Texas Commercial Speech Restrictions Fail Central Hudson Test
Increasingly product sellers are challenging government regulations that seek to restrict or prescribe how sellers speak about their products. Commercial speech is still speech that is protected by the First Amendment to the Constitution. And the government must meet some pretty stringent elements to restrict a seller's truthful speech about its product. Under the test articulated more than 30 years ago in Central Hudson Gas & Electric Corp. v. Public Service Commission, 447 U.S. 557 (1980), the proponent of a government restriction on speech bears the burden of establishing (1) whether the expression is protected by the First Amendment (i.e., is not misleading and concerns lawful activity), (2) that the government has a substantial interest in the restriction, (3) that the restriction directly advances the asserted governmental interest, and (4) that the restriction is not more extensive than necessary to serve that interest.
Recently, a licensed importer of wine, liquor and certain brewed products successfully challenged some longstanding regulations that had been propounded by the Texas Alcoholic Beverage Commission. See Authentic Beverages Co. v. Texas Alcoholic Beverage Commission, Case No. A-10-CA-710-SS, Slip op. (W.D. Tex. Dec. 19, 2011).
Alcohol is a product with a long history of regulation in the United States. After Prohibition, most states set up a series of rules and regulations establishing a "three-tiered system" of licensed alcohol producers, distributors, and retailers. One of the primary goals of this system was to prevent anyone from controlling the entire distribution chain in so-called "tied houses". Thus, producers generally must be separate from distributors, distributors must be separate from retailers, and producers generally cannot control retailers. There are lots of regulations to enforce this separation. A relatively common one is that a producer or distributor cannot give "something of value" to a retailer. Some states view statements that a particular product is available at a particular retail outlet as advertising that is something of value to the retailer. Accordingly, in some states, a producer may be proscribed from disclosing to the public where its product is sold.
Alcohol regulations also often have "temperance" as a goal; the state may seek to prohibit speech that it views as encouraging alcohol consumption. Thus, some states may prevent a producer from labeling its product with a disclosure of the product's alcohol content.
In Authentic Beverages, the producer brought First Amendment challenges against three basic regulations. First, Texas's Alcohol Beverage Code prevented producers and distributors from naming specific retailers who carried their products in advertisements. Texas wineries, however, were exempt from these restrictions, and could list retail outlets carrying their products so long as no money changed hands in exchange for such an advertisement.
Second, the TABC defined "beer" and "ale" by alcohol content in a way that was inconsistent with popular understanding and brewing industry usage. This, according to Authentic Beverages, made labeling confusing and misleading in Texas. Beer, it explained, refers to the entire category of malt beverages, while "ale" is a particular style of beer made via warm fermentation with a certain kind of yeast. The TABC, on the other hand, categorized malt beverages under 4% ABV as beer, and those over 4% as "ale," regardless of how they were made.
Third, the TABC prevented producers from advertising the alcohol content of malt beverages or using any statements comparing their "strength" to other beverages. (Distilled spirits, by contrast, are required by the TABC to include alcohol content in advertising.) Producers of malt beverages are required, however, to include the alcohol content on the label of the product. Authentic Beverages argued that these restrictions were inconsistent and nonsensical.
The district court agreed with Authentic Beverages on all three of its First Amendment challenges to the Texas regulations. With respect to the first challenge -- the proscription against identifying retailers who sell one's products -- the court noted:
While prevention of vertical integration may well be a substantial government interest, a restriction on the free speech rights of producers and resellers cannot be justified by pointing out that retailers are free to speak their minds. Nor does the existence of a substantial government interest justify the imposition of any restriction on speech the government deems appropriate; in the commercial speech context, such a restriction must directly advance the interest, and be no more extensive than necessary to do so. TABC offers neither argument nor evidence on these issues.
Slip op. at 24.
With respect to the second challenged regulations -- which lump all low-alcohol malt beverages into the "beer" category and all higher-alcohol malt beverages into an "ale" category -- the court assumed, for the sake of argument, that the state had a legitimate interest in helping its citizens distinguish between high-alcohol and low-alcohol malt beverages, particularly in communities that authorize only the sale of low-alcohol "beer" under the "wet-dry laws of the State." Nevertheless, the court invalidated the regulations because they are "simply not that good at conveying information about the alcohol content of malt beverages" and "give little meaningful information about alcohol content to malt beverage consumers or providers." Id. at 25, 26. Instead of trying to change the common meaning of "beer" and "ale," the court instructed, the government's interest would be better served by allowing statements of the actual alcohol content: "there can be little question an actual statement of alcohol content serves this interest better than two rough categories." Id. at 27. The TABC argued that common citizens don't know the alcohol content of "beer" versus "ale," but generally know that under the Texas regulatory system, these citizens knew beer was less potent than ale. The court rejected this justification as "laughable," explaining:
The Court is confident that the same person could, if presented with the alcohol content of a variety of malt beverages, come to a reasonably quick and accurate conclusion regarding their average range. Having determined the average range, this person could then make the intelligent choice whether to deviate from that range, in which direction, and by how much. The Court simply does not share TABC's apparently low estimation of Texans, and remains steadfast in its belief that they are capable of basic math.
Id. at 28.
With respect to Authentic Beverages' third challenge -- to the proscription against the statement of alcohol content in advertising -- the court held that the TABC utterly failed to provide proof in support of its restriction. Indeed, the court explained that given the internal inconsistencies between allowing alcohol content to be displayed on labels and for certain kinds of alcohol, the regulations could be viewed as frustrating any government interest the TABC could assert as much as they could be said to advance it.
The decision in Authentic Beverages is a strong reminder that commercial speech actually does enjoy real protection under the First Amendment. It remains to be seen whether the challenges advanced in Texas will be taken up elsewhere by other alcohol producers. Certainly state alcohol beverage codes are rife with provisions that would be susceptible to such challenges.
