Competitive Intelligence

Charles Schwab vs. TD Waterhouse: The Grudge Match

It's been found that the people most likely to complain about a particular advertisement are those who work for a competing company; now, Charles Schwab has filed a trade libel complaint in California state court charging that an ad campaign for TD Waterhouse has falsely labeled Schwab as a high-priced firm with inferior service. Charles Schwab said he tried to persuade the CEO of TD Bank Financial Group, which oversees TD Waterhouse, to abandon the ads before he filed the lawsuit, and that Schwab wants a court order to ban the ads, in addition to unspecified damages:

Charles Schwab filed suit against rival TD Waterhouse this week for “a pattern of deceptive, misleading, and patently false advertising” in its ad campaign. The suit, filed on Monday in San Francisco County Superior Court, alleges that TD Waterhouse’s ad campaign creates the impression that Schwab charges the price of a full-service broker like Merrill Lynch and that Schwab doesn’t offer the same level of customer service as TD Waterhouse.

Schwab alleges in its suit that this is false and misleading because, as the innovator of the discount brokerage market, Schwab is “known for excellent service….and has a stellar reputation for low-cost, high-quality financial services.”

Schwab is also seeking damages based on injury to the company’s reputation and loss of potential retail clients. The suit claims that Schwab has suffered “substantial” and “irreparable” damage. “People get impressions about companies they want to use based on ads,” says Schwab spokesperson Greg Gable. “We want them to stop using Schwab’s name in comparative advertising.”

TD’s ad campaign, which launched in November, 2003, features actor Sam Waterston, who plays a prosecutor on TV’s Law & Order, making statements such as: “Switch to TD Waterhouse, the alternative to higher-price brokers like Merrill and Schwab,” and “Why pay all that money to Merrill Lynch or Schwab.”

Schwab claims that it tried to settle the issue out of court in early 2004, when both parties signed an agreement to change the language in the ads. TD Waterhouse agreed to switch its tagline from “TD Waterhouse, the alternative to higher priced brokers like Merrill Lynch and Schwab,” to “TD Waterhouse, the alternative to Schwab and higher priced brokers like Merrill Lynch.” The agreement also was intended to remove language such as “Why pay Merrill or Schwab just to bounce your ideas off them.”

But according to Schwab, Waterhouse didn’t stick by the contract.

TD Waterhouse counters that it did honor the agreement, but that some of the older ads continued to run unbeknownst to them. “We have fully adhered to our agreement with Schwab,” says Kevin Dinino, manager of media relations for TD Waterhouse. “As far as ads that ran in error, they were without our knowledge or consent. We believe Schwab’s complaint is without merit and will defend our reputation.” The ad campaign, meanwhile, is rolling right along and, according to Dinino, and has been a very successful in building the company’s brand with investors—even if they may not be switching from Schwab. “We’re clearly seeing refugees from full commission brokers,” says Dinino.

Just don't ask Chuck what he thinks of the ad-campaign…

- Arik