Procter & Gamble Co v. Amway Corporation, e

REVISED - March 12, 2001
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________
m 99-20590
_______________
THE PROCTER & GAMBLE COMPANY
AND
THE PROCTER & GAMBLE DISTRIBUTING COMPANY,
Plaintiff-Appellants,
VERSUS
AMWAY CORPORATION, ET AL.,
Defendants,
AMWAY CORPORATION; THE AMWAY DISTRIBUTORS ASSOCIATION COUNCIL;
JA-RI CORPORATION; DONALD R. WILSON; WOW INTERNATIONAL, INC.;
WILSON ENTERPRISES, INC.;
RONALD A. RUMMEL,
INDIVIDUALLY DOING BUSINESS AS RUMMEL ENTERPRISES;
KEVIN SHINN; RANDY HAUGEN; FREEDOM ASSOCIATES, INC.;
FREEDOM TOOLS, INC.; RANDY WALKER; WALKER INTERNATIONAL NETWORK;
GENE SHAW;
JOHN & JANE DOES 6-10,
BUSINESS ENTITIES;
DEXTER YAGER, SR.; BIRDIE YAGER;
AND
D&B YAGER ENTERPRISES, INC.,
Defendants-Appellees.
_________________________
Appeal from the United States District Court
for the Southern District of Texas
_________________________
February 14, 2001
Before SMITH and DENNIS, nal source of the rumor and to squelch it.
Circuit Judges, and ROETTGER,* P&G has not been able to prove how the ru-
District Judge. mor began, although it asserts here that the ru-
mor was either started or spread by Amway1
JERRY E. SMITH, Circuit Judge: or its distributors in the 1980’s. P&G offered
no proof that Amway originally started the
The Procter & Gamble Company (“P&G”) rumor, but it did offer evidence showing that
appeals the dismissal of its lawsuit against Am- various Amway distributors spread it in the
way Corporation and other defendants for
defamation, fraud, and violations of the Lan-
1
ham Act, RICO, and Texas state law. We Amway manufactures and distributes house-
affirm in part, reverse in part, and remand. hold products, many of which compete directly
with P&G’s products. Amway distributes its prod-
ucts in a fairly distinctive manner, however, using
I.
a system of direct marketing in which its distribu-
P&G, a manufacturer and distributor of nu- tors are recruited as independent contractors into a
merous household products, has been plagued hierarchical system of distribution. Amway has
by rumors of links to Satanism since the late more than a million distributors around the world,
1970’s or early 1980’s. The most common each of whom is encouraged both to sell Amway
variant of the rumor is that the president of products directly to consumers (including the
P&G revealed on a television talk show that he distributor’s own household) and to recruit others
worships Satan; that many of P&G’s profits go to be Amway distributors.
to the church of Satan; and that there is no
harm in such disclosure, because there are no The distributors earn money both by a percent-
longer enough Christians left in the United age of the income from Amway products they
States for such devilish activities to make a personally sell and by a percentage of the income
difference. The rumor often was circulated in from sales made by every distributor whom they
the form of a written flier that listed numerous have directly recruited, and by those distributors
further “downline” who have been recruited as
P&G products and called for a boycott.
recruits of recruits. Amway’s success depends on
the efforts of its distributors to encourage downline
P&G has spent considerable time and mon- distributors to buy Amway products and continu-
ey unsuccessfully trying to determine the origi- ally to recruit new distributors to replace those lost
to attrition. Amway encourages “upline” distribu-
tors to motivate those below them in the hierarchy
*
District Judge of the Southern District of Flori- and downline distributors to “emulate” those
da, sitting by designation. distributors above them.
2
1980’s. Rather than suing Amway at that Haugen is a highly successful Amway distribu-
time, however, P&G worked with Amway’s tor with a network of tens of thousands to
corporate headquarters, which promised to possibly 100,000 distributors underneath him
help stop the rumor. throughout Utah, Nevada, Texas, Mexico, and
Canada. He also served on Amway’s Distribu-
The rumor re-surfaced on April 20, 1995, tors Association Council (“ADAC”), which is
when an Amway distributor named Randy an advisory body for Amway distributors. De-
Haugen forwarded it to other Amway distribu- fendants Freedom Associates, Inc.; Freedom
tors via a telephone messaging system for Tools Inc.; Randy Walker; and Walker In-
Amway distributors known as “AmVox.”2 ternational Network are Amway distributors in
Haugen’s distribution network.
2
AmVox is a communication system that Am- There is no evidence that Haugen knew the
way sells to its distributors to facilitate communi-
rumor was false when he spread it; in fact, he
cation between and among them. Haugen received
testified that he believed it to be true. The
the rumor about P&G from another Amway dis-
tributor via AmVox and forwarded it to all his
distributors saying, “This is a great message.
2
Listen to it.” The message was: (...continued)
Dawn Crisco Always
Hey, Jeff, this is Roger Patton. I wanted to Downy Puritan Attends
run something by you real quick that I think Undergar-
ments
you’ll find pretty interesting. I was just
Gain Secret Oil of Olay
talking to a guy the other night about this Mr. Clean Sure Wondra
very subject and it just so happens that a Oxydol Head and Shoulders
guy brings information in, lays it on my Camay Spic-n-Span Pert
desk this morning, so here it goes. It says Coast Tide Prell
the president of Procter & Gamble appeared IvoryTop Job Vidal Sassoon
on the Phil Donahue Show on March 1st of Lava Luvs Safegard
’95. He announced that due to the openness Pampers Zest Pepto-Bismol
of our society, he was coming out of the Charmin Scope Puffs
closet about his association with the Church Crest Gleem
of Satan. He stated that a large portion of
the profits from the Procter & Gamble and says if you’re not sure about a product,
products go to support a satanic church. look for the symbol of the ram’s horn that
When asked by Donahue if stating this on will appear on each product beginning in
television would hurt his business, his reply April. The ram’s horn will form the 666
was there are not enough Christians in the which is known as Satan’s number. I tell
United States to make a difference. And ya, it really makes you count your blessings
below it has a list of the Procter & Gamble to have available to all of us a business that
products, which I’ll read: will allow us to buy all the products that we
want from our own shelf and I guess my real
Duncan Hines Bounce question is, if people aren’t being loyal to
Cheer themselves and buying from their own busi-
Bold Cascade Joy ness, then whose business are they support-
Comet Folgers Jif ing and who are they buying from. Love ya.
(continued...) Talk to you later. Bye.
3
rumor circulated in his and other distribution
networks. Some Amway distributors printed
5
fliers containing the rumor, circulating them to (...continued)
consumers, with a message saying, “We offer Hello guys. This message is going out to all
you an alternative.” The fliers also gave con- of Valerie and I’s frontline and also to every
tact information for Amway distributors. diamond in the organization. Uh, we had an
Although P&G has received complaints and Amvox that came down that talked about
inquiries about this rumor for the last twenty Procter & Gamble. A lot of you I under-
stand did not get this Amvox, uh, but if you
years, it offered evidence to show that, at the
didn’t get it, still pay attention to this be-
time the rumor was circulating on AmVox, the
cause if this rumor ever comes up again you
number of complaints and inquiries increased need to stamp it out. Uh, it was rumored
substantially in the states in which the majority that on a television show, on the Phil Dona-
of Haugen’s distributors live.3 hue show, and it is rumored on other talk
shows, that uh, the CEO or officers from
Within days of the initial message contain- Procter & Gamble Company went onto the
ing the rumor, Haugen sent a short retraction show and told them that their symbol repre-
via AmVox.4 Shortly thereafter, an Amway sents Satanism, the symbol on all their
representative contacted Haugen and delivered products, and also that they practice Satan-
a copy of a P&G “truth kit,” which explains ism. I’m going to read you a statement here
that the rumor is false. The Amway represen- and see if we can get this rumor cleared up
tative asked Haugen to issue another retraction because I know a lot of you would like to
via AmVox. Using the AmVox system, Hau- know the truth and it is very important that
you understand this. False rumors: Unfortu-
gen then sent out a second, more detailed, re-
nately this familiar trademark has been
traction.5 Despite Haugen’s retractions, the subjected to prosperous, excuse me, prepos-
terous unfounded rumors since 1980-81.
The rumors falsely allege that the trademark
3
None of the complaints stated that the com- is a symbol of Satanism or devil worship.
plainant had heard the rumor via AmVox. Typically the story reports a Procter &
Gamble executive discussed Satanism on a
4 national televised talk show. Another story
The retraction stated:
maintains that the trademark is a result of
Hey gang. We sent a message down a while Procter & Gamble being taken over by the
back to do with Procter & Gamble. It can- Moonies, followers of Reverend Sun Yung
not be substantiated, that it happened (drop Moon and his Unification Church. The
out on tape) so I’m going to assume that it rumors are, of course, totally false. Their
didn’t actually happen. Um, please do not trademark originated in 1851 as a symbol
call Phil Donahue and please do not call for their Star brand candle. Later it was
Procter & Gamble and just drop it and don’t designed to show a man in the moon looking
talk about it anymore. We’d just appreciate over a field of 13 stars commemorating the
that a whole bunch. We do not think that it original American colonies. It represents
happened. Thank you. Good-bye. only Procter & Gamble. So if you hear any
rumors saying anything to the effect that
5
The second retraction stated: they are practicing Satanism and their sym-
bols on their products, uh, are satanic, then
(continued...) (continued...)
4
rumor continued to circulate in Haugen’s net- ternational Network as defendants. In 1996,
work and at least one other network for some P&G filed a second amended complaint con-
time. taining causes of action for defamation, com-
mon-law unfair competition, violations of the
II. Utah Truth in Advertising Act, tortious inter-
In response to the spread of the rumor ference, negligent supervision, violations of
among Amway distributors, P&G filed a law- Lanham Act § 43(a), 15 U.S.C. § 1125(a), and
suit in each of two federal district courts. In vicarious liability. P&G then filed a third
1995, in Utah, it sued Haugen, Freedom Asso- amended complaint alleging that Amway is an
ciates, Inc., and Freedom Tools, Inc., for illegal pyramid and alleging fraud and product
spreading the Satanism rumor, claiming it lost disparagement; that complaint was dismissed
customers as a result of the actions of Haugen in 1997. Later in 1997, P&G filed a motion
and other Amway distributors. P&G later for leave to file a fourth amended complaint to
joined Amway, Randy Walker, and Walker In- assert fraud and disparagement claims; the
Utah court denied the motion as untimely.
5
(...continued) One day after its third amended complaint
it is absolutely 100% false. Uh, we was dismissed in the Utah action, P&G filed
don’t want any bad rumors about any the suit at issue in this appeal, in Texas. This
competitors or non-competitor, any suit is based on the same transactions, and in-
company anywhere ever going out volves substantially the same parties, as does
from us. So if anybody you hear talk- the Utah suit. It names Haugen, Amway Cor-
ing about this in the organization any-
poration, ADAC, and various other Amway
where at all brings this up, it is abso-
Distributors (all hereinafter referred to as
lutely not true. Not only is not just
substantiated, but is not true, period. “Amway”) as defendants.6 The Texas com
Amway Corporation does not endorse
spreading false and malicious rumors
6
against Procter & Gamble or any other ADAC, Ja-Ri Corporation (“Ja-Ri”), Donald
company. Please do your part as inde- Wilson, WOW International, Inc., Wilson Enter-
pendent distributors by not spreading prises, Inc., Ronald Rummel, Kevin Shinn, Gene
this rumor any farther or nipping it if Shaw, Dexter Yager, Sr., Birdie Yager, and D&B
you hear it from anybody else. We Yager Enterprises (all listed as defendants on
appreciate that a whole lot, uh, so let’s P&G’s brief) were not defendants in the Utah suit,
crush that, if you’re hearing any kind but, as Amway distributors, they were in privity
of stuff anywhere let’s get rid of it and with the distributors who were defendants there. It
let’s go on and build us a huge busi- is uncertain to what extent P&G is appealing the
ness and not have any of this kind of dismissal of some of these defendants. Although
junk and that’s a good lesson to be P&G’s brief claims error on the part of the district
very, very, very, careful about putting court in the dismissals of ADAC and Ja-Ri, P&G
anything down on Amvox that’s not admits in its initial brief that, at the time the court
substantiated, and if anybody could below dismissed the remaining claims, “[t]he
take the blame on this, I can take it. remaining defendants were Amway . . . Randy
So, uh, we just don’t want anything to Haugen, Randy Walker, Dexter Yager, and Donald
do with it and it was a mistake. It did Wilson.”
go out to a few people . . . (drop out). (continued...)
