Add. Info—Taxes: The S. Ct. looks for consistency in taxes to insure that the states are not
trying to engage in some discriminatory scheme. In U.S. v. California the Court upheld a state
tax on materials passed on to the federal government. A contractor on a cost-plus contract with
the federal government paid about $2 million per year in sales taxes to California for materials
it purchased as a part of a federal contract. It passed that cost on to the federal government. The
Court upheld this; federal tax immunity applies only when the federal government is the direct
purchaser. California was not treating the contractor any differently than any other contractor.
In Intel Containers Intl. v. Huddleston the Court upheld Tennessee sales taxes applied to cargo
containers used only in international commerce that came from Tennessee. Those containers
were treated no differently than any other container, so the tax did not violate the foreign
commerce clause. In Oklahoma Tax Comm. v. Jefferson Lines Inc., the Court held that
Oklahoma could impose a sales tax on interstate bus tickets sold in Oklahoma. States may not
impose an income tax on the transportation service provider, but may impose a sales tax on the
service provided.
BUSINESS AND FREE SPEECH—Here we begin a review of the Amendments to the
Constitution that have particular applications to business. The primary constitutional protections
are listed on the transparency. The First Amendment concerns restrictions on speech that
Congress may impose on business; the courts distinguish between commercial speech and
political speech by business.
Add. Disc: Justice Holmes said “the best test of truth is the power of the thought to get itself
accepted in the competition of the market.” He was referring to the market for ideas. Does this
require an informed and intelligent citizenry to work in a democratic society? Should political
speakers be allowed to make any claims they wish? Hitler was elected to office initially; is it
utopian to believe that citizens will resist the lure of totalitarian politicians—especially when
times are bad?
International Perspective: Freedom of Speech
While few restrictions are imposed on the media in the U.S., that is not the case in the rest of the
world. In the U.K., politicians frequently win defamation suits against the media, something very
rare in the U.S. A reporter for a German magazine was arrested in Belgium for suggesting that
members of the EU Parliament engaged in fraudulent billing practices.
Business and Political Speech—The Supreme Court has moved, over the last 25 years, to give
businesses more right to speak on political issues. Many state restrictions on corporate
contributions to affect political issues have been stricken as a violation of the First Amendment,
as happened in the 1978 Bellotti case, when the court noted that speech does not lose its
protection “simply because its source is a corporation.” In Citizens United v. Fed. Election
Comm. (2010), the Court struck down parts of McCain-Feingold as it improperly restricted
“electioneering communication” within 60 days of a general election (30 days of primary). This
was held to be too sweeping, as it encompassed books, movies, ads, blogs—anything that
commented on the merits of a candidate.
CASE: Consolidated Edison v. Public Service Commission of New York (S.Ct., 1980)—The
NY Public Service Comm. ordered Consolidated Edison not to insert information in monthly
utility bills advertising the merits of nuclear power. The PSC said that customers were a captive
audience and should not be forced to view Con Ed’s views on such issues.
Decision: To be constitutional, such restrictions must meet the test established by the Court. The
main point of the decision is that: 1) reasonable time, place, or manner regulations of 2) a
Questions: l. Should a distinction be drawn between political speech paid for by private persons
and that paid for by customers who may not want the speech? The political inserts in this case
were paid for by Con Ed customers who buy electricity from that company.
There are restrictions on some forms of speech by private persons and corporations. For
example, outsiders have no right to go into a classroom and force students to listen to a speech
on behalf of a political or a commercial cause. Here the Court made clear that governmental
agencies are not to be in the business of determining what topics are appropriate for commercial
2. Would you distinguish between speech that addresses issues and corporate political speech that
endorses particular candidates for office?
If corporate funds are spent for political purposes, as they are frequently through PACs, such
decisions are generally protected by the business judgment rule, so even if some shareholders are
upset by positions taken by the corporation there is little they can do. However, as the Court
Add. Cases on Political Loyalty: In the cases Umbehr and O’Hare Truck Service, the Supreme
Court held that firms that contract with governments cannot be fired for speaking out on public
issues. That is, government contractors cannot be punished for taking political positions that
irritate a government agency with which they do business. Contractors, like government
employees, have free-speech rights.
