Proposed Federal Alcohol Labeling Revisions Retain Constitutionally Suspect Review Standards

On November 26, 2018, the Alcohol and Tobacco Tax and Trade Bureau (TTB) published an extensive proposed rule that seeks to “reorganize and codify [labeling and advertising] regulations in order to simplify and clarify regulatory standards … and reduce the regulatory burden on industry members where possible.” The agency is accepting public comments on the proposal until June 26, 2019.

TTB’s efforts to streamline the rules and finally recognize long-standing First Amendment precedents are welcome. But parts of the proposed rule do not adequately protect the commercial speech rights of alcohol-beverage producers and consumers. We’ll focus here (as WLF will in its forthcoming public comment) on the prohibition of statements on labels or in advertisements that are disparaging, false, misleading, obscene, or indecent.

While encouraging civility in the wine, beer, and spirits marketplace may be a noble cause, simply stating that such regulation “reflects … longstanding ATF and TTB policy” will not save rules that restrict commercial speech from successful court challenges.

The First Amendment in the Supreme Court: “Scandalous” Trademarks and Labor Unions

Megan Brown, Featured Expert Contributor, First Amendment

By Megan Brown, a Partner with Wiley Rein LLP, with Boyd Garriott, Jeremy Broggi, and Wesley Weeks, Associates with the firm.*  Wiley Rein LLP attorneys authored the two amicus briefs discussed in this post.  The firm has long participated in cases involving core First Amendment issues, particularly as they relate to the government’s exercise of regulatory power.

Among the various areas of constitutional law on which the U.S. Supreme Court must routinely rule, the First Amendment has figured prominently during John Roberts’ tenure as Chief Justice. Speech rights are once again on the docket in the current term, and, depending on how the Justices rule on a pending petition for certiorari, may also be on the October Term 2019 docket this fall.

On April 15, the Court will hear oral arguments in Iancu v. Brunetti, a facial challenge to the Lanham Act’s prohibition on trademarks with “immoral” or “scandalous” matter.  Iancu tests the limits of last term’s invalidation (in Matal v. Tam) of the “offense” bar in the Lanham Act.  The Court also has been asked to review Interpipe Contracting, Inc. v. Becerra, which challenges a California law that favors pro-union speech as a violation of both the National Labor Relations Act (“NLRA”) and the First Amendment.

Iancu: Can the government discriminate against “immoral” speech?

In Iancu v. Brunetti, the United States Patent and Trademark Office (“USPTO”) refused to grant Erik Brunetti’s application to register the mark “FUCT,” which he has been using for decades.  Finding that Brunetti’s clothing line depicted explicit sexual imagery, the USPTO concluded that the mark would be perceived as an obscenity and accordingly denied his registration under the Lanham Act’s prohibition on registering marks with “immoral” or “scandalous” matter.  Brunetti challenged the USTPO’s determination in court, and the Federal Circuit applied strict scrutiny, holding that the Lanham Act provision was unconstitutional under the First Amendment as an impermissible content-based regulation of speech.  The government then petitioned for certiorari, and the Supreme Court opted to take up the question.

The government’s argument can be boiled down to two main contentions: (1) the proper standard of review is lower than strict scrutiny because the scandalous-marks provision is not a restriction on speech, but rather a condition on the availability of government benefits; and (2) the scandalous-marks provision survives this lower standard of review because it is “a longstanding and reasonable means of vindicating a number of legitimate government interests.”

In response, Brunetti relies on the Supreme Court’s 2017 Tam decision, which struck down a similar prohibition on registering “disparag[ing]” trademarks.  In particular, Brunetti contends that (1) the scandalous-marks provision constitutes viewpoint discrimination triggering strict scrutiny; or in the alternative (2) the provision regulates content, which triggers strict scrutiny; and (3) even under lower levels of scrutiny, the provision is unconstitutional.

An amicus brief filed by the Rutherford Institute in support of Brunetti offers a simple proposition:  discriminating against offensive views is still viewpoint discrimination.  The brief also picks apart the government’s arguments by distinguishing trademark registration from the narrow holdings of the government-subsidy and obscenity cases the government attempts to rely upon.  The brief concludes by pointing out that even if the Court were to find that the scandalous-marks provision does not constitute viewpoint discrimination, the provision would nevertheless be unconstitutional either under strict scrutiny as a content-based regulation or intermediate scrutiny, pursuant to Central Hudson’s admonition that a restriction of commercial speech must be narrowly tailored to serve a substantial government interest.

Interpipe: Can the government play favorites with funding to advantage union speech?