5
plaint sought remedies for the alleged conduct based on Amway’s alleged illegal pyramid
of defendants in (1) spreading the Satanism scheme and that the fraud claim was time-
rumor, (2) disparaging P&G’s Crest tooth- barred. In September 1998, the Utah
paste, and (3) allegedly harming sales of court granted defendants’ joint motion for
P&G’s products by inducing people to become summary judgment and dismissed the § 43(a)
Amway distributors and consumers by luring claim, stating that “the misrepresentation at
them into an illegal pyramid scheme and mis- issue does not relate to a product within the
leading them as to the financial rewards of meaning of the Lanham Act.” Inexplicably, in
selling Amway. P&G asserted various causes the Utah court, P&G claimed only that Am-
of action in its Texas suit, including common- way’s actions constituted a violation of the
law fraud; several violations of § 43(a) of the Lanham Act’s prohibition on the misrepresen-
Lanham Act, 15 U.S.C. § 1125(a); violation of tation of goods or services, even though that
the Racketeer Influenced and Corrupt Organi- act also provides a cause of action for misrep-
zations Act (“RICO”), 18 U.S.C. § 1962(c) resentation of commercial activity.8
and (d); and violation of TEXAS BUSINESS AND
COMMERCE CODE § 16.29.7 P&G did not argue that repetition of the
Satanism rumor constituted misrepresentation
The Texas district court granted Amway’s of its commercial activities until its FED. R.
FED. R. CIV. P. 12(b)(6) motion dismissing CIV. P. 60(b) motion for reconsideration of the
P&G’s RICO claim, because P&G did not Utah court’s grant of summary judgment. The
allege that it had relied o n Amway’s alleged Utah court denied P&G’s motion for reconsid-
predicate acts of mail and wire fraud. Then,
on summary judgment, the court held that
P&G lacked standing to bring its § 43(a) claim 8
Section 43(a) provides:
Any person who, in or in connection with
6
(...continued) any goods or services, or any container for
P&G does not contest the earlier dismissal of goods, uses in commerce any word, term,
any defendants except ADAC and Ja-Ri. WOW name, symbol, or device, or any combina-
International, Inc., Wilson Enterprises, Inc., Ron- tion thereof, or any false designation of
ald Rummel, Kevin Shinn, Gene Shaw, Birdie origin, false or misleading description of
Yager, and D&B Yager Enterprises are not even fact, or false or misleading representation of
mentioned in P&G’s initial brief other than on its fact, which SS
cover. Thus, P&G either does not appeal their
dismissals from the suit or has waived any argu- (A) is likely to cause confusion, or to cause
ment against their dismissals. Cinel v. Connick, 15 mistake, or to deceive as to the affiliation,
F.3d 1338, 1345 (5th Cir. 1994). connection, or association of such person
with another person, or as to the origin,
7
The only claim that remains on appeal from sponsorship, or approval of his or her
the Texas case that P&G did not assert in the Utah goods, services, or commercial activities by
case is for violation of TEXAS BUSINESS & COM- another person . . . . shall be liable in a civil
MERCE CODE § 16.29. P&G brought a number of action by any person who believes that he or
other claims in its initial Texas complaint that it she is or is likely to be damaged by such act.
had not raised in the Utah suit, but it does not
appeal the ruling as to those claims. 15 U.S.C. § 1125(a)(1).
6
eration, finding no excuse for P&G’s failure to After oral argument had been heard in this
raise the commercial activities claim earlier. court, the Tenth Circuit reversed the Utah
summary judgment. P&G v. Haugen, 222
In March 1999, the Utah court granted F.3d 1262 (10th Cir. 2000). The Tenth Circuit
summary judgment to defendants on the de- addressed P&G’s misrepresentation of com-
famation per se, vicarious liability, and negli- mercial activities claim, even though P&G had
gent supervision claims. A few days later, not timely raised it before the Utah district
before the Texas case went to trial, the Utah court. The Tenth Circuit explained its willing-
court entered a final judgment dismissing all of ness by stating that where an issue is purely a
P&G’s claims. matter of law, its resolution is certain, and
public interest is implicated, it should be ad-
After the final judgment from the Utah dressed on appeal. Id. at 1271. The Tenth
court, Amway moved for judgment as a matter Circuit concluded that the repetition of the Sa-
of law (“j.m.l.”) in the Texas case. The district tanism rumor raised a claim under the “com-
court denied the motion because it was filed mercial activities” prong of the Lanham Act,
after the deadline for pre-trial motions. At the and it therefore reversed and remanded as to
close of P&G’s case, Amway again moved for the Lanham Act claim and reversed the dis-
j.m.l. The court granted the motion and dis- missal of P&G’s Utah state law tortious inter-
missed the § 43(a) claim against Amway, Wal- ference claim. Id. at 1280.
ker, and Haugen based on the res judicata
effect of the Utah court’s decision. The Texas III.
court dismissed the § 43(a) claim for dispar- The res judicata effect of the Utah judg-
agement of commercial activities against the ment is a question of law that we review de
remaining defendants (and against Amway, novo. United States v. Brackett, 113 F.3d
Walker, and Haugen for purposes of vicarious 1396, 1398 (5th Cir. 1997). This questionSSto
liability), because it found that P&G had not which both sides direct most of their
presented sufficient evidence of “actual mal- briefsSShas largely been answered for us by
ice,” which the court held to be a requirement the Tenth Circuit.
of § 43(a) suits brought by “limited-purpose
public figure” plaintiffs.9 The court also dis- There is no res judicata effect from the
missed the TEXAS BUSINESS AND COMMERCE Utah case. The final judgment has been re-
CODE § 16.29 claim and all remaining claims. versed and remanded, and therefore no judg-
ment blocks the Texas case from proceeding.
Of course, at the time the Texas court dis-
missed, there was a final judgment in Utah, so
the Texas court did not err. Now that the final
9 judgment has been reversed and remanded,
The court ruled that P&G was a “limited-
purpose public figure” with regard to the Satanism
however, res judicata no longer binds us.
rumor and that thus the First Amendment protec-
tion of the New York Times v. Sullivan, 376 U.S. Amway argues that res judicata, or, alter-
254 (1964), “actual malice” test applied to shield natively, issue preclusion, settles this case, de-
erroneous but non-malicious speech regarding an spite the Utah remand. It contends that the
issue of public concernSSin this case, P&G’s al- Tenth Circuit’s holding that it is not vicari-
leged links to Satanism.
7
ously liable under Utah law for the acts of its applies in a commercial speech12 case under
distributors precludes liability under the Lan- the Lanham Act.
ham Act in the Texas suit. This is a bold
assertion, for the Tenth Circuit did not reach Amway makes two arguments in response.
this conclusion, but, instead, “le[ft] it to the First, acknowledging that the Lanham Act
district court to consider whether P&G has covers only commercial speech, Amway urges
met those elements of a § 43(a) Lanham Act that the speech here is not commercial and that
claim not before us in this appeal.” Haugen, therefore a § 43(a) claim will not lie.13 Sec-
222 F.3d at 1276. Likewise declining to let a
decision on state law vicarious liability deter-
mine the outcome of a Lanham Act claim, we 12
The First Amendment affords less protection
conclude that neither res judicata nor collat- to commercial speech and none to false commercial
eral estoppel bars the Lanham Act claim and speech. Va. State Bd. of Pharm. v. Va. Citizens
that the Texas case may proceed.10 Consumer Council, Inc., 425 U.S. 748, 771-72
(1976). No party questions that the speech linking
IV. P&G to Satanism is false.
P&G avers that the district court erred in
13
ruling that P&G was required to prove “actual In Seven-Up Co. v. Coca-Cola Co., 86 F.3d
malice”11 to prevail on its § 43(a) claim for 1379, 1383 n.6 (5th Cir. 1996), we held that the
disparagement of commercial activities. The Lanham Act extends only to false or misleading
actual-malice standard has developed in cases speech that is encompassed within the Supreme
involving defamation of public figures. P&G Court's commercial speech doctrine:
argues that strict liability and not actual malice
The “commercial” requirement was inserted
to ensure that § 43(a) does not infringe on
free speech protected by the First Amend-
ment. See 135 Cong. Rec. H1216-17 (daily
ed. Apr. 13, 1989) (statement of Rep.
Kastenmeier) (“[T]he proposed change in
10 section 43(a) should not be read in any way
Of course, the Texas district court retains its
normal discretion in scheduling cases and granting to limit political speech, consumer or edito-
stays pending other developments or the outcomes rial comment, parodies, satires, or other
of similar trials. Should the court try this case to constitutionally protected material . . . . The
conclusion before the Utah court does, however, section is narrowly drafted to encompass
then the tables will be turned, and it will be left to only clearly false and misleading commer-
the Utah court and the Tenth Circuit to determine cial speech.”); 134 Cong.Rec. 31,851 (Oct.
the res judicata effect on the Utah case of the 19, 1988) (statement of Rep. Kastenmeier)
Texas court’s decision. (commenting that the reach of § 43(a)
“specifically extends only to false and mis-
11
“Actual malice” is a term of art meaning that leading speech that is encompassed within
the speaker knew the statement was false when the ‘commercial speech’ doctrine developed
spoken or in fact entertained serious doubt about by the United States Supreme Court”). See
its truth. Peter Scalamandre & Sons, Inc. v. generally Gordon & Breach Science Pub-
Kaufman, 113 F.3d 556, 560 (5th Cir. 1997). lishers S.A., STBS v. Am. Inst. of Physics,
Actual malice must be proven by clear and con- 859 F. Supp. 1521, 1533-34 (1994) (dis-
vincing evidence. Id. (continued...)
8
ond, and alternatively, Amway argues that tics that the Supreme Court has said make
even if the speech is commercial, the actual- certain speech “commercial” and therefore
malice standard should apply, because the worthy of less protection. Third, we take the
Satanism rumor is an issue of public concern, facts of the case sub judice and apply the test
and P&G is a “limited-purpose public figure” set out in Bolger v. Youngs Drug Products
with respect to the rumor. Corp., 463 U.S. 60 (1983), for determining
whether a specific instance of speech is com-
Thus, to determine what P&G is required mercial. Our application of the Bolger test is
to prove to prevail on its § 43(a) claim that what ultimately determines whether the speech
Amway misrepresented its associations and is commercial.
commercial activities, we first must determine
whether the spreading of the false Satanism ru- 1.
mor is “commercial” speech. If we decide it P&G relies heavily on U.S. Healthcare, Inc.
is, we must decide whether the fact that the v. Blue Cross, 898 F.2d 914 (3d Cir. 1990), to
false speech was made about a “limited-pur- argue that the commercial speech line of cases
pose public figure” on an issue of public con- developed in the context of government regu-
cern brings the actual-malice standard into lation also should apply here in the context of
play. This effectively would trump the tradi- a private suit for false speech. In U.S. Health-
tional view that there is no First Amendment care, the two parties had waged an advertising
protection for false commercial speech. We battle contrasting the benefits of HMO health
review these questions of law de novo. United insurance plans with “traditional” and pre-
States v. Brackett, 113 F.3d 1396, 1398 (5th ferred provider organization (“PPO”) plans.
