Apocalypse Soon?

In December, the International Sign Association (ISA) held a webinar that rounded up some of the recent sign code-related court cases. The one currently pending before the Supreme Court—City of Austin v. Reagan National Advertising of Texas—could have cataclysmic implications for the sign industry.

The webinar offered some potential outcome scenarios and what the decision would mean for sign producers. It was presented by David Hickey, VP, Advocacy, for ISA; Michael Wardle, senior vice president and general counsel for YESCO, a 100+-year-old sign manufacturing company; and Nicole Bergstrom, president of SmithCraft Custom Architectural Signs.

Location, Location, Location

First, the webinar ran through some background on the criteria that courts have used when ruling on sign code cases.

One of the most basic regulatory distinctions when it comes to signage is between on-premise and off-premise—and it’s a distinction that has been around for more than a century. On-premise signage advertises activities conducted or products made and/or sold on the same property as the sign. Off-premise signage advertises activities or products that are conducted or offered on property other than where the sign is erected. Billboards are an emblematic example of off-premise signage, as are various kinds of temporary directional signs that advertise things like yard sales, 5Ks, flea markets, job fairs or other events.

It was shortly after the Civil War that the first recorded instance of off-premise signage appeared, and, in 1919, the Supreme Court first ruled that communities could regulate off-premise signage differently than on-premise signage—which makes sense.

“The two different kinds of signs are treated under different types of regulations, because these signs have different audiences, and they use different business models,” said Hickey.

Metromedia v. City San Diego (1981) was the first case in which the Supreme Court really dug into the on-/off-premise signage distinction. In a nutshell, San Diego wanted to prohibit new billboards for reasons of pedestrian and traffic safety as well as community aesthetics. In a plurality (but not majority) decision, the Supreme Court ruled that the city could in fact treat off-premise signage, like billboards, differently than on-premise, since the city still allowed on-premise signs to contain commercial messages. Although it was a confusing decision, it was one that many communities came to rely on for guidance in enacting sign regulations.

By the way, this is not to say that communities can’t regulate on-premise signage at all; they most certainly can—and often do. The distinction just means that off-premise signage can be held to different standards, which is a good thing.

“For on-premise signage companies, we get the better end of that bargain,” said Bergstrom, “in terms of the number of locations of a sign and at times the size of the signs that are permitted.”

If the distinction were to be eroded, and if both types of signage were held to the same standard, it could cause a great deal of confusion for signmakers and sign owners.

“Having stability is beneficial for businesses of all types,” Bergstrom added. “Businesses like certainty and the courts also recognize that there is an interest in maintaining a status quo that people can rely on, make decisions based on, and plan for the future.”

“It’s not often that the on-premise sign industry, the billboard industry, and the scenic organizations have a common shared objective, but one of those objectives is to maintain the Highway Beautification Act,” said Wardle. “That distinction between on-/off-premise signs helps maintain the HBA, which benefits the on-premise sign industry because the on-premise sign industry is exempt from it. It benefits the billboard industry because it provides certainty and compensation in the event that a sign is taken down. It benefits the scenic organizations because it provides limitations on signs.”

So regulatory certainty is a very important consideration for all stakeholders.

The distinction has also created a clear delineation between “sign companies” (on-premise) and “outdoor advertising companies” (off-premise), each of which operates according to a different business model and serves different kinds of customers. On-premise signage like electronic message centers (EMCs) can’t (usually) feature third-party advertising, for example, which is “one way that local officials try to keep us in our own lanes,” said Hickey.

Speech! Speech!

Recent cases have taken the sign code discussion in a different direction: Are municipalities regulating speech, and to what extent is a particular regulation a First Amendment infringement?

Where sign regulations tread into Constitutional law territory, there is a basic litmus test that the Supreme Court uses: a “rational basis test.” In other words, is there a rational reason why these regulations were created? It doesn’t have to reflect the best way to achieve whatever aim for which the regulation was created, just that there was a specific problem the regulation was devised to solve.

However, there are two further standards that the Supreme Court uses when it is evaluating speech-related regulations.

“Intermediate scrutiny” is a bit more rigorous in evaluating whether a regulation is accomplishing the goal for which it was developed by means that are substantially related to that goal. And there is “strict scrutiny,” where a regulation doesn’t just have to be a way to accomplish the goals of that regulation but rather the best way, or a way that is the most narrowly defined and the least restrictive.

“When any kind of regulation is judged through the lens of strict scrutiny, chances are it’s going down,” said Bergstrom. “It’s very difficult to survive that test.”

Lost In the Tall Reeds

An oft-cited case from 2015 was Reed v. Town of Gilbert. In essence, the Reed decision found that any law or sign code that is based on the content of a sign is unconstitutional. The sign code must be content-neutral, and if it appears that a regulation is taking into account the sign’s message—as opposed to traditional signage issues such as size, dimensions and placement—the code can be subject to judicial review. It also established that any sign regulation that is not content-neutral but instead content-based is subject to strict scrutiny.

Although the Reed decision reverberated throughout the sign industry, few rank-and-file sign shops were ultimately impacted.

“It dealt almost entirely with non-commercial speech and the types of signage that were involved were temporary directional signage,” said Hickey.

The sign that launched a thousand lawsuits.

Associate Justice Samuel Alito, in his concurring opinion on Reed, listed several ways that a community could regulate signage in a content-neutral way that wouldn’t be in violation of Reed, and he mentioned the on-/off-premise distinction explicitly. However, since it was just a concurring opinion and not the main one, the door was left open to challenges.

