Antitrust Law Daily Missouri alcohol ad restrictions violate First Amendment
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Wednesday, January 8, 2020

Missouri alcohol ad restrictions violate First Amendment

By Jody Coultas, J.D.

The alcohol statutes and regulations were insufficiently tailored to the state’s interest in preventing undue influence of alcohol producers and distributors over retailers.

The U.S. Court of Appeals in St. Louis has concluded that Missouri law and regulations prohibiting certain advertising by alcohol producers, distributors, and retailers violated the First Amendment by too narrowly restricting commercial speech. Missouri failed to show that the law, as applied, alleviated a substantial risk of undue influence. The court also determined that the regulations at issue did not properly advance the state’s asserted interest or that the regulations were sufficiently narrow in scope (Missouri Broadcasters Association v. Schmitt, January 8, 2020, Kelly, J.).

Under Missouri’s three-tiered system for the sale and distribution of alcohol, producers are prohibited from distributing and retailing, distributors are prohibited from producing and retailing, and retailers are prohibited from producing and distributing. Missouri law prohibits producers and distributors from retail advertising, because this type of advertising would qualify as a "financial interest in the retail business." An exception to the statutes (Subsection 311.070.4(10)) allows a producer or distributor to "in an advertisement list the names and addresses of two or more unaffiliated retail businesses selling its product," but only if it excludes the retail price of the product in the advertisement, lists multiple retail businesses not affiliated with one another, and makes the list of retailers inconspicuous.

Missouri’s Discount Advertising Prohibition Regulation prohibits alcohol retailers from advertising discounted prices outside their establishment. The Below Cost Advertising Prohibition Regulation prohibits alcohol retailers from advertising prices below the retailers’ actual cost.

The Missouri Broadcasters argued that the statute, as applied to advertisements by producers and distributors, and the regulations violated their right to freedom of speech under the First Amendment.

In 2017, the Eighth Circuit held that the Missouri Broadcasters demonstrated that the statutes did not directly advance the state’s asserted substantial interest, were more extensive than necessary, and unconstitutionally compelled speech and association. On remand, the district court found that the statute and the regulations violated the First Amendment. The state appealed.

The Central Hudson test for determining whether a law unconstitutionally burdens commercial speech requires courts to consider: (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.

Statutes. Missouri argued the statute implements a three-tiered system that regulates economic activity and, at most, only incidentally affects speech. While on its face, the statute does not restrict speech, application of the law restricts speech based on content and speaker identity. The court concluded that the statute imposes content-based restrictions by limiting what producers and distributors can say in their advertisements. Thus, the law at issue implicated the First Amendment.

Missouri failed to meet its burden of establishing that the current statute was narrowly tailored to its interest in preventing undue influence of alcohol producers and distributors over retailers, according to the court. Under Central Hudson, Missouri was required show that the statute advances its substantial interest "in a direct and material way." While nearly every state and the federal government have tied-house laws, that did not make Missouri’s version constitutional—particularly when only sections of Missouri’s tied-house law, as applied, are at issue in this case. The court also noted that the statute’s operation and attendant regulatory regime were "so pierced by exemptions and inconsistencies" that they rendered the statute as applied irrational and ineffective. Also, Missouri failed to show that the harm of undue influence was real or that the statute alleviated this harm.

Missouri also failed to prove that the statute’s speech restriction as applied was not more extensive than necessary to serve its interest, the court held.

Regulations. The state conceded that the Discount Advertising Prohibition Regulation and Below Cost Advertising Prohibition Regulation facially restrict truthful, non-misleading commercial speech but argued that the court misunderstood its interest as decreasing "overall" consumption when its actual substantial interests are to reduce overconsumption and underage drinking.

The appellate court disagreed with the state’s conclusion, holding that the regulations did not advance either interest and were more extensive than required. There was no empirical or statistical evidence, study, or expert opinion demonstrating how these regulations further protected the state’s interest, or that overconsumption or underage drinking is less frequent in Missouri than in states without similar advertising restrictions. The state also failed to show that the regulations were not more extensive than necessary to further its interest in decreasing discounted or below-cost alcohol consumption.

The case is No. 18-2611.

Attorneys: Anthony F. Blum (Thompson & Coburn) for Missouri Broadcasters Association, Meyer Farms, Inc., Uncle D's Sports Bar & Grill, L.L.C. and Zimmer Radio of Mid-MO, Inc. Julie Marie Blake, Attorney General's Office, for Eric S. Schmitt.

Companies: Missouri Broadcasters Association; Meyer Farms, Inc.; Uncle D's Sports Bar & Grill, L.L.C.; Zimmer Radio of Mid-MO, Inc.

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