CAPITAL CITIES CABLE, INC. v. CRISP

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ORAL ARGUMENT OF BRENT N. RUSHFORTH, ESQ., ON BEHALF OF THE PETITIONER

Chief Justice Warren E. Burger: We will hear arguments next in Capital Cities Cable against Richard A. Crisp.

Mr. Rushforth, I think you may proceed when you are ready.

Brent N. Rushforth: Mr. Chief Justice, and may it please the Court, this case presents a challenge to Oklahoma's requirement that cable TV operators delete wine advertising from programming they bring into the state of Oklahoma.

The District Court found that it is infeasible for cable TV operators to delete the advertising from their programming.

The Court of Appeals did not overturn that finding.

Indeed, it emphasized the finding by stating that Oklahoma's advertising ban would place cable TV operators in a particularly difficult position.

The crux of this case is the crushing economic burden, the technical infeasibility and the illegality under federal law to delete advertising from a multitude of program signals that--

Justice William J. Brennan: What is the technical difficulty?

Brent N. Rushforth: --The technical difficulty, Justice Brennan, is that the cable TV operators get no notice regarding the time or content of the advertising signals in their programming.

Contrary to broadcasters, cable TV operators pick up signals as they find them over the air or over satellite, and they receive no notice of advertising.

Justice Sandra Day O'connor: Well, if network television producers can give advance notice, why can't the producers of the cable broadcast do the same?

Brent N. Rushforth: There is a very marked difference, your honor, between cable TV operators and broadcasters.

An affiliate of a network station in Oklahoma receives a great deal of advance notice regarding the advertising that will be on that network feed from New York City or wherever it comes from.

Not only do they receive notice, but through the affiliation agreement with the network, they have control over the signal.

They can delete advertising as they see fit, and further, they have--

Justice Sandra Day O'connor: Is there any technical reason, I guess I am asking, why the producers of the cable broadcast couldn't do the same for their... for the stations that use their broadcasts?

Brent N. Rushforth: --By not receiving notice, Your Honor, the cable TV operator would be required to station one employee at some monitor for each signal coming in to the cable TV operator.

There are a multitude of signals coming--

Justice Sandra Day O'connor: Is there any technical reason why the cablecasters couldn't furnish that information to you, to your client?

Brent N. Rushforth: --There is no technical reason why they could not furnish the information, Your Honor.

If the cablecasters were to give notice to cable TV operators, nevertheless, the cable TV operators would be in a position, having a multitude of signals coming in simultaneously, of placing an employee at each of those signals, one for each signal, and without full notice of what is in that signal, it cannot be done automatically.

Justice Sandra Day O'connor: There is no encoding mechanism that could be employed?

Brent N. Rushforth: Your Honor, the technology is simply not there.

This must be done manually.

We are dealing here in terms of seconds, not in terms of minutes, and unless they have full notice as to what is in the advertising, when it is going to come precisely, then they will have to wait a number of seconds before they even know what is in the advertising, and they would have to delete it manually.

Justice Sandra Day O'connor: Does the cable operator have to participate in the compulsory licensing system provided by the Copyright Act?

Or can you opt out?

Brent N. Rushforth: Well, if the cable TV operator wishes to carry programs from television stations, then as Congress found, the only feasible way for the cable TV operator to do that is to participate in the compulsory licensing scheme.

I wish to emphasize here that many of the TV signals picked up by cable television operators are so-called reluctant television stations.

There is no economic incentive for television stations to cooperate with cable TV operators, and indeed many of them have expressly stated they will not so cooperate.

So that in order, as Congress found, in order for the cable TV operator to carry this type of program, which is, of course, the kind of programming most interesting to its subscribers, the only feasible way for the cable TV operator to do that is by participating in the compulsory licensing scheme.

Now, Oklahoma permits the sale and consumption of wine within the state.

Chief Justice Warren E. Burger: They could exclude it, could they not?

Brent N. Rushforth: They could exclude it, but they do not.

Chief Justice Warren E. Burger: Could they exclude all advertising?

Brent N. Rushforth: Your Honor, we don't believe so.

We believe that no case, no decision of this Court holds that the Twenty-First Amendment includes the power to ban interstate advertising by someone not a liquor licensee of the state of Oklahoma.

Chief Justice Warren E. Burger: Could they exclude all cable operations?

Brent N. Rushforth: Well, we believe... no, they could not, Your Honor.

Oklahoma until 1980 did not apply its advertising ban to cable TV operators.

In that year, abandoning a decade's practice, the Attorney General of Oklahoma held that the advertising ban would apply to cable TV operators.

The District Court found that by applying the advertising ban to cable TV, the state would not directly advance its interest in promoting temperance.

To the contrary, the District Court found that in light of the pervasive advertising in newspapers, magazines, and other media, and beer advertising that is pervasive throughout the state--

Unidentified Justice: And allowed on TV.

Brent N. Rushforth: --And allowed on TV.

That all this incremental advertising on cable would do is inform Oklahomans of what they already knew from other sources.

The Court of Appeals did not overturn those findings, but in the face of them, deferred to the legislative judgment of Oklahoma, and upheld the advertising ban as it applies to cable TV.

It did so because it misinterpreted this Court's decisions under the Twenty-First Amendment.

Oklahoma rests its entire case on the proposition that the Twenty-First Amendment empowers it not only to regulate or ban the importation, transportation of wine into the state of Oklahoma, but also to ban interstate advertising by someone who is not a liquor licensee, but who is engaged in the business of communication.

No decision of this Court has so held.

To the contrary, this Court's decisions have limited the scope of the Twenty-First Amendment.

In the case of California Liquor Retail Dealers Association versus Midcal Aluminum, this Court held that even in the area of liquor commerce, the federal government retains a substantial interest, and in that case, the Court struck down a California retail pricing scheme.

