Amicus Brief — Central Hudson Gas & Electric Corp. v. Public Service Commission

Supreme Court of the United States

October Term, 1979.

No. 79-565.

CENTRAL HUDSON GAS & ELECTRIC CORPORATION,

Appellant,

v.

PUBLIC SERVICE COMMISSION OF THE

STATE OF NEW YORK,

Appellee.

On Appeal From the Court of Appeals of the

State of New York.

BRIEF OF MOBIL CORPORATION

AS AMICUS CURIAE.

Epwin P. RoME,

Wrtu1AM H. Roserts,

1100 Four Penn Center Plaza,

Philadelphia, Pennsylvania. 19103

Attorneys for Mobil Corporation

as Amicus Curiae.

Of Counsel: |

BLANK, RomME, Comisky & MCCAULEY,

1100 Four Penn Center Plaza,

Philadelphia, Pennsylvania. 19103

F. W. D. SCHAEFER,

Mobil Corporation,

150 East 42nd Street,

New York, New York. 10017

International Printing Co., 711 So. 50th St., Phila., Pa. 19143 — Tel. (215) 727-8711

|

|

J

eo ek Sects Scheel veae ie ncak Nie eee tawe

I. The Public Service Commission Order is an Imper-

missible Prior Restraint Upon the Dissemination of

Constitutionally Protected Expression.............

A. Promotional Advertising Is Protected by the First

SE hs ba wkcks bacieaa haces cawavesss.

B. The Public Service Commission’s Order Operates

as an Impermissible Prior Restraint ............

II. No Compelling State Interest Justifies a Total Ban

on Promotional Advertising by Electric Utilities ...

Be ng dn ree ete et

TABLE OF AUTHORITIES.

Cases: Page

Bates v. State Bar of Arizona, 433 U. S. 350 (1977) . .6, 10, 11, 16, 23

Bigelow v. Virginia, 421 U. S. 809 (1975) ............ 6, 7, 11, 23

Buckley v. Valeo, 424 U.S. 1 (1976) ...............ceee 6

Carroll v. Princess Anne, 393 U. S. 175 (1968) ............ 15

City of Lafayette v. Louisiana Power & Light Co., 435 U. S.

| RR ee Pe ee Sr een Ny Renee aL ALS S 12

Grosjean v. American Press Co., 297 U. S. 233 (1936) ...... 15

Linmark Associates, Inc. v. Township of Willingboro, 431

is Wee COORD - 055s ki che bans count cena 6, 10, 11, 16

Near v. Minnesota ex rel. Olson, 283 U. S. 713 ............. 15, 16

Nebraska Press Assn. v. Stuart, 427 U. S. 559 (1976) ....15, 16,18

New York Times Co. v. Sullivan, 376 U. S. 254 (1964) ..... 6, 18

New York Times Co. v. United States, 403 U. S. 713 (1971) 18

Northern Pacific Railroad Company v. United States, 356 U. S.

E LEED 65. dkectpsiwin ponds) mae eeeeeiasens 8

Ohralik v. Ohio State Bar Assn., 436 U. S. 447 (1978) ...... 21, 23

Patterson v. Colorado ex rel. Attorney General, 205 U. S. 454

RUUD on 05 60s p'00.0.0b 45 ne amare uaremeen Ta as 15

Pittsburgh Press Co. v. Human Relations Commission, 413

ee OO LONE. ide sins ysc0isinsane peu aleds 6

Southeastern Promotions, Ltd. v. Conrad, 420 U. S. 546

CREE 35 svg win dein hace Wine pansdeiee penieebeee 15

Thornhill v. Alabama, 310 U. S. 88 (1940) ................ 7

Virginia State Board of Pharmacy v. Virginia Consumer

Council, 425 U. S. 748 (1976) ............. 6, 7, 10, 16, 17, 23

West Ohio Gas Company v. Public Utilities Commission of

Clin, GRO UW. & Ge COD oie. vinc kn icc vzcuencs .. 4, 12, 13, 19

Statutes, Regulations and Executive Orders:

Economic Stabilization Act of 1970, as amended, 15 U. S. C.

DE oe ccias.s aide 2

Natural Gas Policy Act, 15 U. S. C. §§ 3301-3432 .......... 2

Emergency Petroleum Allocation Act of 1973, 15 U. S. C.

ee ES nl ee pes SS 2

i. OS CUD oi in hee eee 2

TABLE OF AUTHORITIES (Continued).

Statutes, Regulations and Executive Orders (Continued):

Page

BS Gi, OH, Be, Pe BER, PE Bn sc ace vereietves evenses 2

Act Establishing the Council of Wage and Price Stability,

PE ME ding aie'e biyit-iw teh NN At RAT RION Sbe 2

Executive Order 12092, November 1, 1978, as amended by

Executive Order 12161, October 2, 1979 .............. 2

Constitution:

First Amendment ............ atwettaus keheaasre wha 1 et seq.

Other:

Areeda, Antitrust Analysis (2d ed. 1974) ............+.45. 10

Holeman, “Mandatory Time of Day Rates: The Arkansas

Power & Light Company Experiment,” in Assessing New

Pricing Concepts in Public Utilities, Proceedings of the

Institute of Public Utilities, Ninth Annual Conference,

1978 MSU Public Utilities Papers 430 (1978) ......... 24

Kennedy, “Peak Load Pricing and Industrial Consumers’ Re-

sponse”, in Assessing New Pricing Concepts in Public

Utilities, Proceedings of the Institute of Public Utilities,

Ninth Annual Conference, 1978 MSU Public Utilities

Papers S00 (1978) on. vec ceccicccccccccccccccevececs 24

Landon and Wilson, “An Economic Analysis of Combination

Utilities”, 17 Antitrust Bulletin 237, 257-260 (1972) .... 14

Malko and Simpson, “Time of Use Pricing in Practice: Some

Recent Regulatory Actions”, in Assessing New Pricing

Concepts in Public Utilities, Proceedings of the Institute

of Public Utilities, Ninth Annual Conference, 1978 MSU

Public Utilities Papers 399 (1978) ...........eeeeeee 24

Pace, “Relevant Markets and the -Nature of Competition in

the Electrical Utility Industry”, 16 Antitrust Bulletin 725

1 IR Ese Mere ree ere ere tee ee tre Pee 14

Rawls, J., A Theory of Justice (1971) .............cceeee 9

Shenefield, “Antitrust Policy Within the Electric Utility In-

dustry”, 16 Antitrust Bulletin 681 (1971) ............. 14

IN THE

Supreme Court of the United States

Ocroper TERM, 1979.

