Archives For corporate speech

First Amendment Conflict of Visions Redux: The Case of Facebook’s Oversight Board and the Threat of Antitrust Action

Ben Sperry —  12 May 2020

In the wake of the launch of Facebook’s content oversight board, Republican Senator Josh Hawley and FCC Commissioner Brendan Carr, among others, have taken to Twitter to levy criticisms at the firm and, in the process, demonstrate just how far the Right has strayed from its first principles around free speech and private property. For his part, Commissioner Carr’s thread makes the case that the members of the board are highly partisan and mostly left-wing and can’t be trusted with the responsibility of oversight. While Senator Hawley took the approach that the Board’s very existence is just further evidence of the need to break Facebook up. 

Both Hawley and Carr have been lauded in rightwing circles, but in reality their positions contradict conservative notions of the free speech and private property protections given by the First Amendment.  

This blog post serves as a sequel to a post I wrote last year here at TOTM explaining how There’s nothing “conservative” about Trump’s views on free speech and the regulation of social media. As I wrote there:

I have noted in several places before that there is a conflict of visions when it comes to whether the First Amendment protects a negative or positive conception of free speech. For those unfamiliar with the distinction: it comes from philosopher Isaiah Berlin, who identified negative liberty as freedom from external interference, and positive liberty as freedom to do something, including having the power and resources necessary to do that thing. Discussions of the First Amendment’s protection of free speech often elide over this distinction.

With respect to speech, the negative conception of liberty recognizes that individual property owners can control what is said on their property, for example. To force property owners to allow speakers/speech on their property that they don’t desire would actually be a violation of their liberty — what the Supreme Court calls “compelled speech.” The First Amendment, consistent with this view, generally protects speech from government interference (with very few, narrow exceptions), while allowing private regulation of speech (again, with very few, narrow exceptions).

Commissioner Carr’s complaint and Senator Hawley’s antitrust approach of breaking up Facebook has much more in common with the views traditionally held by left-wing Democrats on the need for the government to regulate private actors in order to promote speech interests. Originalists and law & economics scholars, on the other hand, have consistently taken the opposite point of view that the First Amendment protects against government infringement of speech interests, including protecting the right to editorial discretion. While there is clearly a conflict of visions in First Amendment jurisprudence, the conservative (and, in my view, correct) point of view should not be jettisoned by Republicans to achieve short-term political gains.

The First Amendment restricts government action, not private action

The First Amendment, by its very text, only applies to government action: “Congress shall make no law . . . abridging the freedom of speech.” This applies to the “State[s]” through the Fourteenth Amendment. There is extreme difficulty in finding any textual hook to say the First Amendment protects against private action, like that of Facebook. 

Originalists have consistently agreed. Most recently, in Manhattan Community Access Corp. v. Halleck, Justice Kavanaugh—on behalf of the conservative bloc and the Court—wrote:

Ratified in 1791, the First Amendment provides in relevant part that “Congress shall make no law . . . abridging the freedom of speech.” Ratified in 1868, the Fourteenth Amendment makes the First Amendment’s Free Speech Clause applicable against the States: “No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law . . . .” §1. The text and original meaning of those Amendments, as well as this Court’s longstanding precedents, establish that the Free Speech Clause prohibits only governmental abridgment of speech. The Free Speech Clause does not prohibit private abridgment of speech… In accord with the text and structure of the Constitution, this Court’s state-action doctrine distinguishes the government from individuals and private entities. By enforcing that constitutional boundary between the governmental and the private, the state-action doctrine protects a robust sphere of individual liberty. (Emphasis added).

This was true at the adoption of the First Amendment and remains true today in a high-tech world. Federal district courts have consistently dismissed First Amendment lawsuits against Facebook on the grounds there is no state action. 

For instance, in Nyawba v. Facebook, the plaintiff initiated a civil rights lawsuit against Facebook for restricting his use of the platform. The U.S. District Court for the Southern District of Texas dismissed the case, noting 

Because the First Amendment governs only governmental restrictions on speech, Nyabwa has not stated a cause of action against FaceBook… Like his free speech claims, Nyabwa’s claims for violation of his right of association and violation of his due process rights are claims that may be vindicated against governmental actors pursuant to § 1983, but not a private entity such as FaceBook.

Similarly, in Young v. Facebook, the U.S. District Court for the Northern District of California rejected a claim that Facebook violated the First Amendment by deactivating the plaintiff’s Facebook page. The court declined to subject Facebook to the First Amendment analysis, stating that “because Young has not alleged any action under color of state law, she fails to state a claim under § 1983.”

The First Amendment restricts antitrust actions against Facebook, not Facebook’s editorial discretion over its platform

Far from restricting Facebook, the First Amendment actually restricts government actions aimed at platforms like Facebook when they engage in editorial discretion by moderating content. If an antitrust plaintiff was to act on the impulse to “break up” Facebook because of alleged political bias in its editorial discretion, the lawsuit would be running headlong into the First Amendment’s protections.

There is no basis for concluding online platforms do not have editorial discretion under the law. In fact, the position of Facebook here is very similar to the newspaper in Miami Herald Publishing Co. v. Tornillo, in which the Supreme Court considered a state law giving candidates for public office a right to reply in newspapers to editorials written about them. The Florida Supreme Court upheld the statute, finding it furthered the “broad societal interest in the free flow of information to the public.” The U.S. Supreme Court, despite noting the level of concentration in the newspaper industry, nonetheless reversed. The Court explicitly found the newspaper had a First Amendment right to editorial discretion:

The choice of material to go into a newspaper, and the decisions made as to limitations on the size and content of the paper, and treatment of public issues and public officials — whether fair or unfair — constitute the exercise of editorial control and judgment. It has yet to be demonstrated how governmental regulation of this crucial process can be exercised consistent with First Amendment guarantees of a free press as they have evolved to this time. 

Online platforms have the same First Amendment protections for editorial discretion. For instance, in both Search King v. Google and Langdon v. Google, two different federal district courts ruled Google’s search results are subject to First Amendment protections, both citing Tornillo. 

In Zhang v. Baidu.com, another district court went so far as to grant a Chinese search engine the right to editorial discretion in limiting access to democracy movements in China. The court found that the search engine “inevitably make[s] editorial judgments about what information (or kinds of information) to include in the results and how and where to display that information.” Much like the search engine in Zhang, Facebook is clearly making editorial judgments about what information shows up in newsfeed and where to display it. 

None of this changes because the generally applicable law is antitrust rather than some other form of regulation. For instance, in Tornillo, the Supreme Court took pains to distinguish the case from an earlier antitrust case against newspapers, Associated Press v. United States, which found that there was no broad exemption from antitrust under the First Amendment.

The Court foresaw the problems relating to government-enforced access as early as its decision in Associated Press v. United States, supra. There it carefully contrasted the private “compulsion to print” called for by the Association’s bylaws with the provisions of the District Court decree against appellants which “does not compel AP or its members to permit publication of anything which their `reason’ tells them should not be published.”

In other words, the Tornillo and Associated Press establish the government may not compel speech through regulation, including an antitrust remedy. 