The Court said that the state's interest in that scheme was unsubstantiated and far outweighed by the federal government's interest in maintaining competition.

Justice Sandra Day O'connor: Does the Midcal decision indicate that where the Twenty-First Amendment is a factor, that some kind of balancing has to be employed in determining whether there is preemption?

Brent N. Rushforth: I think, Your Honor, it does when we are talking about the area of liquor commerce.

When we go beyond that area, as we certainly do here, because the impact of the state's regulation is upon people not engaged in liquor commerce, but people engaged in an entirely different element of commerce, then this Court's decisions in Craig versus Boren and in Larkin versus Grendel's Den, for example, say that the Twenty-First Amendment does not alter constitutional analysis.

Here, there is a pervasive, a comprehensive federal scheme of regulation of cable television.

Its purpose is to ensure that cable television becomes an integral part of a national communications network.

Justice William H. Rehnquist: Was this argument ever made in the District Court?

Brent N. Rushforth: Yes, it was, Your Honor.

The argument regarding preemption of Oklahoma's statute by federal law was in the complaint, and the trial judge made a finding in his findings upholding his issuance of a preliminary injunction that cable TV operators could not comply both with state and federal law.

The reason the trial court judge decided the summary judgment motion on First Amendment grounds as opposed to preemption grounds, I believe, was because he asked the parties to brief and argue those elements in the case that were common to both the broadcasters and the cable TV operators, and that meant he wanted briefing of the First Amendment issue, because by that time the broadcasters were with us.

Justice William H. Rehnquist: And is it the broadcasters or the cable TV people that are not... cannot take advantage of the federal preemption argument?

Brent N. Rushforth: The broadcasters, Your Honor, may have a federal preemption argument, but it would be an entirely different argument.

It is not the argument that we present here.

Justice William H. Rehnquist: Then, on appeal to the Tenth Circuit, did the cable people whom you represent urge the federal preemption ground as an independent or an alternative ground for upholding the judgment of the District Court?

Brent N. Rushforth: Your Honor, we urged upon the Court of Appeals in defense of the District Court's ruling primarily First Amendment grounds.

In a motion for rehearing, we did urge the Court to consider all the issues before the trial court, and then, of course, as Your Honor knows, this Court requested us to brief and argue the issues of preemption.

Justice Sandra Day O'connor: It is a little hard to understand how the Court would be able to resolve the non-commercial speech First Amendment argument or issue as well as the preemption issue without some kind of a factual record.

I just wonder how that could be done.

Brent N. Rushforth: Your Honor, if I may point to the record before the District Court, the District Court explicitly asked the parties whether they wished any further factual evidence placed into the record, and both parties, the state of Oklahoma and my clients, suggested that they did not wish more evidence, and on that record the District Court made certain findings, including which are findings that cable TV operators here cannot comply with both state and federal law.

Included in those findings is a finding that the advertising ban goes beyond the place where it needs to go to--

Justice William H. Rehnquist: How does the District... Was there evidence taken on these subjects in the District Court?

Brent N. Rushforth: --There is evidence, Your Honor, before the District Court, testimony in the record--

Justice William H. Rehnquist: When you say testimony, is this testimony in open court?

Brent N. Rushforth: --Yes, Your Honor.

Justice William H. Rehnquist: At a hearing?

Brent N. Rushforth: Yes, Your Honor, it is, and it is included in the joint appendix.

It includes testimony on the technical infeasibility and the economic infeasibility of this rule as it applies to cable TV operators.

Justice William H. Rehnquist: And it was on the basis of this testimony that the District Court made its finding?

Brent N. Rushforth: That's correct.

This pervasive federal scheme is for the purpose of encouraging the development of cable television.

Here, there is no dispute that there is a direct conflict between state and federal law.

Indeed, the deletion of advertising that Oklahoma seeks would constitute copyright infringement under the Copyright Act, would subject the cable TV operator to criminal and civil penalties, and would force him to lose the compulsory license.

It would also directly conflict with rules of the Federal Communications Commission requiring that television signals carried by cable TV operators not delete advertising.

In these circumstances, this Court's decisions compel that the state law must give way.

The Oklahoma advertising ban also must fall under the principles of the First Amendment.

It follows directly from the District Court finding that the advertising ban here will operate to restrain programming classically protected by the First Amendment, news, entertainment, sports programming, with a broad array of cultural, artistic, and informational content that is classically protected by the First Amendment, and the state has not come close to sustaining the burden that it must sustain in order to restrict and restrain such programs.

Justice William H. Rehnquist: What if some cable TV operator chose to run some commercials about murder for hire in Oklahoma, and the state of Oklahoma says, no, it is against our laws to have that kind of commercial on, so we are not going to be able to show it in Oklahoma, and you say, well, look at all the good stuff people are missing because we just can't delete those commercials from the channel we have taken them from.

Would you make the same argument in that kind of a case?

Brent N. Rushforth: Well, Your Honor, certainly if that were the situation, it would not pass the tests that this Court has established for the protection of commercial speech.

It would violate the first principle set out by this Court in the Central Hudson case, because it would be about activity that is illegal, and so in that sense it would not be entitled to protection.

Justice William H. Rehnquist: Are you saying, then, that Oklahoma's ban on advertising of liquor simply can't pass the test for commercial speech, quite apart from its appearance on cable television?

What if Oklahoma says, you can't put up billboards advertising liquor?

Brent N. Rushforth: Well, if the advertising were intrastate, Your Honor, no decision of this Court has included within the power of the Twenty-First amendment to ban that kind of advertising, but it would be a very different case from the one we are involved with here.

