Arming Goliath: Independent Craft Beer Is in Jeopardy at the Intersection of a First Amendment Circuit Split, the Twenty-First Amendment, and the Erosion of Tied House Laws

Abstract

Independent craft breweries are in serious trouble. Economic impacts from COVID-19 and pressure from large, multinational brewing conglomerates has forced many craft breweries to close over the last year. To make matters worse, a circuit split concerning commercial speech restrictions and the Supreme Court’s Central Hudson intermediate scrutiny analysis threatens to irreparably erode tied-house laws—the laws that keep independent craft breweries in business in the face of constant legal and illegal maneuvering from large manufacturers. An important tied-house law, shared by the federal government and most states, prohibits manufacturers from paying retailers for advertising space at retail outlets to prevent commercial bribery and undue influence that once dominated the beer market in the U.S. The Ninth Circuit has recently upheld such restrictions, but the Eighth Circuit in 2020 struck down Missouri’s restriction as a violation of the First Amendment. The Eighth Circuit’s view appears to be in-line with a Supreme Court trend towards heightened scrutiny for commercial speech regulations. None of this is good news for America’s craft breweries.

Should it become legal for large manufacturers to legally pay retailers for advertisements, those large manufacturers will flood retailers with cash to engage in legal pay-to-play that is currently illegal in every state. Craft breweries will be unable to compete with deep pockets that large manufacturers continuously show an eagerness to share with retailers in exchange for product placement. If the Supreme Court follows the current trend, a true bright spot for American small business and creativity will shrink or disappear. Based on the development of the Central Hudson intermediate scrutiny analysis, state legislatures and regulatory bodies must take concrete action to increase the odds that their tied-house laws will survive modern commercial speech scrutiny.

Craft beer law might seem to be an overly niche area, but it has tentacles extending to the First Amendment, the Twenty-first Amendment, intellectual property, administrative law, and several other areas of the law. This article is timely and the first to apply evolving commercial speech doctrine to the craft beer and alcoholic beverage industry in light of a circuit split and a Supreme Court seemingly willing to grant full First Amendment protection to commercial speech. America’s craft breweries hang in the balance.

Keywords: Craft Beer, Alcohol Regulation, First Amendment, Tied House Laws, Circuit Split, Commercial Bribery

JEL Classification: K20, K21, K23, K42