REMCHO,JOHANSEN & PURCELL,LLP ATTORNEYS AT LAW 201 DOLORES AVENUE Joseph Remcho (t944-2003) SAN LEANDRO,CA 94577 Robin B. Johansen PHONE:(510)346-6200 Kathleen J. Purcell(Ret.) FAX:(510)346-6201 James C. Harrison EMAIL: firstname.lastname@example.org Thomas A. Willis WEBSITE: www.rjp.com Karen Getman Margaret R. Prinzing SACRAMENTO PHONE:(916)264-1818 Kari Krogseng MEMORANDUM To: Bruce Hildebrand, Executive Director, Higher Education Association of American Publishers, Inc. From: Karen Getman Date: July 2,2012 Re: Senate Bill 1539(Corbett) (Our File No.: 2504-2) You have asked for our opinion on whether Senate Bill 1539, sponsored by Senator Ellen Corbett, raises constitutional or other legal issues for the publishing industry. In our view, SB 1539 suffers from a number of potentially fatal constitutional flaws. A. Background As noted in the various legislative bill analyses, California and federal law already impose a number of requirements on faculty, campus bookstores and textbook publishers that are intended to expand the information available to faculty when making purchasing decisions and encourage faculty to work closely with publishers and bookstores in creating economically sound textbook and materials packages for college students. The federal Higher Education Opportunity Act of 2008, 20 U.S.C. § 1015 et seq., among other things "encourage[s] all of the involved parties, including faculty, students, administrators, institutions of higher education, bookstores, distributors, and publishers, to work together to identify ways to decrease the cost of college textbooks and supplemental materials for students while supporting the academic freedom of faculty members to select high quality course materials for students." (20 U.S.C. § 1O15b(a).) The federal law accomplishes that purpose by requiring that textbook publishers provide faculty members with a broad range ofinformation potentially relevant to the textbook selection process, including: The price at which the textbook would be made available to the campus bookstore and to the public;
Bruce Hildebrand, Executive Director, Higher Education July 2, 2012 Page 2 2. Copyright dates ofthe three previous additions; 3. A description of the substantial content revisions made between the current and previous edition; 4. Information about other available formats, such as paperback and unbound editions; 5. Price information regarding each available format. (See 20 U.S.C. § 1O15b(c).) In addition, each institution of higher education that receives federal funding must,"[t]o the maximum extent practicable," disclose on its website course listings, the ISBN and retail price of required and recommended textbooks and supplemental materials for each course. (Id., § 1O15b(d).) Recognizing that this may or may not provide information useful in controlling student textbook costs while maintaining academic freedom and quality, Congress has required the Comptroller General to report no later than July 1, 2013 on the implementation ofthe law by publishers and institutions of higher education,"including the costs and benefits to such institutions and to students." (Id., § l O15b(g).) California has added additional disclosure requirements through the College Textbook Transparency Act, Education Code section 66406.7. Under that Act, publishers must: 1. Print on the cover or within each textbook a summary ofthe substantive content differences between the new and prior editions and the copyright date of the previous edition; 2. Provide upon a request to the faculty purchaser a list of the substantial content differences made between the current and prior editions, including a list of new chapters, themes or subject matter. (Ed. Code,§ 66406.7(d)(1)&(e)(1)(D).) In addition, campus bookstores must post in the store and online their retail pricing policy for new and used textbooks, and faculty must place textbook orders with sufficient lead time to enable bookstores to confirm textbook availability. (Id. at § 66406.70 &(g).)
