Retail Digital Network v. Ramona Prieto

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
RETAIL DIGITAL NETWORK, LLC, No. 13-56069
Plaintiff-Appellant,
D.C. No.
v. 2:11-cv-09065-
CBM-PJW
RAMONA PRIETO, as Acting Director
of the California Department of
Alcoholic Beverage Control, OPINION
Defendant-Appellee.
Appeal from the United States District Court
for the Central District of California
Consuelo B. Marshall, District Judge, Presiding
Argued and Submitted En Banc January 19, 2017
San Francisco, California
Filed June 14, 2017
Before: Sidney R. Thomas, Chief Judge, and Stephen
Reinhardt, Alex Kozinski, William A. Fletcher, Ronald M.
Gould, Richard A. Paez, Johnnie B. Rawlinson, Jay S.
Bybee, Milan D. Smith, Jr., Mary H. Murguia and Paul J.
Watford, Circuit Judges.
Opinion by Judge Paez;
Dissent by Chief Judge Thomas
2 RETAIL DIGITAL NETWORK V. PRIETO
SUMMARY*
Civil Rights
The en banc court affirmed the district court’s summary
judgment in favor of the Acting Director of the California
Department of Alcoholic Beverage Control in an action
challenging, on First Amendment grounds, California
Business and Professions Code § 25503(f)–(h), which
prohibits alcohol manufacturers and wholesalers from
providing anything of value to retailers in exchange for
advertising their alcohol products.
The en banc court first noted that thirty years ago, in
Actmedia, Inc. v. Stroh, 830 F.2d 957 (9th Cir. 1986), this
Circuit rejected a First Amendment challenge to the same
California and Professions Code provision. The en banc
court rejected plaintiff’s contention that Actmedia was no
longer good law because the Supreme Court’s decision in
Sorrell v. IMS Health Inc., 564 U.S. 552 (2011)
fundamentally altered the four-part test for evaluating
restrictions on commercial speech, established in Central
Hudson Gas & Electric Corp. v. Public Service Commission
of New York, 447 U.S. 557 (1980).
The en banc court held that Sorrell did not modify the
Central Hudson test that been applied in Actmedia. Although
the en banc court disapproved of Actmedia’s reliance on
California’s interest in promoting temperance as a
justification for Section 25503(h), the court nevertheless
*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
RETAIL DIGITAL NETWORK V. PRIETO 3
held that Actmedia’s reliance on temperance did not negate
the sound and well-reasoned conclusion that Section
25503(h) withstood First Amendment scrutiny. The en banc
court agreed that (1) Section 25503(h) directly and materially
advanced the State’s interest in maintaining a triple-tiered
market system, by which manufacturing interests were to be
separated from wholesale interests, and wholesale interests
were to be segregated from retail interests; and (2) there was
a sufficient fit between that interest and the legislative
scheme.
Dissenting, Chief Judge Thomas stated that he would
hold that Actmedia is irreconcilable with Sorrell, expressly
overrule Actmedia, and remand to allow the district court to
conduct a purposive inquiry into the restricting statute, as
required by Sorrell.
COUNSEL
Olivier Taillieu (argued) and Raffi V. Zerounian, The Taillieu
Law Firm, Los Angeles, California, for Plaintiff-Appellant.
Joshua A. Klein (argued), Deputy Solicitor General; Edward
C. DuMont, Solicitor General; California Department of
Justice, San Francisco, California; Gabrielle H. Brumbach,
Deputy Attorney General; Gary S. Balekjian, Supervising
Deputy Attorneys General; Chris A. Knudsen, Senior
Assistant Attorney General; Office of the Attorney General,
San Francisco, California; for Defendant-Appellee.
Warren David Postman (argued), Kate Comerford Todd, and
Warren Postman, U.S. Chamber Litigation Center,
Washington, D.C.; Helgi C. Walker and Chad R. Mizelle,
4 RETAIL DIGITAL NETWORK V. PRIETO
Gibson Dunn & Crutcher LLP, Washington, D.C.; for
Amicus Curiae Chamber of Commerce of the United States
of America.
Michael Brill Newman, Holland & Knight LLP, San
Francisco, California, for Amicus Curiae Wine and Spirits
Wholesalers of California, Inc.
Robert A. Brundage and Brian C. Rocca, Morgan Lewis &
Bockius LLP, San Francisco, California; for Amicus Curiae
California Beer and Beverage Distributors.
Carl L. Blumenstein, Nossaman LLP, San Francisco,
California, for Amicus Curiae California Craft Brewers
Association.
Scott L. Nelson, Allison M. Zieve, and Julie A. Murray,
Public Citizen Litigation Group, Washington, D.C., for
Amicus Curiae Public Citizen, Inc.
Michael D. Madigan and Brandt F. Erwin, Madigan Dahl &
Harlan P.A., Minneapolis, Minnesota, for Amici Curiae
National Beer Wholesalers Association and Wine & Spirits
Wholesalers of America, Inc.
Cory L. Andrews, Richard A. Samp, and Mark S. Chenoweth,
Washington, D.C., as and for Amicus Curiae Washington
Legal Foundation.
RETAIL DIGITAL NETWORK V. PRIETO 5
OPINION
PAEZ, Circuit Judge:
In this appeal, we consider Plaintiff-Appellant Retail
Digital Network, LLC’s (“RDN”) First Amendment
challenge to California Business and Professions Code
§ 25503(f)–(h). Section 25503(f)–(h) prohibits alcohol
manufacturers and wholesalers from providing anything of
value to retailers in exchange for advertising their alcohol
products. As a result of Section 25503(f)–(h), alcohol
manufacturers and wholesalers refused to enter into
advertising agreements with RDN—which placed
advertisements in wine and spirit retail stores—and RDN
filed suit for declaratory and injunctive relief against
Defendant-Appellee Ramona Prieto (“Prieto”) in her official
capacity as Acting Director of the California Department of
Alcoholic Beverage Control (the “ABC”).1
This is not the first time we have considered such a
challenge to Section 25503(h).2 Thirty years ago, in
Actmedia, Inc. v. Stroh, 830 F.2d 957 (9th Cir. 1986), we
rejected a First Amendment challenge to that provision. In
rejecting the challenge, we applied the four-part test
established by Central Hudson Gas & Electric Corp. v.