No. 79-565.

CENTRAL HUDSON GAS & ELECTRIC

CORPORATION,

Appellant,

v.

PUBLIC SERVICE COMMISSION OF THE

STATE OF NEW YORK,

Appellee.

On APPEAL FROM THE CouRT OF APPEALS OF THE

STATE OF NEw YORK.

BRIEF OF MOBIL CORPORATION

AS AMICUS CURIAE.

Mobil Corporation (“Mobil”) respectfully submits

this brief amicus curiae’ urging the Court to reverse the

decision of the Court of Appeals of the State of New York,

which sustained the Order of the Public Service Com-

mission of the State of New York prohibiting promotional

advertising by private, investor-owned electric utilities in

New York.

1. Pursuant to Rule 42(2), there have been lodged with the

Clerk the written consents of counsel for Central Hudson Gas &

Electric Corporation, appellant, and of counsel for the Public

Service Commission of the State of New York, appellee, to the filing

of this Brief Amicus Curiae.

2 Brief of Mobil Corporation as Amicus Curiae

THE INTEREST OF MOBIL CORPORATION.

This case concerns direct interference by the State

of New York with First Amendment-protected speech in

the form of promotional advertising by private investor-

owned utilities. The governmental ban on promotional

advertising involved in this case abridges not only the

right of expression but the right of prospective and existing

residential, commercial and industrial customers for elec-

tric service to a free flow of truthful information concern-

ing the availability, pricing and advantages of this service.

Mobil is a Delaware corporation which is principally

engaged in business in the United States and international

energy industries. Its wholly owned subsidiary, Mobil Oil

Corporation (“Mobil Oil”), conducts an integrated inter-

national energy business including the exploration, pro-

duction, transportation, refining and marketing of petro-

leum, petrochemicals, natural gas and products thereof.

The petroleum industry in the United States is currently

subject to extensive governmental regulation including

price and allocation controls on crude oil and certain

refinery products. In 1978, Congress enacted the Natural

Gas Policy Act, 15 U.S. C. §§ 3301-3432 and 42 U. S. C.

§ 7255, which placed price controls on intrastate sales of

natural gas that had theretofore been exempt from such

control. In addition, under the authority of the Emer-

gency Petroleum Allocation Act of 1973, 15 U. S. C.

§§ 751 et seq., and the Economic Stabilization Act of 1970,

as amended, 15 U. S. C. § 1026, the Department of Energy

and its predecessors have promulgated regulations which

place pricing restrictions on refiners of petroleum products,

12 C. F. R:, Part 212, Subpart E. Mobil is also subject to

regulations issued by the Wage and Price Council under

the Act Establishing the Council of Wage and Price

Stability, Pub. L. 93-37 and Executive Order 12092,

Brief of Mobil Corporation as Amicus Curiae 3

November 1, 1978, as amended by Executive Order 12161,

October 2, 1979. In addition, several states, including

New Mexico, Kansas and Texas,” treat operators of intra-

state pipelines for intrastate shipment of petroleum as

public utilities subject to state regulation.

Mobil has a continuing vital interest in preserving,

free from governmental interference and proscription, the

established right of a business enterprise to advertise and

to promote the sale of its products and to communicate on

issues vital to its business with its employees, shareholders,

annuitants, creditcardholders, suppliers and contractors.

The threat of complete prohibition of information adver-

tising (and particularly advertising addressed to issues)

by companies engaged in the energy business—illustrated

by the action of the Public Service Commission of New

York in this case—threatens vital interests of Mobil, as

well as the interests of employees, shareholders, annuitants,

creditcardholders, suppliers, contractors and consumers

to receive information concerning energy supplies and

services.

In the absence of a definitive ruling invalidating the

New York proscription of promotional advertising, federal

and state regulatory agencies which currently have less

restrictive policies may enact similar prohibitory regula-

tions which would disadvantage Mobil and would interfere

with the free flow of important commercial information to

customers and potential customers for energy in various

forms.

: 2. N. M. S. A. 70-3-1 et seq.; Texas Nat. Res. Code §§ 111.181,

111.183; Kan. Stat. § 55-501.

4 Brief of Mobil Corporation as Amicus Curiae

SUMMARY OF ARGUMENT.

I.

In West Ohio Gas Co. v. Public Utility Commission

of Ohio, 294 U. S. 63 (1935), the Court recognized the

necessity and propriety of public utility advertising and

in subsequent decisions has held that advertising by busi-

ness enterprises is within the ambit of the First Amend-

ment. There is no claim in this case that the Public Service

Commission’s Order is a mere “time, place and manner

restriction.” There is no claim that promotional adver-

tisements by electric utilities have been forbidden because

they are false or misleading in any way. There is no claim

that any transactions proposed in the prohibited advertise-

ments would themselves be illegal in any way. Under

these circumstances, the Public Service Commission’s

Order, a blanket pre-publication injunction against the

dissemination of truthful commercial information, is an

impermissible prior restraint upon First Amendment-

protected communication and is in irreconcilable conflict

with the First Amendment.

