Preview Extract
Chapter 8 Commercial Speech
True/False Questions
1) The government has greater latitude under the First Amendment to regulate commercial
speech than political speech.
Answer: True
Rationale:
Commercial speech enjoys less protection under the First Amendment compared to political
speech. The government has more leeway to regulate commercial speech, such as advertising
for goods and services, to protect consumers from deceptive practices or to promote
economic interests. However, restrictions on political speech are subject to strict scrutiny and
must serve compelling governmental interests.
2) In Virginia Pharmacy, the U.S. Supreme Court ruled that commercial speech is protected
under the First Amendment because of the consumer's interest in receiving information.
Answer: True
Rationale:
In Virginia Pharmacy Board v. Virginia Citizens Consumer Council (1976), the Supreme
Court established that commercial speech is protected under the First Amendment. The
decision emphasized the importance of consumer access to information about lawful goods
and services, which aligns with the marketplace of ideas principle underlying the First
Amendment.
3) Although considerable falsehood is permitted in the political arena, the U.S. Supreme
Court stated in Virginia Pharmacy that the government may ban commercial promotions that
are false or misleading or that promote illegal goods and services.
Answer: True
Rationale:
In Virginia Pharmacy Board v. Virginia Citizens Consumer Council (1976), the Supreme
Court recognized that while the government cannot censor political speech based on its
content, it has more latitude to regulate commercial speech, especially if it is false or
misleading or promotes illegal goods and services. This distinction acknowledges the
importance of accurate information in commercial transactions.
4) The U.S. Supreme Court's commercial speech decisions have been inconsistent.
Answer: True
Rationale:
The U.S. Supreme Court's decisions regarding commercial speech have sometimes been
inconsistent, as the Court has grappled with balancing the interests of free speech with the
government's regulatory interests in consumer protection and economic stability. Different
cases have resulted in varying standards and tests for evaluating the constitutionality of
regulations on commercial speech.
5) Non-misleading speech about a lawful product can be banned by the government if the
requirements of the Central Hudson test are met.
Answer: True
Rationale:
According to the Central Hudson test established by the U.S. Supreme Court, non-misleading
commercial speech about a lawful product or service can be subject to government regulation
if the government can demonstrate a substantial interest, the regulation directly advances that
interest, and the regulation is not more extensive than necessary to serve that interest.
6) The government can ban advertisements for certain "personal" products, such as
contraceptives, to prevent audience members from being offended.
Answer: False
Rationale:
The government generally cannot ban advertisements for lawful products, even if they pertain
to "personal" topics such as contraceptives, solely to prevent audience members from being
offended. Such restrictions would likely violate the First Amendment's protection of
commercial speech and consumers' right to access information about legal products.
7) Commercial speech is deceptive if an ignorant person, acting unreasonably, would be
deceived.
Answer: False
Rationale:
Commercial speech is deceptive if it has the tendency or capacity to deceive a reasonable
consumer. The standard for determining whether commercial speech is deceptive typically
involves assessing the likely effect on a reasonable consumer, rather than focusing on the
perceptions of an ignorant or unreasonable individual.
8) Puffery must be substantiated with factual proof.
Answer: False
Rationale:
Puffery refers to exaggerated or subjective claims that are unlikely to be taken literally by
consumers, such as "the best pizza in the world" or "the ultimate driving experience." Unlike
specific factual claims, puffery does not require substantiation with factual proof and is
generally considered permissible in advertising.
9) At the heart of FTC advertising regulations is its power to require that advertisers
substantiate the accuracy of advertising claims.
Answer: True
Rationale:
The Federal Trade Commission (FTC) has the authority to regulate advertising to ensure that
advertising claims are truthful and not deceptive. Central to FTC advertising regulations is
the requirement that advertisers substantiate the accuracy of their advertising claims with
credible evidence, such as scientific studies or consumer testimonials.
10) The FTC is more concerned with unfairness than deception.
Answer: False
Rationale:
While the FTC addresses both deception and unfairness in its regulation of advertising and
consumer protection, deception has historically been a primary focus. The FTC places
significant emphasis on preventing deceptive advertising practices that may mislead
consumers, ensuring that advertising is truthful and not likely to deceive reasonable
consumers.
11) A material statement in advertising, like a material statement in corporate securities
transactions, is one that is likely to affect a purchasing decision.
Answer: True
Rationale:
A material statement in advertising, similar to a material statement in corporate securities
transactions, is one that is likely to influence a consumer's purchasing decision. Such
statements are considered significant enough to potentially impact consumer behavior, and
their accuracy and truthfulness are critical for consumer protection and fair trade practices.
