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Commentary

The Sugar-y Sweet Temptation of Anti-Competitive Lawsuits


     
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American sugar conglomerates are earning sweet profits. A combination of price supports and protectionism keeps prices hig—resulting in U.S. consumers paying as much as two or three times the world price. Overall, studies show, these polices cost U.S. consumers as much as $1.9 billion annually.

Not satisfied with the benefits they get from Congress, sugar companies are now turning to the courts for additional assistance. Pending in the U.S. District Court for the Central District of California is a lawsuit targeting producers of corn syrup for their “Sweet Surprise” advertising campaign.

In this ad campaign, the corn industry—no stranger itself to government subsidies—trumpets its product as a safe and natural sweetener. The advertisements further aver that corn syrup has no unique responsibility for the current America obesity ‘epidemic.’ Indeed, the ads say, Americans have no reason to fear products containing corn syrup (or “corn sugar,” as the industry often calls it) any more than they should fear products made with cane sugar. “Sugar is sugar,” the ads say.

The sugar industry’s lawsuit is primarily based on Section 43 of the 1946 Lanham Act. The Lanham Act is typically associated with intellectual property rights, such as copyright or trademark protection. It also contains provisions prohibiting false or misleading advertising.

The sugar companies dispute the claims made in the “Sweet Surprise” campaign and assert that corn producers are misleading the public. The sugar industry states that this has led to “actual damages in the form of price erosion and lost profits stemming from the artificially reduced demand [for sugar] caused by Defendants’ false and misleading advertising.” If it weren’t for the alleged misrepresentations being made in the Sweet Surprise campaign, they say, more Americans would avoid corn syrup products.

As for relief, the sugar companies ask the court to force the corn industry to “disgorge” profits—that is, return all profits gained through the allegedly false advertisements—pay plaintiffs treble damages, and pick up the tab for all attorney fees.

When the case eventually goes to trial, both sides undoubtedly will have well-credentialed experts offering completely opposite opinions on the health risks of corn syrup vs. cane sugar. No matter how the judge or jury rules, the case has as much chance of definitively settling the underlying questions as the Scopes Monkey Trial definitively settled issues about creation and evolution.

Regardless of one’s views on the relative merits of corn syrup vs. cane sugar, Americans should be concerned about the effort to use the Lanham Act to silence commercial speech.

Under the First Amendment, commercial speech enjoys constitutional protection. Unfortunately, however, Section 43 of the Lanham Act creates a perverse incentive for a commercial rival to attempt to stifle speech—and to use litigation as an anti-competitive weapon.

By alleging that advertising claims are false and misleading, a plaintiff can impose huge legal costs on a rival for no other purpose than to seek economic advantage. Rather than avenging angels protecting the American consumer from harm, opportunistic plaintiffs can easily become 21st century robber barons looking to pad their bottom lines and crush their opposition.

So long as there is free entry into the advertising realm, any company, organization or group of companies that finds a rival’s advertising claims to be questionable is free to disseminate information challenging those claims. They can present their views in a news conference. They can create ads of their own. They can mobilize allies in a grassroots effort.

Television, magazine, and internet advertisements are just a few of the vehicles available to educate consumers on the benefits or detriments of a particular product.

In a free society, this is how consumers gather information and make informed decisions about what products to purchase.

To the extent that consumers need additional protection, this should be left to neutral government agencies, such as the Federal Trade Commission, which is tasked with protecting the public from false advertising.

The FTC is fairly successful in its efforts. For example, just a few months ago the FTC successfully settled an action against Skechers USA, which it had accused of making false claims about the body toning effects of its shoes. Under the settlement, Skechers had to pay $40 million in consumer refunds and cease its misleading advertising. An FTC action is a much better vehicle than a lawsuit brought by a competitor that stands to benefit financially by harming a rival.

Speech, whether commercial or political, is important to our society. The sugar industry’s claims about the superiority of cane sugar over corn syrup are better brought in the court of public opinion than in federal court.


William J. Watkins, Jr. is a Research Fellow at The Independent Institute in Oakland, Calif. and author of the Independent Institute book, Reclaiming the American Revolution. He received his J.D. cum laude from the University of South Carolina School of Law and is a former law clerk to Judge William B. Traxler, Jr. of the U. S. Court of Appeals for the Fourth Circuit.

pt   New from William J. Watkins, Jr.!
PATENT TROLLS: Predatory Litigation and the Smothering of Innovation
Using overbroad patents based on dated technology, patent trolls are stifiling innovation by bringing infringement suits against inventors. Trolls typically do not produce products or services, but are in the business of litigation. They lie in wait for someone to create a process or product that has some relationship to the patent held by the troll, and then they pounce with threats and lawsuits.






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