The first rule of comparative advertising has always been that you can say pretty much whatever you want so long as you don’t lie.  But there is a new wrinkle—don’t threaten or stalk the competition.  A recent Ninth Circuit decision in Thunder Studios v. Kazal, has shed new light on the extent of protection afforded by the First Amendment to reprehensible and confrontational speech.  The case is quirky in that the individuals protected by the First Amendment were not US Citizens and were not themselves in the US when the “protests” occurred, but the case is a cautionary tale as to the limits of First Amendment protection of comparative claims.  Importantly, however, the case cannot—and should not—be read to provide for an open invitation for competitors to promote or otherwise engage in extraterritorial smear campaigns with impunity.  Indeed, there is nothing in the Ninth Circuit’s opinion to suggest that it should be read to preclude or immunize parties from claims of defamation, product disparagement, or even invasion of privacy torts arising out of similar behavior.  Nor would it likely protect a party from liability from organizing a secondary boycott.  The case is pending en banc review by the Ninth Circuit so stay tuned.

Following the souring of a multimillion-dollar business deal between Australian citizens Roderick David, on the one side and Charif Kazal, Adam Kazal, and Tony Kazal on the other, the Kazals undertook an international campaign to inform the citizens of Los Angeles, California about the “despicable crimes” allegedly committed by David (then a resident of Los Angeles).  The Kazals sent hundreds of emails to David and his employees, hired protesters to picket and distribute flyers near his residence and business—Thunder Studios Inc., in Los Angeles—and had vans emblazoned with their message driven around the city.  Leaflets and signs held by protesters described David as a “corporate thief” and a “fraudster” who “robbed his business partners of $180 million.”

David and Thunder Studios sued the Kazals in federal district court in Los Angeles, essentially accusing the Kazals of stalking David and his business.  The California statute upon which Mr. David’s case rests carefully qualified the tort to avoid “impair[ing] any constitutionally protected activity, including, but not limited to, speech, protest, and assembly.”

In December of 2018, a jury found that Tony and Adam Kazal had committed the tort of stalking and awarded David $100,000 in compensatory damages and $1 million in punitive damages against each of them. The Trial Judge denied the Kazals’ motion for judgment as a matter of law and concluded that a reasonable jury could perceive Tony and Adam Kazals’ actions as threats, such that those actions were not protected by the First Amendment and thus within the coverage of California’s anti-stalking statute.

On appeal, however, the Ninth Circuit—in a split decision—reversed, holding that that the Kazals’ speech and speech-related conduct was protected under the First Amendment and was thus excluded from the California stalking statute as “constitutionally protected activity.”  The Court held that the Kazals’ actions—including the hiring of protestors, organizing leafletting, hiring of a van to drive around Los Angeles with a message on its side, and the publishing emails online—was done in order to “openly and vigorously . . . make the public aware” of their views of David’s business practices, and “[t]hough much of the Kazals’ speech was intemperate and rancorous,” “the First Amendment right to receive information exists ‘regardless of [its] social worth.’”

Thus, finding that neither Tony nor Adam’s conduct amounted to a “serious expression of intent to harm or assault” under either an objective or a subjective test, the Court held that the Kazals’ speech and speech-related conduct did not fall into the exception for “true threats.”  According to the Court, “[t]he protests Tony [Kazal] organized in Los Angeles alerted the public to David’s alleged misdeeds and encouraged people to ‘read the full story’ on the Kazals’ website.”  Therefore, “[a] reasonable speaker could not conclude that David would understand these communications to threaten anything more than a continuation of this campaign to provide their side of the story.  Nor is there any evidence that Tony [Kazal] subjectively intended to threaten violence.”  Accordingly, the Court found that the Kazals’ conduct was protected under the First Amendment and was therefore excluded from the “pattern of conduct” that constitutes stalking under California law.

In dissent, Judge Kenneth Lee opined that the First Amendment unequivocally “protects the good, the bad, and the ugly” and “[a]s the defendants admit, their conduct bordered on the bad and unleashed the ugly.”  While Judge Lee agreed with the majority that the First Amendment protects the Kazals’ reprehensible conduct, he disagreed with their conclusion that the First Amendment “extends to foreigners who lack substantial voluntary connection to this country[,]” especially those who “apparently have no connection to the United States[.]”

Given the ambiguity in the California statute, clarity will certainly be welcome to those who operate in the space.  The Ninth Circuit has yet to decide whether it will review Kazal en banc, so there remains a level of uncertainty as to the extent to which the First Amendment protects derogatory speech about a competitor and who is protected, especially when this speech is aimed at US citizens.  In the meantime, stay tuned here as the case unfolds.