United States: First Amendment In Flux: Supreme Court Clarification Needed On Compelled Commercial Speech

Last Updated: October 4 2016
Article by Michael A. Walsh and Katherine McGahey

The First Amendment protects not only the act of speaking, but also the affirmative act of not speaking. The right to be silent extends to business enterprises, even when the compelled speech relates to commercial activity. State and federal authorities are increasingly encroaching on the limits of businesses' right not to speak by imposing warning, labeling, and other disclosure mandates. While the US Supreme Court precedents provide a framework for judicial analysis of challenges to compelled commercial speech, lower federal courts have ruled inconsistently on compelled speech. A recent US Court of Appeals for the DC Circuit decision, Nat'l Ass'n of Mfrs. v. SEC (NAM II), offers an intelligible path forward on compelled speech, but the outcome of pending First Amendment challenges in other circuits may propel the Supreme Court to bring clarity to this critical area.

Zauderer v. Office of Disciplinary Counsel

When federal courts evaluate a government regulation that compels a business to communicate information it would not otherwise convey, the determinative issue is not whether government has the power to regulate business, but how closely the court should scrutinize the regulation under the First Amendment. The 1985 Zauderer decision was the Supreme Court's first consideration of compelled speech in the commercial context. 471 U.S. 626 (1985). The case dealt with Ohio attorney-advertising regulations that both restricted and compelled speech. Ohio bar regulators disciplined Zauderer in part for failing to disclose in an advertisement promoting his contingent-fee services that clients could be liable for litigation costs if they were to lose.

In general, the Court explained that "commercial speech that is not false or deceptive and does not concern unlawful activities ... may be restricted only in the service of a substantial governmental interest, and only through means that directly advance that interest." Id. at 638 (citing Central Hudson Gas & Elec. Corp. v. Pub. Serv. Comm'n, 447 U.S. 557, 566 (1980)) (emphasis added). Ohio's substantial governmental interest was the prevention of consumer deception. Because the "purely factual and uncontroversial information" Ohio required be included in attorney advertisements was "reasonably related to the State's interest in preventing deception," the advertiser's rights were "adequately protected." Id. at 651. The Court's use of "reasonably related" reflects a reduced burden on the government to prove a fit between the disclosure policy and the state interest being advanced. A reduced burden of proof is appropriate for misleading commercial speech because speech that confuses consumers possesses little value under the First Amendment. Zauderer thus concluded a disclosure mandate that clarifies the information is more respectful of the advertiser's limited First Amendment rights than an outright ban on the advertisement.

The Zauderer Court noted that its approval of compelled speech in the case before it did not reflect the general principle that compulsion of speech merits less protection than prohibition of speech. In fact, the Court added that in some instances, "involuntary affirmation could be commanded only on even more immediate and urgent grounds than silence." Id. at 650 (citing West Va. State Bd. of Ed. v. Barnette, 319 U.S. 624 (1943)).

DC Circuit Issues Conflicting Interpretations of Zauderer

American Meat Institute v. USDA (AMI). The speech at issue in AMI was a congressional mandate to place country-of-origin labeling on food products, including meat, and the US Department of Agriculture's (USDA) rule implementing that mandate. A three-judge panel of the DC Circuit rejected a trade association's request for an injunction on First Amendment grounds, though it did recommend and the court voted to rehear AMI's claim en banc.

In three prior cases involving compelled commercial speech, DC Circuit panels held that the reduced level of scrutiny the Supreme Court utilized in Zauderer applies only in instances where the disclosure mandate or warning is aimed at preventing consumer deception. Nat'l Ass'n of Mfrs. v. SEC, 748 F.3d 359 (D.C. Cir. 2014); Nat'l Ass'n of Mfrs. v. NLRB, 717 F.3d 947 (D.C. Cir. 2013); R.J. Reynolds Tobacco Co. v. FDA, 696 F.3d 1205 (D.C. Cir. 2012). Those opinions noted that in post-Zauderer decisions such as United States v. United Foods, 533 U.S. 405 (2001) and Milavetz, Gallop & Milavetz, P.A. v. United States, 559 U.S. 229 (2010), the Supreme Court reiterated that it would apply a level of scrutiny lower than that of Central Hudson only where the state interest in compelling speech was preventing deception.

The majority decision of the en banc AMI panel, 760 F.3d 18 (D.C. Cir. 2014), also acknowledged those Supreme Court precedents, as well as the DC Circuit's own past jurisprudence. It also referenced a timeless warning from an 1821 Supreme Court ruling that counseled "against extending general language of an opinion into different contexts." Id. at 22 (citing Cohens v. Virginia, 19 U.S. 264, 399 (1821)). The court then proceeded to overrule its past precedents and ignore Cohens' wise counsel.

