Opinion ID: 202664
Heading Depth: 2
Heading Rank: 2

Heading: Shared Trade Names.

Text: 22 The remaining prong of the plaintiffs' First Amendment challenge involves the statutory restriction on the use of shared trade names. See R.I. Gen. Laws § 3-5-11(b)(1)(vi) (prohibiting Class A licensees from using [a]ny term or name identified as a chain or common entity). The Retail Stores assert a constitutional right to do business under the Douglas name, which they believe conveys a positive message to potential consumers. Appellants' Br. at 42. 23 It cannot be gainsaid that the use of a trade name implicates the user's commercial speech rights. See Friedman v. Rogers, 440 U.S. 1, 11, 99 S.Ct. 887, 59 L.Ed.2d 100 (1979). This brings front and center the familiar four-part test for whether a regulation of commercial speech is constitutionally permissible. See, e.g., Thompson v. W. States Med. Ctr., 535 U.S. 357, 367, 122 S.Ct. 1497, 152 L.Ed.2d 563 (2002) (citing Cent. Hudson Gas & Elec. Corp. v. Pub. Serv. Comm'n, 447 U.S. 557, 566, 100 S.Ct. 2343, 65 L.Ed.2d 341 (1980)); El Día, Inc. v. P.R. Dep't of Consumer Affairs, 413 F.3d 110, 113 & n. 5 (1st Cir.2005). 24 It is not always necessary, however, to deal with each of the test's four parts. In framing the inquiry, the threshold question is whether the commercial speech concerns unlawful activity or is misleading. W. States Med. Ctr., 535 U.S. at 367, 122 S.Ct. 1497. If so, the inquiry ends there: the speech is not protected by the First Amendment. Id.; see Fla. Bar v. Went For It, Inc., 515 U.S. 618, 623-24, 115 S.Ct. 2371, 132 L.Ed.2d 541 (1995); Edenfield, 507 U.S. at 768, 113 S.Ct. 1792. The Retail Stores are unable to cross this threshold. 25 In a case that antedated Central Hudson, the Supreme Court held that the First Amendment posed no obstacle to state regulation of trade names when a significant possibility existed that such names would be used to mislead the public. Friedman, 440 U.S. at 13, 15, 99 S.Ct. 887. In that instance, the plaintiffs challenged a total ban on the use of trade names in the practice of optometry. While mulling the challenge, the Court took stock of the myriad possibilities for deception and concluded that the ban related to conduct the State rationally may wish to discourage. Id. at 13, 99 S.Ct. 887. With that framework in place, the Court upheld the restriction, explaining that it had only an incidental effect on the commercial speech rights of optometrists (who remained free to advertise their prices, products, and services under their own names). Id. at 15-16, 99 S.Ct. 887. 26 Since its decision in Friedman, the Court has made a doctrinal refinement, distinguishing in the professional services context between commercial speech that is inherently or actually misleading and commercial speech that is only potentially misleading. See, e.g., Ibanez v. Fla. Dep't of Bus. & Prof'l Reg., Bd. of Accountancy, 512 U.S. 136, 144-46, 114 S.Ct. 2084, 129 L.Ed.2d 118 (1994); In re R.M. J., 455 U.S. 191, 203, 102 S.Ct. 929, 71 L.Ed.2d 64 (1982); see also Am. Acad. of Pain Mgmt. v. Joseph, 353 F.3d 1099, 1106-07 (9th Cir.2004). Under the doctrine as refined, advertising that is actually misleading may be prohibited entirely. In re R.M.J., 455 U.S. at 203, 102 S.Ct. 929. Contrastingly, a state may not place an absolute prohibition on certain types of potentially misleading information . . . if the information also may be presented in a way that is not deceptive. Id. We need not (and do not) decide the issue, but we note that recent decisions have applied this dichotomy beyond the professional services context. See, e.g., Pearson v. Shalala, 164 F.3d 650, 655 (D.C.Cir.1999). 27 In the case at hand, the plaintiffs argue that the State has not shown that the use of a shared trade name by independent package stores is misleading and that, in all events, there is no evidence of consumer confusion. While certain elements of this argument are irreproachable — a governmental entity attempting to enforce a restriction on commercial speech has the burden of justifying the restriction, W. States Med. Ctr., 535 U.S. at 373, 122 S.Ct. 1497, and courts will not sustain restrictions resting either on a dearth of evidence of deception or on unsupported assertions, see Ibanez, 512 U.S. at 145, 148-49, 114 S.Ct. 2084; El Día, 413 F.3d at 116 — the argument as a whole does not survive scrutiny. 28 Even assuming, for argument's sake, that the Ibanez dichotomy applies here, the State's concern about the misleading nature of chain-associated trade names, when used by independent package stores, is readily supportable. The district court, in its preliminary injunction ruling, refused to enjoin the enforcement of the no franchise provisions contained in the statutory scheme but temporarily blocked the enforcement of the prohibition against the use of a shared trade name. See Wine & Spirits, 418 F.3d at 44. In conformity with those rulings, the Retail Stores relinquished their franchise agreements and claimed, from that point forward, to be acting as independent businesses. They nonetheless continued to use the Douglas name. Although we subsequently allowed the injunction against enforcement of the trade name restriction to lapse, see id., the Retail Stores apparently persisted in using a shared trade name. 29 At trial, the district court, as the finder of the facts, examined the Retail Stores' actual use of the shared trade name during the period when they professed to be operating independently. It determined that each of the former franchisees had simply appended the name of the municipality in which its shop was located to the Douglas name. The court received evidence that newspaper advertisements purportedly placed by individual stores on a rotating basis featured the Douglas name in large letters and bold font, while reporting the store's location information in much smaller print that was far less likely to be noticed by the reader; that participating stores prominently displayed exact replicas of these advertisements and offered for sale the same products (both advertised and non-advertised) for the same prices; and that the Retail Stores continued to receive suggested store layouts and employee dress codes from W & S. Citing this evidence, the court found as a fact that the Retail Stores' shared use of the Douglas name conveys and, obviously, is intended to convey to consumers the impression that all of the stores are part of a single entity and operate in concert. Given the Retail Stores' assurances that they had been operating independently from and after the effective date of the 2004 amendments, the court concluded that the impression conveyed by the use of the shared trade name was untrue and, therefore, misleading. 30 These findings are not clearly erroneous (indeed, the plaintiffs do not contest them). They graphically illustrate why the use of a shared trade name in the retail liquor market by supposedly independent package stores poses an area of legitimate concern for a state that has abolished franchise and chain-store arrangements in that market. The findings, therefore, comprise a showing sufficient to underpin the restriction enacted by the Rhode Island General Assembly. 31 The Retail Stores counter that the State should, at most, be able to require the placement of qualifying language (say, independently owned and operated) in connection with independent retailers' use of a shared trade name. That is whistling past the graveyard: as a general matter, the law imposes no requirement that a regulation of commercial speech constitute the least restrictive means of accomplishing the State's legitimate goal. See Lorillard Tobacco Co. v. Reilly, 533 U.S. 525, 556, 121 S.Ct. 2404, 150 L.Ed.2d 532 (2001); Passions Video, Inc. v. Nixon, 458 F.3d 837, 843 (8th Cir.2006). At any rate, the record here contains nothing that would compel — or even support — a conclusion that such a disclaimer would be an effective means of avoiding deception. 32 That ends this chapter of the tale. As the district court supportably found, the Retail Stores' actual usage of the shared trade name tends, in a misleading fashion, to identify the users as part of a chain or entity under common control. For that reason, the restriction imposed by the State is constitutionally permissible. 2