1
When RDN filed suit, it named Jacob Appelsmith in his official
capacity as Director of the ABC. In the intervening years, Ramona Prieto
became Acting Director. For consistency, we use the term “Prieto” to
refer to the office of the Director.
2
Although Actmedia, Inc. v. Stroh, 830 F.2d 957 (9th Cir. 1986),
addressed a challenge to Section 25503(h), the parties do not dispute that
the same analysis applies to subsections (f) and (g).
6 RETAIL DIGITAL NETWORK V. PRIETO
Public Service Commission of New York, 447 U.S. 557
(1980), for evaluating restrictions on commercial speech.
RDN argues that Actmedia is no longer good law because
the Supreme Court’s decision in Sorrell v. IMS Health Inc.,
564 U.S. 552 (2011), fundamentally altered the Central
Hudson test by adopting a more demanding standard for
assessing restrictions on commercial speech. We disagree.
Reviewing de novo, we hold that Sorrell did not modify the
Central Hudson standard. We reaffirm Actmedia’s core
holding, but we disapprove of Actmedia’s reliance on
California’s interest in promoting temperance as a
justification for Section 25503(h). We therefore affirm the
district court’s order granting summary judgment to Prieto,
which correctly relied on Actmedia.
I.
A.
RDN installed and operated seven-foot digital screen
displays in one-hundred wine and spirit retail stores
throughout Southern California. On its screens, RDN ran
advertisements on a two-minute loop comprised of fifteen-
second advertisements. RDN sold advertising slots to various
companies, and, in turn, agreed to share a portion of its
revenue with the retail stores.
RDN agreed to run advertisements for two alcohol
manufacturers, St-Germain and Moët Hennessy. Those
agreements, however, were short-lived because St-Germain
and Moët Hennessy feared that the ABC would enforce
RETAIL DIGITAL NETWORK V. PRIETO 7
Section 25503(f)–(h) against them.3 Several other alcohol
manufacturers and wholesalers, including Anheuser-Busch,
Beam Global, Diageo, Jack Daniel’s Tennessee Whiskey,
MillerCoors, and Skyy refused to contract with RDN because
of the same concern.
As a result of its inability to secure advertisement
placements from alcohol manufacturers and wholesalers,
RDN filed this lawsuit against Prieto, seeking a declaration
that Section 25503(f)–(h) is unconstitutional under the First
Amendment because it impermissibly restricts commercial
3
Section 25503 provides, in pertinent part:
No manufacturer, winegrower, manufacturer’s agent,
California winegrower’s agent, rectifier, distiller,
bottler, importer, or wholesaler, or any officer, director,
or agent of any such person, shall do any of the
following:
....
(f) Pay, credit, or compensate a retailer or retailers for
advertising, display, or distribution service in
connection with the advertising and sale of distilled
spirits.
(g) Furnish, give, lend, or rent, directly or indirectly, to
any person any decorations, paintings, or signs, other
than signs advertising their own products as permitted
by Section 25611.1.
(h) Pay money or give or furnish anything of value for
the privilege of placing or painting a sign or
advertisement, or window display, on or in any
premises selling alcoholic beverages at retail.
8 RETAIL DIGITAL NETWORK V. PRIETO
speech, and an injunction enjoining enforcement of those
subsections.
Prieto moved for summary judgment, arguing that RDN
lacked standing and that even if standing existed, she was
entitled to judgment under Actmedia, which rejected a similar
First Amendment challenge. The district court concluded that
RDN had standing, but that Prieto nonetheless was entitled to
summary judgment because Actmedia was not clearly
irreconcilable with Sorrell or other subsequent Supreme
Court cases.
RDN timely appealed. A three-judge panel of this court
reversed and remanded for further proceedings.4 Retail
Digital Network, LLC v. Appelsmith, 810 F.3d 638, 642 (9th
Cir. 2016). The panel held that “Sorrell requires heightened
judicial scrutiny of content-based restrictions on non-
misleading commercial speech regarding lawful products,
rather than the intermediate scrutiny applied to [Section
25503(h)] in Actmedia.” Id. After the panel issued its
opinion, a majority of nonrecused active judges voted to
rehear this case en banc. Retail Digital Network, LLC v.
Gorsuch, 842 F.3d 1092, 1092 (9th Cir. 2016).
B.
To understand the purpose of Section 25503(f)–(h), some
historical context is necessary. Section 25503 is part of
4
The parties do not address standing, but the panel raised it on its
own initiative and concluded that RDN has standing. See Retail Digital
Network, LLC v. Appelsmith, 810 F.3d 638, 645–47 (9th Cir. 2016). We
agree that RDN has standing for the reasons discussed in the panel
opinion. See id.
RETAIL DIGITAL NETWORK V. PRIETO 9
California’s Alcoholic Beverage Control Act, California
Business and Professions Code §§ 23000, et seq., and was
adopted to prevent the resurgence of tied-houses following
repeal of the Eighteenth Amendment. See Cal. Beer
Wholesalers Ass’n v. Alcoholic Beverage Control Appeals
Bd., 487 P.2d 745, 748 (Cal. 1971). The term “tied-houses”
refers to retailers and saloons that are controlled by “larger
manufacturing or wholesale interests.”5 Id. The California
Supreme Court has recognized that tied-houses pose two
particular dangers: “the ability and potentiality of large firms
to dominate local markets through vertical and horizontal
integration and the excessive sales of alcoholic beverages
produced by the overly aggressive marketing techniques of
larger alcoholic beverage concerns.” Id. (citations omitted).
