Warren E. Burger: We will hear arguments next in Donald T. Regan against Time Magazine. Mr. Schulder, you may proceed whenever you are ready.
Elliott Schulder: Thank you. Mr. Chief Justice, and may it please the Court, the basic question in this case is whether a statute that prohibits a publisher from printing an illustration of U.S. currency in color rather than in black and white, or in dimensions approximating the size of genuine currency, violates the First Amendment protection of freedom of speech or of the press. There are two statutes at issue in this case, and they must be viewed in tandem. The first one, 18 USC 474, Paragraph 6, prohibits the printing, photographing, or otherwise making or executing any engraving, photograph, print, or impression in the likeness of any obligation or security of the United States. The term "obligation or security of the United States. " is also defined by statute in 18 USC 8, which we have reproduced on Page 5 of our brief, Footnote 2. The second statute involved in this case is 18 USC 504.1. That statute creates an exception to the ban in Section 474. Section 504 permits the printing or publishing of illustrations of U. S. securities and obligations for philatelic, numismatic, educational, historical, or newsworthy purposes in articles, books, journals, newspapers, or albums, provided that three conditions are met. First, the illustrations must be in black and white. Second, the illustrations must be either over or undersized. In other words, they must be at least one and a half times the size or less than three-quarters the size of actual currency. And three, the materials, the negatives and the plates used in the making of these illustrations, must be destroyed after their final use. This case began when appellee Time, Incorporated, brought suit for declaratory and injunctive relief in the United States District Court for the Southern District of New York. Time claimed that the statutory scheme amounted to government censorship of the press, and effected a massive infringement of the First Amendment rights of Time's editors and publishers. The basis for the lawsuit was that over approximately a ten-year period Secret Service agents had brought to the attention of Time's management the fact that a number of illustrations of currency in Time's magazines violated the color and size requirements of the statutory scheme. The district court entered summary judgment for Time and held Sections 474, Paragraph 6, and 504.1 unconstitutional on their face and as applied to Time. The district court concluded that Section 474, Paragraph 6, was overbroad because it prohibits all reproductions of currency without regard to whether the reproduction has a capacity to deceive. Turning to Section 504.1, the court focused on the purpose and forum provisions of the statute, and held that the statute is an impermissible regulation of the manner of depicting currency because, first of all, it is a content based statute that requires an inquiry into whether an illustration is undertaken or produced for one of the purposes specified in the statute, and two, the court concluded that there was no nexus between the statutory goal of preventing counterfeiting and the newsworthiness or educational value of an illustration or the type of forum in which the illustration appears. The court also held Section 504 void for vagueness, because it concluded that it is difficult to determine what is a philatelic, numismatic, educational, historical, or newsworthy purpose, and what is a journal, newspaper, or album. The government's basic submission in this case is that the statutory scheme at issue here serves what is a concededly compelling governmental interest in a manner that does not impose a substantial burden on First Amendment rights, and that leaves open ample alternative channels of communication. First of all, the interest, government interest in this case is that of protecting against counterfeiting. This is an interest that has a specific constitutional authority. Congress enacted a counterfeiting statute, the first Congress enacted a counterfeiting statute in reliance upon the explicit authority of the Constitution to coin money and protect against counterfeiting. Time recognizes in this case that it is essential to its facial challenge to attempt to portray the case as involving a substantial infringement of First Amendment interests, but Time has grossly overstated the impact of the statutory scheme. Time's brief contains numerous examples of hyperbolic rhetoric. For example, Time states that the law purports to control the editorial content of Time's magazines, and that the statute prohibits, prevents, or suppresses the use of the symbol of money.
William J. Brennan, Jr.: Mr. Schulder, may I ask--
Elliott Schulder: Certainly.
William J. Brennan, Jr.: --are these the three illustrations that are involved in this case, Page 37?
Elliott Schulder: The illustrations begin on Page 13 of the Joint Appendix, Your Honor.
William J. Brennan, Jr.: But the ones actually at issue here are the--
Elliott Schulder: No, the ones actually at issue here are 13 through--
William J. Brennan, Jr.: --Thank you.
Elliott Schulder: --23.
William J. Brennan, Jr.: Thank you.
Elliott Schulder: The problem with Time's exaggerated portrayal of its First Amendment interest in this case is that Time's editors and publishers in fact may use pictures of currency symbolically. The statutory scheme does not prohibit such use. The statutes merely impose reasonable restrictions on the manner in which a person may print or photograph U.S. currency. Thus, Time's argument really is that it has a substantial First Amendment in publishing pictures of currency in color, or in a size approximating the size of actual currency. It is our contention that this position trivializes the First Amendment. While Time may have legitimate reasons for printing color pictures of currency or pictures that approximate the size of genuine currency, we submit that it demeans the Constitution to say that there is a substantial First Amendment interest to publish pictures of currency in color rather than in black and white.
Sandra Day O'Connor: Mr. Schulder, I guess there is more involved here than simply the size and color limitation, though. If you look at Section 504, you still have the restrictions on the purpose of the publication, do you not, to contend with? And the government in its brief has apparently conceded that at least some aspects of that might be invalid, and it is suggested we should narrow the construction of the statute or something.
Elliott Schulder: Well, we would--
Sandra Day O'Connor: I would be very interested in hearing you focus on that and tell us exactly, how you would suggest the Court narrow the statute precisely.
Elliott Schulder: --Certainly. First of all, Your Honor, I would like to point out that in none of the instances that are involved in this case did the Secret Service agents question in any way whether Time, any of Time's publications were journals, newspapers, articles, or books, or in any way suggested that the use of the pictures here was not for a newsworthy or other purpose covered in the statute.
Sandra Day O'Connor: Well, I suppose there is an overbreadth challenge that we have to deal with?
Elliott Schulder: That's correct.
Sandra Day O'Connor: So we need to talk about it, do we not?
Elliott Schulder: Certainly. Focusing on the statute itself, and in order to understand the statute, it is also important to understand the legislative history behind it. The statute, as you can see, on Pages 2 and 3 of the government's opening brief, provides that certain pictures of currency are permitted for a list of enumerated purposes in a list of enumerated forums, but not for advertising purposes, et cetera, et cetera. And then the statute sets out the specific conditions under which these illustrations may be published or printed. Now, it is our... if you look at the legislative history, it seems clear that what Congress was getting at here was, Congress was attempting to carve out an exception to the broad prohibition on the use of currency for expressive purposes that was established in Section 474. Congress was aware of the fact that over the years the Secretary of the Treasury had created administrative exceptions to the broad ban in 474, and in fact had permitted the use of illustrations of currency for certain of these purposes. Congress essentially codified this administrative practice in the statute, but we submit that Congress did not intend in enacting this statute to require Secret Service agents to pore over every single publication that might contain an illustration of currency in order to determine whether--
Sandra Day O'Connor: Well, For example, you agree, don't you, that it is very difficult to support the requirement that it be determined whether something is newsworthy.
Elliott Schulder: --That's correct.
Sandra Day O'Connor: Okay. So what I want to know is specifically what it is you are suggesting this Court do with this statute.
Elliott Schulder: Okay. We suggest that the Court look at the statute and look at the legislative history. Both the Senate and House reports, which are identical in their language--
Sandra Day O'Connor: You are telling me why we should do something, or background, but why don't you tell us what it is you think we should do specifically? What--
Elliott Schulder: --We suggest--
Sandra Day O'Connor: --How should it be interpreted? What narrowly?
Elliott Schulder: --We suggest that the Court construe the statute narrowly, so that the statute would permit the printing of illustrations of obligations or securities of the United States in publications so long as those illustrations comply with the three conditions set out in the statute.
Sandra Day O'Connor: Any kind of publication for any purpose.
Elliott Schulder: That's correct. We believe that the purposes and forums that are provided in the statute are basically illustrative. Congress did not intend to establish a narrow list of requirements that a publication had to meet in order to be able to print illustrations of currency.
Sandra Day O'Connor: At one point you suggested that we might strike down that section altogether and leave only 474 in place.
Elliott Schulder: Well, we didn't suggest that, Your Honor. We suggest that the two statutes be read together. However, if the Court decides that under our narrowing construction there still is a problem with Section 504 in terms of the lines that are drawn, I will try to explain why the lines that are drawn in this statute are valid, but if the Court still finds a problem with the statute, then we submit that Section 474 should still remain as a restriction on the printing of U. S. currency.
Warren E. Burger: Aren't we always in a sensitive area when you have a statute authorizing some government official to decide what is or what is not newsworthy?
Elliott Schulder: That's correct, Your Honor, and that is why we have proposed this narrowing construction of the statute, which we feel is fully consistent with Congress's intent--
Warren E. Burger: Well, how do you narrow that construction?
Elliott Schulder: --Excuse me?
Warren E. Burger: How do you narrow the phrase in the exception, "newsworthy purposes, including newspapers, journals, articles? "
Elliott Schulder: Well, the way we have suggested that it be construed is that these various purposes and forums be looked at as illustrative. In other words, Congress was setting out groups of illustrations of the types of forums and purposes that were permissible. The only purpose here that is mentioned as being impermissible is advertising purposes, but we would submit that this list of purposes and forums was simply illustrative, and that Congress did not intend to have Secret Service agents decide in enforcing the statute whether--
Byron R. White: Mr. Schulder, even if we didn't agree, even if we said that we couldn't agree with you based on the legislative history, and certainly not the language of the statute, that that is what Congress intended. Since this is a federal statute and a federal court, we could just get rid of the overbreadth and declare that illegal. We wouldn't have to make it a statutory construction problem. We could say it is... we just clip off the overbreadth.
