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Advertising: When “FREE” is not Free and “FIBER OPTIC” is not Fiber Optic Print E-mail

August 2010

by James A. Kaminski, Esq.

ften, a slight bending of the truth may result in greater market share for an aggressive competitor.  The National Advertising Division (commonly called the “NAD”) is a forum that reviews advertising and makes a determination as to whether or not it is properly supported.  The NAD does not have the authority to force advertisers to comply, but most do.  Recently, the NAD addressed two types of claims that may appear industry specific, but are relevant for many advertising and marketing campaigns.

Loyalty Programs and “FREE” Claims 

Office Depot challenged claims made in conjunction with loyalty programs – the popular marketing tool where consumers are awarded points as a reward for money spent.  Think airline miles.  Office Depot took issue with the way its competitors, Office Max and Staples, used claims to promote their loyalty programs, including “BUY ANY OF THESE SUPPLIES, GET 100% BACK IN STAPLES REWARDS” and “IT’S LIKE GETTING SUPPLIES FOR FREE.”  The claims referred to the fact that consumers would receive a 100% match of an item’s purchase price credited to their loyalty program accounts.  

Unfortunately, the rules of the loyalty programs contained certain restrictions that apparently undercut the “FREE” claims.  For example, consumers were required to apply their loyalty program credits to the purchase of another product within a specified period of time.  Further, the points were subject to cancellation.  The NAD found that these type of restrictions made the use of the term “FREE” inaccurate, since ultimately a consumer might not obtain any product with the award.  According to the NAD, “merchandise is free or it’s not.”  Therefore, the NAD recommended that the companies discontinue or modify their promotions.

What’s in a Node?

Verizon Communications challenged Time Warner Cable and Cox Communications claiming that they falsely described their telecommunications services as “FIBER OPTIC NETWORKS.”  To make a long story short, consumers typically receive their video, internet, and telephone services via a network that more or less contains a degree of fiber optic cables.  The difference is that Verizon’s fiber optic cables extend from a base office to a terminal located outside of a person’s home.  Non-fiber optic cables carry the signals the rest of the way. 

The Time Warner and Cox networks consist of fiber optic cable as well, but only to a central box or “node” located in a person’s neighborhood.  Coaxial cable then carries the signals the rest of the way to each person’s house in the neighborhood.   The entire Time Warner and Cox networks consist of at least 90% fiber optic cable.  The fiber optic content in Verizon’s networks is greater, but relatively speaking, not by much.  
The NAD determined that only Verizon could accurately describe its network as “FIBER OPTIC” and that the term did not accurately apply to the other two providers’ services.  In making its decision, the NAD looked at how others in the industry describe their networks, which cut against Time Warner and Cox.  The NAD also examined statements that Time Warner and Cox issued about their own networks, such as in their SEC filings, that contradicted their “FIBER OPTIC” claims.  At least one advertiser, Time Warner, disagreed with the NAD’s decision and is appealing it. 

Whether advertising is accurate is not always an obvious decision.  A few restrictions on how to redeem an otherwise free product may render it not free.  Likewise, a few more yards of coaxial cable may mean that it is not proper to call a network “FIBER OPTIC.”  Advertisers and marketers must consider how their products or services differ from those of their competitors when deciding how to structure marketing claims. 

© 2010 Hughes & Bentzen, PLLC.

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