ADVERTISING AND THE LAWCHAPTER 13

Communications Law. COMM 407, CSU Fullerton

What is commercial speech?

Commercial Speech is an expression, economic in nature, by a person or business entity persuading the audience to take certain action (e.g., purchase a product) with the intent of making profit.

“speech that does no more than propose a commercial transaction”

“expression related solely to the economic interests of the speaker and its audience”

Means of regulations

Place (ads in certain places, media type, etc.) Type of advertisement (tobacco products, law

firms, etc.) Content (indecent, false, etc.)

Historical development

Before 1976, courts classified commercial speech as speech unprotected by the First Amendment.

Unprotected does not mean prohibited. It means that before 1976 government had to use a

simple rational justification for its regulations (such justifications are very difficult to challenge).

However, such regulations were not common.

Valentine v. Chrestensen (1942)

Facts of the Case F.J. Chrestensen violated a New York City municipal

ordinance which prohibited distributing printed handbills in the streets bearing "commercial advertising matter."

After being told by the Police that he could not distribute the handbills bearing the advertising matter, Chrestensen remade his handbill, by adding on the reverse side a protest against the City (presumably making it political speech)

Valentine v. Chrestensen (1942)

Conclusion: A municipal ordinance forbidding distribution in the

streets of printed handbills bearing commercial advertising matter, held constitutional.

A constitutional right to distribute commercial advertising cannot be acquired by adding to the ads matter of possible public interest which, by itself, might be privileged but which is added with the purpose of evading the prohibition of the ordinance with respect to the advertising matter

Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council (1976)

Facts of the Case  Acting on behalf of prescription drug consumers, the

Virginia Citizens Consumer Council challenged a Virginia statute that declared it unprofessional conduct for licensed pharmacists to advertise their prescription drug prices. Question 

Is a statutory ban on advertising prescription drug prices by licensed pharmacists a violation of "commercial speech" under the First Amendment?

Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council (1976)

Conclusion: Yes. The Court held that the First Amendment protects

willing speakers and willing listeners equally. The Court noted that in cases of commercial speech freedom of speech protections apply just as they would to noncommercial speech.

The Court concluded that although the Virginia State Board of Pharmacy has a legitimate interest in preserving professionalism among its members, it may not do so at the expense of public knowledge about lawful business

Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council (1976)

The Supreme Court ruled that commercial speech is generally protected by the First Amendment.

“Advertising, however tasteless and excessive it sometimes may seen, is nonetheless dissemination of information as to who is producing and selling product for what reason, and at what price.”

Lawyers’ AdvertisingBates v. Arizona State Bar (1977) Facts of the Case  Arizona restricted advertising by attorneys. Bates was a partner in a law firm which sought to provide

low-cost legal services to people of moderate income who did not qualify for public legal aid.

Bates's firm decided that it would be necessary to advertise its availability and low fees.

Question  Did the Arizona rule, which restricted legal advertising,

violate the freedom of speech of Bates and his firm?

Lawyers’ AdvertisingBates v. Arizona State Bar (1977) Conclusion:  Decision for Bates. The Court found that

the Arizona law violated the First and Fourteenth Amendments.

Commercial speech does merit First Amendment protection given the important functions it serves in society.

Allowing attorneys to advertise would not harm the legal profession or the administration of justice, and, in fact, would supply consumers with valuable information about the availability and cost of legal services.

Lawyers’ AdvertisingBates v. Arizona State Bar (1977) LEFT FOR ANOTHER TIME: (from the opinion) First, we need not address the peculiar problems

associated with advertising claims relating to the quality of legal services. Such claims… might well be deceptive or misleading to the public, or even false…

Second, we also need not resolve the problems associated with in-person solicitation of clients at the hospital room or the accident site… Activity of that kind might well pose dangers of overreaching and misrepresentation... Hence, this issue also is not before us. (Justice Blackmun)

“Ambulance chasing”Ohralik v. Ohio State Bar (1978) FACTS: Appellant, an Ohio lawyer, visited an accident victim in

her hospital room, where she signed a contingent-fee agreement. Then he did the same with another victim…

Eventually, both young women discharged appellant as their lawyer and filed a complaint against the appellant

The disciplinary Board of the Ohio Supreme Court found that appellant solicited clients in violation of certain Disciplinary Rules, and rejected appellant's defense that his conduct was protected by the free speech.

