Appellant
Central Hudson Gas and Electric Corp.
Appellee
Public Service Commission of New York
Appellant's Claim
That a regulation by the New York Public Service Commission, banning the useof promotional advertising by the electrical utility Central Hudson Gas and Electric Corp., was a restraint of commercial speech under the First and Fourteenth Amendments.
Chief Lawyer for the Appellant
Telford Taylor
Chief Lawyer for the Appellee
Peter H. Schiff
Justices for the Court
Harry A. Blackmun, William J. Brennan, Jr., Warren E. Burger, Thurgood Marshall, Lewis F. Powell, Jr. (writing for the Court), John Paul Stevens, Potter Stewart, Byron R. White
Justices Dissenting
William H. Rehnquist
Place
Washington, D.C.
Date of Decision
20 June 1980
Decision
The Court reversed the judgment of the New York Court of Appeals, and found that the restraint of commercial speech was a violation of the appellant's rights under the First and Fourteenth Amendments.
Significance
Central Hudson was the most significant case up to its time in establishing a framework for the practice of commercial speech. The case set in place a four-part test--which was not without controversy--for the constitutionality of state laws restraining commercial speech, which is somewhat more limited that ordinary free speech under the First Amendment.
In 1973, the oil-producing nations of the world raised the price of oil, which caused a severe "energy crisis" in the United States. As a response to theneed to conserve fuel, the Public Service Commission of the State of New Yorkordered in December of 1973 that all electric utilities in the state desistfrom any form of advertising which "promot[es] the use of electricity."
Three years later, with the energy crisis over, the commission solicited public opinion as to the rule limiting promotional advertising. Central Hudson Gas and Electric Corporation, an electrical utility, opposed the rule on FirstAmendment grounds, claiming that it abridged free speech. In Central Hudson'sadvertising, the company encouraged customers to use energy at "off-peak" times such as late at night, when demand for electricity was low. This, the company reasoned, would ultimately encourage economy of energy.
However, the commission decided to continue with its ban, and on 25 February1977, it clarified its position in a policy statement. The latter classifiedadvertising as either "promotional," which was intended to increase consumption, or "institutional and informational," which in essence included all otheradvertising not obviously intended for the purpose of stimulating sales. Promotional advertising, the commission declared, ran counter to the continuingnational policy of conserving energy.
The commission, which judged Central Hudson's advertising to be promotional in nature, acknowledged that its rule would not necessarily lead to greater energy conservation, since by restricting the advertising that would promote off-peak consumption, it would to some extent limit the "beneficial side- effects" that such advertising might have. Its rationale was that the use of additional power encouraged by such advertising would create higher rates for allusers, since at that time electricity rates in New York state were not basedon the more economically efficient system of marginal cost. As for informational advertising, the commission permitted that which would encourage "shifts of consumption" (emphasis in original) from high-demand to low-demandtime periods. Despite the rather nebulous distinction between this and the so-called promotional advertising by Central Hudson, the commission reasoned that such informational advertising would not have the purpose of increasing overall consumption of energy. Promotional advertising, on the other hand, would give "misleading signals" to consumers because it would appear to encourageconsumption of power.
Central Hudson took the commission to state court, charging that the order was a restraint of commercial speech, and violated the First and Fourteenth Amendments to the Constitution. The state and intermediate appellate courts upheld the commission's order, and the New York Court of Appeals affirmed. In sodoing, the court cited the fact that, as an electrical utility, Central Hudson operated in a "noncompetitive market." As for the constitutional question of commercial speech, the Court reasoned, the state's interest in limiting consumption was more compelling that the utility's claim.
The Four-Part Test
The Supreme Court held 8-1 that the commission's order was unconstitutional.Justice Powell, who gave the Court's opinion, used a four-part test for the constitutionality of a law limiting commercial speech. First of all, a court must determine whether such speech is protected under the First Amendment. Assuming it passes that test, then it comes under a three-part formula for balancing interests. The components of this formula require the Court to questionthree aspects of the claim: whether or not the government's interest in the situation was "substantial"; whether or not the Court's regulation of the commercial speech in question "directly advanced" the government's interest; andwhether that regulation would be "more extensive than necessary to serve thatinterest".
Powell addressed the question of the First Amendment's protection of free speech. Though such constitutional protection is "lesser" than that given to other guaranteed forms of expression, he said, it is indeed protected. Commercial speech must not be misleading, or encourage unlawful activity, whereas ordinary free speech need not meet those criteria in order to be protected. As for the question of whether or not Central Hudson's speech could be limited byvirtue of the fact that it held a monopoly over the sale of electricity within its service area, Powell did not find this a compelling justification.