Here, we are dealing, as this Court stated in Metromedia, with the law of cable television, and there are very special considerations that apply because of the effect this ban has not only on the commercial speech but on the non-commercial programming carried by cable TV operators.

Justice William H. Rehnquist: Well, and does the state always just have to take the whole thing just as the cable operators put it together because the cable operators argue that they can't screen out the commercials?

Brent N. Rushforth: Well, Your Honor, I don't think, in the situation where the advertising ban were addressed to something that were illegal under Oklahoma law, then that advertising would not be entitled to protection under the Central Hudson test.

There are also situations that would, of course, be illegal under federal law, and under those circumstances there could be a federal ban upon the advertising that may be able to pass the Central Hudson test and may not in fact restrain non-commercial speech.

This is a situation, however, in which not only does the advertising ban restrain non-commercial speech because of the economics and technology of cable television, but it also is an advertising ban that does not pass the tests established by this Court in Central Hudson.

It goes too far.

It is not directly related to the state's interest, as the trial court found, and this Court has never held--

Justice William H. Rehnquist: Why do you say it is not directly related to the state's interest?

The state presumably wants to discourage consumption of hard liquor, and the theory on which advertisers spend money is presumably that the money they spend is going to increase their sales.

I don't see how you can fault the state of Oklahoma for that approach.

Brent N. Rushforth: --Your Honor, I would like to say two things about that.

First, cable TV operators derive no revenue whatever from wine advertising.

They have no direct relationship with wine advertising.

Justice William H. Rehnquist: No, but you say they are carrying it just because they can't sever out the--

Brent N. Rushforth: That's correct.

Secondly, Your Honor, and more importantly, the District Court's finding states very clearly that the incremental advertising on cable TV in the face of advertising on other media, in newspapers, in magazines, cannot do anything but inform Oklahomans of what they already know and will not advance the state's interest.

Justice William H. Rehnquist: --What evidence did he make that finding on?

Is that just his hunchback?

Or, his hunch?

Brent N. Rushforth: He made that finding on the evidence that Oklahoma does not ban advertising for wine from the New York Times as it comes into the state of Oklahoma.

No one is suggesting here, Your Honor, that someone be sitting at the border of the state of Oklahoma clipping wine advertising from the New York Times.

No one is suggesting--

Justice William H. Rehnquist: We have said in a number of cases, including that Texas election case two terms ago, that the state can address one part of an evil at a time.

It doesn't have to go across the board, and its actions are simply not subject to that sort of a comparison, that if you really meant this you would have taken Step B as well a Step A.

The state doesn't have to do that.

Brent N. Rushforth: --Well, the trial court found, Your Honor, after an examination of the record, including the fact that beer advertising is pervasive throughout the state, that as a matter of fact the application of this rule to cable television would not directly advance the state's interest, and it is--

Justice William H. Rehnquist: What did the trial court conceive the state's interest to be?

Brent N. Rushforth: --The trial court conceived the state's interest to be the promotion of temperance, the prevention of drunk driving--

Justice William H. Rehnquist: Why isn't the state's interest exactly what the Oklahoma legislature said it was, or the Oklahoma people when they ratified the constitution, that we are interested in not having liquor advertised on television?

Brent N. Rushforth: --Your Honor, this Court's line of cases ending last term with Bolger sets out clearly who has the burden to sustain a showing, and the state simply has not complied with those requirements here.

Thank you.

Unidentified Justice: Counsel, before you sit down... maybe you answered this when I was out of the room... what brought the Attorney General in 1980 to issue his advisory opinion?

Why then?

Why not before?

Brent N. Rushforth: Your Honor, we frankly don't know the answer to that question.

There is a requirement that when a state senator, as I understand it, when a state senator makes a request to the Attorney General, the Attorney General has some obligation to respond, and as I understand it, that's what happened here.

Unidentified Justice: It wasn't just an election year?

Brent N. Rushforth: Your Honor, I can't answer that.

Chief Justice Warren E. Burger: Counsel, your friend is coming first.

He has ten minutes.

Mr. McConell.

ORAL ARGUMENT OF MICHAEL W. MC CONNELL, ESQ., ON BEHALF OF THE FCC AS AMICUS CURIAE, PRO HAC VICE

Michael W. Mc Connell: Mr. Chief Justice, and may it please the Court, the Federal Communcations Commission has regulated the cable television industry since the mid-1960's.

The consistent themes of that regulation have been to encourage the widest availability and diversity of programming to persons all across the nation while ensuring that the position of broadcasters, who are, after all, the originators of most programming, are not undercut by the availability of the new medium.

The Commission's regulatory approach in this area has been dictated in large part by factors inherent to the cable industry, the economic role of cable operators in relation to broadcasters, and the technological structure of the cable systems, a matter which Mr. Rushforth discussed in his argument.

Oklahoma's law at issue here is preempted by federal regulation because it requires cable operators to do something that the Commission has determined as an economic matter they should not be permitted to do, and that as a technological matter they cannot feasibly do, namely, to delete certain advertisements from the programming to which those advertisements were attached by the program originators.

Chief Justice Warren E. Burger: What about cigarette advertising?

That is banned on television by the Commission, is it?

Michael W. Mc Connell: By Congress.

Chief Justice Warren E. Burger: Well, by Congress, and the Commission oversees that, monitors that.

Michael W. Mc Connell: Because those advertisements do not appear on any broadcast stations, cable operators have no problem deleting them, because they are not there in the first instance.

Chief Justice Warren E. Burger: Oh.

That was a preface to the question I put to you now.

Could a state, if Congress lifted that limitation on cigarette advertising on broadcasting, could a state say, no, we like it the way it is, and we will tolerate no advertising of cigarettes on television or radio?

Or would you say that is preempted, too?

