United States: Fantasy League Competitors Battle On The NAD Court For Decision Over Who Can Claim "Largest US-Based Website"

Last Updated: March 25 2015
Article by Amy R. Mudge and Randal M. Shaheen

We love a good March Madness legal blog (see here and here and here)  and NAD gave us some great fodder this month deciding a case between two large daily fantasy sports league websites.   This one wasn't exactly an upset like so many of the games this year leading to the Sweet 16.   DraftKings claimed it was the "largest US-based destination for daily fantasy sports."  FanDuel cried foul.  There was no dispute that FanDuel is larger by a significant margin.  The issue was whether the company was US or non-US based, the key factor which would render the claim either literally true or literally false.  This case is a riff on Made in USA analysis.  Instead of focusing on where a good is manufactured, including its component parts, this case looked to the right definition for determining where a corporation is based.  The NAD noted that consumers "often care very much about the domestic nature of products that they purchase, and such sentiments are likely to also be felt about services that they patronize.  For example, for consumers concerned about unemployment in the United States, the fact that a competing company's labor force resides in another country may be quite important when deciding which company's website to patronize."  As an aside, we are not so sure there are consumers who would base a purchase decision on where key executives sit or where key corporate decision are made, as opposed to where a company's employees reside.  That said, there is certainly an advantage in claiming to be the largest or No. 1, as it may well convey a message that a company has passed the test by rising to the top in terms of market share.   And it is not unusual for a company to try to create a category in which it can be the champion.  NAD said such a claim is particularly impactful in this case because "consumers are attracted to 'larger' daily fantasy sports websites because they have larger pools of players and prizes."

In this case, the Advertiser went, well, corporate on NAD and encouraged it to adopt the "nerve center test" used by courts for purposes of determining diversity jurisdiction.  NAD found this concept instructive but said it was going to go back to basics and focus on its conclusions as to what reasonable consumers would understand about the claim "US-Based".  NAD noted that FanDuel has operations in both the US and Scotland.  While its engineering staff is in the UK, the business staff works in NY, including many of the high level executives such as the CMO and CFO.  FanDuel also focused on the fact that its website and apps are hosted on servers within the US, the product is marketed exclusively to US consumers and based on US sports results, and the terms of use and privacy policy are governed by US law.  In sum, "because most of its employees, its website, app, and servers (i.e., its "product"), and its consumer-facing points of contact are all within the United States, NAD determined that a significant portion of consumers would understand the challenged claim to mean that [FanDuel] had no appreciable presence in the United States—a message that is not truthful or accurate."

NAD did not find dispositive statements made by FanDuel's CEO or capital funding, saying "additionally, while some consumers may understand a business to be based in the country where its money is held or directed, . . . NAD determined that at least an appreciable number of consumers would understand the challenger's "base" to depend on other factors, such as the location from where the majority of staff are situated and where the business is actually operated."  NAD went on to note that the standard of review may well be different for an Advertiser claiming it is "US-based," saying "the amount and type of evidence required for an advertiser to support a claim that it is American is not the same as that required to support a claim that its competitor is distinctly not."  In short "while NAD acknowledged that the advertiser is free to tout its own domestic origins, it is not accurate to base a claim that it is the 'largest' daily fantasy sports website in the United States based on its contention that FanDuel is not US-based."

This exercise, while interesting, at the end of the day largely proved to be irrelevant.  In a far more sweeping portion of the decision. NAD found that regardless of where the companies were based, the claim of "largest US-based destination for daily fantasy sports" could be understood as largest daily sports destination available to consumers in the US.  This conclusion may well be narrow in its application for other cases, because NAD noted in this case "consumers are not necessarily aware of where the websites that they visit are 'based'" and that "this is particularly likely [in this case] because all of the websites in this marketplace focus almost exclusively on American sports and cater to only American consumers."

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