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Must the Government Decide if KFC is Good for You?

Mises Daily: Thursday, July 06, 2006 by

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Free speech is perhaps the single greatest threat to central governments, because speech is the ultimate form of decentralized social cooperation — people conveying information to one another. It is no surprise, then, that politicians and regulators, people whose livelihoods depend on the existence of social conflict, target free speech as a threat to various "national interests." These interests are always expressed in collectivist terms that often employ the facade of rights — i.e., "consumer rights." This article addresses the use of government violence to censor certain forms of advertising and other "commercial speech."

The Commercial Speech Doctrine

Since the 1940s, the Supreme Court has recognized a class of "commercial speech" that is afforded less protection under the First Amendment to the United States Constitution than "non-commercial" or political speech. The first commercial speech case, Valentine v. Chrestensen (1942), challenged a New York City regulation banning the distribution of advertising handbills on city-owned streets. In upholding the regulation, the Supreme Court said, "We are … clear that the Constitution imposes … no restraint on government as respects purely commercial advertising." With this single sentence, federal judge Alex Kozinski later observed, "the Supreme Court plucked the commercial speech doctrine out of thin air."

The segregation of commercial speech matured with the Supreme Court's decision in Central Hudson v. Public Service Commission (1983), where the justices fabricated a multi-part test for reviewing state censorship. The Court held that "expression related solely to the economic interest of the speaker and the speaker's audience" would be afforded "lesser protection" under the First Amendment based on "the nature of both the expression and of the governmental interests served by its regulation."

The Supreme Court has long maintained that commercial speech must be given less than full constitutional protection. In a 1978 decision, Ohralik v. Ohio State Bar Ass'n, the Court offered perhaps its most incoherent defense of this principle:

We have not discarded the "common-sense" distinction between speech proposing a commercial transaction, which occurs in an area traditionally subject to government regulation, and other varieties of speech. To require a parity of constitutional protection for commercial and noncommercial speech alike could invite dilution, simply by a leveling process, of the force of the Amendment's guarantee with respect to the latter kind of speech. Rather than subject the First Amendment to such a devitalization, we instead have afforded commercial speech a limited measure of protection, commensurate with its subordinate position in the scale of First Amendment values, while allowing modes of regulation that might be impermissible in the realm of noncommercial expression.

In contrast to this muddled argument, Justice Clarence Thomas replied, in 44 Liquormart, Inc. v. Rhode Island (1996), that "I do not see a philosophical or historical basis for asserting that 'commercial' speech is of 'lower value' than 'noncommercial' speech." Unfortunately, none of Thomas's colleagues have adopted this position.

FTC vs. KFC

Today, the most prominent regulator of commercial speech is the Federal Trade Commission, which identifies, prosecutes, and punishes "unfair methods of competition." This broad phrase applies to both violations of the antitrust laws (i.e., monopolization) and "false or misleading" speech in connection with commercial interests.

It may seem unobjectionable for the government to outlaw "false" speech, but the broader term "false or misleading" opens a Pandora's box. Any communication, no matter how grounded in fact, can "mislead" someone who lacks proper context or has different experiences to draw upon than the speaker. Speech can mislead simply because the listener must consider arguments that contradict his own biases and prejudices. As a legal standard, "misleading" confers enormous power on the government censor charged with identifying and punishing such speech.

In 2004, the FTC punished as "misleading" a series of television advertisements produced the previous year by KFC Corporation, the operator of Kentucky Fried Chicken restaurants. One ad compared the nutritional value of KFC's "Original Recipe" fried chicken breasts to the Whopper sandwich sold by Burger King. The ad stated that two Original Recipe breasts contained 38 grams of fat compared the Whopper's 43. A second ad claimed that an Original Recipe serving had 11 grams of carbohydrates and 40 grams of protein, which was compatible with a low-carbohydrate, high-protein diet. Both advertisements argued that Original Recipe chicken could be incorporated into a healthy and balanced diet.

KFC pulled the ads in November 2003 after widespread criticism in the press and flat consumer response. Despite the market's reaction, the FTC still intervened after receiving a complaint filed from an anti-restaurant political group. The FTC issued an order prohibiting KFC from making health or diet-compatibility statements about its products "unless it substantiates the claim with competent and reliable evidence, including scientific evidence when appropriate." The FTC noted that KFC could make claims consistent with food-labeling rules enforced by the Food and Drug Administration.

FTC member Pamela Jones Harbour, a former deputy attorney general of New York, said in a separate statement on the KFC case that the company should have been forced to forfeit the profits it earned while airing the challenged advertisements: "KFCC is fully aware of our nation's struggle with obesity, yet has cynically attempted to exploit a massive health problem through deceptive advertising. Companies should not be allowed to benefit monetarily from this kind of deception, especially where the health and safety of consumers are compromised."

