Utah’s Advertising Restrictions Challenged
 
October 22, 2001
 
Hal Holmes Flowers - Tampa

A primary role played by a state alcohol regulatory agency is monitoring the impact of the beverage alcohol industry on the public. Indeed, many state agencies were created by laws the express purpose of which was the promotion of temperance among state citizens. Not surprisingly, therefore, should a citizen voice concerns regarding the content of a particular alcohol advertisement, a beverage alcohol regulatory official may be charged with investigating the advertisement in question.

Once a regulatory official has developed concerns about the content of an advertisement, he or she must carefully consider how to proceed. If an industry member has expended significant resources in preparing an advertisement and has employed its own evaluation concerning the ad's suitability, the member understandably may be resistant to any regulatory pressure to alter the ad. Should the official decide to restrict an industry member's right to advertise basic product information, that agency could find itself on the losing end of costly and protracted litigation.

Utah's Advertising Restrictions Questioned

The difficulty state agencies and state legislators face in attempting to restrict alcohol advertising is illustrated in the 10th Circuit Court of Appeals' recent decision in Utah Licensed Beverage Ass'n v. Leavitt, 256 F.3d 1061 (10th Cir. 2001), which enjoined Utah from enforcing certain statutory provisions governing the advertisement of alcohol beverages. In so doing, the court cast doubt on the constitutionality of such advertising restrictions in light of Rubin v. Coors Brewing Company¹ and 44 Liquormart v. Rhode Island². A review of the 10^th Circuit's decision also provides an opportunity to outline the analysis courts typically employ when examining content-based advertising restrictions.

In 1996, the Utah Licensed Beverage Association (ULBA) and others filed suit in federal district court to enjoin Utah from enforcing certain state provisions restricting advertisements of distilled spirits and wine. After three years, the district court denied ULBA's request for an injunction. ULBA appealed this decision.

At issue on appeal were essentially two statutory provisions. UTAH CODE ANN. §32A-12-401(2) (2001) effectively banned all advertising of distilled spirits or wine, except that retailers could post a sign that designated the retailer as the holder of a state alcohol beverage license.³ Similarly, Utah Code Ann. . §32A-12-401(4) (2001) prohibited retailer price advertisements that could be viewed by passersby.⁴

The Central Hudson Test

To determine the constitutionality of the provisions, the 10th Circuit employed the four-part Central Hudson test:

• whether the speech concerned is not misleading and concerns a lawful activity

• whether the asserted governmental interest is substantial

• whether the regulation directly advances the asserted governmental interest, and

• whether the regulation is more extensive than is necessary to achieve the asserted interest⁵

Courts generally have accepted that alcohol advertising restrictions prohibit truthful statements concerning lawful activity and that governments have a substantial interest in limiting beverage alcohol consumption. The 10th Circuit's decision regarding Utah's statutory provisions follows this approach.⁶

Courts historically have applied the final two prongs of the analysis differently, however. For instance, courts have disagreed about whether advertising restrictions have any substantial effect on the overall consumption of beverage alcohol. Some courts have accepted that advertising boosts overall consumption of beverage alcohol brands. Others have either questioned the evidentiary support for this conclusion or have accepted that advertising increases sales of certain brands only at the expense of other alcohol brands. Regarding the fourth prong, some courts, perhaps in deference to state authority over alcohol beverages conferred by the Twenty-First Amendment, have found that an absolute ban on certain advertising is not an overly restrictive means of limiting alcohol consumption.⁷

Fortunately, recent cases have clarified the way in which courts should apply these two final prongs. First, in Coors Brewing Company 517 U.S. 484 (1995), the Supreme Court invalidated federal regulations prohibiting beer labels from displaying alcohol content. The Court accepted that the government had a substantial interest in prohibiting brewers from competing on the basis of alcohol content.⁸ Yet, the Court concluded that the regulations at issue did not directly advance that goal and were not tailored narrowly enough in advancing their purported purpose.⁹ The Court specifically suggested that the government could regulate the amount of alcohol permitted in beer, rather than restrict truthful statements regarding beer products.¹⁰

Similarly, in 44 Liquormart, 517 U.S. 484 (1996), the Court invalidated Rhode Island prohibitions against advertising beverage alcohol prices. The Court rejected arguments that the prohibitions significantly furthered the state's purported goal of limiting alcohol consumption.¹¹ Further, the Court suggested that other measures might be more effective and intrude less on First Amendment rights. For example, the state could raise alcohol prices through taxation or develop programs to educate consumers about the dangers of excessive alcohol consumption.¹² Significantly, the Court also confirmed that the Twenty-first Amendment did not give state laws related to beverage alcohol special immunity from First Amendment challenges.¹³

The 10th Circuit likewise applied the final prongs of the Central Hudson test to find in favor of the ULBA. First, the court determined that Utah's restrictions could not achieve Utah's stated governmental interest.¹⁴ The court was not persuaded by ULBA's evidence suggesting there had been no overall growth in demand for beer since advertising for beer was permitted years earlier.¹⁵ Rather, the court found Utah's restrictions failed to promote temperance because the restrictions applied only to distilled spirits and wine, not to beer.¹⁶ If the purported purpose of the restrictions was the promotion of temperance, then these restrictions alone, the court reasoned, were insufficient to achieve the state's objective.¹⁷

Finally, the 10th Circuit determined that Utah had not employed the least restrictive means possible in attempting to achieve its interest in temperance.¹⁸ The court noted that there was no evidence that Utah had carefully considered the costs and benefits of imposing on free speech rights (a test articulated in Lorillard Tobacco Co. v. Reilly, 121 S.Ct. 2404 (2001).¹⁹ Additionally, though it did not articulate what the alternatives were, the court noted that less restrictive methods of furthering Utah's interests were available (a test employed both in Coors and 44 Liquormart).²⁰ For these reasons, the court determined that Utah's restrictions failed the final prong of the Central Hudson test.²¹

