TTB Issues Guidance on Application of Consignment Sales Regulations to Freshness Dating and Returns from Retailers

On September 29, 2017, the federal Alcohol and Tobacco Tax and Trade Bureau (TTB) issued Ruling 2017-2, which updates and supersedes older agency guidance on allowable returns of beer and malt beverage products that contain “pull dates” or other indicators of product freshness.

The Federal Alcohol Administration (FAA) Act includes a general prohibition on “consignment sales,” 27 USC 205(d). Congress believed that all transactions should be “bona fide” sales. Id. The intent was to prevent a wide range of unscrupulous practices that might occur if manufacturers and wholesalers furnishing alcohol beverages to retailers on consignment or with the right of return.

The FAA Act prohibition on consignment sales does not apply to “transactions involving solely the bona fide return of merchandise for ordinary and usual commercial reasons arising after the merchandise has been sold.” Id. TTB regulations provide an extensive list of reasons that a manufacturer or wholesaler can accept returns. 27 CFR, Part 11, Subpart D. Continue Reading

Texas Court of Appeals Reverses T.G.I. Friday’s Label Decision

On Friday, October 13, 2017, a Texas Court of Appeals handed down the long-awaited decision in Texas Alcoholic Beverage Commission v. Mark Anthony Brewing, Inc., No. 03-16-00039-CV.

The case involves Texas’ ban on private-label malt beverage/beer labels, which appear in regulations that are one aspect of the state’s comprehensive tied-house laws. Mark Anthony Brewing sought a declaratory ruling on those Texas Alcoholic Beverage Commission (TABC) regulations after the TABC refused to approve the labels for Mark Anthony’s T.G.I. Friday’s branded flavored malt beverages. T.G.I. Friday’s is also, of course, a well-known retail chain. Mark Anthony produces the T.G.I. Friday’s line under a trademark license from the retailer, as governed by a trademark licensing agreement between the parties.

A Texas trial court ruled in favor of Mark Anthony, holding that the TABC regulations in question violate the First Amendment. The trial court further ruled that Mark Anthony’s sales of the product and the licensing agreement between Mark Anthony and T.G.I. Friday’s either did not violate Texas’ tied-house prohibitions or, in the alternative, those prohibitions were unconstitutional as applied to Mark Anthony’s sales and the parties’ agreement. Continue Reading

FDA Proposes to Extend Compliance Dates for Nutrition and Supplement Facts Labels and Serving Size

On September 29, 2017, the US Food & Drug Administration (FDA) announced a proposal to extend the compliance dates for the Nutrition Facts and Supplement Facts label final rule and the Serving Size final rule. For manufacturers with $10 million or more in annual food sales, the date will change from July 26, 2018, to January 1, 2020.  Manufacturers with less than $10 million in annual food sales would receive an extra year to comply—until January 1, 2021.

FDA’s proposal addresses only the compliance dates. The FDA is not proposing any other changes to the Nutrition Facts Label and Serving Size final rules.  While this rulemaking is being completed, FDA intends to exercise enforcement discretion with respect to the current July 26, 2018, and July 26, 2019, compliance dates. A copy of the public inspection version of the proposed rule can be found here.

Category Management Practices

Today’s off-premises retail landscape is dominated by large chains that rely on practices generally known as category management to maximize the profitability of their stores. Some of the activities falling under the category management umbrella require close interaction between the retailer and the producers, importers, or distributors supplying them product. As a result of this interaction, the federal Alcohol & Tobacco Tax & Trade Bureau (TTB) last year issued a ruling indicating that industry members’ participation in category management activities could result in a violation of the tied-house provision of the Federal Alcohol Administration (FAA) Act and the TTB’s corresponding tied-house regulations.

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Originally published in The New Brewer, September/October 2017.

Latest Decision in Kona Beer Branding False Advertising Case

The US District Court for the Northern District of California’s recent opinion in Broomfield v. Craft Brew Alliance, Inc., No. 17-cv-01027-BLF (Sept. 1, 2017) represents the latest decision in the now long-line of false advertising cases alleging that beer brands misrepresent their geographic origins.

The Broomfield case involves the marketing of Kona beers, allegedly in a manner that deceptively suggests that the beers are brewed in Hawaii. In fact, all packaged Kona beer and all draft Kona beer sold outside of Hawaii is brewed in Oregon, Washington, New Hampshire and Tennessee. The Kona brands bear names (e.g., Big Wave, Fire Rock) and images (e.g., volcanoes, palm trees, surfers and hula dancers) that evoke Hawaii. The beers’ outer packaging shows a map of Hawaii and the location of the Kona brewery, and encourages purchasers to “visit our brewery and pubs whenever you are in Hawaii.”

