Introduction

In May 2002, the California Supreme Court shocked the legal realm when it departed from Bolger and Central Hudson - the established tests for commercial speech - and developed its own ‘limited-purpose - commercial speech test.[1] The new California test includes consideration of the speaker, the intended audience, and the content of the message. Kasky v. Nike Inc., 45 P. 3d 243, 247 (Cal. 2002) served as the forum for the court's change. The lawsuit centered on Nike's response to a number of unfavorable media reports concerning labor conditions within the company's Asian operations. Kasky, a private citizen, utilized broad California consumer protection statues seeking to stop Nike from making alleged false and/or misleading statements in defense of its operations. The lower courts ruled in Nike’s favor and rejected Kasky’s argument. The court stated that this issue was a matter of public debate rather than traditional advertising covered by commercial speech law. However, the California Supreme Court, held that the speech in question was not protected.

In Kasky, the California Supreme Court sought to determine “whether defendant corporation’s false statements are commercial or noncommercial speech for purposes of constitutional free speech analysis under the state and federal Constitutions.”[2] The court stated that the United States Supreme Court has not adopted an “all-purpose test to distinguish commercial from non-commercial speech.”[3] It held that “when a court must decide whether particular speech may be subjected to laws aimed at preventing false advertising or other forms of commercial deception, categorizing a particular statement as commercial or noncommercial speech requires consideration of three elements: the speaker, the intended audience, and the content of the message.”[4]

In Nike’s case, the court concluded that the Nike corporation was the speaker, Nike’s potential customers were the audience, and a gain in future sales was the content of the message. [5] Therefore, the court classified the speech as commercial speech that is subject to applicable state law and not protected by the First Amendment as Nike argued.[6]

The Kasky case helps to show that boundaries between various forms of speech are “blurred.”[7] Furthermore, the United States Supreme Court has noted that the definition of “commercial speech has been in flux for some time.”[8] For example, if corporate speech were regarded as political, it would be “immune from state regulation.”[9] The Supreme Court has not yet ruled on whether a corporation’s broad promotion of its image is commercial speech because the Court’s holding in Bolger only concerned advertisement of specific products.[10] What happens when the commercial speech is on a much broader scale, where the commercial message is embedded in a political context? Should such combined speech receive constitutional protection?

This paper analyzes the Nike commercial speech case. The first section discusses the progression of commercial speech protection in the United States and the related cases. The second section discusses the facts and the procedural history of the Nike case as it proceeded through the California court system, ultimately reaching the United States Supreme Court. The third section argues that the California Supreme Court used the correct test and ultimately reached the correct decision by limiting the protection of the expression at issue. Finally, the paper concludes by asserting that the distinction between commercial and noncommercial speech must be maintained to check corporate malfeasance. If the addition of a political statement to commercial speech justifies full constitutional protection the applicable tests would become meaningless.

I. History of Commercial Speech Protection

Commercial speech did not receive significant First Amendment protection until the mid-1970’s.[11] The Court even suggested that commercial speech might be devoid of First Amendment value. [12] In Valentine, the owner of a submarine exhibited the vessel for profit and advertised by distributing handbills on the street.[13] However, local laws prohibited distributing advertising material though they did allow distribution of “handbills solely devoted to ‘information or a public protest.’”[14] The owner tried to avoid the local regulation by making his handbill double sided.[15] One side advertised his business and the other side protested the city’s refusal to provide wharf facilities at the local pier.[16] The Court’s opinion noted that the government could not “unduly burden” speech in public thoroughfares as “the streets are proper places for the exercise of the freedom of communicating information and disseminating opinion . . . [but the] Constitution imposes no such restraint on government as respects purely commercial advertising.”[17] The Court ruled against the submarine owner, and noted “the difficulty of apportioning, in the given case, the contents of the communication as between what is of public interest and what is for private profit.”[18]

In 1973, the Supreme Court decided Pittsburgh PressCo. v. Pittsburgh Comm’n of Human Relations, 413 U.S. 376 (1973). The Court found that discrimination law “narrowly drawn to prohibit placement in sex-designated columns of advertisement for nonexempt job opportunities, does not infringe the First Amendment rights of Pittsburgh Press.”[19] The Court made it clear, however, that the decision did not “authorize any restriction whatever, whether of content or layout, on stories or commentary . . . [but instead] reaffirm[s] unequivocally the protection afforded to editorial judgment and to the free expression of views.”[20] However, Justice Burger dissented, stating that the decision “launches the courts on what I perceive to be a treacherous path of defining what layout and organizational decisions of newspapers are “sufficiently associated” with the ‘“commercial” parts of the papers to be constitutionally unprotected and therefore subject to governmental regulation.”[21] Justice Stewart also dissented, acknowledging “that the publisher of a newspaper is amenable to civil and criminal laws of general applicability”[22] but found that “what the court approves today is wholly different. It approves a government order dictating to a publisher in advance how he must arrange the layout of pages in his newspaper.”[23]