Cir. 1997). When U.S. Healthcare sued under the Lanham
Act, Blue Cross argued that the commercial
A. speech doctrine was inapplicable because the
We begin by examining what is meant by, Supreme Court “views damage claims
and what protections extend to, “commercial [brought by private citizens] and government
speech.” First, we consider whether the com- restrictions of speech as requiring distinctly
mercial speech line of cases, which mainly different analysis for First Amendment pur-
deals with government regulation of speech, poses.” Id. at 927.
should apply in this case of a private action for
false speech.14 Second, we examine the histor- As we do now, the court treated the issue
ical development of the commercial speech as one of first impression. It began by noting
exception to the full protections granted by the that under the First Amendment, the correct-
First Amendment. In making this examination, ness of ideas is judged not by courts, but in the
we pay particular attention to the characteris- marketplace of ideas.15 With regard to com
13 15
(...continued) The Third Circuit said:
cussing the legislative history of the
Lanham Act). Most speech is protected by the First
Amendment. Bose Corp. v. Consumers
14
This is a question of first impression in this Union of U.S., Inc., 466 U.S. 485, 503
circuit. (continued...)
9
mercial speech, however, the court “believe[d] “subordinate position in the scale of
the subordinate valuation of commercial First Amendment values.” Ohralik v.
speech is not confined to the government Ohio State Bar Assn., 436 U.S. 447,
regulation line of cases[,]” but instead should 456 . . . (1978). It also is more easily
extend to defamation and Lanham Act cases as verifiable and less likely to be deterred
well. Id. at 932. The court noted that the by proper regulation. Virginia Phar-
Supreme Court macy Bd. v. Virginia Citizens Consumer
Council, Inc., 425 U.S. 748, 771-772
on many occasions has recognized that . . . (1976). Accordingly, it may be
certain kinds of speech are less central regulated in ways that might be imper-
to the interests of the First Amendment missible in the realm of noncommercial
than others. . . . In the area of protected expression. Ohralik, . . . [436 U.S.] at
speech, the most prominent example of 456 . . .; Central Hudson Gas & Elec.
reduced protection for certain kinds of Corp. v. Public Serv. Comm’n of New
speech concerns commercial speech. York, 447 U.S. 557, 562-63 . . . (1980).
Such speech, we have noted, occupies a
U.S. Healthcare, 898 F.2d at 932 (quoting
Dun & Bradstreet, Inc. v. Greenmoss Build-
15
(...continued) ers, 472 U.S. 749, 758 n.5 (1985)) (some
(1984) (there are “few classes of ellipses and brackets added). Based on this
‘unprotected’ speech”). “Under the language, the U.S. Healthcare court concluded
First Amendment there is no such thing that the lesser protection commercial speech
as a false idea. However pernicious an
receives from direct government regulation
opinion may seem, we depend for its
also must apply to private actions for defama-
correction not on the conscience of
judges and juries but on the competi- tion and the like.
tion of other ideas.” Gertz [v. Robert
Welch, Inc.], 418 U.S. [323,] 339-40 We agree. If commercial speech receives
[(1974)] (footnote omitted), quoted in less protection from government regulation,
Jenkins v. KYW, 829 F.2d 403, 408 then it also should receive less protection from
(3d Cir. 1987). Even false statements private suits, which are not much more likely
of fact are insulated from liability in than are government regulation to infringe on
some situations. Hepps, 475 U.S. those values the First Amendment seeks to
[767,] 778 [(1986]; Gertz, 418 U.S. at protect. Furthermore, private suits can be a
340-41. As Judge Learned Hand put form of government regulation.
it, the First Amendment “‘presupposes
that right conclusions are more likely 2.
to be gathered out of a multitude of
Having determined that the commercial
tongues, than through any kind of au-
thoritative selection.’” New York Times
speech line of cases should apply here, we ex-
Co. v. Sullivan, 376 U.S. 254, 270 amine it and the characteristics of commercial
(quoting United States v. Associated speech it reveals. We also review the instant
Press, 52 F. Supp. 362, 372 (S.D.N.Y. facts to determine whether they meet the char-
1943), aff'd, 326, U.S. 1 (1945)). acteristics that the Supreme Court has said de-
fine commercial speech.
U.S. Healthcare, 898 F.2d at 928.
10
Commercial speech has been defined, at its restrictions on speech, a lower standard of
core, as speech that merely proposes a com- scrutiny is appropriate for commercial speech.
mercial transaction. Va. State Bd., 425 U.S. at The Court noted that false or misleading
762. Because such speech traditionally has commercial speech should receive no pro-
been thought less valuable than political tection,18 because commercial speech merely
speech, which is at the core of the First gives information to consumers about a pro-
Amendment, commercial speech is not ac- ducer’s goods, and any false information either
corded the full protections given to political has no value or is harmful.
speech, speech on matters of public concern,
and speech regarding public figures.16 In fact, The Court since has held that speech is
for a time it was thought that commercial commercial when it is an “expression related
speech might not be worthy of any First solely to the economic interests of the speaker
Amendment protection.17 and its audience.” Central Hudson, 447 U.S.
at 561 (citing Va. State Bd., 425 U.S. at 762
In Virginia State Board, the Court finally (other citations omitted)). Additionally, in de-
decided that commercial speech should receive fining something as commercial speech, the
some protection, holding that a state may not Court says we are to rely on “the ‘common-
prohibit pharmacists from truthfully advertis- sense’ distinction between speech proposing a
ing the prices at which they sell drugs. The commercial transaction, which occurs in an
Court suggested, however, that instead of the area traditionally subject to government regu-
strict scrutiny with which courts review most lation, and other varieties of speech.” Ohralik
v. Ohio State Bar Ass’n, 436 U.S. 447, 455-56
(1978).
16
In Central Hudson Gas & Elec. Corp. v.
Further, although Amway argues that the
Public Serv. Comm’n, 447 U.S. 557, 564 n.6
(1980), the Court explained why commercial Satanism rumor is a matter of public concern,
speech may be more heavily regulated: which should make the speech noncommercial,
the Court “ha[s] made clear that advertising
Two features of commercial speech permit which ‘links a product to a current public
regulation of its content. First, commercial debate’ is not thereby entitled to the constitu-
speakers have extensive knowledge of both tional protection afforded noncommercial
the market and their products. Thus, they speech.” Bolger, 463 U.S. at 68 (quoting
are well situated to evaluate the accuracy of Central Hudson, 447 U.S. at 563, n.5). Thus,
their messages and the lawfulness of the in Bolger the Court held that informational
underlying activity. In addition, commercial pamphlets mailed by a condom manufacturer
speech, the offspring of economic self-inter-
est, is a hardy breed of expression that is not
particularly susceptible to being crushed by
18
overbroad regulation. Va. State Bd., 425 U.S. at 771-72 n.24
(“[T]here can be no constitutional objection to the
17
See Valentine v. Christensen, 316 U.S. 52 suppression of commercial messages that do not
(1942); Breard v. Alexandria, 341 U.S. 622 accurately inform the public about lawful activity.
(1951); Murdock v. Pennsylvania, 319 U.S. 105, The government may ban forms of communication
111 (1943); Jamison v. Texas, 318 U.S. 413, 417 more likely to deceive the public than to inform it .
(1943). . . .”).
11
directly to the public constituted commercial more durable than other speech because the
speech, even though the pamphlets spoke speaker has an economic motivation and is less
about matters of public concern.19 likely to be chilled in its speech.21 Third,
“commercial speakers have extensive knowl-
A recent examination of Supreme Court edge of both their market and their own prod-
precedent explaining why commercial speech ucts. Consequently, they are uniquely situated
receives less protection was made in U.S. to evaluate the truthfulness of their speech.”22
Healthcare, in which the court identified four Fourth, “[t]o require a parity of constitutional
characteristics of commercial speech that have protection for commercial and noncommercial
been set out by the Supreme Court over the speech alike could invite dilution, simply by a
years. First, commercial speech makes a qual- leveling process, of the force of the [First]
itatively different contribution to the exposi- Amendment’s guarantee with respect to the
tion of ideas.20 Second, commercial speech is latter kind of speech.”23
If we examine the facts of this case in light
of these four characteristics, we see that the
19
Youngs Drug Products Company sent out speech at issue here has some but not all of the
two informational pamphlets. The first was called characteristics typically found in commercial
“Condoms and Human Sexuality,” which specifi- speech. The first characteristicSSthat commer-
cally referred to the advantages of a certain brand cial speech makes a qualitatively different
of condoms. The second informational pamphlet contribution to the exposition of ideasSSdoes
was called “Plain Talk about Venereal Disease.” not shed much light on whether the speech in
It discussed venereal disease and condoms without this case is commercial.
ever referencing any specific condoms. The only
reference to Youngs Drug’s products was at the
bottom of the last page, where Youngs Drug
identified itself as the manufacturer of the Trojan- 20
(...continued)
brand condoms. The Court noted that Youngs ence”)).
Drug described itself as “the leader in the manufac-
ture and sale of contraceptives.” The Court opined 21
Id. at 934 (quoting Va. State Bd., 425 U.S. at
that simply because “a product is referred to 772 n.24 (explaining that this quality “may make
generically does not, however, remove it from the it less necessary to tolerate inaccurate statements
realm of commercial speech. For example, a for fear of silencing the speaker.”)); see also Dun
company with sufficient control of the market for & Bradstreet, 472 U.S. at 748 n.5, 762 & n.8
a product may be able to promote the product with- (discussing durability “to show how many of the
out reference to its own brand names.” Bolger, same concerns that argue in favor of reduced con-
463 U.S. at 67 n.13. Even though the Court stitutional protection” in commercial speech ac-
concluded that the speech in Bolger was commer- tions also apply to defamation actions concerning
cial, it nevertheless held that the federal statute was private speech).
an unconstitutional restriction on the distribution of
22
truthful information. Id. at 74. Id. (citing Central Hudson, 447 U.S. at 564
n. 6; Bates v. State Bar, 433 U.S. 350, 381 (1977);
20
U.S. Healthcare, 898 F.2d at 933-34 (citing Va. State Bd., 425 U.S. at 772 n.24; Dun & Brad-
Central Hudson, 447 U.S. at 561 (defining com- street, 472 U.S. at 758 n.5, 762 & n.8).
mercial speech as “expression related solely to the
23
economic interests of the speaker and its audi- Id. (quoting Ohralik, 436 U.S. at 456).
12
It might be that spreading the Satanism ru- have extensive knowledge of their market and
mor does not contribute to the exposition of productsSSapplies imperfectly to these facts.
ideas. Despite the falsity of the rumor, how- Amway has extensive knowledge of its market
ever, it touched on the type of issues that are and products and is in a good position to know
at the heart of First Amendment protections, the acts of its competitors. In this case, how-
namely: religious issues and issues of how ever, the rumor discusses P&G’s use of its
corporations act and influence society. Fur- profits and its charitable givingSStopics about
ther, it is uncertain whether the speech was which Amway is likely to know less because
related solely to the economic interests of the they do not relate directly to P&G’s products
speaker or whether, instead, Haugen and other or sales methods. Nevertheless, if Haugen had
distributors were sincerely, albeit mistakenly, checked with Amway, he could have verified
discussing the rumor. that the rumor was false, because Amway had
been aware of its falsity since the 1980’s.
