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Court Ruling Ushers in Brave New World

Silicon Valley Bisiness Ink - May 31, 2002

Companies might puff a bit when it comes to describing their products or services. And consumers are rarely confused when they see the resulting advertisements or public relations blitzes. But the California Supreme Court seems to be -- and that's bad news for companies promoting their wares in California.

In its May 2 opinion in Kasty v. Nike Inc., the court said all sorts of company promotions and communications might have a "tendency to confuse" -- even if the communications are true. So long as the speech is commercial, the state's Business and Professional Code Section 17500 applies, meaning California residents can file suit against a company and force it to defend its ad materials, PR announcements, brochures, Web sites and other communications.

So, if any part of what a company says, prints or conveys reaches a California resident, a lawsuit may be filed on the grounds that the speech has a tendency to confuse.

Anyway a business looks at it, it's a bizarre version of A Brave New World.

Why rely on the truth?

The Kasty v. Nike lawsuit arose in California's lower courts as part of the controversy surrounding Nike's purported reliance on underpaid foreign workers. When Nike publicly responded that these allegations were false, a lawsuit was filed under Section 17500.

The suit claimed Nike's denials about its foreign labor practices were false and thus provided grounds upon which to sue. "Advertising which, although true is either actually misleading or which has a separate tendency, likelihood or tendency to deceive or confuse the public" is subject to suit, the lawsuit claims. Yes, the California Supreme Court is saying that a mere tendency to confuse is enough.

This is not the only example of ideologues and extremists at work within the judicial system. For example, the California Milk Advisory Board is being sued because its cheese ads state that California cows are "happy." The plaintiffs allege this is a false statement because cows "suffer" on dairy farms. Reason appears to be thrown to the wind. Beware clever metaphors and personifications!

An extremist's paradise

Not surprisingly, plaintiffs have a financial incentive to file lawsuits such as these. Rarely economic dummies, they are aware companies generally prefer to avoid lengthy and public litigation. The reward: A settlement in which they are awarded fees as well as a skewed ability to say they're acting in the public's interest to enforce the law.

On a broader level, they turn the key in a Pandora's box of future litigation, which neither protects consumers from false or misleading advertising nor promotes any public interest other than their own. Until a higher court strikes down the "tendency to confuse" standard -- which is not the standard applied by the U.S. Supreme Court -- businesses would be smart to take several precautionary steps.

Waiting for a higher court's wisdom

Certainly, if a California consumer files a "tendency to confuse" lawsuit, the wise company defends the spurious action. Until lawsuits such as these go the way of the dinosaur, companies should also assess the risk its communications might pose.

Some reasonable precautionary steps might include:

* Review materials for statements of objective fact and confirm that there is data to support any claims made.

* If statements of product quality are made, procedures should be undertaken to assure that the requisite quality does indeed exist and the error rate is statistically insignificant.

* If statements of "puffery" of any sort are made ("the best," "the most," "less work"), they should be supported by customer surveys. The "puff" should not have any tendency to mislead or confuse.