The AMI opinion supported its sweeping conclusion with three arguments. First, it asserted that Zauderer rejected the Central Hudson test as "unnecessary" in light of the "material differences between disclosure requirements and outright prohibitions on speech." Ibid (quoting Zauderer, 471 U.S. at 650). Second, the court observed that "First Amendment interests implicated by disclosure requirements are substantially weaker than those at stake when speech is actually suppressed." Ibid (quoting Zauderer, 471 U.S. at 652, n.14). Third, the court stated that because the required disclosure in Zauderer took the form of "purely factual and uncontroversial information," the advertiser's interest was "minimal." Ibid. Based on these factors, the AMI court concluded, "[a]ll told, Zauderer's characterization of the speaker's interest in opposing forced disclosure of such information as 'minimal' seems inherently applicable beyond the problem of deception." Ibid.

The AMI court misconstrued Zauderer. First, the court appears to have inferred that Zauderer broadly rejected the availability of Central Hudson's intermediate scrutiny for all mandatory disclosures. The Zauderer Court, however, did not relegate all compelled speech to the lowest level of scrutiny; instead it indicated instances where compelled speech may violate the First Amendment to the same degree as prohibited speech. Zauderer, 471 U.S. at 650.

Second, AMI used the Zauderer Court's statement that disclosure interests are "substantially weaker" to support the conclusion that all compelled commercial speech is subject to lower scrutiny. The Court made the statement that speakers' First Amendment interests in mandated disclosure is substantially weaker not in the abstract, but in the context of explaining that compelling speech is a less-restrictive alternative to prohibiting speech when consumer confusion may otherwise arise from the business's communication.

Finally, the AMI court incorrectly concluded that targets of compelled-speech laws have a "minimal" First Amendment interest because the required disclosure in Zauderer took the form of "purely factual and uncontroversial information." AMI, 760 F.3d at 22. Zauderer did not conclude that the factual nature of the disclosure alone rendered a speaker's interest "minimal."

The Zauderer Court also reasoned that the speaker's interest is minimal when a government policy required clarifying disclosures of a "purely factual" nature in advertising. Zauderer, 471 U.S. at 651. The Court made that clear in stating, "we have emphasized that because disclosure requirements trench much more narrowly on an advertiser's interests than do flat prohibitions on speech, '[warnings] or [disclaimers] might be appropriately required ... in order to dissipate the possibility of consumer confusion or deception.'" Ibid (emphasis added).

National Association of Manufacturers v. Securities and Exchange Commission (NAM II). NAM's First Amendment challenge to SEC's so-called Conflict Minerals Rule resulted in two separate DC Circuit opinions. As noted above, the AMI en banc panel expressly overruled NAM I (748 F.3d 359 (D.C. Cir. 2014)). In NAM I, a three-judge panel reversed a district court decision that upheld the SEC rule as constitutional. To the surprise of many observers, the same three-judge panel reached the identical conclusion—the Conflict Minerals Rule violated NAM members' First Amendment rights—after the en banc AMI panel had altered the circuit's approach to compelled commercial speech.

Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act instructed SEC to promulgate regulations requiring securities issuers to report annually whether certain "conflict minerals" (gold, tantalum, tin, and tungsten) used in their products originated in the Democratic Republic of the Congo or an adjoining country. NAM filed suit in the District Court for the District of Columbia. That court held that because the Conflict Minerals Rule directly advanced a substantial governmental interest, SEC had met its burden under the Central Hudson test for commercial speech limits. On appeal, the NAM I panel affirmed the application of Central Hudson's "intermediate" scrutiny, but disagreed that the rule could survive that scrutiny.

The three-judge panel that decided NAM I (Senior Judges Sentelle and Randolph and Judge Srinivasan) ordered a rehearing in light of the AMI decision. Senior Judge Randolph authored the majority opinion, joined by Senior Judge Sentelle. The opinion examined the narrow question of "whether Zauderer, as now interpreted in AMI, reaches compelled disclosures that are unconnected to advertising or product labeling at the point of sale." NAM II, 800 F.3d 518, 522 (D.C. Cir. 2015).

The court concluded that the lower level of scrutiny applied in Zauderer only comes into play when the challenged government speech mandate impacts advertising or product labeling. The Zauderer Court, Senior Judge Randolph explained, "was not holding that any time a government forces a commercial entity to state a message of the government's devising, that entity's First Amendment interest is minimal." Ibid. He further cited the Supreme Court's United Foods decision to support the limited scope of Zauderer. Although the compelled speech there was considered "commercial," the Court found that Zauderer did not apply because "[t]here is no suggestion in the case now before us [the compelled speech is] somehow necessary to make voluntary advertisements nonmisleading for consumers." United Foods, 533 U.S. at 416.

