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In an issue of first impression, a three-judge panel of the 5th U.S. Circuit Court of Appeals announced a new test for determining when a specific instance of speech is commercial and not entitled to the First Amendment’s free-speech protections. If the speech is not economic, the speech is not commercial, according to the court’s Feb. 14 opinion issued by Judge Jerry E. Smith. On the other hand, if an economic motive is found, the speech is commercial, according to Smith. “The question of whether an economic motive existed is more than a question of whether there was an economic incentive for the speaker to make the speech; the � test requires that the speaker acted substantially out of economic motivation,” Smith concluded. The opinion is in a suit filed in federal court in Houston by Procter & Gamble Co. against Amway Corp. and its independent distributors in Texas and Utah. P&G alleged that Amway spread rumors that P&G’s trademark ram’s horn was a satanic symbol. Judge Norman C. Roettger of the Southern District of Florida, sitting by designation, and 5th Circuit Judge James L. Dennis joined Smith in the unanimous opinion. The panel sent Procter & Gamble Co. v. Amway Corp. back to U.S. District Judge Vanessa Gilmore for fact-finding to determine whether the primary motivation behind the alleged Satanism rumor was economic. Brought under the Lanham Act for disparagement of commercial activities, P&G’s suit alleges common-law fraud, several violations of the Lanham Act, a violation of the Racketeer Influenced and Corrupt Organizations Act, and a violation of the Texas Business and Commerce Code. P&G attorney Richard A. Sheehy, a partner in Houston’s Sheehy, Serpe & Ware, expects the suit to become “the leading authority in future cases that involve claims where the speaker is motivated by economic interest.” An attorney for the Amway distributors, Byron Lee, a director at Houston’s Coats, Rose, Yale, Ryman & Lee, says his clients will file a motion for rehearing on Feb. 28 and will appeal to the U.S. Supreme Court if necessary. “The fight over the First Amendment issues in the case, which as the 5th Circuit noted are of first impression, is not over,” says Charles “Chip” Babcock, a partner in Jackson Walker in Houston who represents Amway. DENYING RUMORS P&G had been plagued by rumors linking the company to alleged Satanism since the late 1970s. According to the court’s opinion, P&G denies any links to Satanism and has spent considerable time and money trying to kill the rumor. The Cincinnati-based company worked with Ada, Mich.-based Amway during the 1980s to put an end to the rumors. However, P&G offered proof that Amway spread the rumors, which resurfaced in 1995 when, according to the opinion, an Amway distributor allegedly discussed it with other Amway distributors via the company’s telephone messaging system. In response to Amway’s alleged conduct, P&G filed suit in 1995 in federal court in Utah and in Houston in 1997, asserting claims based on the same transactions and involving substantially the same parties. In 1999, a judge in federal court in Utah granted Amway’s motion for summary judgment and entered a final judgment dismissing all of P&G’s claims. The 10th U.S. Circuit Court of Appeals subsequently reversed the summary judgment, concluding the alleged repetition of the Satanism rumor raised a claim under the “commercial activities” prong of the Lanham Act. Because the Utah court’s judgment had been reversed and remanded, the 5th Circuit panel found it was not precluded from deciding the Houston suit. Amway argued in briefs that the speech at issue is not commercial, so a Section 43(a) Lanham Act claim would not apply. In addressing that argument, the 5th Circuit first considered whether the commercial speech line of cases, which primarily deal with government regulation of speech, should apply in a private action for false speech. The court, following the 3rd U.S. Circuit Court of Appeals in U.S. Healthcare Inc. v. Blue Cross, held “‘the subordinate valuation of commercial speech is not confined to the government regulation line of cases’ but instead should extend to defamation and Lanham Act cases as well.” The court next analyzed the historical development of the commercial speech exception, reviewing the facts to determine whether they met the characteristics the U.S. Supreme Court set forth as defining commercial speech. The 5th Circuit panel adopted a test for determining if a specific instance of speech is commercial. The test, taken from 1983′s Bolger v. Youngs Drug Products Corp., recognizes three factors: whether the communication is an advertisement; whether it refers to a specific product or service, and whether the speaker has an economic motivation. Amway, in a second argument, alleged that even if the speech is commercial, the actual-malice standard should apply because P&G is a public figure. Because P&G did not dispute an earlier ruling by the district court that it was a “public figure,” the 5th Circuit panel assumed for purposes of the appeal that P&G is a limited-purpose public figure with regard to the alleged Satanism rumor. The 5th Circuit panel reversed the lower court decision that said P&G must prove actual malice to succeed on its Lanham Act claim. Lawyers familiar with First Amendment issues say the opinion may clear up a murky area of the law. “A lot of it is going to turn on the district court determining whether the primary motivation of the Amway speakers was economic … and whether [P&G] can show any damages,” said J. Timothy “Tim” Headley, a partner in Gardere Wynne Sewell in Houston and president of the Houston Intellectual Property Law Association. “This case is settling questions that weren’t very clear,” says Phillip E. Page, a professor specializing in intellectual property law at South Texas College of Law. “The 3rd Circuit case, U.S. Healthcare, didn’t tell us how we determine whether speech is commercial or noncommercial, and this case finds a test for that.” Page said Judge Gilmore faces the difficult task of deciding the Amway representative’s motivation behind allegedly spreading the rumor. Notes Page, “Did he, the Amway rep, spread this rumor to make money? Did he spread it to inform these people about an important public religious issue? Some mixture of all of these? Or did the devil make him do it?”

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