'Product disparagement' suit raises First Amendment questions.

The U.S. Supreme Court in November declined to hear a case pitting a major automaker against the country's best-known product-testing organization, allowing a "product disparagement" lawsuit to go to trial despite constitutional alarm bells sounded by First Amendment advocates.

For defendant Consumers Union (CU)--which publishes the influential Consumer Reports magazine--the denial means a lost opportunity to reaffirm important free-press principles. For plaintiff Suzuki, it means a chance to finally clear the company's name and that of its long-discontinued SUV, the Samurai.

The roots of the conflict reach back to 1988, when Consumer Reports published a review claiming that die popular vehicle tipped up too easily. After the magazine rated it "not acceptable," Samurai sales dropped dramatically.

In 1996, one year after Suzuki stopped producing the vehicle, the auto-maker sued for product disparagement, alleging that the consumer organization had rigged the Samurai test. To prove its claim, Suzuki must clearly show that CU acted with actual malice when it published the review.

A trial court dismissed the case on summary judgment, but a three-judge panel of the Ninth Circuit--much to the dismay of the media--found that Suzuki's evidence precluded summary judgment on the issue of actual malice. (Suzuki Motor Corp. v. Consumers Union of the United States, 330 F.3d 1110 (May 19, 2003).) After the Ninth Circuit denied a rehearing en bane, CU petitioned the Supreme Court to review the case.

"The denial of cert was quite disappointing because it was a substantial and important First Amendment issue, which is unresolved," said Michael Poller, lead counsel for CU. "The Ninth Circuit is in a distinct minority--perhaps of one."

Allowing the Ninth Circuit's decision to stand leaves publishers--especially those that are less well financed--wide open to being "strangled by meritless lawsuits," said Pollet.

"If CU can be forced to go to trial after this thorough and candid disclosure of its methods, dais is the death of consumer ratings," wrote Judge Alex Kozinski, dissenting, along with 10 other judges, from the Ninth Circuit's denial of rehearing.

"It will be impossible to issue a meaningful consumer review that a band of determined lawyers can't pick apart in front of a jury. The ultimate losers will be American consumers, denied access to independent information about the safety and usefulness of products they buy with their hard-earned dollars."

The Samurai--Suzuki's first entry into the U.S. automotive market--was a big hit when it was introduced in 1985. The company says it sold 80,000 of them in 1987, but the SUV's popularity plummeted after Consumer Reports published its review of the vehicle. In 1989, Suzuki sold about 5,000 Samurais.

Suzuki's evidence in the case includes videotapes of the CU tests, in which cheering can be heard when the Samurai tips up, as well as congratulatory exclamations to a driver who achieved another tip-up. Suzuki also offered the testimony of a former CU employee who quoted Consumer Reports's editorial director at the time as saying, after no tip-ups had occurred, "If you can't find someone to roll this car, I will."

Suzuki contended that CU had a financial motive to rig the test because it was overextended after acquiring a brand-new headquarters building. According to the auto-maker, CU needed a blockbuster story to increase subscriptions. The Ninth Circuit was convinced.

"While CU is correct that financial motive cannot, by itself, prove actual malice, it nonetheless is a relevant factor bearing on the actual-malice inquiry," Judge A. Wallace Tashima wrote for the majority. "The evidence of financial motive dovetails with the evidence of test-rigging.... The fact that CU needed to boost its revenues to complete its capital campaign lends credence to Suzuki's contention that CU rigged the Samurai testing to produce the predetermined rollover result."

For CU--and the numerous media organizations that have lined up to support it--the case is clearly about protected speech. Suzuki disagrees.

"This case has nothing to do with the First Amendment," said George Ball of Aliso Viejo, California, managing counsel for the auto-maker. "This case is about knowingly false statements that were made to cover up rigged testing. The First Amendment protects honest, forthright reporting; it does not protect statements by a publisher [that] knowingly deceives its readers and the public."

But the magazine's detailed reporting of its testing procedures is at the heart of its First Amendment protection, Kozinski wrote in his dissent. "If CU had found the Samurai 'not acceptable' based on tests performed with a Ouija board, most consumers would dismiss the rating as worthless," he wrote. "But, so long as CU disclosed its method, the report would be protected by the First Amendment."

But why sue eight years later over a product that is no longer on the market? Suzuki claims that CU's ongoing references to its negative rating of the Samurai disparaged the company as a whole, tarnishing its image in the minds of American consumers. As a result of the recurring negative publicity, the auto-maker claims it lost $60 million in sales of its other vehicles since 1994.

Pollet said the manufacturer's claim of entitlement to recovery for lost sales on all its products--based on statements relating specifically to the Samurai--would not hold up constitutionally, or even under common law.

"If we criticize the Samurai, we can be responsible only for lost sales on the Samurai--assuming that all the other elements are proved--and not on other products," he said. "Otherwise freedom of speech would be severely curtailed because if you criticize one product and are held liable for loss on all products, you are being punished for speech you didn't make and potentially for true speech."

But Ball said American institutions such as CU need to be scrutinized closely. "You're not talking about some insignificant entity," he said. "Consumers Union can break the back of a manufacturer and kill its products, and that's what it almost did with Suzuki."

The case now is headed back to the trial court, which must determine whether CU sold its soul for a new headquarters building.

"Consumers Union's most important asset--financial and otherwise--is its reputation for integrity and objectivity," said Poller. "Why we'd risk all that to fabricate tests on a small SUV made by Suzuki is to me highly counterintuitive and itself fabricated."