Transcript

NIKE, INC., ET AL., Petitioners v. MARC KASKY.

No. 02-575

April 23, 2003, Wednesday, Washington, D.C.

The above-entitled matter came on for oral argument before the Supreme Court of the United States at 11:10 a.m.

PROCEEDINGS

(11:10 a.m.)

CHIEF JUSTICE REHNQUIST: We'll hear argument now in Number 02-575, Nike, Inc. versus Marc Kasky.

Mr. Tribe.

ORAL ARGUMENT OF LAURENCE H. TRIBE ON BEHALF OF THE PETITIONERS

LAURENCE H TRIBE: Mr. Chief Justice, and may it please the Court.

In the mid-1990s there was, of course, an intense debate on the pros and cons of globalization, and of the impact of companies like Nike on workers in the Third World, where Nike contracted out much of its production to some 900 factories in 51 countries with over 600,000 employees.

Now, the critics, many from pro-labor groups, denounced Nike as the chief exemplar of the evils of globalization, arguing that Nike was simply shifting production to places where it could exploit the workforce and act in ways that were illegal and immoral, and the critics took much of their documentation from the media.

Of course, Nike disagreed, using the same media venues as the critics had used to document what it thought were the connections between its presence and activities in countries like South Korea and Vietnam and the development of technological expertise in those countries, as well as the expansion of job opportunities there, and also arguing that it had put in place significant safeguards against abuse.

The products were mentioned only in response to people who said, well, look, this product is made in such-and-such country and it's exploitative, and Nike would have a press release, or it... sometimes it would be an op ed saying no, you've got the wrong country, this product is made in such-and-such other place.

These were letters to the editor, pamphlets.

It was on the Internet, correspondence.

As you might expect, the critics talked back.

There was a lively political dialogue about the realities of the Third World and Nike's role in it, a little hard to separate the two, when, as the dissenter below, one of the dissenters below said Nike had become the poster child for the evils, supposedly, of globalization, so not surprisingly the debate was inconclusive.

The surprise came when the story took an unusual turn, unusual at least in our system of Government.

One of the Nike critics, Marc Kasky, asked the California courts to endorse his view and to hold that the statements that Nike was putting out were false or were misleading.

He invoked California's unfair competition law and the false advertising law that it included, which gives anyone standing, so Mr. Kasky certainly qualified, to sue another person or corporation, here Nike and its officers, for making any statement in a newspaper or other publication such, it goes on to say, or any advertising device, including over the Internet, concerning any circumstance or matter of fact connected with anything the speaker intends to sell if the statement is untrue or misleading, and the California Supreme Court has read that to cover anything that might mislead the public.

The plaintiff, empowered to sue by the Business and Professions Code 17204 on behalf of, quote, the general public, unquote, did not, under California decisional law, have to allege or prove falsity... it could be an omission that made something misleading... he didn't have to allege or prove reliance by or injury to anyone, or any particular level of fault.

An inadvertent omission will suffice under the Day decision.

CHIEF JUSTICE REHNQUIST: Well, certainly some omissions, even though not technically false, could be false in their... in what they convey.

LAURENCE H TRIBE: Certainly, Mr. Chief Justice, and, in fact, one of the suggestions made by the California Supreme Court for how a company could engage in this debate without any problem is simply omit all the facts that might connect it to the situation, and that kind of omission, it would be certainly alleged, would be misleading, so the only solution that Nike is given is, talk in vague generalities.

I don't deny, Mr. Chief Justice, that there can be cases and there can even be fraud cases, though it's hard, given the pleading requirements of the fraud tort, that do rest on omissions, but I'm just suggesting how... how capacious... how capacious this is.

The relief that is available and was requested by Mr. Kasky includes, and I don't think we should forget the importance of this, an adjudication that the defendant is guilty of an unlawful business practice, and in Nike's case that would be no small matter.

I mean, it would be said you're guilty of exploiting women and children in the Third World, guilty as charged, and not being honest about it, a scarlet letter more damning than the label of National Labor Relations Act violator that this Court a year ago in B&K versus NLRB treated as so grave a blot on the reputation of a company that it mustn't be imposed for activity within the First Amendment zone without giving the defendant significant leeway.

Secondly, there is available a court-ordered injunction both prohibitory and mandatory in one case involving the Alta-Dena Dairy in California under this statute.

The Consumers Union of the United States brought the suit as a Private Attorney General against a dairy that had been putting out its products of raw milk saying they were just as nutritious and healthy as pasteurized milk, and the remedy was a 10-year mandate of corrective speech, as it were, corrective education.

CHIEF JUSTICE REHNQUIST: To... to make them realize that raw milk was not as good as pasteurized milk?

LAURENCE H TRIBE: Well, I guess to make some people... this... that's what the statute says, that some people might have been misled.

Needless to say, the kind of show trial that would be involved in this case is a lot more expensive than that one.

That case, by the way, took 54 days to try, 44 witnesses, there were 40,000 pages of exhibits, at the end a restitutionary order of [dollar] 100,000 was given, and in that case the Attorney General joined the suit, he collected the restitution--

JUSTICE KENNEDY: Do... do we have a case in which we say that a... a civil scheme... I... I suppose there are some criminal remedies here, but let's just think about this as a civil scheme, that a civil scheme of this type is so burdensome, so extensive that it chills speech and is therefore invalid?

I... I--

LAURENCE H TRIBE: --Well, I suppose Bantam Books--

JUSTICE KENNEDY: --We... we have plenty of criminal cases that the criminal laws are either vague or overly broad and that they chill speech.

What about in the civil context?

LAURENCE H TRIBE: --I think Bantam Books comes to mind.

JUSTICE KENNEDY: Yes.

LAURENCE H TRIBE: And there it was less than this, it was simply you were on a list of books.

It seems to me that the Court in the National Labor Relations Act context itself took the position in B&K that chilling effect was important, and what about defamation?

I mean, the central meaning of New York Times v. Sullivan and Gertz and, you know, and Time v. Hill is that even when you have someone who is harmed, reputational harm, concrete harm, so that the regulation of speech is simply ancillary to vindicating tangible interest, even there the chilling effect is so great that even though there's no positive value in false statements you have to put a burden... it's a matter of public interest.

JUSTICE KENNEDY: You would have to say that this complaint and the adjudicatory system it wished to invoke chills speech, therefore the complaint must be dismissed.

I mean, is that the remedy you're--

LAURENCE H TRIBE: Well, essentially that's right, that--

JUSTICE O'CONNOR: --Well, Mr. Tribe, this--

LAURENCE H TRIBE: --this trial itself is illegitimate.

JUSTICE O'CONNOR: --this... but this Court has said that even though commercial speech concerns a public issue, it's still commercial speech--

LAURENCE H TRIBE: Yes.

JUSTICE O'CONNOR: --and we've applied a different test to commercial speech.

LAURENCE H TRIBE: Yes, Justice O'Connor.

JUSTICE O'CONNOR: We said that in Central Hudson, we said that in Bolger.

LAURENCE H TRIBE: Yes.

JUSTICE O'CONNOR: How do you distinguish those?

LAURENCE H TRIBE: Well, let me say two things, Justice O'Connor.

First of all the Court has never said that the Constitution and its First Amendment are wholly invisible to commercial speech, that is, if you're going after commercial harms, then there's a lower standard for commercial speech, the four-part Central Hudson test.

Discovery Network made clear that if you're coming at it from a different angle, commercial speech is just as good as anything else.

R.A.V., I think, dispelled the notion that the Constitution has these blind spots and, indeed, the whole approach of the Court below and of Mr. Kasky was, we don't even have to deal with your First Amendment arguments--

JUSTICE O'CONNOR: Well, do you... you take the view that--

LAURENCE H TRIBE: --because it's misleading commercial speech.

JUSTICE O'CONNOR: --none of the things alleged in the complaint meet the commercial speech test set out in Central Hudson?