The Supreme Court reached a different holding in Bigelow v. Virginia, 421 U.S. 809 (1974). The Supreme Court of Virginia affirmed the conviction of a Virginia newspaper editor for advertising New York abortion services in a local paper despite a Virginia law that banned abortion-related advertising.[24] The Virginia Supreme Court concluded that the statute was a valid exercise of the State’s police powers because its goal was “to ensure that pregnant women in Virginia who decided to have abortions come to their decisions without the commercial advertising pressure usually incidental to the sale of a box of soap powder.”[25] However, the Supreme Court held that the First Amendment protected commercial speech, overruled the Virginia Supreme Court’s holding, struck down the Virginia statute, and instituted a balancing test.[26] The Court stated that the government “may not, under the guise of exercising internal police powers, bar a citizen of another State from disseminating information about an activity that is legal in that State.”[27] Justice Rehnquist dissented, stating that he found the ads “to be a classic commercial proposition directed toward the exchange of services rather than the exchange of ideas.”[28] He also stated that the police power exercised by Virginia was reasonable because “the interest asserted . . . was the prevention of commercial exploitation of those women who elect to have an abortion.”[29] Justice Rehnquist also expressed concern that people who are trying to evadeState law might look to exploit the Court’s ruling. [30]

Finally the Court established that the free flow of information via commercial speech supersedes State law arguably enacted to protect citizens in Virginia State Board of Pharmacy v.Virginia Citizen’s Consumer Council, Inc., 425 U.S. 748 (1975). Prescription drug users sought to eliminate State regulations that prohibited pharmacists from advertising prices.[31] The State argued that the laws were necessary because aggressive price competition could jeopardize the pharmacist’s expertise, which could inflate the costs of drugs and damage the professional image of the pharmacy.[32] The Court stated, “[f]reedom of speech presupposes a willing speaker [b]ut where a speaker exists, as is the case here, the protection afforded is to the communication, to its source and to its recipients both.”[33] The Court differentiated this holding from its holding in Chrestensen because it did not involve any “cultural, philosophical [or] political” content.[34] The pharmacist was simply telling customers “I will sell you the X prescription drug at the Y price.”[35] This price comparison was of special importance to “the poor, the sick, and particularly the aged [because a] disproportionate amount of their income tends to be spent on prescription drugs; yet they are the least able to learn, by shopping from pharmacist to pharmacist, where their scarce dollars are best spent.”[36] The Court noted that “the State’s protectiveness of its citizens rests in large measure in the advantages of their being kept in ignorance.”[37] Furthermore, the Court stated:

Advertising, however tasteless and excessive it sometimes may seem, is nonetheless dissemination of information as to who is producing and selling what product, for what reason, and at what price. So long as we preserve a predominately free enterprise economy, the allocation of our resources in large measure will be made through numerous private economic decisions. It is a matter of public interest that those decisions, in the aggregate, be intelligent and well informed. To this end, the free flow of commercial information is indispensable.[38]

Justice Rehnquist dissented from the majority in Virginia State Board of Pharmacy. He noted the danger that the decision could be expanded to other professions, including lawyers and doctors.[39] He responded to the free enterprise argument by stating that “there is certainly nothing in the United States Constitution which requires the Virginia Legislature to hew to the teachings of Adam Smith in its legislative decisions regulating the pharmacy profession.”[40] Justice Rehnquist also noted how difficult it is to separate political speech from commercial speech. [41] He observed that “many people in the country regard the choice of shampoo as just as important as who may be elected to local, state, or national political office, but that does not automatically bring information about competing shampoos within the protection of the First Amendment.”[42]

The Supreme Court addressed the political-commercial speech nexus again in Bolger v. Youngs Drug Products Corp., 463 U.S. 60 (1983). The Bolger Court found that informational pamphlets sent with contraceptive ads in unsolicited mailings represent commercial speech. [43] The Court’s holding was based on three factors: the pamphlets were advertisements, they referenced a specific product, and they were created with economic motivation.[44] The Court also found that the pamphlets “constitute commercial speech notwithstanding the fact that they contain discussions of important public issues such as venereal disease and family planning.”[45] However, the Court struck down the statutes prohibiting the mailing of contraceptive materials because the statutes violated the First Amendment. [46] The Government asserted that its interest in restricting such mailings was to prevent children from gaining access to such material, thereby circumventing parental discretion to instruct their children on these issues per their own beliefs and chosen timeframes.[47] The Court rejected the Government’s argument and held that parents already have “control over the disposition of mail once it enters their mailboxes.”[48] [P]arents must already cope with the multitude of external stimuli that color their children’s perception of sensitive materials.”[49] The Court also found that the “marginal degree of protection is achieved by purging all mailboxes of unsolicited material that is entirely suitable for adults” was too restrictive in scope because the government cannot “reduce the adult population . . . to reading only what is fit for children.”[50]