To prevent the formation of tied-houses after Prohibition,
California enacted laws, including Section 25503, that
established a triple-tiered alcohol distribution scheme,
pursuant to which “[m]anufacturing interests were to be
separated from wholesale interests; [and] wholesale interests
were to be segregated from retail interests.” Id.; see also Cal.
Bus. & Prof. Code §§ 25500–25512. “In short, business
endeavors engaged in the production, handling, and final sale
of alcoholic beverages were to be kept ‘distinct and apart.’”
Cal. Beer Wholesalers Ass’n, 487 P.2d at 748 (quoting 25 Op.
Cal. Att’y Gen. 288, 289 (1955)). In 2015, the California
legislature reaffirmed its interest in preserving a triple-tiered
5
In addition to the historical record as reflected in California Beer
Wholesalers Association and other cases, Prieto also submitted the expert
report of Pamela S. Erickson. Erickson’s report further confirmed that
before Prohibition, “alcohol problems were rampant” and that “[n]ational
manufacturers controlled the industry and owned retail saloons—called
‘tied houses’—where almost all alcohol was consumed.”
10 RETAIL DIGITAL NETWORK V. PRIETO
distribution scheme by amending another tied-house
provision, California Business and Professions Code
§ 25500.1, to provide:
[I]t is necessary and proper to require a
separation among manufacturing interests,
wholesale interests, and retail interests in the
production and distribution of alcoholic
beverages in order to prevent suppliers from
dominating local markets through vertical
integration and to prevent excessive sales of
alcoholic beverages produced by overly
aggressive marketing techniques.
2015 Cal. Stat. Ch. 408.
As we observed in Actmedia, Section 25503(h) addresses
the California legislature’s specific “concern that advertising
payments could be used to conceal illegal payoffs to alcoholic
beverage retailers,” thereby undermining the triple-tiered
distribution scheme. 830 F.2d at 967. That concern “appears
to have been widely held at the time of [Section 25503(h)’s]
enactment . . . .” Id.
II.
A.
As noted above, in Actmedia we rejected a First
Amendment challenge to Section 25503(h), concluding that
it passed constitutional muster under Central Hudson.
830 F.2d at 968. Like RDN, the plaintiff in Actmedia was an
advertising middle-man: Actmedia leased advertising space
on shopping carts, and placed other companies’
RETAIL DIGITAL NETWORK V. PRIETO 11
advertisements on the shopping carts. Id. at 958. Actmedia
entered into an agreement with an alcohol manufacturer, the
Adolph Coors Company (“Coors”), to advertise Coors beer
on supermarket shopping carts. Id. at 961. The ABC,
however, determined that Coors had violated Section
25503(h) by engaging in such conduct, and initiated an
administrative proceeding, threatening to revoke Coors’
California beer and wine license. Id. After remedying the
violation, Coors terminated its use of Actmedia’s services.
Id.
In response to the ABC’s action against Coors, Actmedia
filed a lawsuit seeking a declaration that Coors’ conduct did
not violate Section 25503(h), and even if it did, the provision
impermissibly restricted commercial speech under the First
Amendment. Id. The ABC prevailed in the district court, and
Actmedia appealed. Id. at 958.
We affirmed, and in doing so, relied on Central Hudson
to hold that Section 25503(h) was constitutional under the
First Amendment. See id. at 965–68. In Central Hudson, the
Supreme Court reiterated that the First Amendment accords
some protection to commercial speech,6 but that “[t]he
Constitution [] accords a lesser protection to commercial
speech than to other constitutionally guaranteed expression.”
447 U.S. at 562–63 (emphasis added). Central Hudson
therefore established a four-part framework for assessing
restrictions on commercial speech:
6
The Supreme Court has defined “commercial speech” as that “which
does no more than propose a commercial transaction.” Va. State Bd. of
Pharmacy v. Va. Citizens Consumer Council, Inc., 425 U.S. 748, 762
(1976) (internal quotation marks omitted).
12 RETAIL DIGITAL NETWORK V. PRIETO
At the outset, we must determine whether the
expression is protected by the First
Amendment. For commercial speech to come
within that provision, it at least must concern
lawful activity and not be misleading. Next,
we ask whether the asserted governmental
interest is substantial. If both inquiries yield
positive answers, we must determine whether
the regulation directly advances the
governmental interest asserted, and whether it
is not more extensive than is necessary to
serve that interest.
Id. at 566. The Central Hudson analysis is commonly
referred to as “intermediate scrutiny.” See Fla. Bar v. Went
For It, Inc., 515 U.S. 618, 623 (1995) (“Mindful of these
concerns, we engage in ‘intermediate’ scrutiny of restrictions
on commercial speech, analyzing them under the framework
set forth in Central Hudson . . . .”); see also Ashutosh
Bhagwat, The Test that Ate Everything: Intermediate Scrutiny
in First Amendment Jurisprudence, 2007 U. Ill. L. Rev. 783,
784–85 (explaining that the Court has created three
tiers—rational basis review, intermediate scrutiny, and strict
scrutiny—“to structure constitutional analysis” in free speech
cases).
In applying the Central Hudson factors in Actmedia, we
noted there was no dispute that the Coors advertisements
displayed by Actmedia concerned lawful activity and were
not misleading, thus satisfying the first factor. 830 F.2d at
965. As to the second factor, we observed that “there is little
question that California has a ‘substantial’ interest in
exercising its twenty-first amendment powers and regulating
the structure of the alcoholic beverage industry in California
RETAIL DIGITAL NETWORK V. PRIETO 13
. . . .” Id. at 965–66. The third and fourth factors, however,
required a more complex analysis. See id. at 966–68.
