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Bar News - December 17, 2014


Business Law and Business Litigation: Mandated Commercial Disclosures and the First Amendment

By:

In addition to the freedom to speak, the First Amendment of the United States Constitution protects the right of individuals and corporations to refrain from speaking.

Laws that compel individuals or corporations to speak are generally viewed as presumptively unconstitutional and subject to a heightened or intermediate level of scrutiny. But not all compelled speech is equal under the First Amendment.

Commercial speech (i.e., speech that proposes a commercial transaction) is afforded less protection than speech on public or private matters on the theory that the publicís interest in receiving accurate and non-misleading commercial information outweighs an advertiserís right to say whatever it pleases.

For this reason, in the area of compelled commercial speech, the United States Supreme Court has recognized a narrow exception to the general rule where the government may require the disclosure of purely factual and uncontroversial information to protect consumers from confusion or deception. Laws mandating such disclosures are subject to a lower level of scrutiny. The landmark US Supreme Court case establishing this rule is Zauderer v. Office of Disciplinary Counsel of Supreme Court of Ohio.

Since Zauderer came down in 1985, the United States Supreme Court has applied its holding only in cases where the mandated disclosure is reasonably related to the governmentís interest in protecting consumers from confusion or deception. Nonetheless, lower courts have read Zauderer more broadly and have extended its holding far beyond protecting consumers from confusion or deception.

For example, in American Meat Institute v. United States Department of Agricultural (DC Cir. 2014), the United States Court of Appeals for the District of Columbia sitting en banc held that a federal statute mandating country-of-origin labeling for meat products survived a First Amendment challenge under Zauderer.

The government failed to articulate how the country-of-origin disclosure was reasonably related to protecting consumers from confusion or deception. Nonetheless, the majority interpreted Zauderer broadly and concluded that its approach was not limited to remedying confusion or deception.

The majority then held that an adequate justification existed for government-mandated country-of-origin labeling on meat products based on a long history of such product labeling in the United States, a substantial consensus that consumers want to know the geographical origin of their purchases, and simple common sense.

The dissent harshly criticized the majority opinion in numerous respects, most notably on the ground that it had untethered Zauderer from its intended moorings. It further admonished the majority opinion for endorsing a rule that effectively permits the government to compel commercial speech solely because it would like to provide consumers with information.

Citing International Dairy Foods Association v. Amstoy, (2d Cir. 1996), the dissent persuasively argued that consumer curiosity alone can never be a strong enough government interest to justify the disclosure of purely factual and uncontroversial information, even in a commercial context; otherwise, the narrow exception set forth in Zauderer would swallow the general rule.

American Meat Institute is not the first case to expand Zauderer beyond protecting consumers from confusion or deception and certainly will not be the last. But whether the holdings in these cases can be reconciled with existing United States Supreme Court precedent remains to be seen.

The clear trajectory of United States Supreme Court jurisprudence in recent years has been toward strengthening First Amendment protections for corporations and individuals. In its most recent application of Zauderer, the Court appeared to suggest that a government interest in protecting consumers from confusion or deception is a material factor in deciding whether Zauderer applies in a given case. See Milavetz, Gallop & Milavetz, PA v. United States (2010).

In his concurring opinion in Milavetz, United States Supreme Court Justice Clarence Thomas expressed his willingness to reexamine Zauderer and its progeny to determine whether those cases provide adequate protection against government mandated disclosures. It therefore seems inevitable that the Supreme Court will one day reexamine Zaudererís approach and determine whether and to what extent it applies to mandated commercial disclosures premised on a government interest other than protecting consumers from confusion or deception.

Until then, however, business litigators should be mindful of laws that compel commercial entities to disclose information for reasons other than protecting consumers from confusion or deception. Such laws can have serious economic consequences for businesses and can inadvertently thrust them into an ongoing public debate that they might not otherwise care to join.

Laws forcing commercial entities to disclose whether their products contain genetically modified ingredients or whether their products are made from minerals from war-torn areas of the world will inevitably lead to the loss of sales and force businesses into public debates about whether genetically modified foods are safe for human consumption or whether businesses have a moral or ethical obligation to refrain from obtaining rare earth minerals from certain areas of the world.

In appropriate cases, such laws should be challenged as unconstitutional under the First Amendment until the United States Supreme Court rules definitively on whether Zaudererís holding can be extended to them. Otherwise, the government will be permitted to force businesses to disclose all manner of information that consumers would like to know when making their purchases such as: whether a business has engaged in corporate inversion; whether a business has outsourced American jobs; whether a business relies on immigrant labor; or whether a business has a low carbon footprint.

So long as those disclosures are reasonably related to some government interest, under an expanded interpretation of Zauderer, they would be permitted. Such a result seems at odds with the First Amendment and should be resisted until the United States Supreme Court provides further clarity on the issue.


Anthony J. Galdieri

Anthony J. Galdieri is a complex commercial litigation associate at Nixon Peabody who represents large and small corporate entities, health-care systems, and hospitals in federal and state court.

Owen Graham is a third-year student at the University of New Hampshire School of Law. He is editor-in-chief of the University of New Hampshire Law Review and an extern at Nixon Peabody.

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