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The First Amendment in the U.S. Constitution provides that “Congress shall make no law … abridging the freedom of speech.” The free speech guarantee has been broadly defined; it limits the authority of state and local governments to regulate speech via the due process clause in the Fourteenth Amendment. McIntrye v. Ohio Elections Commission, 514 U.S. 334 (1995). It also extends beyond legislative action by federal, state and local legislatures to protect free expression from any form of governmental action. See, e.g., Police Dept. of Chicago v. Mosley, 408 U.S. 92 (1972) “[Above] all else, the First Amendment means that government has no power to restrict expression because of its message, its ideas, its subject matter, or its content.” The First Amendment’s free speech guarantee has also been raised in private litigation, in suits in which no government action is involved and when only commercial interests are at issue. It has been asserted as a defense in common types of commercial litigation, such as consumer vs. business and competitor vs. competitor cases. In the past year, the California courts have addressed and better defined the First Amendment’s free speech defense in commercial litigation in several cases. The applicability of the First Amendment’s free speech guarantee as a defense in private litigation has been recognized by the courts for years. In Olivia N. v. NBC, 126 Cal.App.3d 488 (1981), a group of boys attacked a girl a few days after they had watched an NBC television program showing such an attack. The plaintiff sought damages based on common law negligence. The superior court granted the defendant’s motion for a nonsuit based on the First Amendment and dismissed the complaint. The court of appeal affirmed, finding that the First Amendment is not limited to prior restraints on speech because a suit for common law negligence may have the same detrimental effects that the First Amendment is intended to prevent. Citing New York Times v. Sullivan, 376 U.S. 254 (1964), the court said: “But the chilling effect of permitting negligence actions for a television broadcast is obvious. �The fear of damage awards � may be markedly more inhibiting than the fear of prosecution under a criminal statute.” Olivia N. was not a common commercial setting, however. The court based its holding on a long line of U.S. Supreme Court cases recognizing “the overriding constitutional principle that material communicated by the public media, including fictional material such as the television drama here at issue, is generally to be accorded protection under the First Amendment.” It was not until 1975 that the U.S. Supreme Court held that purely commercial speech was entitled to some level of First Amendment protection. Bigelow v. Virginia, 421 U.S. 809 (1975) (the state could not ban an advertisement placed in a Virginia newspaper, advertising abortions in New York, even though the plaintiff/newspaper’s interest was purely commercial). The Supreme Court has said that the free flow of commercial information is indispensable not only to “the proper allocation of resources in a free enterprise system … [but also] to the formation of intelligent opinions as to how that system ought to be regulated or altered.” Virginia Pharmacy Brd. v. Virginia Consumer Council, 425 U.S. 748, 765 (1976). Even though “commercial speech” was found to be deserving of First Amendment protection, the Supreme Court did not find that purely commercial interests were entitled to the same level of free speech protection afforded to noncommercial speech, such as that in Olivia N. Bolger v. Youngs Drug Products Corp., 463 U.S. 60, 64-65 (1983). Noncommercial speech is entitled to full First Amendment protection, that is, a regulation is valid only if it can survive a strict scrutiny analysis, which requires that the regulation be narrowly tailored to promote a compelling government interest. United States v. Playboy, 529 U.S. 803 (2000). In contrast, the Supreme Court set forth an intermediate-scrutiny test for commercial speech in Central Hudson Gas & Electric v. Public Service Commission, 447 U.S. 557 (1980). First, the speech must concern lawful activity and not be misleading in order to be protected. Second, the court asks whether the asserted governmental interest is substantial. If both questions produce a positive response, then the court will determine whether the regulation directly advances the governmental interest asserted, and whether it is not more extensive than is necessary to serve the public interest. This test is referred to as the “ Central Hudson test.” While untruthful statements are never protected, whether commercial or noncommercial, in the political arena some false and misleading statements are entitled to First Amendment protection. On the other hand, the intermediate-scrutiny standard applied to commercial speech permits such speech to be prohibited entirely. In re R.M.J., 455 U.S. 191 (1982). Three reasons have been articulated for the different standards to be applied to noncommercial versus commercial speech. The truth of commercial speech is more easily verifiable by its disseminator than news reporting or political commentary. Second, commercial speech is “hardier” than noncommercial speech because the commercial speaker acts from a profit motive and is less likely to experience a chilling effect from speech regulation. Finally, the authority to regulate commercial transactions to prevent commercial harms justifies a power to regulate speech that is linked inextricably to those transactions. Liquormart, Inc. v. Rhode Island, 517 U.S. 484 (1996). The California Supreme Court had occasion to apply the Central Hudson test in its May decision, Kasky v. Nike, Inc., 27 Cal.4th 939. Through the 1990s, the media had highlighted alleged employment abuses by Nike’s contractors in China, Vietnam and Indonesia. These contractors produced Nike’s athletic products, including shoes and clothing. In response to these criticisms, Nike used press releases, letters to newspapers and other public statements to publicize that its contractors complied with local employment laws, protected employees from physical and sexual abuse, paid more than double local minimum wages and provided various employee benefits not required by law. The plaintiff brought suit in San Francisco Superior Court claiming that Nike’s statements were false and misleading and constituted an unfair business practice under California Business & Professions Code � 17200, et seq. Nike contended in a demurrer that the First Amendment absolutely barred the plaintiff’s claims. The superior court agreed and dismissed the complaint without leave to amend, finding that Nike’s statements were noncommercial speech and entitled to “strict scrutiny” protection under the First Amendment. The court of appeal affirmed. The Supreme Court reversed the sustaining of the demurrer, holding that when a business, to promote its sales and profits, makes factual representations about its own products or its own operations, it must speak truthfully. The court said commercial speech is involved in a false advertising/commercial deception case if three elements are present — there is a commercial speaker, an intended commercial audience and the content of the message is commercial in nature. Applying this standard, the court found that Nike was engaged in a