Regarding the third factor—whether Section 25503(h)
materially and directly advances California’s interests—we
noted that Section 25503(h) “is primarily designed to prevent
or limit a specific evil: the achievement of dominance or
undue influence by alcoholic beverage manufacturers and
wholesalers over retail establishments.” Id. at 966. We held
that Section 25503(h) directly and materially advances that
interest by eliminating any danger of alcohol manufacturers
and wholesalers circumventing the triple-tiered distribution
scheme by using advertising payments to conceal illegal
payoffs. Id. at 967. “By flatly proscribing such payments,
California minimized the possibility that alcoholic-beverage
manufacturers and wholesalers will obtain undue influence
over retail establishments, resulting in increased vertical and
horizontal integration of California’s liquor industry.” Id.
We also held that Section 25503(h) both indirectly and
directly advanced California’s additional interest in
promoting temperance. Id. The provision indirectly
advanced the state’s interest in promoting temperance “[b]y
reducing the possibility that [vertical and horizontal]
integration will occur, along with such side effects as a
proliferation of retail liquor establishments and the
emergence of quotas for individual outlets . . . .” Id.
“Moreover,” we held, “in reducing the quantity of advertising
that is seen in retail establishments selling alcoholic
beverages, the provision also directly furthers California’s
interest in promoting temperance.” Id.
Regarding the fourth factor, we acknowledged that,
arguably, California could prevent illegal payments “by
14 RETAIL DIGITAL NETWORK V. PRIETO
careful policing of any advertising agreements made between
retailers and manufacturers or wholesalers,” but that “it
would be impossible for an agency like [the] ABC to
determine whether an advertising company had paid an
inordinately high price to a retailer or to investigate whether
a retailer had in fact provided more than merely advertising
services.” Id. In addition, we noted that such policing could
interfere in the advertising process itself, and thereby create
other First Amendment problems. Id. On balance, we held
that Section 25503(h) was “as narrowly drawn as possible to
effectuate” California’s purpose of preventing the illegal
payoffs that would undermine its three-tiered alcohol
distribution system. Id. We also held that Section 25503(h)
was narrowly drawn to achieve California’s interest in
promoting temperance because “to the extent that the
California legislature has determined that point-of-purchase
advertising is a direct cause of excessive alcohol
consumption, limiting that advertising is ‘obviously the most
direct and perhaps the only effective approach’ available.”
Id. (quoting Metromedia, Inc. v. City of San Diego, 453 U.S.
490, 508 (1981)). As to both interests, we emphasized
Section 25503(h)’s limited scope, in that “[i]t prohibits only
paid advertising in retail stores, not unpaid advertising in
those stores or paid advertising anywhere else.” Id. at 968.
B.
Actmedia was decided only six years after Central
Hudson. In the years that have followed, the Supreme Court
has engaged in considerable debate about the contours of
First Amendment protection for commercial speech, and
whether Central Hudson provides a sufficient standard. See,
e.g., Greater New Orleans Broad. Ass’n v. United States,
527 U.S. 173, 197 (1999) (Thomas, J., concurring in the
RETAIL DIGITAL NETWORK V. PRIETO 15
judgment); 44 Liquormart, Inc. v. Rhode Island, 517 U.S.
484, 517 (1996) (Scalia, J., concurring in part and concurring
in the judgment); Rubin v. Coors Brewing Co., 514 U.S. 476,
493–97 (1995) (Stevens, J., concurring in the judgment); City
of Cincinnati v. Discovery Network, Inc., 507 U.S. 410, 431
(1993) (Blackmun, J., concurring). The Court nonetheless
has continued to follow the Central Hudson framework.7 See,
e.g., Thompson v. W. States Med. Ctr., 535 U.S. 357, 367–77
(2002); Greater New Orleans Broad., 527 U.S. at 183–96;
Edenfield v. Fane, 507 U.S. 761, 767–73 (1993); Discovery
Network, 507 U.S. at 416–28. The Court has also clarified
Central Hudson’s fourth factor by making clear that it does
not require satisfaction of a “least-restrictive-means
standard,” but rather requires “a fit between the legislature’s
ends and the means chosen to accomplish those ends, []a fit
that is not necessarily perfect, but reasonable[,] . . . a means
narrowly tailored to achieve the desired objective.” Bd. of
Trs. of State Univ. of N.Y. v. Fox, 492 U.S. 469, 477, 480
(1989) (citations and internal quotation marks omitted).
7
We consistently have applied Central Hudson’s four-part test when
addressing First Amendment challenges to restrictions on commercial
speech. See, e.g., Coyote Pub., Inc. v. Miller, 598 F.3d 592, 602–11 (9th
Cir. 2010) (applying Central Hudson to Nevada’s restrictions on
advertising by legal brothels, and concluding that the restrictions
withstand First Amendment scrutiny); W. States Med. Ctr. v. Shalala,
238 F.3d 1090, 1093–96, 1098 (9th Cir. 2001) (applying Central Hudson
to a federal law restricting the promotion and advertising of particular
compound drugs, and striking down the law as unconstitutional under the
First Amendment); Ass’n of Nat’l Advertisers, Inc. v. Lungren, 44 F.3d
726, 727, 731–37 (9th Cir. 1994) (applying Central Hudson to a California
law restricting the description of consumer goods as, e.g., “biodegradable”
or “recyclable” unless the goods meet the statutory definition of such
terms, and holding that the statute satisfies intermediate scrutiny).
16 RETAIL DIGITAL NETWORK V. PRIETO
What the Supreme Court repeatedly has declined to do,
however, is to fundamentally alter Central Hudson’s
intermediate scrutiny standard. See, e.g., Thompson, 535 U.S.
at 367–68 (“Although several Members of the Court have
expressed doubts about the Central Hudson analysis and
whether it should apply in particular cases, there is no need in
this case to break new ground.”) (citations omitted); see also
Lorillard Tobacco Co. v. Reilly, 533 U.S. 525, 554–55
(2001). RDN argues that Sorrell imposed such a change.
Indeed, RDN argues that for content- or speaker-based
regulations of commercial speech, Sorrell requires courts to
apply a greater level of scrutiny than Central Hudson
previously required. For support, RDN points to Sorrell’s
references to “heightened scrutiny,” which it interprets to
mean scrutiny greater than intermediate scrutiny. RDN
further relies on the Sorrell Court’s statement that “the
outcome is the same whether a special commercial speech
inquiry or a stricter form of judicial scrutiny is applied,”
564 U.S. at 571, to argue that the Court applied a heightened
form of scrutiny without elaborating as to its form.
