AEP Texas Comm. & Indus. Retail Ltd. P’ship v. Public
Util. Comm’n, 2014 WL 3558763, No. 03–13–00358–CV, -- S.W.3d – (Tex. Ct. App.
July 17, 2014)
A complicated regulatory background is the setting for this
case about the evidence required to deem commercial speech—here in the form of
trademarks—misleading, and thus its prohibition exempt from Central Hudson review. Texas deregulated retail energy supply in the
1990s. Doing so required breaking up
vertically integrated entities that previously had been exclusive suppliers to
their areas. Transmission/distribution
networks remained monopolies, but networks were required to sell
nondiscriminatory access to different energy suppliers. The issue here concerns “retail electric
providers” (REPs), which sell power to end users, and transmission/distribution
utilities (TDUs), which were restricted from owning generation assets or
selling electricity themselves. However,
separate affilated companies owned by a common holding company were allowed, so
holding companies could own both TDUs and REPs.
In order to prevent the unbundled units from retaining
market dominance, Texas required a REP affiliated with a TDU to charge an
above-market price within the TDU’s service area for a period after customer
choice began. And Texas authorized the
Commission to regulate to control market power and protect consumers. The
Commission enacted various rules to regulate REPs. Among other things, a REP’s business name
can’t be “deceptive, misleading, vague,” or “otherwise contrary” to the Code of
Conduct.
AEP provides retail electric service to industrial and large
commercial customers under the name AEP Retail Electric (AEP REP); it would
like to expand to all customers under that name. AEP REP is a subsidiary of AEP; the name it
sought to use was “an important part” of a “multi-market, multi-state
marketing” strategy of the AEP corporate family that was aimed at “promot[ing]
brand name recognition” in the retail electric markets. Members of the AEP
corporate family commonly utilize uniform branding that emphasizes the “AEP”
abbreviation and a distinctive logo consisting of a red parallelogram with a
white “AEP” inside. AEP REP intended to
use the same sort of branding, alongside the “AEP Retail Electric” name.
The Commission, and about 20 other REPs, opposed the use of
this name, in the context of the ongoing activities of two other AEP
subsidiaries. AEP previously acquired
two TDUs and affiliated REPs; it then sold the affiliated REPs and changed the
names of the TDUs to AEP variants which do business under the shared name “AEP
Texas” and red parallelogram logo.
The factual issues centered on evidence that retail consumers
in the service areas of the “AEP Texas” TDUs already had extensive familiarity
with the AEP name and branding from a decade of use on vehicles, employee
uniforms, electric meters on consumers’ properties, a website, and a Facebook page,
along with ads and community and charitable contributions. An AEP REP survey in the AEP Texas service
areas indicated that 73% of respondents were already familiar with both the
name “AEP Texas” and the name “AEP Retail Energy,” even though the latter had
yet to operate as a mass-market REP. Those entities thus tied for third in market
recognition out of a list of fourteen, behind only the two largest REPs. They were about 20 points higher than the
next highest, which happened to be the areas’ original incumbent REPs. The Commission found the AEP logo to be
“omnipresent” in the relevant areas.
The other key piece of evidence was that retail customers
tended to overlook the different roles of TDUs and REPs. Over one-third mistakenly believed that the
REP from which they bought electricity also owned the wires that delivered the
electricity, and 32% believed that “AEP Retail Energy” provided electric
transmission and distribution services. The opponents argued that this showed that a
shared name would exacerbate confusion, while AEP REP cited evidence suggesting
that these misunderstandings would exist no matter what name the REP used.
The formerly affiliated REPs contended that using the AEP
name for a REP would confuse consumers into thinking that “AEP Retail Electric”
and “AEP Texas” were one and the same or
that customers of “AEP Retail Electric” otherwise stood to benefit from that
company's affiliation with the TDU. The
Commission agreed that sharing the name and branding would amount to prohibited
“joint advertising or promotional activities,” discriminating in favor of the
affiliated REP.
The court first rejected statutory/administrative law
challenges to this decision (and the dissent would have resolved the
administrative law issues in AEP’s favor).
Basically, AEP argued that “joint advertising or promotional activities”
had to be something more than sharing a brand name, and that even if shared
branding did qualify, it didn’t “favor” AEP REP relative to competitors, which
was required for it to be unfair discrimination. The court found that the Commission didn’t
err in considering how retail consumers would likely understand AEP’s marketing
strategy. Even if there were no “direct
or overt” attempts by AEP Texas to favor its affiliate, retail consumers would likely
perceive that AEP Texas’s use of the shared name, logo, and branding was
promoting all of the affiliated entities collectively. Since a central concern of the regulations
was to prevent cross-subsidization between regulated and competitive activities
(TDUs and REPs, respectively), this was within the Commission’s power to
regulate. The Commission reasonably
found that the “AEP” name and branding would “have the practical effect of
promoting both the ‘AEP Texas’ TDUs and AEP REP and leveraging each other”s
notoriety and goodwill to benefit the other,” and thus reasonably found a
prohibited cross-subsidy.
Given all that, was the regulation nonetheless a violation
of the First Amendment? AEP conceded
that its business name and logo were commercial speech. Central
Hudson only protects commercial speech that isn’t unlawful or
misleading. The Commission found as a
fact that the use of the name “AEP Retail Electric” and related branding would
be misleading in the context of Texas’s retail electric market. Retail customers would likely to perceive
incorrectly that the REP and the TDU were the same or that they otherwise stood
to benefit from the entities’ affiliation, such as by receiving more reliable
service. Thus, the name was not entitled
to any First Amendment protection at all.
AEP argued that this rationale was mere paternalism. But past paternalism cases involved the
suppression of truthful information. The
regulation here wasn’t just designed to influence consumers’ decisions, but
rather to ensure that their decisions weren’t influenced “in a manner that
undermines competition itself.”
The analysis concluded with a big quote from Friedman v. Rogers (another case out of
Texas), which allowed the state to ban the use of certain trade names. Such a ban had only an incidental effect on
the content of commercial speech, since “a trade name conveys information only
because of the associations that grow up over time between the name and a
certain level of price and quality of service,” and the information conveyed is
“largely factual, concerning the kind and price of the services offered for
sale.” The same factual information
could be communicated to the public in other ways. The state merely required the information to
be presented in a nondeceptive form.
(This informational understanding of trademarks is pretty deeply
inconsistent with the modern idea of goodwill.
Also, to the extent that AEP wants to communicate that the TDU and the
REP are related—that “largely factual” aspect of trademark—I don’t see how it
has any alternatives to communicate that message to the public, since it’s that
communication that the Commission found confusing/deceptive.)
1 comment:
An illustration on how, down in the trenches, things may not have changed as much as Sorrell might have permitted.
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