12) A Volvo television advertisement emphasizing the strength and safety of Volvos shows a
Volvo and several other brands of cars being run over by a giant truck. The audience is not
informed that the ad production crew reinforced the roof of the Volvo but cut the roof
supports of the other cars so that they would collapse easily. The primary message of the ad is
that Volvos are safer than other cars. This is an example of a non-deceptive mock-up.
Answer: False
Rationale:
The described scenario constitutes deceptive advertising through the use of a mock-up.
Failure to disclose significant information, such as the alteration of the vehicles in the
advertisement to favor the Volvo, misleads consumers about the safety and comparative
performance of the advertised product. Such practices violate principles of truthfulness and
fair representation in advertising.
13) More than ninety percent of FTC cases are settled by consent decrees in which a party
agrees to discontinue an advertising practice without admitting any wrongdoing.
Answer: True
Rationale:
The Federal Trade Commission (FTC) often resolves cases of alleged deceptive advertising
through consent decrees, wherein the accused party agrees to cease the challenged practices
without admitting fault. This approach allows the FTC to achieve compliance with
advertising standards and protect consumers efficiently without the need for lengthy litigation
or formal admissions of guilt.
14) The FTC's power over advertising is extraordinary. Not only can the agency halt
deceptive advertising and punish the advertiser, the agency may also order alterations in
advertisements to make them legal.
Answer: True
Rationale:
The FTC possesses broad authority to regulate advertising practices to ensure consumer
protection and fair competition. In addition to halting deceptive advertising and imposing
penalties on violators, the FTC may require modifications to advertisements to remedy
deceptive elements and bring them into compliance with legal standards. This authority
underscores the FTC's significant role in promoting truthfulness and fairness in advertising.
15) Papa John's advertisements containing the slogan "Better Ingredients, Better Pizza," were
held to be false and misleading under the Lanham Act.
Answer: False
Rationale:
The statement provided in the question does not accurately reflect any specific legal case or
ruling under the Lanham Act regarding Papa John's advertisements. Without such context, it
is not possible to determine the veracity of the statement. However, advertisements
containing subjective claims like "Better Ingredients, Better Pizza" are typically evaluated
based on consumer perception and the overall impression conveyed, rather than a strict
interpretation of truth or falsehood.
16) A broadcaster, located in a state where lotteries are illegal, may carry advertisements for
an adjoining state's lottery.
Answer: False
Rationale:
Broadcasting advertisements for lotteries across state lines may still be subject to legal
restrictions, especially if such advertising is prohibited in the broadcaster's state of operation.
Adherence to local laws and regulations governing the advertisement of lotteries is necessary
to avoid potential legal consequences, regardless of the lottery's location.
17) Although advertising can be limited during children's television programs, the amount of
commercial time in other programming is not restricted by law.
Answer: True
Rationale:
While regulations exist to limit advertising during children's television programming to
protect young viewers from excessive commercial influence, there are generally no legal
restrictions on the amount of commercial time in other types of programming. Broadcasters
and advertisers have more flexibility in scheduling advertisements outside of children's
programming, subject to general principles of fair advertising and compliance with relevant
laws and regulations.
18) While federal law does not prohibit the broadcast advertising of hard liquor, the major
networks have refused to carry such ads.
Answer: True
Rationale:
Although federal law does not explicitly prohibit the broadcast advertising of hard liquor,
major television networks in the United States have adopted voluntary policies to reject such
advertisements. These network policies reflect industry self-regulation and social
responsibility considerations, rather than legal mandates. Consequently, while hard liquor
advertisements may be permissible under federal law, they are effectively limited due to
network policies.
19) In Lowe v. SEC, the U.S. Supreme Court ruled that financial newsletters that do not offer
individualized advice to investors are exempt from SEC registration requirements.
Answer: True
Rationale:
In Lowe v. SEC (1985), the U.S. Supreme Court held that financial newsletters that provide
general investment information and do not offer personalized advice to individual investors
are exempt from registration requirements imposed by the Securities and Exchange
Commission (SEC). The decision clarified the scope of regulatory oversight concerning
financial publications and the provision of investment-related guidance.
20) Public relations counsel who have access to nonpublic material information that is
intended only for corporate use are subject to insider trading rules, just like corporate
executives.