Michael W. Mc Connell: Mr. Chief Justice, so long as the broadcasters and cablecasters then move to institute cigarette advertising, I believe that that would be preempted for precisely the same reasons that this ban is preempted.

Let me discuss--

Justice Sandra Day O'connor: Mr. McConnell, what are the reasons for the non-deletion requirements of the FCC rules?

Michael W. Mc Connell: --The reasons are two.

One has to do with the economics of the cable industry.

The other has to do with the technological structure.

The economics drive from the fact that cable operators receive their revenues from subscriber fees, from the homes that bring in the cable networks to their television sets.

They receive no income from the advertising that they carry.

This is in marked contrast to the broadcasters, who receive no fees from the persons who own the television sets, but who receive their revenues from the advertisers.

In addition, the cable operators have no contractual relationship with the broadcast stations from which they obtain their programming.

That is to say, they have no contract with the station, they pay no money to the stations, and they have no control over the content of the programming that the stations broadcast.

Cable operators and broadcasters are able to proceed in this fashion because there is a certain conjunction of interests that the cable operators obtain free programming, which makes their services more valuable to the subscribers, but at the same time nationwide broadcasters and cable networks expand their audience, thus enabling them to command a higher price for their advertising, but this conjunction of interests exists only so long as the cable operators are required to carry the advertising along with the programming.

If cable operators such as those in Oklahoma are enabled to delete the advertising, they become free riders.

They divert the listenership from the broadcasters while contributing nothing to the advertising pool which provides the financing to support the programming.

This economic structure is one that Congress studied and expressly adopted when it amended the Copyright Act of 1976.

Justice William H. Rehnquist: Well, Mr. McConnell, the FCC doesn't protect broadcasters in the Oklahoma situation, does it?

They can be required so far as the FCC is concerned not to carry liquor advertising in Oklahoma?

Michael W. Mc Connell: That is correct, Your Honor.

The reasons for that are that the local broadcaster is the very person who would receive the revenues from the advertising.

There is no third party whose copyright interests would be infringed by the broadcaster not being permitted to carry the advertising.

Moreover, the broadcaster as a technological matter simply broadcasts one signal over which he has complete control, whereas the cable operators are broadcasting a number of signals, usually somewhere between 12 and 30 signals simultaneously, and their operations are simply not equipped even to know what the content of the advertising is, much less to be able to delete it if they did know.

Justice Sandra Day O'connor: Mr. McConnell, in making the preemption analysis, do you think that the Court has to do the Midcal type of balancing because of the Twenty-First Amendment?

Michael W. Mc Connell: No, Justice C'Connor.

I don't believe that the Court needs to engage in balancing, because the Twenty-First Amendment gives states enhanced authority over the sale and importation of alcoholic beverages.

The regulation here does not apply to persons engaged in the sale or importation of alcoholic beverages.

It applies to persons who are engaged in the cable industry, and the regulation concerns what types of programming signals they are able to import into the state.

Merely because that may have an impact upon the level of drinking or drunk driving in a state does not mean that the state is able to have enhanced power vis-a-vis the Congress over an unrelated industry.

This is a structure which was explicitly adopted by Congress as well as the Commission when it determined that it would... when Congress set up the compulsory licensing scheme.

Congress considered various ways in which the cable operations might be able to solve the copyright problem, and concluded that a system of individual contracts with various broadcasters was simply infeasible.

Thus the broadcasters pay a set fee into a royalty pool which is then divided among broadcasters, and in exchange for that, they are able to pick up programming from broadcasters all over the country.

The most important quid pro quo for being able to pick up this broadcasting, however, is that they carry the commercials along with the programming.

This is the main way in which broadcasters are remunerated for the broadcasting that they carry.

The principal focus of this case has been on broadcasters, but I would just like to add very quickly that there is the matter of cablecasters as well, as to which the non-deletion requirements of the statute and regulations not directly apply.

However, the Commission has expressly preempted the all state and local control over the content of signal carriage, and the effect of that has been to protect the contractual arrangements for non-deletion which are the uniform policy within the industry from being violated by state and local requirements of this sort.

Precisely the same economic and technological factors that make the non-deletion requirements in the broadcast area so compelling also apply in the area of cablecast.

The Commission has recognized this quite explicitly all the way since before cablecast was actually a practical reality--

Justice Byron R. White: Do you think the federal law then preempts a TV station just outside the borders of Oklahoma from broadcasting liquor advertisements into Oklahoma, advertising the sale of liquor and urging Oklahomans to come across the border and buy liquor, or not?

Michael W. Mc Connell: --Is your question, does the Oklahoma law forbid, say, a Kansas station from broadcasting?

I think not.

Justice Byron R. White: No, I thought I asked whether the federal law preempted--

Michael W. Mc Connell: The federal law does not preempt any restrictions upon advertising by broadcasters.

Justice Byron R. White: --But you think it would preempt any Oklahoma rule forbidding cablecasters to carry such an advertisement?

Michael W. Mc Connell: That's right, Your Honor, because they are not originating the programming.

They are retransmitting programming signals that they are receiving from broadcasters or cablecasters.

Chief Justice Warren E. Burger: How does that go to the fundamental question that Justice White put to you?

How does that technical problem go to the fundamental question?

Michael W. Mc Connell: The technical problem is merely one of two important considerations that the Commission and Congress considered in adopting a scheme which depends upon a non-deletion requirement.

The expense and change and structure of the cable broadcasting system that would be entailed by obedience to the sort of rule that we have here would be quite significant, and would seriously retard the ability of cable systems to--

Unidentified Justice: Do you think the Twenty-First Amendment has any place in this argument at all?

Michael W. Mc Connell: --Your Honor, we believe that the state's authority is not enhanced with respect to industries other than those involved in the sale and importation of alcoholic beverages, but even were that not true, and even if this Court were to apply a balancing test, we are quite confident that the concerns of the Congress and the Commission would far outweigh the marginal gains to the state's interests from enforcement of this law.