LAURENCE H TRIBE: Actually, we--

JUSTICE O'CONNOR: Not one of them?

LAURENCE H TRIBE: --That's right, Justice O'Connor, we don't think any of them do, but even if they did, this scheme--

JUSTICE O'CONNOR: What part do they take?

LAURENCE H TRIBE: --Well, actually, they don't come close in general, and I think the best way to illustrate that is to look not at the various verbal formulas that have been used by this Court in terms of whether it's advertising format, whether it's... in one case I think Justice Stevens talked about something being transaction-driven, but look at the example that this court gave in Central Hudson when it was addressing the question, when we allow greater regulation of speech that is closely connected with the Government's power to regulate commercial transactions we're not in any way limiting your ability directly to comment.

The example that was given was the pamphlet from the Con Ed case.

That was an example of direct comment, and you look at the pamphlet which was in the joint appendix in... in that case, and it turns out the pamphlet is a detailed set of statements about why nuclear power is safer, better, cheaper, better for our independence, and you know what, Con Ed had a nuclear power plant, Indian Point, they clearly had an economic interest in promoting that view, and that's the closest any of these statements by Nike come--

JUSTICE BREYER: No, no, but there's another... think in your mind of two documents.

Document 1 is the letter that Nike sent to the... the athletic managers.

LAURENCE H TRIBE: --Yes.

JUSTICE BREYER: And then put that side by side with the document in the Bolger case, and--

LAURENCE H TRIBE: Yes.

JUSTICE BREYER: --that's the... the discussion of venereal disease.

LAURENCE H TRIBE: Right.

JUSTICE BREYER: Now, what... now, I... you have to write an opinion, let's say--

LAURENCE H TRIBE: Yes.

JUSTICE BREYER: --that says the difference between these is?

LAURENCE H TRIBE: Is that the letter to the university presidents and to the athletic departments of these universities, which is Exhibit R at page 190 of the lodging, is an extended argument about why the claims against Nike are unfounded.

It is not in any of its... it doesn't have Air Jordans on it--

JUSTICE BREYER: And then the letter about the--

LAURENCE H TRIBE: --the way Trojan condoms were... condoms were at the end of that--

JUSTICE BREYER: --Yes.

LAURENCE H TRIBE: --submission, and in the Bolger case again, I think if I were writing such an opinion I would say, in Bolger we again reiterated the formula that had been used in Central Hudson and gave as an example of something that was not commercial speech the promotional pamphlet.

That... that was sent to some... you know who it was sent to?

It was sent only to the customers of Con Ed.

It was an insert in the bills, so there's no doubt that that was speech that had as its audience only those people who purchased from Con Ed, whereas in this case, these guys are not direct purchasers, and moreover, and I think decisively, that's the closest that anything in this case comes to commercial speech.

JUSTICE BREYER: And as long as we're writing distinctions--

LAURENCE H TRIBE: Yes.

I think--

JUSTICE BREYER: --how do I write this distinction?

LAURENCE H TRIBE: --Well--

JUSTICE BREYER: The FTC... sorry, if you're not finished.

LAURENCE H TRIBE: --I'm sorry.

I was only going to add that Mr. Kasky, even though he has standing to do a great deal--

JUSTICE BREYER: Yes.

LAURENCE H TRIBE: --does not have standing to sue on behalf of the athletic directors, it turns out, because the California courts in the Rosenbluth case in 2002 said that this is a law where you're supposed to represent the public, not sophisticated organizations, because they might have their own interests, so to the closest this case comes--

JUSTICE GINSBURG: Is it supposed to be like the Attorney General, Mr. Tribe--

JUSTICE BREYER: --But Mr. Tribe, as I understand it--

LAURENCE H TRIBE: --I'm sorry.

JUSTICE GINSBURG: --This sets up a Private Attorney General so this... Mr. Kasky is representing the public, but you've been talking about the great breadth of this statute, and I understand all that, but where... at just the threshold, the cases were thrown out in the lower courts because they said there's no circumstances, there's nothing you can narrow this complaint down to, not one piece of literature.

LAURENCE H TRIBE: Yes, it's--

JUSTICE GINSBURG: Nothing, not one, and the... the problem with this case is that it comes to us at such a preliminary stage.

There's been nothing like a trial, there's been no narrowing of anything, so am I right in thinking that to prevail you would have to show that none of these, that there's not one that would survive past a motion to dismiss?

LAURENCE H TRIBE: --No, Justice Ginsburg, I think that's not right, because what the court of appeals said in this case... and its opinion I think merits reading.

It's at least as good as the dissents in the California Supreme Court.

What it said was, not that we can't pick and choose somewhere in this pile of scattered material, as it described it, something that under a different scheme might be permissible.

What we hold is impermissible is making the courts pawns in a public debate and having what amounts to... they didn't use the phrase, show trial, but essentially they were saying a trial in which you, in effect, put on trial such a large and massive question and hopeless mix of fact and opinion as the impact on the Third World of this large company.

Now--

JUSTICE SOUTER: What's... what is your best reason for saying this is a show trial?

In other words, you want a new category, and I had thought your best reason was, and... and I want to know whether you agree with me or whether there's something better--

LAURENCE H TRIBE: --Yes.

JUSTICE SOUTER: --I thought your best reason was that there is no, no need for any allegation and in fact no allegation that anyone among the plaintiffs or among the... the class on behalf of which they sue, the public, was injured in any demonstrable way.

Is that the point?

LAURENCE H TRIBE: That--

JUSTICE SOUTER: Is that what the show trial thing--

LAURENCE H TRIBE: --That's probably the single strongest point, and let me connect it with a broader theme, because in Discovery Network, when this Court talked about the fact that commercial speech is a category that's relevant when you're going after commercial harm, in a sense to protect consumers from fraud or one kind or another, in the reputation area it is again not speech alone you're going after.

You're trying to vindicate certain interests in not being harmed.

You have to have someone whose reputation is harmed.

JUSTICE KENNEDY: --Suppose a California regulatory agency signed its name as the plaintiff to this... to this complaint.

LAURENCE H TRIBE: Well, I think simply adding a name wouldn't necessarily solve the problem.

The Attorney General of California put his arm around the Consumer's Union in the Alta-Dena case, but in this case you need a--

JUSTICE KENNEDY: No, no, but... but we have... we have some cases, like the Egg Commission case and so forth--

LAURENCE H TRIBE: --Right.

Unidentified Justice: --where the FTC or the FDA--

LAURENCE H TRIBE: Right.

JUSTICE KENNEDY: --has I, think, a certain standing.

It doesn't have to show injury to itself.

LAURENCE H TRIBE: That's right, but it does have to show, the statutes are written to require it to show that there is an area of legitimate regulatory concern.

Consumers might be fooled into believing, by the Egg Nutrition Council, that cholesterol is good for your heart, and they're trying to protect them.

JUSTICE KENNEDY: Well, you know what we're... you know what we're going to hear next, that the Californians are very interested in this.

LAURENCE H TRIBE: Well, first of all, if they're very interested they can do a number of things.

They can pass something like... Congress passed the Dolphin Protection Act saying, if you really care about dolphins, then whenever a can of tuna is sold, it can't use the phrase, dolphin-friendly, unless certain things are met.

California did this with ozone at one point and then it repealed the ozone-friendly law.

But giving a company an idea of what it has to disclose and what the issues are going to be is very different from saying, well, here we are, we're sitting here and waiting until somebody--

JUSTICE KENNEDY: And again... and again, your best case for this is Bantam Books, or--

LAURENCE H TRIBE: --Well, I... no, I think the defamation line of cases is even better, because at a minimum they show that you have to have someone who's harmed, and you have to have deliberate or reckless falsehood.

