Regulatory Rumblings

Onerous Illinois Data Breach Bill Vetoed By Governor

Posted: Aug 25, 2015 9:00am ET

On Friday, Illinois Governor Bruce Rauner placed an amendatory veto on SB 1833, a data breach bill which was passed by the Illinois legislature at the end of May. The Governor’s veto removed the most harmful pieces of the bill – namely, the inclusion of consumer marketing information and geolocation information in the definition of personal information under the state’s data breach law. The Governor’s actions were a positive step in bringing Illinois’ data breach law more in line with the data breach laws of other states, as well as keeping the law from becoming exceedingly overbroad and harmful to business.

The next steps for this bill are still to be determined. Although the amendatory veto is good news for advertisers, the fight may not yet be over. The Governor will send the bill back to the legislature where the General Assembly could vote to override the veto. Both houses of the Illinois legislature would need a 3/5 majority vote to override. The legislature will likely return from summer recess on September 9th and once it receives the Governor’s veto message, the Senate will have 15 days after that to vote. If the Senate overturns the veto, the House will then have an additional 15 days to vote as well.

There are also two other possible paths for this bill. First, the legislature could concur with the veto. In this case, the bill would stand as amended by the Governor and would go into effect. Second, the legislature could also choose to do nothing regarding the bill, in which case it would die and not be enacted.

ANA is hopeful that the Illinois legislature will not try to override the positive moves made by Governor Rauner. We will continue to keep our members informed of the status of this bill as new developments occur.

Explosion of Connected Devices Presents New Challenges

Posted: Aug 13, 2015 2:30pm ET

It is virtually impossible to miss the ever increasing number of devices that are connected to the Internet in day-to-day life. These devices, dubbed the “Internet of Things (IoT),” range from wearable fit-bands to smart thermostats to a large portion of vehicles on the road. While there are already roughly 25 billion connected devices in use, experts expect that there will be further explosive growth to 50 billion connected devices by 2020. This astounding number shows a radical shift in how consumers are receiving and transmitting intimate data about themselves.

The Internet of Things increasingly is being seen as an opportunity for advertisers to directly present their products to consumers in novel ways using the data that has been collected through these devices. Earlier this week, Adweek published an article about using wearable devices in marketing campaigns. The article states, “The ability to target consumers in a relevant and personalized—not to mention physically attached—context instead of trying to piece together a consumer's intentions after the fact, should be the long-term goal of any marketing plan.” Undoubtedly, advertisers will want to capitalize on the ability to market to individuals in the myriad of new ways available to them during all stages of a potential customer’s daily life.

With this developing technology comes the major challenge of making sure the data collected through connected devices is secure and used in a responsible manner. Marketers seeking to use the Internet of Things to communicate with consumers and serve them personalized ads need to be careful not to use data about those consumers in ways that go above and beyond what the consumer would rightfully expect. The FTC’s Internet of Things report from January recommends that companies be very transparent about how they are collecting and using personal information. The FTC has been frequently investigating companies for either not adequately securing data or for using data in “unfair or deceptive” ways. As we have seen from the onslaught of data breaches by major companies in the past few years, protecting sensitive data from hackers is becoming increasingly more difficult. Also, many IoT devices do not have easily utilized display capacities for consumers to receive privacy or other notices and for them to express their preferences in these areas. IoT provides significant new challenges as to how to deal transparently to meet consumer needs effectively.

Companies looking to utilize data to advertise via the Internet of Things need to come up with sound data privacy and security policies now. Not only does this include implementing the most stringent safeguards against data theft, but also it includes providing consumers with adequate disclosure and choice about what types of data are collected from them for advertising purposes. Without these proactive steps, advertisers leave themselves open to lawsuits and FTC investigations. As the Internet of Things becomes even more integrated into our daily lives, advertisers need to be prepared for all of the benefits and risks that this technology brings.