Bruce Hildebrand, Executive Director, Higher Education July 2, 2012 Page 3 S. Senate Bill 1539 SB 15391argely duplicates these existing requirements, but importantly adds the following additional information that publishers must provide to faculty prior to making their purchasing decisions: 1. A list of all the products offered for sale by the publisher germane to the prospective purchaser's subject area of interest. 2. [T]he estimated length of time the publisher intends to keep the product on the market. (Proposed Ed. Code, § 66407(a)(1)(A)&(B).) This information must be made available to the purchasing faculty member "at the commencement of a sales interaction, including, but not necessarily limited to, a sales interaction conducted in person, by telephone, or electronically." (Id., § 66407(a)(2).) It also must be posted "in a prominent position" on the publisher's website. (Id.) C. Leal Analysis In our view, SB 1539 raises substantial legal concerns and unnecessarily imposes a high risk of litigation on the State. The first constitutional flaw arises from the bill's attempt to regulate transactions that occur outside of California. If enacted, SB 1539 would compel publishers to provide information to prospective purchasers at the "comnZencement" of any "sales interaction," broadly defined to include interactions conducted in person, by telephone or electronically. It also would command publishers to post the requisite information on their Internet websites. Most publishers, however, are not located in California; neither are their websites hosted in California. If an instructor visits a publisher's booth at a scholarly conference in Chicago or Boston looking for information, that discussion —which under this bill constitutes the "commencement" of a "sales interaction" —takes place entirely outside California. California cannot regulate out-of -state websites and conversations merely because California residents may be involved at one end of such interactions. The Commerce Clause of the U.S. Constitution, clause 3 of section 8 of article I, grants Congress the sole power to regulate interstate commerce. States do not have the right to regulate commerce that occurs entirely outside their borders, as this bill attempts to do. (Healy v. Beer Institute (1989) 491 U.S. 324; see also American Booksellers Foundation v. Dean (2d Cir. 2003)342 F.3d 96.)
Bruce Hildebrand, Executive Director, Higher Education July 2, 2012 Page 4 State regulations may burden interstate commerce "when a statute (i) shifts the costs of regulation onto other states, permitting in- state lawmakers to avoid the costs oftheir political decisions, (ii) has the practical effect of requiring out-of-state commerce to be conducted at the regulating state's direction, or (iii) alters the interstate flow ofthe goods in question, as distinct from the impact on companies trading in those goods." Brown &Williamson Tobacco Copp. v. Pataki, 320 F.3d 200,208-09(2d Cir.2003) (citations omitted); see also Pac. Northwest Venison Produces v. Smitch, 20 F.3d 1008, 1015 (9th Cir.1994)(reviewing types of burdens such as "disruption of travel and shipping due to lack of uniformity of state laws,""impacts on commerce beyond the borders ofthe defendant state," and "impacts that fall more heavily on out-of-state interests"). (American Booksellers Foundation v. Dean (2d Cir. 2003) 342 F.3d 96, 102-103.) Here, SB 1539 seeks to regulate what appears on publishers' websites and what publishers must do when they "commence" a sales "interaction" wholly outside Califurriia. Tlie information is not directed at California purchasers only, because it must be present on the website prior to the commencement of any conversation with a prospective California purchaser in order for the bill's provisions to take effect. Such provisions go too far. "[A] state law that has `the practical effect' of regulating commerce occurring wholly outside that State's borders is invalid under the Commerce Clause." (Healy v. Beer Institute, supra, 491 U.S. at 332.) Laws that regulate the content of Internet websites are particularly problematic. "Because the Internet does not recognize geographic boundaries, it is difficult, if not impossible, for a state to regulate Internet activities without "project[ing] its legislation into other States." (American Booksellers Foundation v. Dean,supra, 342 F.3d at 103, quoting Healy,supra, 491 U.S. at 334.)1 This situation thus is wholly unlike that in People ex rel. Brown v. PuriTec(2007) 153 Cal.App.4th 1524, where a company that did business only over the Internet failed to comply with a state law mandating that sellers of water treatment devices to California consumers that make health claims regarding those devices must have the devices certified by the state Department of Health Services. There, the question was whether the company had to make a targeted and narrow disclosure on the check-out page of its website whether the device had been certified before a sales transaction with a California consumer was completed. Here, by contrast, the reach of regulation goes far beyond a single sales transaction —the bill requires a litany of disclosures at the very commencement of any "interaction" with a publisher about textbooks no matter where or how that interaction occurs.