Once it is conceded that there is a speech interest here, the government must justify the use of antitrust law to compel Facebook to display the speech of users in the newsfeeds of others under the strict scrutiny test of the First Amendment. In other words, the use of antitrust law must be narrowly tailored to a compelling government interest. Even taking for granted that there may be a compelling government interest in facilitating a free and open platform (which is by no means certain), it is clear that this would not be narrowly tailored action. 

First, “breaking up” Facebook is clearly overbroad as compared to the goal of promoting free speech on the platform. There is no need to break it up just because it has an Oversight Board that engages in editorial responsibilities. There are many less restrictive means, including market competition, which has greatly expanded consumer choice for communications and connections. Second, antitrust does not even really have a remedy for free speech issues complained of here, as it would require courts to engage in long-term oversight and engage in compelled speech foreclosed by Associated Press. 

Note that this makes good sense from a law & economics perspective. Platforms like Facebook should be free to regulate the speech on their platforms as they see fit and consumers are free to decide which platforms they wish to use based upon that information. While there are certainly network effects to social media, the plethora of options currently available with low switching costs suggests that there is no basis for antitrust action against Facebook because consumers are unable to speak. In other words, the least restrictive means test of the First Amendment is best fulfilled by market competition in this case.

If there were a basis for antitrust intervention against Facebook, either through merger review or as a standalone monopoly claim, the underlying issue would be harm to competition. While this would have implications for speech concerns (which may be incorporated into an analysis through quality-adjusted price), it is inconceivable how an antitrust remedy could be formed on speech issues consistent with the First Amendment. 

Conclusion

Despite now well-worn complaints by so-called conservatives in and out of the government about the baneful influence of Facebook and other Big Tech companies, the First Amendment forecloses government actions to violate the editorial discretion of these companies. Even if Commissioner Carr is right, this latest call for antitrust enforcement against Facebook by Senator Hawley should be rejected for principled conservative reasons.

In Amazon, China, Constitutional Law, Facebook, First Amendment, Google, International, Law & Economics, Platforms, Truth on the Market, Twitter , , , , , , , ,
permalink

There’s nothing “conservative” about Trump’s views on free speech and the regulation of social media

Ben Sperry —  12 July 2019

Yesterday was President Trump’s big “Social Media Summit” where he got together with a number of right-wing firebrands to decry the power of Big Tech to censor conservatives online. According to the Wall Street Journal: 

Mr. Trump attacked social-media companies he says are trying to silence individuals and groups with right-leaning views, without presenting specific evidence. He said he was directing his administration to “explore all legislative and regulatory solutions to protect free speech and the free speech of all Americans.”

“Big Tech must not censor the voices of the American people,” Mr. Trump told a crowd of more than 100 allies who cheered him on. “This new technology is so important and it has to be used fairly.”

Despite the simplistic narrative tying President Trump’s vision of the world to conservatism, there is nothing conservative about his views on the First Amendment and how it applies to social media companies.

I have noted in several places before that there is a conflict of visions when it comes to whether the First Amendment protects a negative or positive conception of free speech. For those unfamiliar with the distinction: it comes from philosopher Isaiah Berlin, who identified negative liberty as freedom from external interference, and positive liberty as freedom to do something, including having the power and resources necessary to do that thing. Discussions of the First Amendment’s protection of free speech often elide over this distinction.

With respect to speech, the negative conception of liberty recognizes that individual property owners can control what is said on their property, for example. To force property owners to allow speakers/speech on their property that they don’t desire would actually be a violation of their liberty — what the Supreme Court calls “compelled speech.” The First Amendment, consistent with this view, generally protects speech from government interference (with very few, narrow exceptions), while allowing private regulation of speech (again, with very few, narrow exceptions).

Contrary to the original meaning of the First Amendment and the weight of Supreme Court precedent, President Trump’s view of the First Amendment is that it protects a positive conception of liberty — one under which the government, in order to facilitate its conception of “free speech,” has the right and even the duty to impose restrictions on how private actors regulate speech on their property (in this case, social media companies). 

But if Trump’s view were adopted, discretion as to what is necessary to facilitate free speech would be left to future presidents and congresses, undermining the bedrock conservative principle of the Constitution as a shield against government regulation, all falsely in the name of protecting speech. This is counter to the general approach of modern conservatism (but not, of course, necessarily Republicanism) in the United States, including that of many of President Trump’s own judicial and agency appointees. Indeed, it is actually more consistent with the views of modern progressives — especially within the FCC.

For instance, the current conservative bloc on the Supreme Court (over the dissent of the four liberal Justices) recently reaffirmed the view that the First Amendment applies only to state action in Manhattan Community Access Corp. v. Halleck. The opinion, written by Trump-appointee, Justice Brett Kavanaugh, states plainly that:

Ratified in 1791, the First Amendment provides in relevant part that “Congress shall make no law . . . abridging the freedom of speech.” Ratified in 1868, the Fourteenth Amendment makes the First Amendment’s Free Speech Clause applicable against the States: “No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law . . . .” §1. The text and original meaning of those Amendments, as well as this Court’s longstanding precedents, establish that the Free Speech Clause prohibits only governmental abridgment of speech. The Free Speech Clause does not prohibit private abridgment of speech… In accord with the text and structure of the Constitution, this Court’s state-action doctrine distinguishes the government from individuals and private entities. By enforcing that constitutional boundary between the governmental and the private, the state-action doctrine protects a robust sphere of individual liberty. (Emphasis added).

Former Stanford Law dean and First Amendment scholar, Kathleen Sullivan, has summed up the very different approaches to free speech pursued by conservatives and progressives (insofar as they are represented by the “conservative” and “liberal” blocs on the Supreme Court): 

In the first vision…, free speech rights serve an overarching interest in political equality. Free speech as equality embraces first an antidiscrimination principle: in upholding the speech rights of anarchists, syndicalists, communists, civil rights marchers, Maoist flag burners, and other marginal, dissident, or unorthodox speakers, the Court protects members of ideological minorities who are likely to be the target of the majority’s animus or selective indifference…. By invalidating conditions on speakers’ use of public land, facilities, and funds, a long line of speech cases in the free-speech-as-equality tradition ensures public subvention of speech expressing “the poorly financed causes of little people.” On the equality-based view of free speech, it follows that the well-financed causes of big people (or big corporations) do not merit special judicial protection from political regulation. And because, in this view, the value of equality is prior to the value of speech, politically disadvantaged speech prevails over regulation but regulation promoting political equality prevails over speech.

The second vision of free speech, by contrast, sees free speech as serving the interest of political liberty. On this view…, the First Amendment is a negative check on government tyranny, and treats with skepticism all government efforts at speech suppression that might skew the private ordering of ideas. And on this view, members of the public are trusted to make their own individual evaluations of speech, and government is forbidden to intervene for paternalistic or redistributive reasons. Government intervention might be warranted to correct certain allocative inefficiencies in the way that speech transactions take place, but otherwise, ideas are best left to a freely competitive ideological market.

The outcome of Citizens United is best explained as representing a triumph of the libertarian over the egalitarian vision of free speech. Justice Kennedy’s opinion for the Court, joined by Chief Justice Roberts and Justices Scalia, Thomas, and Alito, articulates a robust vision of free speech as serving political liberty; the dissenting opinion by Justice Stevens, joined by Justices Ginsburg, Breyer, and Sotomayor, sets forth in depth the countervailing egalitarian view. (Emphasis added).

