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2017 Trends in Marketing Communications Law

NAD >> Self-Regulation Meets Self-Mediation

April 11, 2017

Revisions to the challenge and appeal process recently introduced by the National Advertising Division of the Council of Better Business Bureaus (NAD) are making proceedings before the NAD considerably more efficient for challengers and advertisers.

One of the more notable revisions to the NAD's Policies and Procedures was the addition of Rule 2.2(E), which provides that the NAD will administratively close a case if the challenger and advertiser reach a private settlement. Prior to the introduction of this rule, the NAD's discretion to close a case by consent of the parties was based on the far more amorphous Rule 2.2(B)(1)(f), which allows the NAD to administratively close a case if the allegations at issue are "without sufficient merit to warrant the expenditure of NAD/CARU's resources." Importantly, when the NAD administratively closed a case pursuant to Rule 2.2(B)(1)(f), it typically conducted a review of the settlement reached between the parties to ensure it resolved all "public interest issues" related to the challenged advertising campaign.

In contrast, under the new Rule 2.2(E), the NAD will automatically close a case upon written agreement of the parties. Although the NAD reserves the right to independently bring its own complaint based on the advertising at issue, the language of Rule 2.2(E) makes clear that the NAD respects the wishes of the advertiser and challenger in resolving the dispute privately. In short, this procedural change makes settlements far more efficient and certain, and enables advertisers and challengers to reach private settlements without the NAD’s involvement.

Unsurprisingly, the addition of Rule 2.2(E) has dramatically increased the number of challenges that are privately settled. During the year immediately following the introduction of Rule 2.2(E), eight challenges were administratively closed under that rule – the same number of challenges administratively closed during the preceding five years pursuant to Rule 2.2(B)(1)(f).

Key Takeaways

  • The NAD’s revised rules further the organization's goal of providing efficient and cost-effective resolution of advertising disputes.
  • Rule 2.2(E)’s deference to private settlements will encourage challengers to negotiate directly with advertisers to reach private resolutions of their disputes.