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Alcohol and Tobacco Tax and Trade Bureau Announces Joint Operation Targeting Alleged “Pay-to-Play” Activities in Florida

On July 20, 2017, the Federal Alcohol and Tobacco Tax and Trade Bureau (TTB) announced a joint operation it conducted with the Florida Department of Alcoholic Beverages and Tobacco (DABT) to investigate potential trade practice violations in the Miami, Florida area. According to a very brief press release issued by TTB, the investigation focused on alleged “pay-to-play” schemes. “Pay-to-play” is an industry term generally used to mean the provision of payments or other “things of value” by an upper-tier industry member (i.e., supplier or wholesaler) to a retailer to secure placement for the industry member’s products in the retailer’s premises.

Although neither TTB nor the DABT has released any specific details of the investigation or the parties involved, the investigation suggests that TTB is acting on prior announcements that it would seek to aggressively enforce its trade practice regulations. TTB’s 2017 budget included a $5 million earmark to enhance trade practice enforcement. As part of this effort, TTB transitioned 11 of its existing investigators to new roles focusing exclusively on trade practice enforcement.

The joint investigation also comes on the heels of other recent enforcement of trade practice laws and regulations—specifically involving allegations of pay-to-play activities—by state alcohol regulators. In just the last few months, the Massachusetts Alcoholic Beverages Control Commission initiated an enforcement action against an Anheuser-Busch InBev (ABI)-owned distributor in connection with an alleged pay-to-play scheme. The California Department of Alcoholic Beverage Control also recently settled an enforcement action against ABI wholesalers for alleged trade practice violations. Also, in June, a New Jersey beer wholesaler agreed to pay a nearly $2 million fine to settle trade practice allegations brought by the Division of Alcoholic Beverage Control.

Approaches to Spirits Direct Shipping

Direct-to-consumer (DTC) sales of alcohol beverages have been a hot topic in the alcohol industry for the last two decades. The wine direct-shipping landscape has changed greatly over the past 15 or so years, most dramatically by the US Supreme Court’s decision in Granholm v. Heald. Today nearly evert state—plus the District of Columbia—allows wineries to ship wine across state lines directly to in-state consumers. The same cannot be said for spirits.

There are, however, a few avenues distillers may consider to get their products delivered to consumers around the country. Further, an initiative is underway to pursue litigation to secure DTC rights for spirits. Although it is far too early to speculate about the outcome of any such litigation, the current effort suggests the potential for interstate distiller-to-consumer sales in the coming years. Of course, lingering ambivalence toward spirits (as opposed to wine) by the public, lawmakers, and alcohol regulators makes the prospect for any legal change uncertain.

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Originally published in Artisan Spirit, July 2017.

Department of Treasury Publishes Request for Information Regarding Regulatory Reform

In keeping with President Trump’s Executive Order (#13771) on regulatory reform, the Department of the Treasury recently published a Request for Information regarding its regulations. The Request covers those regulations administered by TTB under Title 27 of the Code of Federal Regulations.

The Request for Information provides an unusually-clear opportunity to propose reforms to reduce regulatory burdens on the industry. Comments are due on or before July 31, 2017.

FDA’s Delay of the Menu Labeling Rule Challenged

Two consumer advocacy groups recently sued the Food and Drug Administration (FDA) for delaying the compliance deadline for the agency’s 2014 menu labeling rule for a fourth time. The menu labeling rule requires menu items offered for sale in restaurants with 20 or more locations to disclose nutritional information and the number of calories in each standard menu item. FDA and Congress previously extended or delayed compliance with the menu labeling rule three times in 2015 and 2016. Before the latest delay, the most recent “compliance date” for the menu labeling rule was May 5, 2017.

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RICO Madness: Marijuana Operations Face RICO Challenges in Federal Courts

Don’t look now cannabis businesses, but your neighbors may be raising a racket. A June decision by the 10th Circuit Court of Appeals in Denver may have opened the doors to new legal challenges to marijuana operations: civil suits under the Racketeer Influenced and Corrupt Organizations Act (RICO).

RICO was originally intended to go after the mafia and other organized crime, but its broad language means it can be applied in other settings. RICO allows a private citizen to sue “racketeers” for damage to business or property due to the racketeer’s illegal activities or activities that were conducted under his guidance. Since marijuana remains illegal under federal law, the production or distribution of marijuana is considered racketeering.

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