Corporate Communication Law

Corporate communication law refers to laws influencing the communication activities of corporations. Corporate communication law is not one area; rather, it comes under various legal categories. The First Amendment protects some corporate communication from government regulation. At other times, corporate communication is treated as part of a commercial transaction that can be regulated to protect consumers and competitors from unfair and misleading business practices. This entry first discusses the First Amendment’s impact on corporate communication and then addresses some of the business laws that affect such speech.

First Amendment Speech

The First Amendment protects two categories of speech, political and commercial. Legal theorists view political speech, which is speech on issues of social and political importance, as vital to self-governance and the democratic process. Commercial speech, on the other hand, involves speech that proposes a commercial transaction and is solely motivated by profit. For a long time, it was not thought to be of much worth.

Political Speech

The right to speak freely on political and social issues without fear of retribution from the government is essential in a democracy. Democracies are founded on the notion that individuals are capable of self-governance. But without access to information on which to base decisions, the concept of self-governance would be a hollow one. Thus, political speech is thought to protect the democratic process in that it acts as a watchdog on government, aids in the search for the truth, and ensures peaceful transitions of power because all voices are given a chance to be heard. The right to speak freely and express ourselves is also what makes us human. Expression leads to self-actualization. It is believed that quashing this right or threatening to do so will “chill” potential speakers. They will not want to risk retribution for voicing their opinions, so they will remain quiet, and the public discourse will be less diverse as a result.

Because of the focus on individual concepts of self-governance and self-realization, at first, corporations were not thought to have First Amendment rights. But in 1978, the U.S. Supreme Court ruled that while corporations may not have a right to speak, individuals do have a right to hear what they have to say. The case First National Bank of Boston v. Belotti involved a Massachusetts law that banned companies from speaking out on political issues unless the issues directly affected their business. First National Bank opposed a graduated state income tax proposal and sought to inform its customers of its position before a referendum on the issue. Because the law would not directly affect First National’s business, the bank was fined for its actions.

In challenging the fine, First National argued that the First Amendment protected its right to speech. The U.S. Supreme Court held that the question was not whether the speaker was protected but whether the speech itself was worthy of First Amendment protection. And in this case, voters deserved to know the bank’s position before they headed to the polling stations.

When a law is challenged on the basis that it violates the First Amendment right to speak on political issues, the Court applies what is known as a strict scrutiny standard. Under strict scrutiny, the Court considers whether the government has a compelling interest in regulating the speech, whether the law is narrowly tailored to protect that interest, and whether the law is the least restrictive means to achieve it.

Although the Belotti decision essentially gave corporations the right to speak on issues of political and social importance, they still have less extensive First Amendment rights than individuals. One reason is that corporations are thought to be potentially corrupting influences during elections because of their wealth and power. Laws have been enacted over the years to protect the electoral process by restricting the amount of money corporations can contribute to or expend on political campaigns and candidates. But beginning in 2007, the Supreme Court has whittled away at those laws, declaring them unconstitutional. Now, few restrictions apply to corporate political speech.

Commercial Speech

Until the 1960s, corporations did not receive protection for commercial speech either. Unlike political speech, which is seen as vital to society, commercial speech involves the marketing of a corporation’s products or services. The Court held in the 1942 case of Valentine v. Chrestensen that “purely commercial advertising” was not worthy of First Amendment protection. Chrestensen had violated a New York City bylaw when he handed out fliers on the street advertising tours of his submarine. The bylaw prohibited promotional fliers unless they were addressing a political issue. After his first citation, Chrestensen tried to circumvent the bylaw by printing a political protest on the back of the original flier. The Court held that it was still advertising and that to hold otherwise would encourage businesses to simply put a political statement in their marketing materials to avoid the law.

But in the 1960s, the Court’s stance on commercial speech began to soften. It first ruled that political speech did not lose its protection because of the format. Thus, a message about civil rights violations in Alabama was political speech even though it was in an ad. A few years later, the Court held that an ad for a legal abortion clinic was protected speech because the information contained in the ad was important for consumers. From there, the Court continued to expand the protection even for products such as alcohol and tobacco.

Whether corporate speech is considered commercial depends on whether it is in an advertising format, whether it refers to a product, and whether it is motivated by profit. Although such a test seems easy to apply at first blush, it can be difficult to determine whether corporate speech is commercial or political, especially in an era of corporate social responsibility and the integration of marketing and public relations into a corporate communication function. It can be argued that everything a corporation communicates is motivated to some extent by profit. Corporations do not engage in corporate social responsibility activities solely because they wish to do good; they also hope that their activities result in sales in the long term.

The decision to classify corporate communication as commercial rather than political speech does have legal and communication implications. Laws affecting political speech are subject to strict scrutiny, but regulations on commercial speech only have to meet an intermediate scrutiny standard. Under intermediate scrutiny, the government must have only a substantial interest to protect, rather than the compelling interest under strict scrutiny; the law must directly advance the interest; and it must be no broader than necessary to achieve the government’s purpose. The result is that it is easier for government to justify a restriction on commercial speech than it is if the speech is deemed political. And commercial speech must be truthful, while some false political speech is permitted.

