Brill's Content, "Rewind: Selling Snake Oil", February, 2000

Brill's Content

Selling Snake Oil: False Advertising by Book Publishers

February 2000


Book publishers say they're not responsible for what they sell us-that even if a book turns out to be bogus and they've used phony claims to advertise it, it's your problem, not theirs.

Nothing better illustrates the arrogance of big media corporations and their contempt for their consumers than a lawsuit now pending in California.

The case involves a series of books published by a subsidiary of Disney that were ghostwritten under the name of the Beardstown Ladies. You remember the Beardstown Ladies: They're the group of retired women from Beardstown, Illinois, who rocketed to stardom in the early 1990s when they claimed that their quaint little investment club had achieved returns of 23.4 percent per year-a Warren Buffett-level performance that was three times higher than the average achieved by mutual funds and professional money managers during the same period.

Beginning in 1992, the Ladies became folk heroes in the press and on the talk show circuit. They then signed a deal with a book packager who found a ghostwriter for them and sold his product to Hyperion Press, a division of Disney, after which Hyperion began marketing a series of best-sellers with titles like The Beardstown Ladies' Common-Sense Investment Guide: How We Beat the Stock Market-and How You Can, Too and The Beardstown Ladies' Little Book of Investment Wisdom. There were even videos, such as The Beardstown Ladies: Cookin' Up Profits On Wall Street.

All was well until February 1998, when Shane Tritsch wrote an article for Chicago magazine revealing that the Ladies hadn't beaten the stock market at all. Their actual return was closer to 9 percent a year for the period that they and the books bearing their name had touted. That article was quickly followed by a front-pager in The Wall Street Journal echoing and amplifying Tritsch's reporting, and the Journal's piece was in turn followed by a much-publicized Price Waterhouse audit that found that the Ladies had lagged the Standard & Poor's 500 Index by nearly 40 percent and had beaten the index in only three of the 14 years that Price Waterhouse examined.

In April of 1998, a lawyer in San Rafael, California, filed a novel suit. Ostensibly on behalf of a book buyer named Russell Keimer, lawyer Jeffrey Lerman sued Disney and its related subsidiaries for false advertising. Lerman says he and Keimer, who had once been employed by another lawyer involved in the case and had purchased one of the Ladies' books, were appalled that the book jackets had touted the Ladies' claim of achieving that 23 percent and, in fact, still made the claim after their inaccuracy had been discovered. So he sued-not just on behalf of Keimer but also on behalf of "the General Public." By going for this kind of class action suit, in which he sought to have Disney disgorge all the profits it had made on the falsely advertised books not just from Keimer but from everyone who'd bought them, Lerman hoped to get as his fee a percentage of what the public would recover from the suit.

Put aside any hostility you may have against plaintiff lawyers or class action suits, and think about the basics of this case. Lerman was arguing that a book's cover, or book jacket, constitutes advertising, which it of course does, because it's making a claim in order to get people to buy something. And he was arguing that under a California law prohibiting false advertising, Disney was clearly liable because Disney knew or should have known that the claims on the book jacket were false.

Part of Lerman's argument was that even after the Beardstown Ladies' claims were proven false, Disney persisted in selling the books with covers touting their fabulous investment returns. (To be sure, an attempt was made to insert an errata page into some of the books, but the effort was halfhearted at best; an article in this magazine in August 1998 reported that two months after the Journal article, the errata pages were nowhere to be found in books being sold with those false claims on the jackets. And as of this writing, if you go to Amazon.com, you'll still find the Ladies' first book listed with a full picture of the cover touting the 23.4 percent return with no disclaimer. Click to the Amazon.com reviews, and the first one begins, "The Beardstown Ladies' annual average investment return is a whopping 23.4%.") But the crux of Lerman's suit was that even before a magazine reporter had gone to the trouble, Disney itself should have checked the easily checkable factual claim about the 23 percent return before trumpeting the claims on the book jacket.

Disney quickly filed a motion to dismiss the case-and won. The conglomerate's defense: Because the false claims had been taken from the book itself, they were protected by the First Amendment because the First Amendment is meant to protect book publishers from these kinds of legal attacks by not requiring publishers to check the accuracy of what their authors write. Otherwise, publishers would be afraid to publish books or would have to spend too much money on checking to be able to publish profitably.

Lerman appealed the trial judge's dismissal of the case. He argued that book jackets are the publisher's own words, not the author's, and therefore the publisher has the same duty to check out the claims any other advertiser does when making a pitch to get someone to buy something.

It is in Disney's brief defending against this appeal-and in an accompanying brief filed on behalf of all major book publishers by the Association of American Publishers-where we see what big corporate publishers think about their responsibility to protect consumers from shoddy products.