Justice Byron R. White: Well, I would suppose the state's interest in keeping the liquor advertisements out of Oklahoma is just as great with respect to a broadcaster as with respect to a cablecaster.

They just don't want the liquor advertised in Oklahoma.

They don't want Oklahomans being inveigled to come across the border and load up with some booze.

The state's interest is the same.

Michael W. Mc Connell: Your Honor, the difference--

Justice Byron R. White: Isn't it?

Michael W. Mc Connell: --Yes, it is.

The difference between--

Justice Byron R. White: Well, don't tell me the state doesn't have an interest.

Michael W. Mc Connell: --Your Honor, it is not that the state does not have an interest.

The important point here is that the--

Justice Byron R. White: Well, they have got enough interest to be able to keep a broadcaster from sending signals into Oklahoma.

Michael W. Mc Connell: --And the difference is that neither Congress nor the Commission have promulgated rules and statutes that preempt--

Justice Byron R. White: Now you are saying that the broadcaster can be kept out, but some people who carry his very signals can't be kept out.

Michael W. Mc Connell: --That's right, Your Honor.

Let me add that cable, cable systems insofar as they are originators of programming within Oklahoma might be subject to the identical rules.

That also is not preempted by federal law.

The difference is not so much cable versus broadcast as it is the economic and technical structure here wherein the cable operators are carrying other people's programming and are obligated to carry with it the commercials that pay for it.

Justice John Paul Stevens: The difference, as I understand it, is, in one case there is a conflict with a federal rule, and in the other case there isn't.

Michael W. Mc Connell: That's right, Your Honor.

Chief Justice Warren E. Burger: Very well.

Michael W. Mc Connell: Thank you.

Chief Justice Warren E. Burger: Mr. McDonald?

ORAL ARGUMENT OF ROBERT L. MC DONALD, ESQ., ON BEHALF OF THE RESPONDENT

Robert L. Mc Donald: Mr. Chief Justice, may it please the Court, the issue before the Court today is whether the state of Oklahoma may prohibit the advertising of liquor in Oklahoma by the television medium coming into the homes of the citizens of the state of Oklahoma.

The petitioners contend that there are two impediments to that, and they rely upon the First Amendment, a First Amendment ground and a preemption ground.

First, let's talk about the regulatory scheme and the historical basis for the rule itself in the state of Oklahoma.

Oklahoma's prohibition of liquor advertisement is part of a state constitutional amendment which repealed Prohibition in 1959.

One of the conditions of that repealing was that they retain the prohibition against liquor advertisement.

Of course, now, the state's interest is the purpose of the prohibition against liquor advertising, and that is to prevent the artificial stimulation of the consumption of alcohol, or increasing the consumption of alcohol, or to consume alcohol if you do not consume it.

I think we must keep in mind here that this is the electronic medium.

In the FCC case and some of the other cases, this Court has recognized that the electronic medium is treated specially because of the uninvited... as an uninvited guest, especially in commercial speech, into the home, and the impression that it has upon people who can't read, or we are talking about children.

What is the relationship of this state regulation to commerce?

First of all, I think that it must be pointed out to the Court that... I don't think there's any argument about it... that the rule was pursued... was pursuant to the Twenty-First Amendment.

I don't know if counsel makes light of the Twenty-First Amendment, but we don't make light of it in Oklahoma.

Oklahoma historically has had a regulatory scheme, a very strict regulation of alcohol in the state of Oklahoma.

We value our right under the Twenty-First Amendment.

It is one of the... it is the only express grant of power to the states, and we pursue and claim our right in this particular case that we have the right to prohibit the artificial stimulation of alcohol, and we think that in preventing the artificial stimulation of alcohol, that is, liquor advertising, that we are pursuing the right to the Twenty-First Amendment.

That is an incident of regulating alcoholic beverages in the state of Oklahoma.

We are not trying to regulate speech.

We feel like that the incidence of the evils of alcohol has been recognized by this Court.

Unidentified Justice: Why isn't there a law against liquor advertisements in newspapers?

Robert L. Mc Donald: In newspapers?

There is... It is against the law to advertise in newspapers.

Unidentified Justice: Do you ever enforce it?

Robert L. Mc Donald: We could... it was interpreted in a national publication... we do for the local publications.

That's true.

Now, for national publications is the only time that the courts and the Attorney General's office interpreting the courts' rulings on it is that it is impractical or it is impossible to regulate out of state newspapers.

Unidentified Justice: You mean, you just don't think you want to go to the trouble of taking liquor advertisements out of Time Magazine?

Robert L. Mc Donald: That's right.

Intercept them either at the mailbox or at the--

Unidentified Justice: Why is that?

That is just because it is too much trouble, just impractical, or what?

Robert L. Mc Donald: --Yes.

0 [Generallaughter.]

Unidentified Justice: Like the argument on the other side, it is just impractical for cable operators to do it?

Robert L. Mc Donald: It is like that argument, but we would distinguish the facts and the degree of impracticability.

In trying to enforce that law... and we do, of course, in the publications intrastate.

It is just the national publications.

And we would have to intercept them at the border or at the mailboxes when they were mailed, and there are several million people in the state of Oklahoma, so we think that certainly that... and of course, now, we have been looking at the national publications, because we are noticing in the national publications that it may be now technologically feasible to do that, because they have regional advertising.

We are noticing in national publications that there's advertisements directed... in the national publications directly for Oklahoma.

Unidentified Justice: How about national outdoor advertising on signboards?

National outfits.

Robert L. Mc Donald: Well, of course, now, it wouldn't be national... what I'm talking about, national publications, those--

Unidentified Justice: What do you do about signboards?

