Client Bulletin: U.S. Supreme Court Takes Two First Amendment Cases with Potential Implications for Clients

By: Ayesha N. Khan, Partner in Litigation and Appellate & Critical Motions Practice Groups.

Last week, the United States Supreme Court accepted two First Amendment cases that may have implications for some of the firm’s clients.                                                                                                                                                                                                                                                                                                                           Lee v. Tam

This case involves an Asian American rock band’s attempt to trademark the name “The Slants.” Concluding that Asian Americans would take offense to the name, the U.S. Patent and Trademark Office (PTO) rejected the application pursuant to a provision in the 1946 Lanham Trademark Act that prohibits registration of a trademark that “may disparage . . . persons.” The band’s lead performer — Simon Shiao Tam — challenged the rejection under the Free Speech Clause of the First Amendment to the U.S. Constitution, which provides that “Congress shall make no law . . . abridging the freedom of speech.”

Tam’s position is that the band’s name is not designed to disparage, but to reclaim a slur and to transform it into “a badge of pride.” He argues that, even if the term were disparaging, it is a bedrock principle of the First Amendment that the government; cannot impose burdens on speech to spare listeners from offense. The PTO’s position, in contrast, is that trademark protection is a privilege, not a right — and that Congress legitimately concluded that the federal government’s resources should not be used to authorize trademarks for racist, misogynist, or bigoted terms and imagery.

The PTO won before the trial court and, thereafter, before a panel of the U.S. Court of Appeals for the Federal Circuit. But the full Federal Circuit reversed. It agreed that the band’s name could offend, but it held that the First Amendment nonetheless demands that the band be given the mark because the non-disparagement provision discriminates on the basis of viewpoint and content: laudatory trademarks are allowed, but disparaging ones are not.

Tam did not oppose the PTO’s request that the Supreme Court take the case, and it thus came as little surprise when the Supreme Court granted review.

Expressions Hair Design v. Schneiderman

The second case involves less straightforward facts but could have a big impact on the Court’s commercial-speech doctrine. The case is a challenge to a New York law that bars retailers from imposing a “surcharge” on customers who pay with credit cards. While merchants pay a “swipe fee” for every credit-card purchase — a fee that they typically pass along to customers in the form of higher prices — retailers may not alert customers to this fact. In effect, retailers may offer a “cash discount,” but they may not tell customers that there is an extra charge when a customer pays by credit card.

Six of one, half dozen of another? Not to credit-card companies, which lobbied heavily for the law because scientific research demonstrates that the way in which the price difference is communicated has a powerful impact on consumer behavior: shoppers perceive a surcharge as more undesirable than they perceive a discount as beneficial. The law, therefore, increases consumers’ reliance on credit cards.

A group of retailers challenged the New York law, arguing that it targets how discounts/surcharges can be described to customers, which amounts to quintessential speech activity. The credit-card companies, in contrast, contend that the statute regulates conduct, not speech. They point out that price-control regulations have never been thought to implicate the First Amendment even though all prices are necessarily communicated through words or signs.

The U.S. Court of Appeals for the Second Circuit agreed with the credit-card companies. Shortly thereafter, however, the Eleventh Circuit reached the opposite conclusion, holding that Florida’s virtually identical law “targets expression alone.” The retailers in the Second Circuit case asked the U.S. Supreme Court to review the case. They were supported by several large retailers — such as CVS and Walgreens — and a group of behavioral economists, with both groups submitting amicus curiae briefs in support of certiorari. The square circuit split rendered conditions ripe for Supreme Court review.

What Clients Can Do

The outcome in Lee v. Tam will either embolden PTO examiners by granting them enhanced leeway to reject trademark applications, or it will require examiners to assume a hands-off approach to the content of requested marks. Clients — or trade associations in which clients participate — wishing to retain flexibility to trademark the names they wish, without being subjected to competing statutory interpretations by the PTO, may be interested in joining or submitting an amicus curiae brief arguing for a robust interpretation of the First Amendment in the trademark context.

Clients may likewise have a stake in Expressions Hair Design v. Schneiderman. Ten states — California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas — as well as Puerto Rico have laws controlling how merchants may describe a surcharge-based price difference to consumers. Efforts to pass similar statutes in other states would surely gather steam if the Supreme Court were to uphold New York’s law.

America’s merchants pay nearly $40 billion in swipe fees each year. Many of them operate on razor-thin margins and have little choice but to pass those charges on to consumers in the form of higher prices. Not only do cash-paying customers, who are disproportionately lower-income, end up subsidizing the credit transactions, but the regime leaves retailers open to accusations of price-gouging and over-reaching. For this reason, CVS, Walgreen, Albertsons and several other large retailers joined in the request that the Supreme Court take the Expressions case. Now that the Supreme Court has accepted their invitation, our clients (or the trade associations of which they are members) may likewise wish to protect their flexibility to communicate with customers about credit-card surcharges as they see fit.

For further information, or to explore the possibility of joining or submitting an amicus curiae brief to protect your interests in either case, please contact Ayesha N. Khan at akhan@potomaclaw.com or 202.836.7136.

Note: This Bulletin is not intended as legal advice. Readers should seek professional legal counseling before acting on the information it contains.