Elliott Schulder: --I believe that's correct, Your Honor.
Byron R. White: We have done it before. So whether it is construing it narrowly or not, you would concede that there is part of the statute that must be dispensed with somehow.
Elliott Schulder: That's correct.
John Paul Stevens: May I inquire? The three things you want to retain are the size limitation, the black and white versus color, and the destruction after use. As long as those three things are met, that is all you ask us to save?
Elliott Schulder: Well, also the requirement that the illustration be included in a publication of some sort.
John Paul Stevens: I see. In other words, that's what the... illustrative of all publications.
Elliott Schulder: That's correct.
John Paul Stevens: And it could be for any kind of story, not just about the item.
Elliott Schulder: That's correct. We submit that the statutory scheme is an example of reasonable line drawing here. It is very similar, we submit, to valid statutes that regulate the size and placement of outdoor advertising signs or the decibel level of loudspeakers or the hours in which loudspeakers can be used, or the time and place for parades. Clearly, there is a nexus here between the color and size requirements and the statutory goal of protecting against counterfeiting. Congress specifically relied on the advice of the Department of Treasury in fashioning these provisions of the statute here.
Sandra Day O'Connor: Mr. Schulder, what did the illustrations in the appendix failed to comply with other than color?
Elliott Schulder: Certain illustrations failed to comply with the size provisions of the statute, Your Honor. Now, it certainly is possible to think of examples where the statute might proscribe protected conduct, but we submit that that could probably be done with almost any statute. Our submission here is that Congress meant to address what is a real problem in enacting this statute.
William J. Brennan, Jr.: Mr. Schulder, may I ask, does this... do either of these statutes reach one of these things on a television screen?
Elliott Schulder: No, the statute does not... 504, Subsection 2, specifically excludes any prohibition on motion picture films, microfilms, or slides that are used for--
William J. Brennan, Jr.: So what Time did here could be done on a television screen or in a motion picture?
Elliott Schulder: --That's correct.
William J. Brennan, Jr.: But not in a journal or magazine. Is that right?
Elliott Schulder: And the reason for that is that the Treasury Department advised Congress that motion pictures or TV use could not be used for counterfeiting purposes, but there is a restriction in the statute that all of the materials that are used to prepare motion pictures or these other uses be destroyed after their use. Now, the problem--
Byron R. White: What is the purpose of the size limitation? Just to make sure that no one would mistake it for the actual thing?
Elliott Schulder: --That's correct, Your Honor.
Byron R. White: Well, it would seem to me that something in color, if it were large enough or small enough, no one would ever mistake it for the real thing.
Elliott Schulder: Well, the problem--
Byron R. White: I mean, it doesn't make any difference how large or small it is. If it is in color, it violates the statute.
Elliott Schulder: --That's correct. Now, let me explain that the statute... there are basically two problems that the statute is directed at. One is the finished product, and both the color and size limitations would go to that, because a full color, full size reproduction certainly could be passed as--
Byron R. White: Sure, but--
Elliott Schulder: --Now, even in the case of a color reproduction that is overblown or blown up, the main problem there is in the process of producing it. The four color process of producing a color print is--
Byron R. White: --So the United States submits that it is dangerous to the currency to publish an oversized or undersized--
Elliott Schulder: --Color illustration.
Byron R. White: --photograph if it is in color.
Elliott Schulder: That's correct.
Byron R. White: Even if anybody would know automatically, just at a glance, that that is not the real thing.
Elliott Schulder: That's correct, because the process that is used to create that photograph is identical to the process that is used by a vast majority of counterfeiters.
Byron R. White: I know, but if it is the process, if it is the process, what do you care about the results of the process being circulated? It is the process, and that doesn't go on on the magazine. That goes on when you print it or photograph it, and you are requiring that all this machinery or whatever, the plates or whatever you call them are to be destroyed.
Elliott Schulder: Well, but by limiting the use of... by restricting or prohibiting the making of color photographs, the statute narrows the universe of publishers who are going to have materials that are capable of printing currency in color. It will give the Secret Service and law enforcement agencies a smaller universe of people to have to deal with in investigating and detecting counterfeiting.
Byron R. White: I see.
Elliott Schulder: Now--
John Paul Stevens: I must confess, I don't really follow that. I thought any photo offset printer, any qualified printer could actually do this. You don't have to be taking pictures of dollar bills in order to have the capacity to take pictures of dollar bills, do you, if you can take pictures of other things that have the same general characteristics.
Elliott Schulder: --I'm not sure I understand.
John Paul Stevens: Well, as I understand it, you are suggesting that in order to have the expertise, in order to take pictures of money, you have to actually take pictures of money. You can't get the expertise by--
Elliott Schulder: Oh, no. Oh, no, no.
John Paul Stevens: --your general ability as a photo offsetter.
Elliott Schulder: No. That's not what I was suggesting at all. I was suggesting that the statute is narrowing the universe of people who are going to have possession--
Byron R. White: Well, it really isn't. You don't... This law wouldn't prevent Time Magazine from publishing a color photograph of a pound note.
Elliott Schulder: --Well, there may be another statute that prohibits--
Byron R. White: Well, I know, but--
Elliott Schulder: --publication of foreign currency.
Byron R. White: --but I can't believe, like Justice Stevens, that your just prohibiting photographing, publishing photographs of currency in color would make any dent in the process, because there would be hundreds of other things that they would be using the same process--
Elliott Schulder: It is not a question of making a dent in the process. It is a question of narrowing the number of publishers, or eliminating the possibility that publishers will have a legitimate basis or a legitimate excuse for having possession of negatives, the four-color negatives of currency.
Thurgood Marshall: --Then wouldn't you have to get rid of all photo offset people?
Elliott Schulder: No, you would just have to... no, the problem is not with the photo offset--
Thurgood Marshall: Isn't that the only way you could be sure?
Elliott Schulder: --The photo offset process is not the problem. It is simply--
Thurgood Marshall: What is the problem?
Elliott Schulder: --The problem is the potential use of that process to create color negatives of currency, which is precisely the same method that counterfeiters use to produce counterfeit currency.
John Paul Stevens: Yes, but, Mr. Schulder, if I may, they argue their best case is the particular things in the record, so we perhaps don't even need hypothetical examples. Take this example of the cover where a man is holding a bunch of bills in his hand, the one on the... holding your pocketbook. What possible use could the plates for that picture be to a counterfeiter? I mean, if you made a million pictures of that, you could never pass that.
Elliott Schulder: No, the plate of that particular photograph would not necessarily be of use to a counterfeiter, although--
John Paul Stevens: Is there any government interest, legitimate government interest in preventing this particular picture?
Elliott Schulder: --I would submit that there is, there is, that actually the final product here on Page 19 of the Joint Appendix does pose a possible counterfeiting problem, and I would also refer the Court--
John Paul Stevens: Well, what is the problem?
Elliott Schulder: --Well, I would like to refer the Court to the preceding page also, Page 17. The problem is that--
John Paul Stevens: I see it on 17. You've got a flat bill. I see that.
Elliott Schulder: --Okay. But one of the... one of the most common methods of counterfeiting currency is to cut the corners of a higher denomination bill and paste those onto a lower denomination bill. I have seen examples where someone, counterfeiters have taken one dollar bills and have left the picture of George Washington and one dollar on the currency, and simply pasted twenties or tens in the corners, and those have been passed, believe it or not. 0 [Generallaughter.]
Thurgood Marshall: I see. Well, how would this hurt or help that?
Elliott Schulder: Well, it would seem to me that someone--
Thurgood Marshall: How would this hurt or help that?
Elliott Schulder: --This would prevent someone from being able to cut out the number ten--
Thurgood Marshall: Well, instead of cutting out this, why not cut a dollar bill, which is rather available?
Elliott Schulder: --No, the problem isn't cutting a dollar bill. The problem is cutting a ten dollar bill.
Thurgood Marshall: They are pretty available now.
Elliott Schulder: But no one is going to--
Thurgood Marshall: I even have one. 0 [Generallaughter.]
Elliott Schulder: --No one is going to destroy a ten dollar bill in order to pass counterfeit. What they want--
Thurgood Marshall: I thought you said they did. I thought you said they cut one bill and put the other one on.
Elliott Schulder: --Well, they cut an illustration of a bill.
Thurgood Marshall: All this does is, it saves the counterfeiter ten bucks?
Elliott Schulder: That's correct.
Thurgood Marshall: It hasn't run them out of business. Well, now, let me be sure I understand. You point is that even on this one, they could cut the corner out of the magazine cover and paste that corner, which would cost them less than ten dollars--
Elliott Schulder: Certainly.
John Paul Stevens: --onto a one dollar bill.
Elliott Schulder: Certainly.
John Paul Stevens: I understand.
