=================== NEW YORK TIMES March 27, 2001
Procter & Gamble Suit Over Satan Rumor Resurrected
By GEANNE ROSENBERG
For decades, Procter & Gamble has been dealing with a public relations nightmare: a false and harmful rumor that the company says was fueled in the 1980’s and 90’s by some Amway distributors who sell paper goods, soaps and other household staples in competition with P.& G.
Now, a federal appeals court panel in New Orleans, in a decision issued last month and revised on March 12, has resurrected a suit P.& G. had filed against Amway. The decision that could offer companies very powerful ammunition against mudslinging competitors.
The suit deeply troubles First Amendment advocates, and the United States Court of Appeals for the Fifth Circuit also agreed to consider their arguments.
To P.& G., the case, which had been dismissed earlier by a lower- level federal judge in Houston, is about bringing to justice people who have unfairly competed by rumor- mongering.
To Amway, the case is about freedom of speech and an effort by P.& G. to make the company and its distributors scapegoats for a rumor that has persisted both within and outside the Amway network.
The gist of the rumor is that P.& G. has ties to Satanism and that a lot of the company’s profits go to the Church of Satan. The rumor historically implicated P.& G.’s “man in the moon” logo, associating it with the devil. Though the company stopped using the logo on its products in the late 1980’s, that has not stopped the stories from resurfacing.
In the early 1980’s, amid a flood of angry calls to the company and boycotts of its products, P.& G. tried to squelch the rumor with a public relations blitz, an effort in which Amway assisted. P.& G. also sued a dozen people, half of them Amway distributors. The suits have been settled, with admissions of fault and retractions.
But in 1995, an Amway distributor who lived in Utah forwarded the rumor to other distributors over a telephone messaging system. Some distributors then printed fliers that circulated it to consumers with the message “We offer you an alternative” and contact information for Amway distributors.
So P.& G. decided to go after the company as well as some of its distributors, including the Amway distributor who widely disseminated the rumor.
He testified that he had believed it to be true, and retracted it shortly after sending it out.
Amway asserts that it has done nothing but try to stop the rumor and that it is not responsible for its distributors, many of whom sell Amway products out of their homes. But P.& G. says Amway should have reined them in. P.& G. says it has sustained major losses, including hundreds of millions of dollars in sales and other damages.
In a move that is significant for the lawyers and executives watching the case, the Fifth Circuit opinion kept alive P.& G.’s claim under one of the most potent weapons in commercial law, the federal Racketeer Influenced and Corrupt Organizations Act, known as RICO.
The law, passed in 1970 to combat organized crime, metes out harsh penalties for violators and big incentives for plaintiffs and their lawyers in the form of triple damages plus lawyer fees. Although the law has been applied many times in civil as well as criminal cases, experts say last month’s decision in the P.& G.- Amway case is the first in which a federal appellate court has permitted this type of claim.
“The logical import of this decision is that in addition to the normal single damage remedies that companies have had for misstatements by competitors in the marketplace, there may now be a treble damage RICO remedy,” said Gregory P. Joseph, head of the litigation department at Fried, Frank, Harris, Shriver & Jacobson in New York and an expert on the civil applications of RICO who has represented P.& G. on an unrelated matter. “Potentially this does open the door to a significant level of RICO litigation between competitors.”
The court also revived other claims, including a claim under federal trademark law.
The case was sent back to the district court in Texas, where some of the distributors were based.
To Joseph P. Suarez, senior counsel for Procter & Gamble, the Fifth Circuit’s decision was a major victory. P.& G., he said, was “validated in our attempts to bring Amway and its distributors to justice after 20 years of this rumor.”
To Amway, the panel was just plain wrong. On March 2, the company moved to have the case thrown out, and is prepared to take it to the Supreme Court if need be, said Charles L. Babcock, a partner at Jackson Walker L.L.P. in Houston who represents Amway.
The company contends, among other things, that there was no RICO violation, in part because the distributor spreading the rumor believed it to be true and so there was no fraud.
What worries free-speech advocates is the possibility that First Amendment protections might not apply under federal trademark law to words found to be motivated by economic concerns.
“Anything that would attempt to impose a RICO penalty on anything involving speech is frightening.” said Lucy A. Dalglish, executive director of the Reporters Committee for Freedom of the Press.
Michael A. Mohr, vice president and general counsel of Alticor Inc., Amway’s parent, said: “This speech was innocent, and it was about religion. When you’ve got speech between individuals about a public figure,” like P.& G., “on a matter of public concern, I think the First Amendment applies.”
P.& G. contends the purpose of the speech was not to express religious views but to take business away from a competitor.
Why this long and tough battle, which has broken out on other fronts as well, including a claim by Amway that it is the victim of smear campaign waged by P.& G.?
“When a rumor or stories float around about a company, you have to take it seriously,” Mr. Suarez said. The federal trademark and RICO statutes, he added, are very powerful tools that will “get the attention of people who are saying bad things about your trademark.”