LegalZoom makes various #1 claims, including that it is the “#1 choice for online small business formation,” that it is “#1 rated by small businesses,” and that is “voted #1 by small businesses.” ZenBusiness challenged these claims in the same case we wrote about yesterday. In some industries, companies can look to empirical third-party data (such as sales data) to support these types of claims. When that doesn’t exist, companies are left to find their own support. NAD’s decision show how tricky that can be.

NAD precedent demonstrates that “#1 claims” are inherently superiority claims and that first step in evaluating a “#1 claim” is often to determine what consumers are likely to think is the basis for that superiority. Here, the claims suggested that LegalZoom was superior in that it enjoyed a higher market share than its competitors. LegalZoom submitted three surveys to support that interpretation but NAD had concerns with each of them. Here are a few highlights:

To the extent a company uses a survey to make conclusions about market share, survey participants should accurately represent the market the survey is measuring. In this case, NAD was concerned that the record “does not explain how the survey participants were screened, if they are nationally representative, or if they were asked if they have any experience with online business formation services.”
The surveys included a mix of small and medium business owners, as well as “business intenders,” who indicated that they intend to start a business in the next 12 months. The decision notes that market share “is measured by the percentage of total sales in an industry generated by a particular company.” NAD explained that people who intend to use a service – but have not done so yet – cannot count towards market share. Moreover, they cannot rate a service they haven’t tried.
Another survey asked respondents to answer “brand association questions,” including which company they most associate with statements such as “#1 choice for business formation.” NAD determined these types of questions were not a good fit to support LegalZoom’s various “#1 claims” because they assess “the respondent’s brand recall, not respondents’ experience choosing or rating the listed brands.”

NAD found other issues with the surveys as well, but one key theme is that although the surveys may have indicated that respondents had favorable opinions about LegalZoom, the surveys were a “poor fit” for the “#1 choice,” “#1 rated,” and “voted #1” claims. “To properly assess respondents’ experience with choosing or rating brands, a survey needs to confirm the respondents have knowledge of or experience with the brands they are asked to choose or rate and ask about the respondents’ choice or rating.”

In better news for LegalZoom, NAD determined that the company’s use of “Best LLC Service” in a sponsored search ad did not pose a problem. ZenBusiness argued that, like the #1 claims, this claim also required substantiation. NAD disagreed, noting that “standing alone and without reference to any competitor, this use of ‘best’ for a product category that has a broad range of competitors, represents exaggerated hyperbole and is unquantifiable and therefore, puffery.”

NAD Decision Considers #1 Claims