RDN reads Sorrell too expansively. Contrary to RDN’s
argument, Sorrell did not mark a fundamental departure from
Central Hudson’s four-factor test, and Central Hudson
continues to apply.8
8
After the panel issued its opinion in this case, another three-judge
panel cited it. See Nat’l Inst. of Family & Life Advocates v. Harris, 839
F.3d 823, 841 (9th Cir. 2016). That case, however, addressed a restriction
on professional speech, rather than a restriction on commercial speech.
Irrespective of that distinction, National Institute applied intermediate
scrutiny to the licensed notice at issue, which is consistent with our
decision in this case. See id. at 841–42.
 RETAIL DIGITAL NETWORK V. PRIETO 17
In Sorrell, the Supreme Court addressed a First
Amendment challenge to a Vermont statute, Vt. Stat. Ann. tit.
18, § 4631(d), that restricted the sale, disclosure, and use of
pharmacy records for marketing purposes. 564 U.S. at 557.
At the outset of its legal discussion, the Court addressed
Vermont’s argument that the law did not regulate speech. See
id. at 563–71. After concluding that the law at issue
regulated speech, the Court turned to whether the law
satisfied the Central Hudson factors, holding that it failed at
both the third and fourth stages. See id. at 572.
Notably, the Sorrell Court referred to “heightened
scrutiny” within the context of deciding whether Section
4631(d) regulated speech whatsoever. See id. at 563–71.
That discussion was responsive to Vermont’s argument that
the restriction was directed at commerce, conduct, and access
to information, rather than speech, and was therefore subject
to rational basis review. See id. at 566–71. It thus follows
that the “heightened” scrutiny to which the Court referred is
the scrutiny that courts apply to speech regulations—as
opposed to the rational basis review that courts apply to non-
speech regulations of commerce and non-expressive conduct.
There is nothing novel in Sorrell’s use of the term
“heightened scrutiny” to distinguish from rational basis
review. See Turner Broad. Sys., Inc. v. FCC, 512 U.S. 622,
640–41 (1994) (rejecting, in the First Amendment context,
the government’s contention that rational basis review applies
and concluding that “some measure of heightened First
Amendment scrutiny is demanded”); see also Minn. State Bd.
for Cmty. Colls. v. Knight, 465 U.S. 271, 291 (1984) (“There
being no other reason to invoke heightened scrutiny, the
challenged state action need only rationally further a
legitimate state purpose to be valid under the Equal
Protection Clause.”) (internal quotation marks omitted). Nor
18 RETAIL DIGITAL NETWORK V. PRIETO
is Sorrell the first time the Court has referred to intermediate
scrutiny as “heightened” scrutiny. See, e.g., Clark v. Jeter,
486 U.S. 456, 463, 465 (1988) (referring to intermediate
scrutiny as “heightened scrutiny” in the equal protection
context, which similarly distinguishes between three levels of
scrutiny—rational basis, intermediate, and strict).
To the extent that Sorrell addressed whether the law at
issue imposed a content- or speaker-based burden, that
discussion also appeared in the Court’s consideration of
whether Section 4631(d) was a speech regulation in the first
instance. See 564 U.S. at 563–71. Indeed, the Court relied
on the content- and speaker-based burden imposed by
Vermont’s statute to conclude that the statute results in “more
than an incidental burden on protected expression,” and thus
implicates the First Amendment, which requires scrutiny
greater than rational basis review. Id. at 567. Accordingly,
the content- and speaker-based distinction is relevant only
insofar as parties dispute whether the law regulates speech.9
See also United States v. Caronia, 703 F.3d 149, 180 (2d Cir.
2012) (Livingston, J., dissenting) (“Every commercial speech
case, by its very nature, involves both content- and speaker-
based speech restrictions.”).
Further underscoring our conclusion, the Court cited
Discovery Network, 507 U.S. at 418, for the proposition that
“heightened judicial scrutiny” applies to content-based
9
In this case, the distinction is immaterial because Section
25503(f)–(h) is undisputedly speaker-based, as it applies solely to alcohol
manufacturers and wholesalers, and content-based, as it applies solely to
the advertisement of alcohol products. It is therefore subject to
“heightened scrutiny,” as in Sorrell, in the form of Central Hudson
intermediate scrutiny.
RETAIL DIGITAL NETWORK V. PRIETO 19
burdens on protected expression. Sorrell, 564 U.S. at 565.
But Discovery Network did not adopt a new heightened
standard for commercial speech; rather, the Court applied
Central Hudson’s four-part framework for assessing
restrictions on commercial speech. See Discovery Network,
507 U.S. at 416. In other words, it applied intermediate
scrutiny. We are therefore not persuaded by RDN’s first
argument that Sorrell’s references to “heightened scrutiny”
mean something greater than intermediate scrutiny applies in
commercial speech cases.
RDN’s second argument—that the Court implied a
greater level of scrutiny applies by stating, “the outcome is
the same whether a special commercial speech inquiry or a
stricter form of judicial scrutiny is applied”—fares no better.
See Sorrell, 564 U.S. at 571. In Sorrell, the Court entertained
the potential application of a “stricter form of judicial
scrutiny,” but ultimately applied Central Hudson, deeming it
unnecessary to determine whether a stricter form of scrutiny
would be appropriate because Section 4631(d) failed to
satisfy Central Hudson intermediate scrutiny. See id.
