Public Policy: June 2011 Archives

Supreme Court Decisions Support Digital Ad Industry

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iStock_000006718276XSmall.jpgIt’s not often you can say that the judicial system electrified the media and marketing world, but yesterday the United States Supreme Court closed their latest session with a bang! Wrapping up their 2010-11 session, the Court issued two landmark decisions that bolster First Amendment/free speech protections for marketing practices. In a decision issued last Thursday, the Court struck down Vermont’s Prescription Confidentiality Act as an anti-marketing law masquerading as a privacy law. This decision casts a doubtful eye on state restrictions of marketing practices, supporting extremely close scrutiny of laws that disfavor certain speakers (such as marketers) or types of speech (such as marketing) through restrictions on data collection or transfer. Sorrell clarifies that legislative proposals seeking to regulate commercial data practices, including marketing and advertising activities, face high constitutional hurdles.

Just yesterday, the Court struck down a California state law that prohibited the sale or rental of violent video games to minors and established tough new labeling requirements. Again finding strong First Amendment protections for this type of commercial speech, the Court noted that there was no need to expand the successful self-regulation guidelines that are already used in the video game industry—which are 80% effective in making sure that minors cannot purchase seriously violent games on their own. Furthermore, the Court called the Act over-inclusive in its goal to aid parental authority, concluding that many parents do not actually care whether their children purchase violent video games.

Taken together, these decisions demonstrate a continuing move by the Court to protect the First Amendment’s freedoms of speech and expression over government restrictions of marketing and advertising. The Court also demonstrated strong support for industry self regulation versus government regulation, reaffirming past decisions which held in the online context that parental filters and other “user empowerment” tools are more effective than regulation at protecting minors, making government limits on content unconstitutional. While it might be dangerous to overreach in trying to interpret the exact legal precedents these decisions hold for digital advertising, the trends are clear and undeniable.

More detailed legal analyses of each case follows:

Sorrell v. IMS Health Inc.

Vermont’s Prescription Confidentiality Law stated that absent a prescriber’s consent, prescriber-identifying information could not be sold by pharmacies to entities for marketing purposes or be used for marketing by pharmaceutical manufacturers. Data-miners—that collect the prescription information—and an association of brand-name drug manufacturers challenged the law as a violation of the First Amendment and sought declaratory and injunctive relief. The District Court denied relied. The Second Circuit reversed the decision, holding that the Law unconstitutionally burdens the speech of pharmaceutical marketers and data-miners without adequate justification.

On June 23, 2011, in a 6-3 decision written by Justice Anthony Kennedy, the Court affirmed the Second Circuit’s decision. The Court applied a strict scrutiny test to the Law because it was a content and speaker-based restriction on the sale, disclosure, and use of prescriber-identifying information which clearly disfavored marketing (content based speech) and particular speakers. The Court explained that the creation and dissemination of information is speech, and not conduct, for First Amendment purposes. Thus, under a strict scrutiny test Vermont needed to show (1) a substantial government interest and (2) that the Law was narrowly tailored to that interest. Vermont’s interests were to protect medical privacy and confidentiality and to help reach the states policy objectives of improving public health and reducing health care costs. The Court explained that the Law was not narrowly tailored to keep the relevant information confidential because the information could be sold to anyone who is not using the information for marketing. Thus, the Law fails to create privacy and confidentiality regarding the information. Next, the Court explained that the Law did not properly advance the states interests in lowering healthcare costs. The Court noted that the Law attempted to do so by restraining specific speech by specific speakers and never claimed that the speech was false or misleading. The State was purely restricting speech that they felt was persuasive, and the Court made clear that content-based restrictions cannot be made because the State feels that the doctors may make bad decisions based on truthful information. The Court explained that the State had attempted to advance their goal in lowering healthcare costs based purely on opinion. The Court, thus found that Vermont had not narrowly tailored the Law to the State’s interest, and thus held that the Law was invalid under the First Amendment.

Brown v. Entertainment Merchants Association

In 2005 the California state legislature passed Assembly Bill 1179, which prohibited the sale or rental of “violent video games” to minors and required that the packaging of such games be labeled “18.” Violation of the Act would be punishable by a civil fine of up to $1000. The Entertainment Merchants Association, which represents the video game and software industries, filed a pre-enforcement challenge to the Act. The Federal District Court held that the California law violated the First Amendment and permanently enjoined its enforcement. The Ninth Circuit affirmed.

On June 27, 2011, the United States Supreme Court’s 7-2 decision, affirmed the Ninth Circuit’s ruling, and held that the California Act was unconstitutional under the First Amendment. The Court explained that video games qualify for First Amendment protection. After explaining that “violent video games” did not fall into the obscenity exception to the First Amendment, it applied a strict scrutiny test to the Act because it was a content-based regulation. The Supreme Court has consistently held that content based restrictions are invalid unless they pass strict scrutiny. Under the test, the Act would be held invalid unless California could show that the law was (1) justified by a compelling state interest and (2) that the law was narrowly tailored to serve that interest. The Court concluded that the law was not narrowly drawn to the State’s interest in addressing a serious social problem (violence) and helping concerned parents control their children. The Court explained that the Act was underinclusive—meaning it singled out video games as opposed to other forms of violent media targeted to children including books, cartoons, and movies, and that the State gave no explanation why only video games were targeted. Furthermore, the Court called the Act over-inclusive in its goal to aid parental authority, concluding that many parents do not actually care whether their children purchase violent video games. The Court also noted that there was no need to expand the successful self regulation guidelines that are already used in the video game industry—which are 80% effective in making sure that minors cannot purchase seriously violent games on their own. Thus, the Court found the Act invalid because it was not narrowly tailored to meet California’s state interest.

Mike Zaneis is SVP & General Counsel of the IAB.