Amicus Curiae Brief — Lowe v. SEC

No. 83-1911 NOV 15 1984

CHRISTOPHER L. LOWE ET AL.,

7 Petitioners,

SECURITIES AND EXCHANGE COMMISSION,

Respondent.

On Writ of Certiorari to the United States Court of Appeals

for the Second Circuit

BRIEF IN SUPPORT OF PETITIONERS

FOR AMICI CURIAE

THE REPORTERS COMMITTEE FOR FREEDOM

OF THE PRESS

AMERICAN SOCIETY OF MAGAZINE EDITORS

AMERICAN SOCIETY OF NEWSPAPER EDITORS

ASSOCIATED PRESS MANAGING EDITORS

THE MEDIA INSTITUTE

NATIONAL NEWSPAPER ASSOCIATION

THE NEWSLETTER ASSOCIATION

NEWSPAPER GUILD

NEW YORK FINANCIAL WRITERS ASSOCIATION

SOCIETY OF PROFESSIONAL JOURNALISTS,

SIGMA DELTA CHI

Of Counsel: NANCY J. BREGSTEIN

BENJAMIN W. BOLEY (Counsel of Record)

SHEA & GARDNER RICHARD M. WYNER

1800 Massachusetts Ave., N. W. SHEA & GARDNER

Washington, D.C. 20036 1800 Massachusetts Ave., N.W.

(202) 828-2000 Washington, D.C. 20036

Jack C. LANDAU (202) 828-2000

Ropert S. BECKER Counsel for Amici Curiae

THE REPORTERS COM MITTEE

FOR FREEDOM OF THE PRESS

800 18th Street, N.W.

Washington, D.C. 20006 [List of counsel continued

(202) 466-6318 on inside cover.]

November 15, 1984

— DTD —

WILSON - Eres PRINTING Co.. INC. - 789-0096 - WASHINGTON, C. 20001

P

Of Counsel:

RICHARD M. SCHMIDT

Conn & MARKS

1333 New Hampshire

Ave., N.W.

Washington, D.C. 20086

Counsel for American Society of

Newspaper Editors

RICHARD N. WINFIELD

Rocers & WELLS

200 Park Ave.

New York, N.Y. 10017

Counsel for Associated Press

Managing Editors

RoBertT J. BRINKMANN

NATIONAL NEWSPAPER

ASSOCIATION

1627 K St., N.W.

Washington, D.C. 20006

Davip BARR

Barr & TEER

1899 L St., N.W.

Washington, D.C. 20036

Counsel for

The Newspaper Guild

Bruce W. SANFORD

BAKER & HOSTETLER

818 Connecticut Ave., N.W.

Washington, D.C. 20006

Counsel for Society of

Professional Journalists,

Sigma Delta Chi

TABLE OF CONTENTS

INTEREST OF AMICI CURI AE

V

SUMMARY OF ARGUMENT

e

I.

II.

CONCLUSION

FINANCIAL NEWSLETTERS ARE ENTI-

TLED TO FULL FIRST AMENDMENT PRO-

,’ SRE Le

A. The First Amendment Fully Protects Finan-

cial and Economic Advictceꝝtʒʒ

B. Speech About Financial or Economic Mat-

ters, Including Investment Recommenda-

tions, Is Not “Commercial Speech)!

C. Prohibiting the Publication of Financial

Newsletters by Unregistered Publishers is

Not Like the Regulation of Commercial Ac-

tivity or the Licensing of Professionals

1. Regulation of commercial activity —_...........

2. Licensing of professionals

IN PROHIBITING THE PUBLICATION OF

FINANCIAL NEWSLETTERS WITHOUT A

LICENSE, THE ACT IMPOSES AN UNCON-

STITUTIONAL PRIOR RESTRAIN T

A. The Prior Restraint Imposed by the Act’s

Registration Requirement Cannot Be Justi-

1. The Act unconstitutionally compels finan-

cial publishers to register with the gov-

.

2. The right to publish may not constitu-

tionally be denied on grounds of prior

ENS .

B. The Publication of Financial Newsletters by

Unregistered Publishers Cannot Be En-

, !..

Co

11

30

ii

TABLE OF AUTHORITIES

Cases: Page

Abood v. Detroit Board of Education, 431 U.S.

1 — — B 8

All Diet Foods Distributors, Inc. v. Time, Inc., 56

Misc. 2d 821, 290 N. V. S. 2d 445 (Sup. Ct. 1967) 11

American Column & Lumber Co. v. United States,

gE Bs, errr een oe 17

Associated Press v. NLRB, 301 U.S. 103 (1937). 17

Bantam Books, Inc. v. Sullivan, 372 U.S. 58

c 21, 29

Bates v. State Bar of Arizona, 433 U.S. 350

45 . 12, 13, 14

Bayside Enterprises, Inc. v. Carson, 470 F. Supp.

, 28

Bolger v. Youngs Drug Products Corp., 51

U.S. L. W. 4961 (U.S. June 24, 1983) 12, 14

Bon Air Hotel, Inc. v. Time, Inc., 295 F. Supp.

704 (S. D. Ga. 1969), af d, 426 F.2d 858 (5th

r ( 10

Bose Corp. v. Consumers Union, 508 F. Supp. 1249

(D. Mass. 1981), aff'd in pertinent part and

rev'd in part, 692 F.2d 189 (Ist Cir. 1982), af d,

52 U.S.L.W. 4513 (U.S. Apr. 30, 198477 10

Branzburg v. Hayes, 408 U.S. 665, (1972) 22

Buckley v. Valeo, 424 U.S. 1 (1976) 24, 27

Burroughs v. United States, 290 U.S. 534 (1934) 25

Cantwell v. Connecticut, 310 U.S. 296 (1940) 24, 27

Central Hudson Gas & Electric Corp. v. Public

Service Commission, 447 U.S. 557 (1980) 12, 13, 14

Citizen Publishing Co. v. United States, 394 U.S.

r 17

Collin v. Chicago Park District, 460 F. 2d 746 (7th

cc 28

Communist Party v. Subversive Activities Control

r 25

Curtis Publishing Co. v. Butts, 388 U.S. 130

8 8

Dun & Bradstreet, Inc. v. Greenmoss Builders,

Inc., No. 83-18 (reargument requested, 52

U.S.L.W. 3937 (U.S. June 26, 1984))) 11

iii

TABLE OF AUTHORITIES—Continued 3

Page

Entertainment Concepts, Inc., III v. Maciejewski,

631 F.2d 497 (7th Cir. 1980), cert. denied, 450

r . ae ea iene 28

Farnsworth v. Tribune Co., 48 Ill. 2d 286, 253

e x area 3 10

Fernandes v. Limmer, 663 F.2d 619 (Sth Cir.

1981), cert. denied, 458 U.S. 1124 (1982) 28

First National Bank of Boston v. Bellotti, 435 U.S.

r A 22, 27

Florida Bar v. Brumbaugh, 355 So. 2d 1186 (Fla.

.. 20

Friedman v. Rogers, 440 U.S. 1 (19799977 12, 13

General Products Co. v. Meredith Corp., 526 F.

r 10

Gertz v. Robert Welch, Inc., 418 U.S. 323 (1974) 11

Gi bone v. Empire Storage & Ice Co., 336 U.S. 4989

rr eee Ra Oars 16, 17

Ginzburg v. United States, 383 U.S. 463 (1966) 14

Hynes v. Mayor of Oradell, 425 U.S. 610 (1976) 24

In re Lowe Management Corp., [1981 Transfer

Binder] Fed. Sec. L. Rep. (CCH) 7 82,873 (May

„ RS SRR A Se Nace HI ERS eI EO 26

In re R.M.J., 455 U.S. 191 (1982) .......................... 12

In re Thompson, 574 S.W.2d 365 (Mo. 1978)........ 20

International Society for Krishna Consciousness V.

Eaves, 601 F.2d 809 (5th Cir. 1979) 2.000000. 28

International Society for Krishna Consciousness V.

City of Houston, 689 F.2d 541 (5th Cir. 1982) 24

Joseph Burstyn, Inc. v. Wilson, 343 U.S. 495

RSE Le LRA SETH Rte la RO 14

Kunz v. New York, 340 U.S. 290 (1951177 27, 28

Lewis Publishing Co. v. Morgan, 229 U.S. 288

r 24

Lin mar Associates, Inc. v. Township of Willing-

e et 12

Lovell v. City of Griffin, 303 U.S. 444 (1938) 22

Metromedia, Inc. v. City of San Diego, 453 U.S.

ee 12

2

lv

TABLE OF AUTHORITIES—Continued

„ Page

Mills v. Electric Auto-Lite Co., 396 U.S. 375

ccc 17

Minneapolis Star & Tribune Co. v. Minnesota

Commissioner of Revenue, 460 U.S. 575 (1983).. 16, 23

NAACP v. Button, 371 U.S. 415 (1963) —.............. 26

Near v. Minnesota, 283 U.S. 697 (1931777 28, 29

Nebraska Press Association v. Stuart, 427 U.S. 539

: — c itenilidtadittaaniai 29

New York County Lawyers Association v. Dacey,

21 N.Y.2d 694, 287 N.Y.S.2d 422 (1967) 19, 20

New York ex rel. Bryant v. Zimmerman, 278 U.S.