Conclusion

In the wake of the court's decision, Utah must now grapple with how to address regulatory concerns regarding beverage alcohol advertising. In fact, the state has enacted emergency advertising guidelines. Utah is not alone in the challenges it faces. Although states may not have advertising restrictions that mirror Utah's,²² all state regulatory officials would be well advised to examine their state statutes and regulations that govern advertising of alcohol. If officials objectively apply the Central Hudson test to their state regulations, they may find that some provisions need to be altered to survive any constitutional challenge. Further, regulators should be vigilant to ensure that state alcohol restrictions do not conflict with the First Amendment. This is especially true as somewhat antiquated laws must be reinterpreted to accommodate the beverage alcohol industry's increased use of the Internet and other new media.

Further clarification of state laws governing the advertisement of alcohol products are likely to result in the relaxation of certain existing prohibitions or restrictions. So long as an industry member's advertisements contain truthful information, are reasonably tailored toward lawful consumers, and otherwise comply with the dictates set forth by the U.S. Supreme Court in the various opinions of the 44 Liquormart case, such activities are likely to be deemed lawful.²³

To safeguard state agencies from successful challenges by industry members, regulatory officials should ensure that proposed agency enforcement of such restrictions would survive the Central Hudson test. As Utah's recent experience demonstrates, however, this may not be sufficient. As industry members explore future advertising possibilities, such as those the Internet provides, some may be willing to strike at overly restrictive measures preemptively.

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¹514 U.S. 476 (1995) return to article

²517 U.S. 484 (1996) return to article

³Utah Licensed Beverage Ass'n at 1068. return to article

⁴Id. return to article

⁵Commonly referred to as the Central Hudson test, endorsed by the Supreme Court in Central Hudson Gas & Elec. Corp. v. Public Serv. Comm'n of N.Y., 447 U.S. 557 (1980). return to article

⁶See Utah Licensed Beverage Ass'n at 168-170. return to article

⁷Compare Lamar Outdoor Adver., Inc. v. Miss. State Tax Comm'n, 701 F.2d 314 (5th Cir. 1983) (advertising ban has little appreciable effect on alcohol consumption); Memphis Publ'g Co. v. Leech, 539 F.Supp. 405 (W.D. Tenn. 1982)(absent concrete evidence to contrary, claims that warning required to be placed in certain alcohol ads regarding illegality of importing alcohol into Tennessee were speculative); and Mich. Beer and Wine Wholesalers Ass'n v. Att' Gen., 370 N.W.2d 328 (Mich. Ct. App. 1985)(ban on price advertising alone would not have direct impact on public's overall consumption); with Dunagin v. City of Oxford, 718 F.2d 738 (5th Cir. 1983)(even when state fails to produce concrete evidence, legislative deference suggests a direct effect should be assumed); Queensgate Inv. Co. v. Liquor Control Comm'n, 433 N.E.2d 138 (Ohio 1982), 459 U.S. 807 (1982), appeal dismissed, 459 U.S. 807 (same); and Oklahoma Telecasters Ass'n v. Crisp, 599 F.2d 490, revd. on other grounds, 467 U.S. 691 (1984)(deference to legislature, especially where it acts pursuant to Twenty-First Amendment, suggests state need not produce concrete evidence of direct effect). return to article

⁸Coors Brewing Company at 486. return to article

⁹Id. at 490. return to article

¹⁰Id. at 490-491. return to article

¹¹44 Liquormart at 507. return to article

¹²Id. return to article

¹³Id. at 516. return to article

¹⁴See Utah Beverage Ass'n at 1074. return to article

¹⁵Id. at 1071. return to article

¹⁶Id. at 1074. return to article

¹⁷Id. return to article

¹⁸Id. at 1075. return to article

¹⁹Id. return to article

²⁰Id. return to article

²¹Id. at 1075. return to article

²²Tennessee, though, still bans television advertising of beverage alcohol. See TENN. COMP. R. & REGS. tit. 100, ch. 1-.0(3)(a) (2000). return to article

²³This conclusion addresses the alcohol industry member's right to provide truthful information to a consumer, but does not take into account other factors unique to the alcohol industry. For example, every state has some form of "tied house evil" regulations that prohibit or restrict the interrelationships between suppliers and wholesalers on the one hand, and retailers. These regulations must be respected, even in the context of the commercial free speech analysis outlined above. Thus, for example, the First Amendment would protect a manufacturer's right to maintain a Web site on the Internet describing the range of products offered by the company. However, the Twenty-first Amendment would preclude a manufacturer from violating state regulations that prohibit a licensed supplier from providing free advertising on that Web site for retailers. return to article

Further, this conclusion does not apply necessarily to marketing efforts where the regulatory landscape is less clear. Unlike advertisement, which generally involves the transmission of information to a consumer regarding the seller's product, marketing encompasses a variety of proactive measures including promotions, discounts and special consumer events that extend beyond the perimeters of protected commercial speech. For example, in states that restrict an unlicensed entity's ability to solicit or promote alcohol sales, a manufacturer providing Internet listings may be deemed illegal by state alcohol regulators. Certainly, industry members should confirm the propriety of such initiatives on a jurisdiction-by-jurisdiction basis, to identify potential problem areas.

For more information, contact Hal Flowers at 1-888-688-8500 or via e-mail at hflowers@hklaw.com.