Bruce Hildebrand, Executive Director, Higher Education July 2, 2012 Page 5 For this reason, a court likely would find that SB 1539 regulates activity occurring wholly outside the State's borders and strike down the law in its entirety. If, however, a court invalidated SB 1539 only as applied to out-of -state publishers, the bill would have the perverse effect of imposing a greater burden on in-state publishers than their out-of-state competitors. The second Constitutional flaw lies in the bill's attempt to compel publishers to state "the estimated length of time the publisher intends to keep the product on the market." There can be no doubt that the publishing oftextbooks is quintessential First Amendment- protected speech. (Bantam Books, Inc. v. Sullivan (1963) 372 U.S. 58.) Part of the process of publication is the determination of when to withdraw a book from sale and when to replace it with a newer edition. This bill contains an implied threat of legal consequences should a publisher initially announce that it would be keeping its current chemistry textbook in print for four years, but subsequently decide to update the text with a new edition in three years or five years instead. That implied threat amounts to a direct and chilling interference with free speech.2 (Id. at 67 [noting that even "informal sanctions —the threat of invoking legal sanctions and other means of coercion, persuasion, and intimidation" by a government agency amounts to the type of "informal censorship [that] may sufficiently inhibit the circulation of publications to warrant injunctive relief"].) Third, in deciding when to issue a new edition, publishers take into account many factors, including the activities of their competitors. Revision plans thus by their very nature are proprietary and highly sensitive. To compel publishers to divulge those plans arguably violates the Takings Clause ofthe Fifth Amendment to the U.S. Constitution. In Philip Morris v. Reilly, 312 F.3d 24(1st Cir. 2002), the court held unconstitutional on takings grounds a state law requiring tobacco companies to disclose trade secrets in the form of cigarette ingredient lists, because there was a high likelihood such lists would be released to the public, and the trade secrets thus destroyed. "An analogous risk applies here.3 Finally, SB 1539 raises significant preemption concerns. The federal Higher Education Opportunity Act of 2008(HEOA)requires textbook publishers to disclose the dates of their last three editions but does not require disclosure of future revision plans. This surely was Z The problem is made worse by the extremely broad definition of"textbook" in the bill, taken from section 66406.7(b)(6) ofthe Education Code. That definition appears to include any kind of book other than a novel, so long as an instructor designates it as "a source of study material for a class or group of students." 3 Ina field such as publishing, which is presumptively entitled to a high level of constitutional protection, courts are especially wary of state regulations that amount to compulsory speech. Compelled disclosure of even non-confidential information must at the very least be reasonably related to advancing a public benefit. (See Zauderer v. Office ofDisciplinary Counsel of Supreme Court(1985)471 U.S. 626.)
Bruce Hildebrand, Executive Director, Higher Education July 2, 2012 Page 6 intentional. Congress chose a path that approximates the information that SB 1539 would now demand yet does not cross the line of improper interference with trade secrets. The House Report on the HEOA said the following about its textbook provisions: The Committee believes that[HEOA] will ease the burden of rising textbook prices by ensuring that faculty, students, and bookstores all have sufficient and relevant information to make informed choices before purchasing textbooks. (House Report No. 110-500, H.R. Rep. 110-500(Dec. 19, 2007), emphasis added.) In other words, Congress believed the textbook information it was requiring in the HEOA was sufficient to bring about the desired result. No additional information was required.4 It seems, therefore, that Congress intended the HEOA to be an overarching response to pricing and transparency issues and, thus, to "occupy the field" of regulation in this area. (California v. ARC America Corp.(1989)490 U.S. 93, 100.) When Congress acts to "occupy the field" in an area ofregulation, state laws in the same field are preempted. As noted above,the Comptroller General will be issuing a report by next July assessing whether the federal disclosure requirements have been of any benefit to students and any burden to our already stressed higher education system. It may be that the report identifies other areas to strengthen through federal law, or that it concludes these disclosure laws have had no effect whatsoever on the textbook choices offaculty. Until then, however, attempts at further state regulation may bring more risk than value. Conclusion These four problems — impermissible regulation of interstate commerce, interference with the First Amendment rights of publishers, violation of the Takings Clause, and federal preemption — cannot be cured by amendment because they go to the heart ofthe regulation attempted here. SB 1539 would impose requirements on publishers so burdensome Indeed, a recent academic study confirms that higher education faculty already are overwhelmed by the amount of information disclosed to them prior to making a textbook decision, and while they are conscious of price, the decision largely is driven by the quality of the product and its relation to the specifics ofthe course. (See D. Harley, Affordable and Open Textbooks: An Exploratory Study ofFaculty Attitudes, University of California, Berkeley Center for Studies in Higher Education (Jan. 2010), available on-line at http://cshe.berkeley.edu/ publications/docs/ROPS%20Affordable%20and%200pen%20Textbooks%20012810.pdf.
Bruce Hildebrand, Executive Director, Higher Education July 2, 2012 Page 7 and destructive of First Amendment freedoms and business needs that litigation is certain to follow. KG:NL (00176046-2)