Alert June 27, 2013

Can Your Advertising Agency Take Your Brand for a Joy Ride? Scam Ads and Steps to Prevent Them

Summary

“Scam ads” are unauthorized advertisements that use an advertiser’s brand name and trademark which advertising agencies submit for awards shows. Several recent incidents show how these unauthorized ads pose a significant danger to brand reputation. The article suggests several ways in which an advertiser can proactively prevent such incidents.

With the advertising awards season having recently passed, this is a useful time to consider “scam ads” and what, if anything, advertisers can do to prevent them. A “scam ad” (also known as a “fake ad” or “phantom ad”), loosely defined, is an advertisement, submitted by an agency to an awards show, which uses a real advertiser’s brand name or product, but which is neither approved by, nor used by, the advertiser, such as spec work. In short, it is an agency’s way to show off its creativity in a manner that was not actually approved by the advertiser and used in the marketplace. On occasion, such ads are created expressly for submission to awards shows, and run only once to qualify for entry.

The danger of this practice is that an advertiser’s brand names and trademarks are being used publicly in a manner that it has not approved, and sometimes these ads are intentionally provocative and controversial. Moreover, until an advertiser expends considerable effort explaining and apologizing through crisis PR, consumers and the media may not distinguish between scam and real ads. The potential for embarrassment to the advertiser is extremely high, and explanations about whether the advertisement was authorized or not may be lost amidst the noise.

Major Advertisers Stung by Scam Ads

There have been some egregious examples, many of which have resulted in an initial firestorm of criticism against the advertiser (whose name, of course, is prominent in the scam ad). These examples range from instances where the advertiser had no business relationship whatsoever with the agency, to situations where the advertiser was working with the agency but did not approve the particular ad. This practice has affected a wide breadth of major consumer goods advertisers, including Ford, Kia, J.C. Penney, Kraft, Pepsi, Coca-Cola, McDonald’s, Gap, Pizza Hut, Burger King, Mentos and Guinness, among others.

Ford was recently subjected to criticism over an ad for the Ford Figo, which depicted the car being driven by Silvio Berlusconi with several female celebrities thrown into the trunk — some bound and gagged. The ad was created by Ford’s agency in India, and submitted to a major awards show in that country. Nonetheless, Ford had not approved the ad, and the incident resulted in the agency firing at least two employees. Ford spent considerable effort apologizing and explaining its lack of approval. In a similar incident, a J.C. Penney commercial that appeared to condone teenage sex won a prestigious Cannes Lions Award, only to have the advertiser condemn the commercial as one created and submitted without its knowledge or consent, apparently in violation of the Cannes competition rules.

Two years ago, an ad agency in Brazil created a series of ads for the Kia Sportage that juxtaposed family-friendly images on one side with racy, adult fantasies on the other. Kia denied approving the ads or even having any business relationship with the agency. This after-the-fact revelation resulted in the Cannes Awards show stripping the agency of two awards, and banning five agency creatives from the festival the following year.

Several years ago, the World Wildlife Fund was subjected to withering criticism for an advertisement created by a local agency, again in Brazil, portraying dozens of jetliners flying toward New York City skyscrapers, ostensibly to demonstrate the death toll of the 2004 Asian tsunami. The ad was submitted to awards shows. In this case, however, although WWF Brazil first contended that the ad was merely an unapproved concept proposed by the agency, it was subsequently determined that the ad was actually approved and appeared very briefly in a single market. WWF Brazil and the agency involved apologized for the ad, and characterized it as a mistake that was the result of a lack of experience on the part of a few professionals involved.  

At the far end of the spectrum, a U.K.-based awards show called the Chip Shop Awards highlights other crude ads using major brand names, many of which were created entirely without the knowledge of the advertiser. Many of the ads are little more than crude parodies which are difficult to imagine would have been seriously considered, much less approved by, the advertiser. Nonetheless, nearly all of them use major brand names and trademarks.

This year’s edition featured advertisements using Apple, Nike, Facebook, Starbucks, Adidas, and other major advertisers, including the actual trademarks, logos, taglines and corporate identities. See R. Parekh, “Amid Ford Figo Flap, U.K. Awards Show Applauds Scam Ads,” Advertising Age (Mar. 27, 2013). The judges for the competition include professionals from several prominent agencies.

