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Supreme Court won’t weigh in on Sherman Act liability for false advertising

The incentive is high to identify a Sherman Act violation in your competitor’s conduct—three times higher, to be precise, than to bring a claim for an ordinary business tort or even a false advertising claim under the Lanham Act.  But as we noted in December, the Fifth Circuit recently refused to recognize a claim for attempted monopolization under Section 2 based on a defendant’s false advertising “absent a demonstration that [the] false advertisements had the potential to eliminate, or did in fact eliminate, competition.”  The court relied on a prior decision in which it expressed “extreme reluctance to allow a treble damage verdict to rest upon business torts alone.”  The case is Retractable Technologies, Inc. v. Becton Dickinson & Co. 

Last month, the Supreme Court denied plaintiff RTI’s cert petition seeking review of the decision.  RTI argued that there is a circuit split about whether, and under what circumstances, false advertising can form the basis of a Section 2 claim.  According to RTI, the D.C., Third, and Eighth circuits appropriately employ a case-by-case analysis.  On the other hand, it said, a number of circuits (including the Second, Sixth, Ninth, Tenth, and Eleventh) have adopted various versions of a rebuttable presumption that false advertising has only a de minimis effect on competition.  Finally, RTI argues, the Seventh and Fifth circuits have essentially “created a rule of per se legality under the Sherman Act.”

In opposition, Becton Dickinson took issue with RTI’s characterization of the state of appellate law.  The “basic principle” on which “the circuit courts uniformly agree” is the distinction relied on by the Fifth Circuit “between business torts, which harm competitors, and truly anticompetitive activities, which harm the market.”  Indeed, says BD, there is only one appellate decision from the last 37 years upholding a plaintiff’s judgment for antitrust violations predicated on false advertising, and that case (from the Eighth Circuit) involved an undisputed monopolist that used false advertising designed to eliminate a new competitor.  (As we noted, at least one district court in the Eighth Circuit has questioned whether that case remains controlling.)  So while courts may adopt different analytic frameworks, all that have opined on the issue have been skeptical of antitrust claims based on false advertising.

No member of the Supreme Court has issued an opinion in connection with the denial of certiorari, but at least a few factors may explain the denial.  First, the nature and extent of the depth of disagreement (if any) among the circuit courts may not be that meaningful.  Courts have been loath to confer federal jurisdiction and impose treble-damages exposure on the basis of ordinary business torts where the harm is simply to a competitor rather than to the competitive process.  In the false advertising context, they have on occasion expressed this view differently, but not dramatically so.  Second, RTI made the Fifth Circuit’s decision sound more severe than it really was.  The court did not immunize all false advertising conduct from antitrust scrutiny, but held that it must have at least the potential to harm competition in the market as opposed to simply negatively impacting a competitor.  Granted, the Fifth Circuit observed that “false advertising alone hardly ever operates in practice to threaten competition.”  But this appears to be consistent with the widely-shared skepticism among circuit courts and does not mark the Fifth Circuit as an outlier.

Finally, the Fifth Circuit’s opinion contained a factual component, noting that there was no evidence that BD’s false advertising harmed competition.  Thus, even under an alternative legal standard (e.g., the “case-by-case” approach RTI favors), the outcome in the case presumably would have been no different.

It is not only RTI that will be disappointed by the denial of cert, but also the amici that supported its petition.  For instance, a group of law professors and economics professors noted that outcomes in deception-based antitrust cases have varied widely as district courts have been applying different circuits’ tests.  They also argue that deception by a powerful market player can fit within the definition of exclusionary conduct, and that the spread of false information does not just hurt the competitor but erodes the conditions necessary for a well-functioning, competitive market.  For now, they will have to find another vehicle to interest the Supreme Court in this argument.