The second characteristicSSthat the speak-
er’s economic motivation makes the speech The fourth characteristicSSa parity of con-
more durableSSfavors classifying Amway’s stitutional protection for commercial speech
speech as commercial. If the Satanism rumor would invite dilution of the First Amend-
were true, it is doubtful that the requirement to mentSSis, as the Third Circuit noted, an extrin-
verify it before repeating it would stop distrib- sic reason that cannot be applied to the facts of
utors from spreading the rumor about one of any one case. We accordingly do not discuss
their competitors. We have some reservation it.
about stating this too strongly, however, for
we can imagine cases in which employees of In U.S. Healthcare, 898 F.2d at 935, the
one company might legitimately but mistakenly court determined that the speech had all the
repeat and discuss news about the political, characteristics of commercial speech. The
religious, o r other beliefs of employees of a court concluded that
competitor. It would violate First Amendment
principles to quell all speech on these issues [b]ecause the thrust of all of the adver-
among members of a competing company until tisements is to convince the consuming
the news was fully and exhaustively verified.24 public to bring its business to one of
these health care giants rather than the
The third characteristicSSthat competitors other, there is no doubt that the adver-
tisements were motivated by economic
self interest. . . . [W]e believe it would
24
have to be a cold day before these cor-
A current example may help illustrate this porations would be chilled from speak-
point. It was recently reported that some movie
ing about the comparative merits of their
studios have conducted advertising campaigns and
focus groups on children under the age of seventeen
products.
to make some of their R-rated movies more attrac-
tive to them. Discussion of this issue may be of Id. The court added that
true concern to members of competing movie
studios. Holding the accuracy of such discussion these are advertisements for products
to a strict-liability standard likely would violate and services in markets in which U.S.
First Amendment values.
13
Healthcare and Blue Cross/Blue 3.
Shield dealSSand, presumably, We now apply the test the Court has set out
know more about than anyone else. to determine whether a specific instance of
The facts upon which the advertise- speech is commercial. In Bolger, the Court
ments are basedSScomparative recognized three factors that help determine
price, procedures, and services whether speech is commercial: (i) whether the
offeredSSare readily objectifiable. communication is an advertisement, (ii) wheth-
These advertisements were pre- er the communication refers to a specific
cisely calculated, developed over product or service, and (iii) whether the speak-
time and published only when the er has an economic motivation for the speech.
corporate speakers were ready. If all three factors are present, there is “strong
Consequently, the advertisements support” for the conclusion that the speech is
were unusually verifiable. commercial. Bolger, 463 U.S. at 67.
Id. Here we consider the Bolger factors in re-
verse order25 and conclude that the thirdSSthe
Unlike the situation in U.S. Healthcare, the motivation of the speakerSSis determinative.
testimony here is that at least some of the This factor has not yet been decided by the
speech at issue was made impulsively, without trier of fact, so we remand for that to be done.
time to verify the facts. The U.S. Healthcare
court stated that “[i]t is important to note that The second factor is easily satisfiedSSthe
we do not have a situation in which a cor- message did refer to specific products of
poration addresses an issue of public concern P&G’s. The first factorSSwhether the speech
involving a competitor, but does so with is an advertisementSSseems to collapse into
speech that is neither commercial nor chill re- the third factor in this case. Certainly the
sistant.” Id. In the instant case, the primary repetition of the rumor via AmVox was not an
question is whether Amway’s distributors ad- advertisement in the classic sense, but whether
dressed an issue of public concern involving a it could be considered as a negative advertise-
competitor with speech that was neither com- ment against P&G seems to depend on the de-
mercial nor chill-resistant. termination of the third factorSSwhether the
speaker had an economic motivation for the
Our analysis of the general characteristics speech. If Haugen or others who repeated this
of commercial speech and the reasons behind
its less protected status demonstrates that the 25
speech here does not sort cleanly into either The Bolger test easily disposes of any ques-
category: commercial or noncommercial. Al- tion as to whether the fliers that were printed by
Amway distributors and given to customers or po-
though Supreme Court precedent and the
tential customers were commercial speechSSthey
Third Circuit’s thoughtful analysis of what is plainly were. These fliers, associating P&G with
commercial speech are helpful, we still are left Satanism and suggesting Amway products as
with a difficult issue. alternatives to P&G products, (i) were advertise-
mentsSSi.e., they proposed a commercial transac-
tion, (ii) they referred to specific products, and
(iii) the distributors plainly had an economic mo-
tive in distributing them.
14
rumor did have economic motivations, then The question whether an economic motive
the message resembles an advertisement seek- existed is more than a question whether there
ing to encourage downline distributors to es- was an economic incentive for the speaker to
chew P&G and buy Amway. If the motivation make the speech;27 the Bolger test also re-
was not economic, then this looks more like a quires that the speaker acted substantially out
case of individuals’ repeating false speech on of economic motivation. Thus, for example,
a matter of public concern. speech that is principally based on religious or
political convictions, but which may also ben-
This question of the speaker’s motivation efit the speaker economically, would fall short
will also help to clear up the difficulty in deter- of the requirement that the speech was eco-
mining whether the characteristics of com- nomically motivated.28 We stress that we are
mercial speech summarized in U.S. Healthcare
were present here. If the speakers were eco-
nomically motivated, then issues of the quality 26
(...continued)
of the speech, its durability, and the knowledge cial speech, and a suit may be successful against
the speakers had of the relevant market and the speaker regardless of his knowledge of falsity.
products become both more relevant and
27
easier to determine. Professor Farber has pointed out that the
mere existence of some economic motivation can-
Thus, on remand, if the trier of fact finds not be enough to drop speech to the lower protected
that the motivation behind the Amway dis- status of commercial speech: “Economic motiva-
tributors’ repetition of the rumor to other dis- tion could not be made a disqualifying factor [from
tributors was not economic, the speech is not maximum protection] without enormous damage to
the first amendment. Little purpose would be
commercial, and there can be no Lanham Act
served by a first amendment which failed to protect
claim. On the other hand, if an economic mo-
newspapers, paid public speakers, political candi-
tivation is found, the speech is commercial, dates with partially economic motives and profes-
and a violation of the Lanham Act may be sional authors.” Farber, Commercial Speech and
found.26 First Amendment Theory, 74 NW. U. L. REV. 372,
382-383 (1979) (footnotes omitted).
26 28
We are not simply repackaging the “actual We offer a specific example: A woman who
malice” requirement as a requirement of economic owns a small religious book and music store tells
motivation. A finding of actual malice turns on the customers that most rock and roll music is influ-
finding of false speech knowingly made, or of false enced by the devil and that the only kind of rock
speech made with a reckless disregard for the truth. music they should buy is “Christian rock,” which
The requirement of finding an economic motivation is, of course, the only kind she sells. The determi-
to label something commercial speech does not nation of whether a Lanham Act suit could be
require a finding that the speech was false or that brought will turn on her motivation.
the speaker knew the speech was false before
making it, but only a motive to profit by the Evidence that she started the bookstore because
speech. Once that motive is found, and if the other of strongly-held religious beliefs that Christian
Bolger elements are present to provide strong books and music need to be made available to
support that the speech is commercial, the speech combat the evils of rock and roll and pulp fiction
is dropped to the less-protected status of commer- would be compelling evidence of a primarily reli-
(continued...) (continued...)
15
not shortening the Bolger test to a single fac- Amway products to the public, but also by re-
torSSwhether the speaker’s motive was eco- cruiting other distributors into the organiza-
nomicSSbut rather, we conclude that the other tion, who become “downline” distributors, and
two Bolger factors are not conclusive, and upon whose sales the “upline” distributors then
therefore the motive factor is determinative. get commissions.
This does not mean that whenever the pri- This system gives the distributors a motiva-
mary motivation for speech is economic, the tion not just to sell Amway products, but also
speech is commercial.29 As the Court said in to recruit distributors and to encourage their
Bolger, finding all three factors merely pro- sales. Thus, when Haugen and other Amway
vides “strong support” for the proposition that distributors spread the Satanism rumor via
the speech is commercial. The difference be- AmVox to their downline distributors, they
tween commercial speech and noncommercial were not simply repeating a rumor to co-
speech is, after all, “a matter of degree.” City workers or fellow independent distributors;
of Cincinnati v. Discovery Network, Inc., 507 they were repeating a rumor to persons analo-
U.S. 410, 423 (1993). We can well imagine gous to employees,31 in whose motivation and
cases in which a speaker’s primary motivation sales they have a direct interest. These facts,
is economic, but the speech nonetheless is pro- and all other relevant evidence, of course, may
tected.30 be used by the finder of fact in determining
whether, as a matter of fact, those who circu-
Also, in determining whether there was an lated the Satanism rumor via AmVox acted
economic motivation to the repetition of the out of economic motivation.
rumor, the finder of fact is free to take into
account, among other things, Amway’s unique B.
structure. Pertinent is the fact that Amway Notwithstanding Supreme Court precedent
distributors make money not simply by selling holding that false commercial speech receives
no First Amendment protection, Amway ar-
gues that we should require a finding of actual
28
(...continued) malice whenever speech is made about a public
gious, rather than economic, motivation for her figure on an issue of public concern. In mak-
speech. On the other hand, evidence showing that ing this argument, Amway looks to the line of
she is agnostic and opened the bookstore only after defamation cases setting out and developing
a case study in her MBA program showed that the actual-malice standard.
Christian bookstores can be extremely profitable
when set up in the right locations would be strong That standard was developed in New York
evidence that her speech was economically moti- Times v. Sullivan, 376 U.S. 254 (1964).
vated and thus commercial.
29
As the Court said in Gertz v. Robert Welch,
31
Inc., 418 U.S. 323, 344 (1974), “it is often true We use the phrase “analogous to employees”
that not all of the considerations which justify purposely. We are merely making an analogy and
adoption of a given rule will obtain in each particu- are not ruling on whether Amway distributors are
lar case decided under its authority.” employees or independent contractors. We have
not been asked to decide this question, nor do we
30
Labor cases come to mind as an example. have sufficient evidence to do so.