ICANN Accountability: “Creative Ambiguity” at Work in the “.AFRICA” Decision

Posted: Aug 6, 2015 11:30am ET

By Clark W. Lackert, Reed Smith LLP

If the June 2015 Buenos Aires meeting of ICANN focused on the principles of Accountability and Transition, the time leading up to the October 2015 meeting in Dublin will focus on how to begin to achieve these goals. Right after the Buenos Aires meeting ended, the landmark “.AFRICA” decision (Case #50 2013 001083; 7/9/15) was decided in early July by an Independent Review Panel (“IRP”) which sharply criticized the actions of ICANN and attempted to bring some level of accountability to the ICANN Board, lest it become a rogue institution accountable to no one.

Why is this important to brand owners and advertisers? Probably for the first time, ICANN’s decisions and particularly those of the Governmental Advisory Committee (“GAC”), have been substantively reviewed by an external body and found wanting. This development gives some hope to brand owners that there will be some oversight in the process if they are wronged in Round 1 of the new generic top level domain (“gTLD”) name process. How to build on this positive development is one of the key issues for ICANN leading into Round 2 which is scheduled at the moment to begin sometime in 2017.

As a reminder, the GAC reviews new gTLD applications, and if the GAC is concerned about a proposed gTLD letter string for reasons it does not need to but may disclose, it will issue a warning and then a communique (with “consensus advice”) which will need to be confirmed by the Board. This power given to GAC has been viewed by many as a form of uncontrolled governmental censorship which undermines and politicizes the whole new gTLD application process.

This growing GAC power also has been the subject of controversy in the current Geographical Names Proposal championed by GAC Vice Chair Olga Cavalli. This effort threatens to greatly expand GAC objection power using undefined criteria being debated in the GAC, as well as in discussions on how the GAC power will affect the IANA transition in 2016.

As former GAC Chair Heather Dryden testified in the .AFRICA case, GAC decisions are kept vague in order to reach a consensus. She said: “In our business, we talk about creative ambiguity. We leave things unclear so we don't have conflict.” (Paragraph 102 of the decision). Ms. Dryden also emphasized that she felt it was not necessary to provide a rationale for the GAC adverse advice: “I'm telling you the GAC did not provide a rationale.” This admission led the IRP to conclude: “Ms. Dryden also stated that the GAC made its decision without providing any rationale and primarily based on politics and not on potential violations of national laws and sensitivities.” (Paragraph 104 of the decision). The IRP concluded that “both the actions and inactions of the Board with respect to the application of DCA Trust relating to the .AFRICA gTLD were inconsistent with the Articles of Incorporation and Bylaws of ICANN,” and remanded the application for further processing. (Paragraph 148 of the Decision).

The good news for brand owners and advertisers is there is now some positive movement and precedent to bring ICANN to account for its actions without waiting for the complicated new accountability structures being debated at the moment within ICANN to satisfy the demands of the multistakeholder community. The bad news is that the IRP process is time consuming and expensive, and less onerous procedures should be implemented in order to avoid the necessity of instituting an arbitration proceeding every time ICANN, the Board, or the GAC goes astray. Brand owners should speak up now on demanding enhanced accountability in the “New ICANN” before the Dublin meeting since this decision alone has revealed a number of underlying issues which need to be urgently corrected.

Reed Smith LLP is the ANA’s General Counsel.

Battle Over “Right to Be Forgotten” Heats Up Globally

Posted: Jul 31, 2015 10:00am ET

It has been a little over a year since the European Court of Justice in Luxembourg established the “Right to be Forgotten” online in a groundbreaking and disturbing decision. The ruling mandated Google to take down data that are “inadequate, irrelevant, no longer relevant, or excessive in relation to the purposes for which they were processed and in light of the time that has elapsed.” While it was not initially clear how far the Right to Be Forgotten would be attempted to be extended, Google is now under pressure to apply the ruling worldwide. Yesterday, Google rejected a request from the French government to remove links not just from all European search results but also from all versions globally to carry out the Right to Be Forgotten mandate.

Since the initial European ruling in 2014, Google has evaluated and processed more than a quarter of a million requests to delist links to more than one million individual European web pages. However, Google now makes it very clear that while the Right to Be Forgotten may be the law in Europe, Google does not believe this mandate is legitimate globally. Google states, “If the Commission nationale de l'informatique et des libertés (CNIL)’s proposed approach were to be embraced as the standard for Internet regulation, we would find ourselves in a race to the bottom. In the end, the Internet would only be as free as the world’s least free place.”

