* 9th Circuit says FCC political ad ban too broad

* Dissent fears for future of public broadcasting

* FCC ban on ads for goods and services upheld

By Jonathan Stempel, Terry Baynes and Jasmin Melvin

April 12 (Reuters) - A divided U.S. appeals court struck down a federal ban on political advertising on public TV and radio stations, a decision that could open the public airwaves to a heavy dose of campaign ads leading up to the November elections.

By a 2-1 vote, a panel of the 9th U.S. Circuit Court of Appeals in San Francisco said the Federal Communications Commission violated the First Amendment's free speech clause by blocking public broadcasters from running political and public issue ads.

The court said the ban was too broad, and that lifting it would not threaten to undermine the educational nature of public broadcast stations. It upheld a ban on ads for goods and services on behalf of for-profit companies.

"Public issue and political speech in particular is at the very core of the First Amendment's protection," Judge Carlos Bea wrote in the main opinion.

"Public issue and political advertisements pose no threat of 'commercialization'," he continued. "Such advertisements do not encourage viewers to buy commercial goods and services. A ban on such advertising therefore cannot be narrowly tailored to serve the interest of preventing the 'commercialization' of broadcasting."



Minority Television Project, a California non-profit, had challenged the FCC after being fined $10,000 for running paid ads from companies such as insurer State Farm and General Motors Co's Chevrolet division on its KMTP-TV in San Francisco.

"It is a significant victory," said Walter Diercks, a lawyer for the non-profit. The government should not be "picking and choosing what is appropriate content."

The FCC had argued that the government has a significant interest in ensuring the airing of educational programming, many of which run on Public Broadcasting Service stations.

It said if public broadcasters became more dependent on ads, they might create a void by replacing "Sesame Street" and other educational programming with programs that appeal to other viewers or listeners.

The FCC had no immediate comment. A PBS spokeswoman declined to comment.

"IT SCARES ME TO DEATH"

Jeffrey Silva, a telecommunications analyst at Medley Global Advisors, said the decision could help ease the scramble that public broadcasters often face to raise money, but at a cost.

"You can almost see with some of them that are very much vested in keeping public television's educational, nonpartisan nature intact that this could be kind of a complicating factor," he said. "You can envision where public TV does not look like it traditionally had. It suddenly becomes a different animal."

Norman Ornstein, resident scholar at the American Enterprise Institute, said the decision could "fundamentally change the character of public television and radio" by allowing deep-pocketed political and other organizations to begin "swooping" onto the public airwaves to air their messages.

"This is just going to move us further away from what remains of a public square," said Ornstein, who said he served on PBS' board for six years. "To be truthful, it scares me to death."

The AEI is a conservative Washington think tank.

A federal judge in San Francisco had upheld the FCC restrictions in August 2009. Thursday's decision left the $10,000 fine intact. The 9th Circuit oversees cases in nine western U.S. states, Guam and the Northern Mariana Islands.


FUTURE AT STAKE

Concurring in Thursday's judgment, 9th Circuit Judge John Noonan said the rise of newer technologies for transmitting TV programs - such as cable, satellite, cell phones, the Internet and Apple Inc's iPad - required a closer look at how the government regulates speech on broadcast television.

He also suggested that regulations may be inconsistent, referring to notices on behalf of financial services company Charles Schwab Corp on the show "PBS NewsHour."

"I have seen announcements that to my mind are ads," he wrote. "I have viewed Charles Schwab's message, 'Talk to Chuck' - it is not about Chuck's golf game."

Judge Richard Paez dissented.

"For almost 60 years, commercial public broadcasters have been effectively insulated from the lure of paid advertising," he wrote. "The court's judgment will disrupt this policy and could jeopardize the future of public broadcasting. I am not persuaded that the First Amendment mandates such an outcome."

Diercks, the plaintiff's lawyer, downplayed such concerns.

"It is a hand-wringing fantasy to claim this decision will end public broadcasting as we know it," he said. "Public stations are already accepting money to put on what is at the very least 'image' advertising."

Bea was appointed to the 9th Circuit by President George W. Bush; Noonan by President Ronald Reagan; and Paez by President Bill Clinton.

The case is Minority Television Project Inc v. FCC, 9th U.S. Circuit Court of Appeals, No. 09-17311.

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