Il.

The Public Service Commission’s injunction against

dissemination of truthful information concerning the issues

surrounding alternatives to oil and coal as sources of

energy, including electric service, is not directly supported

by any compelling State interest sufficient to override the

_ interests of constitutional dimension which protect the

free flow of commercial information to consumers and

prospective consumers of electric energy.

Brief of Mobil Corporation as Amicus Curiae 5

ARGUMENT.

I. The Public Service Commission Order Is an Impermis-

sible Prior Restraint Upon the Dissemination of Con-

stitutionally Protected Expression.

This appeal is a challenge to the constitutionality of a

broad restraint imposed by a formal Order promulgated by

the Public Service Commission of New York upon the

communication of commercial information—promotiona!

advertising of electric service—admittedly protected by

the First Amendment. The formal Order in question is a

pre-publication restraint addressed to private, investor-

owned electric public utilities in New York and intended

to suppress such constitutionally-protected communication

solely because of its content and because of the predicted

effect of such communication on the public.

The challenged Order, in relevant part, provides (J. S.

App. 3la): ®

“All electric corporations are hereby prohibited from

promoting the use of eiectricity through the use of

advertising... .”

The case thus presents, among others, the novel aues-

tion whether the historic First Amendment piohibition

against “prior” or “previous restraints is applicable to

invalidate a pre-publication Order preventing the dissemi-

nation of truthful commercial information.

3. References to the “Appendix to Jurisdictional Statement” are

abbreviated “J. S. App.” herein. The Order also prohibited electric

corporations from promoting the use of electricity through the use

of subsidy payments not committed prior to the date of the Order

and through employee incentives. These aspects of the Order.

however, are not challenged in this appeal by appellant, Central

Hudson Gas & Electric Corporation.

6 Brief of Mobil Corporation as Amicus Curiae

For the reasons discussed below, it is respectfully

submitted that the Order is an impermissible prior restraint

and that the judgment of the Court of Appeals of the State

of New York upholding the Order should be reversed.

A. Promotional Advertising Is Protected by the First

Amendment.

While certain categories of speech such as “fighting

words,” limited types of obscenity, certain forms of libel

and incitement to illegal violence have been held unpro-

tected by the First Amendment, this Court’s decisions

squarely establish the propos that truthful advertis-

ing enjoys the protection of thé First Amendment. Bates

v. State Bar of Arizona, 433 U. S. 350 (1977); Linmark

Associates, Inc. v. Willingboro, 431 U. S. 85 (1977);

Virginia State Board of Pharmacy v. Virginia Consumer

Council, 425 U. S. 748 (1976); Bigelow v. Virginia, 421

U. S. 809 (1975); New York Times Co. v. Sullivan, 376

U. S. 254 (1964).

Speech does not lose its First Amendment protection

because money is spent to project it, as in a paid advertise-

ment; speech likewise is protected even though it is car-

ried in a form that is sold for profit and even though it

“may involve a solicitation to purchase or otherwise pay

or contribute money.” Virginia Board of Pharmacy v.

Virginia Consumer Council, 425 U. S. 748, 761 (1976);

Buckley v. Valeo, 424 U. S. 1, 35-39 (1976); Pittsburgh

Press Co. v. Human Relations Commission, 413 U. S. 376,

384 (1973); New York Times Co. v. Sullivan, 376 U. S.

254, 266 (1964).

The decisions of the Court further establish that a com-

mercial advertisement which is “noneditorial” and merely

reports a fact falls within the ambit of protection of the

First Amendment. Linmark Associates, Inc. v. Willing-

boro, 431 U. S. 85 (1977); Virginia Board of Pharmacy v.

Brief of Mobil Corporation as Amicus Curiae 7

Virginia Consumer Council, supra, 425 U. S. at 762; Bige-

low v. Virginia, supra, 421 U. S. at 822; Thornhill v. Ala-

bama, 310 U. S. 88, 102 (1940). Moreover, the circum-

stance that an advertiser's interest in the dissemination of

truthful, factual information to prospective and established

customers is a purely economic one “hardly disqualifies

him from protection under the First Amendment.” Vir-

ginia Board of Pharmacy v. Virginia Consumer Council,

supra, 425 U. S. at 762. The Court has relied on the strong

interests of consumers in receiving such information as a

basis justifying protection. The Court has noted that

“[a]s to the particular consumer’s interest in the free flow

of commercial information, that interest may be as keen, if

not keener by far, than his interest in the day’s most urgent

political debate” and that society has a “strong interest in

the free flow of commercial information.” 425 U. S. at

763-764. The Court in Virginia Board of Pharmacy based

this necessary corollary on nothing less than the require-

ments of a free market economy (425 U. S. at 765):

“Advertising ° ° ° is nonetheless dissemination of in-

formation as to who is producing and selling what

product, for what reason, and at what price. So long

as we preserve a predominantly free enterprise

economy, the allocation of our resources in large

measure will be made through numerous private eco-

nomic decisions. It is a matter of public interest that

those decisions, in the aggregate, be intelligent and

well-informed. To this end, the free flow of com-

mercial information is indispensable. ° ° ° And if it

is indispensable to the proper allocation of resources

in a free enterprise system, it is also indispensable to

the formation of intelligent opinions as to how that

system ought to be regulated or altered. Therefore,

even if the First Amendment were thought to be

8 Brief of Mobil Corporation as Amicus Curiae

primarily an instrument to enlighten public decision-

making in a democracy, we could not say that the

free flow ot information does not serve that goal.”