Given that Central Hudson's right to commercial speech was protected, Powellwent on to ask if the commission's interest was "substantial." He did find that the commission had a substantial interest in limiting consumption; however, he did not find this "a constitutionally adequate reason for restricting protected speech[,] because the link between the advertising prohibition and appellant's rate structure is, at most, tenuous." In other words, whether or not the commission limited the advertising would have little bearing on the conservation of energy, and therefore it would not "directly advance" the state's interest. And, he found, the regulation was more extensive than necessary,precisely because it would not directly lead to any decrease in consumption.
Questioning the Four-Part Test
Justices Brennan, Blackmun, and Stevens all concurred in the judgment, but they placed a finer point on questions of restricting free speech. Brennan, whojoined in the opinions of his colleagues Blackmun and Stevens, cited the vagueness of the commission's distinction between promotional and informationalor institutional advertising.
Blackmun, while agreeing that the four-part test was adequate in situations where the commercial speech was "misleading or coercive," did not think it sufficient in situations such as the one at hand, in which a government limitedcommercial speech for the purposes of creating a specific economic outcome. Comparing the case at hand to the Court's 1976 ruling in Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council, Blackmun said thatthe four-part test would appear to make it permissible for a government to limit commercial speech if by so doing it served a compelling economic purpose.On the contrary, Blackmun reasoned, if the government has such an interest,it should make laws which deal directly with the issue--e.g., a law limitingelectrical consumption--rather than abridging the freedom of commercial speech.
Justice Stevens likewise questioned the broad manner in which he believed thefour-part test might be applied. Since, as the Court had stated, commercialspeech was deserving of less protection that other forms of speech, he was concerned that the definition of commercial speech be as limited as possible inorder that other forms would not accidentally be included under that headingas well. Therefore, he said, he could only concur in the result "because I do not consider this a `commercial speech' case."
Nor did Justice Rehnquist, the Court's lone dissenter, though on an entirelydifferent basis. Rehnquist disagreed with the Court's analysis for several reasons, the first of which was that he did not believe a state-created monopoly was entitled to free-speech protection under the First Amendment. Therefore, the commission's order was in his view an economic regulation rather than aregulation of speech. In line with his more sympathetic view toward the rights of states, he held that "the Court, in reaching its decision, improperly substitutes its own judgment for that of the state in deciding how a proper ban on promotional advertising should be drafted."
Related Cases
Central Hudson Gas and Electric Corp.
Appellee
Public Service Commission of New York
Appellant's Claim
That a regulation by the New York Public Service Commission, banning the useof promotional advertising by the electrical utility Central Hudson Gas and Electric Corp., was a restraint of commercial speech under the First and Fourteenth Amendments.
Chief Lawyer for the Appellant
Telford Taylor
Chief Lawyer for the Appellee
Peter H. Schiff
Justices for the Court
Harry A. Blackmun, William J. Brennan, Jr., Warren E. Burger, Thurgood Marshall, Lewis F. Powell, Jr. (writing for the Court), John Paul Stevens, Potter Stewart, Byron R. White
Justices Dissenting
William H. Rehnquist
Place
Washington, D.C.
Date of Decision
20 June 1980
Decision
The Court reversed the judgment of the New York Court of Appeals, and found that the restraint of commercial speech was a violation of the appellant's rights under the First and Fourteenth Amendments.
Significance
Central Hudson was the most significant case up to its time in establishing a framework for the practice of commercial speech. The case set in place a four-part test--which was not without controversy--for the constitutionality of state laws restraining commercial speech, which is somewhat more limited that ordinary free speech under the First Amendment.
In 1973, the oil-producing nations of the world raised the price of oil, which caused a severe "energy crisis" in the United States. As a response to theneed to conserve fuel, the Public Service Commission of the State of New Yorkordered in December of 1973 that all electric utilities in the state desistfrom any form of advertising which "promot[es] the use of electricity."
Three years later, with the energy crisis over, the commission solicited public opinion as to the rule limiting promotional advertising. Central Hudson Gas and Electric Corporation, an electrical utility, opposed the rule on FirstAmendment grounds, claiming that it abridged free speech. In Central Hudson'sadvertising, the company encouraged customers to use energy at "off-peak" times such as late at night, when demand for electricity was low. This, the company reasoned, would ultimately encourage economy of energy.
However, the commission decided to continue with its ban, and on 25 February1977, it clarified its position in a policy statement. The latter classifiedadvertising as either "promotional," which was intended to increase consumption, or "institutional and informational," which in essence included all otheradvertising not obviously intended for the purpose of stimulating sales. Promotional advertising, the commission declared, ran counter to the continuingnational policy of conserving energy.
