Can the government force private parties to speak against their own interests and disparage the products they offer? The answer is yes when potential consumer harms are significant (think tobacco labels and other safety warnings) or there’s informational asymmetry (securities offerings)—and indeed fraudulent offerings (the prototypical snake oil) are prohibited altogether. But mandated disclosure regimes are proliferating far past these sorts of traditional disclosures, stretching the First Amendment to the breaking point regarding commercial speech.
A recent example of this phenomenon involves Nationwide Biweekly Administration, whose business is saving customers a significant amount on their mortgages by structuring smaller biweekly payments in place of traditional monthly payments—allowing for an extra reduction of principal each year. To market its services, Nationwide uses public information to send potential customers mailers illustrating how much they might save over the life of their loans. Despite front-and-center statements that Nationwide is “not affiliated, connected, or associated with, sponsored, or approved by the lender listed above,” California decided that this information was insufficient to guarantee that consumers wouldn’t be confused. The state required the company to state on solicitations that they are “not authorized by the lender.”
Nationwide challenged this requirement in court, arguing that the state’s message itself was misleading (by implying that lenders have any power to “authorize” Nationwide’s actions) and forced the company to disparage its own services by suggesting that they were somehow not permitted to offer them. But the federal district court, and then the U.S. Court of Appeals for the Ninth Circuit, approved the mandated disclosure, citing the Supreme Court case of Zauderer v. Office of Disciplinary Counsel of Supreme Court of Ohio (1985).
Zauderer held that “purely factual,” “uncontroversial” disclosures could be required to directly combat consumer deception. While this is a lower form of constitutional scrutiny than most speech restrictions receive, it’s not without teeth. The government still needs to prove actual deception—and once that hurdle is crossed, those compelled government scripts must be both purely factual and uncontroversial, and take care not to burden the speaker any more than necessary.
The Ninth Circuit opted to ignore the Court’s instructions, conflate the prongs of the test, and eliminate the need to justify its reasons for compelling government-mandated scripts by declaring that, “in the interest of administrative simplicity, the state may reasonably decide to require disclosure for a class of solicitations that it determines pose a risk of deception.”
If that new and unfounded legal standard is allowed to stand, Zauderer means nothing at all, and governments can mandate almost any controversial or self-disparaging script for almost any reason. Mom ‘n’ Pop car lots could be required to announce in bold script that “the safety of this car has not been guaranteed by [insert car maker here].” Walmart could lobby a locality to require its competitors to display Walmart’s prices alongside their own, just in case consumers are unaware that retail prices fluctuate between sellers. Generic drug manufacturers could be required to insist in large type that “the safety of this drug is not guaranteed by the company that originally developed it,” and Sprint and T‑Mobile could be forced to proclaim that their advertisements are “not authorized by Verizon.”
Speech compulsion violates the sphere of freedom protected by the First Amendment just as speech restrictions do, so Cato has filed an amicus brief supporting Nationwide’s request that the Supreme Court take up Nationwide Biweekly Administration v. Hubanks review and reverse the Ninth Circuit’s deeply flawed decision.
