Top Ten Advertising Bloopers

And How You Can Avoid Them

INSIGHT ADVERTISING & MARKETING LAW CONFERENCE

NOVEMBER 25, 2005

Jeff ScanlonMcMillan Binch Mendelsohn LLP

Agenda

• Advertising Bloopers:Contests

- 4 bloopersMisleading Advertising

- 1 blooperComparative Advertising

- 4 bloopersIntellectual Property

- 1 blooper

Contests and the Criminal Code

The Skill-Testing Question

• Paragraphs 206(1)(a) to (d) of the Criminal Codeprohibit schemes for disposing of property by “any mode of chance”

• Supreme Court of Canada has clarified that only games of “pure chance” are prohibited

• A proper skill-testing question converts a game of pure chance into a game of mixed chance and skill

Contests and the Criminal Code

“No Purchase Necessary”• Section 206(1)(f) of the Criminal Code

makes it an offence todispose of any goods, wares or merchandiseby any game of chance or any game of mixed chance and skill in which the contestant or competitor pays money or other valuable consideration

Contests and the Criminal Code

Penalty

Indictable offence punishable by imprisonment for a term not exceeding two years

ORsummary conviction offence punishable by a fine not exceeding $25,000

Contests and the Competition Act

Full Contest Rules

Adequate and Fair Disclosure:Number and approximate value of prize;Area or areas to which they relate; andAny fact within the knowledge of the contest sponsor that materially affects chances of winning

Contests and the Competition Act

• Short List Disclosure in Ads:PackagingPoint-of-SaleBillboardsTVRadioInternet

Contests and the Competition Act

Competition Bureau’s Program of Binding Written Opinions

$1,000 fee2 weeks for “simple” contests6 weeks for “complex” contests

1. McDonald’s

• BlooperGame piece promotion on product containersMarketing company personnel stole winning pieces and collected prize moneyLed to negative publicity and FBI investigationMcDonald’s published apologies in newspapers and awarded $10 million in prizes

• LessonIdentify and manage any security risks surrounding the prize fulfillment offerStrong brands can rise above past gaffes

2. Ultramar

• BlooperGas coupons were to be awarded, including 3 grand prizes for $1500 of fuelPrinting error created hundreds of grand prize winners

• LessonInsert clause in rules to address this possibilityOver-redemption insurance can be applied to cover unanticipated responsesSimilar to bloopers by Coca Cola (Super Bowl) and Pepsi (Philippines)

3. Popsicle Industries

• BlooperPoints collection program that offered Nintendo game as prize; but demand exceeded supplyAlthough rules allowed substitute prizes, prizes selected were of inferior qualityCompany paid $250,000 to honour demand for games and paid fine of $200,000 for untimely delivery of prizes under Competition Act

• LessonEnsure that you can deliver on your offer to avoid misrepresentation claimsCarefully review language in rules

4. Hoover

• BlooperContest promised consumers in Europe free airline ticket with the purchase of a vacuumHoover was flooded with requests for vacuums by consumers seeking cheap airfares; tickets cost more than the revenue generated from the sale of the vacuumCost $10s of millions, years of litigation and negative PR

• LessonEnsure realistic assessment of costs of contest

Misleading Advertising• The Competition Act contains criminal and

civil provisions prohibiting misleading representations and deceptive marketing practices

• Any representation, in any form, which is false or misleading in a material respect is prohibited

• The test for materiality is whether the representation could influence a consumer to buy a product or service

• The court will look at the general impressionconveyed by the representation in addition to its literal meaning

Misleading Advertising

PenaltiesSummary offence punishable by fine of up to $200,000, imprisonment for up to one year, or both

ORIndictable offence punishable by a fine at the discretion of the court, imprisonment for up to five years, or both

Misleading AdvertisingRepresentations on the Internet• The Competition Act’s misleading

advertising provisions apply equally to material online representations

• Includes both Internet representations which could influence on-line purchases and off-line purchases

• For more info, see The Competition Bureau’s“Information Bulletin on the Application of the Competition Act to Representations on the Internet”

