CFTC Surrenders on Licensing Speech

April 2000

CFTC Surrenders on Licensing Speech

By Scott Bullock

After nearly a three-year court battle, the Commodity Futures Trading Commission (CFTC) finally capitulated on March 7 by publishing a rule exempting newsletter publishers, software developers and Internet website operators from the agency’s licensing requirements.

The rule change directly resulted from the Institute for Justice’s lawsuit against the CFTC in Taucher v. Born, which challenged the ability of government to license the publishers of commodity trading advice. Last June, U.S. District Court Judge Ricardo Urbina issued a stinging rebuke to the CFTC’s efforts to license publishers, resulting in a precedent-setting First Amendment victory. Judge Urbina held that the CFTC’s campaign amounted to a prior restraint on speech in violation of the First Amendment and further held that Internet publishers and computer software developers, as well as traditional newsletter publishers, could publish without first being licensed by the agency. Before that ruling, the CFTC demanded registration as a “Commodity Trading Advisor” before one could publish any information on the commodity markets. Registration required paying fees, fingerprinting, background checks and perhaps most onerously, handing over a list of one’s subscribers and being subject to on-demand audits by the CFTC. Publishing without registration risked $500,000 in fines and up to five years in prison.

The Taucher case, which was closely watched by people in the commodities business, the high-tech industry and those interested in protecting civil liberties in cyberspace, set an early and important precedent in favor of extending First Amendment protection to software development and the Internet-areas of law where the jurisprudence is only now being established.

As is typical of a taxpayer funded federal agency that suffers defeat in court, the CFTC decided to appeal Judge Urbina’s decision to the D.C. Circuit. The case was scheduled for oral argument on April 11, but, perhaps seeing the writing on the wall, the CFTC capitulated by issuing its new rule a little more than one month before the argument.

Our CFTC litigation halted an early attempt by the federal government to regulate software and the Internet. Unfortunately, however, this will not be the last attempt to regulate online content and the development of software. The Institute will remain vigilant against future government efforts to violate free speech rights in emerging technologies.

Scott Bullock is an Institute senior attorney.