"Ban" Lifted on Network Advertising of Spirits
January 22, 2002
Hal Holmes Flowers - Tampa
In an important milestone for the spirits industry, NBC has agreed to air
advertising of Smirnoff Vodka by Diageo PLC (Diageo). The first ad was aired
during the December 15, 2001, episode of Saturday Night Live.
Several stations, most notably in Utah, have vowed not to air the ads.
Spokespersons from Mothers Against Drunk Driving have expressed concern, and the
American Medical Association continues to oppose all broadcast advertising of
spirits. More significantly, members of the House of Representatives threatened
to impose a ban on such advertising if NBC did not reverse its position.
History of Advertisement of Alcohol Beverages
Though many outside of the alcohol industry might be puzzled that NBC's
decision has proven controversial, industry members are well aware of the
history which informs any debate about spirits advertising through broadcast
media.
For various reasons, commercial speech rights have been exercised by
different segments of the industry in different ways. For example, the beer
segment of the industry has pursued an aggressive advertising campaign that
historically has included both radio and television. Most recently, large and
small brewers alike have established web sites that reach out to consumers with
product information and branded non-alcohol items.
The spirits segment of the alcohol industry historically has exercised
significant restraint in the marketing and advertising of its products through
electronic media. A voluntary ban on radio and television advertisements of
distilled spirits effectively kept those products off America's airwaves for
almost 60 years. For the most part, the voluntary ban encompassed wine as well.
In late 1998, Joseph E. Seagram & Sons departed from industry policy and
ran a series of advertisements for one of its spirits brands on local television
stations in Texas and the northeastern United States. This change in policy
generated public concern, including calls from senior levels of the federal
government to impose a mandatory prohibition on all electronic advertisement of
alcohol products generally.
Since the initial furor over Seagram's televised advertisements, this
situation has stabilized to some degree. Today, heavy television and radio
advertising for the beer segment continues. Moderate amounts of electronic
advertising for the wine segment of the industry appear to be developing in
certain markets throughout the United States, though in significantly smaller
levels relative to beer. Distilled spirits advertising has remained generally
confined to print media.
Advertising of spirits and wine brands on the Internet, however, has
increased in recent years. With the advent of the Internet and the ability to
reach end-use consumers directly, new questions are arising about both a state
regulator's ability to prohibit or restrict electronic advertising and the value
of the Internet as a marketing medium for alcohol beverages. More than any other
medium, the World Wide Web is a true manifestation of the borderless global
market.
Yet several state legislatures have passed statutes that expressly prohibit
out-of-state advertising or solicitation of alcohol beverage products. Indeed,
Minnesota's beverage laws go so far as to expressly prohibit the sale of alcohol
products over the Internet.
Despite the efforts of these lawmakers, courts addressing the issue are
ruling that Internet activity transcends the tangible limitations of state
borders. In 1984, the U.S. Supreme Court rejected an effort by Oklahoma to
prohibit cable television transmissions of alcohol products advertisements. See
Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691 (1984). As a matter of
law, the case was decided primarily on grounds that the federal government had
preempted the field of cable television broadcasting, so that Oklahoma was
prohibited from legislating in an area already regulated by federal legislation.
On a more practical level, however, that U.S. Supreme Court decision also
recognized the impracticability of Oklahoma's efforts to prohibit television
broadcasts generated from outside the state.
More recently, courts are beginning to recognize that the simple maintenance
of a Web site does not expose the Web site's owner to personal jurisdiction
everywhere that the Web site is accessible. In 1994, a federal court in Ohio
dismissed a case after recognizing that simply maintaining a Web site is not, in
and of itself, sufficient to establish personal jurisdiction over the Web site's
owner for every jurisdiction where computer user access that Web site. CompuServe,
Inc. v. Patterson, et al., Case No. C-2-94-0091 (U.S. Dist. Ct. 1994).
Within the last two years, courts have emphasized the importance both of
interstate commerce and commercial free speech to uphold the rights of industry
members that seek to educate consumers about the existence and content (if not
availability and purchase terms) of alcohol products. These decisions more
accurately and reasonably embrace the technology behind the World Wide Web, and
conform with judicial analyses rendered by several federal and state courts that
have examined whether out-of-state suppliers of beverage alcohol products are
subject to the personal jurisdiction of the courts in states where their
products are shipped directly to consumers. See, e.g., Florida Department of
Business and Professional Regulation v. Zachy's Wine's Liquor, Inc., 125
F.3d 1399 (11th Cir. 1997); Florida v. Sam's Wines & Liquors, Inc.,
Case Nos. 97-3828 and 4060 (Consolidated), (Fla. Ct. App. 1999).
Given the laudable self-restraint the spirits industry has shown over the
years as well as the availability to it of competing marketing channels, such as
the Internet, one must recognize that spirits manufacturers may feel
increasingly entitled to advertise nonmisleading product information through
network broadcast media as well.
Relevant Regulatory Authority and Guidelines
Those concerned about broadcast advertising of spirits should remember that
such advertising continues to be governed by myriad regulations that should help
to ensure such ads target only appropriate consumers and are otherwise not
misleading.
ATF Regulations. Part 5 of Title 27 of the Code of Federal Regulations (CFR)
governs the labeling and advertising of distilled spirits. These regulations are
administered by the U.S. Bureau of Alcohol, Tobacco and Firearms (ATF).
