Bragging Rights

On The Books

Until the 1960s, advertisers never mentioned competitors by name. Many businesses thought that would actually provide free advertising for the competition or feared that being confrontational would create sympathy for the other company. Attacking your competitors was seen as unethical. If a company wanted to put such ads on television, the networks refused to air them. A few companies in the 1960s made comparisons without actually naming the competition, such as Avis' famous "We try harder" campaign that never named Hertz. Advertisers would often compare their products to "Brand X," letting the audience figure out the name. In the 1970s, all that changed when the Federal Trade Commission (FTC) began pressuring the networks into accepting straightforward comparative ads in hopes of encouraging healthy competition.

Like all advertising, comparative ads are subject to the Lanham Act, first passed in 1946 and amended in 1988. This federal law was not designed to protect consumers but to allow businesses injured by another company's false or misleading advertising to seek relief in court. Under the original law, a business couldn't be sued for disparaging another company's product unless its ads made false claims about its own product. In 1988, Congress followed the lead of the courts in applying the same standard to both inflated claims about a company's own product and disparaging remarks about a competitor's product. The law says any false statement of fact is illegal if it tends to deceive a substantial segment of the intended audience and is likely to result in injury to the plaintiff.

"Usually these cases aren't black and white," says Kenneth Plevan, partner with New York City law firm Skadden, Arps, Slate, Meagher & Flom LLP and co-author of The Advertising Compliance Handbook (Practising Law Institute). "They turn on what consumers perceive."

Chances are you wouldn't risk a baldfaced lie about your competition, but you might state the facts in such a way that your ad fools people. That's when you can land in court with a judge demanding that you substantiate what you say or pay the price. The FTC can order your company to stop running the misleading ads, run a corrective advertising campaign or avoid certain practices in future advertising. The agency can also ask a judge to issue a permanent injunction, impose civil or even criminal penalties, or require you to repay consumers who've been hurt by your ads. All 50 states also have laws against false and misleading advertising, enforced by the state attorney general. In some states, a competitor who sues your business under these laws can collect double or even triple the actual damages.

The 1988 revisions applied the Lanham Act to all "commercial advertising." What that includes, however, is not spelled out. "Is a press release commercial advertising?" Plevan asks. "How about a business proposal in letter form?" Courts have ruled both ways. If one of your salespeople denigrates the competition over lunch with a buyer, that's less likely to trigger demands for proof than claims published in your brochures or systematically taught to your sales force.

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This article was originally published in the April 1998 print edition of Entrepreneur with the headline: Bragging Rights.

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