A North Carolina (NC) federal judge recently ruled a NC Alcoholic Beverage Control (ABC) Commission regulation as an unconstitutional restriction on free speech. The regulation’s challenge occurred after the ABC Commission denied Flying Dog Brewery’s request for label approval on the basis the proposed label was in “bad taste” and “inappropriate.”[1]

Background. As reported by Reason.com, last month, Eastern District of North Carolina Judge Terrance Boyle struck down a NC ABC Commission regulation,[2] finding it too broad for its stated purpose of protecting children from potentially seeing vulgar and sexually explicit images on the Flying Dog bottle. The controversy began in July 2021 when the NC ABC Commission denied the Frederick, MD-based brewery’s request to have a label approved for the Freezin’ Season Winter Ale. In explaining the reason for the denial, the NC ABC Commission referenced the challenged regulation and said, “[T]he image … is seen as inappropriate to many here.”[3] As Judge Boyle later described, “The image on the label consists of a nude cartoon figure standing next to a campfire”[4] and was drawn by artist Ralph Stedman. The NC ABC Commission claimed in its filings that the drawing depicted a “human penis.”

Flying Dog Brewery filed a lawsuit challenging the regulation in August 2021. Even though the NC ABC Commission later approved the initially rejected label, Flying Dog pursued the lawsuit to resolve the constitutional issue. Judge Boyle ruled on the core constitutional issue in May 2022, finding that the regulation was unconstitutional.

Free Speech Includes the Right to Be Inappropriate and Offensive. Judge Boyle applied a four-prong test established by the U.S. Supreme Court in Central Hudson Gas & Electric Corroboration v. Public Service Commission of New York.[5] The Central Hudson test asks (1) whether the expression is protected by First Amendment; (2) if there is a substantial government interest in regulation that speech; (3) does the regulation support the stated government interest; and (4) if the regulation is “not more extensive than necessary” to meet the interest. In this case, the District Court judge found in favor of the NC ABC Commission on the first two prongs but struck down the regulation as unconstitutional for failing the fourth. The judge did not rule on the third prong as he found the determination on the fourth prong was sufficient to scuttle the regulation.

In defending the regulation, the NC ABC Commission argued the regulation was narrowly tailored to prevent children from being exposed to vulgar and sexually explicit material. The judge agreed with the NC ABC Commission on this point, though he observed that the commission’s argument that “… children will be ambushed by vulgar and sexually explicit alcoholic beverage labels while ‘shopping for the necessities of life’ with their parents rings somewhat hollow in this day and age.” More importantly, the judge found the regulation was a bridge too far in attempting to achieve this goal and that it “is not narrowly drawn to prohibit vulgar words or images of a sexual, violent, or illegal nature. It prohibits speech determined to be immodest, undignified, and in bad taste.” Such breadth caused the judge to find that the regulation failed the Central Hudson test and was, therefore, unconstitutional.

Our Take. The judge’s ruling was clear: Government regulators can prohibit businesses from engaging in advertising that is sexually explicit and vulgar. What the government cannot do, however, is write a regulation so broadly that it sweeps away advertising that is merely inappropriate or in bad taste. Somewhere in between lies the extent of the government’s ability to limit what appears in alcoholic beverage advertising and specifically on alcohol labels in North Carolina. Finding the balance between edgy advertising that brings positive attention to your product and advertising attracting the ire of regulations requires careful analysis.

We’re Here to Help. Troutman Pepper’s team of alcoholic beverage attorneys includes one of the oldest and most federal regulatory practices in the nation and is here to help you navigate these challenging issues.

[1] See Flying Dog Brewery, LLC v. N. Carolina Alcoholic Beverage Control Comm’n, No. 5:21-CV-343-BO, 2022 WL 1553258 (E.D.N.C. May 16, 2022) at 3.

[2] 14B N.C. Admin. Code 15B.1003(a)(2).

[3] See Flying Dog Brewery at 3.

[4] Id.

[5] Cent. Hudson Gas & Elec. Corp. v. Pub. Serv. Comm’n of New York, 447 U.S. 557 (1980).