Answer: True
Rationale:
Public relations counsel, like corporate executives, may be subject to insider trading rules if
they possess nonpublic material information about a company that is intended solely for
internal corporate use. Insider trading regulations apply to anyone who trades securities based
on material nonpublic information, irrespective of their role within an organization. Thus,
public relations professionals must exercise caution to avoid potential legal liabilities
associated with insider trading.
Multiple Choice Questions
1) The 1976 case in which the U.S. Supreme Court ruled that pharmacy advertisements
conveyed constitutionally protected information of value to consumers.
A) Bolger v. Youngs Drug Products Co.
B) Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council
C) Bigelow v. Virginia
D) Carey v. Population Services
E) None of the above
Answer: B
Rationale:
In Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council (1976), the U.S.
Supreme Court ruled that pharmacy advertisements conveyed constitutionally protected
information of value to consumers. This decision established the constitutional protection of
commercial speech under the First Amendment, emphasizing the importance of consumer
access to information in commercial transactions.
2) Although commercial advertising now has constitutional status, the U.S. Supreme Court
has ruled that advertising may be subject to
A) prior restraints.
B) prohibitions on false or misleading advertising.
C) requirements that clarifying messages be included in ads.
D) All of the above.
E) None of the above.
Answer: D
Rationale:
Despite commercial advertising's constitutional status, the U.S. Supreme Court has
recognized that advertising may still be subject to certain limitations and regulations,
including prior restraints, prohibitions on false or misleading advertising, and requirements
for including clarifying messages in ads. These regulations aim to balance the protection of
commercial speech with other societal interests, such as consumer protection and fair trade
practices.
3) A presumption against the constitutionality of prior restraints is fundamental to First
Amendment law. Yet, prior restraints are acceptable to the courts where
A) the government can show that publication would endanger national security.
B) a film is obscene.
C) advertising is misleading.
D) All of the above.
E) None of the above.
Answer: D
Rationale:
Although there is a presumption against the constitutionality of prior restraints on speech,
courts may find them acceptable under certain circumstances, such as when the government
can demonstrate that publication would endanger national security, when dealing with
obscene materials, or when addressing misleading advertising. However, such exceptions are
narrowly construed to ensure that prior restraints are not used to suppress speech unlawfully.
4) In commercial speech cases, the Supreme Court employs
A) the clear and present danger test.
B) the bad tendency test.
C) the totality of circumstances test.
D) the four-part Central Hudson test.
E) None of the above.
Answer: D
Rationale:
In commercial speech cases, the U.S. Supreme Court typically employs the four-part Central
Hudson test to determine the constitutionality of regulations on commercial speech. This test
involves analyzing whether the government has a substantial interest in regulating the speech,
whether the regulation directly advances that interest, whether the regulation is narrowly
tailored, and whether the regulation leaves open ample alternative channels for
communication.
5) The 1986 case in which the U.S. Supreme Court upheld a ban on non-misleading casino
advertising.
A) Greater New Orleans Broadcasting v. United States
B) United States v. Edge Broadcasting
C) Posadas de Puerto Rico Associates v. Tourism Board
D) Cincinnati v. Discovery Network
E) None of the above
Answer: C
Rationale:
In Posadas de Puerto Rico Associates v. Tourism Board of Puerto Rico (1986), the U.S.
Supreme Court upheld a ban on non-misleading casino advertising. This decision affirmed
the authority of states to regulate commercial speech related to gambling activities and
recognized the government's interest in promoting public morals and preventing the social
harms associated with gambling.
6) Comparative advertisements are
A) discouraged by the FTC.
B) encouraged by the FTC, if accurate, as a way of helping consumers make better choices.
C) inherently misleading.
D) must not identify a competitor's product, but must use terms such as "Brand X."
E) None of the above.
Answer: B
Rationale:
Comparative advertisements are encouraged by the Federal Trade Commission (FTC) if they
are accurate, as they can help consumers make informed choices by providing information
about competing products or services. However, such advertisements must be truthful and not
misleading, and they should avoid disparaging competitors in a deceptive manner.
7) In FTC v. Colgate-Palmolive Co., the Rapid Shave case, the U.S. Supreme Court ruled that
the Plexiglas mock-up was
A) not deceptive.
B) not material.
C) materially deceptive because it was a fake demonstration that was used as proof of an
advertising claim.
D) a permissible alteration to compensate for the technical distortions of television.
E) None of the above.
Answer: C
Rationale:
In FTC v. Colgate-Palmolive Co. (1953), commonly known as the Rapid Shave case, the U.S.