Imagine a law--

JUSTICE SOUTER: --Why isn't... why isn't it... going back to Justice Kennedy's question, why shouldn't it be sufficient to say that when it is the State rather than any citizen, self-selected, who brings this suit, we would at least depend upon some State--

LAURENCE H TRIBE: --Yes.

Unidentified Justice: --political responsibility--

LAURENCE H TRIBE: Yes.

JUSTICE SOUTER: --and accountability as... as our... our safeguard, and we would let that go forward because we don't think there's enough risk of improper chilling?

The distinction is, when anybody can walk in--

LAURENCE H TRIBE: Right.

JUSTICE SOUTER: --there's no accountability.

Why isn't that the line to draw?

LAURENCE H TRIBE: Well, it seems to me, Justice Souter, that's a line enough to reverse this decision, but let me just imagine--

JUSTICE GINSBURG: Why, when it wasn't raised below?

One of the problems is, if you were going to take out this Private Attorney General, you would be saying this statute is unconstitutional, pro tonto.

That wasn't argued below.

It didn't surface 'til this Court.

LAURENCE H TRIBE: --It was.

It was, Justice Ginsburg.

On pages 12 to 14 of our reply brief we detailed the sequence, and if you look back at the briefs in the California Supreme Court the arguments, all of the First Amendment arguments were made, but they didn't get to first base in that court because it said, hey, misleading commercial speech gets no protection.

JUSTICE GINSBURG: Where was the notice--

LAURENCE H TRIBE: I was going to give an example--

JUSTICE GINSBURG: --Where was the notice to the California Attorney General that the statute was being, the constitutionality of that statute was being attacked with regard to the Private Attorney General here?

LAURENCE H TRIBE: --It was only as applied, Justice Ginsburg.

That is, it does not suggest... these laws have been on the books since the '30s, and we're not suggesting that they have to be scrapped.

It's the innovative--

JUSTICE GINSBURG: I thought that... that Justice Souter's question to you was--

LAURENCE H TRIBE: --Yes.

JUSTICE GINSBURG: --isn't what infects these laws, that... that you are allowing a champion--

LAURENCE H TRIBE: Yes.

JUSTICE GINSBURG: --who has no public accountability, and it doesn't... I don't see how that comes to be an as-applied challenge.

LAURENCE H TRIBE: Well, Justice Ginsburg, it's an as-applied challenge, because these laws, if applied only in cases where harm is alleged and where a court says, to solve the problem we're going to require that it be proved, that is, it would be the California courts that would have to redesign the system to fix it, wouldn't be unconstitutional.

I wanted to get--

JUSTICE GINSBURG: I thought that the question that was put to you is, isn't this statute infirm in every instance where you have a Private Attorney General?

LAURENCE H TRIBE: --Who alleges no harm, and--

JUSTICE GINSBURG: Well, that's what the statute says.

LAURENCE H TRIBE: --Well, I think it has to be... I... I think it probably is, but I think that the reason that it's not cured, although I agree very much with the position the Solicitor General takes that that's the deepest disease, even if it's taken out, imagine a law that said, if you utter a defamatory statement that is knowingly false, we're going to impose a gag order.

Even if the Attorney General administered it, you'd need to have a possible victim.

I mean, if someone says bad things about William Shakespeare, and the State of California decides that it is going to have a general, floating power to correct speech not connected with the regulatory responsibilities of any agency like the FTC or the... or the SEC, but a free-floating power to correct speech, we think that would be constitutionally infirm, but in this case, in any event, it doesn't come close to commercial speech.

JUSTICE STEVENS: Is your position that, as I understand it, that even if this action were brought by a... a public agency it would still be impermissible?

LAURENCE H TRIBE: In... in this forum, where the public agency didn't need to allege, was not administering a regulatory program to protect people, I... I think--

JUSTICE STEVENS: Would you say the same thing if, that it would be also impermissible for a public agency to investigate to determine whether or not the statements were true or false?

LAURENCE H TRIBE: --To have an investigation, no.

I think that the freedom of speech includes the freedom to have public as well as private debate.

That's what this is about.

JUSTICE STEVENS: So that you... you would agree a public agency could investigate the charges here to determine whether they are true or false.

Could a... in a private action, could a private party engage in discovery to find out whether they were true or false?

LAURENCE H TRIBE: Well, of course, in this case discovery is the name of the game, it would become a massive thing.

JUSTICE STEVENS: Yes.

LAURENCE H TRIBE: I think that if we are right that this action dies aborning, if it's like the statute in Cox v. Cohn itself, where it was simply an impermissible thing, and where no trial would cure the problem, then you don't get to that difficulty, but if it's a legitimate trial, if the law were redesigned, very broad discovery might be permissible.

I'm a little worried about reserving some time, but I... I don't want to leave you in mid-air--

CHIEF JUSTICE REHNQUIST: You... You'd better reserve now, or you won't have any to reserve.

LAURENCE H TRIBE: --I will do just that, Mr. Chief Justice.

Thank you.

CHIEF JUSTICE REHNQUIST: Very well.

General Olson.

ORAL ARGUMENT OF THEODORE B. OLSON ON BEHALF OF THE UNITED STATES, AS AMICUS CURIAE, SUPPORTING THE PETITIONERS

THEODORE B OLSON: Mr. Chief Justice, and may it please the Court.

California has transferred its governmental authority to regulate marketplace communications to anyone and everyone who possesses the price of the filing fee.

Unelected, unaccountable private enforcers, uninhibited by established notions of concrete harm or public duty, have the power to advance their own agendas or personal ideological battles by launching complex, burdensome, and expensive litigation.

The in terrorem effect and potential for abuse is difficult to overstate.

This case can and should, we submit, be evaluated according to the means used to regulate speech in California, not the content of that speech.

The Court and several of the Justices on this Court have explicitly and repeatedly acknowledged that it is exceedingly difficult, if not impossible, to draw bright lines that segregate marketplace speech according to its content into two separate, mutually exclusive hemispheres, commercial and not commercial.

These issues arise in an infinite array of contexts.

The speakers are imaginative and creative, and rigid, permanent, constitutional categorization is neither advisable nor necessary.

If the commercial-noncommercial dichotomy is employed in this case, and in others, either alternative has undesirable consequences.

Valuable marketplace speech... and this Court has repeatedly stressed that speech in the marketplace of commerce is valuable.

It's valuable to consumers, but either it becomes noncommercial, making it difficult for Government to regulate to protect the integrity of the marketplace, or it then is characterized as commercial, which can open the day... open the way to regimes such as California's, where anyone with a whim or a grievance and a filing fee can become a Government-licensed censor.

JUSTICE O'CONNOR: General Olson, do you think that Congress would be able to authorize a scheme of Private Attorney General, for instance, to enforce SEC regulations?

THEODORE B OLSON: Yes, Justice O'Connor, with respect to concrete harm with respect to specific individuals.

First place, Article III would require that, that there actually be concrete harm, an individual participating in a transaction.

This Court has held with respect to 10(b)(5)... Rule 10(b)(5), for example, that there must be a buyer or seller of securities.

JUSTICE BREYER: What will happen is, they'll find in 5 minutes somebody who bought some Nike shoes who feels the same way, you know, so you'll just have this exact suit with a different plaintiff, possibly, or maybe Mr. Kasky once bought some, for all I know, and... and so that isn't really going to help, is it?

THEODORE B OLSON: Yes, it is, Justice Breyer.

It will limit... first of all it will limit the regulation of marketplace speech to the traditional patterns and the regimes that have existed--

JUSTICE BREYER: Okay, so in your view, if Mr. Kasky has bought some shoes and is prepared to say, you know, if I hadn't believed their ad and hadn't been deceived, I never would have bought them--

THEODORE B OLSON: --Yes.

JUSTICE BREYER: --we can go right ahead with this suit?

THEODORE B OLSON: If... well, if... there are other problems with the California statute in terms of its breadth and its vagueness and things of that nature, but the principal problem that we're talking about here, which avoids the problem of saying that everything is either commercial or noncommercial, is that traditionally, for hundreds of years, the... the private individual who has suffered that injury has been able to bring an action.

