082: A Sharp SLAPP in the Face

Stella Case No. 082, Originally Published: 1 December 2004

San Francisco-based Sharper Image was founded in 1977 and is a successful catalog merchant and mall retailer. Consumers Union was founded in 1936 and is a non-profit product testing organization dedicated to getting objective product information out to consumers via its magazine, Consumer Reports.

To perform its product tests, CU buys example products in retail stores (rather than accepting carefully selected samples from manufacturers), and puts them through exhaustive tests to answer the questions: do the products do what they’re advertised to do? Do they do it well? And how well do they work compared to competing products?

For an early 2002 review of home air filters, CU bought 16 air filtering units from a number of sources, including an “Ionic Breeze” air purifier system from Sharper Image. The Ionic Breeze is the company’s best-selling product; analysts say it may account for half of Sharper Image’s sales, accounting for hundreds of millions of dollars of their income. Five different models sell in the range of $200–500.

To test the 16 different air filters, CU put each unit in a sealed room and measured how much smoke and dust they could remove from the air over a 30-minute test period. Of the 16 units CU tested, the Ionic Breeze “Quadra” model came in dead last since it managed “no measurable reduction in airborne particles.”

Sharper Image was upset at the test results. “They said the Ionic Breeze needed to run longer,” a CU attorney said. “So Consumer Reports went back and tested again, this time seeing how much cigarette smoke could be removed over 19 hours. It couldn’t even clean the smoke from one-eighth of a cigarette” in that time.

In late 2003 Consumer Reports again tested air filters, and the Quadra again ranked last in the rankings.

Not surprisingly, Sharper Image was once again upset. “They told Consumers Union again that the test was unfair,” the attorney spokesman says. “So Consumers Union asked what test they’d like [us] to run. They have never, to this day, recommended a test for Consumers Union to do.”

Sharper Image did, however, have a plan of action: it sued CU in U.S. District Court, alleging the articles in CU’s magazine Consumer Reports were based on “bad test procedures” and constituted “negligent product disparagement.”

But wait a minute: aren’t reviews part of what’s covered by the First Amendment of the U.S. Constitution? Shouldn’t a testing organization be allowed to publish its opinion as to what it thinks about a product, even if the manufacturer doesn’t like what they say, based on that explicit right?

Of course the First Amendment applies. So might the lawsuit by Sharper Image be considered a way to shut up a critic on an issue that affects the public?

“Sharper Image could have just let it go without drawing more attention to Consumer Report’s articles, but they didn’t,” says attorney Steven Williams, who represented CU in the case. “I think they wanted to have a chilling effect on the media.” And surely if Sharper Image prevailed, other reviewers would be “chilled” — they’d have to think long and hard about publishing a negative review, no matter how objective it was, when they might have to pay out millions of dollars in damages. “When you strike at the core of the First Amendment and sue someone to protect marketing,” Williams says, “that’s not really a proper use of the courts.”

Indeed, there’s a name for such a speech-chilling case: Strategic Lawsuit Against Public Participation, or SLAPP, and it’s a powerful tool large corporations can use against smaller foes to shut them up, even when their speech is protected by the Constitution — and even when it’s in the public interest for their opinion to be heard. The SLAPP is so powerful and so unfair, in fact, that many states have specifically made SLAPP suits illegal — including California, where Sharper Image filed its suit.

Williams filed a motion to dismiss Sharper Image’s lawsuit on the basis that it was prohibited under California’s anti-SLAPP law. U.S. District Corut Judge Maxine Chesney agreed that the suit was an attempt at squelching CU’s First Amendment rights of free speech — the very definition of a SLAPP. She not only dismissed the suit, she awarded CU $400,000 in legal fees that it spent to fight off Sharper Image’s action.

“The court finds Sharper Image has not provided sufficient evidence to support a finding that, under any of [their argued] theories, whether alone or in combination, it has a reasonable probability of establishing that any of the challenged statements are false,” Chesney wrote in her decision.

Sharper Image’s lawyer said the retailer was “very disappointed in this result” and threatened to appeal the ruling.

“Hopefully, going forward, companies will think twice about filing these types of suits,” CU attorney Williams said afterward. “It’s not in their interest to be attacking free speech.” Nor, indeed, is it in the public’s interest.

Still, even though CU won, other publications might still be chilled, Williams says. “Consumers Union may not have backed down, but how willing will magazines like Good Housekeeping be in the future to criticize products? How willing will newspapers be to do independent reviews? What this case was really about was the First Amendment and the right to free speech.”

Consumers Union has been sued 15 times over the reviews it has published in Consumer Reports, but it has never had to issue a retraction or pay any legal judgments.

Obviously, anti-SLAPP laws don’t give publications free rein to say anything they want; they don’t entitle them lie about a product, for instance. But when they’ve been objective in testing, or only stated opinion, and are still sued, such laws give them the lever they need to defend themselves and recover their usually significant legal costs.

So the case is a victory for the First Amendment, but don’t cheer yet: while 21 states have adopted anti-SLAPP laws, that leaves 29 which haven’t. SLAPPs are thus still a powerful tool that can still be used to stifle free expression in many parts of the country, and that affects us all.

Sources

• “Sharper Image Loses Suit Over Panned Product”, The Recorder, 11 November 2004.
• “Sharper Image Fogs Up”, San Francisco Chronicle, 14 November 2004.

Case Status

As noted, Sharper Image was SLAPPed hard by the judge.

In 2006 Sharper Image’s Board of Directors removed founder Richard Thalheimer from his position as CEO. That didn’t work out very well: in February 2008, the company filed for bankruptcy protection. The company said it had $251.5 million of assets and $199 million of debts as of January 31, 2008, according to the filing. All of its retail stores — it had 187 of them — were closed by the end of 2008. Its assets were sold at auction for $49 million to a conglomerate of private investment firms, which licensed out the Sharper Image brand. In late 2016 the conglomerate sold the brand for $100 million to another conglomerate, this time of retailers. That iteration of the company is still in business today.

My 2021 Thoughts on the Case

Today 31 states, the District of Columbia, and Guam have enacted statutory protections against SLAPPs: Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Kansas, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Missouri, Nebraska, Nevada, New Mexico, New York, Oklahoma, Oregon, Pennsylvania, Rhode Island, Tennessee, Texas, Utah, Virginia, Vermont, and Washington. In Colorado and West Virginia, the courts have adopted protections against SLAPPs. These laws vary dramatically in scope and level of protection, and the remaining states lack specific protections. They need to get to work, and so does Congress at the federal level.

Letters

Over the past several cases, only one really excited reader passion: Tribune/Cubs vs. one of the Tribune’s newspaper carriers.

Mike in Michigan, a retired PR executive: “What the Tribune Company badly needs is a public relations executive with clout. This case should NEVER have progressed beyond the original mistake. In my checkered career, I was once the top public relations executive for a major news media company, after having spent a quarter-century likewise employed in heavy industry. Ironically, media companies have the worst public relations of any industrial group, in part because — being in the media business — they think they know it all, and can ignore criticism. Somebody at the Trib should have told the lawyers to bag it quickly, quietly and gracefully.”

Indeed, the company pummeling its former newspaper carrier made itself look mighty mean and stupid. It went on for over a year.

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