By Mark Pendolino



The Commercial Speech Doctrine has had a long and murky life, with a corps of dedicated divisions on each side of a controversial issue. Its ambiguity has bothered many First Amendment proponents for years. With every decision that the U.S. Supreme Court made to strengthen the protection for corporations to speak freely on matters of public debate, they made another just to reverse the direction and confuse all those awaiting with baited breath to receive solid definition.

In the most recent contest to solidify the meaning of the doctrine, the case of Nike v. Kasky, both sides showed in full force for a heated and prolonged debate. But with all of the rhetoric involved, the court chose not to play and the case was settled out of court, leaving another strange curve in the twisted road of Commercial Speech rights.

The impacts on businesses, the media and every activist in the state of California is huge. Here we take a look at the big picture, and make some assumptions for the future of social reporting and public debate.


What is the Commercial Speech Doctrine

Commercial Speech is loosely defined (or lack thereof) as governmentally regulated speech for corporations or businesses. It is that delicate line between advertising and social reporting. Marketing and public discourse. It is the public relations firms’ worst enemy when strictly limited. It can also be their best friend when ultimately protected. And that is the question that our legal entity has sought to answer since 1939.

The United States Supreme Court first set the ground work for the doctrine when they ruled that Clara Schneider, a Jehovah’s Witness, was protected in her efforts to promote religion door-to-door under the First Amendment. But the court noted that “We are not to be taken as holding that commercial soliciting and canvassing may not be subjected to such regulation. . .” (Moore, Farra & Collins, 1998).

Three years later, a New York man, F.J. Chrestensen, decided the best way to avoid getting ticketed for sanitation violations when he dumped hundreds of his flyers advertising submarine tours on the New York waterfront, was to add a little political speech on the back, thereby making his efforts protected under a code that stated canvassing is OK if it isn’t advertising. The Supreme Court disagreed. They stated "We are equally clear that the Constitution imposes no such restraint on government as respects purely commercial advertising" (Oliva, 2003). Thus, the Commercial Speech Doctrine was born.

The clear rejection of “purely commercial advertising” as a constitutionally protected category of speech provided the first definition.

The court would later re-visit the issue in several cases that set precedents. All progressively leaning toward further protection of Commercial Speech under the First Amendment. And in 1980 they developed a four-part test for determining whether certain speech is protected. The case was Central Hudson Gas & Electric Corp. v. Public Service Commission and the test helped to further clarify the doctrine.

The Court determined a government restriction on advertising or other commercial speech is permissible only on a showing that:

  1. The advertising is misleading
  2. The government interest in regulation is substantial
  3. The regulation directly advances that interest
  4. The regulation is not more extensive than necessary

But the Court continued to zig-zag in decision-making that seemed to further cloud the already murky understanding of what is and what isn’t constitutionally protected speech.

Far-Reaching Effects

The impacts of Commercial speech are far-reaching. It has applied to a number of differing scenarios in the marketplace. Some of these include:

In today’s marketplace, where consumers are concerned about how companies conduct their business socially and environmentally, the doctrine now holds new ramifications on political and public debate.

Nike Vs. Kasky

In June 1996, a New York Times Columnist wrote two op-ed pieces that were critical of the Nike Corporation’s overseas labor practices.Bob Herbet claimed that Nike knowingly exploited the Asian labor force by running sweat shops in Indonesia and Vietnam. Naturally, Nike CEO Philip Knight responded with a letter to the editor, contesting Herbert’s claims and stating that by Nike providing these impoverished markets with employment opportunities will eventually lift them out of poverty and despair. The company then launched a public relations campaign that involved a series of press releases, letters to university athletic directors (a major customer base for Nike) and editorial advertisements (Parloff, 2002).

Two years later, a San Francisco community activist named Marc Kasky took advantage of California’s Unfair Competition Law, which allows “any person acting for the interests of. . .the general public”, and filed a claim of false advertising against Nike.

Initially, Nike won a series of trial court sessions, claiming its protection under the First Amendment and stating that since their messages were centered around a matter of public interest, they were protected as free speech. But the California Supreme Court reversed these decisions and characterized Nike’s messages as commercial speech by relying on the previous precedent of Bolger v. Youngs Drug Product Corp.

The Court stated that “Nike’s speech is not removed from the category of commercial speech because it is intermingled with non-commercial speech.”

In dissent, Justice Ming Chin stated “Far from promoting the sale of its athletic products, Nike did not include [its] information through product labels, inserts, packaging, or commercial advertising intended to reach only Nike’s actual or potential customers. . .Nike’s speech. . .was not in any sense pre-textural, but prompted and necessitated by public criticism.”

The case eventually found its way to the U.S. Supreme Court, where both sides to this viscerally divisive debate awaited anxiously for a ruling that would provide greater definition of commercial speech.

The ruling never came. All of the heated debate and excruciating anticipation came to a halt when the U.S. Supreme Court received arguments for both sides and then decided to send it back to California. In April of 2003, the justices dismissed in a one-sentence unsigned order, as “improvidently granted,” Nike’s appeal of the California court’s ruling. An anti-climactic resolve to a debate that roused the passion of two distinct political beliefs.