One billboard company in Los Angeles sued the city claiming that their distinction between on- and off-premise signs was content-based and therefore unconstitutional. In a rare move, ISA sided with the city on this one, and filed an amicus brief in support of L.A.’s regulatory distinction between on-premise signs and billboards. The California Supreme Court ultimately upheld the regulatory distinction as being constitutional, but it didn’t stop other billboard companies around the country from jumping on the Reed bandwagon.

Another hot-button case was Thomas v. Bright (2019). The U.S. 6th Circuit Court of Appeals affirmed the ruling of a federal district court that the government cannot distinguish between on-premise and off-premise signage because it is an unconstitutional content-based distinction. Tennessee appealed that case to the Supreme Court, and in summer 2020, the Supreme Court denied certiorari (fewer than four justices determined that the circumstances of the decision of the lower court warranted a review by the Supreme Court), so that was the law of the land in the states covered by the 6th Circuit. If a community tries to regulate on-premise signs differently than billboards—at least to the extent that they did in Tennessee—then those regulations are content-based and therefore unconstitutional. 

A Day of Reckoning?

The latest case célèbre began as Reagan National Advertising of Texas v. City of Austin. Billboards companies wanted to install digital billboards in Austin, Tex., and applications to do so were declined by the city as the sign code prohibited off-premises digital signage (they allowed digital signage on-premises). Outdoor advertising company Reagan National Advertising sued the city, claiming that Texas’s sign ordinance was content-based and thus unconstitutional. 

On Aug. 25, 2020, the 5th Circuit Court of Appeals agreed and ruled that the on-/off-premises distinction is content-based, and therefore “presumably unconstitutional.” The city appealed to the Supreme Court, and it was announced that the Supremes would in fact hear what is now City of Austin v. Reagan National Advertising of Texas.

“We think this is a much more relevant case for our industry than Reed or even Thomas v. Bright was, because Thomas v. Bright was about billboards with non-commercial messages,” said Hickey. “Austin v. Reagan involves, first of all, digital signs and, second of all, digital signs with commercial messages on them. This really has the ability to affect the bottom line of the sign industry and sign companies.”

Ultimately, then, what are the consequences of a SCOTUS decision for the sign industry? Here are the three scenarios:

SCOTUS overturns the 5th Circuit—Whew! The on-/off-premise distinction is maintained.

“I don’t think it would change the way that signs are regulated very much, or the way that on-premise signs are regulated, and therefore wouldn’t affect the way that sign companies do business in any significant way,” said Hickey.

However, communities can still find other ways to regulate these kinds of signs.

SCOTUS remands the case back to the 5th Circuit—Huh? When a case is remanded back to a lower court, the court says that the wrong standard has been applied, or a new standard needs to be applied. So the court issues instructions for the lower court to reconsider its decision. But it’s difficult to say what those instructions would be. Still, there are a few possibilities.

The first is, does strict scrutiny apply? This was an argument the billboard company’s attorney made to the Supreme Court at oral argument: The court should apply strict scrutiny, which is the traditional standard, to Austin v. Reagan. What does that mean for signmakers?

“It would give us certainty as to what the instructions are, but we wouldn’t really know the ultimate outcome until it’s revisited at the circuit court level,” said Wardle. “What do you do as a business owner in that circumstance? Well, it’s more waiting.”

But what if…

SCOTUS affirms the 5th Circuit—Danger, Will Robinson! Essentially, the decades-old on-/off-premise distinction is eliminated and sign codes become a kind of Wild West.

“During oral arguments, a couple of the justices were really concerned that this would be extremely disruptive to thousands of jurisdictions that have the distinction,” said Hickey.

What happens if the on-/off-premise distinction is eliminated? How else do you distinguish between these two types of signage and these two signage industries? By size? By signs that generate revenue and those that don’t? And does this open the door to regulating all signs the same way—which no one wants?

Then there is the very real possibility that it will result in a vast proliferation of signs and billboards in every conceivable space, with the potential for every municipality to resemble the Las Vegas Strip. And then how do those municipalities respond?

“Especially when it comes to digital signs, they’re going to say, ‘If Austin can’t distinguish being on- and off-premise, we have to treat these signs the same. So we’re just going to ban digital signs all together.' Obviously, that is not what our industry wants at all,” said Hickey.

“This is what I call the sign code apocalypse scenario,” said Bergstrom, “where it invalidates the vast majority of sign codes that exist around the country. It would be a slow rolling extermination of the existing sign codes. Because of the link to the First Amendment, Constitutional issue, if they uphold the rule that was set down by the 5th Circuit, anyone can say, ‘Hey, this ordinance is unconstitutional’ and bring a challenge.”

“At least in the short term, we’ll go from being focused on sales and operations and spending a lot of time at city planning meetings,” added Wardle.

Wherefore Art Thou?

Still, when one case closes another opens, and there are new cases looming on the dockets of the nation’s courts.

“A lot of communities are struggling with how to regulate murals," said Hickey. “Are they art? Are they signs? And we are seeing cases percolate across the country on this issue. And there are an increasing number of sign regulations that are restricting sign lighting.”

Sign codes and regulations may be the least sexy elements of the sign business, but they often have the biggest impact. The Nine Wise Souls are slated to render their verdict in Austin v. Reagan spring or summer of 2022. We’ll keep you posted.