Arguments advanced by Plaintiffs in Missouri Broadcasters win invalidating alcohol advertising restrictions on First Amendment grounds provide a path to invalidating similar restrictions in other states. Part 2 of 2

Throughout last week’s series on many of the recent intersections between alcoholic beverages and the First Amendment we saw that much of the focus in the Courts’ analysis of the Central Hudson factors was on the last two issues of the Central Hudson analysis. Namely, does the government regulation being challenged directly advance the asserted government interest? And, if so, the regulation must be no more extensive than necessary to serve that government interest.

On Friday, we started addressing an important recent decision – Missouri Broadcasters v. Taylor, in which a group of broadcasters joined with a grape farm and a bar to challenge two Missouri alcoholic beverage advertising regulations and a statute – each of which they contended violated the First Amendment under the Central Hudson test.

In the case, a Federal District Court agreed that the regulations and the statute violated Central Hudson, and the opinion covered a myriad of important points. Last week, we only addressed an impressive, single, rationale the Court looked to in agreeing that the statute improperly restricted commercial speech – the fact that exceptions to the “tied-house” prohibitions existed for brewpubs, brewery tap rooms, winery and distillery tasting rooms, operates to obviate the argument that such restrictions against inter-tier operation and ownership preserves an orderly system and is necessary.

In today’s continuation of that review, we want to point out what a great road-map the Missouri Broadcaster’s case is for challenging the distinct types of restrictions it proved unconstitutional as those types of restrictions are generally adopted in many States – which, by the same rationale, may also be proven unconstitutional in those jurisdictions.

The three restrictions at issue in this case were:

• A regulation prohibiting the advertising of discounted prices for alcoholic beverages:

(5) No advertisement of intoxicating liquor or nonintoxicating beer shall contain:

(G) Any statement offering any coupon, premium, prize, rebate, sales price below cost or discount as an inducement to purchase intoxicating liquor or nonintoxicating beer except, manufacturers of intoxicating liquor other than beer or wine shall be permitted   to offer and advertise consumer cash rebate coupons and all manufacturers of intoxicating liquor may offer and advertise coupons for nonalcoholic merchandise in accordance with section 311.355, RSMo;

• A regulation prohibiting the advertising of prices of alcoholic beverages below a retailer’s actual cost:

(5) No advertisement of intoxicating liquor or nonintoxicating beer shall contain:

(I) A price that is below the retailer’s actual cost.

• A statute prohibiting manufacturers from providing financial support for advertising, unless the advertising meets certain requirements, including not listing a retail price:

Distillers, wholesalers, winemakers, brewers or their employees, officers or agents shall not, except as provided in this section, directly or indirectly, have any financial interest in the retail business for sale of intoxicating liquors, and shall not, except as  provided in this section, directly or indirectly, loan, give away or furnish equipment, money, credit or property of any kind, except ordinary commercial credit for liquors sold to such retail dealers. However,notwithstanding any other provision  of this chapter to the contrary, for the purpose of the promotion of tourism, a distiller whose manufacturing establishment is located within this state may apply for and the supervisor of liquor control may issue a license to sell intoxicating liquor, as in this chapter defined, by the drink at retail for consumption on the premises where sold; and provided further that the premises so licensed shall be in close proximity to the distillery and may remain open between the hours of 6:00 a.m. and 1:30 a.m., Monday through Saturday and between the hours of 9:00 a.m.  and midnight, Sunday. The authority for the collection of fees by cities and counties as provided in section 311.220, and all other laws and regulations relating to the sale of liquor by the drink for consumption on the premises where sold, shall apply to the holder of a license issued under the provisions of this section in the same manner as they apply to establishments licensed under the provisions of section 311.085, 311.090, or 311.095.

Which is then excepted by Mo. Ann. Stat. § 311.070 allowing some financial aid between tiers:

4.  Notwithstanding  other provisions  contained herein, the  distiller, wholesaler, winemaker  or brewer, or their employees, officers  or agents may engage in the following activities with a retail licensee licensed pursuant to this chapter:…

(10) The distiller, wholesaler, winemaker or brewer may in an advertisement list the  names and addresses of two or more unaffiliated retail businesses selling its product if all of the following requirements are met:

(a) The advertisement shall not contain the retail price of the product;

(b)  The listing  of the retail  businesses shall  be the only reference  to such retail businesses in the advertisement;

(c) The listing of the retail businesses shall be relatively inconspicuous in relation to the advertisement as a whole; and

(d) The advertisement shall not refer only to one retail business or only to a retail business controlled directly or indirectly by the same retail business;

With regard to the regulations, in analyzing their status vis-a-vis the First Amendment, the Court noted several key points as determinative in holding them unsound based on the third Central Hudson Factor (directly advancing state interests)- which were raised by the Plaintiffs in this action:

1. Plaintiffs submitted credible and substantial evidence,  through their expert witness, that that there is in  fact no demonstrative relationship between media advertising of  alcohol and overall consumption rates or underage drinking.Plaintiffs’ evidence demonstrated that  advertising significantly affected the brand and type of alcohol sold, but did not statistically impact the total amount of alcohol consumed by individuals.  In fact, Plaintiffs submitted convincing evidence that increases in overall alcohol advertising expenditures have occurred while the per capita consumption of alcohol has actually declined.

