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Part Seven Special Topics and Perspectives
Belch: Advertising and
Promotion, Sixth Edition
VII. Special Topics and
Perspectives
21. Regulation of
Advertising and Promotion
Federal Regulation of Advertising
© The McGraw−Hill
Companies, 2003
Advertising is controlled and regulated
through federal, state, and local laws and
regulations enforced by various government
agencies. The federal government is the most important source of external
regulation since many advertising practices come under the jurisdiction of the Federal
Trade Commission. In addition, depending on the advertiser’s industry and
product or service, other federal agencies such as the Federal Communications
Commission, the Food and Drug Administration, the U.S. Postal Service, and the
Bureau of Alcohol, Tobacco, and Firearms may have regulations that affect advertising.
We will begin our discussion of federal regulation of advertising by considering
the basic rights of marketers to advertise their products and services under the
First Amendment.
Advertising and the First Amendment
Freedom of speech or expression, as defined by the First Amendment to the U.S. Constitution,
is the most basic federal law governing advertising in the United States. For
many years, freedom of speech protection did not include advertising and other forms
of speech that promote a commercial transaction. However, the courts have extended
First Amendment protection to commercial speech, which is speech that promotes a
commercial transaction. There have been a number of landmark cases over the past
three decades where the federal courts have issued rulings supporting the coverage of
commercial speech by the First Amendment.
In a 1976 case, Virginia State Board of Pharmacy v. Virginia Citizens Consumer
Council, the U.S. Supreme Court ruled that states cannot prohibit pharmacists from
advertising the prices of prescription drugs, because such advertising contains information
that helps the consumer choose between products and because the free flow of
information is indispensable. 28 As noted earlier, in 1977 the Supreme Court ruled that
state bar associations’ restrictions on advertising are unconstitutional and attorneys
have a First Amendment right to advertise their services and prices. 29 In another landmark
case in 1980, Central Hudson Gas & Electric Corp. v. New York Public Service
Commission, the Supreme Court ruled that commercial speech was entitled to First
Amendment protection in some cases. However, the Court ruled that the U.S. Constitution
affords less protection to commercial speech than to other constitutionally
guaranteed forms of expression. In this case the Court established a four-part test,
known as the Central Hudson Test, for determining restrictions on commercial
speech. 30 In a more recent case, the Supreme Court’s 1996 decision in 44 Liquormart,
Inc. v. Rhode Island struck down two state statutes designed to support the state’s
interest in temperance. The first prohibited the advertising of alcoholic beverage
prices in Rhode Island except on signs within a store, while the second prohibited the
publication or broadcast of alcohol price ads. The Court ruled that the Rhode Island
statutes were unlawful because they restricted the constitutional guarantee of freedom
of speech, and the decision signaled strong protection for advertisers under the
First Amendment. 31
In the cases regarding advertising, the U.S. Supreme Court has ruled that freedom
of expression must be balanced against competing interests. For example, the courts
have upheld bans on the advertising of products that are considered harmful, such
as tobacco. The Court has also ruled that only truthful commercial speech is protected,
not advertising or other forms of promotion that are false, misleading, or
deceptive.
In a very recent case involving Nike, the California Supreme Court issued a ruling
that is likely to impact corporate image advertising campaigns and the way companies
engage in public debate regarding issues that affect them. 32 The California high court
ruled that corporations are not protected by the First Amendment when they present as
fact statements about their labor policies or company operations in advertisements,
press releases, letters to the editor, or public statements. The court ruled that corporations
can be found liable for deceptive advertising if they make misleading statements
about their operations and conduct. Nike had argued that statements the company
made to defend itself against charges involving its labor practices were protected by