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Alcohol Law Advisor

Regulatory and Distribution Law Updates for the Alcohol Industry

Third Circuit Affirms MillerCoors Victory in Wholesaler Contract Dispute

Posted in Distribution

On Wednesday, February 25, 2015, the U.S. Court of Appeals for the Third Circuit issued its opinion in Frank B. Fuhrer Wholesale Co. v. MillerCoors LLC, No. 14-1008 (3d Cir. 2015), finding in favor of MillerCoors LLC (MillerCoors) that the brewer did not violate its contract with Frank B. Fuhrer Wholesale Co. (Fuhrer) or Pennsylvania’s alcohol beverage laws in assigning the distribution rights for several new products to other distributors and attempting to condition the award of future products to Fuhrer on Fuhrer establishing a new entity devoted to MillerCoors products.  The case stemmed from Fuhrer’s 1997 distribution agreement (the Agreement) with Coors Brewing Company (Coors).  In 2008, Coors and Miller Brewing Company created MillerCoors, a joint venture, and Coors transferred the Agreement to MillerCoors.

The Agreement made Fuhrer MillerCoors’ exclusive distributor of certain specified MillerCoors products in an area of Pennsylvania.  The Agreement gave MillerCoors the right, but not the obligation, to grant distribution rights to Fuhrer for additional MillerCoors products.  The Agreement also gave Fuhrer the right to acquire distribution rights for other brewers’ brands without MillerCoors’ consent, which Fuhrer has exercised (e.g., in selling certain Anheuser-Busch products).  The Agreement required both parties to exercise “good faith and fair dealing” in carrying out its terms.

MillerCoors introduced three new beers in 2012 and 2013 and awarded the distribution rights for the products to Fuhrer’s competitors.  Fuhrer sued, alleging that MillerCoors:  (1) failed to give Fuhrer the rights to the new products because Fuhrer also sold for Anheuser-Busch; and (2) told Fuhrer it would need to create a new entity dedicated to MillerCoors products in order to obtain future rights to new MillerCoors products.  Fuhrer sought a declaratory judgment and asserted claims for breach of contract, violation of the Pennsylvania Liquor Code, unreasonable restraint of trade, and tortious interference.  The district court granted MillerCoors’ motion to dismiss and denied Fuhrer’s motion for reconsideration.

On appeal, Fuhrer argued that it objected not to MillerCoors’ assignment of the distribution rights for the new products elsewhere.  Instead Fuhrer argued that the process by which MillerCoors undertook this action violated the Agreement’s covenant of good faith and fair dealing.  The Third Circuit agreed with the district court that under Pennsylvania law, “the duty of good faith cannot override express contractual terms and convert a permissive contract provision into a mandate.”  MillerCoors, the court held, accordingly did not violate its duty of good faith by exercising its contractual right to choose different distributors for the new products.

The Third Circuit also found that because the Agreement placed no obligation on MillerCoors to assign Fuhrer distribution rights to new products, MillerCoors’ proposal to grant Fuhrer such rights in exchange for Fuhrer creating a new entity devoted to MillerCoors did not constitute bad faith performance, but was an “arm’s-length negotiating tactic, offering to barter contractual right for contractual right.”  MillerCoors’ proposal did not interfere with Fuhrer’s rights under the Agreement, and accordingly did not constitute a breach of contract.  The court also noted that there was no evidence of coercion or intimidation to support Fuhrer’s argument that MillerCoors attempted to force Fuhrer to give up its contractual right.

Buying and Selling a Craft Brewery

Posted in Advertising and Marketing, Alcohol Excise Taxes, Distribution, TTB COLAs and Formulas

Few craft brew entrepreneurs contemplate selling their business when they first get started.  Unlike, for example, the typical entrepreneur in the software industry, the craft brewers we know were inspired by the love of great beer, a spirit of adventure, and the romance of creating a small manufacturing business.  But the life cycle of most businesses eventually requires at least the consideration of a sale or other transaction designed to both recoup the entrepreneur’s lifelong investment and transition the company to the next generation.

From the buy side, the craft beer business has never been hotter, with market share now approaching 8 percent by volume in the U.S. and margins that have gotten the attention of both big brewers and non-U.S. brewers alike.  This article, published in the January/February 2015 issue of The New Brewer, will explore at a high level some of the issues involved with buying and selling a craft brewery.

Read the full article.

TTB Publishes Semi-Annual Regulatory Agenda with Plans and Goals for the Coming Year

Posted in Advertising and Marketing, Alcohol Excise Taxes, Import/Export, Non-Beverage Alcohol, TTB COLAs and Formulas

Late last year, the Alcohol & Tobacco Tax & Trade Bureau (TTB) published its semi-annual regulatory agenda in the Federal Register.  The agenda provides useful insights into TTB’s regulatory plans and goals for the coming year.  As in prior years, however, observers should recognize that TTB often announces ambitious regulatory plans and deadlines that it does not meet.

