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Eighth Circuit Serves Another Round of First Amendment Protection for Alcohol Advertising

Food and beverage advertising, like other forms of speech, is usually entitled to First Amendment protection – even if it may not always enjoy the same caliber of protection as, for example, journalism or political speech.  See, e.g., Sorrell v. IMS Health, Inc., 564 U.S. 552, 557 (2011) (“Speech in aid of pharmaceutical marketing . . . is a form of expression protected by the Free Speech Clause of the First Amendment.”)

Historically, when faced with First Amendment challenges to advertising laws concerning food and beverage products, courts often elected to defer to municipalities’ and regulators’ authority to fashion advertising regulations to prevent consumer deception and further public safety.  POM Wonderful, LLC v. F.T.C., 777 F.3d 478 (D.C. Cir. 2015) (concluding that the First Amendment was not violated by administrative order requiring that health benefit claims in a beverage advertisement be supported by evidence from a randomized controlled trial); Am. Meat Inst. v. Dep’t of Agric., 760 F.3d 18 (D.C. Cir. 2014) (same for regulation requiring meat producers to disclose of country-of-origin information about meat products); N.Y. State Rest. Ass’n v. N.Y.C. Bd. of Health, 556 F.3d 114 (2d Cir. 2009) (same for regulation requiring restaurants to disclose calorie information about items on their menus).

But in a recent series of decisions, the Supreme Court has applied closer First Amendment scrutiny to regulations of business-related speech.  See, e.g., Janus v. AFSCME, 138 S.Ct. 2448 (2018) (holding law requiring public-sector union members to pay agency fees or union dues violated First Amendment by compelling members to subsidize union’s speech); NIFLA v. Becerra, 138 S.Ct. 2361 (2018) (striking down law requiring “crisis pregnancy centers” to post signs, inter alia, disclosing they were not licensed medical centers).  Federal courts, in turn, have taken to reviewing with greater skepticism laws that regulate food and beverage advertising. For example, in a well-publicized decision last year, the Ninth Circuit held that a city ordinance requiring manufacturers to include health warnings in their advertisements for sugar-sweetened beverages violated the First Amendment. Am. Beverage Ass’n v. City and Cty. of San Francisco, 916 F.3d 749 (9th Cir. 2019).

The Eighth Circuit’s recent opinion in Missouri Broadcasters Association v. Schmitt, No. 18-2611 (8th Cir. Jan. 8, 2020), decided in the closely regulated context of alcoholic beverage advertising, illustrates courts’ greater willingness to question government restrictions on advertising in light of Janus and NIFLA.  The decision is notable for reaffirming that commercial advertising enjoys protected First Amendment status and that regulation of such is permissible only when it directly advances a substantial government interest and is no more burdensome than necessary.

Missouri, like many states, has adopted a “tied-house” law: a three-tiered system for the production and sale of alcoholic beverages. (“Tied-house” is a term used historically to describe alcohol retailers that exclusively sold the products of a single manufacturer and often encouraged irresponsible drinking to meet the manufacturer’s sales quota.)  Under Missouri’s tied-house law, entities in the alcohol industry are divided into producers, distributors, and retailers, and no industry actor may play more than one role. Missouri’s alcohol regulatory scheme imposed restrictions on advertising that applied differently to the different types of actors in the tied-house system.

These regulations drew a First Amendment challenge from a consortium of broadcasters, alcohol producers, and retailers whose advertising activities the regulations curbed in several different ways.

  • First, the plaintiffs challenged a provision of Missouri law that prohibited producers and distributors from specifically advertising locations where their products may be purchased, except under narrow circumstances (the “advertising ban”). By way of example, Doe’s Brewing Company could not purchase a billboard reading “Try Doe’s Light at Joe’s Bar.”
  • Second, the lawsuit challenged a provision that prohibited retailers from advertising discounted prices outside of their establishments (the “discount regulation”). Under the discount regulation, Joe’s Bar could not place a newspaper advertisement reading “Half Price Doe’s Light,” but could post a sign inside the bar reading “Half Price Doe’s Light.”
  • Finally, the challengers sought to block a Missouri regulation that prohibited retailers from advertising alcohol prices below the wholesale price (the “below-cost regulation”). The below-cost regulation would preclude Joe’s Bar from offering cans of Doe’s Light for ten cents each, when Joe’s had paid fifty cents each at wholesale.

Missouri sought to justify these regulations as protecting alcohol retailers, such as bars and restaurants, from “undue influence” at the hands of larger alcohol-producing businesses (similar to the sales quotas in the tied-house era). Further, Missouri contended that the regulations served to deter underage drinking and binge drinking.