Harbour's position is curious. Political groups and elected officials often benefit from deceiving the public, and they certainly "exploit" social concerns to justify all sorts of state interventions. (Indeed, Harbour's statement exploited the obesity issue to justify stricter punishment of KFC and other restaurant companies.) Far from benefiting consumers, political intervention usually deprives consumers of choice, as in the case of restaurant smoking bans.

Claims that are unsubstantiated with "competent and reliable evidence" are commonplace in all realms of political debate. Yet we don't have an FTC or central regulator to decide what political speech is acceptable. Nor is any political group liable to have its funds confiscated by force if it cannot prove its arguments to the arbitrary satisfaction of the FDA or similar agency. When it comes to "noncommercial" political speech, even the FTC assumes customers — i.e., voters — can assess the validity of individual arguments without government intervention.

Ultimately, consumers were more than competent to assess KFC's advertising claims and act accordingly. The FTC did not actually accuse KFC of fraud — that is, taking customers' money without providing an agreed-upon product in return. And to that point, the FTC's complaint never cited a single example of a consumer who was "injured" by KFC's advertising. The only publicized complaint was from a political group that wanted the government to censor a company that it disliked. This same group recently sued KFC over the content of its fried chicken, asking a federal judge to tell the company to use a different type of cooking oil.

The traditional justification for government is that it protects individual rights by settling disputes between citizens. But when there is no actual dispute, and the government itself goes looking for problems to "fix", what you have is a monopolist who seeks to control all speech, thereby eliminating political competition.  

"Privatizing" State Power

The FTC is not the only censor of commercial speech. Other federal agencies censor particular areas of speech, such as the FDA over drugs and the Consumer Product Safety Commission over a wide range of products. State attorneys general also exercise censorship powers equivalent to, if not greater than, the FTC's under various "consumer protection" laws.

But the ultimate consequence of the Supreme Court's ill-conceived commercial speech doctrine may have come in a case brought against apparel manufacturer Nike, Inc., by a California resident, Marc Kasky. Since the mid-1990s, Nike defended its foreign labor practices against criticism from multiple political groups. Nike's defense included press releases, op-eds, and a report commissioned by the company and authored by a former US ambassador. Kasky, a longtime anti-Nike activist, sued the company under California's broad unfair competition law, alleging that Nike's defense was false and deceptive and designed to mislead consumers into having a favorable image of the company.

Unlike the FTC's case against KFC, Kasky's complaint did not address product advertising. But like the FTC, Kasky neither claimed to be a victim of the false advertising nor did he present anyone else who was. Kasky was simply trying to censor Nike through the courts. California law permitted Kasky to sue because the unfair competition law deputizes every resident to act as a "private attorney general" in the state's name. It's like having an FTC with 50 million members, but without any political oversight or budgetary restraints.

The California Supreme Court allowed Kasky's case to proceed under the presumption that the US Supreme Court's commercial speech doctrine rendered virtually any utterance by Nike outside the First Amendment's full protection. The federal Supreme Court initially agreed to review the California court's decision, but at the last minute, six justices voted to dismiss the appeal on jurisdictional grounds.

All freedom is economic freedom: $10

Nike ultimately settled with Kasky out of court, leaving the California Supreme Court's dangerous precedent on the books. Unless reversed in the future, this means that any person or business that speaks out of commercial self-interest is liable to be sued by any California resident who disagrees with the message. If adopted by other states, we'd basically shift from a society of consumers to a society of prosecutors, where the mere dislike of a company would constitute an "injury" actionable in the courts.

Conclusion

There is no First Amendment exception for "commercial" speech or for speech deemed misleading by government regulators or individuals with scores to settle. The past 60 years, however, has seen a structural weakening of the judiciary and the quasi-religious ascension of unelected, extra-constitutional regulatory agencies.

Constitutionalism aside, the commercial speech doctrine undercuts a pillar of the free market — the decentralized interactions of buyers and sellers. Far from protecting consumers, the censorship regime maintained by the FTC and others teaches individual consumers to act helpless and rely upon a central authority to separate fact from fiction. This leaves consumers vulnerable to those political groups that successfully influence the regulators. As history — and the Internet — demonstrates, a decentralized market out-performs even the most rabid regulator in discerning false or misleading speech, whether that speech advertises a political candidate or a consumer product.


S.M. Oliva is president of the Voluntary Trade Council in Arlington, Virginia. Send him mail. Comment on the blog.