Also from http://www.ushistory.org/betsy/faq.htm
Is it okay for an advertisement to use the flag?
No. Section 8i of the Flag Code reads, "The flag should never be used for advertising purposes in any manner whatsoever." The earliest drafts of the Flag Code were in response to the use of the flag in advertisements and on packaging, especially for beer.
Beginning in the late 19th century, the use of the flag on beer bottles and other products led to a movement to protect the flag from commercial use. Efforts at the federal level failed, so states, one by one, started passing their own Flag Codes, beginning with Illinois, Pennsylvania and South Dakota.
In the case of Halter vs. Nebraska (1923), the Supreme Court ruled 8-1 that state governments have the authority to ban desecration of the American flag.
Several efforts followed trying to unify the various state codes into one Federal Flag Code, which occurred in 1942 (see above).
The American Legion has been promoting flag etiquette since its founding in 1919. The Veterans of Foreign Wars has long advocated proper respect for the flag.
Adoption of State Flag Desecration Statutes — By the late 1800's an organized flag protection movement was born in reaction to perceived commercial and political misuse of the flag. After supporters failed to obtain federal legislation, Illinois, Pennsylvania, and South Dakota became the first States to adopt flag desecration statutes. By 1932, all of the States had adopted flag desecration laws.
In general, these State laws outlawed:
Placing any kind of marking on the flag, whether for commercial, political, or other purposes;
Using the flag in any form of advertising; and
Publicly mutilating, trampling, defacing, defiling, defying or casting contempt, either by words or by act, upon the flag.
Under the model flag desecration law, the term "flag" was defined to include any flag, standard, ensign, or color, or any representation of such made of any substance whatsoever and of any size that evidently purported to be said flag or a picture or representation thereof, upon which shall be shown the colors, the stars and stripes in any number, or by which the person seeing the same without deliberation may believe the same to represent the flag of the U.S.