“Ambulance chasing”Ohralik v. Ohio State Bar (1978) Conclusion: For Ohio State Bar From the opinion: “In Bates v. State Bar of Arizona this

Court expressly reserved the question of the permissible scope of regulation of "in-person solicitation of clients—at the hospital room or the accident site...

Today we answer part of the question so reserved, and hold that the State or the Bar may discipline a lawyer for soliciting clients in person, for pecuniary gain, under circumstances likely to pose dangers that the State has a right to prevent. (Justice Powell)

Central Hudson Gas & Electric v. Public Service Commission of New York (1980)

Facts of the Case  The Public Service Commission of New York, in the

interest of conserving energy prohibited electric utilities from promoting electricity use. The PSC's regulation distinguished promotional advertising from informational advertising, which was permitted. Central Hudson Gas and Electric challenged the regulation…

Question  Did the PSC's ban on advertising violate the freedom of

speech?

Central Hudson Gas & Electric v. Public Service Commission of New York (1980)

Conclusion Yes. The Court held that the ban violated the right to

commercial speech. The Court cited the protections for "commercial speech from unwarranted governmental regulation" set forth in Virginia Pharmacy Board case.

The Court recognized New York's interest in promoting energy conservation and accepted that the PSC's regulation would directly further that interest. However, since the regulation restricted all promotional advertising, it violated the First Amendment

Central Hudson’s Test (Four-Point) 1. Is the commercial message either misleading

or related to illegal activity? 2. Does the government assert a substantial

interest to be achieved by the restriction on speech?

3. Does the restriction directly advance this interest?

4. Is the restriction no more extensive than necessary?

In other words: The Commercial Speech Doctrine States That

• False or misleading advertising, as well as advertising about unlawful goods and services, receives no First Amendment protection.

In other words: The Commercial Speech Doctrine States That

Truthful and non-misleading advertising about lawful goods and services receives an intermediate level of First Amendment protection—

more protection than speech such as obscenity, which is not protected by the First Amendment,

but less protection than political speech, which often is said to be at the core of the First Amendment.

Standard of judicial review

Minimum Scrutiny Rational Standard / Legitimate Interest: requires the law to

be reasonably related to a legitimate state interest. Intermediate Scrutiny Important governmental interest: requires the law to be

substantially related to an important government interest Strict Scrutiny Compelling governmental interest: the law must be

narrowly tailored to address a compelling state interest.

Commercial Speech Doctrine Analysis

If it is commercial speech, then is the speech false or misleading, or does it pertain to an unlawful product or service? If so, then it receives no First Amendment protection and the analysis ends.

Commercial Speech Doctrine Analysis

If the commercial speech is true, non-misleading, and pertains to a lawful product or service, then it receives First Amendment protection.

It may, however, still be regulated and restricted if the government can prove three things:

Commercial Speech Doctrine Analysis

the government must prove that: there is a substantial government interest that

justifies the regulation; there is some evidence the regulation directly

advances the substantial interest; and there is a reasonable fit between the state interest

and the government regulation.

No “Vice Exception” Government cannot arbitrarily ban commercial

advertisement. All regulations must meet a certain level of scrutiny:

intermediate (or sometimes minimum) Examples: restrictions on advertisement newsracks,

gambling ads, tobacco ads, alcohol ads However: Federal Cigarette Labeling and Advertising

Act of 1966 (amended ) prohibits tobacco advertisement on radio and TV

Other restrictions negotiated in the 1998 tobacco lawsuit

Federal Regulation of Advertising

FTC – Federal Trade Commission. Nearly 100 years old, the FTC polices unfair methods of business competition and protects consumers from deceptive advertisements. www.ftc.gov/

FDA – Food & Drug Administration Responsible for protecting public health and ensuring that products like cosmetics, drugs, and food are honestly and accurately represented to the public. www.fda.gov/

FTC Definition of False or Deceptive Advertising

1. There must be a representation, omission or practice that is likely to mislead or to confuse the consumer.

2. The act or practice must be considered from the perspective of a “reasonable consumer.”

3. The representation, omission, or practice must be “material” such that it is likely to influence the purchasing decision.

