Saturday, July 19, 2008

At last, multimillion-dollar award in Satanic rumor case

Procter & Gamble Co. v. Haugen, 2008 WL 2736875 (D. Utah)

Earlier rounds in this case (about an Amway distributor’s reiterations of false rumors about Procter & Gamble’s connections with Satanism) resulted in an important ruling on the scope of “commercial speech” under the Lanham Act. At long last, the case went to trial, with a $19.25 million verdict for P&G. Defendants moved for judgment as a matter of law and for a new trial. The court rejected all their arguments, including a challenge based on post-verdict juror statements and numerous claims directed at the jury instructions.

The broadest legal arguments defendants made concerned whether P&G had adequately proven damages. According to defendants, recovery of damages required proof of actual consumer deception. However, given that it was undisputed that the Satanism claim was literally false, there was a presumption of actual confusion. The court ruled that, without evidence rebutting that presumption, P&G didn’t need to present further evidence. Defendants contended that the presumption only applied to claims for injunctive relief, but the court disagreed. (There was also some survey evidence, though its weight was disputed.)

As a general matter, I think it’s a mistake to drive the treatment of literal falsity and misleading claims so far apart in terms of what burdens a plaintiff has—it puts too much of a premium on drawing a line on what is actually a continuum, not a clear divide. Presumptions are useful and are often better than requiring expensive and uncertain proof of the fairly obvious, but I’m more comfortable with a presumption of harm in injunction cases than in damages cases.

Defendants also argued that there was insufficient evidence of proximate causation. But aside from the survey, the false Amway message targeted a specific product list, and P&G submitted evidence that sales of those products grew at a “substantially lower rate” than those of P&G’s other products. Though other causes might have accounted for this, the jury was able to weigh the possibilities. The fact that P&G continued to experience growth was not dispositive: the Lanham Act protects profitable companies and products whose sales are increasing; a damage award requires proof of damage, not “complete economic reversal.”

Defendants then argued that the Amway message wasn’t sufficiently disseminated to the relevant purchasing public to count as “commercial advertising or promotion.” They argued that P&G’s market is nationwide, even worldwide. Thus, distributing the false rumor to only a few hundred or thousand people was insufficient.

P&G responded that the relevant purchasing public was Amway distributors. The Tenth Circuit, years ago, found that there was a genuine issue of material fact on “commercial advertising or promotion” due to “the uncertainty as to the number of Amway distributors-part of the ‘relevant purchasing public.’”

The broader question was whether the false claims at issue were disseminated sufficiently to the relevant purchasing public to constitute “advertising” or “promotion.” In the Tenth Circuit, covered speech need not be made in a classic ad campaign, but can be more informal, and a “relatively modest” amount of activity may suffice in a particular context. But some level of public dissemination is necessary. Other cases look to the market the defendant sought to target, which can be key when the defendant is an intermediary or, as here, a multilevel marketer.

In the context of a business that relies exclusively on promotion by sales reps, distributing claims to a large distributor/sales rep group—as occurred here—constituted “advertising and promotion.” The false message had “limited but significant distribution” using an established communication system routinely used by Amway distributors in their businesses. Haugen, the person who put the rumor into the Amway system, forwarded it to his “frontline distributors,” who in turn forwarded it to their frontline distributors. In fact, it was expected that each distributor would immediately pass such messages on down through the marketing levels “to reach and motivate the broadest possible audience.” And P&G had evidence that Haugen’s use of Amway’s system was successful: the message spread through his network of 60,000, then through many states, then crossed over into two other distributor networks, where it spread further. Consumer calls to P&G about the issue spiked. Churches announced the rumor from the pulpit, and someone printed and distributed flyers repeating it. The evidence of lost sales growth was further evidence that a substantial number of consumers were influenced by the false rumor, and thus that it was significant enough to count as advertising or promotion.

In sum, the court concluded with a flourish, “[t]he issue is not, as Defendants argue, whether any specific percentage of the customers in this nation’s consumer goods market received the Amvox Message. Under Defendants’ reasoning, when the company was as large as Plaintiff, nothing short of an advertisement during the Super Bowl could be found to have reached a large enough percentage of customers to be disseminated sufficiently to establish a Lanham Act violation” (footnote omitted). The jury’s conclusion was supported by the evidence.

Defendants also sought remittitur, arguing that $19.25 million was so excessive as to shock the conscience and was overwhelmingly against the weight of the evidence. A losing defendant faces a “steep uphill climb”; the court should allow the award to stand unless no reasonable jury could have come up with it. Even where the defendant’s story of why the damage award was contrary to law is “persuasive,” the possibility of a proper award, “[h]owever slight the chance,” requires the court to sustain the award. Here, the defendants argued that the amount represented only out-of-pocket expenses and was thus unreasonable. But that was based on inadmissible post-trial juror statements which could not be used to impeach the verdict in any way, including by attempting to show that the damages were awarded on an improper basis.

Indeed, P&G presented damage estimates running from $62 million to over $544 million. Thus—even with the uncertainty that might be generated by that great range—there was more than a mere “possibility” of a proper award. In fact, the award was fairly moderate, given the evidence.

And so, perhaps, this “bitter” case has neared its end.

No comments:

Post a Comment