0 25

New York Times Co. v. Sullivan, 376 U.S. 254

Ec 13, 14

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

. 00 ene 21, 29, 30

NLRN v. Gissel Packing Co., 395 U.S. 575 (1969) 17

Ohralik v. Ohio State Bar Association, 436 U.S. 447

r 12, 16, 17, 18

Oklahoma Press Publishing Co. v. Walling, 327

r SSPE SS Dero ne ne ene Oe 17, 23

Oklahoma Publishing Co. v. District Court, 430

OE RTARTA RR Te SD oe 29

Oregon State Bar v. Gilchrist, 272 Or. 552, 588 P.2d

D . SE See 20

Organization For a Better Austin v. Keefe, 402

r 21, 29

Palmer v. Unauthorized Practice Committee, 438

S. W. 2d 374 (Tex. Civ. App. 1969999 20

Pittsburgh Press Co. v. Pittsburgh Commission on

Human Relations, 413 U.S. 376 (1973) 12, 14

Rosen v. Port of Portland, 641 F.2d 1243 (9th

9h A I Cee 24, 25

San Juan Liquors, Inc. v. City of Jacksonville, 480

F. Supp. 151 (M.D. Fla. 19799 28

Schneider v. State, 308 U.S. 147 (193997 26, 27, 29

SEC v. Capital Gains Research Bureau, Inc., 375

U.S. 180 (1963)

v

TABLE OF AUTHORITIES—Continued

Page

SEC v. Financial News Associates, No. 84-0878-A

(E. D. Va. filed Aug. 29, 198hah ⁸ 4

SEC v. Options Strategy Associates, Ltd., No. 84

Civ. 4316 (S.D.N.Y. filed June 20, 198) 4

SEC v. Texas Gulf Sulphur Co., 401 F.2d 833 (2d

Cir. 1968), cert. denied, 394 U.S. 976 (1969) 17

SEC v. Wall Street Publishing Institute, Inc.,

[Current] Fed. Sec. L. Rep. (CCH) { 91,575

(D.D.C. July 12, 1984), appeal docketed, No. 84-

5485 (D.C. Cir. Aug. 2, 198hꝓ)))))j 4

SEC v. Wall Street Transcript Corp., 422 F.2d

1371 (2d Cir.), cert. denied, 398 U.S. 958

c —T——T—T—TTVT— — 21

Simmons Ford, Inc. v. Consumers Union, 516

F. Supp. 742 (S. D. N. V. 1981) .-........................----- 10

Smith v. California, 361 U.S. 147 (1959997 14

State v. Winder, 42 App. Div. 2d 1039, 348 N.Y..S.

. SEES ee Serre

State Bar v. Cramer, 399 Mich. 116, 249 N.W.2d 1

c

State ex rel. Schneider v. Hill, 223 Kan. 425, 573

ENEMA ae es CET SOO

Strasser v. Doorley, 432 F.2d 567 (Ist Cir. 1970) ..

Talley v. California, 362 U.S. 60 (19600) 23,

Thomas v. Collins, 323 U.S. 516 (1945 8, 9, 24,

Thornhill v. Alabama, 310 U.S. 88 (19400) 8,

Time, Inc. v. Hill, 385 U.S. 374 (1967);

Twenty-Five East 40th Street Restaurant Corp. v.

Forbes, Inc., 322 N.Y.S.2d 408 (App. Div. 1971),

aff'd, 30 N.Y.2d 595, 331 N.Y.S.2d 29 (1972) 1

United Medical Laboratories, Inc. v. CBS, Inc., 404

F.2d 706 (9th Cir. 1968), cert. denied, 394 U.S.

921 (1968) ..................... PPA ERE Ee A TO 10

United States v. Harriss, 347 U.S. 612 (1954) 25

Universal Amusement Co. v. Vance, 587 F.2d 159

(5th Cir. 1978) (en banc), aff d, 445 U.S. 308

SSIS Ey APN no Ee es Oe een 28

Village of Schaumburg v. Citizens For a Better

Environment, 444 U.S. 620 (1980) 24, 26, 27

RRS S S

oo

So

vi

TABLE OF AUTHORITIES—Continued

Page

Virginia State Board of Pharmacy v. Virginia

Citizens Consumer Council, 425 U.S. 748

ETO LN Ee TO eI ee 8, 9, 12, 14, 15

Wulp v. Corcoran, 454 F. 2d 826 (1st Cir. 1972) 25

Statutes:

Investment Advisers Act of 1940, 15 U.S.C. §§ 80b-

1 et seq. (1982) :

e 21

Ee oS 4, 20, 23, 25, 26

r 29

rc 21

rr 21

Other Authorities:

SEC Investment Advisers Act Release No. 563, 42

Fed. Reg. 2953 (Jan. 10, 197777 21

Oxbridge Directory of Newsletters (1983-84) 10

The Standard Periodical Directory (8th ed. 1983-

T.. c ⁰— a * 10

Emerson, The Doctrine of Prior Restraint, 20 Law

& Contemp. Probs. 648 (1955) 21, 22

Jackson & Jeffries, Commercial Speech: Economic

Due Process and the First Amendment, 65 Va.

, .. 11

Jeffries, Rethinking Prior Restraint, 92 Yale L. J.

ge rr 21, 22

IN THE

Supreme Court of the United States

OCTOBER TERM, 1984

No. 83-1911

CHRISTOPHER L. LOWE ET AL.,

. Petitioners,

SECURITIES AND EXCHANGE COMMISSION,

Respondent.

On Writ of Certiorari to the United States Court of Appeals

for the Second Circuit

BRIEF FOR THE REPORTERS COMMITTEE FOR

FREEDOM OF THE PRESS ET AL.,

AS AMICI CURIAE IN SUPPORT OF PETITIONERS

INTEREST OF AMICI CURIAE

Amici curiae are ten organizations composed of indi-

vidual and institutional members of the press. Amici

are both large and small national news organizations

that collectively represent a broad spectrum of working

journalists, newspapers, magazines, newsletters, and

others involved in the gathering and dissemination of

financial and investment news to the public.

Specifically, amici are the folloving orzanizations:

The American Society of Magazine Editors has 450 mem-

bers who are chief and senior editors of consumer, trade,

and farm magazines across the United States. The

American Society of Newspaper Editors is a nationwide

organization of more than 900 directing editors of daily

newspapers, dedicated to improving the manner in

which the journalism profession serves the American

people. The Associated Press Managing Editors includes

more than 600 editors of newspaper members of the

Associated Press, which gathers news worldwide for dis-

2

semination to 1,350 newspapers and 3,300 broadcast sta-

tions around the world. The Media Institute is a non-

profit research organization which has published numer-

ous reports on foreign and domestic communications

policy and studies on broadcast coverage of economic

news. The National Newspaper Association is a national

organization of 5,500 newspapers, which is dedicated to

preserving the constitutional guarantee of freedom of

the press.

The Newsletter Association is an international trade

association of 850 publishers of 2,500 newsletters and

other specialized services which provide financial and

other types of information. The Newspaper Guild is a

trade union representing 40,000 editorial, advertising,

circulation, business and other non- mechanical depart-

ment employees of newspapers in the United States and

Canada. The New York Financial Writers Association

includes 350 reporters and editors dedicated to uphold-

ing the standards of business and financial journalists.

The Reporters Committee for Freedom of the Press is a

voluntary, unincorporated association of reporters and

news editors devoted to protecting the First Amendment

interests of the media. The Society of Professional Jour-

nalists, Sigma Delta Chi, is a voluntary, non-profit

organization of 28,000 people from every branch and

rank of print and broadcast journalism. It is the largest

organization of journalists in the United States.

Amici view the Second Circuit’s decision in this case

as a significant threat to the free dissemination of news

about the financial markets and specific investment op-

portunities. Amici fear that, if this Court affirms the deci-

sion below, some financial news organizations will be per-

mitted to publish freely and others will not. This would

be out of keeping with our system of a free and independ-

ent press. The decision below would permit prior re-

straints of business publications without any showing of

a direct, immediate, and irreparable harm to any vital

governmental interest. It approves of censorship in the

form of licensing and grants the government and the

3

courts the power—denied to them by the Constitution—

to decide which finarcial publications are “bona fide.”