In addition to Iancu, the Court has before it a petition in another speech case:  Interpipe Contracting, Inc. v. Becerra.  In that case, Interpipe Contracting, Inc. (“Interpipe”), performed work for California.  California’s labor code requires public-works contractors to pay their employees the “prevailing wage” set by California either (1) in cash, or (2) in a combination of cash wages and employer payments, the latter of which can include payments to third-party industry-advancement funds.  Using option number two, Interpipe paid contributions to an industry-advancement fund that supported open-shop arrangements.  Then, effective 2017, California amended its labor code so that an employer could only count payments to an industry advancement fund against the prevailing wage requirement if that fund is approved by a labor union through a collective bargaining agreement.  Interpipe and the fund to which it had previously made payments—the Associated Builders & Contractors of California Cooperation Committee, Inc.—challenged the amendment as (1) preempted by the National Labor Relations Act and (2) violative of the First Amendment.

The Ninth Circuit held that the law survived both challenges.   According to the Ninth Circuit, the law was merely “a legitimate minimum labor standard that regulates no one’s labor speech.”  Interpipe petitioned the Supreme Court for certiorari.

An amicus brief on behalf of the U.S. Chamber of Commerce supports Interpipe’s petition for certiorari.  The brief argues that the California amendment effectively favors pro-unionization speech by requiring contractors to pay a prevailing wage and then alleviating that burden only where the contractor supports pro-unionization advocacy directed by a labor union.  Accordingly, California’s scheme attempts to end-run the Supreme Court’s decision in Chamber of Commerce v. Brown, which held that California was preempted by the NLRA when it prohibited contractors from using state funds to “assist, promote or deter union organization.”  The brief also highlights the fact that the law is not viewpoint neutral under the First Amendment and concludes by emphasizing the sea-change on national labor relations that this law would effect if allowed to stand.  The day after the Chamber filed its brief, the Court signaled its interest in taking the case by calling for an opposition to be filed by the state of California.

Looking Forward

The Court made clear last term in Janus v. AFSCME that it is willing to enforce individuals’ First Amendment rights in high-profile labor cases.  And in NIFLA v. Becerra, it reinforced its hostility to content-based regulations of speech that favor particular viewpoints.  It remains to be seen whether the cases this term or next will achieve similar outcomes, but it appears that, at the very least, the First Amendment will continue to grab the attention of the Court.

Ninth Circuit Narrowly Vindicates First Amendment in Bellwether Compelled Speech Case

Featured Expert Contributor, First Amendment

By Megan Brown, a Partner with Wiley Rein LLP, with Jeremy Broggi, an Associate with the firm.*  Wiley Rein LLP represents the United States Chamber of Commerce as amicus in American Beverage Ass’n v. San Francisco.

Click here for a printer-friendly version of this post.

The tide may be turning on commercial free speech in the context of forced disclosures and warnings, as parties wait for further clarification from the Supreme Court on the level of protection due private speech.  The Ninth Circuit’s recent en banc decision in American Beverage Association v. City and County of San Francisco, No. 16-16072 (9th Cir. Jan. 31, 2019), is a limited step in the right direction, though as concurring opinions make clear, much more needs to be done to fix the doctrinal confusion about compelled speech and properly limit the power of government.

Expressions Hair Design Speech Case Back on Track after Detour to NY State Court

For more than 40 years, merchants have sought the right to impose surcharges on customers who use credit cards when making purchases. They prefer customers to pay with cash because when a customer pays with a credit card, the merchant must pay a transaction fee to the credit-card issuer. To encourage cash transactions, many merchants would like to express their pricing in a way that conveys to customers that credit purchases lead to higher prices, but a number of States closely regulate how merchants may express that viewpoint.

A First Amendment challenge to such regulations reached the U.S. Supreme Court two terms ago. The Court granted merchants a preliminary victory in Expressions Hair Design v. Schneiderman, ruling that a New York pricing statute did, in fact, regulate speech and overturning a U.S. Court of Appeals for the Second Circuit decision that reached the opposite conclusion.

In-N-Out Asks Supreme Court to Look at Labor Regulators’ Mistreatment of Commercial Speech

“It’s the only fast food chain I actually like.” That was Anthony Bourdain’s verdict on In-N-Out Burger. It is not an unusual opinion. Thanks to its clean halls, happy employees, and fresh produce, In-N-Out enjoys fanatical brand loyalty. Its new locations attract crowds and helicopters. Its drive-thru lines are measured from space. It is acclaimed far beyond its Southern California homeland.

In-N-Out is not just popular; it’s distinctive. Each location is a kind of motor oasis. The building is decked in neon lights, glossy tiles, and palm-tree listellos. The servers wear white uniforms and soda-jerk hats. The menu is little more than a hamburger, a cheeseburger, fries, and a milkshake. The look is classic. The feel is easy. The faithful are ecstatic. In-N-Out is a Norman Rockwell painting, The Endless Summer, and Saint Becket’s shrine rolled into one.