JUSTICE BREYER: And I... I accept that.

I'm... you pointed to evils of both the other positions, but the problem that I'm having with the third set of evils, which I think Justice O'Connor expressed--

JUSTICE O'CONNOR: --Yes.

JUSTICE BREYER: --is, imagine an ad... it's really an ad, and it says, our refrigerators are ozone-friendly.

The penguins love them, all right.

Unidentified Justice: [Laughter]

JUSTICE BREYER: And now it turns out they have the worst chemical in there anybody's ever heard of.

It's going to destroy the ozone layer.

They're lying through their teeth, all right.

Now, that ad, I take it either the FTC or a private person could proceed against.

I would think so.

THEODORE B OLSON: Yes.

JUSTICE BREYER: If the answer's yes, then we have the problem, which I was going to ask Mr. Tribe, and I... I need thinking on this, how do you draw a line?

How do you draw a line between, this commercial is not a commercial, it's a letter sent to the marketing directors... I think that's their best one... and my penguin-friendly ozone commercial?

How do we draw that line legally, and you're doing it a third way, but how do we stop the private AG, Congress having the right to give the private AG the power to go after my penguins?

THEODORE B OLSON: Well, in the first place, there... there is the Article III requirement of actual, concrete harm suffered by an individual.

There are hundreds of years of common law tradition with respect to allowing an individual who is the... who has received in some way a material misrepresentation of fact, which your question presupposes, that... that causes justifiable reliance in the marketplace and actual harm as a result of that conduct.

Now, with respect to whether that individual, who can then recover the damage actually suffered, can go on and then seek some sort of institutional injunctive or equitable relief, the courts over the years, over hundreds of years have developed circumstances under which the remedy in the injunctive suit, or in the equitable action, has to be tailored to the actual harm suffered by the individual.

CHIEF JUSTICE REHNQUIST: General Olson, you're saying that schemes other than the one California adopted would probably make much more sense and be more valuable for producing speech, but what... what principle is it that you rely on to say that California's scheme is bad, just because there might be others that would be much more favorable to the market of speech?

THEODORE B OLSON: Our principle, Chief Justice Rehnquist, is that the governmental power to regulate speech in the marketplace, which is constrained by the First Amendment, has been transferred to private citizens without the normal constraints that... that--

CHIEF JUSTICE REHNQUIST: Well, what is your best authority so far as a case from our Court for that proposition?

THEODORE B OLSON: --Well, one of the--

CHIEF JUSTICE REHNQUIST: Can you answer the question?

THEODORE B OLSON: --The... well, I think that I have to start with the Gertz case, in which the... the Supreme Court said in the context of a libel suit there is a governmental interest in protecting individuals from actual injury suffered, but the Court went on in Gertz to say, but that's the limit of the--

JUSTICE GINSBURG: But when you can pair one share of stock, go into court and say, I... I want a class action, I'm going to pursue this securities suit, it's... it's... it goes back to the question Justice Breyer asked.

I buy one pair of Nike shoes, I come and say, okay, I'm a customer and I want to sue on behalf of all customers similarly situated.

It seems to me that your solution, if it allows room for that, doesn't really get to the problem.

THEODORE B OLSON: --Well, we believe it does, Justice Ginsburg.

Those kind of suits, persons who bought one share who were misled in the marketplace, or one pair of shoes who had received misleading information, has been actually suffered, eliminates the idea that governmental power is being transferred to people in gross, that the license to be Government, to regulate speech, is just turned loose to everyone.

These are traditional notions of who gets into court and under what circumstances.

Act--

JUSTICE GINSBURG: General Olson, let... let me just ask you the procedural question, because I found that your argument was very well laid out, but I did not see that that position was taken, and my major concern was that the California official who should speak to this question is not before us, wasn't in this case as far as I know, the Attorney General of California.

THEODORE B OLSON: --Let me answer it this way.

This Court has said in Yee versus Escondido that if the legal argument is embraced within the question actually properly raised, the litigants can make that argument.

It also discussed that same issue in the Lebron case.

This--

JUSTICE GINSBURG: Aren't you notified if there's a... if there's a question of the constitutionality of a statute passed by Congress so that you will have the opportunity to come in and tell the Court what your view is?

THEODORE B OLSON: --That is a requirement, and it's addressed in the appendix in... in the reply brief and in the appendix to the reply brief filed on behalf of... of Nike, but it's also important to recognize that this specific point is raised in the... in the cert petition itself.

On pages 27 and 28 Nike said, made the point, other features of the California liability scream... scheme aggravate the chilling effect, and then goes on to elaborate on that point by saying, it invests every single California resident with the power of a Private Attorney General, so--

JUSTICE GINSBURG: But that doesn't show that it was raised and decided below.

THEODORE B OLSON: --That's... that's correct, Justice Ginsburg, but... and... and Mr. Tribe says that it was raised to a certain extent below.

I can't answer that question.

I can say it was embraced within the question presented, it was raised in the cert petition, it is a... it is an antecedent question for deciding the First Amendment issue in this case, and it is... it is an issue that California courts have been dealing with for many years.

For many, many years the California courts have talked about and considered whether this any person provision is proper.

Let me... I... I've--

CHIEF JUSTICE REHNQUIST: Thank you, General Olson.

THEODORE B OLSON: --Thank you.

CHIEF JUSTICE REHNQUIST: Mr. Hoeber, we'll hear from you.

ORAL ARGUMENT OF PAUL R. HOEBER ON BEHALF OF THE RESPONDENT

PAUL R HOEBER: Thank you, Mr. Chief Justice, may it please the Court.

I'm going to start with the jurisdictional issues, and the first point, and Mr. Kasky never bought any Nikes.

He never bought any.

I suppose now he never will.

He didn't buy any Nikes, he had no standing under Article III.

As the plaintiff in this case there was no case or controversy.

If it had been brought in Federal court it would have been dismissed.

Now, in these circumstances this Court says... it said in ASARCO the court can still take jurisdiction, but in ASARCO, the State court judgment there established liability and left only questions of what the type of remedy might be.

Here, the State court decision by the California Supreme Court effectively overruled Nike's demurrer and remanded the case for litigation and trial.

That is not close to ASARCO.

Nike would have to admit that the statements were false to get anywhere near the judgment in ASARCO, so the first point on ASARCO is, it doesn't even apply.

The Court would have to extend ASARCO to even consider the next question, which would be, if the Court did that, whether Nike, which, of course has the burden of proof, has established that because of this decision it will suffer or has suffered an Article III injury.

JUSTICE BREYER: ASARCO, where it's claimed is, it's under the fourth exception listed in ASARCO.

PAUL R HOEBER: No, that's... excuse me, Justice Breyer.

That's... that's Cox.

JUSTICE BREYER: Oh, Cox.

It's under the fourth Cox, I'm sorry.

PAUL R HOEBER: Which I will get to in just--

JUSTICE BREYER: Sorry.

Sorry.

PAUL R HOEBER: --But Nike has the burden under ASARCO to show that it... if the Court gets to it, that it has Article III standing, and I'll direct the Court's attention to the reply brief, page 6, and the only... only factor that Nike points to to show that it has Article III standing is, and I quote, the certain injury Nike confronts from having to defend its speech in this litigation, and I will say that I do not believe that the process of litigation counts, or qualifies, or is sufficient to establish Article III standing.

If it were--

JUSTICE KENNEDY: You can't think of any civil scheme which is, on its face, so burdensome that it chills speech?

JUSTICE STEVENS: You can't think of anything?

PAUL R HOEBER: --The... the scheme... the scheme would be, Your Honor, perhaps... no doubt, but the process of litigation.

