The marketing consequences of competitor lawsuits

On July 20,2005, readers of The Wall Street journal's Opinion pages were greeted with the headline: "Tech Times Are Good, So Why Not File a Lawsuit?" The accompanying column by Holman W. Jenkins, Jr., discussed a suit, by Advanced Micro Devices, Inc. against rival Intel Corp. and argued that Hector Ruiz, CEO of AMD, is "shrewd enough... to realize that a lawsuit can be a branding exercise, a way to garner free media for an 'AMD Inside' message to answer Intel's own long-running and expensive sloganeering over its chips." Assessing the merits of the AMD suit against Intel is beyond the scope of this article. However, The Wall Street Journal op-ed column raises an interesting topic that is seldom discussed publicly: the marketing implications of lawsuits, particularly those filed by one competitor against another. Managers considering whether to file lawsuits traditionally have taken into account the cost of the suit, the likelihood of obtaining damages and the amount of those damages. Attorneys advise them on each factor by estimating legal costs, including the time of managers who would provide evidence; by attaching a probability to winning a settlement or, if the case actually went to court, winning a suit; and by estimating the amount of a settlement or of damages. Such considerations, however, may not represent the entire cost/benefit calculation. Another issue involves the costs and benefits of a given lawsuit from a marketing perspective. Once a company assesses not only legal but also marketing consequences, a decision to file may take into account the possibility that a suit against a competitor may be portrayed unfavorably in the press and lead to a decrease in revenue if perceived negatively by customers. Conversely, the legal costs associated with such a suit may be offset not only by financial gains from a settlement or legal judgment but also by increased revenue from what could turn out to be a publicity coup. Conflict, after all, is news. Consider, for example, a case involving Pizza Hut, Inc. based in Dallas, Texas, and Papa John's International, Inc., a rival pizza company in Louisville, Kentucky. In 1998, Pizza Hut filed a false advertising claim against Papa John's, disputing as false and misleading a Papa Johns claim that its ingredients were better than Pizza Hut's. Pizza Hut was initially awarded damages of $467,000 in the case, and although both the verdict and the award were later overturned on grounds that the Papa John's claim was simply "nonactionable puffery," a great deal of publicity followed the initial pro-Pizza Hut verdict. The initial verdict and resultant publicity spread two messages favorable to Pizza. Hut: Its pizza was not inferior - and its rival's advertising was deceptive. That verdict followed testimony about tomato sauce, preparation processes and crust, including a finding that in blind taste tests, consumers showed no preference for either company's pizza crust over the other's. Although there is no reason to believe that obtaining news coverage was one of Pizza Hut's aims in filing the suit, the media certainly did communicate the Pizza Hut perspective following the initial favorable verdict. Furthermore, the news coverage presumably conferred greater credibility than advertising that contained the same message could have provided.