(Footnote omitted )

This fundamental conception of the nature of the

free market system and the conditions essential to its

proper operation find support, as well, in the economic

basis of the feder-:' antitrust laws. Those laws are de-

signed to protect the free market system from interference

to ensure the proper allocation of resources in accordance

with the aggregate desires of the people. In contrast, in

centrally-controlled economies this process is removed

from democratic control and performed by government

fiat. As the Court has said, however, the Sherman Act

was designed as a “comprehensive charter of economic

liberty aimed at preserving free and unfettered competi-

tion as the rule of trade,” and it “rests on the premise that

the unrestrained interaction of competitive forces will

yield the best allocation of our economic resources, the

lowest prices, the highest quality and the greatest material

progress, while at the same time providing an environ-

ment conducive to the preservation of our democratic

political and social institutions.” Northern Pacific Rail-

way Company v. United States, 356 U. S. 1, 4 (1958).

The economic liberty at stake is essential in a de-

mocracy based upon a free market economy. Information

is essential to that economic liberty:

“Under certain conditions competitive prices select

the goods to be produced and allocate resources to

their production in such a manner that there is no way

to improve upon either the choice of productive

methods by firms, or the distribution of goods that

arises from the purchases of households. There exists

Brief of Mobil Corporation as Amicus Curiae rs)

no rearrangement of the resulting economic configura-

tion that makes one household better off (in view of

its preferences) without making another worse off.

No further mutually advantageous trades are possible;

nor are there any feasible productive processes that

will yield more of some desired commodity without

requiring a cutback in another.’ For if this were not

so, the situation of some individuals could be made

more advantageous without a loss for anyone else.

The theory of general equilibrium explains how, given

the appropriate conditions, the information supplied

by prices leads economic agents to act in ways that

sum up to achieve this efficiency. Of course, the

requisite conditions are highly special ones and they

are seldom if ever fully satisfied in the real world.

Moreover, market failures and imperfections are often

serious, and compensating adjustments must be made

by the allocation branch. ° ° * Monopolistic restric-

tions, lack of information, external economies and

diseconomies, and the like must be recognized and

corrected. (Footnote omitted and emphasis sup-

plied )

In this economic system, lack of information causes

market failure. If citizens who decide a political issue are

denied acquaintance with information or opinion or doubt

or disbelief or criticism which is relevant to that issue, they

may, by reason of that interference with the thinking

process of the community, reach an ill-considered, ill-bal-

anced decision. In the same way, consumers deprived of

relevant commercial information may, by reason of censor-

ship of their sources of information, make unwise, ill-con-

sidered economic decisions. Like the democratic political

process, the free market system depends upon a free-flow

4. J. Rawls, A Theory of Justice, 271-272 (1971).

10 ~— Brief of Mobil Corporation as Amicus Curiae

of information—information about the prices, availability,

benefits, advantages, and disadvantages of specific goods

and services produced by the economic system. In the

absence of accurate, up-to-date commercial information,

the market system malfunctions as a mechanism for alloca-

tion of limited resources in accordance with the aggregate

desires and free economic choices of the people. Indeed,

the goal of perfect competition is normally defined by ref-

erence to the condition of access to complete information

concerning the prices, qualities and availability of goods

and services. Areeda, Antitrust Analysis, 6-25 (2d ed.

1974).

The importance of the free flow of economic informa-

tion is reaffirmed in the Court’s recent decisions invalidat-

ing restrictions on commercial advertising. These decisions

establish First Amendment protection for information (in-

cluding paid written advertising) concerning

(1) prices, discounts, rebates and credit terms, Vir-

ginia Board of Pharmacy v. Virginia Consumer

Council, supra; Bates v. State Bar of Arizona,

433 U.S. 350 (1977);

(2) the location where goods or services may be ob-

tained, Bigelow v. Virginia, supra; and

(3) availability for purchase, Linmark Associates,

Inc. v. Willingboro, supra; and

(4) procedures facilitating purchase of advertised

goods or services, Bigelow v. Virginia supra.

In Virginia Board of Pharmacy v. Virginia Consumer,

supra, while recognizing the State’s powers to regulate the

practice of pharmacy in Virginia in the interest of the

safety and welfare of the public, the Court invalidated, on

grounds of repugnance to the First Amendment, a portion

Brief of Mobil Corporation as Amicus Curiae 11

of a Virginia regulatory statute providing that a licensed

pharmacist in Virginia is guilty of unprofessional conduct

if he “publishes, advertises or promotes . . . any amount,

price, fee, premium, discount, rebate or credit terms. . .

for any drugs which may be dispensed only by prescrip-

tion.” The Court affirmed the judgment of a three-judge

District Court enjoining enforcement of the statutory pro-

vision. The opinion recognizes the right of users of

prescription drugs to receive information that pharmacists

may wish to communicate to them through advertising

and other promotional means concerning the prices of

such drugs. In support of the holding that such commer-

cial advertising is protected by the First Amendment, the

Court underscored the unquestioned value of such infor-

mation to consumers of drugs and their legitimate entitle-

ment to unfettered access to commercial information on

that subject.

In Linmark Associates, Inc. v. Willingboro, supra, the

Court invalidated a local township ordinance banning the

use of “For Sale” and “Sold” signs in connection with the

marketing of homes and residential real estate.

In Bigelow v. Virginia, supra, the Court reversed the

conviction of a Virginia newspaper editor for publishing

information concerning the availability of abortion re-

ferral services in New York.

In Bates v. State Bar of Arizona, supra, the Court in-

validated a rule which made the advertising of the prices

of legal services by Arizona lawyers a disciplinary infrac-

tion subject to censure.