Lessons from FTC’s Loss in, and Subsequent Abandonment of, DirecTV Advertising Case

Featured Expert Contributor, Antitrust & Competition Policy — Federal Trade Commission

M. Sean Royall, a Partner in the Dallas, TX office of Gibson, Dunn & Crutcher LLP, with Richard H. Cunningham, a Partner, and Brett S. Rosenthal and Emily Riff, Associates, with Gibson, Dunn & Crutcher LLP.

Click here for a PDF version of this post.

The FTC recently suffered a significant setback in a closely watched advertising practices case against DirecTV.  Specifically, on August 16, 2018, Judge Gilliam of the U.S. District Court for the Northern District of California granted judgment in favor of DirecTV on the majority of the claims at the close of the FTC’s case in chief—including all claims relating to DirecTV’s disclosures in its advertising—before DirecTV began to present its own case in defense. And then yesterday, the FTC agreed to dismiss the remainder of its case voluntarily with prejudice, fully ending the enforcement action.

Judge Gilliam’s decision reflects an emphatic rejection of both the disclosure standards sought by the FTC and the agency’s proposed approach to monetary equitable remedies.  The court’s analysis should be of interest to companies that sell services on a subscription basis or that offer a variety of price, service, and promotional options.

HHS Drug Price Advertising Proposal Reveals Sweeping View of Government Power over Private Speech

Featured Expert Contributor, First Amendment

Megan Brown

Bert Rein

Steve Obermeier

By Megan Brown, a Partner with Wiley Rein LLP, with Bert Rein and Steve Obermeier, Partners with the firm.

Ed. Note: This is Ms. Brown’s inaugural post as the WLF Legal Pulse’s latest Featured Expert Contributor.

_____________________

The Department of Health and Human Services has proposed a new rule to “require direct-to-consumer (DTC) television advertisements of prescription drugs and biological products for which payment is available through or under Medicare or Medicaid to include the Wholesale Acquisition Cost (WAC, or ‘list price’) of that drug or biological product.”  Put more simply, if a drug company runs a TV ad, it will have to include the “list price” of the drug, even though that is not what consumers or insurers would pay.  The proposed rule’s stated goal is to ensure that “beneficiaries are provided with relevant information about the costs of prescription drugs and biological products so they can make informed decisions that minimize not only their out-of-pocket costs, but also expenditures borne by Medicare and Medicaid.”

Soda Warning Case Tests How High Court’s NIFLA Decision Affects Commercial Speech Mandates

For the past several decades, the U.S. Supreme Court and at least some federal appeals courts have been moving in opposite directions with respect to First Amendment protection for commercial speech. The Supreme Court’s trend since the mid-1970s has been to afford ever-increasing protection to truthful speech uttered by commercial speakers. In sharp contrast, some federal appeals courts have become increasingly deferential toward government efforts to control such speech. The Supreme Court’s June 2018 decision in NIFLA v. Becerra resoundingly affirmed the Court’s strict limits on the government’s authority over commercial speech, particularly in the context of compelled speech.

The first major test of whether appeals courts will heed that directive came before an en banc panel of the Ninth Circuit on September 25. The questions posed by the 11 judges on the panel suggest that the Ninth Circuit remains reluctant to embrace NIFLA’s message.

FDA-Mandated Listing of Drug Prices in Ads Would Flunk Legal and Constitutional Tests

We’ve read with amusement the recent, overblown claims of some constitutional-law commentators and even U.S. Supreme Court justices that the First Amendment has been “weaponized” as a tool of deregulation. Of course, First Amendment challenges increasingly have become indispensable as politicians and regulators target more and more speech rather than regulate conduct directly.

Consider, for instance, the advertising-disclosure requirement floated last May as a part of the Department of Health and Human Services’ (HHS) blueprint to lower prescription drug prices. HHS asked the Food and Drug Administration (FDA) “to evaluate the inclusion of list prices in direct-to-consumer advertising.” The proposal appears to be under serious consideration. HHS Secretary Alex Azar has specifically invoked it when briefing the press and testifying before two Senate committees (here and here). And FDA Commissioner Scott Gottlieb indicated (in a May interview) that an agency working group will soon study the idea.

If that study includes a dispassionate legal and constitutional analysis, the working group should recommend that HHS scrub the list-price mandate from its policy blueprint. Not only does FDA lack the statutory authority to impose the mandate, but even if it could legally do so, the regulation cannot survive a First Amendment challenge.

Missouri’s Unjustifiable Alcohol Ad Limits Can’t Survive First Amendment Challenge

By Courtney Dean, a 2018 Judge K.K. Legett Fellow at Washington Legal Foundation who will be entering her third year at Texas Tech University School of Law in the fall.

Restrictions on the speech of “disfavored” products merit all the more judicial scrutiny because they are easy targets for creating precedents. Earlier this summer, a federal court in the Western District of Missouri rightfully struck down three state restrictions on alcoholic beverage advertising. The court in Missouri Broadcasters Association v. Taylor reinforced the principle that states cannot arbitrarily stifle truthful, non-misleading commercial speech.