16
There, a group of black clergymen ran an ad- Id. at 279-80.32
vertisement in the Times in the form of an ed- Three years later, the Court extended the
itorial; they spoke of the civil rights demon- protection of the actual malice standard from
strations by black students then occurring in public officials to public figures in the compan-
the South and of the intimidation and violence ion cases of Curtis Publishing Co. v. Butts and
practiced against the protestors and against Associated Press v. Walker, 388 U.S. 130
Dr. Martin Luther King, Jr. The advertisement (1967). In Gertz v. Welch, 418 U.S. 323, 342
complained of the police responses to the (1974), the Court explained why the actual-
demonstrators and asked for financial dona- malice standard is appropriate in defamation
tions in support of the student movement, the cases involving public officials or public fig-
struggle for the right to vote, and the legal ures as plaintiffs. The Court gave the reasons
defense of Dr. King. L.B. Sullivan, the Mont- for the lower level of protection for these
gomery commissioner in charge of police, sued plaintiffs:
the clergymen and the Times for civil libel,
arguing that the actions ascribed to the “po- Public officials and public figures usually
lice” were necessarily imputed to his lead- enjoy significantly greater access to the
ership and that some of the accusations were channels of effective communication and
false. Sullivan further argued that the Times hence have a more realistic opportunity
could have discovered that the allegations
were false by checking its files of previously
published articles. 32
See also New York Times, 376 U.S. 271-72
(stating that “erroneous statement is inevitable in
The Court agreed that references to the po-
free debate, and . . . it must be protected if the
lice could be imputed to Sullivan and that freedoms of expression are to have the ‘breathing
some of them were false. Nevertheless, the space’ that they ‘need . . . to survive’”) (quoting
Court held that proof of more than factual in- N.A.A.C.P. v. Button, 371 U.S. 415, 433 (1963)).
accuracies was required to prevent speech pro- The inevitability of erroneous statements being
tected by the First Amendment from being made in free debate is not a new concept:
“chilled.” The Court held:
[T]o argue sophistically, to suppress facts
The constitutional guarantees require, or arguments, to misstate the elements of the
we think, a federal rule that prohibits a case, or misrepresent the opposite opinion .
public official from recovering damages . . all this, even to the most aggravated
for a defamatory falsehood relating to degree, is so continually done in perfect
his official conduct unless he proves that good faith, by persons who are not consid-
the statement was made with ‘actual ered, and in many other respects may not de-
serve to be considered, ignorant or incompe-
malice’SSthat is, with knowledge that it
tent, that it is rarely possible, on adequate
was false or with reckless disregard of grounds, conscientiously to stamp the mis-
whether it was false or not. representation as morally culpable; and still
less could law presume to interfere with this
kind of controversial misconduct.
J. Mill, ON LIBERTY, 47 (Oxford: Blackwell
1947).
17
to counteract false statements than did not dispute this ruling, it is now bound
private individuals normally enjoy. thereby for purposes of this appeal. Although
Private individuals are therefore in its reply brief, P&G states that it “does not
more vulnerable to injury, and the concede that it is a ‘public figure’ for purposes
state interest in protecting them is of defendants’ misrepresentations,” an “appel-
correspondingly greater. lant abandons all issues not raised and argued
in its initial brief on appeal.” Cinel v. Connick,
Id. at 344 (footnote omitted). 15 F.3d 1338, 1345 (5th Cir. 1994) (declining
to address argument discussed only in appel-
A plaintiff becomes a general purpose pub- lant’s reply brief). Thus, we assume for pur-
lic figure by attaining pervasive power and in- poses of this appeal, without deciding the issue
fluence in society. Id. at 345. Alternatively, as a matter of law, that P&G is a limited-
he may become a limited-purpose public figure purpose public figure with regard to the Satan-
with regard to that controversy by thrusting ism rumor.
himself into a particular public controversy “to
influence the resolution of the issues in- Amway makes two arguments in support of
volved.” Id. “Hypothetically, it may be pos- its theory that P&G must prove actual malice.
sible for someone to become a public figure First, Amway turns to the well-reasoned opin-
through no purposeful action of his own, but ion in National Life Insurance Co. v. Phillips
the instances of truly involuntary public figures Publishing, Inc., 793 F. Supp. 627, 647 (D.
must be exceedingly rare.” Id. Md. 1992), in which the court noted that there
is a tension in the law regarding the treatment
We are powerless to decide whether this is of false speech: “While defamation tolerates
one of those “exceedingly rare” cases in which some false statements, in order to give the
plaintiff P&G involuntarily has become a pub- First Amendment the ‘breathing space’ it re-
lic figure, because t hat issue has not been quires; commercial speech does not forgive
properly raised on appeal. In its opening brief, false speech so easily.” Id. The court opined
P&G noted that the district court found it to that this tension should be considered rather
be a “limited-purpose public figure” for the than ignored when dealing with cases of false
purpose of analyzing whether it must prove commercial speech about public figures.33
actual malice in its § 43(a) claim; that court
decided that the rumor is an issue of public The National Life court reasoned that
concern and has been associated with P&G denying constitutional protection to all false
long enough to render P&G a limited-purpose
public figure for purposes of discussion of the
rumor. P&G did not assign error to this ruling 33
The court cites two examples of the tension in
in its initial brief but, instead, asserted that the
Supreme Court caselaw. It compares Gertz, 418
repetition of the Satanism rumor constituted U.S. at 340 (holding that application of the malice
commercial speech to which the New York standard to public figure plaintiffs is predicated on
Times actual malice standard does not apply. the recognition that error is “inevitable in free
debate”), with Central Hudson, 447 U.S. at 564
(stating that “there can be no constitutional objec-
Amway correctly notes that because P&G tion to the suppression of commercial messages
that do not accurately inform. . . .”).
18
commercial speech ignores the rationale of commercial speech as though they do not
Gertz: that the need to protect one from false overlap. Amway contends that such treatment
or misleading speech varies, depending on ignores that political speech can arise from
whether he is a private or public figure. The commercial motives or may address areas of
court pointed out that “[e]ven U.S. Healthcare great public concern.35
recognized that a state has only a ‘limited’ in-
terest in compensating public persons for in- Although Amway raises legitimate points
jury to reputation by defamatory statements, about the overlap between commercial and
but has a ‘strong and legitimate interest’ in noncommercial speech, between economic and
compensating private persons for the same non-economic motivation for speech, and
injury.” National Life, 793 F. Supp. at 648 about the variable interest a state has in pro-
(quoting U.S. Healthcare, 898 F.2d at 930).34 tecting a plaintiff’s reputation depending on
Thus, the court concluded that a state’s inter- the plaintiff’s status as a public or private fig-
ests in regulating false commercial speech and ure, Supreme Court precedent prevents us
in providing some protection to public figures’ from importing the actual-malice standard into
reputations must be balanced against the free cases involving false commercial speech.
speech interest individuals have in being able
to comment freely on public issues and public To begin with, the Court has rejected at-
figures. The court held that the way to tempts to blur the line between commercial
achieve this balance, in cases of commercial speech and other types of expression. In Cen-
speech about a public figure, is to require that tral Hudson, the majority rejected the rationale
the plaintiff prove actual malice. set forth in a concurrence that “[a]pparent-
ly . . . would accord full First Amendment
Amway’s second argument is that the use protection to all promotional advertising that
of the actual-malice standard in commercial includes claims ‘relating to . . . questions
speech cases involving public figures avoids frequently discussed and debated by our po-
unrealistically treating commercial and non- litical leaders.’” Id. at 563 n.5 (quoting id. at
581 (Stevens, J., concurring). In rejecting this
approach, the majority reasoned that “we think
34
In U.S. Healthcare, the court addressed the it would blur further the line the Court has
same argument that Amway makes hereSSthat the sought to draw in commercial speech cases.”
actual malice standard should apply to protect even Id.36
false commercial speech if it is made about a
limited-purpose public figure. The court did not
consider the argument directly, because it con- 35
Cf. Bolger (holding that First Amendment
cluded that the corporations that were the parties in protects contraceptive manufacturer’s unsolicited
that case were not public figures. Nevertheless, it mailing of informational and advertising pamphlets
stated that “the [commercial] speech at issue does to households, because contraception informa-
not receive heightened protection under the First tionSSeven if distributed for commercial pur-
Amendment. Because this speech is chill-resistant, poseSSis a matter of public concern).
the New York Times standard is not . . . ‘necessary
36
to give adequate “breathing space” to the freedoms The Court noted that corporations
protected by the First Amendment.’” U.S. Health-
care, 898 F.2d at 939 (quoting Hustler Magazine, enjoy the full panoply of First Amendment
Inc. v. Falwell, 485 U.S. 46, 56 (1988)). (continued...)
19
Further, the Court has consistently said that speech was protected because some of the
speech protected in one context is not pro- advertisements contained statements regarding
tected when the purpose of the speech is com- the legal rights of persons injured by a contra-
mercial. In Bolger, the Court held that “ad- ceptive device. The Court held that these
vertising which ‘links a product to a current statements “in another context, would be fully
public debate’ is not thereby entitled to the protected speech,” but “[t]hat this is so does
constitutional protection afforded noncommer- not alter the status of the advertisements as
cial speech.” 463 U.S. at 68 (quoting Central commercial speech.” Id. at 637 n.7.
Hudson, 447 U.S. at 563 n.5). “Advertisers
should not be permitted to immunize false or Central Hudson, Bolger, and Zauderer,
misleading product information from govern- combined with the Court’s plain statements
ment regulation simply by including references that false commercial speech receives no pro-
to public issues.” Id. tection,37 foreclose us from importing the ac-
tual-malice standard from defamation into the
Somewhat more recently, in Zauderer v. law of false commercial speech. Thus, if the
Office of Disciplinary Counsel of Supreme trier of fact determines that the Amway dis-
Court, 471 U.S. 626 (1985), the Court af- tributors’ motives in spreading the Satanism
firmed its Central Hudson and Bolger hold- rumor were economic and that the speech
ings. Zauderer was a lawyer who had been therefore was commercial, this false commer-
sanctioned by the disciplinary committee of his cial speech cannot qualify for the heightened
state supreme court for using deceptive news- protection of the First Amendment, so P&G is
paper advertisements. He claimed that his not required to show actual malice in proving
its Lanham Act claim.
36
(...continued) The Tenth Circuit concluded similarly in
protections for their direct comments this case, holding that the AmVox message
on public issues. There is no reason was economically motivated and rejecting Am-
for providing similar constitutional way’s argument that such commercial speech
protection when such statements are should receive higher protection because it
made only in the context of commercial regarded a matter of public concern. P&G v.
transactions. In that context, for ex- Haugen, 222 F.3d at 1275.
ample, the State retains the power to
“insur[e] that the stream of commercial In the present case, we are likewise
information flow[s] cleanly as well as dealing with a message containing both
freely.” . . . As we stated in Ohralik, a noncommercial, “theological” compo-
the failure to distinguish between com- nent and a commercial component. As
mercial and noncommercial speech
Bolger and Fox indicate, however, the
“could invite dilution, simply by a
leveling process, of the force of the
[First] Amendment’s guarantee with
37
respect to the latter kind of speech.” E.g., Ibanez v. Fla. Dep’t of Bus. & Prof’l
Regulation, 512 U.S. 136, 142 (1994); Shapero v.
Id. (quoting Va. State Bd., 425 U.S. at 772, and Ky. Bar Ass’n, 486 U.S. 466, 472 (1988); Fried-
Ohralik v. Ohio State Bar Ass’n, 436 U.S. 447, man v. Rogers, 440 U.S. 1, 14-15 (1979); Va.
456 (1978)). State Bd., 425 U.S. at 771-72 & n.24.
20
bare fact that the subject message We recognize that alternative methods of
contains a “theological” component reconciling the law of commercial speech with
is insufficient to transform it into that of defamation have been suggested. Pro-
noncommercial speech. If appellees fessor Langvardt has suggested one tempting
had argued that a significant theo- alternative. He posits that courts should adopt
logical, political, or other noncom- a negligence standard for private actions for
mercial purpose underlay the sub- false commercial speech.38 After thoughtfully
ject message, the message might be considering this solution, we feel compelled to
accorded the substantially greater reject it. While Professor Langvardt’s pro-
First Amendment protections en- posal is compelling in a number of respects,
joyed by “core” religious speech our approach more closely adheres to the case-
and the other varieties of noncom- law and principles set out by the Supreme
mercial First Amendment speech Court in the areas of commercial speech and
such as political speech. See, e.g., First Amendment law.
