New England Biz Law Update
The U.S. Supreme Court’s recent decision not to hear the Nike Corporation case involving the scope of commercial speech rights of companies in the face of false advertising claims disappointed many in the business community who were looking for some clarification and guidance.
It remains murky how aggressively companies can publicly defend themselves against criticism of their business practices. To what extent the First Amendment helps companies overcome false advertising claims remains an open question and leaves in-house counsel in a position of having to brush up on First Amendment law case law around the country.
Commercial speech has long been regulated: False, deceptive, or misleading sales techniques violate many state laws, and the Lanham Act prohibits false advertising at the federal level. Companies have always had to be careful in their marketing campaigns, but now they also have to be careful in their defensive public relations campaigns as well. Those may be afforded less constitutional protection than the criticism that initiated the damage control in the first place.
The First Amendment often has a direct role in suits for false advertising. Criticism of a company or its products is fairly well protected by the First Amendment. Indeed, disparagement and other claims by the company against a critic require proof that the criticism was false and malicious. Otherwise, free speech protects the critic.
But the First Amendment may not help in countering the critics.
Nike Case
Criticism levied against a company can prompt a damage control campaign that causes problems for the company, as Nike recently found out the hard way.
Beginning in 1996, the popular press began running stories alleging Nike’s overseas factories were akin to sweatshops. Kasky v. Nike, 65 USPQ2d 1262 (Cal. Sup. Ct. 2002). In response to the adverse publicity, Nike began a public relations campaign, including a series of press releases and full-page ads countering the sweatshop allegations.
Remarkably, Nike was then sued over allegations that its public relations campaign itself included false statements in violation of state false advertising laws. The lower courts found Nike’s damage control was protected by the First Amendment, but not the California Supreme Court.
Over heavy dissent, the state Supreme Court found Nike’s messages were commercial speech and, as a result, the First Amendment offered Nike less protection.
“When a business enterprise, to promote and defend its sales and profits, makes factual representations about its own products or its own operations, it must speak truthfully,” the court wrote.
This holding means commercial speech from a company conducting damage control may need to be 100 percent truthful, while, on the other hand, even false criticism about the company by the press or others is only actionable if done with “actual malice.”
A final resolution by U.S. Supreme Court was expected to hinge on whether Nike’s corporate remarks are viewed as political debate regarding sweatshops, commercial speech intending to increase sales of Nike products, or both.
But alas, the Supreme Court ultimately decided not to hear the Nike case. Thus, in California at least, corporate attorneys will need to more closely watch their client’s public relation and advertising campaigns.
Other Cases
So, does the First Amendment ever help companies? Maybe not.
The Bose Corporation learned that First Amendment lesson in 1984 when it sued Consumer Reports over an opinion that a particular Bose speaker exhibited a wandering effect for individual instruments. Even assuming the opinion was false, the U.S. Supreme Court held that because the statements were not made with actual malice, Bose had no claim for product disparagement. Bose Corp. v. Consumers Union, 104 S. Ct. 1949 (1984).
When Amway distributors spread the old rumor that Proctor and Gamble was linked to Satanism, Proctor and Gamble sued Amway for, among other things, violations of the Lanham (Trademark) Act.
Even though the court held Proctor and Gamble was not required to show actual malice to prevail in a Lanham Act violation, Proctor and Gamble still lost. The court held that Amway did not violate the Lanham Act because the false satanic rumor did not rise to the level of false representations regarding the qualities and characteristics of Proctor and Gamble’s products. Proctor and Gamble Co. v. Amway Corp., 242 F.3d 539 (5th Cir. 2001).
And, in other cases, it is clear an action will arise under the Lanham Act only if it involves commercial advertising. But a company’s commercial advertising is not well protected by the First Amendment. A company faced with a Lanham Act claim due to false advertising will not have much of a First Amendment shield.
Even when criticism about a company or its products is malicious, it still might not be actionable under the Lanham Act in light of the First Amendment.
Recently, the Sixth U.S. Circuit Court of Appeals ruled that a website domain name disparaging a company via a “sucks.com” suffix was fully protected by the First Amendment as an exhibition of free speech. Taubman Co. v. Webfeats, 319 F.3d 770 (6th Cir. 2003).
And, in another recent case, the California Supreme Court sided with a disgruntled Intel ex-employee who sent e-mails to Intel’s current employees criticizing Intel’s employment practices. The majority, without explicitly relying on the First Amendment, found that the ex-employee’s bulk e-mail did not support a case for trespass to chattels. But, the court did state that the ex-employee “no more invaded Intel’s property than does a protester holding a sign or shouting through a bull horn outside the corporate headquarters.” Intel Corp. v. Hamidi, 2003 WL 21488209 (2003).
Sometimes, it’s the companies who want the actual malice standard to apply.
When Dunn and Bradstreet was sued for falsely reporting to several subscribers that a construction company was bankrupt, Dunn and Bradstreet attempted to use the First Amendment as a shield and asserted that actual malice was required before damages could be levied. The U.S. Supreme Court disagreed. The fact that Dunn and Bradstreet made a mistake was enough to support a suit for defamation by the construction company. Since the false information was not publicly disseminated, the First Amendment did not help the publishing company. Dunn and Bradstreet, Inc. v. Green Moss Builders, Inc., 472 U.S. 749 (1985).
IP And The First Amendment
The First Amendment may trump more than just trademark and advertising laws.
Many state trade secret laws prohibit the dissemination or use of a company’s trade secrets even if a recipient of those secrets did not actually misappropriate the information in the first instance. If the company’s trade secrets are published — on the Internet or in the press, for example — the First Amendment’s prohibition against prior restraints may prevent the trade secret holder from obtaining injunctive relief in court.
For example, when Ford attempted to enjoin an individual from publishing Ford’s trade secrets on the Internet, a federal district court in Michigan denied Ford injunctive relief based on the First Amendment’s prohibition against prior restraints. Ford Motor Co. v. Lane, 67 F. Supp.2d 745 (E.D. Mich. 1999).
Copyright cases are also no stranger to potential First Amendment conflicts.1 Sometimes, the First Amendment trumps the copyright laws, but not always. In one recent case, Verizon fought a subpoena seeking the name of an individual subscriber who allegedly downloaded 600 copyright protected songs in one day. Verizon lost the free speech argument that the First Amendment protected the subscriber’s identity. In re Verizon Internet Services, Inc. v. Subpoena Enforcement Matter, __ F. Supp.2d __, No. 03-MS-0040 (D.C.C. 2003).
Can patents too run afoul of the First Amendment? Perhaps. In the May 2003 Scientific American, Gary Stix notes that patents prohibiting companies from advertising in a certain way may in fact tread on the guarantee of Free Speech.2
It would appear, based on this short overview, that companies are losing cases based on the First Amendment while, conversely, individuals and the press are winning cases based on the First Amendment. That is probably not true.
But, the tension between the First Amendment and federal and state intellectual property laws is real. In areas they cannot coexist, the First Amendment seems to prevail.
FOOTNOTES:
1 See, for example, “The Copyright Law and Free Speech Affair: Making-up and Breaking-up,” IDEA, Vol. 43, No. 2.
2 “Making Your Own Rules,” Gary Stix, Scientific American, May 2003, p. 36.
Kirk Teska is the managing partner of Iandiorio & Teska, an intellectual property law firm in Waltham, Mass. Mr. Teska is also an adjunct professor of Law at Suffolk University Law School. He can be reached at [email protected].
