Antitrust Law Daily Wrap Up, ADVERTISING—9th Cir.: California ban on providing advertising to alcohol retailers to receive heightened judicial scrutiny, (Jan 8, 2016)

By Greg Hammond, J.D.

A California law that forbids manufacturers and wholesalers of alcoholic beverages from giving anything of value to retailers for advertising their alcoholic products must survive heightened judicial scrutiny, the U.S. Court of Appeals in San Francisco has held. In reversing and remanding the lower court’s order of summary judgment in favor of the Director of the California Department of Alcoholic Beverage Control, the appellate court determined that the U.S. Supreme Court’s opinion in Sorrell v. IMS Health, Inc., 131 S. Ct. 2653 (2011), is now controlling (Retail Digital Network, LLC v. Appelsmith, January 7, 2016, Callahan, C.).

Retail Digital Network, LLC (RDN) is a middleman involved in the advertising industry that installs liquid crystal displays in retail stores for advertisements and then enters into contracts with other parties who want to advertise their products on the displays. Manufacturers, however, have refused to enter into contracts with RDN to advertise alcoholic beverages on RDN’s displays in California, due to concerns that the ads would violate California law, which forbids manufacturers and wholesalers of alcoholic beverages from giving anything of value to retailers for advertising their alcoholic products. RDN sought declaratory relief that the statute-at-issue is unconstitutional under the First Amendment, but the lower court, under the Ninth Circuit’s earlier decision in Actmedia, Inc. v. Stroh., 830 F.2d 957 (9th Cir. 1986), granted summary judgment in favor of California.

However, the appellate court determined that Actmedia, which requires the application of intermediate scrutiny, is no longer controlling because the Supreme Court’s Sorrell decision requires heightened judicial scrutiny of content-based restrictions on non-misleading commercial speech regarding lawful products. Consequently, the lower court’s decision was reversed and remanded on an open record for the lower court to apply heightened judicial scrutiny in the first instance.

On remand, there are several considerations that should be addressed in applying heightened judicial scrutiny, according to the appellate court, including whether: (1) California has shown that there is a real danger that paid advertising of alcoholic beverages would lead to vertical or horizontal integration under circumstances existing in the alcoholic beverage market today; (2) California’s concern about paid advertising leading to horizontal and vertical integration is real in the circumstances in this case; (3) California has shown that the statute-at-issue materially advances the state’s goals of preventing vertical and horizontal integration and promoting temperance; and (4) California has demonstrated the requisite fit between the statute and the state’s goals.

The case is No. 13-56069.

Attorneys: Oliver A. Taillieu (The Taillieu Law Firm) for Retail Digital Network, LLC. Kamala D. Harris, Office of the Attorney General, State of California.

Companies: Retail Digital Network, LLC

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