“Sorrell v. IMS Health” Is Gaining Traction in the Federal Appeals Courts

9thCirSome legal commentators heralded the U.S. Supreme Court’s 2011 decision in Sorrell v. IMS Health, Inc. as a marked expansion of First Amendment protections for commercial speech. Sorrell held that content- or speaker-based restrictions on non-misleading commercial speech regarding lawful goods or services should be subjected to “heightened” judicial scrutiny. But whether Sorrell would have any practical effect on challenges to commercial-speech restrictions was far from clear, particularly because the Court did not explain what it meant by “heightened” scrutiny and because it struck down the speech restrictions at issue under the more relaxed “intermediate scrutiny” standard that it had been applying in commercial-speech cases for more than 30 years.

Recent federal appeals court decisions suggest that Sorrell has led to an expansion of commercial speech, albeit perhaps not quite as dramatic as some commentators had hoped for. A decision handed down earlier this month by the Ninth Circuit illustrates that trend. The appeals court held in Retail Digital Network, LLC v. Appelsmith that Sorrell’s “heightened” scrutiny is not as exacting as the “strict scrutiny” normally applied to content-based restrictions on noncommercial speech. But the court nonetheless concluded that the changes wrought by Sorrell were sufficient to overturn a 30-year-old circuit precedent that had upheld restrictions on advertising by alcoholic-beverage retailers.

The California statute at issue prohibits liquor manufacturers and wholesalers from giving anything of value to retailers for advertising their alcoholic products. While bars and liquor stores are free to display brand names on their premises, they cannot be paid for doing so. California has articulated two purposes for this 1930s-era statute: (1) to promote temperance by reducing advertising and thereby reducing consumer demand for alcoholic beverages; and (2) to combat excessive vertical and horizontal integration of the alcoholic-beverage industry by preventing manufacturers and wholesalers from gaining effective control over retailers’ marketing practices (e.g., “we will pay you for posting our signs if you also agree to sell our products only”). In a 1986 decision, Actmedia, Inc. v. Stroh, the Ninth Circuit rejected a First Amendment challenge to the statute, even though it recognized that the statute imposed content-based restrictions on non-misleading speech. The appeals court concluded that California’s asserted rationales for its speech restrictions sufficed to withstand the “intermediate” scrutiny traditionally applied to commercial-speech restrictions.* In 2013, a federal district court cited Actmedia as its basis for rejecting a renewed challenge to the California statute.

This month’s Ninth Circuit decision overruled Actmedia and reversed the district court’s dismissal of the renewed challenge. The court concluded in Retail Digital that the “heightened” review mandated by Sorrell for content-based speech restrictions is meaningfully more stringent than the “intermediate” scrutiny that Actmedia had applied when it upheld the California statute. The Ninth Circuit remanded the case to allow the district court to re-examine the case under “heightened” review, and it strongly hinted that the statute was unlikely to survive that level of scrutiny.

The appeals court faced an obvious difficulty in attempting to articulate what “heightened” scrutiny means: Sorrell itself provides few if any hints regarding what that term entails. The Ninth Circuit concluded that “heightened” scrutiny is not synonymous with “strict” scrutiny, the exceedingly exacting standard that courts apply (almost always with fatal results) to content-based restrictions on political speech and most other forms of noncommercial speech. It ultimately concluded that “heightened” scrutiny resembles “intermediate” scrutiny on steroids. In other words, the court said that when the speech restrictions at issue are content- or speaker-based, courts should examine the three factors identified by Central Hudson but should impose a more exacting burden of proof on the government at each stage of its review. Thus, for example, heightened scrutiny requires the government to demonstrate with greater certainty that its purposes could not be achieved by means that do not entail speech restrictions.

The appeals court’s skeptical comments about the two interests asserted by California indicate that the Ninth Circuit intends “heightened” scrutiny to have real teeth. For example, while recognizing that States may have a substantial interest in “promoting temperance” among their citizenry, it questioned whether the advertising restrictions at issue here would substantially advance that goal. It noted, moreover, that the Supreme Court has severely criticized commercial-speech restrictions based on a fear that people will make bad decisions if provided truthful information and has indicated that States generally have available non-speech tools by which to discourage conduct they deem unwise. The appeals court also suggested that fears of excessive concentration within the alcoholic-beverage industry, which led California to adopt its advertising restrictions in the post-Prohibition era, may no longer be relevant in light of changing market conditions.

In sum, the Ninth Circuit’s Retail Digital decision provides further evidence that the federal appeals courts have taken the Supreme Court’s Sorrell decision to heart and are applying closer First Amendment scrutiny to restrictions on non-misleading commercial speech. The decision makes clear that when governments seek to restrict such commercial speech because they simply disapprove of the content or the speaker, they can expect courts to undertake a significantly more exacting scrutiny than they did in the pre-Sorrell era.

*“Commercial speech” is speech, such as advertising, that proposes a commercial transaction. Under the three-part “intermediate” scrutiny test first articulated by the Supreme Court in Central Hudson Gas & Electric Corp. v. Public Serv. Comm’n and applied by courts to restrictions on commercial speech that does not propose unlawful activity and is not inherently misleading, the First Amendment requires a government regulator to: (1) identify a substantial government interest; and (2) demonstrate that its regulation “directly advances” the asserted interest and (3) is no more extensive than is necessary to serve that interest. In a significant majority of commercial-speech cases considered by the Supreme Court, the substantial interest identified by regulators has been a desire to reduce the possibility that the speech at issue, although not inherently misleading, might nonetheless confuse consumers.

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