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It's not really a law as much as it is a guideline. The US Flag Code actually has no legal power, but is simply a set of rules for honoring and respecing the US Flag that is generally followed by the military, law enforcement, fire & rescue, and scouting groups, although it is meant to be observed by all.
Um, actually, the US Flag Code is a binding component of the U.S. Code:
http://www.law.cornell.edu/uscode/html/uscode04/usc_sup_01_4_10_1.html