Information advertising by electric utilities, which is

prohibited by Order of the Public Service Commission of

New York at issue in this case, is commercial information

of precisely the same kind which has received First Amend-

ment protection under the Court’s decisions. Consumer

12 ~_— Brief of Mobil Corporation as Amicus Curiae

interest in the pricing, availability, advantages, disad-

vantages and efficient use of alternative energy sources

has never been greater than at present. Moreover, the

fact that aspects of the operation of electric utilities are

subject to state regulation does not lessen the need for

information which can be provided only by information

advertising. Each of the cases in which the Court has

invalidated restrictions on advertising involved the misuse

of state regulatory powers in areas of economic activity

subject to state regulation. The failure to value the inter-

ests of consumers, employees, shareholders, annuitants,

creditcardholders, suppliers and contractors, the failure to

appreciate the degree of competition between alternative

sources of energy, and the concomitant need for accurate

information were fundamental flaws in the reasoning of

the Court of Appeals of New York below. Thus, the Court

of Appeals wrote (J. S. App. 13a):

“In view of the noncompetitive market in which elec-

tric corporations operate, it is difficult to discern how

the promotional advertising of electricity might con-

tribute to society's interest in ‘informed and reliable’

economic decisionmaking. Consumers have no choice

regarding the source of their electric power; the price

of electricity simply may not be reduced by competi-

tive shopping.”

However, competition within the regulated sectors of

the economy providing alternative sources of energy such

as electric power, natural gas, and oil has been recognized

by this Court. City of Lafayette v. Louisiana Power &

Light Co., 435 U. S. 389, 403 (1978). Indeed, in West

Ohio Gas Company v. Public Utilities Commission of Ohio,

294 U. S. 63 (1935), the Court took judicial notice of com-

petition between electric power, natural gas and oil as the

basis for holding that promotional advertising by public

a_— Ul"

Brief of Mobil Corporation as Amicus Curiae 13

utilities is a proper and necessary activity, the reasonable

expenses for which are chargeable to customers for rate-

making purposes. Mr. Justice Cardozo wrote (294 U. S.

at 72):

“The suggestion is made that there is no competition.

We take judicial notice of the fact that gas is in com-

petition with other forms of fuel, such as oil and elec-

tricity. A business never stands still. It either grows

or decays. Within the limits of reason, advertising or

development expenses to foster normal growth are

legitimate charges upon income for rate purposes as

for others. Consolidated Gas Co. v. Newton, supra,

267 F. 253. When a business disintegrates, there is

damage to the stockholders, but damage also to the

customers in the cost or quality of service.” |

As the Court has acknowledged, the propriety of promo-

tional advertising by public utilities rests, in part, upon

that residual competition between alternative sources of

energy which is not eliminated even in the regulated

environment in which public utilities operate. . Moreover;

competition between these alternative energy sources,

which the Court judicially noticed in the West Ohio Gas

case, was acknowledged in this case by the Public Service

Commission. The Chairman of the Commission, the

Honorable Alfred E. Kahn, noted (J. S. App. 49a):

“, . IL also believe in competition as a form of eco-

nomic organization, wherever it is feasible. And for

competition to be effective some sales promotion is

necessary. Even if that were not so as a general

matter, it would in my judgment be inescapably so

when there compete in the market two rivals, one

14 __— Brief of Mobil Corporation as Amicus Curiae

of whom is free to advertise his wares and the other

is—under our present policies—not.”

Other commentators have also observed that competition

exists, even within the regulated sector, between electric

power, oil and natural gas.°

The conclusion of the New York Court of Appeals

below that promotional advertising of electricity by regu-

lated electric utilities is not protected by the First Amend-

ment because there is no competition, at least in their

respective service areas, among suppliers of electric power

is based upon an excessively narrow view of competition

which fails to recognize and preserve existing competition

between suppliers of alternative forms of energy. It is

totally at odds with decisions of this Court and even with

the factual assumptions of the Chairman of the Public

Service Commission in this case.

The importance of information advertising as a means

of informing actual and potential customers of the rates,

availability and advantages of electric energy in compari-

son with natural gas and oil, is not, therefore, eliminated

by the fact that certain aspects of the industry are subject

to state regulation. Information advertising is desirable

to the extent it helps the public make more intelligent

choices between alternatives and advance a utility along

its declining cost curve toward lower resultant rates for

all. The command of the First Amendment applies, there-

fore, with equal force to the information advertising at

issue in this case as it does to the types of promotional

advertising which have previously been held to be pro-

tected by the First Amendment.

5. See, Shenefield, “Antitrust Policy Within the Electric Utility

Industry,” 16 Antitrust Bulletin 681 (1971); Pace, “Relevant

Markets and the Nature of Competition in the Electric Utility In-

dustry,” 16 Antitrust Bulletin 725 (1971); Landon and Wilson, “An

Economic Analysis of Combination Utilities,” 17 Antitrust Bulletin

237, 257-260 (1972).

Brief of Mobil Corporation as Amicus Curiae | 15

B. The Public Service Commission’s Order Operates

as an Impermissible Prior Restraint.

The First Amendment prohibition against prior re-

straints, one of the most venerable absolutes in the field

of constitutional law, completely proscribes any direct

restraint upon constitutionally-protected speech which

operates prior to publication to prevent the dissemination

of opinion, thought or information. “[I]t has been gen-

erally, if not universally, considered that it is the chief

purpose of the [First Amendment's] guaranty to prevent

previous restraints upon publication.” Near v. Minnesota

ex rel. Olson, 283 U. S. at 713, 716-717; Patterson v.

Colorado ex rel. Attorney General, 205 U. S. 454, 462

(1907); Grosjean v. American Press Co., 297 U. S. 233,

249 (1936); cf. Nebraska Press Association v. Stuart, 427

U. S. at 588-589 (concurring opinion of Mr. Justice

Brennan ).

Prior restraints are “the essence of censorship.” Near

v. Minnesota ex rel. Olson, supra, 283 U. S. at 713. The

First Amendment, therefore, “accords greater protection

against prior restraints than it does against subsequent

punishment for particular speech.” Nebraska Press Assn.

v. Stuart, supra, 427 U. S. at 589 (concurring opinion of

Mr. Justice Brennan); Carroll v. Princess Anne, 393 U. S.

