By Dominic Fracassa

A groundbreaking San Francisco ordinance meant to curb soda consumption by slapping health warnings on sugary-beverage advertisements suffered a setback Thursday, as a federal appeals court ruled 11-0 to block the law from taking effect.

Passed unanimously by the Board of Supervisors in 2015, the ordinance would require display ads for sugary beverages to devote 20 percent of their space to a label saying the drinks increase the risks  for obesity, diabetes and tooth decay. The warning would  have been attributed to the city, not the beverage company.

But the American Beverage Association, the California Retailers Association and the California State Outdoor Advertising Association sued the city, claiming the warning violated their First Amendment free-speech rights. They also claimed the law unfairly singled out sugary beverages as unhealthy, compared to other high-calorie foods.

The free-speech questions will now have to be hashed out by the district court. But in Thursday's ruling, the Ninth U.S. Circuit Court of Appeals said the city had not made an effective case that the 20 percent rule "when balanced against its likely burden on protected speech."

The ordinance was supposed to take effect in 2016, but it's been on hold while the case works its way through the court system.

A federal district judge denied the beverage industry's request for an injunction that would have blocked the law from taking effect in 2016, but he agreed to delay enforcement of his ruling while the beverage industry appealed.

In 2017, a three-judge panel of the Ninth U.S. Circuit Court of Appeals overturned that injunction, but the court later agreed to hear the case again as a full 11-judge panel. The full panel came to the same conclusion.

"This decision is solely about the size of the warning label," said John Coté, a spokesman for the city attorney's office. "The court found that 20 percent is too large, but suggested 10 percent would be sufficient."

The court did not say whether the 10 percent size was valid or invalid, but reiterated that the city had not justified the 20 percent requirement.

"We're evaluating our next steps in light of this decision. But make no mistake -- we're committed to protecting the health of San Francisco residents by allowing them to get factual information," Coté said.

American Beverage Association spokesman William Dermody said, "We are pleased with this ruling, which affirms there are more appropriate ways to help people manage their overall sugar consumption than through mandatory and misleading messages."

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