Add. Info: Political Speech on Private Property: Because many people pass through shopping
malls, advocates of causes like to use them as a place to distribute their messages. Mall owners
usually ban all political speech because it may irritate some patrons and may interfere with
business. State laws vary considerably on the matter. The New Jersey S.Ct. held that malls are a
forum for public speech and that political pamphlets may be distributed. The court said that the
line between public and private property is not clear in the case of malls, since they are
gathering places like town squares in old days. The mall owners may impose reasonable “time,
place, and manner” restrictions on activists. Similar rulings regarding mall access also have
been issued in California, Massachusetts, Oregon and Washington. Other state supreme courts
have taken a harder line on the right of access to malls for political speech—by groups ranging
from the KKK to Queer Nation.
Cyberlaw: Freedom of Speech on the Net
Several federal and state laws that imposed blanket restrictions on certain speech (sexually
oriented) on the Internet have been stricken as unconstitutional.
Business and Commercial Speech—Governments may restrict false commercial speech or limit
commercial speech under guidelines set by the Supreme Court. The Court has gradually stricken
more restrictions on commercial speech over the years. Many of the restrictions, such as
advertising by lawyers or pharmacies, were anti-competitive violations of the antitrust laws as
well as infringements on speech rights.
Add. Info: Regulation of Telephone and Internet Communication: The Telephone Consumer
Protection Act is enforced by the FCC and similar state laws. The laws ban for-profit
organizations from using automatic dialing devices that make recorded sales spiels. Several
businesses went under as a result of this restriction. Suits were filed contesting the First
Amendment validity, but the law was upheld. Congress has imposed content regulation for
information transmitted on the Internet focused on the transmission of sexual materials,
solicitation for sex, and violent materials, including information about how to make bombs and
such. Some states have passed statutes banning pornography and holding the on-line services
liable for the conduct of their customers. The legal status of the Internet will have to be settled;
the courts have stricken some Internet control statutes as a in violation of the First Amendment.
CASE: Central Hudson Gas & Electric v. Public Service Comm. of N.Y. (S.Ct., 1980)—The
NY PSC ordered NY utilities to stop ads that promoted electricity use. The PSC did this to help
promote energy saving.
Decision: Regulators must satisfy the test for restrictions set by Court. The four-part test
established here is still the key one: 1) to obtain First Amendment protection, commercial speech
Questions: 1. Since the Court found that the state had a substantial interest in the subject in
question (electricity and its conservation), why did it still find the ad restrictions to be
unconstitutional? What part of the four-part test was not met?
The Court found that the restrictions on advertising of all electric services were too broad and so
went beyond the legitimate interest of the state in regulating advertising by a utility monopoly.
2. Suppose the commission said that only advertising designed to promote energy conservation
was allowed. Would that have met the Supreme Court test?
No, that would have been too restrictive too since it would ban entire areas of speech. That
Add. Info: S. Ct. Advertising Restriction Cases:
In Bates v. State Bar of Arizona, the Court held that a ban on lawyer price advertising for
routine legal services violates freedom of speech. Regulations to prevent consumer deception or
other problems are acceptable, but not complete bans.
In Sauderer v. Office of Disciplinary Counsel of Supreme Court of Ohio, the Court struck down
prohibitions on ads by an attorney soliciting business from those injured by using the IUD. The
ads were not false or misleading; nor is it beneath the dignity of the legal profession to have
such ads printed.
In Edenfield v. Fane, the Court struck down Florida’s prohibition on personal and telephone
solicitation of clients by CPAs. The regulation violated First Amendment rights and failed to
meet the four part test of Central Hudson Gas because the ban was so broad and could not be
shown to be related to the state’s interest in protecting the public from incompetent accountants.
In 44 Liquormart, the Court struck down Rhode Island’s law prohibiting the advertisement of
liquor prices. The state’s justification for the law was that it “promote sobriety.” The Court
rejected this in favor of the free speech right of merchants and would-be liquor buyers.
In U.S. v. Edge Broadcasting, the Court upheld a federal statute that allows states to prohibit
radio and TV advertisements for state-run lotteries in other states, if the state does not have a
lottery. That restriction met the Central Hudson Gas test; the regulation advances a
governmental interest and is no more extensive than necessary to serve that interest.