Elliott Schulder: And I think the example is even more graphically illustrated in the one on Page 17, where the size is almost identical to the size of real currency, and you are dealing here with a thousand dollar bill, which are rarer... they are not really in circulation, general circulation.
Byron R. White: If these had been oversized, or sufficiently oversized or sufficiently undersized, it still would violate the law if it were in color.
Elliott Schulder: If it were in color. That's correct. That's because of the problem--
Byron R. White: That is still not at all... I'm not sure I understand your color--
Elliott Schulder: --Well, the problem is... the problem that Congress was trying to get at was to eliminate the possibility that there would be multiple plates and negatives of currency. Those are the same negatives and plates that counterfeiters use, and--
Byron R. White: --We just couldn't rely on them to destroy them, I take it. Is that the problem?
Elliott Schulder: --That's correct.
Byron R. White: Is that the worry?
Elliott Schulder: That's correct.
Byron R. White: So it isn't the process, it is the fact that there are plates and negatives that they would be using.
Elliott Schulder: That's right.
Byron R. White: Because if they are taking a picture of an actual bill, what would they do? Would they... would the plate be the same size? I would think they would just take a picture and it would come out either large or small.
Elliott Schulder: Well, the plate could be different sizes. I mean--
Byron R. White: Well, I know, but if it were sufficiently large, no counterfeiter could use it.
Elliott Schulder: --That may be.
Byron R. White: Well, still, then, I don't understand the--
Elliott Schulder: Well--
Byron R. White: --First you say it is the process, which doesn't make a whole lot of sense. Now you say it's the plate, the negative.
Elliott Schulder: --Well, by the process, I mean the materials that are used in the process of producing the final product.
Warren E. Burger: Are you using plate in the sense that the plate is the process, part of the process?
Elliott Schulder: That's correct.
Byron R. White: Well, do you think at some point in reproducing a color photograph there is some plate that is exactly the same... a negative that is exactly the same size as a--
Elliott Schulder: Yes. As I think I have made clear, it is difficult to draw precise lines in this area. There are situations, as I pointed out, where there are clearly problems in permitting reproduction of pictures of currency, and there is a continuum between those cases, the case of the full color, full size illustration and other cases that move away from that. But the alternatives that might be available, we submit, would create problems of their own. They would be difficult to administer. They would leave broad discretion in the hands of law enforcement officers, and would create the possibility that the law enforcement officers would enforce the law on the basis of the content of the communication. We would submit, finally, that the First Amendment interest in publishing color rather than black and white pictures of currency is quite minimal. The color and size limitations of the statute serve the concededly compelling governmental interest in protecting against counterfeiting, and that the statute leaves open ample alternative means of communication, such as black and white illustrations that comply with the size requirements. Accordingly, we submit that the judgment of the district court should be reversed. I would like to reserve the remainder of my time for rebuttal.
Warren E. Burger: Very well. Mr. Gold, you may proceed whenever you are ready.
Stuart M Gold: Mr. Chief Justice, and may it please the Court, the central issue in this case is the right of Time or anyone to make or publish pictures that pose no substantial risk to any legitimate government concern. I think the case is reducible when I think of it to basically three words, three or four words on the one hand. That is, pictures, where I thought this case was about when we brought it, and color plates and negatives, which is where the government has taken it, although today for the first time I get the feeling we are going back to the pictures, what the case was originally about, because we are now told that people will clip the edge of the Lockheed cover, paste it, that thousand dollar, that thousand figure, on a one dollar bill and be able to pass it.
Byron R. White: But you have heard this before?
Stuart M Gold: I have heard that that happens?
Byron R. White: Earlier in this case?
Stuart M Gold: No, earlier in this case I have never heard it before. As a matter of fact, the government never submitted any facts.
Byron R. White: How was it just a picture case to begin with--
Stuart M Gold: We brought this case because the statute as written and indeed as interpreted by the government prevents us from printing this picture of George Washington, and our basic thesis was that there is no danger in this picture to the currency and there is no danger in the plate that was used to make this picture. The plate used to make this picture has all the distortions that are on this. It also prevented us from presenting... it didn't prevent us, but the government--
Byron R. White: --Is there a distortion there except the size?
Stuart M Gold: --There is a distortion there in the--
Byron R. White: No, on the George Washington.
Stuart M Gold: --Yes, there is distortions in the overlays, just as in the Lockheed cover, which was a thousand dollar bill, you have overlays.
Thurgood Marshall: Yes, sir, I was wondering which... when you cut off the thousand dollar figure and paste it on a one dollar bill, what do you do with Washington's picture?
Stuart M Gold: Well, you probably--
Thurgood Marshall: I mean, he was talking about that.
Stuart M Gold: --I don't know, and I submit that when you pass a thousand dollar bill, while perhaps people don't look very closely when they get handed a one dollar bill, although--
Thurgood Marshall: You can starve to death when a thousand dollar bill is going to give you cash. 0 [Generallaughter.]
Stuart M Gold: --I do not think that that is a significant danger. So this really was a picture case in the sense that we brought it because we think we should be able to make pictures just like Gail Wagner should be able to make his three-foot thirty dollar bill with Nixon's picture in it. That, too--
Harry A. Blackmun: Wasn't Wagner a woman?
Stuart M Gold: --Excuse me?
Harry A. Blackmun: Wasn't Wagner a woman?
Stuart M Gold: Yes, sir. I apologize. To allow Gail Wagner to make her representation. When the government... which raises another point.
Harry A. Blackmun: It happens to be an Eight Circuit case. That's why I know. While you are stopped there, what picture appears on a thousand dollar bill, whose picture? 0 [Generallaughter.]
Stuart M Gold: That's a good question.
Harry A. Blackmun: I think it is Mr. Cleveland, isn't it?
Stuart M Gold: Grover Cleveland. Yes, it is, Your Honor.
Warren E. Burger: But I suppose perhaps the suggestion is that so few people, including some present here, are familiar with thousand dollar bills that a person could be deceived. Is that part of the government's claim?
Stuart M Gold: Well, if that is part of the government's claim, the one thing I would know is that if I was handed a thousand dollar bill with Washington, Jackson, Hamilton, Franklin, or Grant on it, I would be very suspicious. The government also... another point that was made today was this notion that we are now gravitating towards a case that only involves really color and size. I just want to remind the Court that as written and as enforced before this case was brought, the purpose, the purpose element was enforced against us. In fact--
Sandra Day O'Connor: Well, what if it were narrowed, as the government is arguing, so that all that is left is a color and size limitation?
Stuart M Gold: --And I believe the government is now also still claiming that there would be a publication limitation, which we might be covered in in terms of an exemption, but it raises several problems for both Gail Wagner and people who might want to tear out the cover of Time Magazine and place it on their wall. Does it become contraband then? But putting that to one side, addressing the color and the size, which seem to be the major concerns here, the problem with the color restriction is twofold. One is, the government says it is trivial, our interest in printing in color is trivial. I don't know why they picked the word "trivial" unless perhaps it is something lower than what Shad says, which is, anything that puts even an incidental burden has to be looked at and examined, but again, putting that to one side, as to why they used "trivial", it is not trivial. There is, A, a marketing reason why color is important to us. We don't do it. It is very expensive. We do it because we think we have to in order to get people to buy our magazine. It is very important. This picture in black and white would not be, I submit, as effective as it is in color. So it is not a trivial interest, one, in terms of the market power, that we must print in color to compete, and to attract readers to our message, and two, color has tremendous impact.
William H. Rehnquist: Well, but you can put on a thousand other covers in color without putting this one on.
Stuart M Gold: Excuse me?
William H. Rehnquist: I say, you can... if you want a colored cover, you can pick a thousand other subjects to do with money without printing a picture of George Washington--
Stuart M Gold: That is true, but I did not think that unless the government can demonstrate in the first instance that there is a substantial interest as being furthered of theirs that they have the right to tell me, go write and illustrate some other story, or put your story about the economy, but don't use this symbol.
William H. Rehnquist: --They say that the interest that is being furthered is the danger of helping counterfeiters.
Stuart M Gold: But there is no danger.
William H. Rehnquist: Well, if the Congress has said that, why should you or I try to second guess that?
Stuart M Gold: Because Congress, when they are passing laws that restrict speech, are supposed to make an effort to draw lines that are reasonable. There are reasonable lines here. In order to prevent what I think the government is really getting at... And there is a footnote in their brief about a magazine that published a full color actual size hundred dollar bill. If that is what the danger is, and I can conceive that there is a danger of that, then let's have the government regulate that, prevent that. You don't have to prevent all color representations in order to pass a statute that will stop someone from making a full size, actual size, actual color representation of a hundred dollar bill or any dollar bill.
John Paul Stevens: May I ask you, would you have any objection if the statute merely had the size limit in it?
Stuart M Gold: Only had the size limit?
John Paul Stevens: It would be perfectly all right, I gather, under your argument.
Stuart M Gold: I have got a couple of problems. The size... the statute doesn't let you publish any part of the bill. Now, size may again become--
John Paul Stevens: Assuming that the size applies to parts as well.