Of course, all corporate communication should be truthful, but while commercial speech tends to be factual—“Our shoes are genuine leather”—political speech tends to be more ideological and value driven—“Our employees receive a living wage.” Whether a product is made of leather as advertised is easy to prove true or false. Whether a company pays its employees a living wage is more difficult to ascertain. What constitutes a living wage? By whose standards should a living wage be determined? Thus, classifying corporate communication on political and social issues as commercial speech can be problematic and potentially opens the corporation to regulation or subjects the speech to false advertising laws.

Business Laws

Corporate communication is about communication, but it is also about business. Thus corporate communicators must also be aware of the laws that govern their company’s industry. Failure to follow the letter of these laws can result in lawsuits and, in some cases, criminal charges. Legal proceedings are expensive. They take up time and money. But more important, they are expensive for a corporation’s reputation, which may suffer long-term damage as a result. While many areas of business law affect corporate communication, only government agencies, trademarks, and product liability are discussed here, because of their direct relation to corporate reputation.

Government Agencies

Several government agencies regulate the speech of corporations, controlling what is said, when it is said, and how it is said.

Federal Trade Commission

The Federal Trade Commission (FTC) seeks to ensure that consumers are not misled by deceptive advertising. To that end, it monitors communication campaigns for misleading information and controls the use of certain terms, such as Made in USA and fat-free, so that reasonable consumers are not taken advantage of. In addition to its administrative remedies, such as consent decrees and injunctions, the FTC has publicity at its disposal, which can be a powerful deterrent for corporations. Companies do not like the negative publicity that comes with an FTC allegation of false advertising.

Food and Drug Administration

The Food and Drug Administration is concerned with the promotion of prescription drugs. It requires certain information to be listed on the labels of prescription drugs as well as on any accompanying printed materials. Again, the purpose is to protect users of these drugs and provide them with accurate and sufficient information to make informed choices.

Securities and Exchange Commission

The Securities and Exchange Commission oversees the U.S. financial markets. Its purpose in regulating the communication of publicly traded corporations is to ensure that all investors are treated equally and given access to timely, truthful, and complete information about a corporation that might influence their decision to buy, sell, or hold stocks in it. Thus, the Securities and Exchange Commission requires that the financial status of publicly traded corporations be disclosed to the public on a quarterly basis and that material changes to that financial status are promptly and broadly communicated. It also insists that the financial information be written in plain English so that everyone can understand it.

Other Regulations

Other laws and agencies regulate corporate communication as well. For example, the Health Insurance Portability and Accountability Act protects the health information of individuals. Any organization involved with health care needs to be knowledgeable about the requirements of this act. The Labor Relations Management Act of 1947 (Taft-Hartley Act) stipulates how management can communicate with employees. Especially during contentious union drives or the collective bargaining process, corporations running afoul of the act can harm their reputations by appearing to take advantage of their employees.

Trademarks

Trademark law protects the goodwill or reputation of a company by governing the use of brand names and other words or symbols associated with a product or service. A company that passes itself off as affiliated with another company deceives the public and deprives the real company of profits. The federal Trademark Act, known as the Lanham Act, prohibits businesses from using someone else’s mark in connection with any goods or services. The act also prevents a business from falsely describing or representing its own goods and services or another entity’s goods or services.

A trade or service mark can be any word, symbol, design, or color, provided it meets three criteria: (1) it must be in use as an identifier of the product, (2) it must be distinctive, and (3) it must not be confusingly similar to any other trademark. Actions for trademark infringement arise when the use of a mark causes confusion among consumers.

Trademark rights can be lost only through dilution, infringement, or abandonment. Trademark rights are abandoned if the mark’s use is discontinued, with no intent of using it again. Dilution occurs when the mark is allowed to be used as a generic term, meaning that many people have infringed the trademark rights by using the mark, such that the mark loses its distinctiveness and its rights. For example, “thermos” was originally a trademark name for a vacuum flask. It was declared generic in the United States in 1963. Kleenex, on the other hand, is still a trademark for a brand of facial tissue, although it is often used as if it were generic. Corporations work hard to protect their trademarks from becoming generic. The Walt Disney Corporation, for example, threatened to sue three day care centers in Florida if they did not remove the trademarked Mickey Mouse and other Disney characters from their walls. Such actions can be seen as overzealous by some and negatively affect a corporation’s reputation if the situation is not handled with care.

Product Liability

Product liability is the liability of manufacturers and sellers of goods for damages caused by defective products. No corporation wants to have to recall its products because of a defect. Recalls are not only financially costly, but they are also damaging to a corporation’s reputation. Most states impose strict liability in cases of defective products. Under strict liability, the seller is strictly liable for the damages caused by the defective product regardless of whether or not the seller was at fault. Thus, if a corporation’s air bags fail to deploy in accidents, the corporation will be strictly liable for the damages even if it had taken all precautions in the manufacturing process. Corporate communicators should be involved in the strategic planning for a recall so that all publics can be addressed and damage to the corporation’s reputation is minimized.