In Florida Bar v. Went for It, the Court upheld a Florida limit on lawyers contacting accident
victims or their families within 30 days of the injury. The majority said the restriction did not
violate the First Amendment rights of lawyers and was crafted to help protect the privacy of
injured parties against intrusive contact by lawyers.
Add. Case: Pagan v. Fruchey (6th Cir., 2007)–Pagan put a For Sale sign on his car and left it
parked on the street in front of his residence. A police officer noticed the sign and told Pagan to
remove it, as it violated the Glendale Traffic Code, which prohibits putting vehicles for sale out
on the street. Such vehicles must be on a driveway or private property. Pagan sued, claiming the
ordinance violated his First Amendment rights. It was more restrictive of commercial speech
than the law allows. The district court held for Glendale; Pagan appealed.
Decision: Reversed and remanded. The ordinance unconstitutionally restricted commercial
speech. Contrary to the claim of Glendale that it is a parking ordinance, not a speech ordinance,
the ordinance raises free speech issues. The ordinance is not content neutral as to time, place or
Add. Case: Rubin v. Coors (Sup. Ct., 1995)–Coors wished to state on beer cans the alcohol
content of the beer. Unlike wine and liquor, the Bureau of Alcohol, Tobacco and Firearms
prohibited such labeling. The government claimed if the information was put on labels, a
“potency war” would break out, with consumers wanting to buy the strongest beer. Coors
contended this was in violation of its First Amendment rights.
Decision: The Court unanimously struck down the regulation. The government may prohibit
truthful information advertising of a lawful product only when the government interest is
“substantial;” the concern about potency wars is a substantial interest. However, the regulation
failed to directly advance the asserted interest. It is inconsistent to allow alcohol labeling on
Freedom to Criticize—There must be actual malice for a public figure, such as a corporation, to
recover damages for a defamatory falsehood.
Add. Info: Freedom to Criticize: New York Times v. Sullivan is the landmark case concerning
the First Amendment right of the “citizen critic” to criticize government. The S. Ct. established a
qualified immunity for citizen critics. There must be proof of actual malice by the critic for the
plaintiff to win a defamation action. This rule has been expanded to non-elected public officials
and to private sector public figures. The rule was applied in Hustler Magazine v. Falwell, where
a magazine showed a cartoon of Rev. Falwell having sex with his mother in an outhouse. There
could be no suit, the Court held, in the absence of a showing that the publication complained of
contained a false statement of fact which was published with actual malice. Milkovich extended
New York Times to say that a defamation action cannot prevail unless the statement in question
can be reasonably interpreted as stating actual facts, not opinions, about an individual.
Add. Info: Freedom of Religion and Business: This issue does not arise commonly, but the S.
Ct. addressed it in Dept. of Human Resources, Oregon v. Smith. Smith, a Native American, used
peyote, a drug, for religious ceremonies of the Native American Church. He was fired by his
employer for use of illegal drugs and was denied unemployment compensation under Oregon
rules. He protested to the Supreme Court, which upheld the Oregon law, and ruled that it did not
violate his right of free exercise of religion. “We have never held that an individual’s religious
beliefs excuse him from compliance with an otherwise valid law prohibiting conduct that the
State is free to regulate.” Congress passed legislation to reverse the effect of this ruling.
Add. Info: Freedom of Speech in the Workplace: First Amendment rights are coming into
conflict with laws concerning discrimination in employment, especially with speech held to
create a hostile work environment. A federal appeals court reversed an award for hostile
working environment in favor of a female police officer in El Paso. Negative comments about the
presence of women on the police force were published in an anonymous column in the police
union newsletter. In another case, the court found it to be religious harassment to put Bible
verses on company paychecks and to put religious articles in company newsletters. The judge
ordered the company and employees to “refrain from any racial, religious, ethnic, or other
remarks or slurs contrary to their fellow employees’ religious beliefs.” This is an uncertain area
of the law. How much speech can be suppressed?
International Perspective: The (Partially) Unwritten Constitution of the United Kingdom
The constitution of the U.K. is a collection of laws, treaties, statutes and unwritten principles.
These include the Magna Carta (1215), the Bill of Rights (1689) and the Act of Union (1707).
Parliament can change laws significantly but tradition tends to retard radical change.