"Ban" Lifted on Network Advertising of Spirits

In an important milestone for the spirits industry, NBC has agreed to air advertising of Smirnoff Vodka by Diageo PLC (Diageo). The first ad was aired during the December 15, 2001, episode of Saturday Night Live.

Several stations, most notably in Utah, have vowed not to air the ads. Spokespersons from Mothers Against Drunk Driving have expressed concern, and the American Medical Association continues to oppose all broadcast advertising of spirits. More significantly, members of the House of Representatives threatened to impose a ban on such advertising if NBC did not reverse its position.

Though many outside of the alcohol industry might be puzzled that NBC's decision has proven controversial, industry members are well aware of the history which informs any debate about spirits advertising through broadcast media.

For various reasons, commercial speech rights have been exercised by different segments of the industry in different ways. For example, the beer segment of the industry has pursued an aggressive advertising campaign that historically has included both radio and television. Most recently, large and small brewers alike have established web sites that reach out to consumers with product information and branded non-alcohol items.

The spirits segment of the alcohol industry historically has exercised significant restraint in the marketing and advertising of its products through electronic media. A voluntary ban on radio and television advertisements of distilled spirits effectively kept those products off America's airwaves for almost 60 years. For the most part, the voluntary ban encompassed wine as well.

In late 1998, Joseph E. Seagram & Sons departed from industry policy and ran a series of advertisements for one of its spirits brands on local television stations in Texas and the northeastern United States. This change in policy generated public concern, including calls from senior levels of the federal government to impose a mandatory prohibition on all electronic advertisement of alcohol products generally.

Since the initial furor over Seagram's televised advertisements, this situation has stabilized to some degree. Today, heavy television and radio advertising for the beer segment continues. Moderate amounts of electronic advertising for the wine segment of the industry appear to be developing in certain markets throughout the United States, though in significantly smaller levels relative to beer. Distilled spirits advertising has remained generally confined to print media.

Advertising of spirits and wine brands on the Internet, however, has increased in recent years. With the advent of the Internet and the ability to reach end-use consumers directly, new questions are arising about both a state regulator's ability to prohibit or restrict electronic advertising and the value of the Internet as a marketing medium for alcohol beverages. More than any other medium, the World Wide Web is a true manifestation of the borderless global market.

Yet several state legislatures have passed statutes that expressly prohibit out-of-state advertising or solicitation of alcohol beverage products. Indeed, Minnesota's beverage laws go so far as to expressly prohibit the sale of alcohol products over the Internet.

Despite the efforts of these lawmakers, courts addressing the issue are ruling that Internet activity transcends the tangible limitations of state borders. In 1984, the U.S. Supreme Court rejected an effort by Oklahoma to prohibit cable television transmissions of alcohol products advertisements. See Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691 (1984). As a matter of law, the case was decided primarily on grounds that the federal government had preempted the field of cable television broadcasting, so that Oklahoma was prohibited from legislating in an area already regulated by federal legislation. On a more practical level, however, that U.S. Supreme Court decision also recognized the impracticability of Oklahoma's efforts to prohibit television broadcasts generated from outside the state.

More recently, courts are beginning to recognize that the simple maintenance of a Web site does not expose the Web site's owner to personal jurisdiction everywhere that the Web site is accessible. In 1994, a federal court in Ohio dismissed a case after recognizing that simply maintaining a Web site is not, in and of itself, sufficient to establish personal jurisdiction over the Web site's owner for every jurisdiction where computer user access that Web site. CompuServe, Inc. v. Patterson, et al., Case No. C-2-94-0091 (U.S. Dist. Ct. 1994). Within the last two years, courts have emphasized the importance both of interstate commerce and commercial free speech to uphold the rights of industry members that seek to educate consumers about the existence and content (if not availability and purchase terms) of alcohol products. These decisions more accurately and reasonably embrace the technology behind the World Wide Web, and conform with judicial analyses rendered by several federal and state courts that have examined whether out-of-state suppliers of beverage alcohol products are subject to the personal jurisdiction of the courts in states where their products are shipped directly to consumers. See, e.g., Florida Department of Business and Professional Regulation v. Zachy's Wine's Liquor, Inc., 125 F.3d 1399 (11th Cir. 1997); Florida v. Sam's Wines & Liquors, Inc., Case Nos. 97-3828 and 4060 (Consolidated), (Fla. Ct. App. 1999).