The Court addressed the issue of excessive scope of state statutes three years before Bolger, in Central Hudson Gas & Electric Corporation v. PublicService Commission of New York, 447 U.S. 557 (1980). The Central Hudson Court considered the constitutional validity of a New York state statute that banned electric utilities from engaging in promotional advertising.[51] The original purpose of the advertising ban was to lower consumer demand for energy during the 1973-74 winter when energy resources were in short supply.[52] The utility company argued that the ban prevented it from advertising “products and services that use energy efficiently.”[53] The Court utilized a four-part test for analyzing restrictions to determine if the speech should receive constitutional protection. [54] First, the speech must concern lawful activity and not be misleading. [55] Second, the asserted government interest must be substantial.[56] Third, the regulation must directly advance the governmental interest asserted. [57] Fourth, the regulation must not be more excessive than necessary to achieve its purpose.[58]

The Court held that the New York statute failed the third and fourth prongs of the test[59] and stated that “the link between the advertising promotion and appellant’s rate structure is, at most, tenuous.[60] “The impact of promotional advertising on the equity of appellant’s rates is highly speculative . . . [s]uch conditional and remote eventualities simply cannot justify silencing appellant’s promotional advertising.”[61] In other words, the ban exceeded the scope necessary to achieve its interests.[62] The government argued that a utility company’s promotion of energy alternatives could mislead the public to consume energy when conservation was in fact needed.[63] But the Court “rejected the ‘highly paternalistic’ view that [a] government has complete power to suppress or regulate commercial speech.”[64] The Court also noted that the monopolistic nature of the commercial entity involved had no bearing on the case because “a monopoly enterprise legitimately may wish to inform the public that it has developed new services or terms of doing business. A consumer may need information to aid his decision whether or not to use the monopoly service at all, or how much of the service he should purchase.”[65] Justice Rehnquist dissented, noting that monopolies are created by the state and benefit from having no market competition. [66] Therefore, the companies are subject to “a comprehensive regulatory scheme.”[67] Justice Rehnquist rejected a laissez-faire policy and the ‘invisible hand’ approach of Adam Smith.[68] “There is no reason for believing that the marketplace of ideas is free from market imperfections any more than there is reason to believe that the invisible hand will always lead to optimum economic decisions in the commercial market.”[69]

Three recent cases further illustrate the departure from the paternalistic approach referred to in Central Hudson. In 44 Liquormart, Inc., v. Rhode Island, 517 U.S. 484 (1995) a liquor store attempted to evade state laws banning advertising of retail prices for alcoholic beverages. The store first advertised low prices for items such as peanuts and chips and then implied a connection to low alcohol prices by placing the word ‘WOW’ next to pictures of alcohol bottles.[70] The state found that this “implied reference to bargain prices for liquor” violated the applicable law.[71] The Supreme Court noted that historically, advertising has been part of our national culture since colonial times and that one of Benjamin Franklin’s reasons for supporting a free press was to advertise voyages to Barbados.[72] The Court held “there is no question that Rhode Island’s price advertising ban constitutes a blanket prohibition against truthful, non-misleading speech about a lawful product. “There is also no question that the ban serves an end unrelated to consumer protection.”[73] Moreover, the Court doubted that ending the ban would increase alcohol consumption, noting the speculative nature of any statement that made that connection.[74] Since the regulation’s purpose was to discourage alcohol consumption, the state could achieve its end by increasing taxes or imposing direct regulation. Therefore, since alternatives were available, the statute’s speech restrictions were overly broad.[75]

In a similar case, the Supreme Court struck down another state law that restricted advertising tobacco. In Lorillard Tobacco Co. v. Reilly, 533 U.S. 525 (2001), the departing State Attorney General “announced that as one of his last acts in office, he would create consumer protection regulations to restrict advertising and sales practices for tobacco products.”[76] The laws were intended to protect underage consumers by eliminating “deception and unfairness” in the marketing and sale of tobacco products.[77] Specific studies reflected that tobacco advertising had a particularly strong effect on children and that tobacco companies targeted certain groups such as young women.[78] The state government implemented a new rule that outdoor advertising could not take place within 1000 feet of playgrounds, parks or schools and in-store advertisements had to be higher than five feet as measured from the floor.[79] The outdoor restrictions were projected to eliminate approximately 90% of the land area available to advertisers. The Court characterized this as “nearly a complete ban on the communication of truthful information about smokeless tobacco and cigars to adult customers.”[80] The Court also noted that children less than five feet tall “certainly have the ability to look up and take in their surroundings.”[81] Once again, the Court deemed the law overbroad to accomplish its purpose.