What I'm thinking of is in ASARCO, if the process of litigation itself were enough to establish Article III standing, then the lessees would have had standing from the moment they put it in the case--

JUSTICE KENNEDY: Well, but here the argument is, the process of litigation is what causes the substantive injury--

PAUL R HOEBER: --Well, I think that... that--

JUSTICE KENNEDY: --to a First Amendment right, which is clearly something you have Article III standing to assert.

PAUL R HOEBER: --The... but... but going through the process of litigation, if it were a criminal case, the arrest and the prosecution and the ultimate, possible conviction, but simply going through the litigation does not distinguish--

JUSTICE KENNEDY: Well, that's the question on the merits.

They say it does.

PAUL R HOEBER: --The question on the merits being the chilling effect of the California scheme--

JUSTICE BREYER: Imagine it was New York Times--

PAUL R HOEBER: --not the... not the litigation its... not the process of litigation itself.

JUSTICE BREYER: --Well, suppose it was, the defendant was the New York Times.

Suppose it was a newspaper, I mean, you know, and somebody's trying to stop them from printing an article, couldn't they get here under... under similar circumstances?

PAUL R HOEBER: Under ASARCO.

JUSTICE BREYER: Yes, I mean--

PAUL R HOEBER: Under--

JUSTICE BREYER: --I don't know if literally it's ASARCO, but what we have is a... is a plausible claim that speech of an important political nature is being stopped.

Now, that's their claim.

Now, I... I would have thought there's a way to get the case here, and... and why... I mean--

PAUL R HOEBER: --Well... well, what I'm saying is, that may... that may well be true, and it may well be true that... that a scheme can... can stifle speech and establish harm, but the... the simple process of litigation, responding to discovery and going through the litigation is not what is stifling the speech.

It's--

JUSTICE KENNEDY: --Well, that's one of the issues in the case.

PAUL R HOEBER: --Well, all right, then I'll move to my second jurisdictional point, because I want to make sure it comes out, and this is under Cox, and that is, there is no final judgment because this is a... in a traditional sense because this is the overruling of a demurrer, but the fourth exception set forth in Cox provides a way that this Court can hear a case in this circumstance, but one of the conditions, necessary conditions is that were this Court to hear the case and reverse, that would put an end to the... to the... to the litigation, at least to the relevant cause of action.

Here, because it's a... it's a demurrer, and the question is the sufficiency of the complaint against the demurrer, Nike has to show that plaintiff could not amend the complaint in response to, or respondent could not amend the complaint in response to the... whatever defect might be--

JUSTICE KENNEDY: Well--

JUSTICE BREYER: --I don't see that--

JUSTICE KENNEDY: --that's what the intermediate court of appeals said in California.

I would think that's pretty good authority.

PAUL R HOEBER: --What the court of appeals said in California was that we could not amend the complaint, or the facts in the... in the complaint could not be amended to allege noncommercial speech, noncommercial speech, and that's true.

We don't claim that we would allege noncommercial speech.

For one thing, the statute only covers commercial speech, and it's a red herring in that sense, where under us... that we would lose the course of action and we couldn't proceed, so yes, the court of appeal did finish by saying, we don't see any reasonable possibility that the complaint can be amended to allege noncommercial speech, so that--

JUSTICE SOUTER: Okay, but let's... let's assume it could be amended in some way.

The demurrer is to the complaint as it is, and if we accept their position, then you cannot go forward with the complaint as it is.

You would have to modify your lawsuit by amendment or bring a new one, and why isn't that sufficient for... for the fourth Cox exception?

PAUL R HOEBER: --Well, it would... the complaint as it is would not be sufficient, but what Cox says is, for the... for the fourth exception, that the court's ruling of reversal must be preclusive of further litigation on the cause of action, so we gave the example--

JUSTICE SOUTER: Well, the cause of action as pleaded.

I mean, not a cause of action that you might have pleaded, or a different one that you might bring.

PAUL R HOEBER: --Well, it would be the cause... the cause of action would remain as pleaded.

If the court... if the court were to... to say... and we gave the example of negligence... the court were to say strict liability is... is unconstitutional, you must have a... something more than strict liability, you must have negligence, the cause of action would remain the same as--

JUSTICE SOUTER: Well, I think we're--

PAUL R HOEBER: --as in libel cases--

Unidentified Justice: --I think we're playing with words.

JUSTICE SOUTER: You simply could not go forward on the cause of action as you stated that cause of action in your pleadings.

You would have to come forward with a cause of action which is in some respect different in order--

PAUL R HOEBER: --It would be more burdensome.

JUSTICE SOUTER: --in order to meet the constitutional objection, and if that is the case, why isn't it sufficient under Cox IV that you could not proceed in the... in the suit as you have pleaded it and brought it?

PAUL R HOEBER: Well, we're certainly not going to argue about words, and what... that is certainly correct, that if... as pleaded, and... and we pleaded under the statute it's a... it's strict liability, and if the Court were to say, you must have negligence, we would amend the complaint to allege negligence, so it is certainly correct that as pleaded we would not be proceeding on an as-pleaded.

We would amend the complaint.

What I... what I'm saying is that as I understand the Cox exception, the point of it is that the Court is saying that we will only take a case under Cox IV, and we know that if we reverse, the case is over on that... on that cause of action, not the technicality of the pleading so much, but the reality of it, and if we can amend the complain to allege the additional element, it's really the same... it is the same cause of action.

It's just more burdensome.

JUSTICE GINSBURG: What you're saying is, is that Cox category has real teeth in it, and that you just can't... you have to show that it's really going to be over.

PAUL R HOEBER: Yes.

My... yes, I--

JUSTICE GINSBURG: But one aspect of it is that the demurrer was granted without leave to repeat, as I understand it, was dismissed with prejudice.

PAUL R HOEBER: --Yes.

In... in San Francisco Superior Court, the trial court, the judge granted the demurrer without leave to amend.

Under California law... and I should say, California law is not the Federal Rules of Civil Procedure.

California law is the field code, the updated field code, but it goes back to 1872, in fact to 1850, so under California law, when the... when the trial judge granted the demurrer without leave to amend, we were entitled to, and we did appeal without seeking leave to amend, and... and under California law, and I... I'll say this in response to the statement on page 4 of the reply brief that he makes no... excuse me, that his abandonment of the claimed right to amend, we did not abandon.

Respondent did not abandon any claimed right to amend.

Under California law, we are entitled to amend.

We didn't abandon it.

I'm not sure how... how we could abandon it.

We felt we were right on the law, and we appealed from the... from the superior court to the court of appeal.

The court of appeal ruled against us and said, as I noted earlier, we don't see a possibility of amended... amending it to noncommercial speech, which we agree with.

We appealed to the California Supreme Court because we felt we were right on the law, and the California Supreme Court agreed with us.

If... if the California Supreme Court had said, you're wrong on the law, you've got to prove negligence, maybe the California Supreme Court would have done that.

We would have then amended the complaint and proved negligence.

JUSTICE BREYER: You're not going to be able to amend the complaint in respect to at least one argument, which I think is a substantial argument, and that's the argument that this particular statement, whether made to the directors of the marketing, or whoever made it, is a statement that plays a role in a public debate about what kind of society we wish to live in, and it's looking towards action of a legislative sort, an administrative sort, or possibly an interdependent individual sort, like a boycott, and that being a statement that plays that kind of role in a public debate, it is entitled to the highest protection regardless of the forum it appeared in, so California cannot proceed.

Now, in respect to that kind of an argument, what's your reply?

PAUL R HOEBER: My... my reply is, number 1, if... if this Court were to say the case is barred, of course we couldn't amend.

We could not amend, but... so... I'm not... I don't mean--

JUSTICE BREYER: I'm really trying to get you to the merits.

PAUL R HOEBER: --Yes, I... I'm going to... I'm about to move to the merits.

I'm... so yes, there are certain... certainly circumstances we could not amend.