Turning to the Central Hudson factors, the Court focused
on the third and fourth factors, and described them thusly:
“the State must show at least that the statute directly advances
a substantial governmental interest and that the measure is
drawn to achieve that interest.”10 Id. at 572 (citing Fox,
10
We recognize that the dissent emphasizes the “drawn to achieve”
language in Sorrell, but that emphasis is misplaced. “Drawn to achieve”
is, if anything, less demanding than Central Hudson’s formulation of the
fourth factor, which provides that the regulation must not be “more
extensive than is necessary.” 447 U.S. at 566. Furthermore, in light of the
Supreme Court’s use of various terms to describe the fourth factor,
Sorrell’s addition of yet another way to frame that factor is unremarkable.
20 RETAIL DIGITAL NETWORK V. PRIETO
492 U.S. at 480–81; Central Hudson, 447 U.S. at 566). In
analyzing those factors, the Court framed its discussion of
Section 4631(d) in language that reflects classic Central
Hudson considerations.11 Moreover, in its analysis of the
third and fourth factors, the Court relied on cases that applied
Central Hudson. Sorrell, 564 U.S. at 573–79 (citing, e.g.,
Thompson, 535 U.S at 373–74 (applying Central Hudson,
concluding that the regulation at issue failed to “directly
advance” the government’s asserted interests, and rejecting as
improper the government’s interest in suppressing “the
dissemination of truthful commercial information in order to
prevent members of the public from making bad decisions
See, e.g., Fox, 492 U.S. at 480 (describing the fourth factor and stating,
“[w]hat our decisions require is a fit between the legislature’s ends and the
means chosen to accomplish those ends, []a fit that is not necessarily
perfect, but reasonable; that represents not necessarily the single best
disposition but one whose scope is in proportion to the interest served, that
employs not necessarily the least restrictive means but, as we have put it
in the other contexts discussed above, a means narrowly tailored to
achieve the desired objective”) (citations and internal quotation marks
omitted); Greater New Orleans Broad., 527 U.S. at 188 (summarizing that
as to the fourth factor, “[o]n the whole, then, the challenged regulation
should indicate that its proponent carefully calculated the costs and
benefits associated with the burden on speech imposed by its prohibition”)
(internal quotation marks omitted); Metromedia, 453 U.S. at 507
(articulating that under the fourth factor, the regulation must “reach[] no
further than necessary to accomplish the given objective”).
11
See Sorrell, 564 U.S. at 572 (“But § 4631(d) is not drawn to serve
that interest.”); id. at 574 (“Here, however, the State has conditioned
privacy on acceptance of a content-based rule that is not drawn to serve
the State’s asserted interest.”); id. (concluding that Vermont’s argument
fails because the statute “does not advance the State’s asserted interest”);
id. at 577 (“While Vermont’s stated policy goals may be proper, § 4631(d)
does not advance them in a permissible way. . . . The State seeks to
achieve its policy objectives through . . . indirect means . . . .”).
RETAIL DIGITAL NETWORK V. PRIETO 21
with the information”); Greater New Orleans Broad.,
527 U.S. at 195 (applying Central Hudson and striking down
an incoherent statute that failed to directly and materially
advance the government’s asserted interest in limiting
consumer demand for casino gambling); Edenfield, 507 U.S.
at 767, 775 (observing that commercial speech is entitled to
First Amendment protection, and articulating Central
Hudson’s four-factor test); Discovery Network, 507 U.S. at
426, 428 (noting that “commercial speech can be subject to
greater governmental regulation than noncommercial speech”
but concluding that the city failed to establish Central
Hudson’s fourth factor requiring a “fit” between the city’s
goals and its chosen means)).
There is one other consideration that the Supreme Court
acknowledged in Sorrell that persuades us that Central
Hudson continues to set the standard for assessing restrictions
on commercial speech. That consideration centers on one of
the core principles that animates the Court’s approach to
commercial speech—that commercial speech may be subject
to greater regulation than non-commercial speech. See
Sorrell, 564 U.S. at 579 (“[T]he government’s legitimate
interest in protecting consumers from ‘commercial harms’
explains ‘why commercial speech can be subject to greater
governmental regulation than noncommercial speech.’”)
(quoting Discovery Network, 507 U.S. at 426). Requiring
greater-than-intermediate yet lesser-than-strict scrutiny would
both diminish that principle and impose an inscrutable
standard. See Fox, 492 U.S. at 477 (“The ample scope of
regulatory authority . . . would be illusory if it were subject to
a least-restrictive-means requirement, which imposes a heavy
burden on the State.”).
22 RETAIL DIGITAL NETWORK V. PRIETO
In any event, because Sorrell applied Central Hudson,
there is no need for us to “craft an exception to the Central
Hudson standard.” Rubin, 514 U.S. at 482 n.2. “If a
precedent of [the Supreme Court] has direct application in a
case, . . . the Court of Appeals should follow the case which
directly controls, leaving to [the Supreme Court] the
prerogative of overruling its own decisions.” Rodriguez de
Quijas v. Shearson/Am. Express, Inc., 490 U.S. 477, 484
(1989).
We are not alone in arriving at this conclusion. In
commercial speech cases post-Sorrell, the Second, Fourth,
Sixth, and Eighth Circuits similarly have, at bottom,
continued to apply Central Hudson.12 See 1-800-411-Pain
12
The other circuits that have discussed commercial speech
jurisprudence post-Sorrell either have refused to decide the issue squarely,
see, e.g., Ocheesee Creamery LLC v. Putnam, 851 F.3d 1228, 1235 n.7
(11th Cir. 2017) (“There is some question as to whether under the
Supreme Court’s decision[] in Sorrell . . . an analysis to determine if the
restriction is content based or speaker focused must precede any
evaluation of the regulation based on traditional commercial speech
jurisprudence, and if so, whether this would alter the Central Hudson
framework. . . . We need not wade into these troubled waters, however,
because the State cannot survive Central Hudson scrutiny, and in any
event the Creamery does not argue the State’s restriction was content
based or speaker focused.”), or have addressed it only in cases outside of
the commercial speech context, see, e.g., King v. Governor of N.J.,
767 F.3d 216, 235 (3d Cir. 2014) (concluding, in the context of a
professional speech restriction, that “professional speech should receive
the same level of First Amendment protection as that afforded commercial
speech[,]” and relying on Central Hudson to provide the appropriate
standard); ACLU of Ill. v. Alvarez, 679 F.3d 583, 586, 604–08 (7th Cir.