Robert L. Mc Donald: --It would apply to signboards also, and it did until the stay, of course, was... Until the stay ordered by the court was imposed staying the order of the Tenth Circuit, before the case at the District Court level, there was a prohibition against signboards or billboards advertising liquor within the state of Oklahoma.

Justice Byron R. White: Doesn't Oklahoma localities issue cable licenses?

Robert L. Mc Donald: Municipalities, yes.

Justice Byron R. White: And is that pursuant to the permission of the state?

Robert L. Mc Donald: No, that is pursuant to the permission of the Federal Communications.

Justice Byron R. White: I suppose that any... could any municipality just have a rule that any cablecaster who carries a liquor advertisement will get his license revoked?

Robert L. Mc Donald: I think that is very--

Justice Byron R. White: Is that essentially what the--

Robert L. Mc Donald: --I think that's a possibility in Oklahoma.

I don't think the FCC would think too much about it, though.

They might have a different viewpoint.

It is this regulatory scheme which petitioners argue are preempted by federal communications and copyright regulations.

We think these laws, however, do not preempt the state legislation challenge.

Now, what they are talking about is the traditional supremacy clause.

Now, we are calling for a balancing test.

We don't think the traditional supremacy clause comes into play here.

The petitioners maintain, especially the FCC, maintain that the Communications Act and Copyright Acts preempts state law.

They are invoking the traditional supremacy clause.

What we maintain, of course, is that the Twenty-First Amendment authorizes the state of Oklahoma, which we enacted our regulation pursuant thereto, is on the same level as the Federal Communications Act.

Unidentified Justice: --So, to win, don't you have to have the Federal Communications Commission rule invalidated?

Robert L. Mc Donald: I think... well, we are calling for a balancing test.

Unidentified Justice: Well, I know, but isn't your rule just in square conflict with the FCC rule?

Robert L. Mc Donald: Yes, I think it is, Your Honor.

Unidentified Justice: Well, and so you say... aren't you in effect saying that the FCC rule is invalid under the Twenty-First Amendment?

Robert L. Mc Donald: I am saying under the competing interests that we have more compelling interests, because we are trying to protect the effect of alcohol in the state of Oklahoma.

What I am saying is there is a balancing test.

Under the traditional supremacy clause I concede we would probably fail because there is an express conflict and preemption would probably prevail.

Justice John Paul Stevens: General McDonald, you also contend, as I understand you, that the Copyright Act is unconstitutional in order to avoid that conflict.

The federal statute.

Robert L. Mc Donald: Yes, Your Honor.

Justice John Paul Stevens: Yes, so for you to prevail, we have to hold both the federal statute and the FCC rule invalid?

Robert L. Mc Donald: As applied.

Justice John Paul Stevens: As applied to this--

Robert L. Mc Donald: To this fact situation.

What we are saying is that we are exercising our constitutional rights, too, in Oklahoma.

The Twenty-First Amendment and the other clauses that the Federal Act, the Copyright Act are pursuant to are clauses of the same Constitution, so we are just claiming our right to be on the same level, and that you should have a balancing test, and not to go by the traditional supremacy clause test.

Unidentified Justice: --But with the same effect, namely, the other way, that you apply the supremacy clause the other way, that Oklahoma has got the right to do this, and the feds don't.

Robert L. Mc Donald: Yes, Your Honor.

Unidentified Justice: Yes.

Because of the Twenty-First Amendment.

Robert L. Mc Donald: Yes, sir.

Justice Thurgood Marshall: Do you prohibit advertisements on the sides of your trucks out there?

Robert L. Mc Donald: Yes, Your Honor.

Unidentified Justice: You mean, you don't have any Budweiser trucks?

0 [Generallaughter.]

Robert L. Mc Donald: Well, on Budweiser, on beer advertising, by statute, and of course, are reevaluating that because some of the findings of some of the effects of beer, especially... by statute, by definition, a non-intoxicating beverage is anything less than 3.2.

Budweiser maintains that they are advertising 3.2 beer or less, and so they are exempt from the advertising, so normally you will see Budweiser on the sides of trucks, Your Honor.

Justice Thurgood Marshall: How about the truck that sells Haag and Haag Scotch Whiskey?

They can't put their name on the side of the truck?

Robert L. Mc Donald: There is a prohibition against--

Justice Thurgood Marshall: They can't sell Haag and Haag Scotch in Oklahoma?

Robert L. Mc Donald: --Yes, they can sell--

Justice Thurgood Marshall: Why, of course they can.

Robert L. Mc Donald: --They repealed Prohibition in 1959.

They may sell it at a licensed liquor store.

But the prohibition is a total ban on liquor advertising in the state of Oklahoma, so it would be applied to trucks as well as any other type of medium.

Justice Thurgood Marshall: You sell it, but you don't advertise it?

Robert L. Mc Donald: That's correct, Your Honor.

In other words, the attitude of the state of Oklahoma is now, since 1959--

Justice Thurgood Marshall: That if people don't see it, they won't buy it?

Unidentified Justice: 0 [Generallaughter.]

Robert L. Mc Donald: --Well, Your Honor, we don't think--

Justice Thurgood Marshall: I am trying to figure out the theory behind this.

Robert L. Mc Donald: --We don't think the companies would spend $1 billion a year in the United States advertising liquor if they didn't think it would increase the consumption of liquor.

We think that advertising... it is just common sense... causes an artificial stimulation to consume liquor, and especially in this particular case, the electronic media--

Justice Thurgood Marshall: In all 49 of the other states?

Robert L. Mc Donald: --Not all the other states allow advertising.

Mississippi doesn't.

Justice Thurgood Marshall: How many do?