Section 5.63 of the CFR provides that mandatory statements are required in
certain advertisements relating to distilled spirits. For example, Section
5.63(a) requires that such advertisements state the name and address of the
permittee responsible for the advertisement's broadcast. Additional subsections
contained within this regulation mandate the circumstances when an advertisement
of a distilled spirit must include information describing the class or category
to which the product belongs, the alcohol-by-volume content of the product, and
such other information as is specified in the regulation.
The federal government's labeling and advertising laws for distilled spirits
contain an exception that minimizes the amount of information that must be
included in an advertisement relating to distilled spirits. Specifically, 27 CFR
§5.63(e) provides in relevant part that:
If an advertisement refers to a general distilled spirits line or all of
the distilled spirits products of one company, whether by the company name
or by the brand name common to all the distilled spirits in the line, the
only mandatory information necessary is the name and address of the
responsible advertiser. This exception does not apply when only one type of
distilled spirits is marketed under the specific brand name advertised.
The Subsection (e) exception also provides that advertisements for consumer
specialty items only require the disclosure of the sponsoring company's name, or
the brand name emblazoned on the advertised specialty items.
FTC Scrutiny. In addition to the federal regulations administered by ATF,
advertisement of alcohol also comes under scrutiny from the Federal Trade
Commission (FTC). The FTC issued an extensive analysis of current advertising
practices employed by the alcohol industry.1 In the context of its
August 1999, report, the FTC found that voluntary compliance with "good
standards" guidelines authored by industry trade associations was helpful,
but not necessarily a complete safe harbor against advertising that the FTC
would deem misleading. For example, the agency's report criticized promotional
campaigns that featured animals or animated objects, characterizing gross
offenders as advertising vehicles directed to inappropriate audiences (i.e.
minors).
Voluntary Industry Guidelines. In addition to the national scope of
agency review exercised by ATF and FTC, national guidelines for alcohol
advertising of distilled spirits also exist in the form of trade association
protocols. Specifically, the Distilled Spirits Council of the United States
(DISCUS) maintains a Code of Good Practice for its members, dictating
recommended practices for the advertisement and promotion of distilled spirits
products to consumers. The DISCUS Code and other alcohol industry guidelines
cover a range of recommendations relating to the use of underage persons in
advertising, the advertiser's commitment to social responsibility, and the need
for "good taste" in the depiction of themes and images used for
alcohol advertising.
State-By-State Enforcement. In addition to national regulations and
industry guidelines, every state has its own statutes and regulations governing
the alcohol industry, including industry advertising and promotions that feature
alcohol products. In many jurisdictions, state authorities defer to ATF and
federal standards for the regulation of advertising content, especially in the
context of broadcast advertising. In the past, states that have attempted to
restrict broadcast advertising, even to the point of prohibiting all electronic
advertising of alcohol products, have faced difficulty overcoming
commercial-free-speech concerns based on First Amendment protections. See, e.g.
Capital Cities Cables, Inc. v. Crisp, 104 S.Ct. 2694 (1984). Nevertheless, a
prudent approach to the analysis of potential advertising liability should focus
on relevant state advertising laws.
NBC's Strict Guidelines. Additionally NBC has imposed its own strict
guidelines on any ads developed by Diageo. All ads must appear only after 9:00
PM. All actors appearing in such ads must be at least 30 years of age. And,
before NBC will air an ad promoting a particular manufacturer brand, that
manufacturer must finance four months of social-responsibility ads focused on
drunk driving and moderate drinking.
Conclusion
Though FOX, CBS and ABC are not believed likely to begin airing spirits
advertisements any time soon, the NBC's decision is monumental for an industry
long treated differently than the industries for other legal products. Diageo
and NBC must demonstrate that spirits ads will not target inappropriate
consumers. Given the host of regulatory provisions governing such advertising
and Diageo's understanding of its important historical role, the advertising
will almost certainly be unoffensive to all but the most avid promoters of
temperance. The task now falls to state regulatory officials to ensure that
state resources are not expended in attempts to restrict the recognized right of
spirits manufacturers to advertise their legal products through truthful,
nonmisleading ads.
1In August of 1999, the Federal Trade Commission released a report entitled
"SELF-REGULATION IN THE ALCOHOL INDUSTRY: A Review Of Industry Efforts
To Avoid Promoting Alcohol To Underage Consumers." The agency's report
has broad applicability to all members of the alcohol industry.
Eight beverage alcohol companies were required by the FTC to respond to
questionnaires and produce information relating to their marketing practices.
The eight companies were: Anheuser-Busch, Inc.; Bacardi-Martini U.S.A., Inc.;
Brown Forman Corporation; Coors Brewing Company, Inc.; Diageo plc; Miller
Brewing Company, Inc.; Stroh Brewery Company, Inc.; and Joseph E. Seagram
& Sons, Inc. In addition, three trade associations were consulted in
connection with this study: The Beer Institute, the Distilled Spirits Council
of the United States, and the Wine Institute.
It is noteworthy that the agency strongly recommended third-party review by
independent agents, to ensure that members of the alcohol industry
aggressively pursue standards set by their trade associations' voluntary codes
of behavior. The FTC's report expressly noted, however, that none of the
voluntary codes endorsed by any of the alcohol industry's trade associations
provides for an independent assessment of the merits of a complaint or
follow-up procedures for complaint resolution.
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For more information, contact Hal Flowers at 888-688-8500 or hflowers@hklaw.com.