Now, on the merits, and in direct response to... to your question, that's not this complaint.

That is not this complaint.

Maybe there's a lot of statements in Nike's briefs that suggest that's this case, and that's this complaint, but the record before this Court is in that complaint, and it's nowhere else.

JUSTICE BREYER: No, well, they say... they're saying don't look at... look at the statement.

It's the statement we're talking about, and look at all their examples, and the statement that Nike gave is characterized, according to them, as I characterized it, so they say, we don't care what it says in the complaint.

The complaint apparently would like us, something bad to happen to us as a result of having made this statement.

That's enough for us.

The First Amendment protects us from that bad thing.

PAUL R HOEBER: Yes, and... and--

JUSTICE BREYER: And why doesn't it?

PAUL R HOEBER: --And it doesn't because the statements alleged in the complaint are specific, factual representations that say, we make our products in compliance with the laws of... of the country of manufacture with respect to wages and overtime, with respect to health and safety, with respect to environmental standards, we pay our workers twice the minimum wage... they are specific factual statements of that kind.

They are not statements that go beyond that, that talk about globalization--

JUSTICE KENNEDY: How is your client hurt by that?

PAUL R HOEBER: --My client is here as... as a Private Attorney General under the California provisions authorizing--

JUSTICE KENNEDY: So he's... so he's not hurt by it--

PAUL R HOEBER: --So he is not hurt by it.

He has, as I said, no Article III standing.

He... he is not hurt by it.

He is a Private Attorney General, and on the Private Attorney General point, I will... I will say this, on... we said in our brief that it was not raised.

JUSTICE KENNEDY: --If he's not hurt by that, how is anybody in California hurt by that?

PAUL R HOEBER: Everybody in California will be hurt by it, or is hurt by it in exactly the same way that, under this complaint as it would be if it had been brought by the California Attorney General or by the Federal Trade Commission.

The California statute, apart from the Private Attorney General provision, which is admittedly unusual, maybe unique, but apart from the Private Attorney General provision, the California statute is essentially the same as the Federal Trade Commission Act.

Section 5 of the Federal Trade Commission Act and the California statute have the same standard of liability, which is likely to mislead, or likely to deceive.

The Solicitor General's brief sets out the... the standards on the Federal section 5.

They're essentially the same, a claim that is likely to mislead people, that's material, and so under section 5 under the California statute it is not required that... that the plaintiff come in and prove actual deception, actual injury, actual harm, so it's... it's precisely the same under either scheme.

JUSTICE STEVENS: May I... may I interrupt to go back to your article, your final judgment argument for just a moment with respect to this?

Supposing that we should hold that in a case like this, where you don't have Article III standing, that the case may not go forward unless the plaintiff can meet the New York Times standard, prove actual malice and gross negligence and all the rest, but it could theoretically go forward if those allegations were made.

My question is, is it your understanding, as a matter of California law and as a matter of the history of this case, that you would have the right to... to file an amendment to your complaint making those allegations?

PAUL R HOEBER: Absolutely.

Absolutely.

JUSTICE STEVENS: Well, then, if that's true, is it clear the case is not final, the judgment of law is not final?

PAUL R HOEBER: Well, on the... on the same grounds I said before, we... if the court were to add an--

JUSTICE STEVENS: It would be only if we were to hold that no matter what you allege, New York Times or anything else, these statements are constitutionally immune from criticism in a proceeding of this kind.

Only in that case would the case really be final, if we held that.

PAUL R HOEBER: --Well, the case would certainly be final if the Court held that.

JUSTICE STEVENS: Yes.

PAUL R HOEBER: We would not be able to amend the case.

JUSTICE STEVENS: Yes.

PAUL R HOEBER: It would be over.

On the Private Attorney General, because it is an unusual provision, I will only say this on... on the question whether it was raised below.

That's an easy... we said in our brief it was not raised below.

That is an easy matter to settle.

Nike filed the brief.

They filed the brief in the California Supreme Court.

It's their--

CHIEF JUSTICE REHNQUIST: Well, what... what if it weren't raised below.

I mean, if a basic First Amendment challenge to the statute is raised below, I mean, if you lose in the Supreme Court of California you're certainly not just going to repeat exactly the same arguments.

You're going to think up some new ones.

PAUL R HOEBER: --Well--

[Laughter]

I will only say as a matter of fact it was not raised below.

The California Supreme Court did not address it.

It's not even in the cert petition.

You can look at pages 8, 9, and 19 to 23, and they've got a different argument.

It's not there.

That's the fact.

The upshot of not raising it below, I'm assuming the Court doesn't address arguments that were not raised below.

CHIEF JUSTICE REHNQUIST: Well, the Escondido case says there's some latitude there.

PAUL R HOEBER: And I... and I... I'm aware there's latitude, and there's... there's latitude as to what's an argument and what's a claim, but this is a very specific argument that the Private Attorney General provision is unconstitutional.

JUSTICE SOUTER: Is it... is it correct that in the court below they did raise the point that, in fact, there was no harm here, and one of the defects of the procedure was that no one, either suing, or no one of the class on behalf of whom suit was brought had or was alleged to have had suffered any injury?

That was in their argument, wasn't it?

PAUL R HOEBER: Not that I recall.

I don't recall that argument.

The--

JUSTICE SOUTER: If it was, would that be enough?

PAUL R HOEBER: --Well, it... it certainly would not raise in my mind an attack on the Private Attorney General provision, but I mean, the Private Attorney General provision is a well-known and well... and well-understood provision that stands out, and to... to attack it, I think you have to mention it.

JUSTICE SOUTER: Well, I mean, if... the... the argument is not merely that there is something magically wrong with a Private Attorney General.

The argument is that what's wrong with a Private Attorney General is that without public accountability, the Attorney General can sue without, in effect, showing any harm, so whether you use the term or not, that's the guts of the argument, and if they raise the guts below, isn't that enough to... to get them into court?

PAUL R HOEBER: If they raised the guts below, it would be enough.

JUSTICE SOUTER: Yes.

PAUL R HOEBER: I... I guess I would say they didn't raise the guts below.

JUSTICE SOUTER: Okay.

PAUL R HOEBER: But if they did, yes, I--

JUSTICE GINSBURG: I would think out in California if a litigant is challenging a statute as unconstitutional in every instance, that you cannot have such an institution of a Private Attorney General, doesn't the Attorney General weigh in on those cases?

PAUL R HOEBER: --Yes.

The Attorney... the Attorney General in California under this statute, and it's not just for the Private Attorney General, but under the... the false advertising and... and unfair competition statute, any time a... a case gets on appeal the Attorney General gets served with the briefs, so when we appealed in the first instance we served the Attorney General with our briefs, and we... in the court of appeal and again in the California Supreme Court, and the Attorney General came in and filed an amicus brief in the California Supreme Court on our behalf, which of course only related to the merits, the commercial speech issue, which was the issue we were litigating.

JUSTICE GINSBURG: Not on the issue of whether you could have--

PAUL R HOEBER: No.

JUSTICE GINSBURG: --this kind of animal.

PAUL R HOEBER: No.

No.

No.

I want to draw the Court's attention to... to footnote 3 in the reply brief.

I think this may clarify some matters, and... and in particular the phrase in... in footnote 3 that says, public agencies.

Unidentified Justice: What page is that on?

PAUL R HOEBER: I'm sorry, it's page 3, footnote 3, and the reference to public agencies.

The argument that... that the Private Attorney General provision is unconstitutional because we don't have any injury, and allege no injury, and it's... and it's unconstitutional, the result of that argument is that respondent is an improper plaintiff, is just... doesn't... doesn't meet constitutional requirements as an improper plaintiff.

If the Court were to hold that, then there are no further issues for this Court, and that is why I direct... I focus on footnote 3, because in footnote 3, as I... as I read it, Nike is saying that even if the Court holds that the Private Attorney General provision is unconstitutional because the plaintiff has no injury, nevertheless the Court should go on because there will be future lawsuits filed by public agencies, and the Court should go on to impose a scienter requirement of deliberate or reckless falsehood.