5. KFC

• BlooperKFC advertising referred to the nutrition value of a skinless chicken breast Commercials failed to mention the actual levels of fat, saturated fat, trans fat and cholesterol in its chicken breasts with skinKFC’s implicit health claim that eating KFC chicken was part of a healthy lifestyle was false

5. KFC

• LessonAdvertisers must consider both the literal and general impression conveyed by adAdvertisements should be evaluated from the viewpoint of a consumer “acting reasonably under the circumstances”The advertiser is responsible for all reasonable interpretations

Comparative Advertising

• No prohibition against direct comparative advertising

• Part of the misleading advertising sections of the Competition Act

• Companies must understand the boundaries and restrictions on comparative advertising re: ordinary price claims, performance claims and trade-marks

6. Forzani (Sport Check)• Blooper

Forzani’s price claim, “compare at” with respect to the ordinary prices offered by suppliers was overstated; Forzani had failed to support the key requirements for making such price claims, namely that:

1) suppliers in the relevant geographic market area had sold a substantial volume of products at or above the claimed prices within a reasonable time before making the representation and;

2) The suppliers offered products at or above the claimed prices in good faith for a substantial time period recently before making the price claims

6. Forzani (Sport Check)

• LessonRetailers should establish a sound corporate compliance regime that will ensure adherence to the ordinary pricing provisions of the Competition Act

7. General Mills Inc.

• BlooperTelevision commercial in U.S. suggesting that eating “Total” instead of “Special K” would increase weight lossThis statement not supported by underlying research

• LessonSince “performance claims” test is not what advertiser intended to communicate, but what was actually said (explicitly or implicitly), be sure to prove your performance claims before starting ad campaign and be narrow in your comparison with competition

8. Pringles

• BlooperPringles using image of Lay’s product in its advertising

• LessonIf you mention a competitor’s registered trade-mark in a negative context, you could be found to have depreciated the value of the value of its goodwillFocus on the differences between the products rather than the similarities

9. FedEx

• Blooper:Ads that make prominent use of a competitor’s trade-marks could lead to “passing off” lawsuits

• Lesson:Your own trade-marks should always be more prominent than your competitors and use a disclaimer

Intellectual Property

Intellectual PropertyTrade-marks

word, symbol, slogan, designthat is used by a person for the purpose of distinguishing the wares or services manufactured, sold, leased, hired or performed by him from those manufactured, sold, leased, hired or performed by others

Domain Names

10. PricewaterhouseCoopers

• BlooperPWC spent £75 million renaming its consultancy arm to “Monday”PWC did not check to see if similar name was already in use by alisted company on the stock exchange; PWC paid a firm called “One Monday” £3.5 million for exclusive use of the word “Monday” PWC did not secure domain name in the UK; customers were directed to a parody website set up to mock PWC

• LessonAlways conduct a thorough trade-mark search to see what is available and whether you may be infringing existing trade-marksAlways check variations and geographic coverage of domain name

Top 10 Advertising Tips

1) Identify and manage any security risks surrounding the prize fulfillment offer

2) Insert clause in contest rules that allows solution if contest does not run according to plan or if error

3) Ensure that you can deliver on your offer to avoid misrepresentation claims

4) Ensure realistic assessment of costs of contest5) Consider both the literal and general impression conveyed by your ad

- advertisements should give the whole story – don’t leave out essential information and make sure you disclose any limitationson the representations you have made

Top 10 Advertising Tips6) Establish a sound corporate compliance regime that will ensure

adherence to the ordinary pricing provisions of the Competition Act 7) Ensure proof for performance claims before starting your ad

campaign8) When using competitor’s trade-marks in your advertising, focus on

the differences between the products rather than the similarities9) To avoid claims for passing off, ensure that your own trade-marks

are more prominent than your competitors’ and use a disclaimer10) Check availability of all variations of your domain name and always

conduct a thorough trade-mark search to see whether you may be infringing existing trade-marks

Jeffrey ScanlonMcMillan Binch Mendelsohn LLPEmail: jeff.scanlon@mcmbm.comTel: 416-865-7197