At the same time, in the US, the debate has taken the form of a petition to the Federal Trade Commission (FTC) demanding that the Right to Be Forgotten be enforced here. Earlier this month, Consumer Watchdog filed a complaint strongly urging the FTC to require Google “to honor” consideration of removal requests to links to information that its users believe are “inadequate, irrelevant, no longer relevant, or excessive.” Consumer Watchdog claims that Google’s refusal to do so “…while holding itself out to be concerned about users’ privacy is both unfair and deceptive, violating Section 5 of the Federal Trade Commission Act.”

ANA believes this view is legally baseless. Today we sent a letter to the FTC explaining why the Commission should immediately dismiss Consumer Watchdog’s complaint. The letter explains that allowing Right to Be Forgotten policies to be enforced in the U.S. would cause serious and undue harm to the public’s right to determine for itself what is important and relevant information. Furthermore, it would seriously undermine free expression under the First Amendment.

Hopefully, moving forward these issues can be resolved quickly. The Right to Be Forgotten does not translate well from Europe to the US or to other areas of the globe. Regulators should be acutely cautious of adapting these extremely misguided policies that threaten bedrock speech freedoms of our society.

Filing Shows San Francisco Beverage Ordinance is Unconstitutional

Posted: Jul 30, 2015 9:00am ET

In response to a recently approved San Francisco ordinance that would ban most advertising of sugar-sweetened beverages – sodas, sports drinks, energy drinks, and iced teas – on government property, the American Beverage Association, the California Retailers Association, and the California State Outdoor Advertising Association have filed a motion asking the district court to stay this ordinance until constitutional issues are resolved.

The numerous constitutional violations triggered by this ordinance make it appear that the San Francisco supervisors were intent on stepping on virtually every available First Amendment landmine. The industry motion for a preliminary injunction filing does an excellent job of clearly laying out why this ordinance is unconstitutional.

Five flagrant constitutional violations are specifically noted by the plaintiffs:

    “First, the Ordinance discriminates on the basis of viewpoint by suppressing speech that the City disfavors while allowing conflicting speech the City favors.
    Second, the Ordinance’s prohibition against commercial advertisements for sugar-sweetened beverages on City property is not reasonably related to the purpose of the forums where these advertisements are placed. This speech ban does not, for example, make City buses, bus stops, or light rail more reliable or safe.
    Third, the Ordinance’s ban on sugar-sweetened beverage producers’ use of their own names when sponsoring products and events on City property impermissibly discriminates based on the identity of speakers because the City disagrees with their viewpoints.
    Fourth, the Ordinance’s ban on sugar-sweetened beverage producers’ use of their own names when sponsoring products and events on City property unreasonably restricts speech in the forums to which it applies.
    Fifth, prohibiting sugar-sweetened beverage producers from using their names effects an overbroad and impermissible prior restraint by suppressing substantial speech – even core non-commercial speech – promoting any non-charitable event or product on City property.”

ANA strongly agrees that this ordinance is clearly unconstitutional and should be quickly overturned. The United States Supreme Court has repeatedly affirmed that restrictions on advertising must “directly advance the governmental interest asserted” in a “material manner” and cannot be “more extensive than is necessary to serve that interest.” The Court further stated that advertising restrictions must be a “last – not first – resort.” Clearly, this ordinance totally fails these tests.

A second highly problematic ordinance impacting sugary beverage advertising also recently passed in San Francisco. This ordinance would require health labels on advertisements for certain beverages that contain more than 25 calories from sweeteners per 12 ounces. These labels, which must appear on billboards or other outdoor ads, must include a warning that “drinking beverages with added sugars contributes to obesity, diabetes, and tooth decay.” Nevertheless, the ordinance contains a sweeping number of exceptions to their restrictions creating so many holes in the ordinance as to create a veritable regulatory Swiss cheese. In its findings and purpose, the ordinance cites the myriad issues it claims result from consumption of “sugar sweetened beverages” and seeks to inform the public to “promote informed consumer choice.” In the filing mentioned above, the plaintiffs noted that they would seek a preliminary injunction against this ordinance as well. Both of these ordinances present very serious speech restrictions that would create dangerous potential precedents with impacts far beyond the category of sweetened beverages. ANA is considering how best to help overturn these ordinances, and we will alert members to any major developments in these cases.