Robert L. Mc Donald: I think there's 30 something regulate advertising.

I don't know how many have a total ban.

I know of two.

The reasoning in the second particular case, and that is in commercial speech, that the District Court really has as its holding was that it did not meet the Central Hudson test.

We maintain that it does meet that, and the Tenth Circuit was correct in applying the Central Hudson test and declaring as a matter of law that there was a rational basis between the prohibition of liquor advertising and the state's interest.

We might point out that they applied the four-part test of the Central Hudson test and... first of all recognized commercial speech as being a lawful activity and being not misleading, and that there was a substantial state interest, that is, a temperance interest.

The Tenth Circuit said that the state's regulation directly advanced that interest, and that it was not more extensive than necessary.

In fact, they said that one of the other alternatives, of course, could be that they could completely prohibit the sale of liquor in the state of Oklahoma if they wanted to, and this would seem like it would be more of a lesser means of trying to regulate alcohol.

I think what we must keep in mind, we are trying to regulate alcohol.

We are not trying to regulate speech.

Unidentified Justice: Do you think your Twenty-First Amendment would permit Oklahoma to forbid any motion picture to be shown in the state of Oklahoma that involved drinking intoxicating beverages as part of the plot or by the star or... because that might easily stimulate drinking?

Robert L. Mc Donald: We don't think so, because that would not involve commercial speech.

That is a matter of protected speech other than non-commercial, so we don't think it would come into play, and Oklahoma would not try to prevent anything like that.

Unidentified Justice: Well, I know, but it might very well increase the consumption of alcohol.

Robert L. Mc Donald: Well, it's not--

Unidentified Justice: If people watch their favorite movie actress embibe.

Robert L. Mc Donald: --Yes, but under the definitions of the ABC Act, the Alcoholic Beverage Control Act in the state of Oklahoma that is not a commercial, Your Honor, so it wouldn't be anything to be able to enforce there.

Unidentified Justice: That isn't my question.

My question was whether the Twenty-First Amendment would prevent Oklahoma from having--

Robert L. Mc Donald: Oh, okay.

I understand your question now, Your Honor.

I think if Oklahoma did try to enforce any type of regulation that might try to comprehend that, I think there would have to be a balancing test to the Twenty-First Amendment, and of course I think probably if you went into the balancing test you would have commercial speech or some type of... well, commercial speech and have a balancing test.

I don't think we would win in a case like that, Your Honor.

Unidentified Justice: --Because... In spite of the Twenty-First Amendment?

Robert L. Mc Donald: I think that's correct.

I think what you've got it, you've got competing interests under the Twenty-First Amendment.

The competing interest, I think, would be attenuated in trying to enforce the regulation in a situation like that.

I don't think we could prevail.

Justice John Paul Stevens: Does your regulation apply to a Kansas newspaper, say, a borderline town that is right on the border between Oklahoma and Kansas and wants to advertise, urging people to come across the state line and buy some liquor in Kansas?

Robert L. Mc Donald: No, we would not be able to enforce that Act outside of the state of Oklahoma.

Justice John Paul Stevens: I am just talking about the distribution in Oklahoma of such ads directed at Oklahoma people, soliciting their patronage to come across the state line and get some of the good Kansas beer.

Robert L. Mc Donald: No, not if they... we have no way of regulating that.

Justice John Paul Stevens: You don't... you wouldn't contend--

Unidentified Justice: --Well, you can regulate the paper there that sits on the newsstand.

You certainly don't... It wouldn't be hard to keep that paper out of Oklahoma, would it?

Robert L. Mc Donald: Well, I think that could be another fact situation than your fact situation.

That is, if it was in Oklahoma there, and--

Unidentified Justice: You don't let your own papers publish liquor ads, do you?

Robert L. Mc Donald: --No, Your Honor.

Justice William H. Rehnquist: But you do let the New York Times publish them when--

Robert L. Mc Donald: Yes.

Unidentified Justice: --Would you allow your papers to publish an ad on behalf of a Kansas liquor store?

Robert L. Mc Donald: No, Your Honor.

Unidentified Justice: You would not?

Robert L. Mc Donald: We think the analyses that you would use in the balancing test would be similar to the analysis that was used in the commercial speech or a First Amendment type balancing test.

One thing that we think that might be some problems, and had some problems below, we believe... we realize the record was meager below.

There was quite some confusion, I think, in trying to read the record, just what type of burdens or what type of criteria.

Was this a First Amendment case?

Was it a preemption case?

Who had the burden of going forward and challenging?

The court... from reading the record, my impression of reading the record was that the court was not... was going along with a regular type of First Amendment or supremacy type as far as getting to a preemption type of test.

It was confusing to me what type of test or criteria was being used.

So I think--

Justice Sandra Day O'connor: Mr. McDonald, did you think there was enough evidence for a balancing type approach?

Robert L. Mc Donald: --Your Honor, I did not think there was enough evidence on either side to really decide--

Justice Sandra Day O'connor: But you agreed not to introduce any more.

Is that right?

Robert L. Mc Donald: --That's correct, because it was going along the First Amendment grounds.

We believe that the Tenth Circuit applied the proper test, and that was the Central Hudson test.

Of course, now, they tipped their hat to preemption and said that was a problem, and they said it would be impractical.

Now, we think that... Of course, now, the FCC in their brief, in their argument before this Court, they don't seem to recognize the Twenty-First Amendment, or they... when they do recognize it, they don't give it the import that we do in Oklahoma.

Unidentified Justice: Why do you suppose the Tenth Circuit didn't really adjudicate the preemption argument?

Robert L. Mc Donald: Because it wasn't raised very vigorously down at the District Court.

Unidentified Justice: But it was raised.

It was raised.

Was it presented in the briefs to the Tenth Circuit?

