By Anna Marie Kukec
Nonprofits, public interest groups, trade associations and academics provided testimony or submitted comments regarding a controversial report about licensing nonprofit names and logos for commercial products.Does a nonprofit that sells its name and logo for use on a commercial product risk losing its independence, credibility and donations? Is it an endorsement? Will more government regulation protect consumers or harm nonprofits and their commercial partners?
These were some of the questions raised in April when attorneys general in 16 states and the District of Columbia corporation counsel issued their preliminary report, "What’s in a Nonprofit’s Name?" The report targets companies and nonprofit organizations that form partnerships that allow the nonprofit’s name and logo to be used on the commercial product and in its marketing.
"There was definitely a diversity of views," says Barbara Tuerkheimer of Madison, assistant attorney general for the Wisconsin Attorney General’s Office and the primary organizer for the group on this issue. "It’s fair to say that the nonprofits were across the board in their reactions to our report. Some were quite supportive, while others felt the recommendations needed changing."
The attorneys general united on the issue to help clarify consumer laws and the obligations that nonprofit-commercial partnerships have to the public. They are currently reviewing the testimony and comments submitted this spring and summer, and their final report will offer guidelines to the states. A release date has not been set.
According to the report, commercial-nonprofit product advertisement can be misleading because products appear to be endorsed by the nonprofit or give the appearance of being superior to competing products. The report recommended the following:
The company and nonprofit must satisfy all legal standards, including consumer laws prohibiting false advertising, unfair and/or deceptive trade practices and consumer fraud. Ads must not misrepresent that the nonprofit has endorsed the product. If the ad uses the nonprofit’s name or logo and the nonprofit does not endorse the product, the ad must clearly say this. Ads using the name or logo of a nonprofit must avoid making claims that the product is superior to other similar products, unless it can be substantiated. If the nonprofit has not determined the product to be superior, the ad must clearly state that. The ads should clearly state that the nonprofits were paid for the use of their name or logo, if that’s the case. Product ads should not mislead, deceive or confuse the public about the effect of the consumer’s purchase on charitable contributions by the commercial sponsor. Partnerships between companies and nonprofits should avoid exclusive product sponsorships. However, if that’s the case, the product ads using the nonprofit’s name or logo should disclose that fact. The attorneys general began studying such licensing agreements--which generate about $535 million nationwide--after several national, high-profile cases began to cast shadows over the industry.
In October 1996, the attorneys general in 19 states settled with the Arthritis Foundation and McNeil Consumer Products Company, which had a licensing partnership since 1994. The Arthritis Foundation licensed its name and logo for over-the-counter analgesics made by McNeil. In return, McNeil guaranteed $1 million a year, plus royalties, if sales reached a certain level. The attorneys general sued the partners, alleging consumer fraud because the products were promoted as new when, in fact, their active ingredients had been available long before. In August 1997, the American Medical Association entered into a five-year exclusive agreement with Sunbeam Corporation for royalties of products using the AMA name and logo. Criticism came from newspapers, consumer health organizations and the AMA’s own membership because the AMA did not test the products, and its credibility was at stake. The partnership was terminated before it started. As a result, Sunbeam sued the AMA, which paid $9.9 million to settle in July 1998. In December 1998, the attorneys general of 12 states settled with SmithKline Beecham Consumer Healthcare because of its partnership with the American Cancer Society. In 1996, the society licensed its name and logo to the company for its stop-smoking products in return of $1 million in royalties. The attorneys general charged that the advertising phrase "Partners in helping you quit" could mislead, deceive and confuse consumers. It appeared that the society endorsed the products, which it did not. Report goes too far
Those who testified or provided comments agreed that everyone should comply with consumer laws. However, the American Society of Association Executives says the attorneys general went too far in their recommendations. ASAE offered its own suggestions, which include:
The attorneys general should clearly exclude member affinity programs and corporate sponsorships of nonprofit activities or events. The appearance of a nonprofit’s name or logo on the advertising or packaging of a product should not reasonably be perceived as an endorsement of the product by the nonprofit. Disclosure that a nonprofit has not found an endorsed product to be superior should be required only if an express or implied claim has been made that the product is superior and the nonprofit has not verified that claim. Disclosure should be made that the commercial sponsor has paid for the use of the nonprofit’s name or logo only if the sponsor makes or implies a superiority claim. But that disclosure should have to meet the stringent "clear and conspicuous" requirements. Exclusive arrangements between nonprofit organizations and corporations should not be discouraged, and disclosure of an exclusive relationship should not be required. "We hope to clarify more favorably what the attorneys general presented. How much will they accept? We’ll have to wait and see," says Chicago lawyer Jack Bierig, a past chair for ASAE’s Legal Section Council, who provided the testimony and recommendations on behalf of ASAE. The national organization represents 24,900 association executives and suppliers of products and services to associations, many of which have licensing partnerships.
While ASAE supports the attorneys general desire to protect the public, association executives believe the report underestimates the adverse impact that would result from the required disclosures. The report would discourage relationships between for-profits and nonprofits and deprive consumers of nondeceptive information that they can use in making informed decisions for purchases. Also, the report may result in a loss by nonprofits of legitimate revenue sources used to help further their missions of serving the public, according to Bierig.
