Milad Emam is an attorney with the Institute for Justice. In his time at the organization, Mr. Emam has defended freedom of speech for a variety of speakers, including vegan food sellers, vocational-education teachers, and makeup artists in Oklahoma, Virginia, and North Carolina, respectively.
Imagine a law that prohibited California Pizza Kitchen from using its brand name in labeling pizza pies prepared outside California. Or consider a law that banned KFC from labeling its products fried outside Kentucky as “Kentucky Fried Chicken.”
While these hypothetical labeling laws might sound farfetched, they resemble an actual olive-oil-labeling bill pending in the California Assembly. This bill seeks to criminalize olive-oil sellers’ use of phrases like “California Olive Oil” on labels for oil made from out-of-state olives, even if those labels clearly disclose any out-of-state source of oil. As discussed below, this prohibition would violate the First Amendment and set a dangerous precedent for product-labeling requirements.
Overview of California’s Proposed and Current Requirements for Olive-Oil Labels
Under California Assembly Bill No. 535 (“AB-535”), it would be unlawful to label any olive oil sold in California with terms like “‘California olive oil,’ ‘California olives,’ or something substantially similar,” unless 100% of the olives used to produce the olive oil were grown in California. AB-535 would also make it unlawful for an olive-oil label to “represent that the olives used to produce the olive oil were grown in a specific region of California”—like Sonoma—“or to make a representation to that effect, unless at least 85 percent of the olive oil, by weight, was produced from olives grown in that specific region.”
But California already regulates olive-oil labels’ representations about the source of their oil. For example, if an olive-oil label “indicate[s] that California is the source of the oil, 100 percent of that oil shall be derived from olives grown in California.” Cal. Health & Safety Code § 112895(c) (emphasis added). Likewise, if an olive-oil label “indicates . . . that it is from a specific region of California,” at least “85 percent of the olive oil, by weight, must be derived from olives grown in the specified region.” Id. § 112895(d). Under these requirements, an olive-oil label with the word “California” (or “Sonoma”) in a brand name would comply with California law if the label adequately disclosed the oil’s source. For example, a company named “California Olive Ranch” can use its trademark on an oil it prominently labels as a “global blend” made of oils from Argentina, Chile, Portugal, and California. Likewise, Williams-Sonoma can legally sell olive oil in California as long as it does not mislead consumers as to the source of its oil.
AB-535 would, if enacted, prohibit labels that are currently compliant with California law. Whereas existing law prohibits olive-oil sellers from indicating that “California is the source of” any oil made from out-of-state olives, AB-535 would prohibit these sellers from using phrases like “California Olive Oil” at all, even in their brand names. For example, AB-535 would prohibit “California Olive Ranch” from using its trademark on its “global blend,” even though the company’s labels clearly disclose that the blend includes out-of-state olives. Similarly, AB-535 would expose companies like Williams-Sonoma to criminal liability if they sold noncompliant olive oil in California, even if those companies truthfully disclosed any sources for their oil outside Sonoma.
AB-535 Would Violate the First Amendment if Enacted
If California enacts AB-535, the bill’s olive-oil-labeling requirements would be unconstitutional. Besides posing Dormant-Commerce-Clause issues outside the scope of this post, the bill’s prohibition on truthful advertising violates freedom of speech. Under the First Amendment, restrictions on “commercial speech,” including product labels, are subject to at least intermediate scrutiny unless that speech is actually or inherently misleading. See, e.g., Cent. Hudson Gas & Elec. Corp. v. Pub. Serv. Comm’n of N.Y., 447 U.S. 557, 564 (1980). Because the speech at issue is not actually or inherently misleading, AB-535 would trigger at least intermediate scrutiny, which the government could not satisfy.
AB-535 Would Trigger At Least Intermediate Scrutiny
As the U.S. Supreme Court has held, the U.S. Constitution protects commercial speech about lawful activity unless the speech is actually or inherently misleading. See, e.g., In re R.M.J., 455 U.S. 191, 203 (1982). The olive-oil labels that AB-535 regulates are not misleading when they conspicuously identify their product’s region of origin. Given that these labels can be presented non-deceptively in context, restrictions on them must satisfy at least intermediate scrutiny.