The Supreme Court struck down a Federal law prohibiting pharmacists from advertising “compounded drugs” in Thompson v. Western States Medical Center, 535 U.S. 357 (2002).[82] The opponents of compounded drug advertising argued that patients could be confused by the advertisements because they might not fully understand the risks associated with the product.[83] The Court rejected the Government’s position, finding that the legislatures could pass a less restrictive means to protect the consumer from being misled by requiring product-warning labels.[84]

The cases cited above show that since Chrestensen, the Supreme Court has moved away from a paternalistic view towards consumers by granting commercial speech greater protection. Moreover, the Court has consistently refused to accept state restrictions on commercial speech that are justified on the basis of a state government’s powers to police the state. The Court has found that restrictions imposed ‘to protect’ the public, are actually a government guise to control morality by targeting behavior such as abortion, alcohol consumption, and tobacco usage. The Court sought to check overreaching legislation, by establishing the Central Hudson test that specifically requires legislation to have a clear and compelling regulatory purpose based on more than speculation about what could happen. The legislation must also be narrowly tailored to meet a specific purpose. In the past, the information suppressed by government regulation was often an important resource that was denied to consumers who needed it the most - such as young women who needed information about abortions and the elderly seeking affordable medication. By overturning of state statutes that attempt to control the morality of consumer behavior, the Court has helped both consumers by providing individuals with greater freedoms to improve their lives.

However, before a court can apply the Central Hudson test the speech must be deemed “commercial speech.” Although, the Court established the Bolger test to distinguish between commercial and noncommercial speech, the Bolger test is designed to analyze specific types of commercial speech, for example, advertisements with economic motivation that references specific products. However, the Bolger test raises several questions when the commercial speech is advertised on a broader scale. For example, what happens when the commercial speaker embarks on a larger public relations program that causes a profit motive to collide with public policy rationales? Should the protection of commercial and political speech trump a state’s power to regulate commerce? These are the issues raised in Kasky.

II. The Nike Commercial Speech Case

a. The Appellate Court Case

i. Holding, Assumptions, and California Law

The California Court of Appeal affirmed the trial court’s order sustaining Nike’s demurrer of the case in Kasky v. Nike, Inc., 45 P. 3d 243 (Cal. 2002).[85] “The trial court regarded the constitutional distinction between commercial and noncommercial speech to be dispositive ” and granted Nike’s motion to demurrer without leave to amend.[86] The appellate court assumes the truth of the plaintiff’s factual pleading when it reviews a trial court’s decision to grant a demurrer without leave to amend.[87] However, despite this standard the appellate court ultimately found that the speech in question was noncommercial for constitutional protection purposes and sustained the trial court’s decision. [88] The appellate court noted that “[a] line of decisions extending from [Virginia State Board of Pharmacy] has sanctioned restraints on commercial speech that is false, deceptive or misleading.”[89] and quoted Bates v. State Bar ofArizona, 433 U.S. 350, 383 (1977), “‘the leeway for untruthful or misleading expression that has been allowed in other contexts has little force in the commercial arena.’”[90]

Plaintiff Kasky relied on two California statutes. First, the Plaintiff alleged that Nike violated California Business and Professional Code section 17200 by making misrepresentations to ‘“maintain and/or increase its sales and profits... through its advertising, promotional campaigns, public statements and marketing....’”[91] Second, Plaintiff alleged that Nike violated California Business and Professional Code section 17500, which concerns false advertising.[92] The complaint sought an order for Nike “to disgorge all monies” obtained through “unlawful and unfair practices” and an order “to undertake a Court-approved public information campaign” to counter their misrepresentations.[93]

ii. Background on Nike and the Speech at Issue

The Court of Appeal noted that Nike, Inc. is a “large multinational enterprise” which owes its growth to “a marketing strategy centering on a favorable brand image, which is associated with a distinctive logo and the advertising slogan ‘Just Do It.’”[94] Nike spent “no less than $978,251,000 for the year ending May 31, 1997” on promotion and advertisement of its products.[95] The court quoted a statement from the 1997 Nike annual report that further illustrated the importance of their image in the industry: “We are a company... that is based on brand, one with a genuine and distinct personality, and tangible, emotional connections to consumers the world over.... ”[96] To reduce labor costs for production, Nike employed between 300,000 to 500,000 workers in manufacturing operations in various Asian nations. [97] Nike required contractors sign a “Memorandum of Understanding” and expected them to follow local laws concerning wages, working conditions, overtime, and child labor.[98] The company conducted “spot audits” to assure compliance.[99] Former ambassador to the U.N., Andrew Young gave one favorable review of twelve Nike factories stating that he “found no evidence of widespread abuse or mistreatment of workers.”[100] However, other reports, were not as favorable. A disgruntled employee leaked a report to the press that stated there were “widespread violations of local regulations and atmospheric pollution causing respiratory problems in 77 percent of the workers.”[101] Other studies reported workdays in excess of eight hours, minimum wage violations, dangerous exposures to toxic fumes, and employment of children under the age of 16.[102]