Stuart M Gold: --Okay. I would say that if the statute were struck and Congress in its considered judgment, after fully vented the First Amendment interest and the government's interest, drew the line in terms of just the size, you cannot print in the actual size, or if they drew the line as the Treasury Department submitted, one and a half times as large or less than three quarters, if after their considered judgment that was the statute that came out, this would be a very different case.
John Paul Stevens: But you could still come in and say, but we really can't make quite as dramatic a symbol unless we have an exact size dollar bill on the cover--
Stuart M Gold: But if the government were to demonstrate that there was a serious danger for bills that were one and a quarter the time... times the size of the actual thing, and Congress then passed the line there, our case would be very weak, I submit. But here we haven't had that. Here we have had a statute that... 474, Paragraph 6, was not considered very much when it was passed; 504 was considered but basically on the submission of the Treasury Department. No one ever raised a First Amendment concern.
John Paul Stevens: --Well, what if we held it unconstitutional, Congress had a committee meeting, and they studied it at great length, say, we have thought about this, and we think the statute we used to have was absolutely necessary, and they wrote a lot of findings saying that it is kind of remote, but we think there is a danger that people might copy it if we don't, so they re-enacted precisely the same statute after lots of hearings and lots of legislative history. Would it be valid?
Stuart M Gold: I don't think so, because I don't think that there would be any legislative history that could show that you need to prevent these kinds of pictures or these kinds of plates, even, to control what you are trying to stop, the impact on counterfeiting.
Sandra Day O'Connor: Do you think the fact that there is a specific provision in the Constitution permitting Congress to enact legislation in this area gives it more significance, the power of Congress?
Stuart M Gold: Not--
Sandra Day O'Connor: We are not dealing with the necessary and proper clause. They have specific power in the Constitution.
Stuart M Gold: --I do not think that that has bearing on whether or not they are passing statutes that in fact further the interest against counterfeiting. This statute doesn't... its purpose is to attack counterfeiting, but I am not sure it really addresses the problem. It really does not.
Sandra Day O'Connor: I suppose trademark laws impact on the First Amendment rights of your client, don't they?
Stuart M Gold: Yes.
Sandra Day O'Connor: Are they unconstitutional because you can't print something that has a trademark?
Stuart M Gold: No, those are not unconstitutional. However, here, there has been no weighing. There is a reason why trademarks are protected, just as copyrights are protected, and certainly protecting copyrights, for instance, furthers a purpose in which there has been a decision that First Amendment rights have to give way somewhat. We are not saying--
Warren E. Burger: Could the Treasury... Could the Secretary of the Treasury copyright all of his currency symbols?
Stuart M Gold: --I don't believe so.
Warren E. Burger: Why not?
Stuart M Gold: Let me amend that. I don't think he could copyright any and each part of this... of the currency.
Warren E. Burger: The whole thing.
Stuart M Gold: The whole thing? I am not sure whether... I am not sure whether that expression is original enough to qualify as copyright. However, if he was able to copyright the entire bill, which again I am not sure he could, then I think we would... to a large extent might qualify in using parts of it, and we have never used the entire piece of currency as a fair use.
Warren E. Burger: Let me pursue one of the other hypotheticals given. Suppose Congress had made this overwhelming, virtually conclusive legislative history of their belief, their collective belief that this was imperative, these limitations, to protect against counterfeiting. Would a court then approaching this problem have to weigh that value against the value of the... the values, the First Amendment values, if any are involved, in what a publisher is trying to do, and consider whether there are other ways the publisher can accomplish the same thing without running a foul of the statute?
Stuart M Gold: Yes, I think, as I said before, that would be a different case, if those findings were made. However, this case has existed for quite some time now, several years, and I have yet to hear any compelling, compelling justification of the restrictions of this statute in furthering the interest in preventing counterfeiting.
Warren E. Burger: But you do agree that this is a balancing process, from what you responded.
Stuart M Gold: That there is some element of balancing in that once the government demonstrates that this is advancing in some way their interest, then maybe our First Amendment rights to some extent have to give way, but there has been no such demonstration.
Warren E. Burger: Frequently we either modify or strike down a statute because we conclude or other courts conclude that there are less intrusive, less difficult means of accomplishing the same objective. Would we then weigh whether a publishing house has other means of accomplishing their objective without striking down an Act of Congress?
Stuart M Gold: Yes, once you are convinced that the government has demonstrated that this is a danger. Until then, I believe that it is Time as well as other people's right to make their editorial judgments, their judgments that this picture, which is banned, and that we wanted to publish to demonstrate that a corporation was cash rich, and while its future was uncertain, depending on the decisions it made, the horizons were unlimited, and had to go with a picture that has coins on there to demonstrate that this is a cash rich company.
Lewis F. Powell, Jr.: Mr. Gold, how would the government go about demonstrating what you said it must demonstrate? How would it go about it to your satisfaction?
Stuart M Gold: Well, to demonstrate a need to do what they want to do, I don't believe they could.
Lewis F. Powell, Jr.: Do you agree as a starter that the government does have a compelling interest to protect its own currency?
Stuart M Gold: To protect against counterfeiting? Yes, it does.
Lewis F. Powell, Jr.: Yes.
Stuart M Gold: It does. And, Your Honor, if they came in with proof that demonstrated that the making of plates in copies for use as magazine covers were a problem, and then the Congress went on to write a statute that punished you for printing, publishing, possessing a plate or picture in an exact copy of the currency, that probably would withstand the test.
Lewis F. Powell, Jr.: Have you put your hand to a draft of a statute that you think would meet your views?
Stuart M Gold: As a matter of fact, I did attempt the first--
Lewis F. Powell, Jr.: Is it in your brief anywhere? I don't recall seeing it.
Stuart M Gold: --No, it is not. But I have tried to think of would we be sending this back for Congress to go through the motions and then come back and say there is no way to get at even what the government legitimately wants to get at. I think they could if they prohibited the making, possessing, selling of a duplicate or exact copy of an obligation of the United States or any plate or negative from which one could be made. Then I thought there might be a loophole there, that there may be some people who make bad copies, and then will try and do something with them, so that they could have a statute that also prohibits the making, possessing, selling, passing of a likeness of any obligation and perhaps any part thereof with the intent to defraud. There, you will get somebody who intends to do something bad with it but it just didn't come close enough.
Lewis F. Powell, Jr.: When you say, when you use the term "exact likeness", that is exactly what counterfeiters do. In other words, no use limiting that. Criminal law takes care of that.
Stuart M Gold: Well, but the government, if I understand them, does not want, or one of their big pitches to you has been, we need... we can't catch people when they are in the act of the counterfeiting. We have got to stop it a step before. We want to go into the printing plant, and if these plates are in there, say, we now have the right to assume that these plates may be used for counterfeiting.
Warren E. Burger: Mr. Gold, you and your friend have both focused on currency. These statutes deal with more than currency, do they not, government bonds, for example? What else besides currency?
Stuart M Gold: Anything that comes within the definition of an obligation.
Warren E. Burger: Any obligation of the government.
Stuart M Gold: Yes.
Warren E. Burger: Now, there are a great many, probably many millions of people in this country who have never seen a government bond, but if they were confronted by something that looked the way they thought a government bond probably looks, there being as many gullible people in this country as we constantly read about, frequently in Time Magazine-- 0 [Generallaughter.] --aren't they entitled to protection, and isn't the government entitled to protect those people, laying aside dollar bills?
Stuart M Gold: Right. Well, the first thing I would say is, yes, they are entitled to protect people, and one way to protect that is, as was just mentioned, was to go after the person who takes the copy of the... the counterfeit copy of the bond and tries to pass it. The second step would be, again, if they demonstrated that it was useful to have plates or pictures of parts of bonds that could be used to defraud people, again, with that kind of showing, perhaps they could sustain a statute that once again would protect against what they are trying to do. It may be that after re-examining the statute, Congress would say bonds is a different story from currency. I am not sure they would, but they might. Again, we are dealing here with no demonstration.
Lewis F. Powell, Jr.: Mr. Gold, you never have told me how Congress could demonstrate what you think is necessary.
Stuart M Gold: I would think if there were... if the government came in, for instance, as I said, and presented a problem of plates existing--
Byron R. White: Tell me where. In this one suit?
Stuart M Gold: --Into Congress.
Byron R. White: Oh, into Congress? You don't demand that it be done here and--
Stuart M Gold: Well--
Byron R. White: --we put it of record in this lawsuit?
Stuart M Gold: --No--
Byron R. White: You want it by testimony, witnesses?
Stuart M Gold: --Justice White, the record in this lawsuit, certainly in the district court, there is no evidence from the government. In this court, they have tried to make a showing by telling... giving you various facts, like the Impacto story. That is why I said that I am highly dubious that the government, if they had to present justifications if the statute is struck down and Congress is going to deal with it, that they could justify it, because we have not heard it. I have not seen anything in their submissions to this Court, forgetting about whether they are in the record, but in their briefs that lead me to believe that Paragraph 6 of 474, with or without its exceptions, is a necessary tool for the government. If you read the rest of the statute, the other sections that they have at their call to deal with the problem, it catches most things. Indeed, there is in my mind, depending on how you read 474, Paragraph 2, you might even catch the Impacto, the full color, full size.
Byron R. White: You don't think Paragraph 6 furthers their interest at all?