President Trump’s views on the regulation of private speech are alarmingly consistent with those embraced by the Court’s progressives to “protect[] members of ideological minorities who are likely to be the target of the majority’s animus or selective indifference” — exactly the sort of conservative “victimhood” that Trump and his online supporters have somehow concocted to describe themselves. 

Trump’s views are also consistent with those of progressives who, since the Reagan FCC abolished it in 1987, have consistently angled for a resurrection of some form of fairness doctrine, as well as other policies inconsistent with the “free-speech-as-liberty” view. Thus Democratic commissioner Jessica Rosenworcel takes a far more interventionist approach to private speech:

The First Amendment does more than protect the interests of corporations. As courts have long recognized, it is a force to support individual interest in self-expression and the right of the public to receive information and ideas. As Justice Black so eloquently put it, “the widest possible dissemination of information from diverse and antagonistic sources is essential to the welfare of the public.” Our leased access rules provide opportunity for civic participation. They enhance the marketplace of ideas by increasing the number of speakers and the variety of viewpoints. They help preserve the possibility of a diverse, pluralistic medium—just as Congress called for the Cable Communications Policy Act… The proper inquiry then, is not simply whether corporations providing channel capacity have First Amendment rights, but whether this law abridges expression that the First Amendment was meant to protect. Here, our leased access rules are not content-based and their purpose and effect is to promote free speech. Moreover, they accomplish this in a narrowly-tailored way that does not substantially burden more speech than is necessary to further important interests. In other words, they are not at odds with the First Amendment, but instead help effectuate its purpose for all of us. (Emphasis added).

Consistent with the progressive approach, this leaves discretion in the hands of “experts” (like Rosenworcel) to determine what needs to be done in order to protect the underlying value of free speech in the First Amendment through government regulation, even if it means compelling speech upon private actors. 

Trump’s view of what the First Amendment’s free speech protections entail when it comes to social media companies is inconsistent with the conception of the Constitution-as-guarantor-of-negative-liberty that conservatives have long embraced. 

Of course, this is not merely a “conservative” position; it is fundamental to the longstanding bipartisan approach to free speech generally and to the regulation of online platforms specifically. As a diverse group of 75 scholars and civil society groups (including ICLE) wrote yesterday in their “Principles for Lawmakers on Liability for User-Generated Content Online”:

Principle #2: Any new intermediary liability law must not target constitutionally protected speech.

The government shouldn’t require—or coerce—intermediaries to remove constitutionally protected speech that the government cannot prohibit directly. Such demands violate the First Amendment. Also, imposing broad liability for user speech incentivizes services to err on the side of taking down speech, resulting in overbroad censorship—or even avoid offering speech forums altogether.

As those principles suggest, the sort of platform regulation that Trump, et al. advocate — essentially a “fairness doctrine” for the Internet — is the opposite of free speech:

Principle #4: Section 230 does not, and should not, require “neutrality.”

Publishing third-party content online never can be “neutral.” Indeed, every publication decision will necessarily prioritize some content at the expense of other content. Even an “objective” approach, such as presenting content in reverse chronological order, isn’t neutral because it prioritizes recency over other values. By protecting the prioritization, de-prioritization, and removal of content, Section 230 provides Internet services with the legal certainty they need to do the socially beneficial work of minimizing harmful content.

The idea that social media should be subject to a nondiscrimination requirement — for which President Trump and others like Senator Josh Hawley have been arguing lately — is flatly contrary to Section 230 — as well as to the First Amendment.

Conservatives upset about “social media discrimination” need to think hard about whether they really want to adopt this sort of position out of convenience, when the tradition with which they align rejects it — rightly — in nearly all other venues. Even if you believe that Facebook, Google, and Twitter are trying to make it harder for conservative voices to be heard (despite all evidence to the contrary), it is imprudent to reject constitutional first principles for a temporary policy victory. In fact, there’s nothing at all “conservative” about an abdication of the traditional principle linking freedom to property for the sake of political expediency.

In Amazon, Antitrust & Competition, Constitutional Law, Facebook, First Amendment, Google, Platforms, Regulation, Truth on the Market, Twitter, Tying , , , , , , , , , , , , , ,
permalink

A Win for Free Speech: Federal Circuit Holds (part of) §2(a) of the Lanham Act Unconstitutional

Kristian Stout —  22 December 2015

It is a bedrock principle underlying the First Amendment that the government may not penalize private speech merely because it disapproves of the message it conveys.

The Federal Circuit handed down a victory for free expression today — in the commercial context no less. At issue was the Lanham Act’s § 2(a) prohibition of trademark registrations that

[c]onsist[] of or comprise[] immoral, deceptive, or scandalous matter; or matter which may disparage or falsely suggest a connection with persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt, or disrepute.

The court, sitting en banc, held that the “disparaging” provision is an unconstitutional violation of free expression, and that trademarks will indeed be protected by the First Amendment. Although it declined to decide whether the other prohibitions actually violated the First Amendment, the opinion contained a very strong suggestion to future panels that this opinion likely applies in that context as well.

In many respects the opinion was not all that surprising (particularly if you’ve read my thoughts on the subject here and here ). However given that it was a predecessor Court of Customs and Patent Appeals decision, In Re McGinley, that once held that First Amendment concerns were not implicated at all by § 2(a) because “it is clear that the … refusal to register appellant’s mark does not affect his right to use it” — totally ignoring of course the chilling effects on speech — it was by no means certain that this decision would come out correctly decided.

Today’s holding vacated a decision from a three-judge panel that, earlier this year, upheld the ill-fated “disparaging” prohibition. From just a cursory reading of § 2(a), it should be a no-brainer that it clearly implicates the content of speech — if not a particular view point — and should get at least some First Amendment scrutiny. However, the earlier three-judge opinion  gave all of three paragraphs to this consideration — one of which was just a quotation from McGinley. There, the three-judge panel rather tersely concluded that the First Amendment argument was “foreclosed by our precedent.”

Thus it was with pleasure that I read the Federal Circuit as it today acknowledged that “[m]ore than thirty years have passed since the decision in McGinley, and in that time both the McGinley decision and our reliance on it have been widely criticized[.]” The core of the First Amendment analysis is fairly straightforward: barring “disparaging” marks from registration is neither content neutral nor viewpoint neutral, and is therefore subject to strict scrutiny (which it fails). The court notes that McGinley’s First Amendment analysis was “cursory” (to put it mildly), and was decided before a fully developed body of commercial speech doctrine had emerged. Overall, the opinion is a good example of subtle, probing First Amendment analysis, wherein the court really grasps that merely labeling speech as “commercial” does not somehow magically strip away any protected expressive content.

In fact, perhaps the most important and interesting material has to do with this commercial speech analysis. The court acknowledges that the government’s policy against “disparaging” marks is targeting the expressive aspects of trademarks and not the more easily regulable “transactional” aspects (such as product information, pricing, etc.)— to look at § 2(a) otherwise would not make sense as the government is rather explicitly trying to stop certain messages because of their noncommercial aspects. And the court importantly acknowledges the Supreme Court’s admonition that “[a] consumer’s concern for the free flow of commercial speech often may be far keener than his concern for urgent political dialogue” ( although I might go so far as to hazard a guess that commercial speech is more important that political speech, most of the time, to most people, but perhaps I am just cynical).