2012) (discussing the “several variations of intermediate scrutiny” that the
Supreme Court uses in various free speech contexts, and concluding that
the statute, which criminalized audio recording of any conversation
RETAIL DIGITAL NETWORK V. PRIETO 23
Referral Serv., LLC v. Otto, 744 F.3d 1045, 1055 (8th Cir.
2014) (“The upshot is that when a court determines
commercial speech restrictions are content- or speaker-based,
it should then assess their constitutionality under Central
Hudson.”); Educ. Media Co. at Va. Tech, Inc. v. Insley,
731 F.3d 291, 298 (4th Cir. 2013) (“However, like the Court
in Sorrell, we need not determine whether strict scrutiny is
applicable here, given that, as detailed below, we too hold
that the challenged regulation fails under intermediate
scrutiny set forth in Central Hudson.”); Caronia, 703 F.3d at
164 (“[W]e conclude the government cannot justify a
criminal prohibition of off-label promotion even under
Central Hudson’s less rigorous intermediate test.”); Discount
Tobacco City & Lottery, Inc. v. United States, 674 F.3d 509,
533 (6th Cir. 2012) (“Thus, this Court is left with Plaintiffs’
‘action directed to consumers through the media or otherwise
. . . respecting the product,’ 21 U.S.C. § 387k(b)(2)(A), which
we find to be commercial speech properly analyzed under
Central Hudson.”).
C.
RDN contends that even if Sorrell did not fundamentally
change the Central Hudson test, Actmedia incorrectly
concluded that Section 25503(h) satisfies the third and fourth
factors. We disagree. Actmedia correctly held that Section
25503(h) survives scrutiny under Central Hudson, and
therefore the district court properly granted Prieto’s motion
for summary judgment. We disapprove, however, of
Actmedia’s reliance on California’s interest in promoting
temperance as a justification for Section 25503(h).
without consent, likely fails to satisfy the “essential elements” of those
standards).
24 RETAIL DIGITAL NETWORK V. PRIETO
To the extent that Actmedia upheld Section 25503(h) on
the basis that it directly and materially advances the State’s
interest in maintaining a triple-tiered distribution scheme, we
agree with the court’s sound analysis. Furthermore, we
concur that Section 25503(h) is sufficiently tailored to
advance that interest. Section 25503(h) serves the important
and narrowly tailored function of preventing manufacturers
and wholesalers from exerting undue and undetectable
influence over retailers. Without such a provision, retailers
and wholesalers could side-step the triple-tiered distribution
scheme by concealing illicit payments under the guise of
“advertising” payments. Although RDN argues that the
numerous exceptions to Section 25503(f)–(h) undermine its
purpose,13 RDN fails to recognize that the exceptions do not
apply to the vast majority of retailers, and they therefore have
a minimal effect on the overall scheme. This stands in stark
contrast to cases in which conflicting regulations have
rendered the regulatory scheme “irrational[],” Rubin,
514 U.S. at 488, or where the regulatory scheme is “so
pierced by exemptions and inconsistencies” that it lacks
“coheren[ce],” Greater New Orleans Broad., 527 U.S. at 190,
195.
We do not, however, reach the same conclusion with
respect to Actmedia’s holding that Section 25503(h) directly
and materially advances California’s interest in promoting
temperance. Even assuming that promoting temperance is a
substantial interest, Actmedia erroneously concluded that
13
RDN points to, for example, the exception for trade association
gatherings, California Business and Professions Code § 25503.3, the
exception for beer instruction courses, id. at § 25503.55, the exception for
certain stadiums and arenas, id. at § 25503.6, and the exception for zoos
and aquariums, id. at § 25503.85.
RETAIL DIGITAL NETWORK V. PRIETO 25
Section 25503(h) directly and materially advances that
interest by “reducing the quantity of advertising that is seen
in retail establishments selling alcoholic beverages.”
830 F.2d at 967. Section 25503(h) applies solely to
advertising in retail establishments, which comprises a small
portion of the alcohol advertising visible to consumers. In
addition, it prohibits only paid advertisements, and therefore,
by its terms, does not reduce the quantity of advertisements
whatsoever. See, e.g., Rubin, 514 U.S. at 488 (“The failure to
prohibit the disclosure of alcohol content in advertising,
which would seem to constitute a more [effective approach
than prohibiting the same information on labels], makes no
rational sense . . . .”). If California sincerely wanted to
materially reduce the quantity of alcohol advertisements
viewed by consumers, surely it could have devised a more
direct method for doing so. See, e.g., Greater New Orleans
Broad., 527 U.S. at 192 (“There surely are practical and
nonspeech-related forms of regulation . . . that could more
directly and effectively alleviate some of the social costs of
casino gambling.”). Actmedia otherwise concluded that
Section 25503(h) only indirectly advances California’s
interest in promoting temperance by preventing tied-houses.
830 F.2d at 967. We agree with that conclusion, but indirect
advancement fails to satisfy Central Hudson’s third factor.
See Central Hudson, 447 U.S. at 566. We therefore
disapprove of Actmedia’s reliance on promoting temperance
as a justification for Section 25503(h).14 See id.
Nonetheless, as we already have stated, disapproving the
portion of Actmedia that relies on temperance does not negate
14
Because the temperance justification fails to satisfy Central
Hudson’s third factor, we need not consider whether it satisfies the fourth
factor.
26 RETAIL DIGITAL NETWORK V. PRIETO
the sound and well-reasoned conclusion that Section
25503(h) withstands First Amendment scrutiny because it
directly and materially advances the State’s interest in
maintaining a triple-tiered market system, and because there
is a sufficient fit between that interest and the legislative
scheme. Actmedia thus forecloses RDN’s First Amendment
challenge to Section 25503(f)–(h).
