By D. John Hendrickson
March 17 of this year marks the 37th anniversary of oral arguments in Central Hudson Gas & Electric Corporation v. Public Service Commission of New York 447 US 557 (1980), a case that should serve as a reminder that commercial speech is, in fact, entitled to First Amendment protection – something that is all too often overlooked in the legal analysis of advertising campaigns and the business practices that underlie them.
In the pre-smart technology world of the Central Hudson case, the Public Service Commission of New York enacted a regulation prohibiting electric utilities from promoting electricity use – the rationale being that such advertising was contrary to the national policy of conserving energy, and that it would also help avoid increases in utility rates for all customers.
In an 8-1 decision decided three months following oral argument, the US Supreme Court held that, notwithstanding the legitimate public policy concerns sought to be addressed by the Commission, the regulation constituted a violation of the right to commercial speech.
In a methodical analysis of the First Amendment as applied to commercial speech, the Court identified a set of factors that should be considered in analyzing the legality of any such restriction, one of which was that: “[T]he restriction must directly advance the state interest involved; the regulation may not be sustained if it provides only ineffective or remote support for the government’s purpose.” The Court went on to say that:
“The link between the advertising prohibition and appellant’s rate structure is, at most, tenuous. The impact of promotional advertising on the equity of appellant’s rates is highly speculative. Advertising to increase off-peak usage would have to increase peak usage, while other factors that directly affect the fairness and efficiency of appellant’s rates remained constant. Such conditional and remote eventualities simply cannot justify silencing appellant’s promotional advertising.”
The missing element in the Commission’s case was evidence of “causation.” No matter how well-intended a proposed restriction on commercial speech might be, evidence of a clear causal relationship between any proposed restriction and the claimed benefit was identified by the Court as a critical factor in determining the constitutionality of the restriction.
This approach was echoed by Congress in 1994 when it amended Section 5 of the Federal Trade Commission Act to define an “unfair act or practice” as an act or practice: “(1) likely to cause substantial injury to consumers; (2) which is not reasonably avoidable by consumers themselves; and (3) is not outweighed by countervailing benefits to consumers or to competition. 15 USC Section 45(n) (emphasis added). Significantly, the amended statute expressly barred the Commission from relying on “public policy” as the primary basis for a determination of unfairness.
Just last month, FTC Acting Chairman Maureen K. Ohlhausen authored a Concurring Statement in connection with the Commission’s settlement with television manufacturer Vizio, Inc., alleged by the Commission (and the State of New Jersey) to have collected data about its customers’ viewing behavior without adequate disclosure of its data collection and sharing practices. Focusing on the first count of the complaint that alleged “unfairness” in Vizio’s collection and sharing of such data, Chairman Ohlhausen noted:
“It alleges that granular (household or individual) television viewing activity is sensitive information. And it states that sharing this viewing information without consent causes or is likely to cause a “substantial injury” under Section 5(n) of the FTC Act…There may be good policy reasons to consider such information sensitive. Indeed, Congress has protected the privacy of certain video viewing activity by passing specific laws, such as the Cable Privacy Act of 1984. But, under our statute, we cannot find a practice unfair based primarily on public policy. Instead, we must determine whether the practice causes substantial injury that is not reasonably avoidable by the consumer and is not outweighed by benefits to competition or consumers.”
Chairman Ohlhausen went on to announce that she is launching an effort to examine this important issue further, and her efforts in this regard are certainly encouraging to proponents of First Amendment protection of commercial speech.
The legacy of Central Hudson lives on, and the advertising community as well as consumers should welcome this. The Court in Hudson noted that “Commercial expression not only serves the economic interest of the speaker, but also assists consumers and furthers the societal interest in the fullest possible dissemination of information” – a laudable public policy in its own right. Happy Birthday, Central Hudson.