ICANN Update: Aftermath of the Buenos Aires Meeting

Posted: Jul 14, 2015 2:00pm ET

By Clark W. Lackert, Reed Smith LLP

Before the ICANN Buenos Aires meeting even formally began, NTIA Assistant Secretary Larry Strickling dropped a bombshell in a packed meeting in the evening of Sunday, June 21 – the transition of the IANA (technical) function of ICANN would not take place in September 2015, but would be moved back about a year until the middle of 2016 to provide more time for the internal working groups within ICANN to hammer out the details of the move. Why is this important to brand owners and advertisers? The twin pillars of ICANN Accountability and Transition are vital to the domain name (and related trademark) stability.

Now, doubt has been cast on the timeline as the U.S. Congress has become more activist in ICANN’s activities due to public pressure (in fact, the letter from ANA to ICANN on the overreaching by the GAC in the geographical names (“Argentina”) proposal was the first footnote in a letter from House members to ICANN). Additionally, the new DOTCOM Act which is currently under consideration in the Senate (having passed the House) which would mandate Congressional supervision of the IANA “handover” is clearly a significant development and was extensively discussed in Buenos Aires. Brand owners and advertisers have another year to become involved in the process of transitioning the IANA functions to the so-called “PTI” (“Post-Transition IANA”) entity.

A parallel development in Buenos Aires of great interest to brand owners and advertisers are the activities of the Discussion Group (“DG”) on the opening of the next round of new Generic Top Level Domains (“gTLDs”), which by the timeline of the original Applicant Guidebook is already two years overdue. The DG reviewed a number of scenarios for its draft charter and the opening of a new Policy Development Process (“PDP”) for the new top level domains. Various sources provided different dates for the opening of the next round, but at the moment this date appears to be late 2017 to even early 2018. Although this may seem to be a far off date, discussions are happening now as to how the new round will be structured. To cite one example, the Governmental Advisory Committee (“GAC”) held a short update meeting in Buenos Aires on the so-called “Argentina Proposal” greatly expanding possible “geographical name” objections against brand based domain names, promoted by GAC Vice Chair Olga Cavalli. Although the previous versions of the proposal have been almost universally rejected by various members of the multi-stakeholder community as governmental meddling and censorship in the name of a vague “public interest” justification, the working group in GAC continues to attempt to find legal justification for it. This development should be closely monitored by the trademark community since virtually any brand may have some geographical, cultural, or ethnic significance which some country may find objectionable.

Since it is highly unlikely that the next round will be identical to the 2012 round, everything is currently in play, including broader powers of the GAC to veto domain name applications, reduced costs of the new gTLD applications from the existing $185,000.00 per application, strengthened rights protection mechanisms (“RPMs”), stronger control on the substance and monitoring of registry contracts, revised auction procedures, and enhanced independent review arbitration of ICANN Board decisions. Not surprisingly, timelines emanating out ICANN 53 continued to be pushed back, both for the transition (about one year – 2016) and the new gTLD round (about four years – 2017).

What is surprising, however, is how the enhanced scrutiny of ICANN’s activities and procedures continues to develop new problems for ICANN at a time when ICANN has an outgoing CEO and there is no general consensus on the way forward. As preparations are made for the upcoming meeting in Dublin in October 2015, a number of these critical issues will be open for public comment. Companies should closely monitor the ICANN Public Comments website for policy issues and draft texts which are currently being discussed, and make comments on the official record as needed. In addition, governmental representatives are also a good source of providing feedback to ICANN, as was seen by the recent series of letters from the U.S. Congress to ICANN management.