Amici believe, on the contrary, that the First Amendment

permits any person freely to publish information about

any aspect of the social, economic, or political life of our

country, including financial trends, stock market predic-

tions, and securities recommendations. Accordingly, amici

submit this brief in support of petitioners.

Amici have received consent to file this brief from

petitioners and from respondent. Their letters of con-

sent have been filed with the Clerk of this Court.

STATEMENT

This case involves the constitutionality, under the

First Amendment, of provisions of the Investment Ac-

visers Act of 1940, 15 U.S.C. §§ 80b-1 et seg. (“Advisers

Act” or “Act”), that require all publishers, except pub-

lishers of so-called “bona fide” publications, to register

with the Securities and Exchange Commission (“the Com-

mission”) in order to publish financial newsletters con-

taining recommendations or reports concerning securities.

The Commission may deny or revoke the registration of

a publisher who is subject to one or more statutory dis-

qualifications, including disqualification for violating the

securities laws or for having been convicted of certain

crimes during the preceding ten years. The Act allows

the Commission to sue to enjoin publication by unli-

censed publishers, or to bring criminal prosecutions

against them.

Petitioner Christopher Lowe (“Lowe”) is president

of the three corporate petitioners, including Lowe Man-

agement Corporation (“Lowe Management”). Until

1981, Lowe Management was registered with the Com-

mission under the Act and published investment advice

and managed the funds of clients on a discretionary basis.

In 1977 and 1978, Lowe was convicted in state court of

two felonies and two misdemeanors related to this invest-

ment advisory business. On the basis of these convictions

and Lowe Management’s violation of certain provisions

of the Act, the Commission revoked Lowe Management’s

4

registration and barred Lowe from association with any

investment adviser, pursuant to 15 U.S.C. §§ 80b-3(e)

& (f).

Though petitioners were no longer registered with the

Commission, they continued to publish or to solicit sub-

scriptions for their investment newsletters. These news-

letters contain general descriptions of and commentary

on the state of the financial markets, short-term and

long-term economic forecasts, and general and specific

advice on the relative desirability of various invest-

ments, including securities.

Because petitioners were not registered, the Commis-

sion sought an order from the District Court for the

Eastern District of New York enjoining further publi-

cation of their newsletters.“ The Commission made no

claim that the information contained in the newsletters

is or has been false or misleading; nor did it allege that

petitioners traded in securities discussed in the newslet-

ters or used the newsletters as part of any fraudulent or

otherwise unlawful conduct.

The District Court refused to enjoin publication of

the newsletters. It reasoned that they constitute pro-

tected speech that cannot be prohibited; and it construed

the statute to require the Commission to allow (and not

to revoke) the registration of any publisher who does

not also give personal investment advice. The Court of

Appeals for the Second Circuit reversed. Reasoning that

the publication of newsletters containing specific invest-

ment advice constitutes either “commercial speech” or

the practice of a profession, the appellate court held that

As it did in this case, the Commission has recently sought in-

junctions against the publication of other financial newsletters in

SEC v. Wall Street Publishing Institute, Inc., [Current] Fed. Sec. L.

Rep. (CCH) { 91,575 (D.D.C. July 12, 1984), appeal docketed, No.

84-5485 (D.C. Cir. Aug. 2, 1984), stay granted, [Current] Fed. Sec.

L. Rep. (CCH) { 91,635 (D.C. Cir. Aug. 10, 1984); SEC v. Finan-

cial News Associates, No. 84-0878-A (E.D. Va. filed Aug. 29, 1984) ;

SEC v. Options Strategy Associates, Lied., No. 84 Civ. 4316

(S. D. N. V. filed June 20, 1984).

5

the Act constitutionally could require a license for such

publication, and that such a license constitutionally could

be denied on the basis of prior misconduct. Accordingly,

the Court of Appeals ordered that an injunction against

further publication of petitioners’ newsletters be

granted.

SUMMARY OF ARGUMENT

The First Amendment principally forbids prior re-

straints, including the licensing of the press and injunc-

tions against publication. Yet in this case, the Court of

Appeals sanctioned a system of licensing a segment of the

financial press and the use of an injunction to bar pub-

lication of financial newsletters by unlicensed publishers.

The Court of Appeals reached this erroneous ruling by

failing to treat financial newsletters as speech fully pro-

tected by the First Amendment, and consequently by not

applying this Court’s precedents forbidding prior re-

straints except on a showing of the most extraordinary

and compelling circumstances.

In Part I.A., we show that the publication of financial

newsletters constitutes fully protected speech. This Court

has long accorded the full protection of the First Amend-

ment to speech on a variety of subjects, including eco-

nomie and financial matters. Moreover, the fact that

financial newsletters provide specific recommendations

concerning investments does not diminish their status as

fully protected speech. This Court has never distinguished

specific information or advice from abstract discussion,

and there is no principled basis for such a distinction.

If that were the law, numerous books, magazines, and

newspaper features that provide specific advice on many

subjects also would receive diminished protection.

The Court of Appeals wrongly concluded that the pub-

lication of financial newsletters may be treated as com-

mercial or professional activity of a kind that may be

subjected to government regulation and licensing, or as

“commercial speech” entitled to less than full First

Amendment protection. In Part I.B., we show that the

Court of Appeals failed to perceive the distinction be-

tween speech on a commercial or financial subject and

“commercial speech.” This Court has defined the latter

term as commercial advertising, solicitation, or the pro-

motion of the speaker’s products or services, and nothing

else. Moreover, financial newsletters lack the salient

characteristics of “commercial speech” that permit its

greater regulation. We also show, in Part I. C., that

the Court of Appeals erred in treating the licensing

of financial newsletter publishers as an instance of the

permissible licensing of professionals. For purposes of

the First Amendment, there is a critical difference be-

tween rendering personalized professional services and

engaging in the publishing of impersonal recommenda-

tions. Moreover, no support for the Court of Appeals’

holding is provided by cases sustaining regulation of

“commercial activity” against First Amendment chal-

lenges. In all the cases relied upon by the Court of Ap-

peals, the regulation addressed conduct—either in con-

nection with a publishing business or in which speech

played an incidental part—not publication itself.

In Part II, we show that the Act’s registration

requirement and the injunction against publication by

an unregistered publisher constitute presumptively in-

valid prior restraints, which cannot be permitted in the

absence of a compelling justification. No such justifi-

cation exists in this case, where the principal purpose

of the registration requirement—the protection of in-

vestors from fraud—can be achieved by more narrowly

tailored means that do not suppress protected speech.

The Commission may prohibit and punish specific in-

stances of fraud committed by publishers of investment

advice. But it may not require them to obtain licenses

to publish; it may not deny them the right to publish

based on prior misconduct; and it may not obtain in-

junctions against publishers who have done no more than

publish without obtaining the Commission’s approval.

7

ARGUMENT

I. FINANCIAL NEWSLETTERS ARE ENTITLED TO

FULL FIRST AMENDMENT PROTECTION.

The Court of Appeals relied on alternative premises

in support of its conclusion that the publication of finan-

cial newsletters constitutionally may be licensed, and

that publication by unlicensed publishers constitutionally

may be enjoined.“ One was that the investment advice

contained in financial newsletters constitutes “commer-

cial speech.” 725 F.2d at 900 (Pet. App. Al7). The

Court of Appeals’ preferred basis for its decision, how-

ever, was that financial newsletters do not constitute

“speech” at all, 725 F.2d at 901 (Pet. App. Al7-18), but

instead constitute commercial activity that may be regu-

lated or professional conduct that may be licensed. /d.

We show in this Part that financial newsletters constitute

fully protected speech, and that the Court of Appeals’

alternative characterizations are incorrect.

A. The First Amendment Fully Protects Financial

and Economic Advice.

The Court of Appeals seems to have concluded that

because financial newsletters are specialized publications

dealing with matters of a financial and economic nature,

including specific investment advice, they are entitled to

less than the full protection of the First Amendment.

This is a crabbed reading of the First Amendment. It is

inconsistent with this Court’s broad interpretation of the

essential coverage of the Amendment, even before and

apart from the Court’s extension of that coverage to

encompass “commercial speech.” “The guarantees for

speech and press are not the preserve of political expres-

2 An investment adviser who renders individualized advice to

8

sion or comment upon public affairs,” Time, Inc. v. Hill,

385 U.S. 374, 388 (1967); rather, these guarantees

“embrace al! issues about which information is needed

or appropriate to enable the members of society to cope

with the exigencies of their period.” Thornhill v. Ala-

bama, 310 U.S. 88, 102 (1940). Thus, the First Amend-

ment “embraces at the least the liberty to discuss pub-

licly and truthfully all matters of public concern with-

out previous restraint or fear of subsequent punishment.”

