Rent Seeking, the Lanham Act, and Pomegranates

pomegranate-juice-recipeThe Lanham Act, originally enacted in 1946, is the premier law protecting trademark law in the United States. I have gone on record multiple times opposing the idea of intellectual property, including trademarks, and have no intention of repeating those arguments here, but the Lanham Act actually has far more sinister and far reaching impact than a mere protection of trademarks.

What the Lanham Act does is allow for companies to sue one another under the accusation of “unfair competition.” Now, “fairness” is one of the slipperiest and most abused terms in politics. There is no set definition for what it means, and everyone has their own idea about what is “fair.” To an egalitarian, it is unfair for some people to have more money than others. For a capitalist, it is unfair to forcibly take money from the people who earned it and give it to those who didn’t. Fairness is in the eye of the beholder, and hence the term should have no place in politics or law.

In the case of the Lanham Act, the concept of fairness has been interpreted quite broadly, with precedents that make commercial claims deemed to be “false or misleading” ruled as valid grounds for suit and subsequent punishment.

In recent news, this issue has come up in a suit involving the Coca Cola Company and POM beverages, best known for peddling tiny, grossly overpriced bottles of pomegranate juice. POM is suing Coca Cola because the latter, under its Minute Maid brand, sells a product labeled “Pomegranate Blueberry” juice mix, while not actually containing very much of either juice. POM is claiming this as false advertising and unfair competition with their own pomegranate-blueberry juice blend.

Now, there is a legitimate libertarian case to be made against fraud. Selling one good while claiming it is another can be considered a form of indirect theft, since the customer has not agreed to purchase what he is actually paying for, only what he thinks he is paying for.

That being said, laws such as the Lanham Act are too broad and have too much potential for abuse and rent seeking by companies willing to use the mechanism of law to crush their competition. Is Coca Cola really engaging in fraud by selling a juice blend that clearly lists all its ingredients on the label? If this is the case, then the same charge could be leveled at such misleadingly named products as Orange Crush, Wild Cherry Pepsi (I refuse to believe that cherry flavoring is really “wild”) and any number of products allegedly made from the elusive “blue raspberry.” More importantly, is POM unjustly damaged by the existence of Minute Maid’s product? It’s hard to see how this is the case.

POM, after all, is not entitled to sales. If people are choosing the watered down Minute Maid product over their higher quality one, it is presumably because people’s preferences and budgets make the former more attractive, not because they are being duped by marketing. What this case is actually about is POM trying legally block legitimate competition, so that it can keep its prices high and continue to rake in profits. This is the main problem with laws like the Lanham Act: they incentivize companies to direct resources towards litigation rather than towards investment and innovation to make better products. It also gives a huge advantage to well-monied incumbents who can sue their smaller, independent competitors out of existence. It’s the very opposite of what antitrust laws are nominally supposed to accomplish.

Whenever government intervenes in markets, the result is always the reverse of what is intended – or at least what is claimed to be intended. This is because government do not, and cannot have the vast amount of knowledge that is embodied in the millions of individual transactions taking place each day, and unintended consequences are inevitable. It’s far preferable to just let firms compete on their own terms without involving the law, especially over something as trivial as juice.

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One Response to “Rent Seeking, the Lanham Act, and Pomegranates”

  1. Citizen101 says:

    I can't really speak for POM but as a fan of their pricey product I think I can relate to their perspective. From POM's perspective claims by common brands about their 'juice' products are more or less fraudulent. Generally brands like Minute Maid tend to misrepresent their products as being healthy alternatives, and to contain significant amounts of actual 'juice.' In reality they contain high amounts of sugar and low amounts of the actual juice they are advertising on the package, these products have been shown to be unhealthy when consumed regularly.

    POM is supposed to be more or less pure juice without anything added to it, and POM makes some positive health claims about its product. POM is at a disadvantage because these cheap unhealthy products are being represented in a similar way to what their high quality health oriented product is. I agree that the information is all required to be provided on the label, but the world of food labeling is a murky and convoluted place, and I think POM is just trying to set their product apart from the competition but via a corrupt and misguided channel.

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