U.S. Healthcare, Inc. v. Blue Cross of Greater Philadelphia
898 F.2d 914, 14 U.S.P.Q. 2d (BNA) 1257, 17 Media L. Rep. (BNA) 1681 (1990)
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Rule of Law:
Comparative commercial advertising, even when touching upon matters of public concern like health care, constitutes commercial speech and is therefore not subject to the heightened "actual malice" standard of proof under the First Amendment for defamation, commercial disparagement, or tortious interference claims. Instead, the ordinary preponderance of the evidence standard applies.
Facts:
- For over fifty years, Blue Cross/Blue Shield operated as the largest health insurer in Southeastern Pennsylvania, offering 'traditional' medical insurance coverage.
- In the early 1970s, U.S. Healthcare began providing an alternative to traditional insurance in the form of a health maintenance organization (HMO), becoming the largest HMO in the area by 1986.
- Between the early 1970s and 1986, Blue Cross/Blue Shield experienced a loss in enrollment, with a majority of those subscribers choosing a U.S. Healthcare company.
- In late 1985, Blue Cross/Blue Shield introduced a new product called 'Personal Choice,' a preferred provider organization (PPO), in an admitted attempt to compete with HMOs.
- In July 1986, Blue Cross/Blue Shield launched a deliberately 'aggressive and provocative' comparative advertising campaign, designed to promote Personal Choice and 'reduce the attractiveness of [HMO],' at a cost of approximately $2.175 million.
- Blue Cross/Blue Shield's campaign included advertisements suggesting that HMO primary care physicians were financially incentivized not to refer patients to specialists and featured a grief-stricken woman implying tragedy due to inadequate HMO care.
- U.S. Healthcare immediately responded with its own aggressive, comparative advertising campaign, costing $1.255 million, which included positive portrayals of its HMO and 'anti-Blue Cross' advertisements.
- U.S. Healthcare's responsive ads criticized Personal Choice for limiting hospital choices and doctors without admitting privileges, and one television commercial depicted a 'death' scene implying substandard care from Personal Choice.
Procedural Posture:
- U.S. Healthcare filed suit against Blue Cross/Blue Shield in Philadelphia County Court of Common Pleas (state trial court) alleging commercial disparagement, defamation, and tortious interference with contractual relations.
- U.S. Healthcare later re-filed its state claims in the U.S. District Court for the Eastern District of Pennsylvania (federal trial court), adding a claim under § 43(a) of the Lanham Act.
- Blue Cross/Blue Shield filed counterclaims against U.S. Healthcare, alleging the same theories of liability, plus abuse of process and malicious use of process.
- Before trial, the district court dismissed the abuse of process and malicious use of process counts from Blue Cross/Blue Shield's counterclaims.
- After a 14-day trial and 8 days of deliberations, the jury declared itself deadlocked on all issues; the district court initially declared a mistrial.
- The district court then held an open-court colloquy with the jurors, inviting them to share their thoughts, and inquired about the numerical division of the jury.
- Following this colloquy, the district court vacated the mistrial declaration and instructed the jury to resume deliberations on Blue Cross/Blue Shield's counterclaims, leading to a verdict in favor of U.S. Healthcare.
- The district court subsequently entered judgment for U.S. Healthcare on the counterclaims and scheduled a new trial for U.S. Healthcare's claims.
- Blue Cross/Blue Shield filed a motion under Fed.R.Civ.P. 50(b) requesting judgment in its favor on U.S. Healthcare's claims, arguing that a heightened constitutional standard of proof applied.
- The district court granted Blue Cross/Blue Shield's Rule 50(b) motion, concluding that the advertisements were subject to heightened First Amendment protection, requiring proof of "actual malice" by clear and convincing evidence, which neither party had demonstrated.
- Both U.S. Healthcare (as appellant, appealing the Rule 50(b) judgment in favor of Blue Cross/Blue Shield) and Blue Cross/Blue Shield (as appellant, appealing the judgment on counterclaims and the pretrial dismissal of abuse of process counts) appealed to the U.S. Court of Appeals for the Third Circuit.
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Issue:
Does comparative advertising between competing health care providers, which touches on matters of public concern, qualify as noncommercial speech requiring the "actual malice" standard of proof for defamation, commercial disparagement, and tortious interference claims, or does it remain commercial speech subject to a lesser standard of First Amendment protection?
Opinions:
Majority - Scirica, Circuit Judge
No, comparative advertising between competing health care providers, even when discussing public health issues, does not qualify as noncommercial speech for purposes of defamation, commercial disparagement, or tortious interference claims, and thus does not require the "actual malice" standard of proof. The court determined that the advertisements were properly characterized as "commercial speech" because they met the three-part Bolger test: they were advertisements, referred to specific products/services, and were economically motivated. The court emphasized that the speech possessed characteristics making it "durable" and "not susceptible to 'chill,'" as the corporations had significant economic self-interest in dissemination and extensive knowledge of their products, making their claims verifiable. Furthermore, the court cited Central Hudson and Bolger to reject the argument that linking a product to a public debate (like health care costs) elevates commercial speech to noncommercial speech. To do so would "blur further the line the Court has sought to draw in commercial speech cases" and allow advertisers to "immunize false or misleading product information." The court also found that neither U.S. Healthcare nor Blue Cross/Blue Shield qualified as "limited purpose public figures" under Gertz, despite their media access and voluntary entry into controversy, because their primary motivation was to generate revenue rather than influence public policy debate. Therefore, the ordinary preponderance of the evidence standard applicable under federal and state law should apply, not the heightened "actual malice" standard from New York Times Co. v. Sullivan. The court also held that the district court erred in reconstituting the jury after declaring a mistrial and asking about numerical divisions, and in dismissing abuse of process claims given a recent Pennsylvania Supreme Court ruling.
Analysis:
This case significantly clarifies the application of First Amendment protections to comparative advertising in the context of business-on-business defamation and related torts. By firmly classifying such advertising as "commercial speech" despite its connection to public issues like health care, the court ensures that businesses cannot easily shield false or misleading advertisements behind the high "actual malice" standard. This lowers the evidentiary burden for plaintiffs in commercial disputes, making it easier to hold competitors accountable for deceptive advertising practices and promoting fairer competition, particularly in industries with products that touch on public concerns.
