Section 2 of the Sherman Act prohibits monopolization and attempted monopolization. Both offenses require a high degree of market power coupled with exclusionary conduct. Defining what constitutes exclusionary conduct, however, is one of the great conundrums of antitrust law since much legitimate competition is exclusionary in some sense. See generally Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, 124 S. Ct. 872, 882-83 (2004). Therefore, courts have limited exclusionary conduct for Section 2 purposes to conduct which may otherwise violate the antitrust laws – – such as tying or exclusive dealing – – or other conduct when the alleged monopolist forgoes short-run benefits to reduce competition in the long run. Trinko, 124 S. Ct. at 879-80; Aspen Skiing v. Aspen Highlands Skiing Corp., 472 U.S. 585, 608 (1985).

Disparagement of a competitor’s product has long been at the outer boundary of exclusionary conduct, and seldom sufficient by itself to establish a Section 2 violation. See Conwood Co. L.P. v. U.S. Tobacco Co., 290 F.3d. 768, 783-84 (6th Cir. 2002); Caldera v. Microsoft Corp., 87 F. Supp. 2d 1244, 1249 (D. Utah 1999). In Sanderson v. Culligan International Company, 2005 LEXIS 13969 (7th Cir. 2005), however, the Court went a step further and concluded that “commercial speech is not actionable under the antitrust laws.” Id. at 9. This rather broad conclusion derived from a set of facts in which the defendant allegedly violated federal antitrust and trademark laws by asserting that plaintiff’s “magnetic water conditioners” didn’t work. After a brief review of the scientific literature, which raised some doubts about the efficacy of magnetic systems, Judge Easterbrook stated that he would nonetheless “indulge the assumption that adverse statements about Magnatek’s products are calumnies.” Id. at 4.

The Court then characterized plaintiff’s claim as resting on the belief that antitrust laws forbid all unfair tactics, without regard to the likelihood that the adversary will achieve a monopoly at consumers’ expense. This is simply not the case, said the Court, as antitrust laws favor competition of all kinds, whether or not some other producer thinks it is fair. Id. at 5-6. Much of competition is unfair and, while some laws condemn unfair tactics, . . .” the Sherman Act is not among those laws.” Id. at 6.

False statements about a rival’s products do not curtail output or raise prices, the main concerns of the Sherman Act. Rather, said the Court, they just set the stage for competition in a different venue – – the advertising market. Quoting from its prior opinion in Schacher v. American Academy of Ophthalmology, 870 F. 2d. 397, 399 (7th Cir. 1989), the Court stated:

Warfare among suppliers and their different products is competition. Antitrust law does not compel your competitor to praise your product or sponsor your work. To require cooperation and friendliness among rivals is to undercut the intellectual foundations of antitrust law.

The Court went on to distinguish American Society of Mechanical Engineers v. Hydrolevel Corp., 456 U.S. 556 (1982), where some producers persuaded an engineering society to write standards in a manner that only their products met the standards. The standards were later incorporated into building codes and similar legal mandates, thus effectively knocking the rivals’ nonconforming products out of the market. Here, said the Court, magnetic devices were not excluded from the market. Defendant’s successful effort to persuade a trade group to withhold its “Gold Seal” of approval from magnetic devices makes no difference, as “Gold Seal” is simply a marketing device, not a government requirement.

The Court then concluded by stating that commercial speech is not actionable and what producers say about each other in an effort to sway consumers is competition in action. While some other law may require truth in advertising ” . . .the Sherman Act does not.”

While Judge Easterbrook’s opinion is, as usual, quite persuasive, it should be emphasized that there was little, if any, other exclusionary conduct in Sanderson which accompanied the product disparagement. In most Section 2 cases, disparagement is only one of several types of exclusionary conduct and defendant’s conduct as a whole is analyzed to determine whether it is exclusionary. See, e.g. City of Mishikawa v. American Elec. Power Co., 616 F. 2d. 976, 986 (7th 1980). Likewise, disparaging statements about a rival or its products are sometimes relevant to show an intent to monopolize or otherwise illuminate the purpose of conduct that may be either exclusionary or just legitimate competition. Further, as the Sanderson Court itself conceded, such disparagement may be actionable under other laws. The bottom line is that Sanderson is an instructive opinion, but should not be viewed as giving companies cartè blanche to start bashing their competitors’ products.

Authored by
Carlton A. Varner