2. The   State’s  regulatory  scheme is,at   best,inconsistent if   designed to reduce over consumption and underage drinking.  The State allows discount priced alcohol to be sold at retail establishments  in Missouri. While the regulations at issue prohibit discount advertising outside a retailer, the discounted prices are allowed and can be advertised once a consumer is inside the establishment. As a result, consumers already motivated to go inside an establishment are thus allowed to have knowledge of, and take advantage of, the discounted price and sale.

3. While the regulations prohibit the advertising of some sales,such as two-for-one specials, going out of business sales for a local wine store, or a coupon for a free drink with the purchase of a meal, the State allows other generic advertising of discounts of alcohol, including “happy hours”and “ladies’ night”advertisements.  The State also allows for coupons to be used for the sale of some types of alcohol, but not others. As identified by Plaintiffs there are glaring inconsistencies in the regulations as applied, and lead to serious questions as to whether the regulations even intend to directly advance its substantial interest in reducing over consumption and underage drinking.

4. The Court also notes Missouri’s neighboring states do not have the same prohibitions on alcohol advertising that  Missouri imposes. Since a significant portion of Missouri citizens are subjected to advertising in their neighboring states, such as Kansas, Arkansas, Illinois and Iowa, the impact the Missouri regulations have on the State’s interest are even further minimized.  

Finding multiple inconsistencies within the regulations, the Court reiterated the 8th Circuit’s similar admonishment from their initial appellate review remanding the case for trial, thereby finding that based on those inconsistencies and the reasoned arguments made by the Plaintiffs that the regulations did not directly advance the State’s asserted interests. The Court then went on to point out why the regulations were not narrowly tailored reiterating some of the alternatives we’d seen in other cases:

From the record, the Court finds the State has multiple non-speech-suppressive alternatives that could directly advance the State’s interests in reducing over consumption and underage drinking. Alternatives include, but are not limited to: (1) an increase in taxes of alcohol; (2) direct controls on pricing; (3) development and full funding of educational campaigns concerning the problems of excessive and underage drinking; (4) a ban on promotions on alcohol in the entirety; (5) enhancement of enforcement penalties; or (6) implementation of one or more of the foregoing alternatives within a 2-mile radius of colleges instead of the entire state.

In addressing the Statute in question, the Court looked to the factor we pointed out in our last post – the existence of exceptions allowing small producers to operate brewpubs and tasting rooms. The Court also pointed out exceptions to giving other things of value in asserting that the Statute failed to directly advance the State’s interests like restricting competition and preventing wholesalers and other from gaining control of retailers:

1. In addition, wholesalers are permitted to provide other financial incentives to retailers, including barware, mirrors, or other tangible goods to be placed inside the retail establishments, that in essence provide advertising of the wholesaler’s products. These types of “incentives” expressly permit some financial commingling of the wholesale and retail tiers of the liquor industry and contradict the State’s asserted interest in maintaining a separate three tier marketplace. In response to Plaintiffs’ evidence, the State has provided no explanation as to why advertising commingling would disrupt the State’s regulatory scheme, while these other instances of financial commingling that are allowed under the State’s statutes and regulations do not.

The Court went on to address two other points, the first, that the Statute was more extensive than necessary to achieve the State interests and that it compelled speech:

1. (With regard to the extensive nature and alternative remedies) – For example, the State may police rather than ban intra-tier advertising arrangements. See e.g., Retail Digital Networks, LLC v. Appelsmith, 810 F.3d 368, 653 (9th Cir. 2016). Further, other alternatives exist, such as restoring the three tier separation by taking away other exceptions that do not affect First Amendment speech, while maintaining some level of control over supplier payments to retailers. The State could monitor wholesale and producer advertising and any cooperative advertising payments through a self-reporting system, or it could limit the amount of money allowed to be spent on advertising on an annual basis. The State could limit non-advertising related financial incentives and assistance which could be provided to retailers.

2. (With regard to compelling speech) – Finally, the Court agrees with Plaintiff’s contention that the Statute unconstitutionally compels speech and association by requiring producers and wholesalers to list more than one retailer on an advertisement, if they choose to list any. In doing so, the Statute’s requirement compels producers and wholesalers to associate and support retailers they may not wish to include, if they choose to include a retailer in an advertisement. See Missouri Broadcasters Ass’n v. Lacy, 846 F.3d at 303 (internal citations omitted)(“[F]reedom of thought and expression ‘includes both the right to speak freely and the right to refrain from speaking at all.’”). “The Statute is conditional in that it only impacts speech if producers and wholesalers choose to include the name and address of a retailer in an advertisement, but if a producer or wholesaler does choose to include such information, it is compelled to (1) associate with multiple retailers, and (2) include multiple retailers’ information on the advertisement.” Id. The Court finds Plaintiffs have established that compelling this speech and association violates the First Amendment.

All told, the myriad of similar State statutes and regulations across the country which ban similar forms of advertising while allowing similar exceptions and compel parity between retailers in manufacturer and wholesaler advertising, should be reexamined by industry groups and participants in light of the District Court’s decision. We’ll continue to post as the appellate briefs are filed. For those interested, Missouri has filed its opening brief, with an attendant addendum that can be found here (brief) and here (addendum). In future posts, we will address the arguments the litigants are raising in challenging and defending the District Court decision.