The upshot of the Federal Circuit’s new view of trademarks and “commercial speech” reinforces the notion that regulations and laws that are directed toward “commercial speech” need to be very narrowly focused on the actual “commercial” message — pricing, source, etc. — and cannot veer into controlling the “expressive” aspects without justification under strict scrutiny. Although there is nothing terrible new or shocking here, the opinion ties together a variety of the commercial speech doctrines, gives much needed clarity to trademark registration, and reaffirms a sensible view of commercial speech law.

And, although I may be reading too deeply based on my preferences, I think the opinion is quietly staking out a useful position for commercial speech cases going forward—at least to a speech maximalist like myself. In particular, it explicitly relies upon the “unconstitutional conditions” doctrine for the proposition that the benefits of government programs cannot be granted upon a condition that a party only engage in “good” or “approved” commercial speech.  As the world becomes increasingly interested in hate speech regulation,  and our college campuses more interested in preparing a generation of”safe spacers” than of critically thinking adults, this will undoubtedly become an important arrow in a speech defender’s quiver.

In Constitutional Law, First Amendment, Intellectual Property, Patent, Truth on the Market , , , , ,
permalink

Time for the FTC to Reform its Advertising Substantiation Program

Alden Abbott —  29 October 2014

In my just published Heritage Foundation Legal Memorandum, I argue that the U.S. Federal Trade Commission (FTC) should substantially scale back its overly aggressive “advertising substantiation” program, which disincentivizes firms from providing the public with valuable information about the products they sell.  As I explain:

“The . . . [FTC] has a long history of vigorously combating false and deceptive advertising under its statutory authorities, but recent efforts by the FTC to impose excessive ‘advertising substantiation’ requirements on companies go far beyond what is needed to combat false advertising. Such actions threaten to discourage companies from providing useful information that consumers value and that improves the workings of the marketplace. They also are in tension with constitutional protection for commercial speech. The FTC should reform its advertising substantiation policy and allow businesses greater flexibility to tailor their advertising practices, which would further the interests of both consumers and businesses. It should also decline to seek ‘disgorgement’ of allegedly ‘ill-gotten gains’ in cases involving advertising substantiation.”

In particular, I recommend that the FTC issue a revised policy statement explaining that it will seek to restrict commercial speech to the minimum extent possible, consistent with fraud prevention, and will not require onerous clinical studies to substantiate non-fraudulent advertising claims.  I also urge that the FTC clarify that it will only seek equitable remedies (including injunctions and financial exactions) in court for cases of clear fraud.

In Constitutional Law, Federal Trade Commission , , , ,
permalink

Constitutional Dynamism: Responding to Tim Wu on “Machine Speech”, “Opportunism”, and First Amendment

Ben Sperry —  2 September 2013

William Buckley once described a conservative as “someone who stands athwart history, yelling Stop.” Ironically, this definition applies to Professor Tim Wu’s stance against the Supreme Court applying the Constitution’s protections to the information age.

Wu admits he is going against the grain by fighting what he describes as leading liberals from the civil rights era, conservatives and economic libertarians bent on deregulation, and corporations practicing “First Amendment opportunism.” Wu wants to reorient our thinking on the First Amendment, limiting its domain to what he believes are its rightful boundaries.

But in his relatively recent piece in The New Republic and journal article in U Penn Law Review, Wu bites off more than he can chew. First, Wu does not recognize that the First Amendment is used “opportunistically” only because the New Deal revolution and subsequent jurisprudence has foreclosed all other Constitutional avenues to challenge economic regulations. Second, his positive formulation for differentiating protected speech from non-speech will lead to results counter to his stated preferences. Third, contra both conservatives like Bork and liberals like Wu, the Constitution’s protections can and should be adapted to new technologies, consistent with the original meaning.

Wu’s Irrational Lochner-Baiting

Wu makes the case that the First Amendment has been interpreted to protect things that aren’t really within the First Amendment’s purview. He starts his New Republic essay with Sorrell v. IMS (cf. TechFreedom’s Amicus Brief), describing the data mining process as something undeserving of any judicial protection. He deems the application of the First Amendment to economic regulation a revival of Lochner, evincing a misunderstanding of the case that appeals to undefended academic prejudice and popular ignorance. This is important because the economic liberty which was long protected by the Constitution, either as matter of federalism or substantive rights, no longer has any protection from government power aside from the First Amendment jurisprudence Wu decries.

Lochner v. New York is a 1905 Supreme Court case that has received more scorn, left and right, than just about any case that isn’t dealing with slavery or segregation. This has led to the phenomenon (my former Constitutional Law) Professor David Bernstein calls “Lochner-baiting,” where a commentator describes any Supreme Court decision with which he or she disagrees as Lochnerism. Wu does this throughout his New Republic piece, somehow seeing parallels between application of the First Amendment to the Internet and a Liberty of Contract case under substantive Due Process.

The idea that economic regulation should receive little judicial scrutiny is not new. In fact, it has been the operating law since at least the famous Carolene Products footnote four. However, the idea that only insular and discrete minorities should receive First Amendment protection is a novel application of law. Wu implicitly argues exactly this when he says “corporations are not the Jehovah’s Witnesses, unpopular outsiders needing a safeguard that legislators and law enforcement could not be moved to provide.” On the contrary, the application of First Amendment protections to Jehovah’s Witnesses and student protesters is part and parcel of the application of the First Amendment to advertising and data that drives the Internet. Just because Wu does not believe businesspersons need the Constitution’s protections does not mean they do not apply.

Finally, while Wu may be correct that the First Amendment should not apply to everything for which it is being asserted today, he does not seem to recognize why there is “First Amendment opportunism.” In theory, those trying to limit the power of government over economic regulation could use any number of provisions in the text of the Constitution: enumerated powers of Congress and the Tenth Amendment, the Ninth Amendment, the Contracts Clause, the Privileges or Immunities Clause of the Fourteenth Amendment, the Due Process Clause of the Fifth and Fourteenth Amendments, the Equal Protection Clause, etc. For much of the Constitution’s history, the combination of these clauses generally restricted the growth of government over economic affairs. Lochner was just one example of courts generally putting the burden on governments to show the restrictions placed upon economic liberty are outweighed by public interest considerations.

The Lochner court actually protected a small bakery run by immigrants from special interest legislation aimed at putting them out of business on behalf of bigger, established competitors. Shifting this burden away from government and towards the individual is not clearly the good thing Wu assumes. Applying the same Liberty of Contract doctrine, the Supreme Court struck down legislation enforcing housing segregation in Buchanan v. Warley and legislation outlawing the teaching of the German language in Meyer v. Nebraska. After the New Deal revolution, courts chose to apply only rational basis review to economic regulation, and would need to find a new way to protect fundamental rights that were once classified as economic in nature. The burden shifted to individuals to prove an economic regulation is not loosely related to any conceivable legitimate governmental purpose.