The commission, which judged Central Hudson's advertising to be promotional in nature, acknowledged that its rule would not necessarily lead to greater energy conservation, since by restricting the advertising that would promote off-peak consumption, it would to some extent limit the "beneficial side- effects" that such advertising might have. Its rationale was that the use of additional power encouraged by such advertising would create higher rates for allusers, since at that time electricity rates in New York state were not basedon the more economically efficient system of marginal cost. As for informational advertising, the commission permitted that which would encourage "shifts of consumption" (emphasis in original) from high-demand to low-demandtime periods. Despite the rather nebulous distinction between this and the so-called promotional advertising by Central Hudson, the commission reasoned that such informational advertising would not have the purpose of increasing overall consumption of energy. Promotional advertising, on the other hand, would give "misleading signals" to consumers because it would appear to encourageconsumption of power.
Central Hudson took the commission to state court, charging that the order was a restraint of commercial speech, and violated the First and Fourteenth Amendments to the Constitution. The state and intermediate appellate courts upheld the commission's order, and the New York Court of Appeals affirmed. In sodoing, the court cited the fact that, as an electrical utility, Central Hudson operated in a "noncompetitive market." As for the constitutional question of commercial speech, the Court reasoned, the state's interest in limiting consumption was more compelling that the utility's claim.
The Four-Part Test
The Supreme Court held 8-1 that the commission's order was unconstitutional.Justice Powell, who gave the Court's opinion, used a four-part test for the constitutionality of a law limiting commercial speech. First of all, a court must determine whether such speech is protected under the First Amendment. Assuming it passes that test, then it comes under a three-part formula for balancing interests. The components of this formula require the Court to questionthree aspects of the claim: whether or not the government's interest in the situation was "substantial"; whether or not the Court's regulation of the commercial speech in question "directly advanced" the government's interest; andwhether that regulation would be "more extensive than necessary to serve thatinterest".
Powell addressed the question of the First Amendment's protection of free speech. Though such constitutional protection is "lesser" than that given to other guaranteed forms of expression, he said, it is indeed protected. Commercial speech must not be misleading, or encourage unlawful activity, whereas ordinary free speech need not meet those criteria in order to be protected. As for the question of whether or not Central Hudson's speech could be limited byvirtue of the fact that it held a monopoly over the sale of electricity within its service area, Powell did not find this a compelling justification.
Given that Central Hudson's right to commercial speech was protected, Powellwent on to ask if the commission's interest was "substantial." He did find that the commission had a substantial interest in limiting consumption; however, he did not find this "a constitutionally adequate reason for restricting protected speech[,] because the link between the advertising prohibition and appellant's rate structure is, at most, tenuous." In other words, whether or not the commission limited the advertising would have little bearing on the conservation of energy, and therefore it would not "directly advance" the state's interest. And, he found, the regulation was more extensive than necessary,precisely because it would not directly lead to any decrease in consumption.
Questioning the Four-Part Test
Justices Brennan, Blackmun, and Stevens all concurred in the judgment, but they placed a finer point on questions of restricting free speech. Brennan, whojoined in the opinions of his colleagues Blackmun and Stevens, cited the vagueness of the commission's distinction between promotional and informationalor institutional advertising.
Blackmun, while agreeing that the four-part test was adequate in situations where the commercial speech was "misleading or coercive," did not think it sufficient in situations such as the one at hand, in which a government limitedcommercial speech for the purposes of creating a specific economic outcome. Comparing the case at hand to the Court's 1976 ruling in Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council, Blackmun said thatthe four-part test would appear to make it permissible for a government to limit commercial speech if by so doing it served a compelling economic purpose.On the contrary, Blackmun reasoned, if the government has such an interest,it should make laws which deal directly with the issue--e.g., a law limitingelectrical consumption--rather than abridging the freedom of commercial speech.
Justice Stevens likewise questioned the broad manner in which he believed thefour-part test might be applied. Since, as the Court had stated, commercialspeech was deserving of less protection that other forms of speech, he was concerned that the definition of commercial speech be as limited as possible inorder that other forms would not accidentally be included under that headingas well. Therefore, he said, he could only concur in the result "because I do not consider this a `commercial speech' case."
Nor did Justice Rehnquist, the Court's lone dissenter, though on an entirelydifferent basis. Rehnquist disagreed with the Court's analysis for several reasons, the first of which was that he did not believe a state-created monopoly was entitled to free-speech protection under the First Amendment. Therefore, the commission's order was in his view an economic regulation rather than aregulation of speech. In line with his more sympathetic view toward the rights of states, he held that "the Court, in reaching its decision, improperly substitutes its own judgment for that of the state in deciding how a proper ban on promotional advertising should be drafted."
Related Cases
- Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council, 425 U.S. 748 (1976).
- 44 Liquormart, Inc. v. Rhode Island, 517 U.S. 484 (1996).
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