Stuart M Gold: It furthers their interest in the sense if you are going to accept that, if it in any way furthers it, it does, because certainly they are closing a tiny loophole that may exist, but I don't believe in the First Amendment context--
Byron R. White: Well, I suppose if the people at Time Magazine, if this was the law and if Time Magazine obeyed it, they wouldn't have to worry about plates at Time Magazine.
Stuart M Gold: --They wouldn't have to worry about plates at Time Magazine--
Byron R. White: Or any other publisher.
Stuart M Gold: --But... Well, they would still have to check them if they wanted to make sure that no one was creating the plates.
Byron R. White: Well, I know, but that is their point. They want to narrow the universe of where they have to look, and I can imagine what kind of a problem they would get in if they wanted to get into Time Magazine and check.
Stuart M Gold: Your Honor, clearly, if ease of enforcement were the only test here, and I think this Court has stated in the Village Schaumburg case that ease of enforcement is not enough to get them over the hurdle before they put our burden on demonstrating why we must have the ability to print these pictures and express ourselves in that way. Yes, it is easier to enforce. You can always go after a fly with a cannon. That is what they have done here. They have tried to... What I think they have done is, they want to close the loophole that does get at the person who is making full representations of currency that do present perhaps a danger, and doing that, they say it's a lot easier if we just prevent anyone from using the symbol except in these certain ways, and when they choose the ways, they do not make any reasonable sense either. This is just not a well constructed, well thought out statute. And when I say statute, it is a scheme. I include 504 in it. The lines that the Congress drew with 504 just don't make it. In order to get at full color representations, you don't ban all color. If you are really after the actual color, you don't ban all color. The same with size. If you want to prevent actual size representations, you don't prevent any part of currency being represented in the actual size. There is a picture in our appendix of George Washington in a life preserver, just the picture of George Washington. That we were told was no good because that part of the bill that we did show was in exact size. I submit that is not a danger. That picture was not a danger to the currency. And that Congress could pass a statute that would further the true interests that the government has a right to be interested in here, and that is preventing people from making things that do present a danger, and there is a way to do that without stopping Time from making its covers, or Gail Wagner from making her picture.
John Paul Stevens: Mr. Gold, may I ask if there is anything at all in the legislative history to indicate that any publisher, Time or anyone else, has ever asked Congress to make certain exceptions such as you are asking us to make? Apparently the statute came about because the Treasury Department decided that the statute was broader than they really needed and they cut back, but has anybody on your side of the fence ever said, let's cut back on it?
Stuart M Gold: I think there are two answers to that. The first is, there is currently, as the government points out, there is currently some legislation that is pending in which certain publishers are trying to get color removed, but to go back to 1958, I am not sure why. However, I submit that before that time, Time had not in fact, at least from Time's point of view, Time had not used currency in their covers or internal pictures in a way that might violate... at that time any use that would have violated the statute. Currency... I am sorry. Our first instance with the enforcement of the statute was in 1965, when we wanted to present the Fowler cover, which is attached to the Schwartz affidavit. Money has become a much more important symbol, in the sixties and particularly in the seventies. Most of our covers and usage have been in the seventies. So in 1958, I am not sure, at least from Time's point of view, that someone had sat down and really had the problem. It wasn't brought home until we decided to make use of the symbol, and then found that the Secret Service was at our door with varying interpretations, and many interpretations that would stop us from publishing. Indeed, one thing to keep in mind is that the Secret Service has interpreted this statute in its narrowest form whenever it could. It has taken the... It has tried to close whatever it could to prevent things from being published, right down to when they at one point insisted that the representation of the dollar... of the currency had to relate directly to your story. Your story had to be about that particular representation of currency to qualify under the purpose, and the Lockheed cover as an example, where we were told that that was one problem there. Now, I realize that after this lawsuit was brought, and in this Court the Treasury Department and Secret Service have now withdrawn that interpretation, but if you consider the way the current statute has been interpreted by the enforcement agency, that also should raise some concern.
Warren E. Burger: Let me ask you one hypothetical that may seem very far-fetched to you. Suppose someone is charged with the traffic events of driving on a particular street in excess of the 30-mile-an-hour limit, and then it is tried on stipulation, in which it is stipulated that he was going 31 miles an hour, along with expert testimony of traffic people and a lot of others that 31 miles an hour is no more dangerous than 30 miles an hour, and therefore the statute is invalid, and the court responds, the trial court responds that legislation cannot be perfect. Legislators are entitled to make general propositions. On appeal, do you think that should be affirmed or reversed?
Stuart M Gold: I would submit, and I understand the teachings of cases like Grayned that we can't expect mathematical certainty, but that case, I don't believe that that person would be asserting a First Amendment right to go 31 miles an hour. I don't think we can lose sight of the fact that what we are weighing here, what we are balancing is our First Amendment rights and those of others against the government's assertion that it must have this--
Warren E. Burger: The First Amendment has been thought to cover the right to travel, so it wouldn't take a genius lawyer to bring this in.
Stuart M Gold: --Well, that is true, and in that showing the burden, if there had been a showing that that furthered the government's purpose, in fact, and there had been some showing, right or wrong, and the infringement on the First Amendment right was the ability to... whether you could go that extra mile, then I would say that is a different case and that probably would be affirmed. But that is not our case.
Lewis F. Powell, Jr.: Mr. Gold, was the substance of 474 enacted way back in 1864?
Stuart M Gold: Yes, it was.
Lewis F. Powell, Jr.: And you are taking the position that it has been for all those years a substantial infringement of free speech, for 119 years?
Stuart M Gold: It sat there as one, yes. Unfortunately, as I have said, it wasn't brought home to us until we in our editorial judgment tried to make something--
Lewis F. Powell, Jr.: But free speech in the United States has suffered as a result of this for all of those years?
Stuart M Gold: --I submit it has suffered when people have tried to do these things and been told they couldn't or suffered the consequences, Gail Wagner. There is suffering when that gets confiscated. There is suffering when people who may have known the statute was on the books... We don't know how many covers perhaps never got thought of or even attempted, or other representations like Gail Wagner's never were executed because the statute was on the books. We will never know how much of a restraint on free speech it actually was.
Harry A. Blackmun: Mr. Gold, I owe you an apology. Gail Wagner's middle name is Edward, so it must have been a man. 0 [Generallaughter.]
Stuart M Gold: Thank you. That concludes my presentation.
Warren E. Burger: Do you have anything further, Mr. Schulder?
Elliott Schulder: Yes, Your Honor. I would like to make several quick points.
Warren E. Burger: Two minutes you have.
Elliott Schulder: First of all, Time tells us that Congress was in effect foolish to think that the statutory restrictions in this case would be affected, but we submit that that is really not something that this Court should quickly second guess. For example, Mr. Gold said that he would be very suspicious it be were handed a thousand dollar bill with a portrait of Grant or Franklin on it, but he himself wasn't sure whose portrait was on the bill, and it is clear that Congress was properly or could properly have been concerned with people not as astute as counsel in this case. Mr. Gold has also suggested several alternative ways that the statute could be written, but I believe that there would be problems with each of those. The first suggestion is that Congress could prohibit a duplicate or exact copy of a bill or plate or negative, but what is an exact copy? A publisher could produce a copy that is only one and a half percent larger than the real thing, and most people would be fooled, especially when we are talking about all of the securities and obligations of the United States, including bonds, which most people have never seen.
John Paul Stevens: I take it your position is that Congress could prohibit the manufacture of wooden nickels.
Elliott Schulder: Well, we don't have to go that far in this case.
John Paul Stevens: Well, I don't know why not. Couldn't they, under your view?
Elliott Schulder: It conceivably could. Yes. We also... The other alternative would be to insert an intent element, but as we pointed out in our main brief in this case, an intent requirement would make the statute meaningless. Time could publish an exact duplicate illustration of currency with the perfectly innocent intent of providing news and exercising its First Amendment rights, and yet people could then take that illustration and possibly pass it. We can't expect all publishers to be as responsible as Time, and so we submit that Congress clearly had these factors in mind when it enacted the statute. Thank you.
Warren E. Burger: Thank you, gentlemen. The case is submitted.


Warren E. Burger: We will hear arguments next in American Bank and Trust Company against Dallas County. Mr. Sloman, I think you may proceed whenever you're ready.