Now, the only Constitutional avenue left for a winnable challenge of economic regulation is the First Amendment. Under the rational basis test, the Tenth Circuit in Powers v. Harris actually found that protecting businesses from competition is a legitimate state interest. This is why the cat owner Wu references in his essay and describes in more detail in his law review article brought a First Amendment claim against a regime requiring licensing of his talking cat show: there is basically no other Constitutional protection against burdensome economic regulation.

The More You Edit, the More Your <sic> Protected?

In his law review piece, Machine Speech, Wu explains that the First Amendment has a functionality requirement. He points out that the First Amendment has never been interpreted to mean, and should not mean, that all communication is protected. Wu believes the dividing lines between protected and unprotected speech should be whether the communicator is a person attempting to communicate a specific message in a non-mechanical way to another, and whether the communication at issue is more speech than conduct. The first test excludes carriers and conduits that handle or process information but have an ultimately functional relationship with it–like Federal Express or a telephone company. The second excludes tools, those works that are purely functional like navigational charts, court filings, or contracts.

Of course, Wu admits the actual application of his test online can be difficult. In his law review article he deals with some easy cases, like the obvious application of the First Amendment to blog posts, tweets, and video games, and non-application to Google Maps. Of course, harder cases are the main target of his article: search engines, automated concierges, and other algorithm-based services. At the very end of his law review article, Wu finally states how to differentiate between protected speech and non-speech in such cases:

The rule of thumb is this: the more the concierge merely tells the user about himself, the more like a tool and less like protected speech the program is. The more the programmer puts in place his opinion, and tries to influence the user, the more likely there will be First Amendment coverage. These are the kinds of considerations that ultimately should drive every algorithmic output case that courts could encounter.

Unfortunately for Wu, this test would lead to results counterproductive to his goals.

Applying this rationale to Google, for instance, would lead to the perverse conclusion that the more the allegations against the company about tinkering with its algorithm to disadvantage competitors are true, the more likely Google would receive First Amendment protection. And if Net Neutrality advocates are right that ISPs are restricting consumer access to content, then the analogy to the newspaper in Tornillo becomes a good one–ISPs have a right to exercise editorial discretion and mandating speech would be unconstitutional. The application of Wu’s test to search engines and ISPs effectively puts them in a “use it or lose it” position with their First Amendment rights that courts have rejected. The idea that antitrust and FCC regulations can apply without First Amendment scrutiny only if search engines and ISPs are not doing anything requiring antitrust or FCC scrutiny is counterproductive to sound public policy–and presumably, the regulatory goals Wu holds.

First Amendment Dynamism

The application of the First Amendment to the Internet Age does not involve large leaps of logic from current jurisprudence. As Stuart Minor Benjamin shows in his article in the same issue of the U Penn Law Review, the bigger leap would be to follow Wu’s recommendations. We do not need a 21st Century First Amendment that some on the left have called for—the original one will do just fine.

This is because the Constitution’s protections can be dynamically applied, consistent with original meaning. Wu’s complaint is that he does not like how the First Amendment has evolved. Even his points that have merit, though, seem to indicate a stasis mentality. In her book, The Future and Its Enemies, Virginia Postrel described this mentality as a preference for a “controlled, uniform society that changes only with permission from some central authority.” But the First Amendment’s text is not a grant of power to the central authority to control or permit anything. It actually restricts government from intervening into the open-ended society where creativity and enterprise, operating under predictable rules, generate progress in unpredictable ways.

The application of current First Amendment jurisprudence to search engines, ISPs, and data mining will not necessarily create a world where machines have rights. Wu is right that the line must be drawn somewhere, but his technocratic attempt to empower government officials to control innovation is short-sighted. Ultimately, the First Amendment is as much about protecting the individuals who innovate and create online as those in the offline world. Such protection embraces the future instead of fearing it.

In Amazon, Constitutional Law, Facebook, Federalism, First Amendment, Net Neutrality, Platforms, Telecommunications , , , , , , , , , , , ,
permalink

Abolishing corporate personhood

Larry Ribstein —  6 November 2011

Since the day it was handed down, Citizens United has been a kind of political flypaper for bad laws.  The first dead bugs sought to exploit the decision’s caveats by targeting disclosure and shareholder approval (the Shareholder Protection Act, critized here) and prohibiting political expenditures by government contractors (the Disclose Act).

More recently, CU-haters are trying a more frontal assault. Some senators have proposed a constitutional amendment that would authorize Congress and the states to regulate contributions and expenditures in connection with political candidates.  See the Law Blog.

And now ballot initiatives in such corporate powerhouses as Boulder, Madison and Missoula are striking out against “corporate personhood.” See MoveToAmend.org.

Bainbridge notes that this move is “kind of clever” because it would distinguish corporations from unions, which are unincorporated voluntary associations and the left’s key source of campaign funds.

But even David St. Hubbins and Nigel Tufnel know there’s but a fine line between clever and stupid (side comment:  this coming Friday is Nigel Tufnel day).  Bainbridge notes that personhood is an important corporate characteristic in protecting corporate and shareholder assets.  He asks how “the brilliant legal minds behind this movement propose to preserve this feature of corporate personhood if they succeed” and observes that “lots of pillars of the liberal political movement are limited liability entities with the status of legal persons.”

Actually, I’m skeptical that abolishing artificial personhood would have a lot of non-constitutional implications.  To be sure, it would introduce massive confusion and provided needed work for lawyers.  But in the final analysis, personhood is more a description than a creator of legal consequences (see Bromberg & Ribstein, §1.03). If state law says corporations have limited liability and owners’ creditors have limited recourse to business assets, these consequences should and probably would still hold even in Madison, Wisconsin.

The real problems arise on the constitutional front.  To begin with, the loss of personhood would not have the slightest effect under Citizens United.  The Court held that the First Amendment “protects speech and speaker, and the ideas that flow from each” (130 S.Ct. at 899).  As I have discussed, “the First Amendment does not guard corporations’ expressive rights, but rather the public’s interest in hearing what corporations have to say.” The “entity” nature of corporations doesn’t seem to have anything to do with this reasoning.

On the other hand, if personhood matters at all under Citizens United and subsequent decisions, the loss of personhood actually could be a constitutional boon to corporations.  As I noted some time ago (The Constitutional Conception of the Corporation, 4 Supreme Court Economic Review 95, 129 (1995)):

Under the corporate person theory, speech is attributed to the corporate entity rather than to individuals. Although Bellotti held that speech is protected even if uttered by artificial persons, the post-Bellotti cases on corporate political speech showed that it is easier to deny First Amendment rights if the speech is attributed to an artificial person.

CU avoided this problem by reasoning that the identity of the speaker should be irrelevant.  In the article just cited I argued that corporations would derive more robust constitutional protection, including under the First Amendment, if courts squarely applied the contract theory.  Explicitly overruling artificial personhood would force courts to look through the artificial entity to actual people whose speech is clearly protected.  In other words, the courts would finally have to recognize that corporate speech is people speech.

What’s the answer to those looking for a constitutional fix for CU?  The Supreme Court decided that the for-profit corporation is one of those ideas the First Amendment forbids government from censoring. So there would seem to be only two ways around CU: change the Supreme Court or repeal the First Amendment.

In Constitutional Law, First Amendment
permalink

Should the SEC regulate corporate political speech?