Reed Smith LLP is the ANA’s General Counsel.

Progress Being Made, but Still Many Big Issues for ICANN

Posted: Jul 10, 2015 9:00am ET

The House Energy & Commerce Subcommittee on Communications and Technology held a hearing Wednesday during which several members continued to raise questions about the transparency and accountability of ICANN. The aim of the hearing, Internet Governance Progress After ICANN 53, was to gain more understanding about the timeline for the IANA transition process and to give members a chance to hear firsthand from ICANN CEO Fadi Chehadé and NTIA Administrator Larry Strickling about progress being made by ICANN.

Mr. Strickling assured Congress that NTIA is confident in the transition and its potential to promote a stronger ICANN. Furthermore, the transition timetable, which has been a source of contention in recent months, was more clearly delineated. The current IANA contract with ICANN, which is due to expire September 30, 2015, will likely be extended at least through July of next year. The timetable provides several months for the U.S. Congress to review the transition process. According to Strickling, this oversight will be granted to Congress even if the DOTCOM Act, which recently passed the House, is not a law by that point. The DOTCOM Act would grant Congress oversight of the IANA transition before the transition is finalized.

ICANN CEO Fadi Chehadé, stressing transparency and the importance of dialogue around the world, claimed that the multi-stakeholder model is working and is the right model for his organization. He stated, “We will not move forward with any loopholes on accountability.” Also, Chehadé answered questions from Members about the role of governments through the ICANN Governmental Advisory Committee (GAC). Several committee members had expressed concern about “governments taking over the Internet,” and both Strickling and Chehadé said they were confident proposals would not permit that to occur. ANA also has concerns about the potential for excessive influence of the GAC on ICANN decision-making, and we will continue to monitor proposals made by the GAC to increase its power within ICANN.

Furthermore, questions were raised about so-called “undesirable” domains, in particular by Rep. Marsha Blackburn (R-TN). Rep. Blackburn highlighted the fact that ICANN is required to enforce prohibitions on illegal activity by domain names. Mr. Chehadé said that the ICANN compliance department investigates the complaints they receive and tries to take steps to ensure that they work within their contracts’ provisions. While Mr. Chehadé indicated that ICANN is doing all it can to protect against abusive domain names, ANA is concerned about domain names such as “.sucks” that seem designed to place immense pressure on major trademark holders to defensively purchase secondary domains to assure that sites like “.sucks” cannot be used to hurt one’s trademark or category. We urge our members to join us in communicating to Congress, the Department of Commerce, and ICANN concerning the potential damages these offensive domain names can impose on businesses and the greater Internet ecosystem before the transition process is finalized.

Advertising still a Tax Target

Posted: Jul 9, 2015 9:00am ET

The U.S. Senate Finance Committee released the reports of its five bipartisan tax working groups yesterday. These working groups were tasked with coming up with new and creative avenues for tax reform by examining various aspects of the code. This is the latest in a recent push by the Finance Committee on the tax reform issue. In January, the formation of the working groups was announced to coincide with the kickoff of a series of tax reform hearings. Then in March, after five hearings, the Committee announced it would ask stakeholders and the public to submit ideas to the bipartisan working groups. ANA submitted comments to the Business Income Tax Working Group, and all submissions were released to the public in April.

Since advertising was first singled out for amortization in the tax reform proposals by the former Chairs of the Senate Finance and House Ways & Means Committees, Sen. Max Baucus and Rep. Dave Camp, in 2014, we have been especially vigilant in watching for any new suggestions that are put forth impacting advertising. In its report, the Business Income Tax Working Group did not explicitly single out advertising amortization or suggest that advertising amortization was a necessary component of the package. However, advertising did not escape notice entirely. Amortization of advertising was third on the list of the largest revenue raising options in the report (pg. 19), although the report also stated that there were potential tax timing and market disruption aspects for each of the categories on the list.  