175, 180-181 (1968). As the Court explained in South-

eastern Promotions, Ltd. v. Conrad, 420 U. S. 546, 559

(1975): “[A] free society prefers to punish the few who

abuse rights of speech after they break the law than to

throttle them and all others beforehand. It is always

difficult to know in advance what an individual will say,

and the line between legitimate and illegitimate speech

is often so finely drawn that the risks of free-wheeling

censorship are formidable.”

None of the narrow “exceptions” to the prohibition

against prior restraints is applicable here. See, Nebraska

16 = Brief of Mobil Corporation as Amicus Curiae

Press Assn. v. Stuart, supra, 427 U. S. at 590-591 (con-

curring opinion of Mr. Justice Brennan). Two such

“exceptions, noted in the Court's opinion in Near v.

Minnesota ex rel. Olson—the case of restraints to enforce

“the primary requirements of decency” against obscene

publications and of “incitement to acts of violence and

the overthrow by force of orderly government’—have

since been interpreted as examples of “speech” that is not

encompassed within the First Amendment. The third

“exception” mentioned in Near, where speech meriting

First Amendment protection might be suppressed in ad-

vance of publication because of the requirements of “mili-

tary security” during times of war, has only been adverted

to in dictum and has never served as the basis for uphold-

ing a prior restraint against publication of constitutionally

protected materials. It is clearly inapplicable in this case.

None of the Court’s recent decisions upholding First

Amendment protection for advertising has involved the

operation of a drastic prior restraint such as the Public

Service Commission Order at the heart of this case.

Bigelow involved a Virginia criminal statute imposing

punishments after publication of the proscribed advertis-

ing. In Bates and Virginia Board of Pharmacy, the chal-

lenged restraints were disciplinary rules carrying subse-

‘quent sanctions for their violation. Linmark Associates,

Inc. likewise involved a. township ordinance prohibiting

erection of “For Sale” and “Sold” signs.

In Virginia Board of Pharmacy v. Virginia Consumer

Council, supra 425 U. S..at 771 n. 24, the Court intimated

that the First Amendment prohibition against prior re-

straints is equally applicable to advertising except in the

case of false advertising. Noting that “the greater ob-

jectivity and hardiness of commercial speech may make

it less necessary to tolerate inaccurate statements for fear

Brief of Mobil Corporation as Amicus Curiae 17

of silencing the speaker,” the Court went on to state (425

U. S. at 772 n. 24):

“They may also make inapplicable the prohibition

against prior restraints. Compare New York Times

Co. v. United States, 403 U. S. 713 (1971), with

Donaldson v. Read Magazine, 333 U. S. 178, 189-191

(1948); FTC v. Standard Education Society, 302 U. S.

112 (1937); E. F. Drew & Co. v. FTC, 235 F. 2d 735,

739-740 (CA 2d 1956), cert. denied, 352 U. S. 969

(1957 ).”

The possible exception for inaccurate advertising, which

the Court in footnote 24 of Virginia Board of Pharmacy

_ intimated might be recognized, has no application to this

case. Because of the preclusive effect of the Order of the

Public Service Commission no promotional advertisement

has been published. The truthfulness of proposed pro-

motional advertisement must:be presumed. Consequently,

the Public Service Commission’s Order is a‘clear and‘direct =.

violation of the First Amendment's absolute prohibition

against prior restraints.

The Order is a broad and general injunction directed,

not a specific speech, but at a complete range of expres-

sion. As the Court below noted, “[T]his order works a

direct curtailment of expressional activity: an entire cate-

_ gory of speech is prohibited because of its potential impact

upon the society.” (J. S. App. 10a). The Order is based

on two layers of speculation: (1) speculation concerning

the content of prospective speech which is banned in gen-

eral terms; and (2) speculation as to the consequences of

the speech to the extent its content might influence the

public which receives and hears or reads it. Moreover,

the constitutional infirmities of this Order by their very

nature could not be cured by prompt, intervening judicial

18 Brief of Mobil Corporation as Amicus Curiae

review. Those cases where speech can be promptly re-

viewed by judicial authority to determine whether it is,

for example, obscene and outside the protection of the

First Amendment, are therefore inapposite. Here, as in

New York Times Co. v. United States, 403 U. S. 713

(1971), only actual publication of the speech in question

could determine the issue whether the predicted conse-

quences would result.

It is well-settled that any prior restraint bears “a

heavy presumption against its constitutional validity.”

New York Times Co. v. United States, supra, 403 U. S. at

714. That burden has not been and cannot be satisfied in

this case. The Order is a classic prior restraint upon

speech which is clearly within the ambit of protection of

the First Amendment. The Public Service Commission’s

blanket Order banning all promotional advertising is based

on.conclusory predictions of a highly speculative nature,

wholly unsupported by any specific evidence, so far as can

be determined from the.record. The conclusions rest on

-. “factors unknown and unknowable.” Nebraska Press Assn.

v. Stuart, supra, 427 U. S. at 563. No satisfactory showing

has been made that promotional advertising is clearly

liable to cause any direct and dangerous interference with

serious governmental interests.

Moreover, there has been no showing on this record

to sustain another aspect of the heavy burden of support-

ing a prior restraint. No explicit determination has been

made and supported that measures short of an order re-

straining all information or issue advertising by electric

utilities would not have been sufficient to accomplish the

regulatory goal sought to be advanced by silencing the

electric utilities in New York. No showing has been made

that direct limitation by the Commission on certain new or

additional uses of electric service would not have been

sufficient to protect the interests said. to be jeopardized by

Brief of Mobil Corporation as Amicus Curiae 19

promotional advertising. No showing has been made that

rate increases for certain uses or rate increases for service

usage during certain times of the day would not have been

a satisfactory alternative short of a blanket injunction

against all promotional advertising. No showing has been

made that a ceiling limitation upon expenditures for pro-

motional advertising (if constitutionally permissible )

would not have been a satisfactory alternative to total pro-

hibition. In short, no showing has been made to eliminate

as feasible alternatives to total prohibition less restrictive

means of regulation in this area touching the rights to dis-

seminate and to receive truthful information of interest to

the public.