Id. at 101-02. See also Curtis Publishing Co. v. Butts,

388 U.S. 130, 147 (1967).

These genera! principles are fully applicable to speech

about economic or financial matters. As this Court made

plain in Abood v. Detroit Board of Education, 431 US.

209, 231 (1977), its “eases have never suggested that

expression about economic ... matters... is

not entitled to full First Amendment protection.” See

also Thomas v. Collins, 323 U.S. 516, 531 (1945). In-

deed, in extending some First Amendment protection to

“commercial speech,” in the form of advertising by a

pharmacist, the Court explained that its holding went

beyond the protection theretofore afforded by the

Amendment to “speech on a commercial subject.” Vir-

ginia State Board of Pharmacy v. Virginia Citizens Con-

sumer Council, 425 U.S. 748, 761 (1976). “No one,”

the Court said, “would contend that [the] pharmacist

may be prevented from being heard on the subject of

whether, in general, pharmaceutical prices should be

regulated, or their advertisement forbidden.” Jd. at

761-62. To the extent, therefore, that financial newslet-

The narrower focus of this case is the provision of

investment advice by newsletters, in the form of anal-

yses and reports as to the value of specific securities and

recommendations regarding purchasing, selling, or hold-

ing specific securities. 725 F.2d at 902 (Pet. App.

9

A20).2 This Court has never suggested, however, that

publications containing specific advice are, for that rea-

son, not entitled to full First Amendment protection;

and there is no principled basis for so concluding.

Speech is not deprived of the full protection of the First

Amendment merely because it is practical and poten-

tially useful, rather than being of broad, abstract import.

For example, there is “no requirement that, in order to

avail themselves of First Amendment protection, the

parties to a labor dispute need address themselves to the

merits of unionism in general or to any subject beyond

their immediate dispute.” Virginia Pharmacy Board,

supra, 425 U.S. at 762-63 (citing Thornhill v. Alabama,

supra). Cf. Thomas v. Collins, supra, 323 U.S. at 531

(“Great secular causes, with small ones, are guarded.’’).

Moreover, there is no distinction of constitutional

significance between “general” and “specific” investment

recommendations—that is, for example, between a pre-

diction of the future course of the stock market as op-

posed to a recommendation to buy stock in one company

rather than another. As Judge Weinstein observed below,

there is “no sharp demarcation in the range of economic

observation that runs from comment on economic policy

to prediction of the performance and recommendation of

specific securities.” 556 . Supp. at 1367 (Pet. App.

A56). Nor does the fact that readers may act on the

basis of specific advice diminish its constitutional pro-

tection. See, e.g., Thomas v. Collins, supra, 323 U.S. at

537. For these reasons, the First Amendment does not re-

quire that protected speech address itself only to the

state of the economy and financial markets in general,

while steering clear of stating facts, opinions, or recom-

mendations about particular investments.

The Court of Appeals stated that it would “leave to another day

the question whether a publication dealing only with market in-

dicators generally or making recommendations only as to groups

of securities . . could be barred ....” 725 F.2d at 902 n.7 (Pet.

App. A20).

10

If its characterization as concrete advice disentitled

speech to some portion of First Amendment protection,

then many newspaper features would be vulnerable to

government regulation—including editorials telling poli-

ticians how to legislate or voters how to vote, and col-

umns containing advice on the subjects of health, ca-

reers, education, bridge, gardening, home repair, per-

sonal problems, and countless other subjects on which

people may wish to be informed and advised. The same

would be true of advice provided in books, periodicals,

and newsletters.“ More specifically, if speech is to be

given less protection because it is advice on how to

spend or save money, then such a restriction would

apply not only to advice on investments, but also to ad-

vice, criticism, and recommendations in articles on and

reviews of restaurants, movies, health care, vacation pack-

ages, and consumer products—on which the average

American probably spends more than he invests in se-

curities. Yet the courts have uniformly treated such

articles and reviews as fully protected speech.“ Thus,

* Thousands of periodicals and newsletters are published in this

country, on practically every subject imaginable, including scores

of newsletters on the subject of investment alone. For a list and

brief descriptions of these publications, see The Standard Periodical

Directory (8th ed. 1983-84); Oxbridge Directory of Newsletters

(1983-84).

See Bose Corp. v. Consumers Union, 508 F. Supp. 1249, 1269-

77 (D. Mass. 1981), aff'd in pertinent part and rev'd in part, 692

F.2d 189, 194 (Ist Cir. 1982), aff'd, 52 U.S.L.W. 4513, 4521 (U.S.

Apr. 30, 1984) (review of loudspeaker system in Consumer Re-

ports) ; United Med cal Laboratories, Inc. v. CBS, Inc., 404 F.2d 706

(9th Cir. 1968) (reports on practices of medical testing labora-

tories); Bon Air Hotel, Inc. v. Time, Inc., 295 F. Supp. 704 (S.D.

Ga. 1969), af d, 426 F.2d 858 (5th Cir. 1970) (magazine comments

on resort hotel accommodations and services); General Prods. Co.

v. Meredith Corp., 526 F. Supp. 546 (E.D. Va. 1981) (magazine

article on use of wood stoves for heating); Simmons Ford, Inc. v.

Consumers Union, 516 F. Supp. 742 (S.D.N.Y. 1981) (review of

electric cars); Twenty-Five East 40th Street Restaurant Corp. v.

Forbes, Inc., 322 N.Y.8.2d 408 (App. Div. 1971), af d, 331 N.Y.S.2d

29 (1972) (restaurant review); Farnsworth v. Tribune Co., 253

N.E.2d 408 (Ill. 1969) (newspaper report on practices of an

11

the fact that financial newsletters contain investment

recommendations concerning specific securities does not

detract from their entitlement to full First Amendment

protection.“

B. Speech About Financial or Economie Matters, In-

cluding Investment Recommendations, Is Not

“Commercial Speech.”

In the past decade, this Court has found a degree of

protection in the First Amendment for a category of

osteopathic physician) ; All Diet Foods Distribs., Inc. v. Time, Inc.,

290 N.Y.S.2d 445 (Sup. Ct. 1967) (derogatory implications of

photograph in book on nutrition). See also Jackson & Jeffries,

Commercial Speech: Economic Due Process and the First Amend-

ment, 65 Va. L. Rev. 1, 1 (1979).

In Dun & Bradstreet, Inc. v. Greenmoss Builders, Inc., No. 83-

18, reargument requested, 52 U.S. L. W. 3937 (U.S. June 26, 1984),

this Court is considering whether credit reports provided by Dun

& Bradstreet to its subscribers, as speech of a “commercial or eco-

nomic nature,” is entitled to the protection of the rule of Gertz v.

Robert Welch, Inc., 418 U.S. 323 (1974), against presumed or puni-

tive damages in a libel action. We agree with petitioner Dun &

Bradstreet that its credit reports are entitled to full First Amend-

ment protection. Even if this Court were to decide that they are

not, however, that decision would not dictate the correct decision

in this case.

First, the credit reports in Dun & Bradstreet are not like the

contents of financial newsletters. The credit reports are sold to

purchasers on individual order; that is, they are provided only to

a “subscriber” who requests a report on the creditworthiness of a

particular business. The sale of credit information in response to

particularized inquiries can more readily be characterized as com-

mercial activity that may be regulated than the publication of a

newsletter containing stock recommendations received by hundreds

or thousands of subscribers. Second, even if there were no differ-

ence in the character of the communications involved here and in

Dun & Bradstreet, there remains a difference in the type of regu-

lation involved in the two cases. Here, the government asserts its

authority to impose a prior restraint, in the form of a licensing

requirement enforceable by an injunction against publication,

whereas in Dun & Bradstreet the issue is what damages are

permissible. The availability of presumed or punitive damages

has a chilling effect on protected speech; but it does not impose the

absolute ban of a prior restraint.

12

speech that it has labeled “commercial speech.” On re-

peated occasions, however, the Court has noted that

commercial speech will not necessarily be entitled to the

same level of protection as more traditionally protected

speech. See, e.g., Bolger v. Youngs Drug Products Corp.,

51 U.S.L.W. 4961, 4962 (U.S. June 24, 1983); Virginia

Pharmacy Board, supra, 425 U.S. at 771-72 n.24. Ac-

cordingly, the Court of Appeals thought it possible to

sustain the Act’s registration requirement, and an in-

junction against publication by an unregistered pub-

lisher, by treating investment newsletters as commercial

speech.

