A federal judge in Sacramento last week ruled in favor of Web publisher ForSaleByOwner.com and the Institute for Justice in a First Amendment lawsuit challenging California’s demand that Web sites obtain a real estate broker’s license to publish real estate advertising and information.

The court concluded that the law, which requires Web sites to obtain a license but exempts newspapers that publish the same information, was “wholly arbitrary” and violated the First Amendment guarantees of free speech and freedom of the press.

“The First Amendment rights of Internet publishers have taken a big step forward,” said Steve Simpson, a senior attorney with the Institute for Justice, which represents ForSaleByOwner.com for free. “States will now think twice before concluding that the Internet is a second-class citizen to traditional media.”

Tom Pool, a spokesman for the California Department of Real Estate couldn’t comment on whether the state would appeal the decision, saying the outcome is still under review.

The New York-based ForSaleByOwner.com in May 2003 filed the suit challenging the law. The law requires Web sites to obtain a real estate broker’s license because they enable individuals to advertise homes for sale on the Internet and they publish information of interest to buyers and sellers.

In early 2001, the California Department of Real Estate began vigorously enforcing the licensing law against “for-sale-by-owner” and classified advertising Web sites that allow individuals to buy and sell homes without a real estate broker. According to the Institute for Justice, the Department said during the course of the lawsuit that Web sites cannot claim it is “easy” to buy and sell homes without a real estate broker or publish other information with which officials disagree.

“This is censorship, pure and simple,” said Simpson. “The First Amendment guarantees that Americans may speak their minds and communicate information without the approval of government censors. Allowing licensing officials to make distinctions among publications cannot be permitted if speech is truly to be free.”

The court agreed, finding the state’s effort to distinguish between newspapers and independent Web sites “totally unpersuasive.” “(T)here appears to be no justification whatsoever for any distinction between the two mediums,” the court stated. “Even if a distinction was warranted in 1959, when the (newspaper exemption was passed), that does not mean that the same rationale for exempting newspapers remains viable in 2004, given the vast advances in technology that have occurred in the meantime.”

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To the state’s claim that newspapers are somehow more trustworthy than Web sites, the court stated, “while Defendants vaguely attempt to paint newspapers as geographically situated and relatively more stable than Internet companies, they have not established why this should require Web sites like FSBO’s to obtain a California broker’s license when online services doing exactly the same thing are not subject to any licensing requirement so long as they are operated by a ‘newspaper.’ Defendants provide no reasonable explanation whatsoever for this requirement, let alone a compelling interest to justify it.”

ForSaleByOwner.com and similar services enable consumers to buy and sell real estate without the help of a real estate broker or agent. The Institute for Justice views the court decision as a win to consumers who wish to save money by attempting to sell their home on their own.

“It’s great that the law is starting to catch up with technology,” ForSaleByOwner.com President Damon Giglio said in a statement.

The Institute for Justice says this is an important case with broad implications for e-commerce. The federal court case was the first to extend First Amendment protections to Internet publishers.

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