Subsequent to the leak, Nike began a public relations campaign to counter the negative effect of reports by the New York Times, CBS, 48 Hours, and other media sources that focused attention on the issue of labor conditions in Asia. Nike’s campaign focused on the positive Andrew Young report and included press releases and letters from news editors, college presidents, and athletic directors sponsoring Nike products.[103] The speech in this case centered on Nike’s statements during its public relations campaign. [104] According to the complaint, Nike allegedly made the following six misrepresentations concerning its labor practices:

1. Workers were not subjected to corporal punishment or sexual abuse.

2. Applicable governmental laws concerning wages and hours were followed.

3. Applicable health and safety laws were followed.

4. Nike paid average line workers double the minimum wage in Southeast Asia.

5. Workers received free meals and healthcare.

6. Nike guaranteed a ‘living wage’ to workers. [105]

The complaint also alleged that Andrew Young’s statement that Nike ‘is doing a good job’ and ‘operating morally’ was false.[106]

iii. The Appellate Court’s Analysis

The California Court of Appeal addressed the distinction between commercial and noncommercial speech by examining Bolger, “the most pertinent and authoritative precedent dealing with the distinction.”[107] According to Bolger, no single factor is dispositive, but the combination of all relevant characteristics of the speech, such as ads referencing a specific product out of economic motivation, is supportive of a characterization of the speech as commercial speech.[108]

Distinguishing Kasky, the California Court of Appeal explained that although Bolger concerned “communications conveying information or representations about specific characteristics of goods,” the Nike statements “intended to promote a favorable corporate image of the company so as to induce consumers to buy its products.”[109] This “promotion” detached Nike’s statements from “two of the three characteristics of commercial speech noted in the Bolger decision, [mainly] advertising format and reference to specific product,” which calls for a different analysis than the analysis applied to product advertisement.[110]

The Court of Appeal stated that this issue is really political rather than commerce and “the complaint in fact seeks judicial intervention in a public debate.”[111] The court further noted that “Nike’s strong corporate image and widespread consumer market places its labor practices in the context of a broader debate about the social implications of employing low-cost foreign labor for manufacturing functions once performed by domestic workers.”[112] The court quoted New York Times v. Sullivan, 376 U.S. 254 (1964):

‘the general proposition that freedom of expression upon public questions is secured by the First Amendment has long been settled by our discussions. The constitutional safeguard... was fashioned to assure unfettered interchange of ideas for the bringing about of political and social changes desired by the people.’[113]

Morover, the court quoted Judge Learned Hand’s statement on the First Amendment, that “the first amendment ‘“presupposes that right conclusions are more likely to [be] gathered out of a multitude of tongues, than through any kind of authoritative selection.’”[114]

In conclusion, the California Court of Appeal found Nike’s statements to be “part of a public dialogue on a matter of public concern within the core area of expression protected by the First Amendment.... ”[115] The court found that, “the First Amendment protects the public’s interest in receiving information.... ”[116] “‘[U]nder the free speech guaranty the validity and truth of declarations inpolitical disputes over issues of public interest must be resolved by the public and not by a judge.’”[117]

b. The California Supreme Court Decision

i. Basic Facts about Nike and California Law

The California Supreme Court noted that in 1997 Nike’s annual revenue was $9.2 billion with advertising and marketing expenditures approximating $1 billion.[118] The court briefly reviewed the Asian labor issue, the media coverage, and Nike’s response. It also discussed the two California statutes at issue in the case: the Unfair Competition Law and the False Advertising Law. The Unfair Competition Law (“UCL”), codified as section 17200, was designed “to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services.”[119] It also allowed “any person acting for the interests of . . . the general public” to bring suit under its provision.[120] The California Supreme Court has “‘repeatedly recognized the importance of these private enforcement efforts’”[121] and has stressed that “the UCL’s scope is broad.”[122] The False Advertising Law, section 17500, is similar to the UCL. Both laws prohibit “‘not only advertising which is false, but also advertising which although true, is either actually misleading or which has a capacity, likelihood or tendency to deceive or confuse the public.’”[123] Furthermore, a plaintiff only needs to show that “‘members of the public are likely to be deceived.’” to state a claim under these acts.[124]

ii. The California Supreme Court’s Analysis

The California Supreme Court described the evolving protection of commercial speech since the 1970’s when the United States Supreme Court held that advertising could have some First Amendment protection in Bolger and that a complete ban on advertising prices violates the First Amendment in Virginia State Board of Pharmacy.[125] “The high court observed 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.’”[126] The California Supreme Court also noted that regulations of noncommercial speech are subject to strict scrutiny and therefore must “be narrowly tailored to promote a compelling government interest.”[127] Commercial speech, however, is subject only to the intermediate scrutiny test developed in CentralHudson. The court emphasized the first prong of that test, that commercial speech “‘must concern lawful activity and not be misleading.’”[128]