For this Court to adopt the Second Circuit’s view

would be an expansion of the scope of the commercial

speech doctrine totally at odds with this Court’s prior

decisions. As this Court has applied the term to date,

“commercial speech” has meant commercial advertising,

promotion, or solicitation, and nothing more.“ Despite

this exclusive focus, the Court of Appeals opined that

this Court has not “limited commercial speech solely to

product or service advertising.” 725 F.2d at 900 (Pet.

App. Al7). The Court of Appeals relied primarily on

the fact that while this Court originally defined commer-

cial speech as speech that does “no more than propose a

commercial transaction,“ it also, and more recently,

™See Bolger v. Youngs Drug Prods. Corp., supra (advertising

contraceptives); In re R.M.J., 455 U.S. 191 (1982) (advertising

legal services) ; Metromedia, Inc. v. City of San Diego, 453 U.S. 490

(1981) (commercial advertising on billboards); Central Hudson

Gas & Elec. Corp. v. Public Service Comm’n, 447 U.S. 557 (1980)

(promotional advertising for electric power); Friedman v. Rogers,

440 U.S. 1 (1979) (optometrists’ solicitation of patronage by use of

trade names); Ohralik v. Ohio State Bar Ass’n, 486 U.S. 447 (1978)

(in-person solicitation of paying clients by lawyer) ; Bates v. State

Bar of Arizona, 433 U.S. 350 (1977) (advertising legal services) ;

Linmark Associates, Inc. v. Township of Willingboro, 431 U.S. 85

(1977) (advertising houses for sale); Virginia Pharmacy Board,

supra (advertising by pharmacists).

8 See Pittsburgh Press Co. v. Pittsburgh Comm’n on Human Rela-

tions, 413 U.S. 376, 385 (1973).

13

has described commercial speech as expression related

solely to the economic interests of the speaker and its

audience,” Central Hudson Gas & Electric Corp. v. Pub-

lic Service Commission, 447 U.S. 557, 561 (1980), and as

„Speech . linked inextricably to commercial activity.”

Friedman v. Rogers, 440 U.S. 1, 10 n.9 (1979).

We submit that these formulations, when properly

read in context, do not and were not intended to broaden

this Court’s basic definition of commercial speech.

Rather, it seems clear that in both Central Hudson and

Friedman, the Court employed a new formulation - be-

eause it found itself confronted with promotional adver-

tising that nevertheless could not be said to “propose” a

particular “commercial transaction.” Thus, the utility’s

promotion of the use of electricity in Central Hudson,

and the optometrists’ use of trade names to solicit

patronage in Friedman, both served to promote the sale

of the speakers’ products or services. Moreover, the lan-

guage employed in Central Hudson plainly cannot be

given its broadest literal interpretation, which also would

cover, for example, discussion of the merits of raising

taxes or school teachers’ salaries, joining a union, or im-

posing import quotas on foreign goods. And the Court

in Friedman did not define commercial speech as “speech

. . . linked inextricably to commercial activity”; rather,

it observed that “commercial speech is linked inextric-

ably to commercial activity“ because, after all, com-

mercial speech proposes or promotes a commercial trans-

® The Court of Appeals also noted that commercial speech cannot

be equated with advertising, since fully protected speech that hap-

pens to appear in the form of a paid advertisement nevertheless re-

tains its fully protected status. 725 F.2d at 900 (Pet. App. A17);

see New York Times Co. v. Sullivan, 376 U.S. 254 (1964). We agree

that “[i]f commercial speech is to be distinguished, ‘it must be dis-

tinguished by its content,“ not by its form, Bates v. State Bar of

Arizona, supra, 433 U.S. at 363, but the content that makes some-

thing “commercial speech” is promotion of one’s own commercial

products or services, and nothing else.

14

action. In short, this Court has not departed from the

proposition that there must be a commercial, promotional

element in speech—even if implicit or derived from the

context—to make it “commercial speech,” see Bolger V.

Youngs Drug Products Corp., supra, 51 U.S.L.W. at

4963 n.13, and this Court has not applied that definition

to any other type of communication.”

Financial newsletters fall outside this definition of

“commercial speech.” While such newsletters may rec-

ommend the purchase of particular securities, the pub-

lisher of the newsletter does not sell securities or receive

a commission on such sales.“ As long as the speaker does

10 To be sure, this Court has held that “advertising which ‘links

a product to a current public debate’ is not thereby entitled to the

constitutional protection afforded noncommercial speech.” Bolger

v. Youngs Drug Prods. Corp., supra, 51 U.S.L.W. at 4963 (quoting

Central Hudson Gas & Elec. Corp., supra, 447 U.S. at 563 n.5). But

the premise of this statement is that the speaker is the seller of the

product in question and that the comments on public issues “are

made solely in the context of commercial transactions,” 51 U.S.L.W.

at 4968, see Central Hudson, supra, 447 U.S. at 562-63 n.5; its

rationale is that promotional advertising cannot attain a higher level

of constitutional protection by being sandwiched between “refer-

ences to public issues.” 51 U.S.L.W. at 4963. The element of pro-

motion of one’s own products or services remains, and is critical to

the commercial speech characterization.

u the publisher of a newsletter profits by the sale of

— This in no way diminishes his entitlement to First

Amendment protection, however, since speech “is protected even

though it is carried in a form that is ‘sold’ for profit.” Virginia

Pharmacy Board, supra, 425 U.S. at 761. See also Bates v. State

Bar of Arizona, supra, 483 U.S. at 363. Otherwise, there would

be no First Amendment protection for any book, movie, magazine,

or newspaper that is not given away free of charge, as this Court

often has pointed oui. See Pittsburgh Press Co. v. Pittsburgh

Comm’n on Human Relations, supra, 413 U.S. at 384-85; Ginzburg

v. United States, 383 U.S. 463, 474 (1966); New York Times Co. v.

Sullivan, supra, 376 U.S. at 266; Smith v. California, 361 U.S. 147,

150 (1959); Joseph Burstyn, Inc. v. Wilson, 343 U.S. 495, 501

(1952).

15

not propose a commercial transaction between himself

and the reader or promote the sale of his own products

or services, his expression is not “commercial speech.”

Moreover, financial newsletters lack the salient charac-

teristics of commercial speech that make appropriate “a

different degree of protection.” Virginia Pharmacy

Board, supra, 425 U.S. at 771-72 n.24. First, the ac-

curacy of such speech is more easily verifiable by its dis-

seminator than, for example, news reporting or political

commentary, “in that ordinarily the advertiser seeks to

disseminate information about a specific product or

service that he himself provides and presumably knows

more about than anyone else.” Jd. Since newsletters

comment on securities issued and sold by others, and

consist of unverifiable opinions as much as facts, this

characteristic is lacking.

Similarly, this Court has focused on the “hardiness”

of commercial speech, because speech motivated by the

desire to make a sale is less likely to be chilled than

other speech. Id. Again, this observation has no bear-

ing on reporting on investments that the publisher is

not attempting to sell, any more than it would be ap-

plicable to publishers of magazines, books, or daily news-

papers, who also have an interest in maximizing reve-

nues through subscriptions or sales. Thus, we submit,

not only does the Court’s traditional definition of “com-

mercial speech” not fit petitioners’ newsletters, but the

salient characteristics of commercial speech, which allow

its greater regulation, also are absent.”

12 A third characteristic of commercial speech that permits its

greater regulation is that it generally is not urgent or timely. The

information and recommendations in investment newsletters, on the

other hand, are valuable either now or never. Accordingly, it would

be inappropriate to apply to financial newsletters the prescreening

requirements that sometimes apply to commercial speech.

Finally, the incentive to use commercial speech in a misleading

way is also absent in the case of newsletters. The publisher of an

16

C. Prohibiting the Publication of Financial Newslet-

ters by Unregistered Publishers Is Not Like the

Regulation of Commercial Activity or the Licens-

ing of Professionals.

The Court of Appeals’ alternative and “preferred”

basis of decision was that the publication of financial

newsletters without a license constitutionally may be pro-

hibited under decisions sustaining the regulation of com-

mercial activity and the licensing of professionals.

Neither line of cases is applicable, however.

1. Regulation of commercial activity.

The cases identified by the court below as permitting

the “regulation of commercial activity” stand for two

different, but related, propositions. One line of cases

establishes that a business is not immune from “gener-

ally applicable economic regulations” simply because it

is part of the press. Minneapolis Star & Tribune Co. V.

Minnesota Commissioner of Revenue, 460 U.S. 575, 581

(1983). A second line of cases demonstrates that “ ‘it

has never been deemed an abridgment of freedom of

speech or press to make a course of conduct illegal

merely because the conduct was in part initiated, evi-

denced, or carried out by means of language, either

spoken, written, or printed.“ Giboney v. Empire Stor-

age & Ice Co., 336 U.S. 490, 502 (1949), quoted in

Ohralik v. Ohio State Bar Association, 436 U.S. 447, 456

(1978).