And I want to say that those public agencies, which is another word for law enforcement, which would be California Attorney General, the district attorneys, and not only California, other States and the FTC, they are not before the Court.

Those parties are not before the Court.

I don't think we can represent those parties.

If... if respondent is an improper plaintiff, there aren't any further issues, and we can't--

JUSTICE KENNEDY: Can I--

--Well, you try to have it both ways.

You say, well I'm here because I'm a Private Attorney General, but I... I can't really try this case as well as an Attorney General could.

PAUL R HOEBER: --Well, no... no--

JUSTICE KENNEDY: That seems to me quite inconsistent.

PAUL R HOEBER: --Well, I don't want to say that, Your Honor.

I want to say that... that if we turn to the merits of this case and... and get away from the Private Attorney General, if the Private Attorney General is constitutional, then respondent is in the same shoes as the Federal Trade Commission or the California Attorney General, and that as far as the merits, go there is no difference.

I said earlier that the California statute, statutory scheme is the same as section 5.

JUSTICE BREYER: Well, I accept that.

I want to get you just back once more if I can, and you may have nothing to add, but I... suppose we have to get to what I find in this case personally the hardest question, I think that the Federal Trade Commission certainly has the right to regulate unfair, deceptive advertising, particularly on matters of... of, that you're trying to sell the product, including those having to do with, say, the environment.

I also think that the First Amendment is designed to protect all participants in a public debate, and public debates, contrary, in my mind, to what you said before, are made up of factual statements, primarily, so once you tie a party's hands behind his back in respect to facts, you've silenced him.

Now, if all parties should participate equally under the First Amendment, and also you should be able to have regulation by the FTC of deceptive advertising, how do I draw that line?

PAUL R HOEBER: Well, in this case, the reason I say... and I'm not trying to carve out facts as different from, necessarily different from anything else.

The facts here were representations about the conditions under which the product was made.

JUSTICE BREYER: I know, and I think--

PAUL R HOEBER: All right.

Now, those--

JUSTICE BREYER: --Now, but that's not going to help me.

PAUL R HOEBER: --I'm sorry.

JUSTICE BREYER: What I'm really looking for is help in writing a hypothetical opinion.

I have to write a standard, or a rule, or a statement, and I know that 30 briefs here, which are excellent, have tried to get at that, but I'm still in my mind uncertain about, say, your view or the others on what that sentence should say, trying to distinguish the ones from the others.

PAUL R HOEBER: Well, this case, and I... and I'll start with a focus here, the... the debate in this case that's in the complaint, and the only debate that's in the complaint, is the debate over what, in fact, was going on in the shoe factories, what in fact, were the conditions.

That was the debate.

Now, that debate is not the same as a public debate about a larger public issue.

It is a debate about this company's actual practices.

CHIEF JUSTICE REHNQUIST: But is... is it different for First Amendment purposes?

PAUL R HOEBER: Well, I think... I think it has to be, Your Honor, because the... the company is making representations to consumers about its own practices for the purpose of convincing those consumers that they should buy the company's products, so it is commercial speech in that sense.

CHIEF JUSTICE REHNQUIST: Whereas if it--

PAUL R HOEBER: It is not... it is not a--

CHIEF JUSTICE REHNQUIST: --Whereas if it were about globalization and what is happening in these countries it would be different for First Amendment purposes?

PAUL R HOEBER: --Yes.

It would not be about the company's... this... these statements are about the company's products, the conditions under which the products are made.

JUSTICE SCALIA: What difference would that make?

I... I really haven't been clear on what difference it makes whether it's commercial or noncommercial.

So long as it's false, and so long as it misleads somebody--

PAUL R HOEBER: Well, the Court has said that if it is--

JUSTICE SCALIA: --Yes.

PAUL R HOEBER: --that if it is commercial speech and it's false or misleading, it's not protected by the First Amendment.

I... I--

JUSTICE SCALIA: Yes.

PAUL R HOEBER: --It's also true that false factual statements have no constitutional--

JUSTICE SCALIA: No, but I mean, even if it's not commercial speech, if somebody misleads me, to my detriment, with a false statement, I wouldn't have a cause of action?

PAUL R HOEBER: --Yes, you would have a cause of action.

You would certainly have a cause of action, and... and if I sold you a watch and told you it was made in the United States and you relied on that and bought it from me and I lied, or... or even if I innocently told you that, you could rescind the transaction.

JUSTICE SCALIA: Is... is the only way I can rely to my detriment is if... if it is commercial speech?

I mean, it seems to me if I rely on a... on a statement that... that the person expects me to rely on, and I do so, and it harms me, I have a cause of action.

I... does it really matter--

PAUL R HOEBER: I... I--

Unidentified Justice: --whether it's commercial or noncommercial speech?

PAUL R HOEBER: --I suspect it does not, for a... for a cause of action alleging reliance to my detriment and--

JUSTICE STEVENS: Can you think of any case that this Court has decided in which the outcome has depended on whether or not the speech was commercial, other than the case the California Supreme Court decided?

PAUL R HOEBER: --There... there is a paucity of authority from this Court that was--

JUSTICE STEVENS: I wonder if there's any at all.

[Laughter]

PAUL R HOEBER: --directly on point.

JUSTICE STEVENS: Yes.

PAUL R HOEBER: No.

The case that... that was most important, and this maybe gets back to Justice Breyer's point, for our purposes would be the Egg Commission case... the Egg Commission case, the National Commission on Egg Nutrition, because there was a product and there were attacks on the product saying it caused... that the cholesterol was bad, and this is 25 years ago, and it was new, and... and the Federal Trade... and the egg industry fought back and said no, eggs... eggs are helpful in nutrition, and... and they don't harm, so that was a case where you had a dispute, or a debate about the product.

JUSTICE BREYER: Yes, but where I am really is, I... I think it's possible to look at the commercial speech cases as creating a doctrine with an exception, and it's the unfair advertising that falls outside the doctrine, so all we know is, we're back to square 1 as far as the commercial speech doctrine is concerned, so let's face it as if there were no such doctrine and try to figure out how under the First Amendment we get proper standards.

PAUL R HOEBER: Well--

JUSTICE BREYER: And that... and that's what I'm trying to figure out.

PAUL R HOEBER: --Well, I... yes.

If... if the Court wants to do that in this case, on this record--

JUSTICE BREYER: I mean, I don't know if we want to do it or not do it.

I'm trying to figure out what... how to go about it if I ended up thinking we should go about it.

[Laughter]

PAUL R HOEBER: --Then... then my suggestion is that this case alleges specific representations about a... a company's products, namely the conditions under which they were made.

Consumers rely on those representations.

The Solicitor General agrees with that.

They rely on those representations, and they rely on them in making decisions as to whether or not to buy the company's products.

When companies make representations about their products with the purpose of consumers relying on those representations, and consumers do rely on those representations, it violates section 5 of the Federal Trade Commission Act, it violates the California statute, and it ought to be subject to regulation.

CHIEF JUSTICE REHNQUIST: Well, just becomes something violates... you're suggesting that if it... if it's contrary to section 5 of the Federal Trade Commission Act, surely it must be constitutional, but I'm not sure... I don't know that we've ever said that everything in the Federal Trade Commission Act is constitutional.

PAUL R HOEBER: No, I'm sure the Court has not said that, and I... and I'm... and I--

JUSTICE SCALIA: Let's--

--Go on.

Let's assume a... a law that... that... I... I guess that... that there were, that... that requires advertising on radio or television to be supported, that you... you cannot make the claim unless the claim is supported, all right, and the burden is on you to have the support before you can even make it, and it's a violation, even... even if it happens to be true, if... if you have not done the studies that show that this little pill does this thing or... or another, you cannot make the statement.

Now, I suppose we would allow that in... in advertising, wouldn't we?

But would we allow such a... such a precondition to... to speech in... in a noncommercial area?

PAUL R HOEBER: --I'm sure... I suspect not.

JUSTICE SCALIA: So there is a difference between what we're willing to do with commercial speech and noncommercial speech, but why... why wouldn't we limit it, limit the term commercial speech in that context to advertising, to really... and... and some of our cases speak that way.

It has to be the context of the offering of a... of a transaction, the offering of a deal.

So that if you have some general, you know, advertising on television, we're a... we're a... an environmentally concerned company, it doesn't fall within commercial speech.

It's only if it's in connection... you know, on the... on the label it says, buy this because, or you know, it's a pitch to sell the product.

Isn't that a line that it's feasible to draw, and why isn't that a sensible line?

PAUL R HOEBER: Well, it may be feasible to draw.

I... I imagine it would be difficult to draw, and I think that's why the Federal Trade Commission says advertising, product labels, other promotions and marketing material, because it in many instances is not easy to draw--

JUSTICE O'CONNOR: Well, the California Supreme Court defined commercial speech as speech when a person is engaged in commerce.

Just generally, is that their basis?

PAUL R HOEBER: --Oh, I think the California Supreme Court was trying to spell out what it... what it--

JUSTICE O'CONNOR: Do you defend the California Supreme Court's--

PAUL R HOEBER: --Well--

JUSTICE O'CONNOR: --definition?

PAUL R HOEBER: --We don't need to go as far as the California Supreme Court may have gone, in particular with its definition of product references, because I think the California Supreme Court was concerned about so-called image advertising and the possible ways companies promote themselves apart from this particular product.

JUSTICE O'CONNOR: Well, if it... if this case... if we reach the merits, and if we have to address it, we're going to have to know what commercial speech is, I suppose.

PAUL R HOEBER: Yes.

JUSTICE O'CONNOR: And we're going to have to look at California's definition.

PAUL R HOEBER: Yes.

JUSTICE O'CONNOR: And I just wondered if you supported that.

PAUL R HOEBER: Well, we support it, but we don't have to go as far, because in this... because we have representations about the product, the... the circumstances under which the product was made.

We certainly agree that--

JUSTICE O'CONNOR: None of this speech was advertising in the true sense of that term, was it?

PAUL R HOEBER: --Well, if the true sense means advertising format, no, these were not in advertising format, but for example, the... the... one of the exhibits is the... is a primer, a 30-page primer, which looks for all the world like the kind of promotional brochures and marketing material that's handed out by lots of companies.

Now, it's not an advertisement on television, and... and that line may be feasible to draw, or it may... may have fuzzy edges, but it's going to leave out a lot of promotions and a lot of communications that consumers rely on.

JUSTICE SCALIA: Yes.

It's not a perfect world.

PAUL R HOEBER: No.

No.

[Laughter]

JUSTICE BREYER: But it's worse... it's worse, actually, because I think your case, the truth of the matter is, I think it's both.

You know, it's both.

They're both trying to sell their product and they're trying to make a statement that's relevant to a public debate.

PAUL R HOEBER: Maybe the--

JUSTICE BREYER: And so what do we do if we're drawing this standard, and there's a wide range of things that quite honestly fall into both?

PAUL R HOEBER: --Well, my... my position is that it's... consumer protection is--

JUSTICE BREYER: Trumps the First Amendment?

PAUL R HOEBER: --Not that it trumps the First Amendment--

JUSTICE BREYER: Yes.

PAUL R HOEBER: --but... but the hypothetical is, it's both.

JUSTICE BREYER: Yes, that's right.

PAUL R HOEBER: And... and if it were just the... if it was... if it was... companies... the Court has said that companies have the right, or speakers have the right to comment directly on public issues, and... and if you comment directly on a public issue and discuss the public issue, you are certainly protected.

JUSTICE KENNEDY: If it's very difficult to define commercial speech, then isn't it true that under this scheme companies are chilled in speaking?

PAUL R HOEBER: Well, they... they may be chilled in speaking if... because of the difficulty in defining commercial speech, and that presumably will chill false statements as well, since the... the statute and the regulation only applies to false and misleading speech, and... and I think that to the extent the... the definition is... is unclear, it may... I don't know that for a fact, but it's... it's plausible.

JUSTICE KENNEDY: Are... are there cases where we've upheld statutes that are chilling of speech?

PAUL R HOEBER: Oh yes.

Yes, there are.

JUSTICE KENNEDY: What are they?

Unidentified Justice: [Laughter]

PAUL R HOEBER: Well--

JUSTICE SCALIA: We haven't said that they're chilling of speech.

[Laughter]

PAUL R HOEBER: --I think you caught me there, Your Honor.

On... back to... to Justice Breyer's question.

I don't think anybody would say defining commercial speech is easy, but in this case, where we allege that... where the complaint alleges that the company made factual representations about its... the circumstances under which its products are made, with the purpose of persuading consumers to buy the product, and we know that consumers want that information and rely on that information, that should fit within any reasonable definition of commercial speech.

If--

JUSTICE GINSBURG: Are you saying that you can't distinguish what you are targeting from, say, a label that says, made by disabled veterans, when it wasn't?

You... you put them in the same category?

PAUL R HOEBER: --I put that in the commercial speech category.

CHIEF JUSTICE REHNQUIST: Thank you, Mr. Hoeber.

PAUL R HOEBER: Thank you, Your Honor.

CHIEF JUSTICE REHNQUIST: Mr. Tribe, you have 3 minutes remaining.

REBUTTAL ARGUMENT OF LAURENCE H. TRIBE ON BEHALF OF THE PETITIONERS

LAURENCE H TRIBE: Thank you, Mr. Chief Justice.

Let me just deal with a couple of technical things first.

The Attorney General of California was notified below.

He filed a brief.

It's not required in California that all of the arguments be rehearsed before him, and most importantly the California Supreme Court passed on the fundamental claim that this scheme, applied to public debate, violates the First Amendment, and under Yee v. Escondido in any event we can make a different argument.

But if you look at the brief below, the most telling part of it, I think... and it gets to the pivot of this case... this is at pages 30 to 31 of the California Supreme Court brief.

It there recites that if the shoe, as it were, were on the other foot, under California law this case would go away in an instant.

The case decided unanimously by the Supreme Court of California in 1984 is Epic v. Superior Court.

In that case there was an ideological boycott of companies that were doing business with the plaintiff.

The plaintiff was not thought to be environmentally friendly enough.

The plaintiff sued for trade libel, they wanted damages, they wanted an injunction, they said it was interference with contract.

The trial court was about to hold the trial and the Supreme Court of California, citing Article 1, section 2 of its constitution, said, hey, public debate, there are interests on both sides, but the courts of California can't resolve it.

It seems to me that what we have here, and this goes to the question of the Private Attorney General action, is that if there is a debate between interests of labor and interests of management, the California Supreme Court has transmogrified this old statute, which was pretty strange to begin with but had never been used to stifle and silence the public debate, it's transformed it into a conversation-stopper, and the power to do that is, I think, extraordinary.

They say, maybe there will be a chill.

If you look at the media brief, the media are now saying that businesses around the world are already afraid to communicate with us because California may get them, and the European brief, filed by a consortium that controls about [dollar] 2 trillion of investment, says that the efforts of the European Union to encourage transparency are being frustrated by California saying that if you come out and answer these charges, as they did in the letter to the athletic directors, you can be trapped, because you're a business, so you're trying to make money, so it's commercial speech.

CHIEF JUSTICE REHNQUIST: Thank you, Mr. Tribe.

The case is submitted.

LAURENCE H TRIBE: Thank you, Mr. Chief Justice.

(Whereupon, at 12:21 p.m., the case in the above-entitled matter was submitted.)