Supreme Court ruled that the Plexiglas mock-up used in the advertising demonstration was
materially deceptive. The Court found that the mock-up constituted a fake demonstration
intended to support an advertising claim, which violated federal regulations prohibiting
deceptive advertising practices.
8) Advertising substantiation rules require that
A) the basis for advertising claims be included in an ad.
B) the advertiser have a reasonable basis for claims in an ad.
C) the basis for an advertising claim be available but not necessarily included in the ad.
D) B and C
E) None of the above.
Answer: D
Rationale:
Advertising substantiation rules require that advertisers have a reasonable basis for the claims
made in their advertisements. While the basis for advertising claims does not necessarily need
to be included in the ad itself, advertisers must be able to substantiate their claims if
challenged by regulatory authorities or consumers. This ensures that advertising is truthful
and not deceptive.
9) The FTC requires corrective advertising
A) frequently.
B) infrequently.
C) to counteract wrong impressions built up during a long campaign of deceptive
advertisements.
D) B and C
E) None of the above.
Answer: D
Rationale:
The Federal Trade Commission (FTC) may require corrective advertising infrequently,
typically to counteract wrong impressions that have been built up during a long campaign of
deceptive advertisements. Corrective advertising aims to remedy the effects of misleading or
deceptive advertising by providing consumers with accurate information to counteract any
false impressions or beliefs created by previous ads.
10) The Arvida corporation
A) violated section 5(c) of the Securities Act by inviting investors to purchase Arvida stock
before a registration statement had been completed.
B) was involved in legitimate dissemination of newsworthy information.
C) issued a final prospectus that differed in material ways from the information issued earlier
in press releases.
D) A and C
E) None of the above.
Answer: D
Rationale:
The Arvida corporation violated section 5(c) of the Securities Act by inviting investors to
purchase Arvida stock before a registration statement had been completed and issued a final
prospectus that differed in material ways from the information issued earlier in press releases.
This scenario represents a violation of securities regulations related to the offering and
dissemination of investment information.
Essay Questions
1) The town of Intolerance decides to ban the outdoor advertising of alcohol in media such as
billboards. Establishments selling or serving alcohol may have on-site outdoor signs
identifying the business, and may include alcohol-related terms in their name, such as "The
Liquor Store," but may not have outdoor displays identifying the brands of alcohol or the
price of alcohol sold. The city claims that these measures will reduce alcohol consumption
and thereby reduce alcohol-related problems, such as drunk driving. A brewery and a bar
challenge this law as a violation of the First Amendment. The brewery wants to advertise the
"fresh, natural taste" of its beer. The bar wants to advertise the brands and prices of beer it
sells. Is this ordinance constitutional? In your answer, apply the Central Hudson test, and
relevant precedents, to this ordinance.
Answer: The Central Hudson test is a four-part test designed to balance the legitimate
regulatory interests of the state against the First Amendment interest in the free flow of
commercial information. The first prong asks if the speech in question is non-misleading and
refers to a lawful product or service. The outdoor displays at issue pass the first prong of this
test. Since alcohol sales are legal in Intolerance, alcohol advertisements refer to a lawful
transaction. Also, because Intolerance is seeking to reduce alcohol consumption, rather than
regulate consumer deception, the ordinance is not aimed at deceptive messages. Thus, a bar's
advertisement, "X beer sold here at Y price" is entitled to constitutional protection as a nonmisleading statement about a lawful product. Similarly, a brewery's ad stating that its beer
has a "fresh, natural taste" is a non-misleading statement about a lawful product.
The second prong of Central Hudson asks if the state has a substantial interest in regulating
the expression. Intolerance's ordinance is within the government's legitimate authority to
promote public health. The government easily meets the second prong of Central Hudson if it
is preserving health, safety, or aesthetic interests. The only time the state fails this prong is
when it seeks to prevent consumers from becoming offended by advertisements. In both 44
Liquormart and Lorillard Tobacco, the Court found that laws designed to reduce alcohol and
tobacco consumption served the substantial state interest in protecting public health.
The third and fourth prongs are where the critical analysis takes place under Central Hudson.
The third prong asks if the regulation materially and directly advances the government's
interest. Intolerance's law most likely will fail this prong unless the city can prove that the
law actually reduces alcohol consumption. Although there are cases such as Posadas where
the Court assumed that a regulation would advance the government interest, the trend in
recent cases, especially those concerning alcohol, is more rigorous. For example, in 44
Liquormart, the Court found that a Rhode Island alcohol advertising law was not supported
by empirical proof that the law actually reduced alcohol consumption. The evidentiary
standard of 44 Liquormart is demanding and most likely will be fatal to the ordinance.