"[I]t is clear," answered the Disney lawyers, "that Disney had no obligation to verify the accuracy of any assertions made by the Beardstown Ladies as to the rate of return on their investments." Disney's claim of immunity from responsibility was matched by what the lawyers (from a firm that also represents this magazine's parent company in some matters) speaking for the publishing industry had to say in their brief backing Disney: "[A] book publisher is entitled to rely on its author's factual investigation without need or obligation to undertake its own, independent investigation of the same facts," the brief from the Association of American Publishers argued. "Stripping book publishers of the right to rely on authors for the accuracy of book covers and promotional materials that encapsulate book contents would effectively nullify the legal protections afforded book publishers when they rely on their authors...."

In late October, the appeals court decided against Disney and the publishers' association, ruling that advertising on book jackets was not automatically protected from a false advertising claim and that the case could go forward.

Whether the founding fathers intended the First Amendment to protect a publisher trying to cash in on someone's falsely gained celebrity by using advertising that is clearly and objectively false is an interesting legal question that I'll bet gets decided ultimately against Disney. But the bigger issue is the way in which this suit uses consumer protection principles, not traditional libel law, to challenge America's leading consumer product: media. Much of the media we consume today is sold to us by large public corporations. Their highest priority is profit. That's not a criticism; it's an acknowledgment of their duty to shareholders. And one way they maximize profit is to claim as much as they can get away with claiming about their products. Indeed, we live not only in the Information Age but in the age of hype. Unscrupulous authors-be they those with investment returns to brag about or those with scoops to tout-will have the same motivation. The more they claim in their books, the more their publishers will be able to claim, which means bigger bucks for everyone involved.

Especially at a time when so much of what these media corporations use their marketing clout to sell is not great literature or trailblazing journalism but self-help guides of all varieties, these corporations become perfectly acceptable, and unsympathetic, targets of consumer claims alleging false advertising or even fraud. It should also make them increasingly subject to challenges in the marketplace, rather than the courtroom, from skeptical consumers.

What you now know from this suit and the publishers' association brief is that the publishers you buy books from-Penguin/Putnam, Random House, HarperCollins, Simon & Schuster, St. Martin's Press, and the rest-don't think they have any obligation or responsibility to worry about the accuracy of the books they sell to you. None. Nor do they think they are even under any obligation to tell you that they don't care. After all, had Disney been truthful on its book jacket for the Beardstown Ladies' books, the jackets would have said, "These ladies say they earned a 23% return, but we have no idea at all whether the claim is true, nor did we lift a finger to find out before trying to sell you this book."

Absent these kinds of false advertising claims, the only way the law now deals with faulty media products is when they hurt someone's reputation. In those situations, a publisher that gets sued for libel has to prove what Disney does not want to have to prove in the Beardstown Ladies case: that in deciding to rely on the author, it used some care-not necessarily by re-reporting all the facts but usually by having a lawyer grill the author and ask him or her to provide notes and other sources to verify what is objectively verifiable. In other words, had the Beardstown Ladies not only said they'd earned 23 percent but singled out some famous money manager as someone whose performance they'd beaten badly, the publisher's libel lawyers would probably have made them show the lawyers the math. But because no one was defamed by what they wrote, the publisher didn't worry about it.

What I like about Lerman's approach is that he's not threatening an author's right to write free of fear of harassment suits (or real suits based on honest mistakes) or even a publisher's decision to publish a book that has material in it that's debatable or even wrong. And he's not using a libel law approach that requires that a victim of what's written undertake an expensive, long-shot courtroom battle. Instead, what he outlined in his legal papers is a structure that allows any consumer to sue but forces that consumer to clear some sensibly high hurdles. First, the material in question has to be factual and objectively wrong. Second, the publisher has to have known that it was wrong or could have discovered that it was wrong if it made a good-faith effort to do so. And third, the material in question has to have been a significant part of the advertising.

Lerman's restriction of his claim to the book's advertising is not simply a clever way to get in under the false advertising statutes; it also makes sense as a public policy matter once we begin thinking of media as a consumer product. For as consumers we get hurt by publishers when we buy books that turn out to be shoddy; and we decide to buy those books based on the words publishers use to sell them. It's their voice, not the author's, that induces us. For the same reason, we would not want to hold a bookstore liable simply for having sold a book because it decided to stock the book based on what the publisher's salesman had said about it.