Marvin S. Sloman: Mr. Chief Justice and may it please the Court: This case involves a state property tax on the shares of state and national banks, authorized by Texas statute but imposed and calculated by local taxing authorities. In the case before the Court the banks have paid the taxes as agents for the shareholders and they and the shareholders seek to have the tax assessment declared to be in violation of Revised Statutes Section 3701 as amended in 1959 to prohibit every form of taxation that considers United States obligations in the computation of the tax. The Respondents calculated the taxable value of the shares of each bank according to the bank's net worth. That is, as the court below put it at Appendix page 183, by taking the total assets of the bank other than real estate, which is taxed separately to the bank itself, and deducting the bank's liabilities, to come up with a net worth or equity capital or a number of names as it's known on call statements, financial statements or the taxing authorities, but in an accounting sense it is the net worth, the assets less the liabilities other than real estate. Now, among those assets were various amounts of United States obligations that went into that net worth that was used to determine the taxable value of the shares. Petitioners contend that Respondents thereby 3701. Thus, at the center of the case is the effect of the word "considered" as used in that statute. The word is given no special definition in the statute. Now, of course the word "consider" can be used in two senses: One, which is the sense relied on by Respondents, and they repeatedly refer to the state of mind of the tax assessors, refers to a subjective state or a mental process inside the mind. "In my considered judgment" or "This Court considers a case for decision. " But that sense of the word cannot be involved here because the word as used in the statute is addressed to and defines a prohibited form of taxation, which is incapable of a mental process. Another sense of the word "considers" deals with an objective state of facts, which the statute itself purports to do, as reflected in the dictionary definition of "to take into account". The general law of relativity considers the effect of gravity on light or takes into account the effect of gravity. This is the meaning that makes sense in the context of Section 3701, so that, substituting the dictionary objective meaning, the statute prohibits every form of taxation that takes into account United States obligations in the computation of the tax. And this is the sense in which this Court and the Texas courts and other authorities have described the computation of a share tax measured by net assets that included United States obligations. For example, in Des Moines National Bank against Fairweather, cited in our brief, this Court was dealing with a share tax that was computed just exactly like the one at bar. That is, assets, which included United States obligations, less liabilities resulted in a net worth that was the basis, the base for the tax. At that time Section 3701 was in the form before the 1959 amendment and only prohibited taxes upon United States obligations and not those which considered United States obligations, and the Court upheld the tax without a deduction for United States obligations on the familiar distinction that a tax upon a shareholder's interest is not a tax upon the corporation or the corporation's assets, even though, as this Court said in describing the tax there, "controlling consideration" is given to those assets in the computation of the tax. The Court in its holding said Section 3701 left no authority for taxing a United States obligation to the bank, to the bank itself, "but only for taking it into account in valuing the shares of the stockholders. " So that this Court in its description of this very kind of tax recognized that the tax considers United States obligations, takes them into account, but under the former form of the statute that was permissible because the tax was only upon United States obligations, whereas since the 1959 amendment taxes are prohibited, every form of tax that considers those obligations. We cite in our brief at page 14 Texas authorities that have used similar language and a similar approach in describing the very share tax that's before this Court. The assessment in the present cases take into account the bank's assets which include United States obligations and therefore come squarely under the statutory prohibition against considering United States obligations in the computation of the tax. Respondents, however, would read an implied exception into the prohibition of the statute in spite of its apparent application. But any implied exceptions are foreclosed by two specific exemptions that the 1959 amendment itself provided from its expanded prohibition. Under the pre-1959 version of Section 3701, when only taxes upon United States obligations were prohibited, this Court had upheld share taxes, as in Des Moines against Fairweather and other cases, and it had upheld franchise taxes, and it had upheld death taxes or succession taxes, where the tax was measured by assets that included United States obligations. And in each of those cases, which are cited in our brief and which cross-refer to one another... the francise tax case refers to the share tax case, and so forth... in each of those cases the tax was upheld because it was not upon United States obligations by which the tax was measured, but rather upon the shareholders' interest or the franchise or the death transfer. Now, when Section 3701 was amended by Congress in 1959 into its present form, on which Petitioners rely and which is before this Court, Congress specifically excepted franchise taxes and specifically excepted death taxes from the expanded prohibition of the tax.
Harry A. Blackmun: What about gift taxes?
Marvin S. Sloman: Gift taxes are not mentioned, Your Honor.
Harry A. Blackmun: Well, what happens then? Do we have one rule for estate taxes and another rule for gift taxes, even though they, in the old days anyway, used to be inter-related?
Marvin S. Sloman: Certainly in the view of the Solicitor General that's so. No gifts are involved in the case before the Court. But it would appear that, not being excepted from the statute, that they would be covered. Now, having made no exception for any kind of property tax, share taxes or otherwise, but having excepted franchise taxes and death taxes, it would be quite unwarranted to infer an exception or imply an exception, as Respondents would do, for share taxes. Respondents' several arguments end with Section 3701 having no substantive effect, at least as to banks. But the meaning of the statute is plain and its prohibition is clear, irrespective of who owns the exempt obligations. I reserve the balance of my time for rebuttal, Mr. Chief Justice.
Warren E. Burger: Very well. Mr. Brown?
Ernest J. Brown: Mr. Chief Justice and it it please the Court: I should like, on behalf of the United States, to refer the Court particularly to the circumstances, the background leading to the 1959 amendment, which is of course central here. I think that in light of those circumstances one can conclude, in the terms used just two months ago in the Memphis Bank opinion, that it can be determined that this statute is another manifestation of what the Court called the long-established Congressional intent to prevent taxes which diminish in the slightest degree the market value or the investment attractiveness of obligations of the United States. The legislation resulted from a presidential message, supported by an appearance of the Secretary of the Treasury, before the Ways and Means Committee, seeking what both called assistance in the management of the national debt, assistance by lifting the debt ceiling, by raising the interest ceiling, or I should say removing the interest ceiling, which was then 3.26 percent on savings bonds and... the figure seems strange to us today... 4.25 percent on obligations of a maturity of more than five years. The Secretary told the Committee that the Treasury was unable to market 4.25 percent bonds and so was necessarily financing the Government on very short-term obligations and Treasury bills. Also asked was what both the President and the Secretary referred to as other technical assistance, and that of course is what is referred to here in the exemption, or the further exemption or to clarify the exemption, of national obligations, Government bonds. The Congress did lift the debt ceiling. It did increase the savings bond ceiling. But it did not, after extended discussion of interest rates, whether they were inflationary or not... some of them have echoes even today, of whether higher interest causes inflation or inflation causes higher interest... but it did not. So it was the more important that the impact of state taxes on the federal bonds be carefully observed. Both the President and the Secretary informed the Congress that the state obligations had a very highly preferential position. Federal taxes were high then, as some think them now, and the state exemption made them very attractive, highly marketable. As a matter of fact, the Secretary informed the Committee that state obligations in the 12 postwar years had increased from $16 billion to $59 billion, which led to strenuous competition for the federal obligations in the market. The Secretary used as an illustration to the Committee an Idaho tax which was in force seeking to reach interest on Government bonds. The justification was the tax was on the individual, measured by the interest on the bonds.
John Paul Stevens: Mr. Brown, let me interrupt you right there, because that Idaho example raised a question in my mind. Supposing you had a corporation that was subjected to a state income tax and some of its income was derived from income on Government bonds. Would the dividend income of that corporation be exempt from tax to the extent that it reflected interest on Government bonds?
Ernest J. Brown: The dividends distributed by the corporation--
John Paul Stevens: To the shareholders, yes.
Ernest J. Brown: --No, Justice Stevens.
John Paul Stevens: Why wouldn't that be indirectly a tax on income, just as the tax on value of the shares is a tax on the underlying Government bond?
Ernest J. Brown: Well, it hasn't been thus far. The regulations under Section 312 of the Internal Revenue Code say that it doesn't carry over. I may quote Justice Holmes in Miller and Milwaukee saying that the corporation is usually an insulator which separates the nature of the corporate income.
John Paul Stevens: But in this case you're arguing the corporation is not an insulator.
Ernest J. Brown: Well, no... yes, after the statute I am arguing that it's not.
John Paul Stevens: That it's an insulator for income purposes, but not for asset purposes.
Ernest J. Brown: Well, I don't know that I would make that classification if it's not essential here. But I would like to point out that I think what's central here is not the insulation, but the use of the "or measured by" device, which has been frequently used in taxes, sometimes with unpredictable results. Justice Harlan... the Idaho case was used as an example, but perhaps a better example would have been the case decided by this Court just four years before, the Cleveland case, Society for Savings, where the tax on financial institutions was on their capital and surplus. But the Ohio court said, though this was a mutual savings bank, that the tax was on the interest of the depositors, measured by the assets of the bank. This Court did not agree. Justice Harlan pointed out that at times it was very hard to distinguish for practical purposes, Justice Stevens, the difference between a tax on the assets and a tax on the shares when the tax on the shares was "computed by". So this "measured by" device which didn't succeed there sometimes does. It's hard to predict. I might mention that just six months before this statute this Court held that a Virginia tax on the assets, what purported to be a property tax, could be measured by gross receipts, though Justice Brennan pointed out in a separate opinion that if it were measured by the property it would come to $7,000; on gross receipts it came to $126,000. In any event, the Treasury in this case thought it would do away with this "measured by" device. So it--
Harry A. Blackmun: Mr. Brown, let me be sure I follow you. I take it you feel that the amendment to 3701 broadened the exemption on Federal?
Ernest J. Brown: --Yes, I do, I do.
Harry A. Blackmun: And intentionally so on the part of Congress?
