In This Issue:

• One Step Over the Line: NARB Sets a High Bar for Review Site Compliance
• NAD Expands SWIFT to Accept Implied Claims
• Is There No Such Thing as a Bargain Anymore?

One Step Over the Line: NARB Sets a High Bar for Review Site Compliance

Whether it is the FTC or the National Advertising Division, reviews are a hot topic and content posted by third-party review sites an even hotter one. The line between unbiased reviews and affiliate advertising and by association between editorial content and advertising came under close scrutiny by the NARB in affirming NAD's underlying decision that third-party review website Smile Prep had crossed that line. The result for Smile Prep is unprecedented "ad" disclosure, and discontinuance for some and the need for independent support for other product "claims."

Smile Prep's business model is not unique: it is an "independent" review site for at-home tooth-straightening products whose revenue relies on affiliate commissions from the companies that manufacture and sell many but not all of the products reviewed. Not all products reviewed have commission relationships with Smile Prep, and Smile Prep disclosed in fairly standard terms the nature of the relationships—albeit in language the NAD and NARB found implied an unbiased relationship the self-regulatory bodies didn't buy.

As an initial matter, NARB agreed with NAD that despite no indication the affiliates controlled the content on the site, that review content constituted advertising (and not editorial content over which NAD would not have jurisdiction) because of the site's underlying economic model.

NARB agreed with NAD that—by definition and not based on evidence submitted—Smile Prep's editorial process is impacted by the reality that Smile Prep is a "for-profit entity and that its only source of revenue is the commissions paid to it by its aligner-supplier affiliates/partners." Further, NARB noted that Smile Prep's editorial team is aware of these relationships, and therefore its rankings are economically motivated to persuade readers to purchase products through affiliate links. It found that the site reviews and rankings gently "nudged" the consumer in that direction, despite Smile Prep's showing that some companies without relationships were at times ranked higher than those with such relationships.

Accordingly, the panel concluded that Smile Prep required independent support for product claims taken from the manufacturer sites (but noted disclosing the source of the information and that it was not independently verified should suffice); must discontinue certain claims about aligners featured on its site that gave the appearance of independence, and must do so because of its "material financial relationship" with these aligner companies; and most importantly, must disclose that its reviews constitute advertising. NARB (like NAD before it) made this determination despite Smile Prep's repeated arguments that this requirement goes far beyond what the FTC has thus far required and would be unique for Smile Prep among third-party review site disclosures.

It is worth noting that the NARB panel rejected Smile Prep's argument that its website on the whole doesn't communicate a claim of independence, noting that the disclosures about Smile Prep commissions are "not sufficiently prominent to overcome the implied message of independence." NARB acknowledged its decision went further than precedent but justified its decision, stating "business considerations do not justify misleading consumers."

Key Takeaways

Smile Prep insists that the bar set by NARB is too high, imposing a standard of disclosure above and beyond that which the Federal Trade Commission and "industry standards" require of third-party reviewers. So, will we start to see the "advertising" label applied to third-party review sites generally, given most if not all rely on affiliate links for revenue. That feels unlikely. However, query whether in issuing its upcoming, updated Endorsement and Testimonial Guidance, or should its review and endorsement rulemaking get off the ground—will the FTC follow NAD and NARB's lead? Time will tell.

NAD Expands SWIFT to Accept Implied Claims

The National Advertising Division (NAD) has announced that it is expanding the fast-track Single Well-defined Issue (SWIFT) process to accept single-issue implied claims alongside express claims, in a move sure to encourage even more advertisers to challenge claims via the expedited process.

Generally, advertisers may bring their case through SWIFT if it involves a single issue and does not require the review of complex evidence. NAD will render a decision on SWIFT claims within 20 business days the start of the process.

Following this recent change, advertisers may bring a case through SWIFT if the matter challenges:

• Misleading express or implied claims that do not require review of complex evidence or substantiation such as clinical or technical testing or consumer perception evidence;
• The prominence or sufficiency of disclosures including disclosure issues in influencer marketing, native advertising, and incentivized reviews; and
• Misleading price and sales claims.

A few years into the program, it seems that advertisers wishing to challenge SWIFT eligibility did best raising the need for complex evidence or arguing that the challenger's claims concerned only implied claims, not express ones. Now the latter argument will require greater nuance for a successful jurisdictional challenge—a reality that had been evolving even before NAD's express rule change.

In the three years since its inception in 2020, this is the second time NAD has affirmatively expanded eligibility. In 2021 NAD announced a SWIFT lane exclusively to address misleading advertising disclosures.

Now the expansion of SWIFT is likely to further increase the SWIFT load, which NAD says is now 20% of its docket.

As for the reasoning behind the change, NAD explained that the implied claim limitation had "prevented review of certain simple cases that could have been resolved in the 20-day window."

NAD also removed the page limit for evidence submitted to a SWIFT challenge. The point, says NAD, is that submitted evidence should not be complex, regardless of whether it is short or long.

Key Takeaways

This one is simple. Challengers like SWIFT's swift resolution—advertisers not so much. Filing fees are higher than for a standard challenge, but clearly this is a track that will continue to add lanes.

Is There No Such Thing as a Bargain Anymore?

This case is not the first of its kind, but deceptive pricing continues to be a darling of the class action bar, and has increasingly been reinvigorated by regulators. A newly filed class action accuses popular retailer J. Crew of engaging in a "pervasive online marketing scheme" to falsely advertise its factory outlet clothing as cheaper than, but of comparable quality to, mainline J. Crew retail products. Meanwhile, plaintiffs allege J. Crew knows that its factory outlet products are inferior to the higher-quality goods sold at J. Crew's retail stores, and that customers often can't tell the difference.

The class action lawsuit filed in California state court alleges that J. Crew purposely and deceptively advertises products from its J. Crew Factory (JCF) brand (which it sells at a significantly lower price point) as comparable to its J. Crew (JC) clothing line in quality. Plaintiffs allege that J. Crew markets the JCF products as a "comparable value" to JC products to give the impression that the JCF clothing is a bargain, but that the lower price reflects not a bargain but, rather, the poorer quality.

The lawsuit makes the case that this use of "inflated, fictitious reference prices…for the sole purpose of increasing sales" violates California's Consumer Legal Remedies Act (CLRA), its Unfair Competition Law (UCL), and the state's False Advertising Law (FAL).

J. Crew "bombard[s]" consumers with the false claim by labeling every JCF item in store or online as a "comparable value" to JC products, say plaintiffs. But the products aren't comparable because JC (which markets itself as the "Highest Quality" clothing brand) clothes are made using higher quality material, stitching and construction.

The false reference pricing is an attempt by the retailer to increase sales by capitalizing on consumers' interest in the good value, the great deal, and the great find, according to the lawsuit.

"It is well-established that false reference pricing violates state and federal law. Nonetheless, Defendant employs inflated, fictitious reference prices for the sole purpose of increasing its sales. Defendant engages in this deceptive practice to deceive consumers, including Plaintiffs, into believing they are receiving a bargain…."

The complaint further alleges that JCF products were never actually offered at the "fictitious" comparable value price promoted by J. Crew, but that the price comparison is "fabricated" to give the appearance of a bargain.

Key Takeaways

The lawsuit against J. Crew is a subtly different flavor from the traditional false reference pricing lawsuit. It alleges not that the price of outlet products is false as compared to the regular store price, but rather that the quality of the items sold at the regular versus outlet storefronts is vastly different. But the basic point of the allegation remains the same—whether referring to deceptive pricing or quality differences, the alleged actions constitute false advertising in violation of California law (not to mention the other dozens of states which have deceptive pricing laws).

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