Price Discounting Restriction

National Association of Tobacco Outlets, Inc. v. City of New York, 1:14-cv-00577 (2014)

On June 18, 2014, the United States District Court for the Southern District of New York upheld a New York City (City) ordinance prohibiting certain tobacco price discounting practices. In November 2013, the New York City Council adopted the “Sensible Tobacco Enforcement Policies” designed to combat illegal cigarette smuggling and impose certain pricing restrictions on tobacco product sales. In January of this year, the National Association of Tobacco Outlets (NATO) and other trade groups and tobacco manufacturers (collectively “plaintiffs”) filed suit challenging the law’s restriction on the redemption of discount coupons and multipack sales by tobacco retailers as violating the plaintiffs’ rights under the First Amendment of the U.S. Constitution. Plaintiffs also argued the law is preempted (or prohibited) by the Federal Cigarette Labeling and Advertising Act (FCLAA) and a New York State law restricting tobacco product sampling.

Specifically, the plaintiffs claimed:

  • Restricting the redemption of discount coupons unconstitutionally restricts their ability to communicate with adult consumers about product price and value;
  • The law aims to regulate the content of cigarette promotions (rather than the time, place or manner of those promotions) and is therefore preempted by the FCLAA; and
  • The Adolescent Tobacco Use Prevention Act (ATUPA) regulates discount coupon redemption and expressly prohibits local regulation of the same.

The City defended the law as a vital component of its comprehensive tobacco control program. District Court Judge Thomas Griesa agreed with the City’s arguments that the price regulation has no effect on the information plaintiffs’ may convey to adult consumers—it merely regulates the sales transaction (i.e., prohibits the use of certain price reductions). The judge also agreed that the law regulates the manner, not the content of, cigarette promotions (e.g., through the redemption of discount coupons) and is therefore permissible under the FCLAA (as amended by the Family Smoking Prevention and Tobacco Control Act). Finally, the judge held that the ordinance does not regulate the distribution of free tobacco products, which is the sole subject of the sampling regulation of ATUPA, and therefore is not preempted by the state law.

The District Court opinion mirrors a similar decision by the U.S. Court of Appeals for the First Circuit last year. In that case, the same plaintiffs (with the exception of two regional trade groups) argued that a Providence, Rhode Island law restricting certain tobacco product price promotions violated the First Amendment and was preempted by the FCLAA. Both the United States District Court and the Court of Appeals upheld the law.