Ernest J. Brown: Yes, I feel that's clear. Some people thought maybe the earlier statement was more universal than its application warranted, and they may have referred to clarification. But that would hardly be justified when you looked at the decisions. So this statute then, I take it, eliminates any computation, and in my view the word "computation" is the operative word here, which takes into account, reaches directly or indirectly the bonds of the Federal Government or the income from those bonds. And it is clear that in this case the computation, as in the Georgia case which is pending, did include those bonds. I would like to turn briefly, if I may, also to one other federal statute much relied on below, Rev. Stat. 5219, a later version, which is relied on as saying there could be taxes on these shares. Well, no one disputes that the shares could be taxed. This Court said so in McCulloch and Maryland. The National Bank Act said nothing in this statute shall prohibit it. What is objected to here is the method, and certainly that is subject to objection. If I may take the Memphis case, in this context suppose this property tax had included the federal bonds but excluded the state bonds. I take it that the share tax would have been as discriminatory there on the property, on the share, as it was held, a somewhat different tax, was held to be discriminatory two months ago in the Memphis case. So I think that 5219 has no bearing on this case at all. It is certainly not carte blanche to tax the shares of a bank or any other corporation which is equally involved in this case, may be equally involved in this case, in any fashion that is desired. So it seems to me that it's quite clear, and the background in Congress makes it clear, that this statute meant to eliminate computation of estate tax, any form of tax, which directly or indirectly used the value or the income from Government obligations. And that's all this case is. Thank you.
Warren E. Burger: Very well, Mr. Brown. Mr. Graham.
Carroll R. Graham: Mr. Chief Justice and may it please the Court: The National Banking Act of 1864 authorized the tax in question, and that point was litigated in 1866 very thoroughly in Van Ness versus The Assessors. Van Ness points out that there were two bases for the application of the tax, two prongs for it: Number one, Congress said that you could tax the shares of national banks; and number two, there was no limitation to exclude any part of the value of the shares. And Van Ness versus The Assessors, 1866, held that, number one, you could tax the shares of national banks; and number two, you did not have to deduct the value of the federal obligations owned by the bank. This situation remained throughout the years and every case which came to this Court prior to '59 upheld the true share tax, but did not uphold the taxes where they tried to levy on the bank itself rather than the shareholders. That problem does not exist with the Texas statute, as it clearly levies the tax on the shareholders, and there is no legal obligation upon the bank to pay any part of the share tax.
Byron R. White: You say prior to '59 the tax would unquestionably have been upheld?
Carroll R. Graham: Yes.
Byron R. White: And you don't think anything changed that in '59?
Carroll R. Graham: No. No, I sure don't. The point I'm trying to draw is that in 1959 for 95 years... for 93 years it had been settled law that national banks and state banks could be taxed on their shares, and that it was not necessary to deduct the value of federal obligations, because under the Van Ness holding when Congress authorized the taxing of the shares it authorized the taxing of the full value of the shares. And that position existed in 1959 and, we respectfully submit, was not changed at all. Number one, it was not changed because that law was not touched. That was Revised Statute 5219. It was on the books all during those years. It was on the books in 1959. It was not touched by Congress in any manner. It's our position that the modification or the codification of the exemption statute, 3701, did not in any way apply to or control or reflect upon the taxation of the national bank shares.
Byron R. White: You would concede, wouldn't you, you'd rather have the Government's case after '59 than before?
Carroll R. Graham: No, sir. In 1959, after the modification of 3701 with the addition of the second sentence, the Bank Act still provided for taxation of bank shares in the same manner in which they're being taxed today, the same provision that the shares could be taxed, and there's never been any modification by the Congress of the definition of "shares" or in any manner changed the definition that was laid down in Van Ness.
Byron R. White: Do you think the '59 amendment invalidated any tax that would have been valid before? What about Idaho?
Carroll R. Graham: The gift tax--
Byron R. White: What about Idaho?
Carroll R. Graham: --Idaho would have been invalid before.
Byron R. White: Why did they even... why was anybody ever worried about it?
Carroll R. Graham: I don't know.
Byron R. White: Well, Congress was.
Carroll R. Graham: But the Congressional Record said they probably wouldn't have prevailed, but they wanted to--
Byron R. White: So they made sure that Idaho wasn't... the tax wasn't going to pass muster, is that it?
Carroll R. Graham: --Or that that particular type of tax was not going to be tried by anyone else. In 1959, shortly before 3701 was modified, Congress did amend the national banking laws, but it did not change the provision in question whatsoever.
John Paul Stevens: Mr. Graham, is it not true that your opponent's theory is not limited to extending the exemption on bank stock, but it covers all kinds of corporations under their reading of the '59 Act? As I understand, it would cover General Motors stock, every kind of stock that there is in the economy. So that you wouldn't expect it to focus on bank shares.
Carroll R. Graham: The General Motors, the question of the General Motors stock, the applicability there is a different question, Mr. Justice, because I know of no statute which authorizes the taxation of those shares specifically.
John Paul Stevens: No, but if a state sought to impose some kind of a tax on any corporate entity measured by its net worth, under the Government's view they would have to exclude from the computation that portion that represented federal obligations. So they're not just talking about banks. They say this is really a pretty broad exemption they created in '59.
Carroll R. Graham: I do not take a position on other corporations, because I do not--
John Paul Stevens: I don't know why you're afraid to. It seems to me it would support your position. You say there wasn't... you say at least, however broad it was, it didn't repeal, didn't effect an implied repeal of the--
Carroll R. Graham: --Correct.
Byron R. White: --of the banking provisions?
Carroll R. Graham: Correct, sir, for a number of reasons. Number one, if you go look at the Committee reports, they talk about Idaho, they talk about interest, they talk about debt management. They don't ever mention a word about bank stock and taxation.
Byron R. White: I guess you would feel comfortable with the proposition that the state could tax everybody... that banks are different from other corporations, that the state could not tax anyone except banks?
Carroll R. Graham: On this point, on the federal obligation point? Without excluding the federal obligations?
Byron R. White: Banks are different.
Carroll R. Graham: That may well be true, yes, sir. Banks are different. Banks pay different taxes. Banks do not pay personal property taxes. Banks do not pay franchise taxes. And we have a particular statute dealing with the taxation of national banks.
Byron R. White: So a state could tax banks but couldn't tax anything else?
Carroll R. Graham: Oh, taxation... if we're staying on the proposition of federal obligation, yes, sir.
Byron R. White: You'd think it would almost run the other way, wouldn't you? Because these are national banks holding federal obligations. And yet you say the states can tax them even if they couldn't tax any other corporation.
Carroll R. Graham: That's right, because the Congress has provided that, and for a long time set out the precise methods by which those taxes, the tax methods that had to be followed. That has now been changed in 1969 and remedied... or, I shouldn't say remedied, but expanded. When we come back to the point of the implied repeal which I take it the Petitioners must rest upon, we have a number of statutory construction aids which we refer to in our briefs, consistently I hope, and all of them will point to the fact that there was no intention on the part of the Congress to repeal the authority given in the Bank Act to tax the national banks without deduction of any obligations whatsoever. The question of indirect taxation was prohibited before 1959 and if you will look... and we cite the case of Society of Savings versus Bowers, in which Justice Harlan points out that indirect is prohibited with the exception of the bank stock tax. In 1969, coming again to an argument against an implied repeal, in 1969 Congress amended the bank stock tax and enlarged the... changed the method of taxation and directed the Federal Reserve to carry out a study. And during that time in '69 the Federal Reserve carried out a study and that study recognized that the bank share tax without any necessity for deducting federal obligations was, at least in the opinion of the people who made that study, still in full force and effect. Thank you.
Warren E. Burger: Very well. Mr. Luna.
