Losing market share to a competitor touting its superiority makes your job harder and is frustrating, particularly when those claims are unsubstantiated or deceptive. You may want to counter your competitor’s claims with comparative advertising of your own or take legal action to make them stop. Before taking action, a company should carefully weigh its options, because the risks may outweigh the benefits, explained partners Shahin Rothermel, Claudia Lewis, and Ari Rothman in a recent webinar.

Six Options for Challenging Competitors

Want to challenge your competitors’ claims? Consider these six options—each with its own advantages and disadvantages.

1. Send a Cease-and-Desist Letter

A cease-and-desist letter threatens specific action and challenges specific problems with your competitor’s advertising. It is most effective when you have substantial evidence and can tell a story explaining why you are right.

Among the advantages to this approach:

  • The legal fees are relatively low, which helps conserve your company’s resources
  • You may be able to get results from a relatively small investment

Among the disadvantages to this approach:

  • If your target doesn’t change their misconduct, you must be ready to act. If you aren’t, they may conclude you aren’t serious and become emboldened
  • It may prompt your target to launch a counterattack

2. Report the Competitor to a Federal or State Regulator

On the federal level, this is usually the Federal Trade Commission (FTC), the Federal Communications Commission (FTC), or the Food and Drug Administration (FDA). Your company can make the report itself or through an outside law firm. But whatever you do, be careful that your company isn’t also engaging in any of the practices you’re complaining about. Regulators will look at the reporting companies’ actions and sometimes will respond to a complaint by making an investigative sweep of all companies in an industry.

Among the advantages to this approach:

  • Regulators could take action that levels the playing field in your industry
  • It’s cost effective because the regulators do all of the work

Among the disadvantages to this approach:

  • If you don’t make the report anonymously, your company will probably receive the same scrutiny as your competitor
  • You don’t have any control over enforcement measures and won’t know if or when an investigation begins or how it is resolved

3. File a False Advertising Lawsuit

You can file in state or federal court, and there are advantages and disadvantages to each approach, depending on which state or jurisdiction you would be filing in. Most cases settle before trial, but to achieve a favorable settlement or trial outcome, you need to demonstrate that the unsubstantiated or deceptive claims were made in a commercial advertisement or promotion; were materially false or misleading; were made in ads or promotions that deceived or had the power to deceive customers; and caused your company to suffer real damages.

Among the advantages to this approach:

  • It shows your target (and other competitors in the marketplace) you’re serious
  • It’s most likely to achieve rapid results from competitors who are unwilling or unable to defend against a costly lawsuit
  • You can issue expansive discovery to learn more about the target’s bad actions

Among the disadvantages to this approach:

  • It opens your company up to potential counterclaims
  • Litigation is public, which could help or hurt you

4. File a Lawsuit Requesting a Preliminary Injunction or a Temporary Restraining Order

To succeed in this approach, you must demonstrate all four of these things are true: 1) your claim is likely to succeed on its merits; 2) you are likely to suffer irreparable harm if you don’t receive preliminary relief; 3) the balance of the equities tips in your favor; and 4) an injunction is in the public interest.

Among the advantages to this approach:

  • You can bring a rapid end to the unsubstantiated or deceptive claims, as targets are more likely to capitulate when faced with the costs of defending their actions
  • You will receive expedited discovery

 Among the disadvantages to this approach:

  • It’s costly
  • You also have to provide information quickly, which takes time and money

5. Engage in Discussion Among Leadership and Business Teams

Talking things out with your competitor can lead to a faster and cheaper resolution, as long as you’re careful in your conversations. It can also build goodwill and prompt others to return the favor in the future, instead of taking more drastic steps next time you make a misstep. When doing so, you should avoid disclosing potentially harmful information or overcommitting (listen more than you talk) and end the meeting if the conversation becomes counterproductive.

6. Do Nothing—or Wait and See

You don’t have to react immediately when a competitor makes unsubstantiated or deceptive statements about your company. You can wait and take action later. You should if one or more of the following is true:

  • Your company is fielding an investigation by a regulator or defending against a lawsuit or demand letter
  • You aren’t sure you can prove your case
  • You want to sell your company in the near future
  • The claim isn’t causing your business substantial harm, and the potential downside of taking action isn’t worth the upside

Among the advantages to this approach:

  • You avoid legal fees
  • You save resources that can be spent elsewhere, such as on your own company’s advertising

 Among the disadvantages to this approach:

  • Your targets may escalate their misconduct if they see no one is acting against them
  • Not acting could be particularly problematic in trademark infringement cases

What about National Advertising Division Claims?

Claudia, Shahin, and Ari get this question a lot and encourage companies to use the National Advertising Division (NAD) to challenge a competitor making unsubstantiated or deceptive claims.

NAD offers a voluntary, self-regulatory dispute resolution forum. Although it can’t force a company to participate in its process or officially enforce recommendations that come out of that process, companies that refuse to participate in the process or comply with recommendations will be referred by NAD to the FTC, FDA, or FCC. Those agencies may open an investigation or even take more drastic action.

Among the advantages to this approach:

  • Lower costs
  • Often faster than litigation
  • The burden is on the target to prove their claims truthful, substantiated, and not misleading

Among the disadvantages to this approach:

  • You have limited control
  • The process increases focus on your advertising as well as your target’s

How to Reduce the Risk of Counterclaims

You don’t want your efforts to shut down your competitor’s unsubstantiated or deceptive claims to result in their filing a counterclaim. Fortunately, there are steps you can take to reduce the risk of that happening:

  • Avoid comparing your company with competitors and making claims that your company is superior. When you call out a competitor by name, or in a way that makes it clear you’re talking about them, they are more likely to challenge you
  • Scrupulously substantiate your own advertising claims
  • Evaluate your marketing channels to confirm you aren’t engaging in high-risk activities that competitors might want to challenge
  • Check your affiliates’ actions, because affiliate review and ranking sites put you at high risk for a challenge, and social influencers often make disparaging claims
  • Conduct periodic audits to ensure no high-risk activities have made their way into your marketing and advertising efforts

Important Ethical Considerations

As you work to keep your competitors honest, you need to ensure you’re doing everything cleanly so you can avoid legal and reputational risk. Key dos and don’ts include the following:

  • Do document everything when you use secret shopping tactics to evaluate the competition. That includes capturing full screenshots with date and time stamps, prices, and receipts
  • Don’t misinterpret yourself, engage in extortion or blackmail,or write demand letters with threats that you will go to law enforcement to settle a civil case

For More Information

Reach out to Claudia, Shahin, or Ari if you have questions about any of this information or a specific situation affecting your company.

You can also watch a recording of the entire webinar “Why Can They Say That but I Can’t? How to Challenge Your Competitors’ Advertising While Avoiding Being Targeted,” visit the All About Advertising Law blog to get more insight from Venable’s Advertising and Marketing Group, listen to our Ad Law Podcast, and sign up to be among the first to know about upcoming events hosted by the group.