A recent decision by the U.S. Court of Appeals for the Fifth Circuit emphasizes context in determining whether speech is actually or inherently misleading. See Express Oil Change, L.L.C. v. Mississippi Bd. of Licensure for Pro. Engineers & Surveyors, 916 F.3d 483 (5th Cir. 2019). In Express Oil, the government contended that an automotive-mechanics company’s use of the phrase “Tire Engineers” was inherently (and actually) misleading because 66% of survey respondents expected the company to have professional engineers on staff and 58% expected the company to use engineers to service tires. Id. at 488–89. But according to the Fifth Circuit, the company’s speech was not inherently misleading in context: the company’s website advertised “automotive services,” and its retail stores looked like other automotive-services stores. Id. at 490. Thus, the government’s restrictions on this speech triggered intermediate scrutiny, which the government did not satisfy. Id.
Like the advertising in Express Oil, the olive-oil labels AB-535 regulates are not misleading in context. Just as a reasonable consumer would understand that “Tire Engineers” were automotive mechanics, a reasonable consumer would know the out-of-state origins of olive oils through disclosures on olive-oil labels. In other words, olive-oil consumers would not see words like “California” or “Sonoma” on labels in isolation. They would also see prominent disclaimers as to other regions where their oils’ olives came from. Given this context, labels subject to AB-535 are constitutionally protected and AB-535 thus triggers at least intermediate scrutiny.
AB-535 Could Not Satisfy Intermediate Scrutiny
Intermediate scrutiny is a demanding standard that the government could not satisfy for AB-535. To meet this standard, the government must prove that: (1) the government’s interest is “substantial”; (2) the restriction at issue “directly and materially advances” that interest; and (3) the restriction is not “more extensive than necessary” to serve that interest. See Ibanez v. Fla. Dep’t of Bus. & Prof. Reg., 512 U.S. 136, 143 (1994) (citing Central Hudson, 447 U.S. at 566). For two independent reasons, the government could not satisfy intermediate scrutiny here.
First, while the government would likely invoke consumer protection—which is a “substantial” government interest—AB-535 does not “directly and materially advance” that interest. Given that California olive-oil labels already disclose their oil’s origins, AB-535 would not inform reasonable consumers of anything they do not already know. After all, California already prohibits false advertising and regulates olive-oil sellers’ representations about the source of their oil. See Cal. Health & Safety Code § 112895. Also, federal food-labeling regulations ban “deceptively misdescriptive” representations about food’s “geographical origin[.]” 21 C.F.R. § 101.18(c). Because there is no indication that AB-535 would improve upon these existing restrictions, the bill’s restrictions could not pass constitutional muster.
Second, even if AB-535 would somehow cure any deception that other laws and regulations left unregulated (and it would not), the bill’s restrictions would still be unconstitutional because they are “more extensive than necessary.” Rather than simply requiring companies like California Olive Ranch to have disclaimers about the source of their products, AB-535 would prohibit them from using their trademarks on blended oils. As the U.S. Supreme Court has repeatedly held, product disclaimers are less restrictive than (and constitutionally preferred to) suppression of speech. See, e.g., Peel v. Att’y Registration & Disciplinary Comm’n of Illinois, 496 U.S. 91, 110 (1990) (“To the extent that potentially misleading statements . . . could confuse consumers, a [s]tate might consider . . . requiring a disclaimer . . . . A [s]tate may not, however, completely ban statements that are not actually or inherently misleading.”). Given the availability of less-restrictive alternatives to AB-535, like disclaimer requirements, the bill’s requirements would violate the First Amendment if enacted.
AB-535 Would Set A Dangerous Example
Besides being unconstitutional, the speech restrictions in AB-535 would set a dangerous example. While the bill focuses on olive oil, the bill’s logic could extend to other industries. Consider Sierra Nevada Brewing Company, which has its headquarters in California but also a second brewing facility in North Carolina. A beer-labeling law that mirrored AB-535 would prohibit the words “Sierra Nevada” on any of the company’s beers that had North Carolina hops. Likewise, a pizza-labeling law that used AB-535 as a template would prohibit the words “California Pizza Kitchen” on labels for any of the company’s frozen pizzas made from out-of-state ingredients. Like beer and pizza companies, other businesses would be left to wonder they would be California’s next target after olive oil.
Rather than go down this route, California should heed the U.S. Constitution in considering AB-535. Just as reasonable consumers know that Kentucky Fried Chicken has products fried outside Kentucky, they know that olive oil with “California” in a trademark sometimes consists of out-of-state olives. After all, labels for products like California Olive Ranch’s “global blend”—and disclaimers that the oil’s source is Argentina, Chile, Portugal, and California—tell consumers as much. California should not prohibit this truthful speech at the First Amendment’s expense.