This first prong served as a focal point for the concerns of the California Supreme Court, which lead to a discussion of false and misleading commercial speech. The court quoted Gertz v. Robert Welch, Inc., 418 U.S. 423 (1974): “[t]here is no constitutional value in false statements of fact. Neither the intentional lie nor the careless error materially advances society’s interest in ‘uninhibited, robust, and wide-open debate on public issues.’”[129] But it quickly qualified this point by noting that the suppression of speech can lead to the suppression of true speech as well as falsehood, and therefore it needs ‘breathing space’ to prevent the chilling effect of restrictions.[130] Therefore, while “some false and misleading statements are entitled to First Amendment protection in the political realm,”[131] such “protection for false statements is not universal.”[132]

According to the California Supreme Court, the United States Supreme Court had three reasons for distinguishing commercial from noncommercial speech and for withholding constitutional protection from commercial speech.[133] First, “the truth of commercial speech . . . may be more easily verifiable by its disseminator . . . in that ordinarily the advertiser seeks to disseminate information about a specific product or service that he himself provides and presumably knows more about than anyone else.”[134] Second, “commercial speech is hardier than noncommercial speech in the sense that commercial speakers, because they act from a profit motive, are less likely to experience a chilling effect from the speech regulation.”[135] Third, “government authority to regulate commercial transactions to prevent commercial harms justifies a power to regulate speech that is ‘linked inextricably’ to those transactions.”[136] Ultimately, the Court found that “commercial speech consists at its core of ‘speech proposing a commercial transaction.’”[137]

The California Supreme Court, reviewed the Bolger case. It noted a combination of the following three factors used to determine if speech is commercial: (1) advertising format, (2) product references, and (3) commercial motivation.[138] The California Supreme Court found a deficiency in the Bolger analysis in that the U.S. Supreme Court “not only rejected the notion that any of these factors is sufficient by itself, but it also declined to hold that all of these factors in combination, or any one of them individually, is necessary to support a commercial speech characterization.”[139] Thus, the Bolger case failed to establish an actual test.

Another difficulty with distinguishing between commercial and noncommercial speech is the speaker’s ability to mislead consumers. The California Supreme Court noted the Supreme Court’s warning that “advertising which ‘links a product to a current public debate’ is not thereby entitled to the constitutional protection afforded noncommercial speech . . . [because] advertisers should not be permitted to immunize false or misleading product information from government regulation simply by including references to public issues.”[140] The court pointed to a statement in Justice Stevens concurring opinion in Rubin v. Coors Brewing Co., 514 U.S. 476 (1995) that “any description of commercial speech that is intended to identify the category of speech entitled to less First Amendment protection should relate to the reasons for permitting broader regulation: namely, commercial speech’s potential to mislead.” [141]

iii. The New Test

The California Supreme Court addressed both the problems associated with Bolger and the specific facts and issues of the Kasky case by developing its own ‘limited-purpose’ three-part test for classifying speech. [142] The first prong focuses on the speaker, which is defined as “someone engaged in commerce, [i.e.] the production, distribution, or sale of goods and services, or someone acting on behalf of someone so engaged.”[143] The second prong focuses on the intended audience, defined as “actual or potential buyers or customers, or persons (such as reporters or reviewers) likely to repeat the message to or otherwise influence actual or potential buyers or customers.”[144] The third prong involves defining the content of the message. This includes “two relevant considerations [of] advertising format and economic motivation.”[145] The court referenced Central Hudson and noted that commercial speech proposes a commercial transaction between buyer and seller, as audience and speaker.[146] Generally, commercial speech advertises the sale of products or services to a buyer in an advertising format.[147] The content of the message usually consists of “statements of fact about the business operations, products, or services of the speaker.”[148]

The California Supreme Court applied this new limited purpose test to the facts of the Kasky case, and determined that Nike’s statements were commercial. [149] First, Nike is a corporation engaged in commerce.[150] Second, in terms of audience, Nike’s statements were “intended to reach and influence actual or potential purchasers of Nike products.”[151] Third, statements concerning labor practices and working conditions were “representations of fact of a commercial nature.”[152]

iv. Nike’s Argument

The California Supreme Court majority opinion considered arguments in support of Nike’s position. Nike contented that the statements about labor conditions in foreign countries were actually matters of public interest, not commercial interest, and therefore subject to First Amendment protection. The court found that “this argument falsely assumes that speech cannot properly be categorized as commercial speech if it relates to a matter of significant public interest or controversy.”[153] The court also cited National Commission on Egg Nutrition v. FTC, 570 F.2d 157 (1977), that the “right of government or administrative agency to restrain false advertising can hardly depend upon the view of an agency or court as to the relative importance of the issue to which the false advertising relates.”[154] The court also quoted Bolger, which stated that a company cannot “immunize false or misleading product information from government regulation simply by including references to public issues.”[155] The court stressed that it was possible for Nike to separate statements of fact concerning public issues from expressions of opinion.[156]

