discuss the matter, after which NAD reviews all the materials and ultimately issues a written decision in the case. Variations of this process exist for both the Fast-Track SWIFT and Complex Tracks. The NAD/NARB Policies and Procedures describe NAD’s review process, including page limits, for submissions.

Once NAD issues a decision, the advertiser is given the opportunity to review the decision and confirm whether it intends to comply with the decision or appeal. If an advertiser does not agree to comply, NAD refers the decision to the FTC and other appropriate regulatory agencies (such as FDA), along with, as appropriate, the platform where the advertising appeared. While NAD does not issue monetary penalties, it issues public case decisions and press releases publicizing noncompliance and can require costly discontinuation or revisions of marketing.

Appeals and Compliance

Advertisers (and in certain cases, challengers) may appeal an NAD decision. Appeals are reviewed by the National Advertising Review Board (NARB), the appellate body for the NAD. Appeals are heard by five-member NARB panels that provide independent industry peer review. Additionally, either after a standard or complex NAD case or NARB panel decision requesting claims be modified or discontinued, NAD, NARB, or the challenger or third party may open a compliance proceeding requesting that the advertiser report steps it has taken to bring the advertising into compliance with the decision. There is no filing fee for a compliance proceeding. After a compliance proceeding, NAD will conclude either that no further action is required, require the advertiser to attempt to comply with the NAD decision, or refer the case to a government agency for non-compliance.

Key Takeaways

The recent NAD activity provides a great opportunity for pharmaceutical companies to reconsider their approach to addressing noncompliant competitor advertising and assessing the risk profile for their own advertising. In particular, we recommend that companies:

• Consider NAD as an option. In contrast to the black box nature of trade complaints to government agencies, or expensive (and intrusive nature) of traditional litigation, NAD challenges can provide a manageable alternative for addressing competitor advertising while limiting risk to your company. In certain circumstances, NAD can be a convenient way to scrutinize a competitor’s campaign, is not as costly as litigation, and does not permit counterclaims. It can be an especially effective mechanism for addressing unsupported #1 claims, deceptive use of endorsements and testimonials (including in social media), and overly-broad comparative superiority claims; and
• Review drug and device advertising with the FTC and NAD in mind. NAD’s recent case involving prescription drug advertising cannot be viewed in a vacuum. The NAD heavily relied on FTC guidance when considering advertising claims and its prescription drug case comes on the heels of significant FTC action reiterating the FTC’s similar jurisdiction over all health product advertising. For example, as discussed in our Advisory, the FTC recently issued a Health Products Compliance Guide that, among other things, explicitly states that it applies to health-related claims for all products, not just OTC products. These statements follow prior reminders by the FTC of its jurisdiction over pharmaceutical drug advertising including the FTC’s October 2021 notice to several pharmaceutical companies regarding the FTC’s position on unfair and deceptive endorsements and testimonials and the inclusion of several health-related examples in the FTC’s subsequent May 2022 proposed updates to its Guides Concerning the Use of Endorsements and Testimonials in Advertising. More information is available in our Advisory entitled “FTC Proposed Updates to Endorsement Guides and .com Disclosures Guidance Signal Continued Regulatory Focus on Influencers and Social Media.”

Given the strong relationship between the NAD and FTC, it is reasonable to expect increased scrutiny by competitors and NAD of prescription drug advertising. Thus, it is prudent to conduct a review of your team’s marketing strategies with the NAD and FTC’s standards in mind.

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Arnold & Porter has extensive experience representing companies that are engaged in the development and marketing of FDA-regulated products and routinely represents companies in advertising challenges before NAD, in addition to FDA, FTC, and state investigations. Our team will continue to monitor developments regarding health advertising. In the interim, please reach out to any of the list authors, or your regular Arnold & Porter contact, with any questions about the topics discussed in this Advisory.

© Arnold & Porter Kaye Scholer LLP 2023 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.