Suppose a publisher says on a book jacket, "Smith has a controversial and much-criticized idea for dieting. Some experts even say this idea could kill you. But it's interesting reading and maybe worth trying." We could then hardly blame the publisher if we bought the book and the diet didn't work or even killed us. Nor, given the larger First Amendment values at stake, should we want to punish the author of that controversial speech. But the real point is that no big-media corporation today would be willing to publish a book with that jacket on it, because it wouldn't sell nearly as well as one with a jacket that says, "Smith's miracle diet has worked for 98,000 out of 100,000 people who've tried it." It's no surprise, then, that the view of the publishing trade association is that that bogus book jacket would be perfectly okay as long as Smith made the same false claim in his book.

I agree with the publishers' argument to the court that this case could have ramifications for all kinds

of other books that don't make a simple and clearly false mathematical claim intended to induce people to buy them. The difference is that unlike the publishers, I think that's a good thing. For example, suppose a publisher uses a book jacket to advertise a book by Jane Doe as The True Story of How Jane Doe Cured Herself of Cancer when, in fact, Jane never had cancer. Why shouldn't the publisher be liable? Or suppose a publisher touts a book as the author's "Inside story about the mob from a mob captain, with full transcripts of mobsters holding board meetings" but the author was never in the mob and he made up the transcripts? Or what if a publisher knows that a celebrity didn't write a word of her autobiography and that half the anecdotes in it are made up?

So if the Beardstown Ladies case succeeds, as it should and probably will, I bet it won't be long before we see similar class actions against other books and even against magazines whose hyped cover lines promise something specific that is not delivered inside. (Not all hype, of course, would or should be liable. Simple exaggeration of the type we're used to on many magazine cover lines wouldn't pass the legal test that something is objectively false and is deliberate or could have been checked.)

Indeed, all of us as customers should demand more from those who sell us these products, and maybe even use the implicit threat of these false advertising claims as a lever. For example, suppose you get a direct mail pitch for a magazine that promises you the "straight, honest scoop on the best ski resorts." Why not write back and say you're subscribing based on the publisher's promise in that mail pitch that the magazine's coverage of ski resorts is not in any way linked to advertising. That will put them on notice that there's a class-action case in their future if they're not leveling with you. Ditto a letter questioning the hype of a magazine's cover lines.

Or you could write to book or magazine publishers and ask them how they go about checking basic facts in their nonfiction work or whether the way they rely on authors is akin to the "Don't ask, don't tell" modus operandi that senior writer Jennifer Greenstein describes in her report, on St. Martin's Press. Lots of magazines that do attempt independent fact checking would welcome those queries, because their extra effort distinguishes their brands. Other magazines and probably all major book publishers would cringe.

But is our only hope that other lawyers will try to make a killing with more class action suits that can get over the hurdles we should require in a courtroom? Maybe not. It may be that the levers of a competitive marketplace-sensitized by lawsuits like this one and others that are sure to follow-present a better alternative. With suits like this one, and with publicity like that accompanying the fiasco recounted by Greenstein at St. Martin's, which blithely published a book about George W. Bush written by a con-artist felon, maybe there's an opening for a book publisher who promises consumers, "We Check Our Books," and then explains in an introduction how a book is checked. Perhaps there's a name waiting to be made out there for a publisher that wants to brand itself as the home for books-even, or especially, for self-help books-that stands behind what they are asking customers to buy. Indeed, in some areas of publishing, such as travel, there are already brands built on quality and independence (see Matthew Reed Baker's article "Trailblazers For Travelers," January). And many magazines have already earned respect in the marketplace for their fact-checking processes-and could earn more in a world in which consumers asked more about the care they take.

Book publishers, though, will tell you that their business is difficult enough without imposing this new liability on them. That's true, but it may be that this is because none (with the possible exception of the Alfred A. Knopf division of Random House; Farrar, Straus and Giroux; and some of the academic presses) has carved out a distinctive brand based on quality.

Besides, publishing may soon become more promising financially with the advent of electronic books that can be sold and delivered on the Internet, eliminating the production costs and returns that are the bane of book publishing. In fact, it's also the Internet, with its endless variety of content sources, that should dictate that today's publishers work hard now, before bookselling comes to the Web in full force, to embrace and tout the same standards of responsibility that they've attacked in Lerman's lawsuit. For it's only by taking the consumer's side in matters having to do with quality assurance-and becoming brands that stand for those values-that publishing, like any other business, will survive in a place like the Web, where anyone can sell anything.

Editor's Note: Jeffrey Lerman, one of Mr. Keimer's lawyers, has informed us that referring to him, alone, as Keimer's attorney is inaccurate. Representation of Mr. Keimer has been a collaborative effort between Mr. Lerman and Andrew August (Bayer & August-SF), the "other lawyer" referenced in the article. Mr. Lerman has pointed out that many of the arguments and approaches taken in the case were the ideas of Mr. August.