LegalZoom makes several claims that it is the “first choice for starting small businesses online,” that it is “rated #1 by small businesses,” and that it “voted No. 1 by small businesses.” ZenBusiness challenged these claims in the same case we wrote about yesterday. In some industries, companies can rely on third-party empirical data (like sales data) to support these types of claims. When that doesn’t exist, companies must find their own support. NAD’s decision shows how difficult that can be.
The NAD precedent shows that “#1 claims” are inherently superiority claims and that the first step in evaluating a “#1 claim” is often to determine what consumers are likely to consider the basis for that superiority. Here, the claims suggested that LegalZoom was superior because it had a higher market share than its competitors. LegalZoom submitted three surveys to support this interpretation, but NAD took issue with each of them. Here are some highlights:
- If a company uses a survey to draw conclusions about market share, the respondents should accurately represent the market the survey is examining. In this case, NAD was concerned that the recording “does not explain how the survey participants were selected, whether they are nationally representative, or whether they were asked whether they had experience with online business start-up services.”
- The survey included owners of small and medium-sized enterprises, as well as “business prospects” who indicated that they intended to start a business in the next 12 months. The decision points out that the market share “is measured by the percentage of total revenue in an industry generated by a particular company.” NAD explained that people who intend use a service but have not yet done so cannot be counted towards market share. Moreover, they cannot rate a service they have not tried.
- In another survey, participants were asked to respond “Brand Association Questions,” including which company they most likely associate with statements such as “#1 choice for starting a business.” NAD concluded that these types of questions are not well suited to support LegalZoom’s various “#1 claims” because they “the respondent’s brand recall, not the respondent’s experience in selecting or evaluating the brands listed.”
NAD also identified other problems with the surveys, but a central theme is that while the surveys may have shown that respondents had a positive opinion of LegalZoom, the surveys “poor fit” for the “#1 choice”, “#1 rating” and “voted No. 1.” “To accurately assess respondents’ experience in selecting or evaluating brands, a survey must confirm that respondents have knowledge or experience with the brands they are asked to select or evaluate and ask about respondents’ selection or evaluation.”
Better news for LegalZoom is that NAD found that the use of “Best LLC Service” in a sponsored search ad was not a problem. ZenBusiness argued that this claim, like claim #1, also required substantiation. NAD disagreed, finding that “Considered on its own and without reference to a competitor, ‘“The best product for a product category for which there is a wide range of competitors is an exaggerated exaggeration, is not quantifiable and therefore an exaggeration.”