Larry Ribstein —  4 August 2011

Ten leading corporate and securities law professors have petitioned the SEC to develop rules to require companies to disclose their political spending.

This is the latest iteration of efforts to end-run Citizens United’s restrictions on regulating corporate campaign activities by calling it corporate governance regulation.  See my recent post on the Shareholder Protection Act.  I’ve written on these issues in my recently published The First Amendment and Corporate Governance.

The proposed regulation has a good chance of passing muster under the First Amendment because it would focus on disclosure rather than imposing substantive restrictions on corporate speech. Nevertheless, the First Amendment is still relevant.  I have already noted my view that the SEC’s proxy access rule (which is also basically a disclosure rule) avoided a confrontation with the First Amendment only because the DC Circuit could invalidate it on other grounds. At some point mandatory disclosure can sufficiently burden corporate speech to be unconstitutional.  To give just one example, requiring firms to pre-disclose all of their spending for the coming year, thereby preventing them to respond flexibly to changes in the political environment, could push the line.

Even if the SEC rules are constitutional, they would still not necessarily be good policy.  Notably, the law professors’ rulemaking petition, while spending some time discussing the supposed importance to investors of corporate political spending, said nothing about whether an SEC rule was necessary.  The petition highlighted the fact that many corporations already were voluntarily disclosing political spending, sometimes even without shareholder request. Why not continue the experimentation and evolution rather than locking down a one-size-fits-all rule?  Do the benefits of standardization outweigh the costs of experimentation?

The petition cites precedents such as executive compensation disclosure as evidence of the “evolving nature of disclosure requirements.”  But there’s nothing about this evolution that suggests it needs to proceed toward more disclosure about every political hot-button issue.

No doubt the SEC will proceed as the petition requests.  After all, it needs a juicy political issue to deflect attention from the recent questions about the SEC’s soundness and competence as a financial cop. But let’s at least hope that the Commission has learned something from its most recent run-in with the DC Circuit and tries to get some data on exactly who would be helped and hurt by regulation of political disclosures and how much. As with proxy access, would this be all about empowering certain activists at the expense of others, or passive diversified shareholders?  My article discusses some of these tradeoffs. The SEC’s analysis  might benefit from data on exactly what was accomplished by the Commission’s past disclosure enhancements the petitioners highlight.

The danger that the SEC will fall prey to the arbitrariness the DC Circuit criticized is especially intense given the petitioners’ argument that the “symbolic significance of corporate spending on politics suggests setting an appropriately low threshold” on when disclosure is required. I don’t even want to think about the consequences of inviting the SEC to weigh the benefit of “symbolism” against the direct and indirect costs of disclosure.

Anyway, get ready for a contentious debate which, while providing an enjoyable distraction, does nothing to protect investors from the fraud and market dangers that are supposed to be the SEC’s top priority.

In Constitutional Law, Corporate & Securities Law, First Amendment, Securities , , , ,
permalink

It’s baaack: The Shareholder Protection Act

Larry Ribstein —  14 July 2011

The Shareholder Protection Act been reintroduced in Congress, and Lucian Bebchuk still likes it. He and Robert Jackson wrote an article defending the basic idea, which Bebchuk describes as to “establish special corporate-governance rules for deciding when corporate resources may be spent on politics.”  He admits “the bill is unlikely to be adopted during this Congress.” However, since it seems no more likely to go away than Freddie Krueger or Michael Myers, it’s worth discussing why, like these characters, it’s a scary idea.

Bebchuk’s post is timely (for me) because it coincides with the publication of my article, The First Amendment and Corporate Governance.  This article argues generally (per the abstract)

that regulation of the corporate governance process that produces speech faces significant obstacles under the First Amendment. These include the limited efficacy of regulation of corporate governance, regulation’s potential for protecting the expressive rights of some shareholders by suppressing others, and the uncertain implications of this rationale for types of speech other than that involved in Citizens United. These problems with the corporate governance rationale for regulating corporate speech suggest that protection of shareholders’ expressive rights may be trumped by society’s interest in hearing corporate speech and the First Amendment’s central goal of preventing government censorship.

Here’s what the paper has to say about the SPA and Bebchuk & Jackson (footnotes omitted):

This Act would, among other things, require extensive quarterly and annual disclosures of corporate speech expenditures and majority shareholder authorization of “specific” expenditures a year in advance and impose damages for unauthorized expenditures.

The SPA makes clear that its purpose goes beyond merely protecting shareholders. As the bill’s “purpose and summary” notes in its opening sentences, “The [Citizens United] ruling invalidated longstanding provisions in U.S. election laws and raised fresh concerns about corporate influence in our political process. To address those concerns, the Shareholder Protection Act gives shareholders of public companies the right to vote on the company’s annual budget for political expenditures.” In other words, the proposed Act is concerned with “corporate influence.” This illustrates the tension discussed above between the concern for shareholder expression and that for corporate distortion of the political process. 

Apart from the uncertainty of the Act’s intended goal, its means of implementing this goal probably cannot survive First Amendment scrutiny under Citizens United. First, the Court suggested that, while a corporate governance regulation might pass, a remedy “based on speech, contravenes the First Amendment.” The SPA, like the restrictions at issue in Citizens United, is “based on speech.” This raises the question whether the proposed Act’s restrictions can be sustained on shareholder-protection grounds * * *.

Second, the SPA favors the expression of some stakeholders to the detriment of more passive shareholders. The provisions requiring authorization of expenditures may, depending on the applicable voting rules, empower activist shareholders, such as public pension funds, while submerging the preferences of many, perhaps a majority, of others.  

Third, the Act’s requirement that corporations get advance shareholder approval for corporate political activity sharply constrains all such speech by essentially requiring firms to lock in their political activity for a year from the close of a fiscal year. This prevents firms from dealing effectively with a dynamic political landscape. Managers’ treble damage “fiduciary” liability for unauthorized speech reinforces this inflexibility. Imposing these burdens on speech would be inconsistent with Citizens United’s emphasis on the social value of corporate speech.

Bebchuk and Jackson’s governance proposals may fare better under the First Amendment because they are more squarely aimed at corporate governance and the internal distortion problem. The authors suggest requiring the shareholders approve the firm’s overall spending budget, allowing shareholders to submit binding resolutions on corporate speech for shareholder vote, requiring that independent directors make decisions on corporate speech, and mandating more disclosure concerning corporate speech decisions. These provisions are probably less onerous than those in the SPA, depending on their specific implementation, including how they interact with the rules for shareholder voting under federal and state law. Bebchuk and Jackson also would enable shareholders to opt out of the regulation, which further mitigates the impact on corporate speech. 

The main problem with the Bebchuk-Jackson proposal is that it allows for possible super-majority shareholder authorization of corporate speech in order to protect the expressive rights of minority shareholders. * * * [P]rotecting the expressive rights of some shareholders may infringe the expression of other stakeholders and unacceptably restrict corporate speech under the Citizens United listeners’ rights rationale. These concerns increase with the level of protection for minority shareholders. Bebchuk and Jackson even suggest any level of shareholder approval is acceptable that enables “a practically meaningful opportunity to obtain the required approval.” The authors draw this standard from cases on whether state antitakeover law preempts federal law protecting shareholders’ rights. The preemption standard is based on the intent underlying federal takeover law and has little to do with determining corporations’ and corporate stakeholders’ rights regarding corporate speech.

