Last month, the Ninth Circuit, sitting en banc, upheld a California “tied house” law prohibiting manufacturers and wholesalers from providing anything of value to retailers in exchange for advertising their alcohol products.

Retail Digital Network, LLC, (“RDN”) an advertising agency that placed advertisements in wine and spirit retail stores, alleged that alcohol manufacturers and wholesalers refused to enter into advertising agreements with it as a result of the statute, California Business and Professions Code § 25503(f)–(h). RDN filed suit for declaratory and injunctive relief against the Acting Director of the California Department of Alcoholic Beverage Control (the “ABC”) alleging that Section 25503(f)–(h) impermissibly restricted RDN’s commercial speech in violation of the First Amendment.

A divided Ninth Circuit disagreed. In affirming summary judgment in favor of the ABC, the panel held that the statute survived intermediate scrutiny because it “directly and materially advances the state’s interest by eliminating any danger of alcohol manufacturers and wholesalers circumventing the triple-tiered distribution scheme by using advertising payments to conceal illegal payoffs.”

Takeaway: Advertisers seeking to act as a middle-man by offering paid advertisements from alcohol manufacturers or wholesalers to be aired or displayed by alcohol retailers in California should note that such activity could be in violation of California alcohol advertising laws.