AFFIRMED.
THOMAS, Chief Judge, dissenting:
I respectfully dissent. The key issue in this case is
whether Actmedia Inc. v. Stroh, 830 F.2d 957 (9th Cir. 1986),
is compatible with subsequent Supreme Court authority
addressing commercial speech, culminating with Sorrell v.
IMS Health, Inc., 564 U.S. 552 (2011). Sorrell held that
content-based restrictions on truthful, non-misleading
commercial speech advertising legal goods and services
require “heightened judicial scrutiny,” rather than traditional
intermediate scrutiny under Central Hudson Gas & Electric
Corp. v. Public Service Commission of New York, 447 U.S.
557 (1980). Sorrell, 564 U.S. at 565–66. Of course, the
ultimate determination as to whether Sorrell altered the
Central Hudson test is entirely up to the Supreme Court.
However, I think the most reasonable reading of Sorrell is
that it did.1 Therefore, I would hold that Actmedia is
irreconcilable with Sorrell, expressly overrule Actmedia, and
1
I express no opinion as to the merits of the changes I believe Sorrell
made to existing law; rather, my disagreement is with the conclusion that
Sorrell did not alter existing law at all.
RETAIL DIGITAL NETWORK V. PRIETO 27
remand to allow the district court to conduct a purposive
inquiry into the restricting statute, as required by Sorrell.
In previous decisions, the Supreme Court considered post-
hoc rationalizations proffered by the government when
assessing challenged restrictions. See, e.g., Edenfield v.
Fane, 507 U.S. 761, 768 (1993) (“Neither will we turn away
if it appears that the stated interests are not the actual interests
served by the restriction.”). Sorrell departs from this practice
and requires a purposive inquiry into the restricting statute.2
Sorrell not only employed the phrase “heightened
scrutiny” repeatedly in the opinion but also significantly
added “drawn to achieve” language to the fourth prong of
2
Commentators invoke purposive inquiries as evidence of escalating
commercial speech protections. See, e.g., Note, Whither Central Hudson?
Commercial Speech in the Wake of Sorrell v. IMS Health, 47 Colum. J.L.
& Soc. Probs. 171, 183 (2013); Nat Stern & Mark J. Stern, Advancing an
Adaptive Standard of Strict Scrutiny for Content-Based Commercial
Speech Regulations, 47 U. Rich. L. Rev. 1171, 1176 (2013) (citing Rubin
v. Coors Brewing Co., 514 U.S. 476, 488 (1995) (“If combating strength
wars were the goal, we would assume that Congress would regulate
disclosure of alcohol content for the strongest beverages as well as for the
weakest ones.”)); see also Thompson v. W. States Med. Ctr., 535 U.S. 357,
373 (2002) (“Nowhere in the legislative history of the [Food and Drug
Administration Modernization Act] or petitioners’ briefs is there any
explanation of why the Government believed forbidding advertising was
a necessary as opposed to merely convenient means of achieving its
interests.”). Indeed, without first discerning the government’s purpose for
regulating, it would seem difficult to judge whether “the process by which
the [state] adopted the [restriction] . . . demonstrate[s] a careful calculation
of the speech interests involved.” Lorillard Tobacco Co. v. Reilly,
533 U.S. 525, 562 (2001).
28 RETAIL DIGITAL NETWORK V. PRIETO
Central Hudson,3 as noted by Justice Breyer’s interpretation
of the majority opinion. See, e.g., Sorrell, 564 U.S. at 588
(Breyer, J., dissenting) (“Nor has this Court ever previously
applied any form of ‘heightened’ scrutiny in any even
roughly similar case. . . . The Court (suggesting a standard
yet stricter than Central Hudson) says that we must give
content-based restrictions that burden speech ‘heightened’
scrutiny.”) (both emphases in original). A contrary
interpretation would effectively write out the “drawn to
achieve” language, which Sorrell added to the Central
Hudson test, and render the use of “heightened scrutiny” in
the opinion entirely superfluous. Further, Sorrell’s two-step
test would make no sense if intermediate scrutiny applies
equally to content- and speaker-based regulations and non-
content- and non-speaker-based regulations.
I therefore suggest that, under Sorrell, the purposive
inquiry should be applied within the framework of the four-
factor Central Hudson test, heightening the scrutiny
historically applied at Central Hudson’s fourth factor.
Accordingly, in my view, with respect to the fourth factor, the
government must establish that the challenged statute
“directly advances a substantial governmental interest and
that the measure is drawn to achieve that interest,” Sorrell,
564 U.S. at 572 (emphasis added). Therefore, a court must
determine whether the government’s asserted substantial
interests for the restriction are a pretext for the government’s
desire “to suppress a disfavored message.” Id. If so, the law
is invalid.
3
The majority characterizes the addition of this language as
“unremarkable,” but the fact that the Supreme Court has previously used
various terms to describe the fourth factor does not mean that we should
ignore its most recent formulation of the test.
RETAIL DIGITAL NETWORK V. PRIETO 29
The inquiry that I suggest does not test virtue—rather, it
tests congruence. Thus, the first step is to discern the
government’s purpose for regulating, and the second step is
to determine whether there is “a fit between the legislature’s
ends and the means chosen to accomplish those ends.”
Sorrell, 564 U.S. at 572 (citing Bd. of Tr. of State Univ. of
N.Y. v. Fox, 492 U.S. 469, 480 (1989)). A pretextual
regulation could conceivably survive Central Hudson
analysis (if it suppresses no more speech than necessary to
vindicate an asserted substantial government interest), but fail
Sorrell review (if the regulation’s underlying purpose was not
to vindicate that substantial interest but rather to suppress a
message disfavored by the government). In addition, in my
view, a purposive inquiry means that the government cannot
rely on post-hoc rationalizations to justify the statute.
Because the district court did not analyze the statute under
the heightened scrutiny required by Sorrell, I would reverse
and remand. Therefore, I respectfully dissent.