August 23, 2007 | Read Time: 5 minutes
At first blush, the decision by Johnson & Johnson to sue the American Red Cross seems utterly wrongheaded, a clear case of the bad guys against the good guys. After all, a commercial health-care behemoth is suing the far smaller Red Cross over the use of the red-cross symbol.
The company argues that the world’s most well-known and highly regarded humanitarian organization has, through licensing agreements, improperly permitted a handful of commercial entities to use the emblem to sell products, some of which compete with Johnson & Johnson’s.
Even though the shared use of the logo goes back more than a century, the dispute did not come about until recent years, when the charity started pursuing licensing deals.
Executives at Johnson & Johnson have been talking to the Red Cross in an effort to resolve the differences, but this month, apparently exasperated by the lack of progress, the company went to court.
It demanded that the goods currently in the hands of the companies that produce the licensed items and those at retail outlets be collected and destroyed. The company also asked the court to levy “punitive damage” fees on the charity.
The Red Cross responded bitterly to the lawsuit. Mark Everson, the Red Cross’s new chief executive, called the legal action “obscene” and said that it was taken “simply so that J&J can make more money.”
But the lawsuit is clearly not about money. The Red Cross says it earned only $2-million in 2006 from sales of products such as humidifiers and nail clippers that bear its logo. By the standards of the Red Cross’s bottom line, whose total revenue last year was $3.9-billion, a couple of million dollars isn’t going to make much difference. Certainly that sum makes little difference to Johnson & Johnson, with $53-billion in sales last year.
The larger dispute involves a topic far murkier: the growing efforts by charitable organizations to wade into commercial waters. As charities have been forced to wrestle with increasingly stark financial realities, they increasingly are exploring partnerships with for-profit entities.
As a social goal this may not be bad in itself — the idea is to bring the best of both worlds together — but the fact of the matter is that we have a system in this country where charities are not the same as commercial enterprises.
As a result, charities enjoy benefits: those only Congress can bestow — the tax-deductibility of donations and the untaxed gains in charities’ investment portfolios — and a perception by the general public that charities are meant to do good in the world.
On that last point, the Red Cross has had a rough time in recent years. The fund-raising controversies that emerged after the 2001 terrorist attacks and the mess the charity made of the disaster-relief efforts after Hurricane Katrina have made Americans more aware of the weaknesses of the Red Cross, as well as more wary of unexamined claims to goodness by all charities.
Maybe that’s why Mr. Everson’s initial response was so vitriolic: Put down the for-profit entity with angry words before anybody thinks about this too much. But the angry words serve more to needlessly polarize than to communicate.
By characterizing something as “obscene” right from the start, the Red Cross leaves little room for maneuvering. And even though, despite its recent difficulties, the Red Cross may be the heartstring underdog in this fight, the issue of charities that license products and compete in the world of commerce is a big deal. The courts should not take it lightly, and the public shouldn’t either.
Commercial activity at charities is not rare. And it’s not all bad. Profits that are made by a charity doing things that have nothing to do with its mission are taxed, so the two enterprises are, on that level at least, on an equal footing. That’s not the case here, as the Red Cross, presumably, is earning its profits with products vital to its mission.
But the problem comes when the line between the two worlds is blurred. Licensing not-for-profit products to for-profit companies that compete with other for-profit companies can blur the distinction between what serves commercial interests and what serves charitable interests. The emblem introduced as Exhibit A in this controversy is more than a design; for the Red Cross, it’s a symbol of a charitable purpose. In that sense, this issue is about the good will a charity uses to gain advantage — for itself or others — in a world where it does not primarily operate.
Now that both sides have had their say in public, it is time to return to the negotiating table and work this out.
An easy solution would be for Johnson & Johnson to let it go. After all, it comes across as a company with an incredibly wooden ear, and the money involved is ridiculously insignificant to either party. At the same time, however, it is true that Congress and the general public need to be more aware of the larger implications of the seemingly inexorable merging of the charity and business worlds.
The Red Cross should not try to promote the story line that this is a case of a company obscenely chasing profits by attacking a charity that can do no wrong. By licensing for-profit entities to compete with Johnson & Johnson, the Red Cross has created a commercial advantage for its licensees. On that concept, Johnson & Johnson has it right and ought to be concerned. So should the rest of us.
Doug White is an independent consultant to charities and donors and is the author of Charity on Trial (Barricade Books, 2007). He lives in Washington.