Robert L. Mc Donald: I don't think so, no.

Unidentified Justice: It wasn't an issue at all?

Robert L. Mc Donald: Not--

Unidentified Justice: Before the Tenth Circuit?

Why did they even mention it?

Robert L. Mc Donald: --They just... because of the... the way that it was raised was because... was along the regular standard preemption.

That was that it was impractical.

It was brought up at the District Court level and at the Tenth Circuit level about the impracticality of deleting the--

Unidentified Justice: Yes, but if the holding was, which it was, I gather, that you weren't violating the First Amendment, why didn't they have to reach the preemption argument and say it isn't preempted either?

Wasn't the issue squarely presented to them?

Or wasn't it?

Robert L. Mc Donald: --I don't think it was squarely presented to them, Your Honor.

Chief Justice Warren E. Burger: Maybe they thought that the Twenty-First Amendment couldn't be preempted.

Robert L. Mc Donald: I think what they did was, they recognized that the record was meager at the District Court level, that the court was talking about the impracticality of it and the burden that it would have on cablecasters.

Unidentified Justice: Well, do you object to the petitioners here relying on the preemption argument if they didn't present it to the Court of Appeals?

Robert L. Mc Donald: Well, they presented it to the Court of Appeals, but I am talking about--

Unidentified Justice: But the Court of Appeals just didn't adjudicate it.

Robert L. Mc Donald: --That's correct, Your Honor.

Chief Justice Warren E. Burger: There are a number of old cases that have held here that we will not let a case turn on an issue not decided by the Court of Appeals.

Robert L. Mc Donald: I understand, Your Honor, but it was very difficult to decide whether they were looking at really a preemption--

Unidentified Justice: And I would think you would want to embrace them.

Robert L. Mc Donald: --One of the other things that we think that should be addressed by this Court is that what type of setting is there when a Twenty-First Amendment case is presented to the Court, that it go with a presumption in favor of the state in a competing interest between the federal interest and the state's interest, or what type of record.

Does there have to be any evidence?

One of the problems that was presented, of course, to the Metromedia case was that, and it was raised, is that there was no evidence presented at the District Court level which showed that banning of billboards would improve the safety or the aesthetic aspect of San Diego.

This Court held that as a matter of law the Court could make that and no evidence would need to be presented on that, that you would apply a rational basis.

And we think that in this particular situation there is a rational basis.

What are some of the dangers of petitioners' arguments?

You are going to have possibly, and it was raised by one of the questions when petitioners were presenting their argument, and that is, what about an unlawful activity being advertised by the cablecaster?

That would not have commercial speech protection, because it would be concerning unlawful activity, and it would not meet the Central Hudson test.

Well, they are saying that the state of Oklahoma has no authority to or any control because it is preempted.

It would be up to the federal... or the FCC to enforce the type of violations of state law where it would be an unlawful activity and they would be advertising it within the state of Oklahoma.

We must also address the problem of the electronic media, and that is the children in the state of Oklahoma, because cable television is getting very pervasive in the state of Oklahoma.

It is getting very popular.

It is getting into the homes, and that is one of the reasons that there were many complaints that came in that resulted in the request of an AG's opinion to determine whether cablecasting or cable television fell under the prohibition of liquor advertising, and the opinion was rendered, because of the coming into homes, and it had not been coming into the homes before, and people were getting rather excited about the uninvited solicitation to... for the artificial stimulation to consume alcohol.

In conclusion, the petitioners' challenges to Oklahoma's restriction on liquor advertising is not supported by sound constitutional arguments, nor is petitioners' position supported by sound public policy.

If this Court were to adopt petitioners' position, it would leave states powerless to protect a citizen against liquor advertising, no matter how fraudulent, no matter how deceptive.

Under the petitioners' arguments, the federal government, despite the Twenty-First Amendment, has absolute power to dictate that the children of Oklahoma be subjected to television advertising of alcohol that is aimed specifically at encouraging the consumption and indeed increased consumption of alcohol.

In proposing the Twenty-First Amendment to the people of this country, Congress itself refused to include provisions which would have vested Congress with concurrent power to regulate or prohibit the sale of intoxicating beverages.

The record as far as the debate when the Twenty-First Amendment was presented to Congress, Senator Wagner, one of his statements in that third section that gave the federal government concurrent power, he said, what we are doing here, we are expelling the federal government out of the liquor business as far as regulating it, and we are supposed to be giving the states express power, and then we're letting them in the back door.

That is one of the things that we think is the spirit of the Twenty-First Amendment, and that was to give the states the power to regulate the alcohol and the effects of alcohol and the incidence of alcohol in the state of Oklahoma, and that is exactly what we feel like the Twenty-First Amendment was all about, and to prevent a situation such as we have here, and that is the federal government coming in and telling the people of Oklahoma that they don't have the right to regulate alcohol or the incidence of alcohol.

Unidentified Justice: What do you do about television stations just across the border, or radio stations just across the border broadcasting into Oklahoma?

Robert L. Mc Donald: We can't do anything about it, Your Honor.

In fact--

Unidentified Justice: It is against your law, I take it.

Robert L. Mc Donald: --Yes, but they don't broadcast in Oklahoma, so we have no control.

We have always wondered... we'd like to try to probably invoke the political process, and of course the FCC recognized the analogous type of problem with cigarette advertising, and we'd like for the political process, you know, some type of situation where they could help out or have some type of regulation, or Congress, or seeking some type of political solution to it, because of the problems that we are just now recognizing that alcohol causes.

We would ask this Court to affirm the Court of Appeals' decision which recognized Oklahoma's right to regulate themselves and chart the course of their own destiny.

Thank you very much.

Chief Justice Warren E. Burger: Thank you, gentlemen.

The case is submitted.