It may be hard to have much sympathy for Amway distributors, but a $19.25 million jury verdict seems grossly disproportionate to any injury five distributors may have caused by spreading a rumor that Procter & Gamble is in league with the devil.

The consumer products giant won what may be one of the largest false advertising awards on record after no less than 12 years of litigation against Randy Haugen and four members of his Ogden, Utah-based Amway distribution group. Amway itself was dismissed from the case in 2001.

In an April 1995 message posted on the Amvox internal phone-mail system, Haugen said P&G's president had appeared on a TV talk show and “stated that a large portion of the profits from [P&G] products go to support his satanic church.” The message listed 43 specific products.

P&G's rumored associations with Lucifer go back to the 1980s when some claimed that its man-in-the-moon logo was a satanic symbol. But a federal jury in Salt Lake City last week found Haugen and his co-defendants liable for perpetuating the rumor to gain an unfair advantage over their competitor.

The Lanham Act's false advertising provision applies to any use of a “false or misleading representation of fact ... in commercial advertising or promotion” which “misrepresents the nature, characteristics, [or] qualities ... of ... another person's goods, services, or commercial activities.”

A major issue in the case was whether the Amway distributors used the satanism rumor in a “promotion” and, if so, how they could have specifically damaged P&G when it had already been circulating for so long before Haugen's Amvox message.

“Hundreds of thousands (perhaps millions) of people had been taken in by it between 1980 and April 20, 1995,” the defense said in a motion for judgment as a matter of law, going on to argue that the distributors

directly forwarded the message to fewer than fifty people. This is not enough to constitute sufficient dissemination to be an advertisement or promotion.

P&G used Amway's pyramid-sales structure against the defendants. “The dissemination issue must be examined in the unique context of the Amway distribution organization and culture,” it said in a brief, claiming the jury could infer the rumor spread to “many thousands, and even hundreds of thousands, of people.”

Even if the dissemination did go that far, Haugen retracted his message within a week of posting it. And P&G's evidence of a causative link between the rumor and lost profits was speculative to say the least.

The company's expert estimated damages at $545 million by comparing the sales growth of the products mentioned in the Amvox message to all other P&G products. P&G had profits of nearly $13 billion during the alleged damage period.

The jury didn't buy the expert's number, but still punished the distributors severely for what amounted to, as the defense put it, “a small blip among a surge in Internet rumor activity.”

An appeal would be no surprise -- the case has so far generated three published opinions (see table below). "We are stunned," Haugen said of the verdict. "All of us."

By Matthew Heller
3/22/07