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1998 Term, Number 7 / January 19, 1999

On Friday, January 15, the Supreme Court granted certiorari in one case of potential interest to the business community. Under the slightly expedited briefing schedule ordered by the Court, amicus briefs in support of the petitioners are due on February 25, 1999, and amicus briefs in support of the respondents are due on March 24. Any questions about this case should be directed to Alan Untereiner (202-778-0656) or Donald Falk (202-778-0174) in our Washington office.

First Amendment — Commercial Speech — Ban on Broadcast Advertising of Casino Gambling.

The Court granted certiorari in Greater New Orleans Broadcasting Ass'n v. United States, No. 98-387, to consider the constitutionality of a federal ban on broadcast advertisements for legal casino gambling. The challenged provision prohibits radio or television broadcasting of "any advertisement of * * * any lottery, gift enterprise, or similar scheme, offering prizes dependent in whole or in part upon lot or chance." 18 U.S.C. § 1304. Section 1304 exempts some types of gambling, including gaming run by Indian tribes, charitable and promotional lotteries, and state-run lotteries. State lotteries may advertise only on stations located in the sponsoring State, however. That limitation was upheld in United States v. Edge Broadcasting Co., 509 U.S. 418 (1993).

Greater New Orleans Broadcasting Association and several of its individual members challenged the constitutionality of Section 1304 as it applies to broadcast advertisements of casino gambling in States where such gambling is legal. The district court granted summary judgment in favor of the government. 866 F. Supp. 975 (E.D. La. 1994). The government did not present any evidence on the efficacy of the regulation, but relied on broad statements in Posadas de Puerto Rico Associates v. Tourism Co. of Puerto Rico, 478 U.S. 328 (1986). In Posadas, the Court upheld the constitutionality of Puerto Rico's ban on the advertising of legal casino gambling.

A divided panel of the Fifth Circuit affirmed. 69 F.3d 1296 (1995). Applying the four-part test for determining the constitutionality of government regulations of commercial speech set forth in Central Hudson Gas & Electric Corp. v. Public Service Comm'n of New York, 447 U.S. 557, 566 (1980), the court of appeals examined whether (1) the speech concerns lawful activity and is nonmisleading, (2) the governmental interest in the regulation is substantial, (3) the regulation directly advances the asserted interest, and (4) the regulation is no more extensive than necessary to serve that interest. The court of appeals acknowledged that the prohibited speech was not misleading and concerned lawful activity, and held that Section 1304 served substantial federal interests in assisting States that restrict gambling and in discouraging commercial gambling and associated "social ills." 69 F.3d at 1299-1301. The Fifth Circuit held that Section 1304 directly advanced those interests because "[i]t is axiomatic that the purpose and effect of advertising is to increase consumer demand." Id. at 1301. Finally, the court of appeals held that Section 1304 was no more extensive than necessary because it "prohibits only broadcast advertising aimed at the promotion of casino gambling" and "the ability of broadcast signals to cross state borders" would thwart less restrictive alternatives. Id. at 1302.

Chief Judge Politz dissented on two grounds. First, the government had not proved that Section 1304 "decreases demand for casino gambling to any appreciable extent," particularly because casinos could advertise so long as the advertisements did not refer to gambling. Second, Section 1304 was overbroad because it did not allow broadcast advertising of casino gambling in States where casino gambling is legal.

The Supreme Court vacated the Fifth Circuit's decision and remanded the case for further consideration in light of 44 Liquormart, Inc. v. Rhode Island, 517 U.S. 484 (1996). See 519 U.S. 801 (1996). In 44 Liquormart, the Supreme Court struck down a state ban on liquor price advertising on First Amendment grounds, but did not produce a majority opinion. Several Justices suggested that the Central Hudson test was too restrictive of truthful, nonmisleading commercial speech; a majority agreed that Posadas did not sufficiently scrutinize the asserted government interests in suppressing such speech.

On remand, the Fifth Circuit again affirmed over a dissent by Chief Judge Politz. 149 F.3d 334 (1998). The majority held that the 44 Liquormart decision did "not disturb the series of decisions that have found a commonsense connection between promotional advertising and the stimulation of consumer demand for the products advertised." Id. at 337. Acknowledging that 44 Liquormart imposed a "more demanding" standard for the fourth element of the Central Hudson test, the court of appeals found that standard satisfied because Section 1304 was not a blanket ban on all advertising and because "regulation of promotional advertising directly influences consumer demand." Id. at 340. Chief Judge Politz concluded that the government had not carried the heavier burden required by 44 Liquormart. Id. at 341-342.

As the government acknowledged in opposing certiorari, the decision of the Fifth Circuit conflicts with a Ninth Circuit decision holding Section 1304 unconstitutional because, in light of the various exceptions, it does not directly advance the asserted governmental interests in the regulation. Valley Broadcasting Co. v. United States, 107 F.3d 1328, 1335-1336 (9th Cir. 1997), cert. denied, 118 S. Ct. 1050 (1998).

The government urged the Court, despite the conflict in the circuits, to defer resolution of the constitutionality of Section 1304 until some future case. In addition, the government took the extraordinary step of petitioning for certiorari before judgment in a different case, suggesting that, if the Court wished to resolve the constitutionality of Section 1304 this Term, it should do so in a New Jersey case with a more highly developed factual record, even though the government had lost that case in the district court and an appeal is pending but not yet decided in the Third Circuit. See Players International, Inc. v. United States, 988 F. Supp. 497 (D.N.J. 1997). The Court denied that petition on January 11, 1999, leaving the government to defend the constitutionality of Section 1304 in a case it won below, but apparently would have preferred not to litigate in the Supreme Court.

This case has obvious importance to broadcasters and to businesses involved in the casino gambling industry. Because the Court has an opportunity to clarify the First Amendment analysis applying to commercial speech — and because the splintered decision in 44 Liquormart both requires clarification and hints at stricter scrutiny of advertising restrictions — the case is broadly important for all businesses that are subject to regulatory constraints on their advertising.

This Mayer, Brown, Rowe & Maw Supreme Court Docket Report provides information and comments on legal issues and developments of interest to our clients and friends. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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