Nike argued that the California Supreme Court’s new test restricted Nike’s statements while allowing competitor to freely express themselves with full First Amendment protection. The majority answered that the law only suppresses “false and misleading statements of fact,” not the company’s right to express itself on public issues.[157] The majority countered the dissent’s view that “the identity of the speaker is usually not a proper consideration in regulating speech that is entitled to First Amendment protection” by pointing out that the identity of the speaker is integral in the initial determination of whether the speech is entitled to First Amendment protection. [158] Therefore, the court must consider the identity of the speaker in cases involving corporate speech.[159]

v. The Dissent

The Kasky opinion contained two dissenting opinions. Justice Ming Chin stressed that restricting one point of view while providing protection for another point of view is counter to the very purpose of the First Amendment. “Handicapping one side in this important worldwide debate is both ill considered and unconstitutional. Free speech protection for one side and strict liability for the other will hardly promote vigorous and meaningful debate.”[160] Justice Chin also quoted the Riley court, which stated that “even with the purest of motives, [the state] may not substitute its judgment as to how best to speak for that of speakers and listeners; free and robust debate cannot thrive if directed from government.”[161] Furthermore, Justice Chin stated that the public at large should have all information possible from both sides of a debate because “[f]reedom of speech presupposes a willing speaker. But where a speaker exists . . . the protection afforded is to the communication, to its source and to its recipients both.”[162]

The other dissenting opinion by Justice Janice Brown argued that one cannot make a distinction between political speech and commercial speech in the modern global economy. Justice Brown also noted the majority’s difficulty in ‘specifying the parameters’ of commercial speech and the high court’s divisions concerning the issue.[163] “With the growth of commercialism, the politicization of commercial interests, and the increasing sophistication of commercial advertising over the past century, the gap between commercial and noncommercial speech is rapidly shrinking.”[164] Justice Brown also noted that “a ‘rigid dichotomy’ exists between commercial and noncommercial speech and that Nike’s statements, which cannot be separated into the different classes, are closer to noncommercial than commercial speech . . . the majority’s test is ‘overbroad’ and ‘renders all corporate speech commercial speech.’”[165] One of Justice Brown’s primary concerns was the decision’s chilling effect on “a corporation’s ability to participate in the debate over matters of public concern.”[166] She was also concerned with the language used in the California statutes. She stated that language such as ‘misleading’ or ‘potentially misleading’ creates doubt as to what a corporation can or cannot say.[167] Furthermore, such broad interpretation of these phrases could also lead to a chilling effect on corporate speech as corporations might simply opt to remain silent rather than worry about the expense of litigating public statements.[168]

III. The Argument For the California Supreme Court’s Holding

a. A New Test is Needed to Cover Broad Commercial Speech

The California Supreme Court was correct to develop a new test to distinguish commercial and noncommercial speech. The Bolger test and other United States Supreme Court decisions cover restrictions on smaller scale advertisements. For example, “I will sell you X for price Y.” The Kasky case involved broader statements concerning international labor issues, political speech, and statements of public concern embedded in communications designed to secure profits. The three-part Bolger test was not designed to analyze such a broad problem because it has a number of its own difficulties. One problem is that the test produces inconsistent results. For example, courts can determine speech to be commercial if it satisfies any one of the prongs, while other speech that is found to have satisfied all three prongs could be held to be to be political speech. Without a clear indication of how to distinguish commercial speech from noncommercial speech, the process fails because courts cannot use the Central Hudson test until the speech is first classified as commercial.

b. The Speaker – An Important Consideration in Commercial Speech

i. Freedom of the Press

In an amicus brief supporting Nike, thirty two media-related entities, including ABC, CBS, CNN, FOX, NBC, The New York Times Company, Newsweek, Time, and The Washington Post Hearst, opposed the potential restrictions that the California Supreme Court’s decision would place on their ability to report issues of public concern regarding corporate America.[169] These media entities stated that the ruling would chill corporate speech because corporations would fear that the information they provide to reporters could be considered potentially misleading under the California statutes in question. [170] This would prevent reporters from offering an accurate portrayal of all sides of any public issue that affect corporations.[171] Nike supporters also argued that expanding the commercial speech doctrine is unnecessary due to the media’s extensive coverage of commercial issues and resultant public scrutiny of corporate malfeasance.[172] They stated that the stronger restrictions create a situation where “the more intense the media debate is regarding a company’s business practices, the more likely it is that a company’s statements will be subject to regulation.”[173]

However, since the speaker is part of the overall test, the potential negative impact on the news media should be eliminated. A corporation’s truthful statements, reported by news sources, could be exempt from the test because the news source, as the speaker, must retain freedom of the press to serve its role as a public servant. The court can also use the test to determine if a company’s direct advertisements through press releases, op-ed pieces, or letters, violate the California statutes.

ii. Corporations Bend the Law in Pursuit of Business Goals

The characteristics and objectives of corporations differ significantly from those of the press, who require full First Amendment protection to achieve their goal of reporting newsworthy events. Corporations pursue profits. They do not always regulate themselves. In fact, they sometimes take advantage of whatever slack they find. Corporations can dance a fine line on the edge of the law. Unlike the media, whose actions take place in the public spotlight for all to see, corporate action can take place behind closed doors and can stay out of the public arena.

