I read that line to justify the ban on actual KP. Not that I think it is valid to justify the ban, but it has a certain rationale behind - and it has a very specific limit, a part which I personally love.

Iow, KP is only exempt from the First's protection of GP (Grannie Pronz) because its production kind of, like, involves children. When the SC explicitly allowed virtual KP to stay legal, it did make clear that the First won because no children ever had to participate to make it.

Again, I don't think this is valid, because, in the balance, a) children are more protected by a stronger First than by stronger KP laws and b) a ban on all KP isn't the less invasive and less costly way of reconciling the social goal that children not be exploited and the First rights of pronz. But you have to grant that the Court at least had to carve an exception, rather than dismissing the contradiction out of hand.

But while this rationale is somewhat hard to defend against on pure First grounds, because it is an explicitly carved exception (though one day it will - and I hope Kagan is rottening in Hell when that happens!), it also sets a limit to what can be criminalized or not - the USA will never have laws as broad as Canada or Australia, because the SC implicitly ruled that it gots to have real children (or at least real underage-looking people) for it to be KP.

But, if that line doesn't come from a case dealing either with the original KP bans or with the attempts to ban virtual, I would really like a citation.