After holding Zauderer inapplicable and stating that Central Hudson provided the appropriate level of First Amendment scrutiny, the NAM II court referenced its decision in NAM I, which concluded that the Conflict Minerals Rule did not directly advance a substantial governmental interest. Because of "the flux and uncertainty of the First Amendment doctrine of commercial speech and the conflict in the circuits regarding the reach of Zauderer," the court decided to also analyze the rule under the standard set out in AMI. NAM II, 800 F.3d at 524.

The court stated that "the first step under AMI (and Central Hudson) is to identify and assess the 'adequacy of the [governmental] interest motivating' the disclosure requirement." Ibid (quoting AMI, 760 F.3d at 23). The governmental interest in "ameliorat[ing] the humanitarian crisis in the DRC" was deemed to be adequate. The second step AMI utilized in applying Zauderer (and also applicable under Central Hudson, the NAM II court added) examined whether the compelled-speech mandate "would 'in fact alleviate' the harms it recited 'to a material degree.'" Id. at 527 (quoting Edenfield v. Fane, 507 U.S. 761, 771 (1993)).

Senior Judge Randolph concluded that the effectiveness of the Conflict Minerals Rule mandatory disclosure was "entirely unproven and rests on pure speculation." Ibid. The court rejected SEC's request that it defer to the judgment of Congress on "this matter of foreign affairs" that the rule would alleviate a humanitarian crisis. Id. at 525. It noted that Congress "held no hearings [prior to passage] on the likely impact of § 1502" and that at post-passage hearings "the testimony went both ways." Id. at 526. The court further cited evidence that the rule "may have backfired." Ibid.

Lastly, the court addressed whether the disclosure mandated "purely factual and uncontroversial information." In AMI, the court stated that Zauderer "requires the disclosures to be of 'purely factual and uncontroversial information' about the good or service being offered" and that these criteria "trigger[] the application of Zauderer." AMI, 760 F.3d at 27. The NAM II court wrestled with making sense of the phrase "factual and uncontroversial." It concluded that the SEC-mandated label "'[not] conflict free' is a metaphor that conveys moral responsibility for the Congo war. It requires an issuer to tell customers that its products are ethically tainted, even if they only indirectly finance armed groups. ... 'By compelling an issuer to confess blood on its hands, the statute interferes with that exercise of the freedom of speech under the First Amendment.'" NAM II, 800 F.3d at 530 (quoting NAM I, 748 F.3d at 371).

On March 4, 2016 in a letter to US House of Representatives Speaker Paul Ryan, Attorney General Loretta Lynch announced that the Department of Justice would not be seeking Supreme Court review of the DC Circuit's NAM II decision.

Conclusion

There is a pull and tug as courts subject restrictions on advertising and other forms of commercial speech to increasingly stiff constitutional review, see, e.g., Retail Digital Network, LLC v. Appelsmith, 810 F.3d 638 (9th Cir. 2016), and government entities have increasingly enacted laws that force businesses to communicate unflattering messages about themselves or their products. One example is the City of San Francisco's attempt to both prohibit certain marketing for "sugar-sweetened beverages" and impose warnings on such advertisements. In response, advertisers filed First Amendment challenges to both ordinances. On December 1, 2015, the city Board of Supervisors repealed the ad ban, but kept the warning in place. The challenge to the compelled-speech mandate is pending in the Ninth Circuit, which is hearing the advertisers' appeal after a trial court judge refused to impose an injunction against the ordinance. Am. Bev. Ass'n v. City & Cty. of S.F., 2016 WL 2865893 (N.D. Cal. May 17, 2016).

Meanwhile, on the other coast, a three-judge panel of the New York Supreme Court, Appellate Division, First Department, is considering a challenge to New York City's sodium-content disclosure ordinance. The ordinance mandates that affected restaurants post a "risk statement" at the point of purchase for certain high-sodium menu items.

Whether Zauderer's level of scrutiny applies to those ordinances, neither of which seeks to alleviate consumer confusion, is at issue in both constitutional challenges. Both cases involve laws directed at advertising, as did Zauderer, and because NAM II did not involve advertising it may not offer the business association plaintiffs a persuasive precedent to evade Zauderer.

If either the Ninth Circuit or, ultimately, the New York Court of Appeals joins the DC Circuit in departing from US Supreme Court precedents on the appropriate level of scrutiny for mandated disclosure on consumer products, the High Court should wade back into compelled commercial speech. Given the opportunity, the Court is most likely to quash lower courts' departure from clear precedents like United Foods and confirm that except in narrow circumstances, the judiciary must examine government commercial-speech mandates with exacting scrutiny.

Originally published in Washington Legal Foundation Legal Backgrounder (September 2016).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Michael A. Walsh
Katherine McGahey
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions