Federal appeals court reinstates commodity publisher’s First Amendment lawsuit

Thursday, July 23, 1998

A commodity investment publisher's First Amendment challenge of a federal law requiring anyone who advises or talks about products traded on an exchange to register as a commodity trading adviser can continue, a federal appeals court has ruled.


Commodity Trend Service, Inc. produces an array of newsletters and other publications containing general commodity advice aimed at the general public.


In the mid-1990s the Commodity Futures Trading Commission announced it would begin to more strictly enforce its registration requirements for commodity advisers. The government agency then investigated whether it should apply registration requirements to financial publishers — such as CTS — that do not offer specialized advice.


In July 1996, the agency began investigating CTS to see whether it should be required to register as an adviser. In the course of its probe, the commission subpoenaed thousands of CTS documents and took testimony from various CTS employees.


CTS filed a federal lawsuit, contending that its First Amendment rights have been violated by the investigation and by the registration law itself. For example, the company says it has had to suspend direct-mail advertising, stop new publications and change the scope of its commentary on commodities.


CTS contends that its general advice and commentary on commodity trading are protected expression under the First Amendment and that the registration requirement on its face violates its free-speech rights.


However, a federal district court judge dismissed the case last summer, without deciding the First Amendment arguments. The judge determined the claim was unripe because the government had not prosecuted CTS for failing to register.


The 7th U.S. Circuit Court of Appeals reversed that decision last week in Commodity Trend Service, Inc. v. Commodity Futures Trading Commission. The appeals court determined that CTS has adequately shown that it faced a “credible threat of prosecution.”


The district court had also ruled that CTS could not challenge the registration law on its face because CTS' speech was “commercial speech.” Under current First Amendment jurisprudence, commercial speech is entitled to less protection than noncommercial speech, such as political, artistic or scientific speech.


However, the appeals court determined that CTS' speech was not commercial speech. The appeals court wrote: “A long line of Supreme Court cases, however, confirms that speech does not become 'commercial' simply because it concerns economic subjects or is sold for a profit.”


The district court had ruled that CTS publications constituted commercial speech because many were advertisements or contained advertisements.


The appeals court squarely rejected that argument, noting that “a speaker's publication does not lose its status as protected speech simply because the speaker advertises the publication. … If the result were otherwise, then even an editorial in The New York Times would constitute commercial speech because the newspaper seeks subscribers through advertisements.”


Bill Nissen, the attorney for CTS, applauded the appeals court's decision to send the case back to the district court to determine the First Amendment claims.


“This law is an unconstitutional prior restraint,” he said. “It requires a publisher to obtain a government license before publishing.”


Scott Bullock, an attorney with the Institute for Justice who has filed a separate challenge to the commission's registration requirement in a D.C. federal court, agreed that the decision was well-reasoned.


“Basically the thrust of the decision was that the appeals court told the government agency: 'quit throwing up phony procedural arguments and defend the constitutionality of your program,'” he said.


Bullock said that the commission's registration requirements threaten free speech because “licensing is one of the severest restrictions you can have on free speech.”


“You cannot license speech under the First Amendment. This law is a classic example of regulatory overkill,” he said.


A call placed to the attorney who argued the case for the commission was not returned.