As Congress looks to find new sources of revenue to support corporate tax reform, advertisers will continue to see amortization as an ever-present danger. It is vitally important that the advertising community work together to show lawmakers the importance of our industry and the extreme economic harm that would be caused by the imposition of amortization proposals. A report put together by the renowned economic research firm IHS demonstrates that advertising is a primary driver of jobs and economic activity in the U.S. Clearly, saddling the selling effort with increased tax burdens would depress these positive economic benefits. While we may never completely remove ourselves from Congressional scrutiny, we will rekindle our efforts to counteract proposals to hobble advertising with inappropriate tax disincentives.

The Ambiguous Future of Highway Funding

Posted: Jun 29, 2015 1:30pm ET

“Dead End, No Turn Around, Danger Ahead,” was the title of the United States’ Senate Finance Committee hearing emphasizing the severe state of transportation infrastructure around the country and the situation of a budget shortfall in the Highway Trust Fund on the horizon. Over the last 5 years the Trust Fund has faced 12 different budget shortfalls. In order to prevent another, the Committee must find new ways to generate revenue or continue down the path of least resistance and borrow money.
The advertising community has been on guard and rightfully so after former Chairman Camp (R-MI) of the House Way’s & Mean’s Committee released his ad-tax plan in his tax reform proposal in February 2014. The plan called for ending the right off of all advertising expenses immediately and instead would require amortizing 50% of those expenses over 10 years. The Joint Tax Committee estimated that this would generate $169 billion in additional taxes and creates a threat that every time a program needs funding advertising taxes would be one of the potential targets.
Chairman Hatch (R-UT) echoed House Way’s & Mean’s Chairman Ryan (R-Wis.) on the Highway Trust Fund’s status as "broken" and that the dilemma on financing it depends on either "raising taxes or cutting back on the highway program." Hatch proclaimed that the goal of the hearing was to find a long-term funding solution starting with discovering way’s to raise enough revenue to meet the needs of America’s deteriorating infrastructure.
Ranking Member Wyden (D-OR) explained that the state of America’s deteriorating infrastructure “hurts businesses and discourages investment.” Wyden also noted that China spends four times and Europe twice the amount that the United States does on transportation infrastructure. Finally, he quoted a report by the American Society of Civil Engineers which states that the Federal government needs to invest an enormous $3.7 Trillion in transportation infrastructure by 2020 or $1.7 Trillion just to reach “good condition.”
So where is all this money going to come from? Multiple Senators suggested a need for all sorts of tax reform but momentum is gathering behind international reform focusing on repatriation of U.S. corporate profits from overseas that have not been brought back to the U.S. due to the 35% statutory corporate tax rate. According to a recent article in the Wall Street Journal, Paul Ryan clarified that the U.S.’s highest corporate tax rate in the world is creating a “smaller tax base in the U.S. and less money available to fuel the nation’s economy.”  
The testimony from the 3-member panel was diverse. Former Secretary of Transportation, Ray LaHood repeatedly stated that the committee needs as many options on the table as possible because a variety of avenues will be needed to provide his calculation of $300-500 billion to pay for new transportation infrastructure which is needed in order to get America “back to number one” internationally. LaHood firmly advocated that the federal government start by raising the gas tax which hasn’t been done in 20 years, and this money would then be reinvested into state and local government projects furthering economic growth.
Dr. Joseph Kile, from the Microeconomic Studies Division of the Congressional Budget Office, proposed a vehicle mileage tax due to the increase in fuel efficient automobiles.
The Heritage Foundation’s Stephen Moore discussed a more “conservative” option. Moore explained that his basis for disagreement with LaHood and the majority opinion was that “we don’t need to spend more money on infrastructure, we need to spend more wisely on infrastructure” citing the tens of billions spent on Virginia’s Silver Line train as a waste of taxpayer money. In addition, there are multiple way’s for the federal government to raise money such as tapping into the “Shale Oil and Gas Revolution” by drilling on federal lands which could be worth $2-3 Trillion or go forward with the Keystone Pipeline. According to Moore, these options would not only create jobs but more importantly they “wouldn’t cost taxpayers a penny.”
We can expect this negotiation to go down to the wire as the July deadline for the Highway Trust Fund approaches. This past week, Senator Inhofe (R-Okla.) and Boxer (D-Calif.) unveiled their plan for a six-year $275 billion highway reauthorization bill called the DRIVE Act which many Democrats have criticized because it will not, in their view, be sufficient.