ABA comments
Like ASAE, the American Bar Association submitted comments about the report and offered suggestions.
First, the recommendations should distinguish consumers from voluntary association members. Members are better informed, have easy access to the information, and participate in the formation of the association’s rules and policies, according to ABA Executive Director Robert Stein of Chicago, in a letter to the attorneys general.
Next, the recommendations should distinguish consumer services from member affinity programs.
"Affinity programs provide important revenues for many associations, including the ABA. These revenues enable associations to fund information and action programs that serve the public good," says Stein.
Third, the recommendations should focus solely on the advertising of these relationships as exclusive.
"We believe it should be possible for a nonprofit organization to have exclusive relationships. Such relationships may be good business decisions for particular organizations, and do not, in and of themselves, communicate endorsement of corporations or products," Stein says.
The problem of implied endorsement arises, Stein adds, when a nonprofit advertises its relationship as "exclusive."
Fourth, the ABA believes that significant and unintended public harm would result from requiring an organization to clearly disclose that it has not endorsed or recommended the product.
"The solution to the type of situation this principle hopes to avoid does not lie in the addition of a statement that may raise questions in the minds of audiences about the relationship between the nonprofit and commercial sponsor. The solution lies in a clear statement of the actual relationship between the two. We urge that flexibility be permitted in the language employed," Stein suggests.
Fifth, the ABA suggested excluding extensive detail about the sponsorship. For example, revealing the exact amount or percentage of what one company provided as compared to another could effect the association’s relationship with other sponsors.
Additional testimony was offered by a Chicago-based consulting group that also endorses sponsorship.
"The AGs must look at cause-related marketing and nonprofit sponsorship in the context of the bigger picture. Nonprofits are competing more marketing dollars with sports and entertainment entities from the NFL to Disneyland. Putting burdensome restrictions on the nonprofits means those entities most in need of corporate dollars are in the weakest position to access them," states Paula Berezin, president of IEG Network.
The consulting group believes the attorneys general recommendations will eliminate many nonmisleading programs. However, the organization suggests that the recommendations should be applied only to health-related nonprofits, where many such partnerships exist and create the potential for problems.
Applying these guidelines to non-health-related nonprofits will diminish or eliminate corporate-nonprofit partnerships. When the nature of the relationship is not misleading, requiring the burden of disclosure and precluding exclusivity introduces significant disincentives to sponsors, she adds.
Agreeing with the AGs
On the other hand, an academic who testified before the attorneys general totally agrees with the report’s recommendations.
"Licensing is just a disaster. These organizations are selling their souls and their reputations. They may be making money in the short term. But in the long term, they’ll be a mess," says James Bennett of Fairfax, Va., an economics professor at George Mason University. He is author various articles and the book, "Health Research Charities: Image and Realities," which discuss the nonprofit-corporate licensing issue. Besides supporting the attorneys general, Bennett believes that a blanket prohibition should be placed on all 501c3s regarding the use of their name and logo on products.
"There’s one thing that a charity can do that no other government agency or for-profit can do. A charity can mobilize the energy and talent of volunteers. They play a vital role in society," says Bennett. That role is at risk because of these partnerships, he adds.
Corporate sponsorship of a nonprofit’s event is acceptable and encouraged, Bennett says. That partnership uses each other’s resources for common good. However, problems of perception occur when a nonprofit’s name and logo are attached to a corporation’s product.
"Consumers don’t really know what these partnerships mean. If a corporation gives money outright to a charity, fine. But when a charity becomes part of the marketing strategy and the corporation’s products, that is when the rub comes," Bennett says.
A Philadelphia ethicist agrees with Bennett.
"I profoundly believe that cause marketing undermines the function and authority of an organization," says Paul Root Wolpe, a faculty associate of the Center for Bioethics at the University of Pennsylvania, who offered testimony. He is also a columnist for the Philadelphia Inquirer and has written on this issue. What happens when a better product appears on the market after the nonprofit signs an exclusive agreement?
"The idea that if they would allow their logo on a product, which turns out to be ineffective, or a better product comes along, then the organization cannot get out of its contract. That’s an abdication of their role, which undermines their educational authority," Wolpe says. Wolpe understands an organization’s need for money. He also supports some names and logos placed on products that say they meet the requirements of the association. However, he is against the same name and logo appearing on products for cause-marketing purposes.
"I don’t see the validity of an organization’s argument that placing its name and logo on a product is not an endorsement. It’s seen as an endorsement by everyone else," he adds.
"We encourage charities to maintain an independent status. We like to see charities get funding but don’t want them to be too commercialized or to lose their independence," says Daniel Borochoff of Bethesda, Md., president of the American Institute of Philanthropy, a charity watchdog group.
Businesses represent products, and they will change their blue product to green if it will result in more sales, he says. But charities represent missions.
"Charities that change their missions so that they can be more appealing to buyers of specific products may gain some licensing fees in the short term, but will lose their credibility with the public later," Borochoff explains.
