Schools may prohibit student expression that can be interpreted as advocating drug use, Chief Justice John Roberts wrote for the court in a 5-4 ruling.
Joseph Frederick unfurled his homemade sign on a winter morning in 2002, as the Olympic torch made its way through Juneau, Alaska, en route to the Winter Olympics in Salt Lake City.
Frederick said the banner was a nonsensical message that he first saw on a snowboard. He intended the banner to proclaim his right to say anything at all.
His principal, Deborah Morse, said the phrase was a pro-drug message that had no place at a school-sanctioned event. Frederick denied that he was advocating for drug use.
"The message on Frederick's banner is cryptic," Roberts said. "But Principal Morse thought the banner would be interpreted by those viewing it as promoting illegal drug use, and that interpretation is plainly a reasonable one."
CBS News legal analyst Andrew Cohen said he was not surprised by the ruling, saying that, "high school students typically have been blocked from having the same first amendment rights as adults and this ruling falls into a long line of cases that say so. The lesson here is if you want to exercise your full free expression rights get as far away from your high school as you can."
Morse suspended the student, prompting a federal civil rights lawsuit.
Students in public schools don't have the same rights as adults, but neither do they leave their constitutional protections at the schoolhouse gate, as the court said in a landmark speech-rights ruling from Vietnam era.
The court has limited what students can do in subsequent cases, saying they may not be disruptive or lewd or interfere with a school's basic educational mission.
Frederick, now 23, said he later had to drop out of college after his father lost his job. The elder Frederick, who worked for the company that insures the Juneau schools, was fired in connection with his son's legal fight, the son said. A jury recently awarded Frank Frederick $200,000 in a lawsuit he filed over his firing.
Joseph Frederick pleaded guilty in 2004 to a misdemeanor charge of selling marijuana at Stephen F. Austin State University in Nacogdoches, Texas, according to court records.
Also on Monday, the court loosened restrictions on corporate- and union funded television ads that air close to elections,of a landmark campaign finance law.
The court, split 5-4, in upholding an appeals court ruling that an anti-abortion group should have been allowed to air ads during the final two months before the 2004 elections.
"This is a defeat for the McCain-Feingold legislation," Cohen said, adding that the ruling is "a return to the old ways, when there were fewer restrictions on the way people spend money when it comes to campaigns."
The Supreme Court's swing vote, Anthony Kennedy, has swung mostly conservative, reports CBS News correspondent Wyatt Andrews. Overall, the court under Chief Justice John Roberts has been pro-business, anti-lawsuit and anti-abortion.
Other cases the Supreme Court decided Monday:
"This is another case where this court has chipped away at the wall separating church and state, blocking a lawsuit that challenges a government initiative that helps religion. This is part of a larger trend that tweaks the Establishment Clause in a way to promote religion," Cohen said.