Earl Luna: Mr. Chief Justice, may it please the Court: This Court recently recognized in the Tennessee case the fact that the statute that we have here today, 31 742, principally restates the constitutional rule that we have had since McCulloch versus Maryland. And in that Memphis Bank case the Court pointed out very clearly that where the legal incidence of the tax falls on the separate property interest of the stockholder or some other person other than the Government or the owner of the bonds itself, that unless there is a discrimination between the national... the taxation as to the federal securities and others, that it didn't violate 31 U.S.C. 742. Now, there is no contention in this case as it is before the Court at this time that there is any discrimination on federal securities versus any other type securities, such as there was in the Tennessee case. Now, if that is true, the constitutional provision... that statutory provision, as late as the Memphis case the Court has said it does not affect this kind of a transaction. Now, I think that takes us, if we go all the way back to the two questions or the two reasons that were raised actually in the Van Allen case, the court in Texas, our Chief Justice Guittard, I think pointed out very carefully that there were two grounds that were mentioned in the Van Allen case, either one of which were sufficient to sustain our tax. Now, the court pointed out first that there was a distinction between taxation of the shares and taxation of bank assets, and I think that is this insulation that we were talking about earlier. There is an insulation between the corporation's assets and the stockholders. The legal incidence is on the stockholder and not the corporation. The second reason that was mentioned in the Van Allen case which made it permissible to tax bank shares was a Congressional consent to state taxation of bank shares as expressed in Section 5219. 5219 has never been altered or changed, although it was expanded ten years after the '59 amendment that didn't allow. In 1969 the Congress expanded that amendment to include more general areas than it did before. But in our case, if then we take a look at the question we were talking about a while ago, the taxation of federal securities, I think if the tax the legal incident of which falls on these federal securities, it doesn't make any difference who it is, we cannot tax them. That's been very clear, and the cases have pointed out that we can't do it directly or indirectly, and they said that before 31 U.S.C. 742 was amended. All of these cases have said that they can't be taxed directly or indirectly. But at the same time that the courts were saying they can't be taxed directly or indirectly, the court also said that a tax on the stockholder is not a tax on a bank. Now, at some stages of this litigation the banks have said, but we paid the tax actually, and of course the reason they did that is because of another federal statute that permits them to pay the tax for the stockholder and that the bank can deduct it if the stockholder doesn't deduct it himself, which really makes it not material at all to the questions that we have here. Now, we believe then that if we were to follow the view that the banks have propounded here today, that it would indeed mean that any corporation which owns federal securities, you would have to subtract that stock or those bonds and federal securities from the value of the stock before you could tax it. As a matter of fact, in one of the footnotes in our brief we point out that there are about 20-something states who tax either corporate stock in corporations generally or bank stock or both. Now, in Texas that question is not material because we do not tax the corporate stock in other types of corporations, only banks. But as this Court mentioned in one of its opinions, if that should be... if we should have to deduct it in all cases, it would be nothing but chaos in the taxing systems of the various states. Now, there is nothing in 31 U.S.C. 742 as amended in 1959 to require or suggest that it applies to ad valorem taxation if we can rely to any extent on the Congressional history. Secretary Anderson introduced Section 105 of that bill and in his introduction to the Ways and Means Committee of the bill he pointed out very carefully that indeed Idaho had attempted to tax the income from federal securities and they had not been able to convince them it wasn't taxable and Idaho was including it in the net income. And he pointed out in his statement, which we quote at length in our brief, that it was... that they believed that Idaho was wrong, but that this seemed to be the easiest way to clarify the problem, and therefore he recommended that Congress pass 105, Section 105 of that bill, in order to clarify the situation that they had as to Idaho. And that was the only thing that we had before the Congress at that time insofar as reasons as to why that statute ought to be amended in that particular. Now, the Petitioners say that we shouldn't take into consideration in thinking about statutes anything subjective, that it's all objective. Now, unless we look at it subjective we don't get to the question here, because our state statute simply says that the value of stock, the bank stock, shall be assessed at its cash value less the value of the real estate which may be taxed separately. So our statute just talks about cash value. It doesn't say anything about the things we have here. Now, as a measuring stick of cash value we might use several things. In the Bank of Texas case where this decision was written, had we used cash value that they were getting when they were selling the stock down at the bank, the testimony showed it was bringing nine dollars a share. And the measuring stick that we used was $5.65 a share. So they're really arguing about our formula, not that we taxed the bank too high, the stock too high. So they say, if they use our formula, which was based on equity capital and not on what it was selling for at the marketplace, they wound up paying less tax than they would otherwise have paid. Are they injured? Is there harm? And when one is challenging a statute, doesn't he have the burden of proving that there has been some harm? Certainly that has not been shown in this case. The only thing that has been shown is that by using the formula with which they argue the banks got a windfall.
Byron R. White: Well, would you be making the same argument if Section 5719 had never been on the books?
Earl Luna: If Section 5719 would have never been on the books, I would be making the same argument, because we believe Van Allen stands for two propositions which permit bank stock to be taxable: One, because of the separate ownership of the stock and the corporation; and then number two, the consent statute, 5219 itself, either one of which--
Byron R. White: You don't think the '59 amendment had any impact on that Van Allen line of cases at all?
Earl Luna: --I don't believe it had one iota on Van Allen, because I cannot believe that in all of the hearings of Congress they would have overruled almost 100 years of cases of this Court and never told anybody that's what they were doing. That's just not the way Congress ordinarily works. And they said that, instead of talking about the decisions of this Court, while the Congressional history was going on they said that, we're doing it in order to clarify the problem that we've got up in Idaho, and that is the only thing that there is in the Congressional history. And it would be indeed unusual if Congress were to overrule that many cases of this Court and not a word ever be said about what was going on. In Plummer versus Coler the Court, this Court, had also pointed out in inheritance tax cases that there really was no impact on the market in the first place, on the market of bonds. I mention that very quickly because of one of the arguments that was made by, I believe it was the Solicitor General, that there was an impact on the market. Now here the non-banking world owned 77 percent of all of these, of all of United States securities. Of the 23 percent that is owned by the banks, there's only about five percent of the total that is owned by the banks in the six states or seven states that tax bank shares, six now since Georgia just recently repealed theirs. And the only case, of course, that they have in their favor is the Montana case, and the Montana case... and as they argue here, this permits bank share case... it prohibits the bank share taxation, but permits the franchise tax. And of course as we know, Montana just recently ruled that their franchise tax is unconstitutional, too. We believe that, as the Texas court held, the Montana case is not reliable, and 732 was something that was aimed at the Idaho income tax, that it has absolutely no effect on the tax that's before the Court at this time. Thank you very much.
Warren E. Burger: Do you have anything further, Mr. Sloman?
Marvin S. Sloman: If I may briefly, Mr. Chief Justice. I'd like to point out in response to Respondent's argument concerning the Idaho case that had Congress intended solely to deal with the problem raised by the Idaho case it could have taken the then-existing form of Section 3701 and added four words. After the words "United States obligations" it could have added "or the interest thereon" were it addressing only the Idaho problem.
Byron R. White: Do you think this tax would have been permissible before '59?
Marvin S. Sloman: The tax in the case at bar, Your Honor? Yes, I certainly do.
Byron R. White: So the '59 amendments you think did have the affect of overturning that line of cases, Van Allen and the whole crowd?
Marvin S. Sloman: It had the effect of overturning the results of those cases.
Byron R. White: Yes, yes.
Marvin S. Sloman: Those cases stood, beginning with the Van Allen case in 1866 and ending with the Bowers case in 1955, those cases rested not on an interpretation of Section 5219, but on the shareholder-corporation distinction.
Byron R. White: Yes, yes.
Marvin S. Sloman: Now, under that distinction--
John Paul Stevens: But isn't it true that--
Marvin S. Sloman: --Excuse me, Justice.
John Paul Stevens: --Isn't it true that your view of '59 is it really destroys that distinction?
Marvin S. Sloman: Well, I think that it goes--
John Paul Stevens: At least for this kind of tax? Well, it has to go that far or it wouldn't have overturned the cases.
Marvin S. Sloman: --It overturns the result of the cases by--
Byron R. White: Well, as well as that theory--
Marvin S. Sloman: --providing a different test.
Byron R. White: --As well as that theory. Doesn't it have to overturn that theory, or the theory, as your opponent argues, would still prevail right on this tax?
Marvin S. Sloman: That theory was germane only, Justice White, to a prohibition against a tax upon United States obligations. That distinction is not germane any more.
Byron R. White: So that that distinction was... it isn't germane any more because of the '59 amendments?
Marvin S. Sloman: Exactly.
John Paul Stevens: What do you say to the argument he makes that making that significant a change in the law, where you had 90-some years of settled rule, would have invoked some comment in the legislative deliberations?
Marvin S. Sloman: Well, it did evoke some comment, Justice Stevens. The comment on the whole subject that we're talking about, including this Idaho question or--
John Paul Stevens: Well, that really says nothing about the differences between a corporation--
Marvin S. Sloman: --Exactly. There is a great--
John Paul Stevens: --There really is nothing in the legislative history that would tell the Congressmen who weren't as sophisticated in this area as lawyers who practice all the time just what was happening.
Marvin S. Sloman: --Well, the words of the statute--
John Paul Stevens: Unless they just read into the words of the statute the "indirectly" language and the computation and the concern language.
Marvin S. Sloman: --And they did make that, those words, those 52 words of the statute, not four words to deal with an Idaho problem... they put the 52 words of the statute into the Act in furtherance of a stated purpose, which was stated by the Congress and the Congressional Committee, to make United States obligations more attractive as investments, and indeed to encourage banks to hold them.
Byron R. White: Was this statute debated on the floor? Did it ever reach the floor, or was it just on the consent calendar?
Marvin S. Sloman: I can't answer the question, Your Honor. I think that it was debated on the floor because there were some remarks of Congressman Mills mentioned.
Warren E. Burger: Didn't the Secretary of the Treasury indicate that the purpose of the amendment was to make federal... U.S. Government bonds more attractive to investors?
Marvin S. Sloman: Yes, indeed, Your Honor.
Warren E. Burger: That's certainly part of the legislative history.
Marvin S. Sloman: Mr. Chief Justice, and to the banks.
Speaker: Finally, I would like to point out one question that was raised by counsel for Dallas County as to injury or harm. At the time the 1979 cases were first before the Texas Court of Civil Appeals, the Court of Civil Appeals entered its first opinion, in which it resolved every single state law question that was involved in these cases, including a question as to injury which was specifically raised by Dallas County in that case. Now, that opinion is withdrawn. I'm not saying that that opinion is still in effect. But I am saying that this Court in the 1979 case has no state law questions concerning injury or anything else. And in the 1980 case there was a judgment entered in favor of the Petitioners here, which was then vacated and a new judgment entered based on the reversal of the judgment of the Court of Civil Appeals in the 1979 case. But at one point in all of these cases all state law questions have been resolved and they're not present in the case. The Court is I think very clearly presented with a pure question of what the word 3701. Thank you, Mr. Chief Justice.
Warren E. Burger: Thank you, gentlemen. The case is submitted.