In the last few years, the quote has reared its head on countless occasions. In September, commentators pointed to it when questioning whether the controversial anti-Muslim video should be censored. Before that, it was invoked when a crazy pastor threatened to burn Qurans. Before that, the analogy was twisted to call for charges against WikiLeaks for publishing classified information. The list goes on.
But those who quote Holmes might want to actually read the case where the phrase originated before using it as their main defense. If they did, they'd realize it was never binding law, and the underlying case, U.S. v. Schenck, is not only one of the most odious free speech decisions in the Court's history, but was overturned over 40 years ago.
First, it's important to note U.S. v. Schenck had nothing to do with fires or theaters or false statements. Instead, the Court was deciding whether Charles Schenck, the Secretary of the Socialist Party of America, could be convicted under the Espionage Act for writing and distributing a pamphlet that expressed his opposition to the draft during World War I. As the ACLU's Gabe Rottman explains, "It did not call for violence. It did not even call for civil disobedience."
The Court's description of the pamphlet proves it to be milder than any of the dozens of protests currently going on around this country every day:
It said, "Do not submit to intimidation," but in form, at least, confined itself to peaceful measures such as a petition for the repeal of the act. The other and later printed side of the sheet was headed "Assert Your Rights."
The crowded theater remark that everyone remembers was an analogy Holmes made before issuing the court's holding. He was explaining that the First Amendment is not absolute. It is what lawyers call dictum, a justice's ancillary opinion that doesn't directly involve the facts of the case and has no binding authority. The actual ruling, that the pamphlet posed a "clear and present danger" to a nation at war, landed Schenk in prison and continued to haunt the court for years to come.
Two similar Supreme Court cases decided later the same year--Debs v. U.S. and Frohwerk v. U.S.--also sent peaceful anti-war activists to jail under the Espionage Act for the mildest of government criticism. (Read Ken White's excellent, in-depth dissection of these cases.) Together, the trio of rulings did more damage to First Amendment as any other case in the 20th century.
In 1969, the Supreme Court's decision in Brandenburg v. Ohio effectively overturned Schenck and any authority the case still carried. There, the Court held that inflammatory speech--and even speech advocating violence by members of the Ku Klux Klan--is protected under the First Amendment, unless the speech "is directed to inciting or producing imminent lawless action and is likely to incite or produce such action" (emphasis mine).