This chapter outlines commercial speech and how it is defined by the Supreme Court. Commercial speech is speech that intends for people to engage in commerce and where the audience is commercial or potential consumers. Advertisements are a direct form of commercial speech, that fuels nearly all media organizations and businesses. However, the Supreme Court says that commercial speech is entitled to less protection under the First Amendment. Meaning, commercial speech is subject to content-based regulation and must withstand intermediate scrutiny.
This is important to understand because as people, we are subject to thousands of ads everyday as we walk through life. And, false ads are not subject to any protections and are not legal according to law and the Supreme Court.
Defining Key Terms:
standing: The position of a plaintiff who has been injured or has been threatened with injury. No person is entitled to challenge the constitutionality of an ordinance or statute unless he or she has the required standing - that is, unless he or she has been affected by the ordinance or the statute.
Lanham Act: A federal law that regulates the trademark registration process but also contains a section permitting business competitors to sue one another for false advertising.
Federal Trade Commission (FTC): A federal agency created in 1914. Its purpose is to promote free and fair competition in interstate commerce; this includes preventing false and misleading advertising.
puffery: Advertising that exaggerates the merits of products or services in such a way that no reasonable person would take the ad seriously. Usually, puffery is not illegal given that a reasonable person understands the claim is not to be taken literally.
opinion letter: An informal Federal Trade Commission communication providing general advice about advertising techniques.
advisory opinion: A Federal Trade Commission measure that offers formal guidance on whether a specific advertisement may be false or misleading and how to correct it.
industry guides: In advertising, a Federal Trade Commission measure that outlines the FTC's policies concerning a particular category of product or service.
trade regulation rule: A broadly worded statement by the Federal Trade Commission that outlines advertising requirements for a particular trade.
voluntary compliance: The general Federal Trade Commission practice to allow advertisers to follow FTC rules and correct violations before the commission takes action.
consent order: An agreement between the Federal Trade Commission and an advertiser stipulating the terms that must be followed to address problematic advertising; also called a consent agreement.
cease and desist order: An administrative agency order prohibiting a person or business from continuing a particular course of conduct.
litigated order: A Federal Trade Commission order filed in administrative courts whose violation can result in penalties, including fines of up to $10,000 per day.
substantiation: The authority of the Federal Trade Commission to demand that an advertiser prove its advertised claims.
corrective advertising: The Federal Trade Commission power to require an advertiser to advertise or otherwise distribute information to correct false or misleading advertisement claims.
Important Cases:
Central Hudson Gas & Electric Corp. v. Public Service Commission of New York (1980) - The Public Service Commission of New York (PSC), in the interest of conserving energy, enacted a regulation that prohibited electric utilities from promoting electricity use. The PSC's regulation distinguished promotional advertising from informational advertising - which was advertising that was permitted.
Question before the Court was did the PSC's ban on advertising violate the freedom of speech protected by the First and Fourteenth Amendments?
Yes, 8-1 opinion the Court overruled the Court of Appeals of New York and held that the New York's ban violated the right to commercial speech. 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 regardless of its effect on electricity use, it violated the First and Fourteenth Amendment.
Sorrell v. IMS Health Inc. (2011) - In 2007, Vermont enacted the Prescription Confidentiality Law which banned the sale, transmission or use of prescriber-identifiable data for marketing or promoting. The law also prohibited the sale, license, or exchange for value of the data. Three companies, IMS Health, Verispan, and Source Healthcare Analytics, whom collect and and sell such data and by a trade group for pharmaceutical manufacturers challenged the law.
Question before the quart was does a Vermont state statute banning the sale, transmission or use of prescriber identifiable data, absent prescriber consent, unconstitutionally restrict the free speech rights of pharmaceutical research companies, manufacturers, and others to use that data?
Yes, the Supreme Court ruled that the Vermont statute places content-and speaker-based burdens on protected expression which should be heightened judicial scrutiny.
Relevant Doctrine:
1. The Commercial Speech Doctrine:
- The government may regulate advertising that is false, misleading, or deceptive.
- The government may regulate advertising for unlawful goods and services.
Even accurate advertising for legal goods and services may be regulated if the government demonstrates:
- A substantial state interest behind the regulation.
- The regulation directly advances the state's interest.
- A reasonable fit between the state's interest and the regulation.
2. The Free Flow of Commercial Information: In Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council, the U.S. Supreme Court established that:
- "Freedom of speech" applies to both the speaker and the receiver of information.
- "Speech does not lose its First Amendment protection because money is spent to project it, as in a paid advertisement."
- Speech that only proposes a commercial transaction is not so removed from "any exposition of ideas" that it lacks all protection.
- The need to make intelligent, informed economic decisions in a free-enterprise economy drives the public interest in entirely commercial information.
- Some forms of commercial speech, including deceptive or misleading ads, may be regulated.
3. Lanham Act Standing: In 2014, the U.S Supreme Court established that a plaintiff has standing to bring suit under the Lanham Act when:
- The defendant's actions occurred inside "the zone of interest" of the Lanham Act, and
- The injury to the plaintiff is "proximately caused" by the defendant's actions.
4. False and Misleading?: A Federal Trade Commission (FTC) policy statement establishes the three-part federal definition of false and misleading advertising:
- First, the ad must involve a "material" representation, omission, or practice.
- Second, the material representation must be likely to affect the consumer's conduct or decision with regard to a product or service.
- Third, the representation must be likely to mislead a reasonable consumer acting reasonably in the circumstances.
5. FTC Mechanisms:
Preventative Measures: opinion letters, advisory opinions, industry guides, trade rules, voluntary compliance
Corrective Measures: cease and desist orders, consent orders, substantiation, litigated orders, corrective advertising, injunctions.
My Questions/Concerns:
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