Pleasant v. Lovell, 876 F.2d 787,
795 (10th Cir. 1989) (holding “that Langvardt agrees with our analysis that the
the presence of some commercial full protection from chill that the actual malice
activity does not change the stan- standard gives to core First Amendment
dard of first amendment review” speech is inappropriate in the context of less-
where the organization engaged in protected commercial speech. He argues that,
such activity had a clear political instead, a standard should be used that gives
purpose (citing In re Grand Jury commercial speech an intermediate level of
Proceeding, 842 F.2d 1229, 1235 protection from chill. In his view, “negligence
(11th Cir. 1988))). Significantly, effectively provides an intermediate standard
appellees in the instant case have that falls between the polar extremes of actual
made no such claim. At no time malice and strict liability.” Langvardt, 78
have they argued there is any theo- MINN. L. REV. at 393. Under such a regime,
logical purpose underlying the sub- plaintiffs would be required to prove “that the
ject message or its dissemination defendant failed to use the degree of care a
via their AmVox system. reasonable person would have exercised, under
the circumstances, to ascertain the truth or
Id. falsity of the statement before making it.” Id.
at 393. To Langvardt, the use of a negligence
Amway has argued here, as it apparently standard recognizes that commercial speech is
did not in the Tenth Circuit, that there was a more durable than noncommercial speech, but
theological concern underlying the speech. it still prevents the former from being overly
We thus are foreclosed from merely calling the chilled by the possibility of private suits for
speech commercial. Regardless, both the
Tenth Circuit and this court are using the same
test to determine commercial speech, and both
reject Amway’s argument that the actual-
malice standard should apply. 38
Arlen W. Langvardt, Commercial Falsehood
and the First Amendment: A Proposed Frame-
work, 78 MINN. L. REV. 309 (1993).
21
strict liability under the Lanham Act.39 damage awards . . . may be markedly more in-
hibiting than the fear of prosecution under a
Langvardt would avoid Supreme Court pre- criminal statute,” the Court has never limited
cedent stating that false commercial speech re- its holding that false commercial speech re-
ceives no protection under t he First Amend- ceives no First Amendment protection. It is
ment by restricting this holding to the direct- doubtful that the prospect of a private action is
government-regulation line of cases from a significantly greater deterrent to a commer-
which it sprang. He points out that the Court cial speaker than is the prospect of the civil
has not heldSSand he believes would not and criminal penalties available to government
holdSSthat false commercial speech receives regulators. Further, a commercial speaker
no First Amendment protection from private may be chilled in his speech by the prospect of
suits.40 According to Langvardt, the reason having to pay the costs of a suit to have an
the Court would not do so is that private suits overly broad regulation narrowed by a court.
have a greater potential to chill commercial
speech than do direct government regulations. Additionally, Langvardt’s proposal, if
He claims that private suits are not as narrowly adopted, would result in differing amounts of
tailored and allow large damage awards, both protection for false commercial speech de-
of which create greater potential for chill. pending on whether the speaker discusses his
own goods or those of another. Langvardt ac-
Although support for this theory may be knowledges that false advertising claims by a
found in New York Times, 376 U.S. at 279-80, defendant about its own products traditionally
in which the Court said that “[t]he fear of have been subjected to strict liability under
§ 43(a), and he does not argue that this exces-
sively chills commercial speech. He maintains
39
Langvardt’s theory also would vary the stan- that strict liability should continue to apply to
dard by which a party must prove negligence, a defendant’s claims about its own products
based on whether the speech is a matter of public but that a negligence standard should be ap-
or private concern. Allegations regarding the for- plied to false statements about a competitor’s
mer should be proven by clear and convincing evi- products.
dence, and the latter should be proven by a mere
preponderance of the evidence. Id. at 393-95. It seems, however, that this double standard
would further confuse commercial speech law.
40
Langvardt points out that before its 1989 The argument is not strong enough to justify
revision, no suit could be brought under the Lan- differing standards of liability,41 especially in
ham Act for false advertising about a competitor.
light of the admonition that we not “blur
The Act was amended effective November 16,
further the line the Court has sought to draw
1989, by the Trademark Law Revision Act of
1988, 15 U.S.C. §§ 1051-1128 (1988). The pre-
in commercial speech cases.” Central Hud-
1989 Act allowed only suits against companies for
a company’s false advertising about its own prod-
ucts. The post-1989 Lanham ActSSwith its strict 41
Moreover, such a double standard could be
liability standard for false commercial subverted. Instead of saying that its product is the
speechSSthus has a substantially greater potential best, a company could state that all other products
to chill truthful commercial speech, according to are inferior and by doing so move from a strict li-
Langvardt. ability regime to one of negligence.
22
son, 447 U.S. at 563 n.5. Texas and Michigan law require that to prevail
on an alter ego theory or otherwise to pierce
V. the corporate veil, one must prove that failing
The district court was correct in dismissing to do so would promote injustice. See Man-
P&G’s alter ego, single business enterprise, corp, Inc. v. Culpepper, 836 S.W.2d 844, 846
and vicarious liability arguments against Ja-Ri (Tex. App.SSHouston 1992, no writ); Wells v.
and ADAC, because P&G provided neither Firestone, 364 N.W.2d 650 (Mich. 1984);
sufficient evidence nor sufficient argument to Foodland Distributors v. Al-Naimi, 559
support its position. P&G assigns error to N.W.2d 379 (Mich. App. 1996). P&G does
these dismissals based on three grounds. First, not even claim to have offered such proof.
it argues that it was unfairly surprised when Thus, its argument that the court overlooked
the court applied Michigan rather than Texas evidence sufficient to find against Ja-Ri and
law to these claims. Second, it contends that ADAC fails.
the court overlooked sufficient evidence to
hold Ja-Ri and ADAC liable under the single- Third, rule 50 neither prohibits a court from
business-enterprise theory and vicariously suggesting that a party move for j.m.l. nor
liable for Lanham Act violations of downline forbids a court from granting j.m.l. sua sponte.
distributors. Third, it avers that the court The rule merely states that if there is no suffi-
erred in sua sponte entering j.m.l. in favor of cient evidentiary basis for the issue to go to
Ja-Ri, which P&G claims is a reversible viola- the jury, “the court may determine the issue
tion of FED. R. CIV. P. 50(a)(2). We review a against that party and may grant a motion for
j.m.l. de novo. King v. Ames, 179 F.3d 370, [j.m.l.] against that party . . .” (emphasis
373 (5th Cir. 1999).42 added).
None of P&G’s arguments is adequately Finally, P&G advances not a single theory
supported in its brief. First, P&G could not as to why Ja-Ri and ADAC should be held li-
have been unfairly surprised that Michigan law able under alter ego, single business enterprise,
might be applied to ADAC’s motion for j.m.l. or vicarious liability law. Instead, P&G merely
ADAC moved for j.m.l. based on Michigan asserts that they should be. “A party who in-
law on May 7, 1999SSsix days before P&G adequately briefs an issue is considered to have
rested its caseSSand, on May 10, P&G filed a abandoned the claim.” Cinel v. Connick, 15
memorandum in opposition to ADAC’s mem- F.3d 1338, 1345 (5th Cir. 1994) (citation
orandum on choice of law. omitted).
Second, P&G does not describe how it was VI.
prejudiced by the application of Michigan law. A.
It does not provide examples of how the ele- The district court is correct that P&G does
ments of Michigan and Texas law differ. Both not have standing to bring a § 43(a) claim
based on Amway’s alleged misrepresentations
to its distributors about its allegedly illegal
42
See Boeing Co. v. Shipman, 411 F.2d 365, pyramid scheme. P&G asserted its claim
374-75 (5th Cir. 1969) (en banc), overruled on based on Amway’s alleged misrepresentations
other grounds, Gautreaux v. Scurlock Marine, to its distributors of the financial rewards of
Inc., 107 F.3d 331 (5th Cir. 1997) (en banc).
23
being an Amway distributor. The court grant- These judicially created limits concern
ed summary judgment based on its conclusion whether a plaintiff’s grievance arguably
that P&G lacks prudential standing to bring falls within the zone of interests pro-
this claim. tected by the statutory provision in-
voked in the suit, whether the complaint
We review summary judgment rulings de raises abstract questions or a generalized
novo. Prytania Park Hotel, Ltd. v. Gen. Star grievance more properly addressed by
Indem. Co., 179 F.3d 169, 173 (5th Cir. the legislative branch, and whether the
1999). Summary judgment is proper when, plaintiff is asserting his or her own legal
taking the evidence in the light most favorable rights and interests rather than the legal
to the non-moving party, there is no genuine rights and interests of third parties.
issue of material fact and the moving party is
entitled to a judgment as a matter of law. FED. ACORN, 178 F.3d at 363.
R. CIV. P. 56(c); Celotex Corp. v. Catrett, 477
U.S. 317 (1986). Although Congress cannot change constitu-
tional standing requirements, it “can modify or
Standing has constitutional and prudential even abrogate prudential standing require-
components. Bennett v. Spear, 520 U.S. 154 ments, thus extending standing to the full ex-
(1997). To meet the constitutional standing tent permitted by Article III.” Id. (citing Ben-
requirement, a plaintiff must show (1) an injury nett, 520 U.S. at 162) (other citation omitted).
in fact (2) that is fairly traceable to the actions We therefore look to the statute in question to
of the defendant and (3) that likely will be determine whether Congress expressed an in-
redressed by a favorable decision. Bennett, tent to negate the background of prudential
520 U.S. at 162; Lujan v. Defenders of Wild- standing doctrine.44
life, 504 U.S. 555, 560-61 (1992).
B.
Prudential standing requirements exist in The question whether, in § 43, Congress in-
addition to “the immutable requirements of tended to abrogate the background of pruden-
Article III,” ACORN v. Fowler, 178 F.3d 350, tial standing doctrine is one of first impression
362 (5th Cir. 1999), as an integral part of in this circuit. Congress did not expressly
“judicial self-government,” Lujan, 504 U.S. at negate the background of prudential standing
560. The goal of this self-governance is to de- in § 43(a), which states:
termine whether the plaintiff “is a proper party
to invoke judicial resolution of the dispute and
43
the exercise of the court’s remedial powers.” (...continued)
Bender v. Williamsport Area Sch. Dist., 475 individual rights would be vindicated and to limit
U.S. 534, 546 n.8 (1986).43 access to the federal courts to those litigants best
suited to assert a particular claim”) (quoting
Gladstone, Realtors v. Village of Bellwood, 441
U.S. 91, 99-100 (1979)).
43
See also Phillips Petroleum Co. v. Shutts,
44
472 U.S. 797, 804 (1985) (opining that federal See Bennett, 520 U.S. at 163 (“Congress leg-
courts adopt prudential limits on standing “to avoid islates against the background of our prudential
deciding questions of broad social import where no standing doctrine, which applies unless it is ex-
(continued...) pressly negated.”).
24
(1) Any person who, on or in connection commerce against unfair competition; to
with any goods or services, or any con- prevent fraud and deception in such
tainer for goods, uses in commerce any commerce by the use of reproductions,
word, term, name, symbol, or device, or copies, counterfeits, or colorable imita-
any combination thereof, or any false tions of registered marks, and to provide
designation of origin, false or misleading rights and remedies stipulated by treaties
description of fact, or false or mislead- and conventions respecting trademarks,
ing representation of fact, whichSS trade names, and unfair competition
entered into between the United States
(A) is likely to cause confusion, or to and foreign nations.
cause mistake or to deceive as to the af-
filiation, connection, or association of 15 U.S.C. § 1127 (1994).45 We agree with
such person with another person, or as Conte Bros. Automobile, Inc. v. Quaker State-
to the origin, sponsorship, or approval Slick 50, Inc., 165 F.3d 221, 229 (3d Cir.
of his or her goods, services, or com- 1998):
mercial activities by another person, or
This section makes clear that the focus
(B) in commercial advertising or promo- of the statute is on anti-competitive con-
tion, misrepresents the nature, charac- duct in a commercial context. Confer-
teristics, qualities, or geographic origin ring standing to the full extent implied
of his or her or another person’s goods, by the text of § 43(a) would give stand-
services, or commercial activities, ing to parties, such as consumers, hav-
ing no competitive or commercial inter-
shall be liable in a civil action by any ests affected by the conduct at issue. . . .
person who believes that he or she is or The congressionally-stated purpose of
is likely to be damaged by such act. the Lanham Act, far from indicating an
express intent to abrogate prudential
15 U.S.C. § 1125(a) (1994) (emphasis added). standing doctrine, evidences an intent to
The words “any person” might lead one to limit standing to a narrow class of po-
conclude that Congress intended to abrogate tential plaintiffs possessing interests the
the background of prudential standing for pur- protection of which furthers the pur-
poses of the Lanham Act and allow anyone to poses of the Lanham Act.
sue who could achieve Article III standing.
Section 45, however, states in pertinent part: The court also pointed out that the Lanham
Act was passed to codify statutory and com-
The intent of this chapter is to regulate mon law of unfair competition that had devel-
commerce within the control of Con- oped before Erie R.R. v. Tompkins, 304 U.S.
gress by making actionable the deceptive
and misleading use of marks in such
commerce; to protect registered marks
used in such commerce from interfer-
ence by State, or territorial legislation; 45
This language has been part of the Lanham
to protect persons engaged in such Act since it was enacted in 1946. See PUB. L. NO.
489, reprinted in 1946 U.S.C.C.A.N. 412, 429.
25
64 (1938).46 The court analyzed the earlier C.
unfair competition laws and noted that “these Also of first impression in this court is what
earlier acts were drafted against the backdrop test we should adopt in determining whether a
of common law doctrine similar to today’s plaintiff has statutory or “prudential” standing
prudential standing doctrine that limited the under the Lanham Act.48 After a survey of the
eligible plaintiff class. Conte Bros., 165 F.3d caselaw of other circuits,49 we adopt the test
at 230 (citing Inwood Labs., Inc. v. Ives Labs.,
Inc., 456 U.S. 844 (1982)). This led the court 48
to conclude that “[t]here is no indication that We have stated in dictum that consumers
should be denied prudential standing under the
Congress intended in any of the Lanham Act’s
Lanham Act. Seven-Up Co. v. Coca-Cola Co., 86
statutory precursors, or in the Lanham Act it-
F.3d 1379, 1383 (5th Cir. 1996) (noting that “most
self for that matter, to abrogate the common courts that have addressed the issue agree that in
law limitations on standing to sue.”47 Having light of the pro-competitive purpose language
found that § 45 of the Lanham Act plainly sets found in § 45, ‘consumers fall outside the range of
out Congress’s intent to maintain prudential “reasonable interests” contemplated as protected by
standing requirements, we see no need to ex- the false advertising prong of Section 43(a) of the
amine the legislative history or common law Lanham Act.’” (quoting Serbin v. Ziebart Int’l
background of the Act, as the Third Circuit Corp., 11 F.3d 1163, 1177 (3d Cir.1993))).
did. We nonetheless join that court in deciding
49
that Congress did not intend to abrogate Much of our prudential standing jurispru-
prudential standing limitations when it enacted dence in this circuit has focused on whether a par-
the Lanham Act. ticular injurious act is within the “zone of interests”
of a particular administrative statute. E.g., Stock-
man v. Fed. Election Comm’n, 138 F.3d 144 (5th
Cir. 1998); Asbestos Info. Ass’n/N. Am. v. Reich,
117 F.3d 891 (5th Cir. 1997). This is not an
46 administrative law case, however, so standing is
See Inwood Labs., Inc. v. Ives Labs., Inc.,
456 U.S. 844, 861 n.2 (1982) (White, J., concur- not governed by administrative law’s “zone of
ring) (opining that the “purpose of the Lanham Act interests” test. See Clarke, 479 U.S. at 400 n.16
was to codify and unify the common law of unfair (observing that the “zone of interest” test has been
competition and trademark protection”); see also applied primarily in claims brought under the Ad-
Bonita Boats, Inc. v. Thunder Craft Boats, Inc., ministrative Procedure Act and “is most usefully
489 U.S. 141 (1989) (stating that the “law of understood as a gloss on the meaning of § 702 [of
unfair competition has its roots in the common-law that Act] . . . . While inquiries into reviewability or
tort of deceit”); see generally 1 J.THOMAS MC- prudential standing in other contexts may bear
CARTHY, MCCARTHY ON TRADEMARKS AND some resemblance to a ‘zone of interest’ inquiry
UNFAIR COMPETITION § 5:2 (4th ed. 1996) (dis- under the APA, it is not a test of universal applica-
cussing common-law origins of Lanham Act). tion.”); Bennett, 520 U.S. 154, 163 (1997) (“The
breadth of the zone of interests varies according to
47
Conte Bros., 165 F.3d at 230 (citing by an- the provisions of law at issue, so that what comes
alogy Associated Gen. Contractors, Inc. v. Cal. within the zone of interests of a statute for pur-
State Council of Carpenters, Inc., 459 U.S. 519, poses of obtaining judicial review of administrative
531-34 (1983) (describing congressional intent to action under the ‘generous review provisions’ of
incorporate common-law principles constraining the [APA] may not do so for other purposes.”)
class of plaintiffs entitled to sue under Clayton (citations omitted); see also William A. Fletcher,
Act). (continued...)
26
recently set forth in Conte Bros.50 That court tioning damages.
adopted the test for prudential standing under
the Clayton Act that the Supreme Court set The first factor directs us to decide whether
forth in Associated General Contractors, 459 the alleged injury is of a type Congress sought
U.S. at 538-44,51 in which the Court identified to redress in providing a private remedy for
a number of factors to be considered in deter- violations of the Lanham Act. We conclude
mining prudential standing: (1) the nature of that P&G’s injury based on Amway’s alleged
the plaintiff’s alleged injury: Is the injury “of illegal pyramid scheme is not that type of in-
a type that Congress sought to redress in jury. As stated in Conte Brothers:
providing a private remedy for violations of
the antitrust laws”?; (2) the directness or [T]he focus of the Lanham Act is on
indirectness of the asserted injury; (3) the “commercial interests [that] have been
proximity or remoteness of the party to the harmed by a competitor’s false advertis-
alleged injurious conduct; (4) the speculative- ing,” Granite State Ins. Co. v. Aamco
ness of the damages claim; and (5) the risk of Transmissions, Inc., 57 F.3d 316 (3d
duplicative damages or complexity in appor- Cir. 1995), and in “secur[ing] to the
business community the advantages of
reputation and good will by preventing
49
(...continued) their diversion from those who have
The Structure of Standing, 98 YALE L.J. 221, 255- created them to those who have not.”
63 (1988) (criticizing use of “zone of interest” test S. Rep. No. 1333, 79th Cong., 2d Sess.
outside of administrative context). (1946), reprinted in 1946 U.S.C.C.A.N.
50
1274, 1275.
Both P&G and Amway used the test from
Conte Bros. in analyzing whether P&G met pru-
Conte Bros., 165 F.3d at 234.
dential standing requirements in pursuing its
§ 43(a) claim based on Amway’s allegedly illegal
pyramid scheme. The Lanham Act was enacted to provide
protection against the unfair and misleading
51
Although the Third Circuit is the first circuit use of another’s trademark.52 Given this, it
to use this standing analysis in the context of the seems unlikely that the injury alleged
Lanham Act, it noted, 165 F.3d at 233, that two hereSSfraudulent misrepresentations made to
prominent commentaries have endorsed the adop- potential employees to convince them to work
tion of the standard. See 4 MCCARTHY, MCCAR- for and buy from Amway, resulting ultimately
THY ON TRADEMARKS AND UNFAIR COMPETITION in lower sales of some of P&G’s productsSSis
§ 27:32 n.1 (4th ed. 1996) (“In the author’s opin- of a type that Congress sought to redress in
ion, some limit on the § 43(a) standing of persons providing the Lanham Act. P&G has alleged
remote from the directly impacted party should be
attenuated harm arising from the alleged fraud-
applied by analogy to antitrust law, such as use of
the criteria listed in Associated General Contrac-
tors . . . .”); RESTATEMENT (T HIRD) OF UNFAIR
52
COMPETITION § 3, cmt. f (1995) (“In determining See S. REP. NO. 79-1333 (1946), reprinted in
whether an asserted injury is sufficiently direct to 1946 U.S.C.C.A.N. 1274, 1275 (stating that “there
justify the imposition of liability, the Supreme is no essential difference between trade-mark in-
Court’s analysis of similar issues under federal fringement and what is loosely called unfair com-
antitrust law may offer a useful analogy.”). petition”).
27
ulent inducements but not alleged loss of good could vindicate the public interest, however,
will or reput ation as a result of Amway’s by suing for fraud. Thus, there is no need to
alleged pyramid scheme. empower P&G as a private attorney general in
this case.
The second factorSSdirectness of the al-
leged injurySSalso suggests no standing. This The fourth factorSSspeculativeness of the
is not the case of one competitor’s directly damagesSSalso weighs against standing. In
injuring another by making false statements fact, P&G did not even attempt to submit evi-
about his own goods and thus inducing cus- dence on lost profits resulting from Amway’s
tomers to switch from a competitor. Rather, alleged pyramid scheme. In its reply brief,
the injury is alleged to arise from a competi- P&G argues that it is not bound to submit such
tor's fraudulently inducing a workforceSSnot evidence, but that damages instead should be
necessarily its competitor’sSSto work for it determined based on P&G’s relative market
and sell its product by promises to the workers share. Given the hundreds of P&G products
that they will be handsomely compensated. and potential competitors, as well as the diffi-
culty of determining what percentage of Am-
There are no allegations that the workers way’s distributors were fraudulently induced
otherwise would have worked for P&G. In- to work for Amway, it is hard to see how any
stead, the attenuated claimed harm is alleged damages awarded would not be highly specu-
to come from the fact that an increase in sales lative.
of Amway products eventually will lead to
lower sales for its competitor. If standing is Finally, the fifth factorSSthe risk of duplica-
allowed here, one could argue that any competi- tive damages or complexity of apportioning
tor’s fraudulent act in running its business that damagesSSinforms us to deny standing. Not
gives it an advantage could be sued upon as a only could every competitor in the market sue
violation of the Lanham Act. Opening up Amway if P&G is allowed standing here, but
standing to this extent would not be prudent. there would be nothing to stop other compa-
nies not in direct competition with Amway
The third factorSSthe proximity of the party from suing based on harm suffered by having
to the alleged injurious conduct SSalso un- potential workers fraudulently induced away.
dercuts standing in this case. In Associated
General Contractors, 459 U.S. at 542, the This analysis shows that all five factors
Court held that “the existence of an identifiable unanimously (though to various degrees)
class of persons whose self-interest would counsel against granting standing in this cir-
normally motivate them to vindicate the public cumstance. Granting prudential standing
interest . . . diminishes the justification for “would result in a great increase in marginal
allowing a more remote party . . . to perform litigation in the federal courts and would not
the offices of a private attorney general.” The serve the underlying purposes of the Lanham
distributors who are more immediate to the ActSSto ferret out unfair competition methods
injury than is P&G probably do not have and protect businesses from the unjust erosion
standing to sue under the Lanham Act, which of their good will and reputation.” Conte
does not give consumers standing to sue. See Bros., 165 F.3d at 236.
Seven-Up, 86 F.3d at 1383. These distributors
28
VII. out a narrow exception to this rule. “In gen-
The district court dismissed P&G’s RICO eral, fraud addresses liability between persons
claims under FED. R. CIV. P. 12(b)(6). P&G with direct relationshipsSSassured by the re-
argues that Amway’s repetition of the Satan- quirement that a plaintiff has either been the
ism rumor and its alleged illegal pyramid target of fraud or has relied upon the fraudu-
scheme constitute violations of RICO, 18 lent conduct of defendants.” Summit, 214
U.S.C. § 1962(c) and (d). P&G listed mail F.3d at 561.
fraud and wire fraud as the predicate acts for
its RICO claims but does not claim to have re- Thus, in Summit we ruled that a target of a
lied on any of the misrepresentations that Am- fraud that did not itself rely on the fraud may
way allegedly made via mail and wire. Instead, pursue a RICO claim if the other elements of
P&G argues that it is not required to allege proximate causation are present.53 We cited
and prove reliance. We affirm in part and with approval Mid Atlantic Telecom, Inc. v.
reverse and remand in part on this issue. Long Distance Services, Inc., 18 F.3d 260,
263-64 (4th Cir. 1994), which “held open the
We review de novo the dismissal of a com- possibility that a plaintiff company may not
plaint for a failure to state a claim for which need to show reliance when a competitor lured
relief can be granted under rule 12(b)(6). Fer- the plaintiff’s customers away by a fraud di-
nandez-Montes v. Allied Pilots Ass’n, 987 rected at the plaintiff’s customers.” Summit,
F.2d 278, 284 (5th Cir. 1993). A claim may 214 F.3d at 561.
not be dismissed unless it appears beyond
doubt that the plaintiff cannot prove any set of Consequently, P&G’s RICO claims based
facts in support of his claim that would entitle on Amway’s alleged spreading of the Satanism
him to relief. Benton v. United States, 960 rumor to lure customers from P&G are claims
F.2d 19, 21 (5th Cir. 1992). For purposes of on which relief can be granted. P&G has
our review, we must accept the plaintiff’s alleged that using the wire and the mail,
factual allegations as true and view them in the Amway attempted to lure P&G’s customers
light most favorable to the plaintiff. Campbell away by fraud. Although P&G did not rely on
v. City of San Antonio, 43 F.3d 973, 975 (5th the fraud, this falls into the narrow exception
Cir. 1995). carved out by Summit, in which we said that
“[i]n the current case, for example, the defen-
In civil RICO claims in which fraud is al- dants’ competitors might recover for injuries
leged as a predicate act, reliance on the fraud to competitive position . . . .” Summit, 214
must be shown: “[W]hen civil RICO damages
are sought for injuries resulting from fraud, a
general requirement of reliance by the plaintiff 53
Although in Holmes v. Securities Investor
is a commonsense liability limitation.” Summit
Protection Corp., 503 U.S. 258 (1992), the Court
Props. Inc. v. Hoechst Celanese Corp., 214 held that simple “but-for” causation is not enough
F.3d 556 (5th Cir. 2000), petition for cert. to confer civil RICO standing, that conclusion “is
filed, 69 U.S.L.W. 3296 (Oct. 13, 2000) (No. no more than that common law ideas about proxi-
00-606). mate causation inform the understanding of
RICO.” Israel Travel Advisory Serv., Inc. v. Is-
P&G points out that in Summit we also set rael Identity Tours, Inc., 61 F.3d 1250, 1257 (7th
Cir. 1995).
29
F.3d at 561. Thus, if P&G’s customers relied this case that was presented to the jury that the
on the fraudulent rumor in making decisions to challenge advertisement was literally false.
boycott P&G products, this reliance suffices to And, so, [the Crest claim] stays under the Lan-
show proximate causation. ham Act.” Later, however, the court dis-
missed the remaining claims without address-
P&G’s RICO claims for injury based on ing the disparagement claim. We review these
Amway’s alleged illegal pyramid structure dismissals de novo. King v. Ames, 179 F.3d
cannot meet the requirement that the alleged 370, 373 (5th Cir. 1999).
predicate acts proximately caused P&G’s dam-
ages, however. Although some Amway dis- This presents an interesting dilemma. The
tributors may have bought more P&G prod- court first ruled that there was enough evi-
ucts “but-for” being lured into joining Amway, dence to go to the jury on the product dispar-
injury to P&G did not flow directly from such agement claim, but later dismissed the claim
inducements. Further, there are too many with the rest of the case, without explanation.
intervening factors for proximate causation to We are left wondering whether the court in-
be proven here. Allowing RICO claims for advertently dismissed the disparagement claim
such tenuous causation would open floodgates along with the rest of the case or whether, in-
similar to those that we are unwilling to open stead, the court realized that there was not
under the Lanham Act. See Holmes, 503 U.S. enough evidence to go to the jury. Because
at 267, 272. “Life is too short to pursue every there is nothing in the record to resolve this
human act to its most remote consequences; puzzle, we reverse and remand the dismissal of
‘for want of a nail, a kingdom was lost’ is a the disparagement claim under the Lanham
commentary on fate, not the statement of a Act.
major cause of action against a blacksmith.”
Holmes, id. at 287 (Scalia, J., concurring). Amway argues in its brief that P&G has ef-
fectively waived this issue, “since P&G makes
We affirm the dismissal of P&G’s RICO no effort in this court to show that it even had
claims based on Amway’s allegedly illegal py- a case under either [the product disparagement
ramid scheme, and we reverse the dismissal of or the §16.29] claim. . . ” (citing Frazier v.
the RICO claims based on Amway’s spreading Garrison Indep. Sch. Dist., 980 F.2d 1514,
of the Satanism rumor. The complaint, as 1528 (5th Cir. 1993) (“This court is entitled to
pleaded, does state a claim upon which relief a reasoned statement of why the district court
may be granted. erred. By the brief nature of their claim, the
[appellants] wholly fail to demonstrate any
VIII. error on the part of the district court.”)).
The district court erred in dismissing
P&G’s claim for product disparagement under It would have been more helpful if P&G
the Lanham Act and its claims under § 16.29 had provided us with more information on the
of the TEXAS BUSINESS AND COMMERCE product disparagement claim. It is enough,
CODE. During trial, P&G argued that Amway however, that P&G points out that at one
had disparaged P&G’s Crest toothpaste by al- point the district court found that there was
leging that Crest scratches teeth. The district enough evidence of disparagement to get to a
court initially found that “there is evidence in jurySSincluding evidence that Amway had
30
made a factually false claim that Crest scratch- claims is four years. In Jackson v. Speer, 974
es teethSSand then later dismissed the claim F.2d 676, 679 (5th Cir. 1992), we explained:
without explanation. This alone is sufficient to
show reversible error. If, however, the injured part y is not
aware of the fraud or the fraud is con-
As to the § 16.29 claim, the court dismissed cealed, the statute of limitations begins
it based on its finding that res judicata from to run from the time the fraud is discov-
the Utah case barred the claims against Hau- ered or could have been discovered by
gen and Walker, and based on its ruling that the defrauded party’s exercise of reason-
P&G was required to prove actual malice to able diligence. Knowledge of facts that
prevail on its Lanham Act claim. The court would lead a reasonably prudent person
stated: to make inquiry which would lead to a
discovery of the fraud is knowledge of
[T]he only other issue that would have the fraud itself.
been left alive in the case would have
been the Sect ion 1629 case under the (Emphasis added.)
business of commerce code, which es-
sentially allows for injunctive relief with- P&G claims that, even exercising reason-
out any of the other claims in the case, able diligence, it could not have discovered the
the Court dismisses as a matter of law fraud until 1995. Evidence submitted by
the Section 1629 of the TEXAS BUSI- Amway that was uncontroverted by P&G
NESS & COMMERCE CODE claim for shows, however, that P&G knew, or reason-
injunctive relief. ably should have known, by the mid-to-late
1980’s that it could not rely on Amway’s
Because we are reversing and remanding on statements that Amway would help stop the
res judicata and actual malice, the dismissal of Satanism rumor. Gerald Gendall, head of pub-
which formed the basis for the dismissal of the lic affairs at P&G, testified that he “thought
§ 16.29 claim, we also reverse and remand the P&G should have sued Amway almost on a
§ 16.29 claim. continuous basis.” Gendall also stated that
after 1983, he did not rely on any representa-
IX. tions that Amway was doing all it could to
The district court did not err in ruling that stop the rumor. Executive Vice-President
P&G’s fraud claim was barred by the statute Laco also testified that he believed P&G could
of limitations. P&G alleged a claim of com- have sued Amway for the acts of its distribu-
mon law fraud against Amway arising from tors in the early to mid-1980’s. Finally, John
falsely assuring P&G that Amway would help Smale, P&G’s CEO from 1981 to 1986, testi-
fight the Satanism rumor. The court granted fied:
summary judgment to Amway on this issue,
finding the claim time-barred. P&G assigns Q. When did you first come to the re-
error to this ruling, which we review de novo. alization that you should have gone after
Prytania Park Hotel, 179 F.3d at 173. Amway sooner?
In Texas, the statute of limitations for fraud A: I don’tSSI suspect in theSSI don’t
31
know, towards the late ’80s as based on spreading the Satanism rumor is
these rumors continued and as we reversed and remanded.
got more and more lack of response
from Amway. The judgment dismissing P&G’s RICO
claims based on Amway’s alleged illegal pyr-
Given this undisputed testimony, a reason- amid structure is affirmed. The judgment dis-
able jury could not have concluded that P&G missing P&G’s Lanham Act product dispar-
did not know that it could not rely on Am- agement claim for the alleged disparagement
way’s representations that Amway would do of Crest toothpaste is reversed, as is the judg-
all it could to combat the Satanism rumor. ment dismissing P&G’s TEXAS BUSINESS AND
P&G’s argument that Amway is estopped COMMERCE CODE § 16.29 claim. Finally, the
from arguing that this claim is time-barred be- judgment that P&G’s fraud claim is time-
cause Amway concealed its fraudulent behav- barred is affirmed.
ior was also correctly dismissed on summary
judgment, for the same reason. AFFIRMED in part, REVERSED in part,
and REMANDED for further proceedings in
X. accordance with this opinion.
We summarize, as follows: The judgment
is reversed as to the res judicata effect of the
Utah judgment. Further, the judgments of the
Utah court and the Tenth Circuit do not pres-
ent any issues of collateral estoppel that bind
the Texas court. P&G’s Lanham Act claim for
disparagement of its commercial activities is
remanded for fact-finding to determine wheth-
er the primary motivation of the Amway
disseminators of the Satanism rumor was eco-
nomic. If it was, then the speech is commer-
cial; if not, the speech was noncommercial,
and no Lanham Act claim is available. The
judgment that P&G must prove actual malice
to succeed on its Lanham Act claim for dispar-
agement of commercial activities is reversed;
no actual malice need be found.
The judgment dismissing P&G’s alter ego,
single business enterprise, and vicarious lia-
bility arguments against Ja-Ri and ADAC is
affirmed. The judgment that P&G did not
have prudential standing to bring a Lanham
Act claim based on Amway’s alleged misrepre-
sentations to its own distributors is affirmed.
The judgment dismissing P&G’s RICO claims
32