Some of the major awards shows expressly prohibit the submission of spec work and require that all entries have been used and authorized by the advertiser. The eligibility requirements for the Cannes Awards show expressly state that, “[i]t is the responsibility of the entrant to ensure that the commissioning client has the rights to use the intellectual property of the brand advertised. Entries must not be made without the prior written permission of the client/owner of all rights that subsist in the advertisement.”  Further, “[a]ll entries must have been made within the context of a normal paying contract with a client.” Likewise, the rules for the CLIO Awards require that “[e]ntries cannot be made without the permission of the client and/or owner of the rights of the work. All entries – excluding student work – must have been created for a paying client except pro bono work for charities and non-profit organizations. Spec ads and director’s cuts are NOT eligible.”

Advertisers spend considerable time and money developing brand recognition and goodwill, as well as a particular image the advertiser hopes to convey to its consumers. They also expend considerable effort in vetting advertising agencies and, of course, pay the agencies for their work. It seems inconceivable, then, that the advertiser could walk into a firestorm over an ad that it has never approved. Regardless of whether the incident can be explained, it is a controversy that the advertiser simply does not need, and will likely sour, if not terminate, the relationship between the advertiser and its agency.

Advertisers Encouraged to Be Vigilant

A recent commentary in Advertising Age proposed that it was time for advertisers to start “kicking ass and taking names.”  K. Wheaton, “Scam Ads Don’t Boost Creativity; They Damage Brands, Hurt Agency Credibility,” Advertising Age (Apr. 1, 2013). But short of expressing outrage, explaining that the spec work was unapproved, and perhaps firing the agency, what can advertisers do to prevent such occurrences?  When an advertiser has no business relationship with the agency involved, it has little leverage other than to send an immediate cease and desist letter, and take steps on the crisis PR side to get out the word that it did not approve the ad.

Nonetheless, even in these situations advertisers can be proactive. Just as advertisers monitor the marketplace for possible trademark infringements and actionable advertising, they can monitor the awards shows for the unauthorized use of their brand names. Advertisers know the major awards shows, and they can review the ads nominated for consideration. Many of these controversies have arisen after an award has been won, so identifying scam ads early in the process can prevent a much larger problem later on.

And in the case of an agency with whom the advertiser has a relationship, the advertiser can, and should, help prevent such incidents when initially negotiating the contract. In fact, many agency professionals are sympathetic to ridding awards shows of scam ads and will be receptive to a frank discussion of the issue.

A typical agreement between an advertiser and its agency will contain an ownership provision delineating the parties’ respective rights in materials created by the agency. These provisions are important and can be a delicate issue, as advertisers often seek to obtain ownership of all materials, while the agency understandably balks at foregoing the rights to materials that the advertiser never makes use of, and in some cases paid nothing for. A typical ownership provision in an advertiser-agency agreement might include something similar to the following: 

All campaigns, trademarks, service marks, slogans, artwork, … or other materials that are subject to copyright, trademark, patent, or similar protection (collectively, the “Work Product”) produced by Agency are the property of the Client provided: (1) such Work Product is accepted in writing by the Client within twelve (12) months of being proposed by Agency; and (2) Client pays all fees and costs associated with creating and, where applicable, producing such Work Product. Work Product that does not meet the two foregoing conditions shall remain Agency’s property.

Such provisions, however, often say nothing specific about the agency’s ability to use campaign materials for awards shows or other promotional efforts, whether or not approved by the advertiser. Neither does this provision expressly require the agency to notify the advertiser and obtain its consent before submitting one of its ads for an awards show. The agency agreement is an opportunity for the parties to bring focus to the importance of this issue, provide the advertiser with additional security and also preserve the agency’s need to demonstrate its creativity in future pitches.

There are several options the parties can consider:

  • Requiring the agency to notify the advertiser, and obtain its consent, prior to the submission of any ads using its brand name or trademarks, to an awards show;
  • Relatedly, prohibiting the use of any unapproved spec work using the advertiser’s brand name or logo in connection with awards shows (and possibly marketing pitches);
  • Delineating between the agency’s uses of spec work in public awards shows, as opposed to confidential uses in marketing pitches to prospective clients;
  • Providing that any violation of the above such provisions will constitute cause for the advertiser to terminate the agency agreement; and
  • Requiring the agency to indemnify the advertiser for any legal or crisis PR costs incurred in dealing with a breach of these provisions.

Not all of these provisions may be necessary in every instance, depending on the relationship between the parties and the agency’s history with respect to scam ads. But the advertiser and its agency will benefit from a candid discussion of this issue in the course of negotiating the agency agreement. Addressing the issue at that time can provide additional protection for the advertiser from having its brand and trademarks misused, and will provide the agency with clear instructions with respect to permitted uses of unapproved spec work.