commercial enterprise — the manufacturing, import, distribution and sale of athletic products. The second element was satisfied because the intended audience of Nike’s statements was actual and potential consumers of Nike products. Finally, the content of the speech was commercial because “Nike was making factual representations about its own business operations.” Nike was in a position to readily verify the truth of its statements because they related to its business. The court found that Nike’s statements were the “hardy” sort characteristic of commercial speech. Because Nike’s purpose in making the statements was to maintain sales and profits, regulation aimed at preventing false and misleading speech would be unlikely to deter Nike from speaking truthfully about the conditions of its factories. The government regulation of Nike’s speech about working conditions is consistent with traditional government authority to regulate commercial transactions for the protection of consumers by preventing false and misleading commercial practices. In response to Nike’s contention that its statements concerned “an international debate on issues of intense public interest,” the court said, “Commercial speech frequently and even normally addresses matters of public concern.” It noted that “the reason that it is �less necessary to tolerate inaccurate statements for fear of silencing the speaker’ of commercial speech is not that such speech concerns matters of lesser public interest or value, but rather that commercial speech is both �more easily verifiable by its disseminator’ and �less likely to be chilled by proper regulation.’” It did not matter that Nike’s speech was intermingled with noncommercial speech because the “alleged false and misleading statements all relate to the commercial portions of the speech in question — the description of actual conditions and practices in factories that produce Nike products — and thus the proposed regulations reach only that commercial portion.” Accordingly, the Supreme Court determined that Nike’s statements constituted commercial speech in the context in which they were made. The court of appeal reached a different conclusion in a December 2001 case, Gionfriddo v. Major League Baseball, 94 Cal.App.4th 400, where the court found that the strict scrutiny standard applied in a commercial dispute. A group of retired major league baseball players claimed that the defendant had violated their statutory and common law rights by publicly using their names, voices, signatures, photographs and/or likenesses without their consent and without compensation. The plaintiffs argued that the defendant’s uses constituted “commercial speech” because they helped the league to make a profit and that plaintiffs’ achievements were being exploited to promote the product of baseball. The court disagreed, holding that the league’s uses of the plaintiff’s statistics and historical information were not “commercial speech.” The defendant’s uses were limited to minor historical references to plaintiffs within game programs and Web sites and in videos documenting baseball’s past. There was no use of this information in advertisements selling a product, nor was this a circumstance where the primary message was “to buy.” The court said the league’s uses are “readily distinct” from uses that do no more than propose a commercial transaction, and articulated its holding as follows: “[W]e conclude that the public interest favoring the free dissemination of information regarding baseball’s history far outweighs any proprietary interest at stake.” The court declined to find that the defendant’s conduct constituted “commercial speech” in a commercial misappropriation case in William O’Neil & Co. v. Validea.com Inc., 202 F.Supp.2d 1113 (2002). The defendants wrote and published a book describing the investment strategies of well-known financial analysts, including the plaintiff. After the plaintiff filed suit seeking damages and injunctive relief based on unfair competition and commercial misappropriation, the defendants moved to dismiss the complaint on First Amendment grounds. In granting the Rule 12(b)(6) motion, the court found that the subject book and the advertising promoting it did not constitute “commercial speech”. The book itself did not propose a commercial transaction, so it was entitled to the full panoply of First Amendment protection. As to the advertising of the book, the court conceded that the defendant’s advertising did propose a commercial transaction. However, relying on Cher v. Forum International, Inc., 692 F.2d 624 (9th Cir. 1982), the court found that because the advertising is “merely an adjunct of the protected publication and promotes only the protected publication,” it is entitled to full First Amendment protection. Claims under California’s Business & Professions Code � 17200 posed different issues from the misappropriation claims. The court noted that � 17200 does not restrict any noncommercial speech; rather the statute only protects the public from false commercial speech. It specifically rejected plaintiff’s claims that false statements made in the book could be the basis for a � 17200 claim, saying that “[if] editorial speech can form the basis for a � 17200 claim simply because there was a factual error, then the publication of any work of nonfiction … would expose a publisher to liability for unfair competition any time there is a factual error.” The court declined to rule on whether the advertising on the cover and flyleaf of the book were commercial or noncommercial speech, and allowed the plaintiff to amend the complaint to allege what statements were false and when and where those false statements were made. While Kasky, Gionfriddo, and William O’Neil focus on the distinction between commercial and noncommercial speech because of the different standard the court will apply based on the outcome of that issue, it should not be assumed that the distinction itself is determinative of the free speech defense. Even though commercial speech has limited protection, it is still protected speech, and application of the intermediate-scrutiny standard may produce a complete defense. For example, in Thompson v. Western States Medical Center, 122 S.Ct. 1497 (2002), a group of pharmacies sought an injunction enjoining the federal government from enforcing restrictions on advertising drug compounding. Drug compounding is the process by which a pharmacist combines, mixes or alters ingredients to create medication tailored to the patient. The parties stipulated that this advertising was commercial speech, but the Supreme Court found, after applying the Central Hudson test, that the restriction was unconstitutional. The government failed to establish that the restrictions were not more extensive than necessary to serve the governmental interests involved. There were nonspeech related means to achieve the government’s goal, such as regulating large-scale manufacturing, prohibiting wholesale sales, or limiting manufacturing to prescriptions received. Also, the law prohibited beneficial speech, including the pharmacies advising physicians concerning available compounded drugs for special medical uses. Jeffrey L. Fillerup is a partner in the San Francisco office of Luce, Forward, Hamilton & Scripps (www.luce.com). He practices in the firm’s Business Litigation Practice Group.

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