Plaintiffs initially sought injunctive relief in Missouri federal court, arguing that the challenged regulations violated their First Amendment rights by restricting the content of the advertisements they placed and aired. Missouri filed a motion to dismiss for failure to state a claim; the district court granted the motion to dismiss, finding the plaintiffs had failed to adequately allege that the challenged regulations did not advance the state’s purported interests or that the regulations were more extensive than necessary to serve the state’s interests. Plaintiffs appealed to the Eighth Circuit, and the Eighth Circuit reversed and remanded, concluding that, at the motion to dismiss stage, Plaintiffs had sufficiently stated the facts supporting their challenge. Mo. Broads. Ass’n v. Lacy, 846 F.3d 295 (8th Cir. 2017). On remand, the district court concluded that the challenged provisions of Missouri law violated the First Amendment. Missouri then appealed once again to the Eighth Circuit.

On appeal, Missouri first argued that the challenged provisions were constitutional because they did not implicate the First Amendment at all. Under the Twenty-First Amendment, it is impermissible to “transport[] or import[] [alcohol] into any State . . . in violations of the laws” of that State. Thus, Missouri contended, states have plenary authority to regulate the sale and distribution of alcohol, which subsumes advertising and marketing related thereto. The Eighth Circuit rejected this theory, however, noting that the Supreme Court had held in 44 Liquormart v. Rhode Island, 517 U.S. 484 (1996), that the Twenty-First Amendment does not shield restrictions on alcohol-related speech from First Amendment scrutiny.

The Eighth Circuit then analyzed whether the advertising restrictions were valid regulations of commercial speech. In assessing the challenged regulations, the Eighth Circuit applied the test set forth by the Supreme Court for evaluating the constitutionality of commercial speech regulations in Cent. Hudson Gas & Elec. Corp. v. Pub. Serv. Comm’n of N.Y., 447 U.S. 557 (1980). Under Central Hudson, courts are obligated to consider four factors in evaluating the constitutionality of a commercial speech regulation: “(1) whether the commercial speech at issue concerns lawful activity and is not misleading; (2) whether the governmental interest is substantial; (3) whether the challenged law directly advances the government’s asserted interest; and (4) whether the law is no more extensive than necessary to further the government’s interest.”

Applying Central Hudson, the Eighth Circuit concluded that the advertising ban violated the First Amendment. Although Missouri had contended that the advertising was necessary to prevent “undue influence of alcohol producers and distributors over retailers,” the panel found that the relationship between Missouri’s stated goal of preventing “undue influence” and the advertising ban was too attenuated to pass constitutional muster.  In particular, Missouri had not shown that retailers were, in fact, subject to undue influence, or that the statute prevented undue influence in any meaningful sense. Further, the ban contained several exceptions that reduced its effectiveness at advancing Missouri’s stated interest, thus undercutting Missouri’s arguments regarding its necessity.  For example, the advertising ban prohibited producers from directly advertising the names of retailers, but permitted producers to provide permanent advertising signs to retailers that included both the names of the producer and the name of the retailers. As a result, the law did not sufficiently advance the government’s asserted interest, as required under Central Hudson. Additionally, Missouri had not shown that there were no less restrictive, alternative laws that could advance its stated interest.

Applying the same analysis, the Eighth Circuit also struck down the discount regulation and the below-cost regulation. Missouri contended that those regulations advanced its interests in reducing underage drinking and binge drinking. But the Eighth Circuit held that Missouri had neither provided evidence in support of this proposition nor shown that there were no less speech-restrictive alternatives to these regulations. As a result, the challenged provisions failed First Amendment scrutiny.

In a concurrence, Judge Stras agreed that the regulations at issue failed the Supreme Court’s Central Hudson test, but raised another area in which the Missouri regulations conflicted with the First Amendment. He noted that the advertising ban prohibited manufacturers and distributors from mentioning retailers in their advertising, but that the ban had an exception for certain instances in which manufacturers and distributors mentioned multiple retailers in their advertisements. Judge Stras reasoned that, in those instances, the advertising ban functioned as compelled associational speech: a manufacturer or distributor could be compelled to mention multiple retailers based on its decision to advertise a single retailer. In Judge Stras’ view, this required a reviewing court to apply strict scrutiny – an even more demanding test than Central Hudson scrutiny, which requires (among other things) a “compelling state interest” for the regulation. Under Judge Stras’ reasoning, some regulations that require the sort of compelled association found here would violate the First Amendment even if the Central Hudson test permitted them.

Missouri Broadcastersis instructive for attorneys that represent manufacturers and marketers in advertising matters. In the context of alcohol advertising regulation specifically, counsel should note that there is no “alcohol exception” to the First Amendment; i.e., a regulation that would normally conflict with the First Amendment does not avoid scrutiny simply by virtue of regulating alcohol advertising. More broadly, attorneys should be alert for regulations that seem to require the sort of compelled association (for instance between a manufacturer and retailer) called into question by Judge Stras’ concurrence.  And perhaps most significantly, Missouri Broadcasters, combined with the Ninth Circuit’s recent decision in American Beverage Association, may signal that federal courts have become increasingly amenable to First Amendment challenges in the context of advertising regulation.  Counsel should be attuned to opportunities to raise First Amendment arguments in the face of burdensome marketing and advertising restrictions and competitor lawsuits that would serve to chill commercial speech.