Speaking Libel to Power

Hidden dangers of governments competing in private markets

What started as market competition between a private business and a government agency has escalated into lawsuits, countersuits, and troubling questions about the fate of free speech when government enters the market.

In November 1994, the College Savings Bank accused the Florida Prepaid Postsecondary Education Expense Board of patent infringement. College Savings, based in Princeton, New Jersey, sells a patented financial instrument to help parents pay for their child's college tuition. Florida Prepaid, a state agency, has provided a similar service since 1988. (Before an act of Congress in 1992, the bank couldn't have sued. State governments and agencies had been immune from such suits.) Florida Prepaid denies that its service infringes the College Savings Bank's patent.

In August 1995, the bank filed another suit, claiming that Florida's promotional literature contained false claims that qualified as unfair competition. That's when things started to get interesting. Bank President Peter A. Roberts commented to the Miami Daily Business Review that Florida's promotional pamphlets contained "half-truths" and "outright lies." Florida Prepaid countersued for product disparagement, trade libel, and defamation.

The countersuit is what makes the case more than a nasty business dispute. "As a constitutional and historical matter, you can't be sued by the government for criticizing it," says Sandra Baron, the executive director of the Libel Defense Resource Center, a nonprofit clearinghouse for information on libel issues. "The notion of providing civil penalties for being critical of government is something this country has never adopted."

Since Florida Prepaid is a government agency, she says, the case could have "significant repercussions" if the agency wins. Unless the court explicitly says that it is considering Florida Prepaid as a business competitor, not a branch of government, allowing it to proceed with a libel suit could open the door for other government agencies to sue their critics.