Publishing is, of course, a commercial activity, in

that it is a business carried on for profit. But publish-

investment rewsletter—like any publisher of newspapers, books, or

magazines—likely will sell more subscriptions if its reporting and

recommendations prove infor native, useful, and reliable than if

they do not, since it is “selling” speech itself, not using speech to

sell some other product.

17

ing itself, without more, cannot be made unlawful with-

out clashing directly with the First Amendment. For

purposes of First Amendment analysis, therefore, “com-

mercial activity” that may be regulated and “publishing”

as such are mutually exclusive categories. When a pub-

lisher engages in some business or commercial practices

apart from just publishing, however, that conduct may

be regulated or prohibited just as it would be if engaged

in by any other business. Thus, for example, a newspa-

per is subject to the federal antitrust laws, Citizen Pub-

lishing Co. v. United States, 394 U.S. 131, 139-40

(1969), state laws against restraint of trade, Giboney v.

Empire Storage & Ice Co., supra, the federal labor laws,

Associated Press v. NLRB, 301 U.S. 108, 132-33 (1937),

and the federal minimum wage laws, Oklahoma Press

Publishing Co. v. Walling, 327 U.S. 186, 192-98 (1946).

Indeed, these laws are applicable to any newsletter pub-

sher that comes within their respective terms. In each

of these cases, however, what is regulated is some con-

duct other than publishing itself, and the regulation

therefore “ends in no restraint upon expression or in

any other evil outlawed by [the First Amendment’s]

terms and purposes.” Id. at 193 & n.8.

Similarly, there is no support for the Court of Ap-

peals’ holding in this Court’s acknowledgment that

communications may be regulated without offending the

First Amendment when they merely further an unlaw-

ful course of conduct. See Ohralik v. Ohio State Bar

Ass'n, supra, 436 U.S. at 456. In each of the examples

cited by the Court in Ohralik—including the exchange

of inside information about securities, SEC v. Texas

Gulf Sulphur Co., 401 F.2d 833 (2d Cir. 1968), cert.

denied, 394 U.S. 976 (1969), the issuance of corporate

proxy statements, Mills v. Electric Auto-Lite Co., 396

U.S. 375 (1970), the exchange of price and production

information among competitors, American Column &

Lumber Co. v. United States, 257 U.S. 377 (1921), and

employers’ threats of retaliation for the labor activities

of employees, NLRB v. Gissel Packing Co., 395 U.S. 575,

618 (1969)—the subject of the regulation properly may

18

be characterized as “commercial activity,” in which

speech is simply a component. Ohralik, supra, 436 U.S.

at 456. The same cannot be said of publishing invest-

ment recommendations, without more.

2. Licensing of professionals.

The Court of Appeals also relied on cases sustaining

the regulation and licensing of professionals. 725 F.2d

at 901 (Pet. App. A18-19). The court reasoned that if

the States may require the licensing of professionals

including, most notably, lawyers and doctors—then Con-

gress similarly may require the licensing of investment

advisers, including publishers of investment advice. This

view overlooks the fact that the First Amendment

carves out the occupation or profession of publishing

from among other professions and immunizes it from

licensing or similar requirements. It is necessary to de-

termine, therefore, whether financial newsletter pub-

lishers are engaged in the regulable profession of invest-

ment advising or the immunized profession of publishing.

The absence of individualized, personal interaction

between the publisher and his subscribers distinguishes

publishing a newsletter from engaging in a regulable

profession. This distinction was fully appreciated by the

District Court and the dissenting judge in the Court of

Appeals. See 725 F.2d at 903-04 (Pet. App. A23-24)

(Brieant, J., dissenting); 556 F. Supp. at 1365, 1369

(Pet. App. A62) (Weinstein, J.). First, the publisher

of an investment newsletter has no authority over the

funds of clients. Thus, a substantial component of an

investment adviser’s business that involves conduct—in

the form of initiating securities transactions—is entirely

lacking in the case of a newsletter publisher. Second, the

newsletter publisher has no information about or famil-

iarity with the individual circumstances of his subscrib-

ers, and does not tailor his advice to those circumstances.

As a corollary, his subscribers cannot delegate decision-

making authority to him, nor rely on his advice in the

19

way that a client in a one-to-one relationship with his

investment adviser relies on the latter’s advice. Thus,

there is a gap between the publisher’s expression of

views and the subscriber’s application of those views to

his own circumstances. That gap, we submit, breaks the

personal nexus between adviser and client that is the

quintessential element of any professional relationship,

including one involving an investment adviser.

Judge Brieant, dissenting below, concisely described

the distinction between publishing advice and opinion,

on the one hand, and engaging in the practice of a pro-

fession, on the other:

“The expression of opinion [in a financial newslet-

ter] is poles apart from the traditional giving of

investment advice; just as remote as a health care

publication (e.g., ‘Prevention Magazine’) is from the

practice of medicine, or a book advising how to avoid

probate is remote from the practice of law. The latter

require a medical or law degree and a license, while

the former are protected First Amendment expres-

sion.” 725 F.2d at 903 (Pet. App. A23-24).

Numerous decisions concerning the licensing of profes-

sionals bear out this distinction. In the leading case of

New York County Lawyers Association v. , 21

N.Y.2d 694, 287 N.Y.S.2d 422 (1967), the New York

Court of Appeals held, by adopting the dissenting opinion

in the Appellate Division, that authors or publishers of

books giving estate planning advice, who are not mem-

bers of the Bar, are not engaged in the unauthorized

et te eae ee eee ee

may not enjoined from publishing such advice.

The opinion explained: :

“Dacey’s book is sold to the public at large.

There is no personal contact or relationship with s

particular individual. Nor does there exist that

relation of confidence and trust so necessary to the

status of attorney and client. This is the essential

element of legal practice—the representation and

The Dacey distinction has been found persuasive in every

State but one in which the question has been considered.”

It therefore would be erroneous, and in conflict with

the First Amendment, to characterize the publishing of

an investment newsletter as the practice of a profession.

Moreover, this would be a dangerous precedent. If giving

advice or making recommendations by impersonal publi-

cation is deemed to be engaging in a profession—or,

indeed, in any occupation for which a license may be

required—then government similarly may require a li-

cense to publish books or pamphlets giving advice on count-

less subjects. The extreme nature of such a result dem-

onstrates the incorrectness of the underlying premise.

Il. IN PROHIBITING THE PUBLICATION OF FINAN-

CIAL NEWSLETTERS WITHOUT A LICENSE, THE

ACT IMPOSES AN UNCONSTITUTIONAL PRIOR

RESTRAINT.

As we have just demonstrated, financial newsletters

contain speech that is fully protected by the First Amend-

ment. The Advisers Act, however, makes it “unlawful

for any investment adviser, unless registered , to

make use of the mails or any mezas or instrumentality

of interstate commerce in connection with his or its busi-

ness as an investment a: iser.“ 15 U.S.C. § 80b-3(a).

For purposes of the Act, an “investment adviser” is “any

person who, for compensation, engages in the business of

advising others, either directly or through publications or

writings, as to the value of securities or as to the ad-

visability of investing in, purchasing, or selling securi-

ties, or Who. . . issues or promulgates analyses or re-

13 See Florida Bar v. Brumbaugh, 355 So. 2d 1186 (Fla. 1978) ;

State ex rel. Schneider v. Hill, 573 P.2d 1078 (Kan. 1978); State

Bar v. Cramer, 249 N.W.2d 1 (Mich. 1976); In re Thompson, 574

S.W.2d 365 (Mo. 1978); State v. Winder, 348 N.Y.S.2d 270 (App.

Div. 1973) ; Oregon State Bar v. Gilchrist, 538 P.2d 913 (Or. 1975).

But see Palmer v. Unauthorized Practice Comm., 438 S. W.2d 374

(Tex. Civ. App. 1969).

21

ports concerning securities Id. § 80b-2(a) (11)

(emphasis added). The Act contains several exclusions

from its definition of “investment adviser,” including one

for “the publisher of any bona fide newspaper, news mag-

azine or business or financial publication of general and

regular circulation.” Jd. § 80b-2(a)(11)(D). This ex-

clusion has been construed narrowly, however, and is ap-

plicable “only where, based on the content, advertising

material, readership, and other relevant factors, a publi-

cation is not primarily a vehicle for distributing invest-

ment advice.” SEC Investment Advisers Act Release

No. 563, 42 Fed. Reg. 2953 (Jan. 10, 1977) (citing SEC

v. Wall Street Transcript Corp., 422 F.2d 1371 (2d

Cir.), cert. denied, 398 U.S. 958 (1970) ).