Even if Intolerance is able to show that its law reduces alcohol consumption, it is likely to fail
the fourth prong of Central Hudson which asks if the law is narrowly drawn. In 44
Liquormart, the Court emphasized the importance of speech about lawful products and
rejected as "paternalistic" the claim that the government could manipulate consumer behavior
by banning expression. 44 Liquormart also emphasized that governments need to try direct
regulation, such as increasing taxes on alcohol, raising prices, or reducing the hours of
operation of alcohol-selling establishments, rather than indirect regulation of messages. Since
Intolerance has an array of direct measures it may employ, its law is likely to be regarded as
inappropriate under the fourth prong of Central Hudson. The law is also subject to challenge
under the doctrine of Lorillard Tobacco where the Court found that a Massachusetts
restriction on outdoor tobacco advertising failed the fourth prong. The Massachusetts
restriction was a nearly total ban that adversely affected the interest of adults in receiving
information about tobacco products. Intolerance has enacted a nearly total ban on outdoor
advertising of alcohol products. A less restrictive measure is necessary to accommodate the
state's interest and the interest of interested
Key Terms
1) Deceptive Advertising
Answer: Deceptive advertisements are those that either contain express falsehoods or create
false impressions that tend to mislead. Courts and the FTC have long held that ads do not
have to deceive someone to be deceptive; rather, ads must possess a "tendency" or "capacity"
or be "likely" to mislead a reasonable consumer. It does not matter whether an advertiser
intends to mislead; an advertisement may have a tendency to deceive regardless of the
advertiser's intent. Deceptiveness is determined by the overall impression of an
advertisement, not by isolated statements within it.
2) Proof Implication
Answer: When an advertisement falsely creates the impression that evidence presented
proves a claim, it is deceptive. A false implication of proof is created if an advertiser
misrepresents the evidence presented to substantiate an advertising claim. Ads are deceptive
if they misuse test data, create a phony aura of scientific support, or otherwise imply proof
that does not exist. For example, Firestone claimed its tires "stop 25 percent quicker" without
tests comparing the ability of Firestone and other tires to stop a car under normal driving
conditions.
3) Puffery
Answer: Advertisers may exaggerate or "puff" their products on such subjective matters as
taste, feel, appearance, and smell. The FTC assumes that ordinary consumers do not take
puffery seriously and are not deceived by such subjective claims. Thus, BMW may refer to
its cars as "The Ultimate Driving Machine," Bayer may claim that its pain reliever "works
wonders," and Nestle may describe its chocolate as "the very best." Puffery becomes
deception when exaggerated claims falsely imply material assertions of superiority. If BMW
claims that its 5-series cars are faster over a quarter-mile than comparable Lexus and Acura
models, it needs substantiation of this factual claim. BMW, however, does not need
substantiation for its slogan "The Ultimate Driving Machine."
4) Lottery
Answer: A lottery is a contest involving three elements: (1) prize, (2) chance), and (3)
consideration. The prize is the reward, money, trip, merchandise or other remuneration given
to the winner. Chance means that luck, not skill, will determine the winner. Consideration,
which is often more difficult to recognize than chance or prize, is the effort or expense
required of the participant. Consideration is the time one spends to play a game or the money
paid to enter a contest. All three elements must be present for a promotion to be considered a
lottery. Congress prohibits the advertising of lotteries except in states where lotteries are
legal. In United States v. Edge Broadcasting (1993), the U.S. Supreme Court upheld the ban
on advertising of lotteries by broadcast stations licensed in states where lotteries are illegal.
5) Insider trading
Answer: A corporation's "insiders" have a duty to disclose material information when they
plan to base purchases or sales of company stock on nonpublic information. The Supreme
Court and the SEC define an "insider" as one who, by virtue of his or her position with the
issuer of the stock, has access to nonpublic corporation information that is supposed to be
used only for corporate purposes, not for personal benefit. This definition covers corporate
offices, directors, controlling stockholders, and corporate public relations executives. Certain
outsiders may acquire the duties of insiders if they are given access to nonpublic information.
These include accountants, lawyers, and public relations counsel. "Market insiders," such as
financial journalists also violate securities laws if they misappropriate confidential
information for their own gain.
Test Bank for The Law of Public Communication
Kent R. Middleton, William E. Lee
9780205484683