False and deceptive advertising Perpetual "sales" Psychological pricing Advertising the maximum Bait and switch. Offering a product at a low

price with no intention to sell it "Going out of business" sales: a message of

urgency and "dumped" prices Scare tactics

False and deceptive advertising Units of sale and pricing Memberships. Problems in comparing prices of

items sold in regular packages and bulk packages. Fillers and oversized packaging Hidden fees and surcharges

False and deceptive advertising Meaningless Awards: e.g., Best in class Meaningless terms: deluxe, advanced, hi-tech,

heavy duty, super, ultra. Undefined terms: organic, light, low-tar, mild,

natural,

Top Consumer Fraud Complaints to the FTC in 2006 Over 670,000 complaints filed Identity theft complaints represented 36 percent Shop-at-Home/Catalog Sales - 7 percent Prizes/Sweepstakes and Lotteries - 7 percent Internet Services and Computer - 6 percent Internet Auctions - 5 percent Foreign Money Offers - 3 percent Advance-Fee Loans and Credit Protection - 2 percent

Top Consumer Fraud Complaints to the FTC in 2012

more than 2 million complaints overall Identity Theft 369,132 18 percent Debt collection 199,721 10 percent Banks and Lenders 132,340 6 percent Shop-at-Home and Catalog Sales 6 percent Prizes, Sweepstakes and Lotteries 5 percent Impostor Scams 4 percent Internet Services 4 percent Auto-Related Complaints 4 percent

FTC Tools & Remedies To Stop False Advertising

Guides

• Voluntary Compliance

• Consent Agreements

• Litigated Orders

• Substantiation

• Corrective Advertising

• Injunctions

• Trade Regulation Rules

Lanham Act: Section 43(a)The federal trademark protection law

The section of the Act allows for federal civil lawsuits based upon both false advertising and false endorsements.

POM Wonderful LLC v. The Coca Cola Company (2014) The Facts:

The Coca-Cola Company introduced a new beverage called “Pomegranate Blueberry” in September 2007.

Pom Wonderful LLC (“Pom”), a producer of pomegranate juice products, sued the Coca-Cola Company in September 2008 for deceptive labeling under the Lanham Act.

POM Wonderful LLC v. The Coca Cola Company (2014) Coca-Cola’s product contains 99.4% apple and grape

juices, 0.3% pomegranate juice, 0.2% blueberry juice, and 0.1% raspberry juice.

Based on the “Pomegranate Blueberry” name and an illustration of a pomegranate, Pom argued that Coca-Cola misled its consumers through false representation of its product.

Coca-Cola says the FDA permits naming products by their "minority" contents. The label is not misleading. It says "Pomegranate Blueberry Flavored Blend of 5 Juices.”

POM Wonderful LLC v. The Coca Cola Company (2014)

Issue: Whether the court of appeals erred in holding that

a private party cannot bring a Lanham Act claim challenging a product label regulated under the Food, Drug, and Cosmetic Act.

Do the FDA and FDCA preempt private claims of false advertisement under the Lanham Act?

POM Wonderful LLC v. The Coca Cola Company (2014)LOWER COURTS DECISIONS

The district court granted Coca-Cola summary judgment because the FDA permits beverage makers to label their beverages based on non-primary components. The district court also held that the FDCA barred Pom’s Lanham Act and state law claims.

The U.S. Court of Appeals for the Ninth Circuit ruled that although compliance with the FDCA or the FDA may not always insulate a party from Lanham Act liability, it would respect Congress’s judgment to place regulation of food labeling in the hands of the FDA.

POM Wonderful LLC v. The Coca Cola Company (2014) This case examines whether the FDCA and FDA bar

claims under the Lanham Act for false representation.

Those who side with Pom argue that limiting companies from bringing suits for misleading advertising will harm consumers and fair competition.

Those who side with Coca-Cola counter that permitting such suits will undermine the FDA and create confusion around the limits of permissible language in advertising.

Quack Watch http://www.quackwatch.org/

Operated by Stephen Barrett, M.D.

Your Guide to Quackery, Health Fraud, and Intelligent Decisions

For example: 25 Ways to Spot Quacks and Vitamin

Pushers. http://www.quackwatch.org/01QuackeryRelatedTopics/spotquack.html