Taxicab, livery, black car, and limousine companies in the Big Apple may own the vehicles their employees drive, but they know full well who really controls them: the New York City Taxi and Limousine Commission (TLC). Passenger transportation is one of the city’s most heavily regulated businesses, but as a federal district court judge recently reminded TLC, those small business still have constitutional rights.
Until May 2005, in the interest of passenger comfort, TLC required pre-authorization for interior advertising in vehicles it regulated. In 2004, TLC promulgated rules requiring taxicabs that had been awarded TLC medallions, as well as so-called street-hale liveries, to install passenger information monitors. The following year, TLC lifted its de facto ban on ads for taxicabs and street-hale liveries “as a means by which owners could offset the new costs.” The pre-authorization requirement remained in force, however, for the other regulated vehicles.
In 2015, media-distribution company Vugo sought to partner with Uber, Lift, and other rideshare company drivers in New York City. Those drivers would download Vugo software onto a tablet device that would be displayed to riders. Vugo would pay each driver 60% of the ad revenue generated from their tablets. Because ridesharing falls into the “other” category of TLC-regulated for-hire vehicles, and TLC made it clear that it would not approve any rideshare drivers’ requests for interior advertising, Vugo could not proceed with its expansion plans. In response, Vugo filed a First Amendment challenge against TLC in U.S. District Court for the Southern District of New York.
To her credit, Judge Abrams entertained the plaintiff’s argument that TLC’s targeting of advertising was the type of content-based discrimination that courts evaluate under a strict, or at least heightened, level of First Amendment scrutiny. She declined, however, to stray from the “well-established doctrine” that commercial speech receives somewhat less constitutional protection than non-commercial speech.
The court thus assessed the ad ban under the so-called Central Hudson test. The speech Vugo wished to communicate did not advocate unlawful activity nor was it false or misleading, so Judge Abrams went on to determine if TLC was advancing a substantial state interest. She found that the state’s interest in customer comfort was sufficiently substantial.
The rule did not, however, pass the final two parts of the commercial-speech test. Judge Abrams found that the rule did not directly or materially advance TLC’s interest in customer comfort. The ad ban was under-inclusive because it exempted medallion taxis and street-hale liveries. That exemption, Judge Abrams explained, had no connection to customer comfort. TLC exempted those vehicles so their owners could defray the cost of mandated new technology through ad revenues. “Were the City permitted to justify the under-inclusiveness of the ban on this basis,” she warned, “the reasonable fit prong of Central Hudson would lose much of its force.”
Judge Abrams also concluded that the advertising rule was not narrowly drawn, i.e., it restricted more speech than necessary. TLC made no attempt, she explained, to craft limits on ad “placement, size, or some other manner in which they are presented.” The commission could also have mandated that content displays have functioning on/off or mute buttons.
The Vugo court reached the correct result, one that prevents TLC from discriminating against rideshare vehicles whose drivers wish to have the same opportunity to communicate commercial information as do medallion taxi owners.
The court, however, could arguably have decided the First Amendment issue on the first question of the Central Hudson test alone. An interest in “customer comfort” may justify TLC vehicle-design mandates or its regulation of drivers’ conduct, but in the context of protected speech it is far too indefinite to be “substantial.”
TLC justified its paternalistic advertising rule by citing a seven-year old study concluding that 33% of passengers found Taxi TV to be “annoying” but a single outdated study that reflects a minority of consumers’ general feelings does not constitute the type of evidence needed to support a speech ban.
Further, Judge Abrams would have been on solid legal ground if she had evaluated TLC’s rule using the heightened scrutiny standard she discussed initially in Vugo. TLC’s rule, as the Supreme Court explained in Sorrell v. IMS Health Inc., “disfavors marketing, that is, speech with a particular content.” The Court in Sorrell dictated that content-based restrictions on speech—commercial speech included—are “presumptively invalid.”
Washington Legal Foundation has urged several federal appeals courts to assess content- or speaker-based commercial-speech restrictions under Sorrell‘s heightened scrutiny standard, most recently in an amicus brief in the U.S. Court of Appeals for the D.C. Circuit case Nicopure Labs v. FDA. If TLC appeals Judge Abrams’s ruling, we encourage Vugo to again advance the argument that the commission’s rule cannot survive heightened scrutiny.
Also published by Forbes.com on WLF’s contributor page.