It’s vacation time, and while some of you may be getting in the car and “heading downy-ocean, ”  others will be flying to their destination.  Based on a recent decision from the D.C. Circuit, you may have a better idea what the total cost of your flight will be. In 2011, the Department of Transportation (“DOT”) issued a rule requiring greater transparency in airline price advertising, and several airlines challenged that rule as violating their First Amendment right of Free Speech. On July 24, a split panel of the D.C. Circuit (apparently not on vacation) grounded the airlines’ argument, denying the petition challenging the rule and providing a quick primer on the contours of the First Amendment in the advertising context and highlighting a recurring issue in ad interpretation.

Quick aside: for a slanted, mildly offensive and very funny take on the differences between political speech and commercial speech, as well as Nutella and Katie Perry’s assets, the Blog suggests this piece from Lewis Black, which ran on The Daily Show recently.  For more solid and practical advice on matters of political law, the Blog recommends our partners’ blog Political Law Briefing.

Back to the DOT decision, pursuant to its authority to regulate “unfair and deceptive” practices in the airline industry, the DOT issued a rule that, among other things, required that the most prominent price figure displayed on print and web advertising be the total price, inclusive of taxes, that a consumer would pay.   Prior to the rule, airlines could advertise the base fare and the applicable taxes and fees separately.  Citing consumer confusion, the DOT revised the rule to require the airlines to state the total final price most prominently.  The airlines remain free to also provide an itemized breakdown of base fare, taxes, and other items, but they may not display such price components “prominently or in the same or larger size as the total price.”

The airlines challenged this regulation as being both arbitrary and capricious and violative of the First Amendment.  Regarding the first challenge, the court found that DOT’s relying on the “reasonable theory” that the total, final price be the most prominently displayed price so as to avoid confusing consumers about the total cost of air travel to be within DOT’s power to prevent unfair or deceptive practices.

Regarding the First Amendment challenge, the parties disagreed on the appropriate standard of review.  Courts reviewing First Amendment challenges can apply one of three standards:  strict scrutiny applied to laws governing political speech; intermediate scrutiny applied to laws regulating commercial speech (“Central Hudson test”); or reasonableness for laws requiring purely factual disclosures reasonably related to the State’s interest in preventing deception of consumers (“Zauderer test”).

The airlines argued that the strict scrutiny test should apply to the DOT rule, because the rule imposed upon their First Amendment right to engage in political speech that informs the public of the “huge tax burden” that the federal government places on air travel.  Indeed, one airline referred to taxes in its ads as “the Government’s Cut.”  The D.C. Circuit quickly dismissed this argument, noting that the speech in question – price advertising – was quintessential commercial speech seeking to do no more than propose a commercial transaction.  The D.C. Circuit was not persuaded by the airlines’ argument that the ads both proposed a transaction and made a political point, and quoted the Supreme Court’s opinion in Bolger:  “[a]dvertisers should not be permitted to immunize false or misleading product information from government regulation simply by including references to public issues”

This left either the Central Hudson or Zauderer test.  The D.C. Circuit found that Zauderer applied and quoted from the Supreme Court’s 2010 opinion in Milavetz: “where, as in this case, laws are ‘directed at misleading commercial speech,’ and where they ‘impose a disclosure requirement rather than an affirmative limitation on speech, Zauderer not Central Hudson applies.”

Applying the test, the court found that based on common sense and three decades of experience DOT had found that it was deceitful and misleading when the most prominent price advertised was anything other than the total, final price of air travel.  The court then found that the rule was reasonably related to the government’s interest in preventing the deception of consumers, and thus passed scrutiny under Zauderer.

The court also ruled that the rule would have passed scrutiny under the Central Hudson test, which asks 3 questions: 1) is the asserted governmental interest substantial; 2) does the regulation directly advance the government interest asserted; and 3) is the fit between the government’s end and means reasonable.  The D.C. Circuit found the answer to all three questions “easy.” The court found the interest of avoiding consumer confusion to be substantial; the rule to advance that interest; and the means reasonably tailored because the burden on the airlines was slight.

The dissent argued that the Central Hudson test applied, and the rule failed it. The dissent found nothing in the record to support the notion that an advertisement that listed both taxes and total price in the same font size confused consumers.  According to the dissent, “[g]iven the fact that the total airfare and the total taxes and fees included therein would be labeled as such, only a fool would confuse or misunderstand the two” regardless of how prominently the taxes and fees were displayed.

The split between the majority and dissent on whether it was necessary for the total price to be the most prominently sized item of pricing in order to avoid consumer confusion is a common one in advertising litigation.  The majority felt that “common sense” dictated that consumers would be confused if total price wasn’t the most prominent item, while the dissent felt that only a “fool” would be confused.  The Blog wrote earlier this year about an FTC action where defendants’ copy testing showed that only 10% of consumers interpreted the ads to make the claims alleged, yet the FTC obtained summary judgment.  For federal judges, perhaps deception is like obscenity, “I know when I see it.”  Such rulings, however, provide little guidance for advertisers.