It’s not very often that the U.S. Supreme Court has two cases involving direct marketing at the same time. It’s even less often that a day after one case is argued, the decision is handed down in the other. The more important of the two, Madigan v. Telemarketing Associates, has the potential to alter decades of nonprofit law. The Illinois attorney general’s position here is that Telemarketing Associates committed fraud by allowing donors to think that most of the money it raised on behalf of the VietNow charity would go to delivering food baskets and providing shelter for homeless vets. However, the contract called for Telemarketing Associates to keep 85 percent of what it raised.
So far, charitable solicitation is protected under the First Amendment, and the Supreme Court has struck down — three times, mind you — state and local laws trying to regulate how much fundraisers were paid or what donors must be told about costs. The justices seemed to favor the fundraiser in their questioning, though we’ll have to wait until their decision this summer to find out what they really were thinking. It may be easy to say that a company keeping 85 percent of the money it raises in a charity’s name is too much, Justice David Souter said, but what about a 60-40 split or 65-35?
Should the court rule in favor of this case being a question of fraud, not an application of a percentage-based formula, then regulatory scrutiny of fundraising would certainly increase. Granted, 85 percent is an excessive amount, but it’s clear that this is exactly what would happen if state AGs were given this authority. Any attempt to set such limits is only asking for trouble.
The other case before the court involves Victoria’s Secret and a sex toy shop in Elizabethtown, KY, Victor’s Little Secret (now Cathy’s Little Secret). The justices ruled that there was no evidence the Victor’s Secret store name had diluted the brand and lessened the trademarks owned by Victoria’s Secret. The case now goes back to a lower court. However, this decision could have vast implications as well, especially on numerous Web domain name and cybersquatting battles. In 1999, a law was enacted making it illegal to register or traffic in a domain name that “is identical or confusingly similar to a trademark or service mark of another.” Who thinks this issue will be back before the Supreme Court someday?