Thus, unless the “bona fide newspaper” exclusion is

applicable, a publisher must register with the Commis-

sion as an investment adviser in order to publish invest-

ment advice or reports concerning securities. The Act

authorizes the Commission to enforce this ban on publi-

cation by unregistered publishers either by applying to

a court for an injunction against publication, 15 U.S.C.

§ 80b-9(e)—the route chosen by the Commission in this

case—or by seeking criminal penalties for publishing in

violation of the statute. Id. § 80b-17. In either case, as

we now show, the Act’s prohibition of publication by

those not registered with the Commission imposes a prior

restraint on protected speech, which “‘comes to this

Court bearing a heavy presumption against its constitu-

tional validity.“ New York Times Co. v. United

States, 403 U.S. 713, 714 (1971) (quoting Bantam

Books, Inc. v. Sullivan, 372 U.S. 58, 70 (1963)). “The

Government ‘thus carries a heavy burden of showing

justification for the imposition of such a restraint.’ ”

New York Times Co. v. United States, supra (quoting

Organization For a Better Austin v. Keefe, 402 U.S. 415,

See generally Emerson, The Doctrine of Prior Restraint, 20

Law & Contemp. Probs. 648 (1955); Jeffries, Rethi +

Restraint, 92 Yale L.J. 409 (1983). „

419 (1971)). The Commission cannot sustain that heavy

burden in this case.

A. The Prior Restraint Imposed by the Act’s Regis-

tration Requirement Cannot Be Justified.

The term “prior restraint” is used loosely “to embrace

a variety of different situations.” Emerson, The Doc-

trine of Prior Restraint, 20 Law & Contemp. Probs. 648,

655 (1955). The registration requirement of the Act

presents “(t]he clearest form of prior restraint, in that,

as applied to financial newsletters, it “undertakes to

prevent future publication . . . without advance approval

of an executive official.” Id. Thus, a publisher can be

prosecuted or enjoined from publishing not because of the

unprotected content or manner of his speech, but merely

because hz did not procure a license from the government

in advance. Id. See also Jeffries, Rethinking Prior Re-

straint, 92 Yale L.J. 409, 417-18 (1983).

allow registration by some prospective publishers, like

The “bona fide newspaper” exclusion does not save the Act

|

|

|

23

petitioners, on account of their statutory disqualification.

Those publishers do not even have the option of procuring

a license in order to publish lawfully. While only the

latter situation is directly involved in this case, we here

address both applications of the statute.

1. The Act unconstitutionally compels financial

publishers to register with the government.

To comply with the Act’s registration requirement, a

publisher must submit extensive information to the Com-

mission.“ He then must wait for approval before pub-

lishing. Even when there is no question of disqualifica-

tion, the Commission need not act on an application for

45 days; and if the Commission decides to investigate

further, it can take up to seven months to act on the

application. 15 U.S.C. §§ 80b-3(c) (2) (A) & (B).

These provisions, which require newsletter publishers

to register with the government prior to publication, are

invalid under the First Amendment. As this Court has

long recognized, the freedom to publish written mate-

rials without identifying oneself to the government is at

the heart of the Amendment.” In Talley v. Cali foruia,

16 This information includes the names of the publisher and his or

its partners or officers, as well as their address and number of em-

ployees; the education and business affiliations of the publisher and

his or its partners or officers for the past ten years; a statement of

the nature of the business of the publisher, including the manner of

giving advice and rendering analyses or reports; and a balance sheet

certified by an independent public accountant. 15 U.S.C. §§ Sob-

3(c) (1) (A)-(D).

* Of course, the press is not immune from regulations that are

applicable to businesses generally and that may include a duty to file

information with the government. See Minneapolis Star & Tribune

Co. v. Minnesota Comm of Revenue, supra, 460 U.S. at 586-87 n.9

(nondiscriminatory taxation laws) (dictum) ; Oklahoma Press Pub-

lishing Co. v. Walling, supra, 327 U.S. at 192-98 (Fair Labor Stand-

ards Act). But the Court has never intimated that publishers con-

stitutionally may be required to identify themselves solely with

respect to the fact of publication.

862 U.S. 60 (1960), the Court struck down a city ordi-

nance that forbade the public distribution of hand-bills

unless they contained the name and address of the printer

and the distributor, on the ground that “such an identi-

fication requirement would tend to restrict freedom to

distribute information and thereby freedom of expres-

sion.” Id. at 64. Similarly, Thomas v. Collins, 323 U.S.

516 (1945), “held unconstitutional a prior restraint in

the form of a registration requirement for labor organ-

izers.” Buckley v. Valeo, 424 U.S. 1, 81 (1976). Even

though registration in Thomas would have been granted

as a matter of course and used solely for identification

purposes, the Court noted that as long as nothing more

than speech is involved, any registration requirement,

even if ministerial, is “quite incompatible with the re-

quirements of the First Amendment.” 323 U.S. at 540.“

Accordingly, except for situations involving speech inter-

twined with conduct,” or occurring in special settings,”

18 See also Lewis Publishing Co. v. Morgan, 229 U.S. 288 (1913).

In that case, this Court upheld application of the Post Office Act’s

registration requirement to newspapers on the ground that the Act

required such registration only as a prerequisite to enjoyment of

the privilege of second class mail rates. The implication is clear

that the requirement would have been held unconstitutional had it

applied to newspapers distributed through the regular mails.

10 For example, informational licensing may be required in order

to engage in solicitation. See Village of Schaumburg v. Citizens For

a Better Environment, 444 U.S. 620, 637-38 (1980); Cantwell v.

Connecticut, 310 U.S. 290, 306 (1940). As the lower courts have

recognized, solicitation stands on a different constitutional footing

from the publishing and distribution of printed literature. See, e.g.,

International Society for Krishna Consciousness v. City of Houston,

689 F.2d 541, 556 (5th Cir. 1982); Rosen v. Port of Portland, 641

F.2d 1243, 1251 n.17 (9th Cir. 1981).

20 The Court indicated in Hynes v. Mayor of Oradell, 425 U.S.

610, 619 (1976), that a state could require informational registra-

tion of persons engaged in door-to-door canvassing or soliciting, on

the ground that there is no absolute First Amendment right to “en-

ter on the private premises of another and knock on a door for any

purpose.

25

or where an overriding national interest in disclosure

has been demonstrated, this Court has not sanctioned

even ministerial licensing of the written press as a pre-

condition to the right to publish.”

When tested against this background, the registration

provisions of the Advisers Act—which call for substan-

tial information in addition to the publisher’s name and

address and permit a prolonged delay in the registration

process—cannot stand as applied to financial newsletter

publishers. Such publishers are engaged in pure speech,

not solicitation. They communicate with willing listen-

ers, and do not intrude upon private property. Any in-

terests served by the requirement—including, presum-

ably, assistance in investigating potential fraud—fall far

short of those overriding national interests for which

compelled registration has been approved.

2. The right to publish may not constitutionally be

denied on grounds of prior misconduct.

The Commission has the authority, under 15 U.S.C.

$§ 80b-3(c) and (e), to deny or revoke registration if it

21 For example, informational registration requirements have

been upheld where necessary to safeguard the functioning of our

national institutions, see Burroughs v. United States, 290 U.S. 534

(1934) (Federal Corrupt Practices Act); United States v. Harriss,

347 U.S. 612 (1954) (Federal Regulation of Lobbying Act), or

where national security or violence were involved, see Communist

Party v. Subversive Activities Control Bd., 367 U.S. 1 (1961);

New York ex rel. Bryant v. Zimmerman, 278 U.S. 63 (1928).

22 The principle of Talley and Thomas—that government cannot

require the registration of persons who seek to do no more than

speak has been applied in other settings by the Courts of Appeals.

For example, the First Circuit has struck down city ordinances re-

quiring newspaper vendors on city sidewalks to obtain licenses in

advance, even though such licenses were automatically granted by

city authorities. Wulp v. Corcoran, 454 F.2d 826, 834 (ist Cir.

1972) ; Strasser v. Doorley, 432 F.2d 567 (Ist Cir. 1970). Similarly,

the Ninth Circuit has held that persons seeking to do no more than

distribute written literature in public facilities cannot be required

to register with governmental authorities. Rosen v. Port of Port-

land, supra, 641 F.2d at 1250-51.

26

finds that the applicant or registrant is subject to a

statutory disqualification. In the instant case, the Com-

mission deregistered Lowe Management and barred

Lowe from association with any investment adviser

based on Lowe's state court convictions and certain vio-

lations of the Act’s reporting and disclosure require-

ments. In re Lowe Management Corp. [1981 Transfer

Binder), Fed. Sec. L. Rep. (CCH) { 82,873 (May 11,

1981). Thus, petitioners cannot obtain the license that

is the prerequisite to publishing lawfully.”