For all of these reasons, the Order of the Public

Service Commission squarely conflicts with the First

Amendment. It is respectfully submitted that the judg-

ment below should be reversed and the Order annulled.

II. No Compelling State Interest Justifies a Total Ban on

Promotional Advertising by Electric Utilities.

_ In West Ohio Gas Company v. Public Utilities Com-

_ mission of Ohiié; 294-U. S. 63 (1935), the.Court specifically _.

upheld the propriety of promotional advertising of public

utility services. The Court held that expenditure of rea-

sonable sums for promotional advertising by utilities was

a management prerogative. Moreover, addressing an issue

not involved in the present appeal, the Court there held

that reasonable expenditures for this purpose may properly

_ be charged to rate-payers for ratemaking purposes. As

demonstrated above; such promotional advertising also

enjoys the protection of the First Amendment. Arrayed

against these interests of substantial constitutional dimen-

sion are the insubstantial justifications offered in support

of the Order.

20 ~— Brief of Mobil Corporation as Amicus Curiae

The Commission itself has stated that “the amount of

money spent on advertising by major utilities in this State

is a very small portion of their total revenues . . .” (J. S.

App. 35a). A principal motivation for the Commission's

action in completely halting even these relatively modest

expenditures by New York utilities is evidenced by the

Commission's comment that “the proper extent and content

of such advertising . . . is an increasingly controversial

issue.” (J. S. App. 35a). However, protected speech may

not be suppressed simply because various other private

interest groups vociferously dissent from the “content” of

such advertising. No other compelling state interest sup-

ports the total suppression, prior to publication, of all forms

of “promotional advertising.”

In its Opinion upholding a prior restraint on all “pro-

motional advertising” by electric utilities, the New York

Court of Appeals adverted to “the present energy crisis”

(J. S. App. 13a-14a). Indeed, the Court took judicial

notice of energy shortages. Based on this lone factual

observation, the Court below appears to have reasoned

along the following lines:

1) “Public utilities... have been regulated and

franchised to serve the commonwealth” (J. S. App.

13a).

2) “[T]he realities of the situation all but dictate

that a utility be granted a monopoly status” and the

withdrawal of “the unrestricted right of competition

between corporations occupying ° ° ° the public

streets ° ° ° and supplying the public with their

products or utilities” (J. S. App. 13a).

3) The purpose of regulation is “[t]o protect

against abuse of this superior economic position”

(J. S. App. 13a).

Brief of Mobil Corporation as Amicus Curiae 21

4) Therefore, electric utilities operate in a “non-

competitive market” (J. S. App. 13a).

5) Since there is no competition, each electric

utility enjoys a monopoly in its service area; advertis-

ing, under these circumstances, cannot aid in product

or price competition.

6) Since promotional advertising is ineffectual

to shift existing demand from one source of electric

power to another, the only other useful function of

promotional advertising would be to create demand

for electric energy where none previously existed.

7) Additional use of electric energy must neces-

sarily be supported by increased generation of elec-

tricity, which, in turn, requires consumption by

utilities of additional fuel.

8) Fuel shortages and the need to conserve

energy resources make additional consumption of fuel

for generation of electric power contrary to the public

interest.

9) Promotional advertising of electric service

would be effective in causing increased consumption

of electric power and would therefore lead to a con-

sequence contrary to the public interest.

Placing exclusive reliance on this Court’s decision in

Ohralik v. Ohio State Bar Assn., 436 U. S. 447 (1978), the

New York Court of Appeals upheld the total ban on pro-

motional advertising by electric utilities.

This argument is a non sequitur. Regulation pred-

icated on the need to prevent the abuse of a state-imposed

monopoly of a single form of energy within a particular

service area here is extended to suppress any remaining

22 _— Brief of Mobil Corporation as Amicus Curiae —

competition, including (A) competition between electric

utilities located in different geographic service areas for a

new industrial customer choosing a site for a new facility,

(B) competition between electric utilities and suppliers of

other forms of energy within the same service area for

industrial, residential or commercial customers whose de-

mand is constant and will inevitably be supplied by one

source or another, (C) competition between suppliers of

different forms of energy in new residential projects, and

(D) competition or promotional activities to sell electric

service to industrial customers which have the capability

to generate their own energy and are faced with the

economic decision whether to purchase energy or to

generate it themselves by possibly less fuel-efficient

methods. The need for conservation of natural resources

does not eliminate the occasion for these private economic

decisions on the basis of which the allocation of resources

in a market system—even one subject in some sections to

state regulation—is made. Notwithstanding energy short-

ages, construction of new homes requiring heating and

energy systems continues. Purchase and use of new ap-

pliances for food storage and preparation continue. Loca-

tion and construction of new industrial and commercial

facilities continues. The importance of maintaining a free

flow of up-to-date and accurate commercial information so

that the economic decisions involved in these activities

may be well-considered and sound decisions is not dimin-

ished by the need to conserve energy. In these circum-

stances, consumers need truthful information concerning

the availability, prices and advantages of electric service

and of the competing alternative forms of energy.

Finally, in support of its decision to uphold the Public

Service Commission’s Order in this case, the Court below

relied upon an expansive reading of this Court's decision

Brief of Mobil Corporation as Amicus Curiae 23

/

last Term in Ohralik v. Ohio State Bar Assn., 436 U. S.