And it got even worse. Nike settled. Now there would be no real decision. U.S. Supreme Court Justice Steven Breyer had provided Nike with fresh ammunition for another go-around in the California court. In dissenting opinion to the dismissal, Breyer stated “The delegation of state authority to private individuals authorizes a purely ideological plaintiff, convinced that his opponent is not telling the truth, to bring into the courtroom the kind of political battle better waged in other forums” (Greenhouse, 2003). But the sportswear giant found the political spotlight too harsh.

The sides remain divided, however, with the majority taking sides with Nike and the protection of free speech. Even Bob Herbert, the  New York Times columnist who first wrote the op-ed that scathed the company, backed Nike’s freedom to protect itself. 

“As much as it pains me to say it,” Herbert wrote in his column, “I am not in favor of stifling the speech of the loud and obnoxious and terminally exploitative Nike Corporation” (Parloff, 2002).

The battle was thought-provoking and challenged marketplace notions of what is advertising and what is political speech. Many predicted a “chilling effect,” an unrelenting self-censure, but that remains to be seen.

The Chilling Effect

Court’s dismissal leaves fear in corporate hearts

So what happens now that all the burning questions were left unanswered? For the corporate world? Fear, perhaps. Trepidation. A certain unease to defend itself and to promote its social contributions. Does this hurt or protect the consumer? That answer is still up for debate, but one thing is clear in the eyes of the public relations, advertising and corporate communications fields: defending one’s social or environmental reputation in the public arena could most certainly end up in litigation. And that fact may inhibit some potentially positive claims.

This is something often referred to as a “Chilling Effect.:” the deterrent effect of legal threats or posturing on lawful conduct. The term more often referred to journalists who felt compelled to refrain from publishing controversial material for fear of potential lawsuits. This inhibition goes against the grain of the First Amendment and the notion of free speech by enabling a greater chance for self-censure, something our founding fathers sought to avoid.

Free press and its guarantees in America rose out of the struggle for independence and freedom from the stifling British government, who rigorously sought to control the press. Failure to adhere to the Crown’s strict rules often resulted in severe punishment, causing journalists to self-censor themselves and keep certain controversial or damaging information from the public.

Hence the fear in the corporate public relations arena. Corporations may quite possibly now avoid making any claims or statements that could be challenged by a citizen who will have a more solid legal stance than the company.

The Scenario

The potential cost to free speech

Let’s suppose your neighbor decided to write a letter to the local newspaper claiming you mistreated a crew of immigrant gardeners who were landscaping you lawn. In his letter, the neighbor called you exploitative, claimed you were running “slave labor” in a “sweatshop” environment. He also claimed you refused to let the workers take breaks or eat lunch. You are shocked and devastated and anxious to set the record straight to the community who now view you as evil. But before you get the chance, a local court issues an order stating you could be potentially sued if you dared respond publicly to the charges. Outrageous muzzling of your free speech? You would think so. Yet this is the essence of the California Supreme Court’s ruling. At least in the eyes of the public relations community (Cripps, 2002).

Lawyers may now begin counseling businesses to withdraw from the public forum rather than risk a lawsuit over a viewpoint expressed in an advertisement or op-ed commentary (Cripps, 2002). This is a potentially fearful option not just for the business community, but for the consumers as well. It may basically shut businesses out of the public debate of issues that directly affect them.

What may be missed in the largely partisan debate is that, bottom line, businesses are not allowed to fraudulently advertise their products or services. They must reasonably obey government regulations on safety, workplace environments, labeling requirements, etc. Nike may very well have been running a den of slave labor and exploiting overseas workers who need every penny to feed their families. But shouldn’t that be a separate issue?

In other words, if you did actually mistreat you landscaping crew, even though you claimed you didn’t, you still face prosecution and punishment. The difference  is, you get to at least have a say in whether you did it or not.

Public debate is just that. It leads to answers rather than having them swept under the rug or avoiding altogether in fear of retribution. As Thomas Jefferson once said, “Difference of opinion leads to enquiry, and enquiry to truth.”

Consider another scenario. A New York-based company has led the industry in efforts to create environment-friendly practices. The CEO was just recently awarded the “Eco-Friendly CEO of the Year” by an East coast environmental protection group. Will the company issue a press release and give the award prominent headlines in its annual Environmental Report? Or will the company’s lawyers and public relations team advise the CEO to grant no interviews, make no statements and say nothing at the awards ceremony?(Jenkins, 2003).

The honored CEO may very well take the safe route, especially considering the now widening reach of communications - where new published on the web easily finds its way into the state of California, whose residents may have a completely different idea of what is deserving of accolades in environmental efforts than, say, New Yorkers.

After the Nike ruling, many companies may opt for the “no comment” option. It is very well the easier option when considering the potential lawsuits in California for false advertising.