c. The Audience – Consumers

“The final cause of law is the welfare of society.”[174] Corporations are put a part of society. The audience of corporate speech, consumers, must also be considered. Many consumers’ lack knowledge concerning economic issues in modern America and Corporate America directs its communication towards these vulnerable consumers. Free speech sometimes acts to abridge economic freedom, as opposed to enhancing it. “A free market in ideas, like a free market in any other commodity, tends to work to the advantage of the most advanced or powerful producers.”[175] But there are ways to counter these advantages. “The chief proponents of censorship are usually the more marginal producers of ideas or established producers who cannot protect their existing market share against competition.”[176] If one compares “corporate America” with “consumer America,” one can find that most of the advantages belong to the corporations. Examples of these advantages include greater financial resources, lobbying power at all levels of government, more sophisticated legal representation, and greater access to the media to present their message. Laws that consider greater citizen protection tip the scales of justice more favorably toward those with fewer advantages.

d. The Intended Message of Commercial Speech – Lets Make a Deal

Corporations are out to make sales, and they are not likely to stress the drawbacks of their products or services in public communications. Instead, their messages are likely to be framed in the best light possible. Vital consumer information is deliberately left out of the advertisement. Exaggerations are made. Some of this is to be expected. Everyone expects to see athletic superstars such as Michael Jordan advertising Nike shoes. In fact, most consumers would be unimpressed to see the average consumer in a Nike commercial. But the result of such “puffing up” can be financial loss for those who can least afford it.

In 2003, Allstate Insurance sent its customers a copy of Hands On, an informational booklet. The cover story read “The Cost of Living Long – A Long Term Solution.” The phrase “Insure Today, Secure Tomorrow” also appeared on the cover.[177] The booklet contained a number of financial and insurance related articles on topics in the news, such as paying for care in retirement homes and diversifying personal investments. The diversification article stated in large bold type, “Stocks aren’t consistent winners, and the chances of you identifying the next Microsoft are slim.”[178] One could argue that the statement is not valid since stock values have gone up an average of nine percent per year.[179] However, we have a recession every five years on average.[180] One could also argue about whether the long-term stocks really are consistent winners. Furthermore, investor Peter Lynch has stated that “the average person comes across a likely prospect two or three times a year – sometimes more.”[181] The Allstate article also had a subheading called ‘Taking Action,’ which directed consumers to invest in mutual funds or annuities.[182] It is no coincidence that these are the investment options provided by the company, and that such statements portrays the company more favorably than investments in other companies.

Under the Bolger test, the Allstate article would likely be considered commercial speech. But if the U.S. Supreme Court had elevated commercial speech to receive full constitutional protection, the articles could be out of reach of state regulators. Allstate is a reputable company and the magazine it sends out is helpful in informing the public on a number of issues, but Allstate’s underlying intent is to sell financial products and services. What happens when less than reputable companies use this same tactic, coupling informational material with a sales pitch?

Iv. Conclusion

Dishonest and misleading behavior, on such a broad scale, simply cannot be tolerated because Corporations will certainly use exaggerations to avoid regulations and cut costs. Consumer society can expect and accept such behavior on a small scale. However, elevating commercial speech to full constitutional protection would weaken the public. Corporations would gain greater protection, although they are already in a position of power, while government and consumers would have less ability to check that power.

Society must keep the relationship between corporations and consumers in balance. Both need each other, but the corporations, with their resources, are in a position to exploit the consumers. This does not mean that all corporations engage in misleading or fraudulent activities. Corporations are not people, they are legal entities created for two purposes: (1) to enable society to efficiently acquire needed products and services, and (2) to satisfy their own profit motives. At times, these purposes conflict and the courts must act to solve the dispute. The scales must be tipped in favor of consumers to give them a fair chance.

The California Supreme Court’s holding and new test correctly considers the speaker, audience, and intended message. This test serves as a check on potential corporate fraud and malfeasance, in favor of protecting the average American consumer. Extending First Amendment protection to commercial speech would be an example of government protecting powerful corporations instead of those who need protection the most, mainly the average consumer.

The California courts have acted to protect the State’s citizens. Although the Fourteenth Amendment imposes constitutional restrictions on the States, the Supreme Court must still respect their traditional police powers. A quote from International Shoe Co. v. State of Washington, 326 U.S. 310 (1945), is particularly relevant:

But to the extent that a corporation exercises the privilege of conducting activities within a State, it enjoys the benefits and protection of the laws of that State. The exercise of that privilege may give rise to obligations; and so far as those obligations arise out of or are connected with the activities within the State, a procedure which requires the corporation to respond to a suit brought to enforce them can, in most instances, hardly be said to be undue.[183]

California expects corporations operating within its borders to refrain from fraudulent and misleading behavior and disguising commercial speech motivated by economic gains as political speech.