The full article provides support for the positions underlying these criticisms, and cites to my earlier writing on these issues containing deeper background.

In Constitutional Law, Corporate & Securities Law, First Amendment ,
permalink

DSK and media bias

Larry Ribstein —  5 July 2011

Bret Stephens wonders why he and fellow journalists ignored the fact that “[a]lmost from the beginning, there was something amiss in the case of People v. Dominique Strauss-Kahn.” He speculates:

I did enjoy the thought of this mandarin of the tax-exemptocracy being pulled from the comfort of his first-class Air France seat and dispatched to Riker’s Island without regard to status or dignity. And I admired the humble immigrant who would risk so much for the sake of justice. And I smiled at the spectacle of France’s Socialists finding their would-be savior exposed by American prosecutors when they had been hypocritically observing a code of silence about his habits. And I liked seeing the IMF red-faced for whitewashing DSK’s previous escapades.

* * *

He adds that

this is as good an opportunity as any to ask where else we might be committing similar blunders. The climate change obsession, with its Manichean concept of polluting corporations versus noble eco-warriors? The Wall Street obsession, with its belief the boardroom boys were criminally guilty of the financial crisis? The China obsession, with its view that the Middle Kingdom is destined to overtake the U.S. in global economic and political clout? The Israel obsession, with its notion that if only Jewish settlements were removed from the West Bank peace would break out throughout the Middle East?

In each of these cases, the media (broadly speaking) has too often been guilty of looking only for the evidence that fits a pre-existing story line. * * *

But anecdotes are not data—which happens to be the world’s most easily neglected truism. Also true is that sloppy moral categories like the powerful and the powerless, or the selfish and the altruistic, are often misleading and susceptible to manipulation. And the journalists who most deserve to earn their keep are those who understand that the line of any story is likely to be crooked.

I discussed these issues five years ago in my Public Face of Scholarship. I found a rich economics literature analyzing media bias:

  • Michael Jensen observed that people “want sensationalist stories that present choices between good and evil and simple solutions rather than complex explanations.”
  • Core, Guay and Larcker studied the journalist coverage of executive compensation, noting that the press emphasizes sensationalism rather than realistic analysis of the extent of excessive compensation.
  • Gregory S. Miller, The Press as a Watchdog for Accounting Fraud, 44 J. ACCT. RES. 1001 (2006) found that the press emphasized sensationalist elements in stories about accounting fraud.
  • Gentzkow & Shapiro, Media Bias and Reputation, 114 J. POL. ECON. 280 (2006) argue that the news media seek to confirm what the audience thinks it already knows rather than risk being rejected. 
  • Mullainathan & Shleifer conclude that journalists feed audience biases.
  • David Baron reverses causation, arguing that media bias originates with left-leaning anti-market journalists rather than with an effort to serve the audience.

I discussed these theories by way of arguing that bloggers can help correct these tendencies.  That may have happened in this case, but being biased in favor of the accepted wisdom here I didn’t follow any bloggers who might have caught on. 

All of this shows that media and audience bias can be very sticky, and we need a lot of different information sources to combat it.  In other words, free speech is important.  This includes not only bloggers, but for-profit corporate speech, which can cut against some of the biases Stephens referred to.

In China, Corporate & Securities Law, International , , ,
permalink

The First Amendment and corporate governance

Larry Ribstein —  24 May 2011

Robert Jackson recently discussed an SEC staff ruling that the ordinary business exception for shareholder proposals under Rule 14a-8 did not justify excluding a proposal recommending that the board disclose and let shareholders vote on its policies related to corporate political spending. Jackson opines that “the decision will help bring corporate political speech decisions into line with the interests of shareholders” in the wake of the Supreme Court’s Citizens United decision. 

Meanwhile, Jackson’s article with Bebchuk, Corporate Political Speech: Who Decides? 124 Harv. L. Rev. 83 (2010), proposes going beyond merely permitting shareholder recommendations under 14a-8 to, among other things, majority shareholder voting on corporate speech decisions.

The idea of bringing corporate political speech into line shareholder interests sounds unobjectionable until you ask, “which shareholders?” As I discuss in my recent paper, First Amendment and Corporate Governance, shareholder voting on corporate speech could amplify activist business skeptics while muting the diversified shareholders who would prefer that business views be heard.  

There’s also the clash between diversified and non-diversified pro-business shareholders.  The latter may prefer rules that facilitate costly wealth transfers between firms, while the former want only corporate acts and legal rules that maximize the value of their entire portfolios.

And then we could ask why shareholders’ interests should matter more than those of other stakeholders, particularly including employees, whose political interests may sharply diverge from those of shareholders with broadly diversified portfolios.

The most likely effect (and possible intent) of requiring shareholder voting on corporate contributions would be to burden and therefore reduce corporations’ ability to speak at all.  This could promote government censorship of corporate speech, precisely what the Supreme Court said in CU the First Amendment didn’t permit.  

I note in my article that it’s far better to delegate business decisions regarding corporate political spending, like others, to the board. I, of course, cite Steve Bainbridge (who posts to similar effect).  Corporate law provides many ways to deal with directors who act contrary to corporate interests, including fiduciary duties and shareholder exit.  This discipline may be imperfect, but it doesn’t work worse for corporate speech than for other types of decisions where managers’ interests conflict even more directly with those of the corporation.   

The main point to emphasize here is that there is no special free speech reason to protect shareholders from managerial control of corporate speech.  If anything, the arguments cut the other way.  Government control of corporate speech surely raises some voices, and therefore some ideas, above others.  And legislators and regulators seek to promote their own interests, which is the First Amendment’s main concern.

The bottom line is that First Amendment should constrain government regulation not only directly of corporate political speech, but also of the governance processes that produce it. The SEC’s 14a-8 ruling and Bebchuk and Jackson’s proposals would move securities regulation toward a confrontation with the First Amendment that has been brewing since 1933.  See my article with Butler, Corporate Governance Speech and the First Amendment, 43 U. Kans. L. Rev. 163 (1994).

In Constitutional Law, Corporate & Securities Law, First Amendment, Securities , ,
permalink

The death of campaign finance regulation

Larry Ribstein —  29 March 2011

In Arizona Free Enterprise Club, et al., v. Bennett, et al. and McComish, et al., v. Bennett, et al.  the Court is deciding what seems to be a couple of relatively narrow issues:

(1) Whether the First Amendment forbids states from providing additional government subsidies to publicly financed candidates that are triggered by independent expenditure groups’ speech against such candidates; and (2) whether the First Amendment forbids states from providing additional government subsidies to publicly financed candidates that are triggered by the fundraising or expenditures by these candidates’ privately financed opponents.

But at the oral argument yesterday, the issues seemed a lot broader than that. 

To begin with, excerpts from the argument in the SCOTUSblog summary suggested strongly that the challenger did not have to show that the law actually deterred speech.  Thus, the Chief Justice asked:

If you knew that a $10,000 expenditure that you would make that would support a candidate would result in $30,000, $40,000, $50,000, depending on how many opposition candidates there were available for them, wouldn’t you think twice about it?