And how about this scenario: An activist group publishes full-page ads to accuse a company of exploitative labor practices in India. The company hires investigators to determine the validity of the charges and they find them to be untrue. Even an independent, third-party auditor finds them untrue. The Indian government states that the company is within compliance of national law. Does the company refute the charges publicly? Or does it rely on the safe “no comment” approach.

Again, companies may be advised its not worth it. If their claims are at all construed as “commercial speech,” they may be faced with stricter regulations and backlash.

Even if the company is successful in court, it is still a bitter victory. For the public display of litigation will be more harmful to the company’s reputation than if they stayed completely out of the fray from the beginning.

Public Relations professionals, as well as corporate communications professionals, will consistently believe that the customer has a right to their message, and that it is immoral to deny them of that opportunity. To do so is to diminish the First Amendment. It is impossible to express ideas if the speaker is limited or denied access to a targeted listener. (Posch, 2001).

The rules remain in place to keep such speech truthful. But if it is chilled from the public, then what potential secrets will be kept?

The Impact

The Rapidly Closing Gap On Corporate America And Public Trust

Now that Nike has opted out of the free speech legal battle of the decade, companies will take a more cautious approach to social reporting. Public relations firms have already begun examining how to carefully move through the public fray in fear of Kaskys everywhere.

In an op-ed piece for the Minneapolis Star Tribune, Douglas Spong noted that the day of open forums in the marketplace may be a bygone ideology.

“This was supposed to be a new day,” he wrote (2003), “An age of enlightenment in corporate America. When transparency leads to understanding and understanding leads to trust.”

But now we may be relegated to just the facts. Instead of allowing state attorney generals to prosecute what the public considers unfair, misleading or untrue business practices, any “California surfer dude can take the law into his own hands, act as a pseudo attorney general and file suit against any organization for which he was not personally harmed or wronged (Spong, 2003).”

Although it seems a bit hard to believe in the current environment of corporate fraud, most public relations firms try to live by the mantra of “make your best case, but always tell the truth (Cripps 2002).” But with commercial speech limiting open exchange, and firms risking litigation by seeking to broaden the scope of public debate, then the public may end up hearing only one side. The public relations community believes that lawyers will begin counseling businesses to withdraw from the public forum rather than risk a lawsuit over opinions expressed in an advertisement or op-ed commentary (Cripps 2002).

At a time when corporate communications are under a microscope, there clearly needs to be  a greater distinction between commercial and non-commercial speech. The court seemed to have missed a golden opportunity.

The general public tends to harbor a distrust toward corporate America already. Recent scandals with Enron, KPMG, Arthur Andersen and now Martha Stewart do little to bridge the gap of trust between the two entities. And creating an environment where the transparency into corporate operations is muddied will certainly not help. It is counter-intuitive to confine corporate communications with the threat of a potential lawsuit on every press release (Diamond, 2003).

This is why every major newspaper backed Nike, whether they wanted to or not. They knew they had to. Creating an environment where a corporation is inhibited to speak openly on its activities will deprive the public of access to important news stories and other vital social and political information.

The Future

Survey Provides Hope for Public Debate

Although it appears rather dark and hopeless for the future of open public forums in the marketplace, a recent survey may prove otherwise. According to a survey conducted in late 2003 by the Public Relations Society of America (PRSA), most companies will still continue the practice of openly disclosing its social business practices.

The survey found that through special annual “social reports,” companies will increase their efforts to emphasize their ethical codes and corporate governance as part of being more socially and environmentally responsible (Bess, 2003).

Social reports, sometimes called “public reports” or “sustainable development reports” are issued regularly by many companies around the world. The European Union is even considering making such reports mandatory for all corporations.

Given the recent Nike outcome, social responsibility experts speculated that this type of optional reporting would be curtailed. But contrary to these fears, nearly all of the companies surveyed indicated they will continue to issue these reports. In fact, some companies claimed they plan to increase the amount of information contained in their reports (Bess, 2003).

Significant hope for maintaining corporate transparency in litigious happy America.

Reed Bolton Byrum, president and CEO of the PRSA noted the positive upside to the survey’s results. “This is a time when rebuilding trust in business is critically important, so we are urging - and will work to implement - maximum two-way communications between companies and all of their publics.”

Nike Redux?

The future will most certainly see further cases testing the definition of commercial speech. It is necessary and inevitable. And the Supreme Court just may find itself in the same situation, except this time feeling the pressure to set some clear precedent for future cases.

In the Nike case, the justices felt it just wasn’t time to jump into the chaotic topic of commercial speech. There was even a hint of rhetoric in their opinion for dismissal, generating a subtle wink and nod to Nike with the catch line of “come see us after you lose this case at a lower level and we’ll see what we can do.” But Nike settled out of court instead.

Whatever the future outcome, any clearer definition will help both sides in having a solid understanding of the line between advertising and commentary, and they can then adapt the best messages for each medium.

Until then, companies will be wary of the free-lance censors lying in wait in California, and preparing for the next big public battle.