447 (1978). Essentially, the Court below erroneously

read and misapplied Ohralik as supporting the proposition

that “a particular mode of advertising which would not

well serve the social interest in informed decisionmaking,

such as in-person solicitation, may constitutionally be

banned.” (J. S. App. 12a).

Ohralik, dealing with in-person solicitation by at-

torneys, involved the constitutional protection of advertis-

ing and promotional activities in the professions—a con-

text which the Court has repeatedly emphasized is unique.

Bigelow v. Virginia, supra, 421 U. S. at 825 n. 10; Vir-

ginia Board of Pharmacy v. Virginia Consumer Council,

supra, 425 U.S. at 773 n. 25; Bates v. State Bar of Arizona,

supra, 433 U. S. at 365 n. 17. Moreover, in Oliralik the

Court was concerned with issues unrelated to paid written

advertising and noted the “significant differences” be-

tween public advertisements of the type involved in this

case and in-person solicitation, 436 U. S. at 457. The in-

person solicitation of clients—at the hospital room or the

accident site, or in any other situation—breeds undue in-

fluence, as the Court observed. In-person solicitation

presented dangers of overreaching and misrepresentation

not encountered in newspaper announcement advertising.

None of these dangers is present in this case, where news-

paper advertising is banned. Moreover, while in Ohralik

the in-person solicitation involved speech, speech was only

a “subordinate component.” 436 U. S. at 457. The Court

specifically noted that “[u]nlike a public advertisement,

which simply provides information and leaves the re-

cipient free to act upon it or not, in-person solicitation may

exert pressure and often demands an immediate response

without providing an opportunity for comparison or re-

flection.” 436 U. S. at 457. None of these aspects of in-

person solicitation is present in this case. Properly con-

24 ~~‘ Brief of Mobil Corporation as Amicus Curiae

sidered in the light of the unique factual circumstances

involved in in-person solicitation, the holding of Ohralik

does not support a blanket prior restraint upon promotional

advertising by electric utilities.

Quite apart from interfering with these important

functions of utility advertising, the Commission’s ban on

promotional advertising impedes advertising designed to

shift customer usage of electric service from peak-load

periods to non-peak-load periods. While Time-of-Day

(TOD) pricing of utility service has not yet been uni-

formly implemented in this country, experience with this

new pricing concept in electric utility marketing is suffi-

cient to demonstrate that consumers adequately informed

about the nature of this pricing system are responsive to

these fuel-saving techniques.’ The studies of customer

responsiveness to time-of-day rates in electric utility pric-

ing underscore “the need for extensive consumer education

in the areas of load management and time-of-day rates

... if we hope to gain customer acceptance.” * The need

for “extensive consumer education” is no less critical where

electric utilities such as Central Hudson Gas & Electric

Corporation desire to promote off-peak consumption and

energy-saving electrical uses and devices, including the

heat pump.

The effect of the Commission’s Order, however, has

been to silence effective communication on these im-

portant subjects between electric utilities and their cus-

tomers in New York.

6. See, Malko and Simpson, “Time-of-Use Pricing in Practice:

Some Recent Regulatory Actions,” in Assessing New Pricing Con-

cepts in Public Utilities, Proceedings of the Institute of Public

Utilities, Ninth Annual Conference, 1978 MSU Public Utilities

Papers 399 (1978); Kennedy, “Peak Load Pricing and Industrial

Consumers’ Response,” id. at 420-429.

7. Holeman, “Mandatory Time of Day Rates: The Arkansas

Power & Light Company Experiment,” ibid. at 430, 440.

Brief of Mobil Corporation as Amicus Curiae 25

There is no claim in this case that the prohibition of

information advertising is a mere “time, place and manner”

restriction; the prohibition in this case is aimed directly

at the content of the communication in question. There

is no claim in this case that the advertising is forbidden

because it is false or misleading in any way. Nor is there

any claim that the transactions proposed in the forbidden

advertising are themselves illegal in any way. The special

problems of the electronic broadcast media are not impli-

cated in this case.

Here, as in Virginia Board of Pharmacy v. Virginia

Consumer Council, supra, the question is “whether a State

may completely suppress the dissemination of concededly

truthful information about entirely lawful activity, fearful

of that information’s effect upon its disseminators and its

recipients’ and whether that suppression of communi-

cation may constitutionally be accomplished by prior

restraint.

CONCLUSION.

The Public Service Commission’s Order is designed

as a form of indirect control over the lawful conduct of

residents of New York. The direct purpose of the Order

is to prevent the dissemination of truthful information

because of its contents. The communication is prohibited

because it is believed that its content will be acted upon

by recipients, and the effects of those actions are feared

and sought to be prevented even though those actions

would be lawful. This prior restraint is the keystone of a

paternalistic effort by government to keep the people

ignorant of facts which are of interest to them as a means

of controlling their lawful behavior. The Order is, thus,

fundamentally at odds with the First Amendment. While

the Public Servicé Commission may possess the power

directly to affect the actions of consumers by proper regu-

26 _— Brief of Mobil Corporation as Amicus Curiae

lation of the electric utilities subject to its jurisdiction, it

is, by the command of the First Amendment, without

power to achieve its objectives indirectly by completely

banning dissemination of the information and opinion

which citizens are entitled to receive.

For these reasons, it is respectfully submitted that the

Judgment of the Court of Appeals should be reversed

with instructions to annul the Order of the Public Service

Commission of the State of New York.

Respectfully submitted,

Epwin P. RoME,

WiLuiAM H. Roserts,

1100 Four Penn Center Plaza,

Philadelphia, PA 19103

(215) LO 9-3700

Attorneys for Mobil Corporation

as Amicus Curiae.

Of Counsel:

BLANK, RoME, Comisky & McCAULEY,

1100 Four Penn Center Plaza,

Philadelphia, PA 19103

F. W. D. SCHAEFER,

Mobil Corporation,

150 East 42nd Street,

New York, New York. 10017