False advertising and the Sherman Act

Kevin S. Marshall, Product Disparagement Under the Sherman Act, Its Nurturing and Injurious Effects to Competition, and the Tension Between Jurisprudential Economics and Microeconomics, 46 Santa Clara L. Rev. 231 (2006): Marshall argues that product disparagement hurts competition when false and helps competition when true. He therefore suggests that Sherman Act doctrine is in conflict with a proper economic understanding of pro-competitive policy. Marshall applies the insight that false claims distort available information, and thus get us further from a perfectly competitive and frictionless marketplace, to competition law. He does not consider complicating factors such as consumer skepticism or competitors’ ability to fight back with counteradvertising. Nonetheless, the basic insight – that false information that actually harms a competitor inflicts the type of injury antitrust laws seek to prevent – seems sound; a disinformation campaign to keep a new market entrant out and prices up sure resembles “antitrust injury.”

Marshall thus concludes that intentionally false product disparagement should be considered a violation of the Sherman Act, contrary to current doctrine. Given the availability of Lanham Act claims against even unintentionally false competitor statements, I’m not sure how important this is, except in the Seventh Circuit with its too-narrow definition of “commercial advertising or promotion” under the Lanham Act that requires “promotional material disseminated to anonymous recipients.” First Health Group Corp. v. BCE Emergis Corp., 269 F. 3d 800 (7th Cir. 2001). (Notably, Judge Easterbrook spends a lot of time explaining why “advertising” can’t include face-to-face communications, but has nothing to say about what “promotion” might possibly mean; he even defines advertising as “a form of promotion to anonymous recipients.”) Outside the Seventh Circuit, commercially significant disparagement, even if offered by salespeople instead of brochures, will be covered by § 43(a)(1)(B).

The big picture may just be that businesses will rarely get help from the Seventh Circuit for noncontractual disputes; as with the Sherman Act, when certain judges see more of the Lanham Act, they seem to like it less.