Senator Corker (R-Tenn.) has called to increase the federal gas tax by 12 cents over the next two years, and the Senate Commerce Committee Chairman John Thune (R-S.D.) hasn’t taken it off the table yet. However, the Republican majority in both houses have expressed their opposition to increasing fuel taxes. Several Democrats and Republicans have alluded that the likely solution is corporate tax reform that supplements a multi-year highway deal.

The Senate Finance Committee Tax Reform Working Groups were supposed to submit proposals Friday but were delayed. The International Tax Working Group claims to have made progress, Co-Chair Senator Portman (R-OH) briefly discussed the proposal highlighting their plan to include a “repatriation tax” on corporate profits overseas. In the midst of this Highway Trust Fund deadline, the advertising industry will need to keep a very careful eye on this process as it can impact tax reform proposals and ad-taxes.

San Francisco Beverage Ad Warning Labels: Unhelpful and Unconstitutional

Posted: Jun 25, 2015 11:30am ET

The San Francisco Board of Supervisors recently approved an ordinance that would require health labels on advertisements for certain beverages – sodas, sports drinks, energy drinks, and iced teas – that contain more than 25 calories from sweeteners per 12 ounces.  These labels, which must appear on billboards or other outdoor ads, must include a warning that “drinking beverages with added sugars contributes to obesity, diabetes, and tooth decay.”  In its findings and purpose, the ordinance cites the myriad issues it claims result from consumption of “sugar sweetened beverages” and seeks to inform the public to “promote informed consumer choice.”    

ANA believes that this ordinance is clearly unconstitutional. The U.S. Supreme Court has repeatedly affirmed, since its 1980 decision in the landmark Central Hudson case, that restrictions on advertising must “directly advance the governmental interest asserted” in a “material manner” and cannot be “more extensive than is necessary to serve that interest.” The Court further stated in the 2002 Western States case that advertising restrictions must be a “last – not first – resort.”  

The San Francisco ordinance would not meet any of these criteria.  It is extremely overbroad.  The labels must include warnings that added sugars “contribute” to obesity and diabetes – but that potentially could be true for all caloric foods and drinks if they are excessively consumed.  There are clearly numerous other factors that contribute to obesity and diabetes beyond consuming “sugar sweetened beverages.”  

It is highly unlikely these warnings would have an impact on health, while forcing advertisers to spend their money to vilify their products.  The Supreme Court held in its Pacific Gas & Electric v. Public Utilities Commission decision dealing with mandated disclosures, that it is unconstitutional for the government to conscript private companies to promulgate the government’s desired messages with which it disagrees.  The Court stated that companies can refuse to accept government messages with which they disapprove where deception or misleading speech is not involved.  The court noted that “the choice to speak includes within it the choice of what not to say.” Additionally, San Francisco plans on spending money to enforce an ordinance that compels speech without detailing any other efforts to combat obesity, diabetes or tooth decay first, which obviously fails the Western States mandate.

Setting aside the constitutional arguments, the ordinance creates a very dangerous precedent.  There are 19,492 municipal level governments in the United States.  What would happen if many of them – whether it be New York City, Atlanta, or Peoria – decide to impose disparate warnings not only for sugar sweetened beverages, but for high calorie snacks, salty products, and a myriad of other issues that some city council believes they would like to inform the public about?  Manufacturers would be confronted with a dizzying patchwork of regulations around the country – and consumers would be confronted with a confusing mélange of warnings on products someone, somewhere, thought the public needed to be warned about.  This serves no one’s interest.

This ordinance is likely to be knocked down by the courts, but unfortunately in the meantime, other jurisdictions may attempt to copy San Francisco’s approach, so advertisers need to be on alert.

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About This Blog

Penned by Dan Jaffe, the ANA's group executive vice president of government relations, this blog focuses on advocacy initiatives and key legal/regulatory issues that threaten national advertisers' freedom of commercial speech.