Given the laudable self-restraint the spirits industry has shown over the years as well as the availability to it of competing marketing channels, such as the Internet, one must recognize that spirits manufacturers may feel increasingly entitled to advertise nonmisleading product information through network broadcast media as well.

Those concerned about broadcast advertising of spirits should remember that such advertising continues to be governed by myriad regulations that should help to ensure such ads target only appropriate consumers and are otherwise not misleading.

ATF Regulations. Part 5 of Title 27 of the Code of Federal Regulations (CFR) governs the labeling and advertising of distilled spirits. These regulations are administered by the U.S. Bureau of Alcohol, Tobacco and Firearms (ATF).

Section 5.63 of the CFR provides that mandatory statements are required in certain advertisements relating to distilled spirits. For example, Section 5.63(a) requires that such advertisements state the name and address of the permittee responsible for the advertisement's broadcast. Additional subsections contained within this regulation mandate the circumstances when an advertisement of a distilled spirit must include information describing the class or category to which the product belongs, the alcohol-by-volume content of the product, and such other information as is specified in the regulation.

The federal government's labeling and advertising laws for distilled spirits contain an exception that minimizes the amount of information that must be included in an advertisement relating to distilled spirits. Specifically, 27 CFR §5.63(e) provides in relevant part that:

If an advertisement refers to a general distilled spirits line or all of the distilled spirits products of one company, whether by the company name or by the brand name common to all the distilled spirits in the line, the only mandatory information necessary is the name and address of the responsible advertiser. This exception does not apply when only one type of distilled spirits is marketed under the specific brand name advertised.

The Subsection (e) exception also provides that advertisements for consumer specialty items only require the disclosure of the sponsoring company's name, or the brand name emblazoned on the advertised specialty items.

FTC Scrutiny. In addition to the federal regulations administered by ATF, advertisement of alcohol also comes under scrutiny from the Federal Trade Commission (FTC). The FTC issued an extensive analysis of current advertising practices employed by the alcohol industry.¹ In the context of its August 1999, report, the FTC found that voluntary compliance with "good standards" guidelines authored by industry trade associations was helpful, but not necessarily a complete safe harbor against advertising that the FTC would deem misleading. For example, the agency's report criticized promotional campaigns that featured animals or animated objects, characterizing gross offenders as advertising vehicles directed to inappropriate audiences (i.e. minors).

Voluntary Industry Guidelines. In addition to the national scope of agency review exercised by ATF and FTC, national guidelines for alcohol advertising of distilled spirits also exist in the form of trade association protocols. Specifically, the Distilled Spirits Council of the United States (DISCUS) maintains a Code of Good Practice for its members, dictating recommended practices for the advertisement and promotion of distilled spirits products to consumers. The DISCUS Code and other alcohol industry guidelines cover a range of recommendations relating to the use of underage persons in advertising, the advertiser's commitment to social responsibility, and the need for "good taste" in the depiction of themes and images used for alcohol advertising.

State-By-State Enforcement. In addition to national regulations and industry guidelines, every state has its own statutes and regulations governing the alcohol industry, including industry advertising and promotions that feature alcohol products. In many jurisdictions, state authorities defer to ATF and federal standards for the regulation of advertising content, especially in the context of broadcast advertising. In the past, states that have attempted to restrict broadcast advertising, even to the point of prohibiting all electronic advertising of alcohol products, have faced difficulty overcoming commercial-free-speech concerns based on First Amendment protections. See, e.g. Capital Cities Cables, Inc. v. Crisp, 104 S.Ct. 2694 (1984). Nevertheless, a prudent approach to the analysis of potential advertising liability should focus on relevant state advertising laws.

NBC's Strict Guidelines. Additionally NBC has imposed its own strict guidelines on any ads developed by Diageo. All ads must appear only after 9:00 PM. All actors appearing in such ads must be at least 30 years of age. And, before NBC will air an ad promoting a particular manufacturer brand, that manufacturer must finance four months of social-responsibility ads focused on drunk driving and moderate drinking.

Though FOX, CBS and ABC are not believed likely to begin airing spirits advertisements any time soon, the NBC's decision is monumental for an industry long treated differently than the industries for other legal products. Diageo and NBC must demonstrate that spirits ads will not target inappropriate consumers. Given the host of regulatory provisions governing such advertising and Diageo's understanding of its important historical role, the advertising will almost certainly be unoffensive to all but the most avid promoters of temperance. The task now falls to state regulatory officials to ensure that state resources are not expended in attempts to restrict the recognized right of spirits manufacturers to advertise their legal products through truthful, nonmisleading ads.