The purpose of the disqualification provision is the

protection of the investing public from securities fraud

and related infractions. See generally SEC v. Capital

Gains Research Bureau, Inc., 375 U.S. 180 (1963).

The Act’s disqualification provision attempts to promote

the government’s interest in protecting investors by pre-

venting the giving of any investment advice by persons

who, in Congress’ view, may be more likely than others

to engage in fraudulent practices. But [bi road pro-

phylactie rules in the area of free expression are suspect.

Precision of regulation must be the touchstone.”

NAACP v. Button, 371 U.S. 415, 438 (1963), quoted in

Village of Schaumburg v. Citizens For a Better Environ-

ment, 444 U.S. 620, 637 (1980). Even on the assump-

tion that the prevention of securities fraud is “‘a sub-

23 The Court of Appeals stated that Lowe is not prohibited “from

publishing recommendations in somebody else’s bona fide newspaper

as an employee, editor, or writer.” 725 F.2d at 902 (Pet. App.

A20). This does not affect the constitutionality of the restraint

imposed, however, because “one is not to have the exercise of his

liberty of expression in appropriate places abridged on the plea

that it may be exercised in some other place.” Schneider v. State,

308 U.S. 147, 163 (1939).

24 For example, investment recommendations may constitute part

of a fraudulent “scalping” scheme, in which a person (whether

a newsletter publisher or personal adviser) “purchas[es] shares

of a security for his own account shortly before recommending

that security for long-term investment and then immediately

sells] the shares at a profit upen the rise in the market price

following the recommendation.” SEC v. Capital Gains Research

Bureau, Inc., supra, 375 U.S. at 181.

27

ordinating interest which is compelling,’ ” First National

Bank of Boston v. Bellotti, 485 U.S. 765, 786 (1978)

(citations omitted), the government must “employ

means ‘closely drawn to avoid unnecessary abridgment

....» ” Id. (quoting Buckley v. Valeo, supra, 424 U.S.

at 25.

Denying the right to publish is not a closely drawn,

narrowly tailored means of dealing with the problem of

potential securities fraud. On several occasions this

Court has struck down other permit requirements for

which the government offered a similar justification. In

Schneider v. State, 308 U.S. 147 (1939), a municipality

urged the prevention of fraud as its justification for

prohibiting leafletting and soliciting without a permit.

While ſelonceding that fraudulent appeals may be

made in the name of charity and religion,” the Court

nevertheless held:

“Frauds may be denounced as offenses and punished

by law. Trespasses may similarly be forbidden. If

it is said that these means are less efficient and con-

venient than bestowal of power on police authorities

to decide what information may be disseminated

from house to house, and who may impart the in-

formation, the answer is that considerations of this

sort do not empower a municipality to abridge free-

dom of speech and press.” Id. at 164.

See also Village of Schaumburg, supra, 444 U.S. at 636-

37; Cantwell v. Connecticut, 310 U.S. 296, 306 (1940).

As the Court said in Schaumburg, [f raudulent misrep-

resentations can be prohibited and the penal laws used to

punish such conduct directly.” 444 U.S. at 637.

Nor is the Act’s insufficient justification aided by the

fact that licenses are denied on the basis of prior mis-

conduct involving fraud or violation of the securities

laws. As this Court held in rejecting a similar argu-

ment in Kunz v. New Yor., 340 U.S. 290, 294-95

(1951):

“The court below has mistakenly derived support

for [upholding the denial of a license] from the

evidence . . that appellant’s religious meetings

had, in the past, caused some disorder. There are

appropriate public remedies to protect the peace

and order of the community if appellant’s speeches

should result in disorder or violence. ‘In the present

case, we have no occasion to inquire as to the per-

missible scope of subsequent punishment.’ Near v.

Minnesota, 283 U.S. 697, 715 (1931). We do not

express any opinion on the propriety of punitive

remedies which the New York authorities may

utilize. We are here concerned with suppression—

not punishment.”

Based on Kunz and Near, licensing schemes have uni-

formly been held unconstitutional when they provide that

“future conduct that may fall within the purview of the

first amendment is absolutely prohibited after a finding

of unprotected present conduct.” Universal Amusement

Co. v. Vance, 587 F.2d 159, 165-66 (5th Cir. 1978)

(en banc), aff'd, 445 U.S. 308 (1980)

Sufficient remedies short of prior restraint are avail-

able and in place to deal with the kinds of securities

fraud by publishers with which the Commission is con-

cerned.” It is unlawful for publishers to act secretly

as publicity agents, paid by persons already holding posi-

tions in recommended stocks. “[{S]ensationalists who

promise miracles in the market which they can hardly

deliver” may be dealt with by means of restrictions on

deceptive advertising. To the extent that “out-and-out

tipsters” falsely claim to have inside information, in or-

der to dupe subscribers into investing in stocks in which

they hold positions or are otherwise personally interested,

such deceit may be punished or subjected to civil lia-

25 See also Fernandes v. Limmer, 663 F.2d 619, 629-30, 632 (5th

Cir. 1981); Entertainment Concepts, Inc., III v. Maciejewski, 631

F.2d 497, 506 (7th Cir. 1980); International Society for Krishna

Consciousness v. Eaves, 601 F.2d 809, 832-33 (5th Cir. 1979) ; Collin

v. Chicago Park District, 460 F.2d 746, 753-54 (7th Cir. 1972); San

Juan Liquors, Inc. v. City of Jacksonville, 480 F. Supp. 151, 153-54

(M.D. Fla. 1979) ; Bayside Enterprises, Inc. v. Carson, 470 F. Supp.

1140, 1142-45 (M.D. Fla. 1979).

26 See Brief for Appellant at 19-23, SEC v. Lowe, 725 F.2d 892

(2d Cir. 1984).

bility. As this Court held in Schneider v. State, supra,

308 US. at 164, the possibility that these remedies may

be “less efficient and convenient” than a prior restraint

is precisely the argument that is rejected by the First

Amendment. Congress may not prohibit all publication

that it suspects may result in problems that may be dealt

with more narrowly, if and when they arise.”

B. The Publication of Financial Newsletters by Un-

registered Publishers Cannot Be Enjoined.

The use of an injunction to enforce the Act’s registra-

tion requirement also is unconstitutional. Because “it is

ring). Instead, if the government is to obtain an injunc-

tion against publication, it must prove that publication

“will surely result in direct, immediate, and irreparable

damage to our Nation or its people.” Id. at 730 (White,

J., concurring). See Organization For a Better Austin v.

Keefe, supra; Nebraska Press Association v. Stuart, 427

US. 539 (1976); Oklahoma Publishing Co. v. District

Court, 430 U.S. 308 (1977). See also Bantam Books

Inc. v. Sullivan, supra (informal system of prior re

80b-6. Publishers of financial

to whom “bona fide newspaper” exclusion is in-

applicable would remain within the Act’s definition of “invest-

straint held unconstitutional). “[O]nly governmental al-

legations and proof that publication must inevitably, di-

rectly, and immediately cause the occurrence of an event

kindred to imperiling the safety of a transport already

at sea can support even the issuance of an interim re-

straining order.” New York Times Co. v. United States,

supra, 403 U.S. at 726-27 (White, J., concurring).

The Commission’s interests fall far short of meeting

this exacting standard. The justification for an injunc-

tion is derived from, and rises no higher than, the justifi-

cation for the Act's registration and disqualification pro-

visions. As we have just shown, however, these provi-

sions are overly broad means of furthering the Commis-

sion’s legitimate interest in preventing and punishing

securities fraud. Since these provisions themselves can-

not withstand constitutional scrutiny, as applied to pub-

lishers, it follows a fortiori that publication by an un-

registered published may not be enjoined.

CONCLUSION

For the reasons stated above, the judgment of the

Court of Appeais should be reversed.

Respectfully submitted,

Of Counsel: NANCY J. BREGSTEIN

BENJAMIN W. BoLEY — Record )

SEA & GARDNER RICHARD M. WYNER

1800 Massachusetts Ave, N.W. SHEA & GARDNER

Washington, D.C. 20036 1800 Massachusetts Ave., N.W.

(202) 828-2000 — D.C. 20036

1 (202) 828-2000

— — Cor wel for Amici C

Tue REPORTERS COMMITTEE

FoR FREEDOM OF THE PRESS

800 18th Street, N.W.

Washington, D.C. 20006

(202) 466-6313

November 15, 1984

Counsel for amici gratefully acknowledge the assistance of David

Gruber and Leigh Hermance, Law Student Interns at the Reporters

Committee for Freedom of the Press.