How Comparative Advertising Can Dilute a Trademark

Not that long ago, it was considered distasteful to mention a competitor’s name or show its trademark in ads. Instead the advertising industry came up with phrases like “Brand X” and “The Leading Brand.”

Today, many ads go right for the gut: You can’t go a day without seeing bar graphs, taste tests and surveys directly comparing products by name.

The Federal Trade Commission (FTC) doesn’t discourage these type of ads. The agency’s policy statement on comparative ads says in very clear terms that neither industry self-regulation nor broadcasters should make any effort to restrain the use of truthful comparative ads. The FTC goes on to say, “comparative advertising encourages product improvement and innovation, and can lead to lower prices… For these reasons, the commission will continue to scrutinize carefully restraints upon its use.”

If your company is planning a comparative ad campaign, you need a thorough understanding of the laws and regulations involved, including how comparative ads can dilute a trademark (see box at right). Without such knowledge,  you run the risk of being slapped with expensive lawsuits and penalties by the FTC.

First, the FTC restricts what you can say. Basically, the ads must be “truthful and nondeceptive,” and contain:

• Objective truth, based on supportable data demonstrating normal use, or
• Subjective truth that isn’t aimed at misleading or deceiving. And there should be no potential confusion about the source of the ad.

But there’s more. You must comply with the Lanham Act, a federal law that regulates trade practices and is the basis for most private lawsuits over advertising claims. Primarily, the law bans two kinds of comparative ads: False claims about an advertiser’s own product and false or misleading claims about a competitor’s product.

To succeed in a claim under the Lanham Act you must show that an offending ad:

• Contains false and misleading statements.
• Tends to deceive a substantial segment of consumers.
• Is likely to influence purchasing decisions.
• Is likely to cause declining sales and loss of good will.

Comparative ads can certainly be effective and there is no reason to avoid them. But keep these principles in mind before you launch a campaign:

1. Keep it honest and challenge-proof. Present the comparisons fairly. Avoid any claim you can’t prove and any statements that could be interpreted as deceptive. The FTC asks three key questions to determine deception: Is there a claim? Is the claim likely to mislead a reasonable consumer? And is the claim material?

2. Disparage with a light touch. While the FTC says there’s no law that prevents a seller from demonstrating the advantages of its products over others — even if it has the effect of disparaging the competition — this isn’t an invitation to all out name-calling. If the statement is so absurd it’s unbelievable, you may be safe. But you could be brought to court for making a statement that is both untrue and believable by a “reasonable” person.

3. Substantiate claims. You must have evidence to support both express and implied claims. Use an independent testing service and keep the results as documentation if needed. The ultimate FTC question: Is the ad false or deceptive? It’s determined on a case-by-case basis and the FTC vigorously enforces this requirement.

4. Know state and international laws. If you advertise in several states or on the Internet, you’re subject to the laws of individual states and countries, which treat advertising differently. For example, most countries overseas either discourage or impose an outright ban on comparative ads.

5. Consider the overall impression. Certainly you don’t deliberately set out to make untrue claims, but the overall impression can become an issue because it isn’t substantiated. Make sure all the stats you use are checked and rechecked and the methodology is sound.

With sound advice and precautions, you’ll reap the benefits of comparative advertising — and avoid the prohibitive expense of a lawsuit.

Diluting a Trademark An important issue to deal with in comparative ads is the trademark. It has long been understood that a competitor’s trademark can be used in ads. The “fair use” doctrine of the Copyright Act makes some exceptions to a trademark owner’s exclusive right to the mark. Even the most prestigious marks can be used in comparative ads and news stories. However, many states have laws against trademark dilution — treating a trademark in a way that tarnishes it and lessens its distinctive quality.  John Deere won a 1994 trademark dilution suit against the maker of Yard-Man lawn tractors. The ad showed an animated deer that resembled the John Deere logo, running in fear from a Yard-Man tractor. The court supported Deere’s claim and ordered Yard-Man to abandon the ad.