Challenge to California Liquor Rules Revived

PASADENA, Calif. (CN) - Citing recent Supreme Court precedent, the Ninth Circuit revived a challenge Thursday to California's ban against compensating alcohol retailers for advertising products.

The section of the California Business & Professions Code at issue forbids manufacturers and wholesalers of alcoholic beverages from giving anything of value to retailers for advertising their alcoholic products.

Retail Digital Network brought the case at hand in 2011, calling the unconstitutional under the First Amendment.

The company's business model involves installing liquid-crystal displays in retail stores and then entering into contracts with third parties that want to advertise their products on the displays.

As RDN's case went to summary judgment, a federal judge ruled for Department of Alcoholic Beverage Control, finding the statute constitutional, despite its commercial-speech restrictions based on content and speaker.

The ruling rested on the Ninth Circuit's 1986 decision in Actmedia Inc. v. Stroh, but the Supreme Court turned that precedent on its head in 2011 with the decision Sorrell v. IMS Health Inc., which requires heightened rather than intermediate judicial scrutiny in content-based restrictions.

Reviewing RDN's case on appeal, the Ninth Circuit found Thursday that Actmedia is "clearly irreconcilable" with Sorrell.

"Actmedia's 'overall analytical framework' of intermediate scrutiny cannot be reconciled with Sorrell's framework of heightened judicial scrutiny," Judge Consuelo Callahan wrote for a three-person panel in Pasadena.

On remand, the lower court must apply more demanding scrutiny to the case, considering whether California has shown that the law "materially advances the state's goals of preventing vertical and horizontal integration and promoting temperance."

Olivier Taillieu, a Beverly Hills-based attorney for RDN, said that the circuit "got it right" in a case where the applicable case law is "very vague."

"The Supreme Court's view on the First Amendment has been evolving over the years and giving more and more freedom on this particular issue," Taillieu said in a telephone interview. "We believed this case was right."

California's district attorney's office did not immediately respond to an email requesting comment on Thursday morning.

Another section of the ruling supports RDN's standing to challenge the law.

"In the circumstances presented, where RDN could face criminal penalties for placing advertisements of particular content on its retail displays paid for by alcoholic manufacturers, we find that RDN may bring a First Amendment challenge to the law proscribing its conduct," Callahan wwrote.

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