In other words, the Court seems inclined to apply basic price theory:  you raise the price of something the demand goes down. 

Citizens United seemed to be a narrow case about “corporate” speech.  But as I pointed out in my First Amendment and Corporate Governance, the opinion didn’t really rest on the special nature of the corporation.  Its whole point was to vigorously guard the public’s right to hear: 

By suppressing the speech of manifold corporations, both for-profit and nonprofit, the Government prevents their voices and viewpoints from reaching the public and advising voters on which persons or entities are hostile to their interests.” Citizens United v. Fed. Election Comm’n, 130 S. Ct. 876, 907 (2010).  

The Court has also said, in Davis v. Federal Election Commission, that you can’t penalize candidates running on their own money.

Where is all this heading?  Consider Justice Breyer in the Arizona argument:

McCain-Feingold is hundreds of pages, and we cannot possibly test each provision which is related to the others on such a test of whether it equalizes or incentivizes or some other thing, because the answer is normally we don’t know. And it is better to say that it’s all illegal than to subject these things to death by a thousand cuts, because we don’t know what will happen when we start tinkering with one provision rather than another.  That thought went through my mind as I’ve heard this discussion.

I concluded my article linked above on the First Amendment issues concerning regulating the corporate governance processes that produce corporate speech:

In the final analysis, the majority’s listeners’ rights theory may be the only viable approach for dealing with political and commercial corporate speech. Now that it is clear that protection of corporate speech under the First Amendment cannot be diminished by shunting it off into an artificial entity, any justification for regulation would have to grapple with the complexities of corporate finance and governance and with the myriad variations among business and non-business associations. Add the risks inherent in politicians deciding who can speak and the better course is to err on the side of free speech.

Justice Breyer’s observation in the Arizona argument extended that logic beyond corporate speech. 

So Citizens United was not some little case about the power of corporations.  It was part of a bunch of big cases about the death of campaign finance regulation.  It is a passing that I, for one, will not mourn.

In Apple, Constitutional Law, First Amendment, Platforms, Supreme Court
permalink

The constitutional privacy rights of business entities

Larry Ribstein —  2 March 2011

The Supreme Court, in a unanimous opinion by Justice Roberts, held in FCC v. ATT, Inc.:

We reject the argument that because “person” is defined for purposes of FOIA to include a corporation, the phrase “personal privacy” in Exemption 7(C) reaches corporations as well. The protection in FOIA against disclosure of law enforcement information on the ground that it would constitute an unwarranted invasion of personal privacy does not extend to corporations. We trust that AT&T will not take it personally.

Professor Bainbridge objects:

The utterly specious word games that drive this opinion simply confirm that Chief Justice Roberts  has failed to articulate  a plausible analytical framework for this important problem.

But I’m okay with the opinion.  As I’ve said about Citizens United and corporate speech rights:

corporations, as artificial entities, cannot speak in the same sense as humans do, and . . . the First Amendment is more properly concerned with the expressive rights of the individuals who speak through corporations than with the rights of artificial entities.

Same goes for “corporate” privacy. And this approach isn’t necessarily bad for business.  As I said in the above article about locating speech rights in corporations, “[a]n implication of this move is that the speech gets less protection than non-corporate speech because the right-holder is an artificial entity.” 

Speech rights differ from privacy rights because as I argued in my article linked above, “[t]he First Amendment does not guard corporations’ expressive rights, but rather the public’s interest in hearing what corporations have to say.”

In any event, the Court saved corporate constitutional rights for another day, noting that  

[t]his case does not call upon us to pass on the scope of a corporation’s “privacy” interests as a matter of constitutional or common law. The discrete question before us is instead whether Congress used the term “personal privacy” to refer to the privacy of artificial persons in FOIA Exemption 7(C).

I have written on the constitutional privacy question in The Constitutional Conception of the Corporation, 4 Supreme Court Economic Review 95, 139-40 (1995) (most footnotes omitted):

The theories of the corporation have potential implications for the application of constitutional rules other than those discussed in this article. For example, consistent with the corporate person theory, the Court has limited corporations’ protection against self-incrimination under the Fourth and Fifth Amendments FN 176 on the theory that corporations are artificial entities. However, under the contract theory individuals would not lose Fourth and Fifth Amendment rights merely because they work for corporate firms. For example, the Fifth Amendment could be applied in appropriate cases to protect an individual from having to turn over documents which incriminate that individual even if she has custody of the records as a corporate agent. To be sure, this might allow corporations to escape some government control because they can choose agents who can claim privilege. But given the assumptions underlying the contract theory, owners have market incentives not to insulate their agents from the law. * * * But it follows from the contract analysis that corporate “entities” should not be entitled to Fifth Amendment rights because this might frustrate the firm’s contracts. The parties to the firm might choose to neutralize the self- incrimination privilege and facilitate legal surveillance by giving custody over documents to a custodian who could not assert a privilege in connection with proceedings against the corporation.

FN 176:  See United States v Kordel, 397 US 1 (1970); Hale v Henkel, 201 US 43 (1906) (reasoning that the corporation was a separate entity for Fifth Amendment purposes although not for purposes of applying the Fourth Amendment). By contrast, the privilege against self-incrimination is available to protect against requests for personal, as distinguished from corporate, records. See Wilson v United States, 221 US 361 (1911). The privilege has also been denied to non-corporate associations that are considered collective entities. See Bellis v United States, 417 US 85 (1974) (law firm); United States v White, 322 US 694 (1944) (labor union). * * *

Partnerships may have very limited rights under the Fourth and Fifth Amendment.  See Bromberg & Ribstein on Partnership, §3.05(b)(1) (some footnotes in brackets):

Neither the partner’s individual rights to possess partnership property nor the fact that the partner possesses such property in a representative capacity on behalf of the firm and the other partners has been determinative. * * * [I]n Bellis v. United States, [417 U.S. 85 (1974)] the Supreme Court refused to recognize the privilege in a three-partner law firm that “was not an informal association or a temporary arrangement for the undertaking of a few projects of short-lived duration . . . [but] represented a formal institutional arrangement organized for the continuing conduct of the firm’s legal practice.” The Court went on to state that “[t]his might be a different case if it involved a small family partnership [citing Slutsky and In re Subpoena Duces Tecum, n.9, above] or . . . if there were some other pre-existing relationship of confidentiality among the partners.”

In light of the Bellis holding that an “institutional arrangement” is sufficient, and its application to the very small partnership involved in Bellis, it is unclear what room is left for the “small family partnership” qualification. Indeed, in post-Bellis cases the self-incrimination privilege has been held not necessarily applicable to small, husband-wife partnerships.

In short, the Court has tended to look through the entity to individual interests.  But, as I said in a footnote to the above text: 

Despite the attenuation of the self-incrimination privilege in the partnership setting, the aggregate-entity distinction is still alive to some extent in that the Court has refused to recognize any Fifth Amendment privilege as to corporate records, even if these are owned by a sole proprietorship corporation. See Braswell v. United States, 487 U.S. 99 (1988).

I hope and suspect that the Court, when confronted with the question, will get rid of the unhelpful Braswell aggregate-entity.

In Constitutional Law, Corporate & Securities Law, First Amendment , , ,
permalink