Summer 2004-01 Bond requirement for non-resident advertisers declared unconstitutional

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Number 56
Summer 2004

Bond requirement for non-resident advertisers declared unconstitutional

In El Día, Inc. v. Puerto Rico Department of Consumer Affairs, 313 F. Supp. 2d 54 (DPR 2004), the federal court declared unconstitutional Article 24 of DACO's "Regulation of Deceptive Practices and Advertisements."

Article 24

Article 24 requires that advertisers that are not residents of Puerto Rico first post a bond of $25,000 to cover for potential fines that DACO could impose in the event that their advertisements contravene the regulation in question. Moreover, the article provides that by posting the bond the advertiser voluntarily submits to the jurisdiction of the Puerto Rico courts.

The media is responsible for assuring that the bond is posted (by requiring production of a copy of the bond certificate), and must refuse to carry advertisements from advertisers that do not supply it. Failure to do so carries a fine of $750 per advertisement.

"Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances."

~ Constitution of the United States, First Amendment

First Amendment

Commercial speech is protected by the First Amendment to the Constitution of the United States, indicated the U.S. District Court for the District of Puerto Rico. The reason for this is that commercial speech aids the economic endeavors of the business person and assists the public in making informed choices. This protection is, however, limited in scope.

1- In order to be protected by the First Amendment, commercial speech must concern lawful activity, and may be neither misleading nor fraudulent.

2- In order for it to be able to restrict commercial speech, the government's interest must be substantial.

3- Moreover, the restriction must directly advance that government interest.

4- Finally, the restriction must not be more extensive than necessary to serve the interest in question.

In El Día the District Court only needed to look at element number 3, because it concluded that DACO did not meet the burden of proving that the bond requisite directly advanced its interest of implementing the regulation.

DACO's contention

DACO's position was that the bond provides a mechanism to enforce the imposition of fines against non-residents. After reviewing the record, the court concluded that the agency was "relying on mere speculation and conjecture. The record lacks evidence that support[s] the allegations that the harms Article 24 is intended to remedy are real." In addition, it found that "the bond requirement provides only ineffective and remote support for the purpose asserted by DACO."

Consequently, the District Court declared Article 24 to contravene the First Amendment and, thus, to be unconstitutional.


© 2004 Goldman Antonetti