Federal Alcohol Labeling Following Tam and Brunetti

The U.S. Supreme Court and the Court of Appeals for the Federal Circuit recently struck down certain trademark registration requirements on First Amendment grounds. These cases raise questions about whether similar alcohol labeling requirements likewise violate the First Amendment.

In the U.S., alcohol is a regulated product at both the state and federal level. Federally, the Alcohol Administration Act (FAA Act) sets forth the labeling requirements for distilled spirits, wine and malt beverages. Alcohol producers must get alcohol labels approved by the U.S. Department of the Treasury, Alcohol and Tobacco Tax and Trade Bureau (TTB). These approvals come in the form of a Certificate of Label Approval/Exemption or “COLA.” The labeling requirements of the FAA Act are detailed in 27 U.S.C. §205(e) and prohibit labels that “are disparaging of a competitor’s products or are false, misleading, obscene, or indecent…” See 27 U.S.C. §205(e)(4). The associated rules are promulgated in 27 C.F.R. Parts 4, 5, and 7. These rules similarly prohibit statements on labels that are “disparaging of a competitor’s products,” or which are “obscene or indecent.” 27 C.F.R. §4.39, §5.42, and §7.29.

Tam, Brunetti and the FAA

The Lanham Act contains reasonably similar provisions regarding whether trademarks may be registered. Specifically, Section 1052(a) bars the registration of marks that comprise “immoral, deceptive, or scandalous matter” or that “disparage…or bring…into contempt, or disrepute” any “persons living or dead.” See 15 U.S.C. §1052(a). The U.S. Supreme Court recently ruled that the disparagement clause of Section1052(a) violates the First Amendment. See Matal v. Tam, 137 S. Ct. 1744, 198 L. Ed. 2d 366 (2017). Tam concerned the U.S. Patent and Trademark Office’s (USPTO) refusal to register the mark THE SLANTS for a rock and roll group. The Court found the disparagement clause constituted a restriction of speech that was inconsistent with the standards it previously announced in Central Hudson Gas & Elect. v. Public Serv. Comm’n of N. Y., 447 U.S. 557 (1980). Ultimately, the Court rejected the notion that the government had a legitimate interest in preventing speech that expresses offensive ideas and determined that Section1052(a) was little more than a “happy-talk clause.” See Tam, 137 S.Ct. at 1765. The Court’s ruling, however, was limited to the disparagement clause of Section1052(a) and it did not address the prohibition against registering immoral or scandalous marks.

However, the Court of Appeals for the Federal Circuit, citing Tam, recently struck down the Lanham Act’s immoral / scandalous clause on similar First Amendment grounds. See In re Brunetti, 877 F.3d 1330 (Fed. Cir. 2017). Brunetti concerned the USPTO’s refusal to register the trademark “FUCT” for various items of apparel on the basis that the mark was immoral or scandalous. The Federal Circuit, employing a rationale similar to that in Tam, determined that the Lanham Act’s immoral / scandalous clause ran afoul of Central Hudson and rejected arguments that the government has a legitimate interest in “protecting public order and morality.” See id. at 1350. Brunetti is now on appeal to the Supreme Court and a decision is expected later this summer. See Iancu v. Brunetti, 139 S. Ct. 782 (2019).

Tam and Brunetti are directly relevant to the labeling requirements under the FAA Act, as the words and logos on alcohol labels frequently contain trademarks registered with the USPTO, and many times those trademarks are obtained before industry members apply for COLAs. The question becomes whether the federal government can articulate a substantial interest for regulating alcohol labeling that is distinct from the interest cited for regulating trademarks (and rejected in both Tam and Brunetti). Prior efforts by the government at establishing an overarching interest in regulating alcohol labeling have failed. In Rubin v. Coors Brewing Co., 514 U.S. 476 (1995), the Court considered the FAA Act’s prohibition against displaying alcohol content on beer labels. One substantial interest advanced by the government in Rubin was facilitating state efforts at regulating alcohol under the 21st Amendment. See Rubin, 514 U.S. at 485. The Court rejected that as a legitimate interest under Central Hudson. See id. at 496. The Court’s ruling in Rubin suggests that the government may face difficulties in articulating a broad interest in preventing disparagement or indecency on alcohol labels.

New TTB Rules

Partly in view of Rubin, the TTB recently published updated labeling and advertising regulations. According to the TTB, the updated rules reflect “contemporary case law with regard to the protection of commercial speech under the First Amendment.” See 83 FR 60562, 60566 (November 26, 2018). The new rules now prohibit labels containing a “false or misleading statement that explicitly or implicitly disparages a competitor’s product.” See 27 C.F.R. §4.124, §5.124, §7.124. Limiting disparagement to “false or misleading” statements seems to place the new rules on firmer constitutional footing. Notably, however, the new rules maintain the TTB’s blanket prohibition against labeling that it considers “obscene or indecent.” See 27 C.F.R. §4.103, §5.103, §7.103. The TTB obviously believes that “contemporary case law” does not require updating these rules. This may be because the TTB considers the FAA Act’s obscene/indecent prohibitions as stricter than the Lanham Act’s immoral/scandalous prohibitions. Nonetheless, should the Supreme Court uphold Brunetti, the TTB rules regarding obscene or indecent labels would appear ripe for a constitutional challenge. The public comment period for the TTB’s proposed rules has been extended until June 26, 2019. Time will tell whether courts will apply the rationale of Tam and Brunetti to the FAA Act, or whether courts will apply a higher level of scrutiny given the regulated nature of alcohol.

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