TTB identified five priority projects for 2015.  First, TTB wishes to update and modernize its regulations on the labeling and advertising of wine (Pt. 4), distilled spirits (Pt. 5) and beer (Pt. 7).  In describing the initiative, TTB seems most interested in simplification and streamlining, not in the imposition of significant new labeling and advertising requirements.  Second, TTB seeks to further de-regulate and streamline its oversight of denatured alcohol and rum, a move that could help the competitiveness of U.S. industrial operations that employ alcohol.  Third, TTB wishes to amend its export and import regulations to harmonize them with the International Trade Data System (ITDS), thereby transitioning to an all-electronic import and export environment.  Fourth, TTB hopes to implement self-certification of the formulas for flavors, extracts and other non-beverage products made with alcohol.  Fifth, TTB plans to review its distilled spirits plant regulations (Pt. 19) in order to replace the current four monthly report forms required for reporting with two forms.

Leaving priorities aside, the semi-annual agenda reports on a number of rulemaking initiatives that should attract the interest of regulated industry members.  This note will group the most significant based on the affected industry:

Multiple Alcohol Beverage Categories

  1. TTB pledges to publish a Notice of Proposed Rulemaking (NPRM) to modernize its wine, spirits, and beer labeling and advertising regulations.  As noted above, this is a 2015 priority item for the Agency.
  2. TTB plans to issue an NPRM late in 2015 to explore whether to retain, revise or repeal the current standards of fill requirements for both wine and distilled spirits.
  3. TTB plans to issue a Final Rule requiring the electronic submission of many applications, including those for original and amended basic permits.
  4. TTB expects to issue an NPRM in April 2015 to amend its import and export regulations to make them compatible with ITDS.  This is a 2015 priority item.

Wine Projects

  1. TTB hopes to issue an NPRM on certain wine terms that were first raised to the industry in an Advanced Notice of Proposed Rulemaking published by TTB in 2010.
  2. TTB plans an NPRM in July 2015 to propose authorizing additional treatments for use in winemaking.
  3. TTB expects to publish an NPRM late in 2015 to clarify the labeling of certain flavored wines.

Distilled Spirits Project

  1. TTB hopes to issue a supplemental NPRM late in 2015 to propose replacing the current four monthly forms filed by distilled spirits plant operators with two forms, thereby streamlining distillers’ reporting burdens.  TTB views this project as a 2015 priority.

Non-Beverage and Industrial Alcohol Projects

  1. TTB plans to issue an NPRM on the self-certification of non-beverage product formulas – a 2015 priority item – in July 2015.
  2. TTB believes it will finalize regulations to reclassify many specially denatured alcohol (SDA) formulas as completely denatured alcohol (CDA) and permit the use of more SDA formulas without the submission of an application to TTB.  This is another 2015 priority for the Agency.

South Carolina Court Upholds Constitutionality of Statutory Limitation on Retail Dealer Licenses

Posted in Distribution, Trade Practices

Retail Services & Systems, Inc., dba Total Wine & More v. South Carolina Department of Revenue and ABC Stores of South Carolina

A trial-level court in South Carolina recently issued an opinion upholding the constitutionality of the state’s statutory limitation on the number of retail dealer licenses granted to an individual or corporation.  The plaintiff, Total Wines & More, argued that the state’s limitations on the number of retail dealer licenses it could obtain violated the due process and equal protection clauses of the federal and state constitutions, and exceeded the state’s police powers.  The court’s decision highlights the unlikelihood of success in challenging such alcohol licensing laws on equal protection and due process grounds due to the application of rational basis scrutiny.

In considering the plaintiff’s claims, the court set forth the due process and equal protection tests, which, in the absence of a fundamental right or suspect classification, both require only a reasonable relationship between the challenged law and a legitimate legislative purpose.  In finding the requisite reasonable relationship, the court noted possible purposes of such licensing limitations, including preventing concentration of power within the liquor industry, preventing monopolies, avoiding indiscriminate price cutting and excessive advertising, and protecting small, independent liquor dealers.  The court also held that the licensing laws did not exceed the state’s police powers, as such licensing is a typical exercise of the police power designed to protect the “morals and welfare of the public.”

The court cited copiously to the laws and cases of other jurisdictions, noting that virtually every court has upheld limitations on the number of licenses against due process and equal protection challenges.

Supreme Court to Decide Important Administrative Law Issue

Posted in Advertising and Marketing, Alcohol Excise Taxes, Food Safety and FDA, TTB COLAs and Formulas

On December 1, 2014, the United States Supreme Court will hear oral argument in a case that will have significant implications for federal regulatory agencies like the U.S. Food and Drug Administration (FDA) and the Alcohol and Tobacco Tax and Trade Bureau (TTB).

The case is Mortgage Bankers Ass’n v. Harris, 720 F.3d 966 (D.C. Cir. 2013).  In that decision, the United States Court of Appeals for the D.C. Circuit refined a line of cases involving the Administrative Procedures Act (APA).  The APA governs the activities of federal agencies and, among other things, generally requires notice-and-comment rulemaking procedures, including publication in the Federal Register and a period of time for industry and the public to comment on proposed regulations, in order for a federal agency to adopt a new “rule.”  These procedural requirements aim to ensure transparency in governmental operations and a public “vetting” process before an agency adopts new regulatory requirements.

Beginning in the 1990s, the D.C. Circuit – which hears a large percentage of the cases involving challenges to federal agency actions – has held that the notice-and-comment rulemaking requirement extends to agency attempts to change a settled agency interpretation of a regulation.  In other words, once an agency establishes a position on a particular issue, the D.C. Circuit has required that an agency proceed through notice-and-comment procedures to change its earlier position.

In Mortgage Bankers, the D.C. Circuit held that a person challenging an agency change in policy need not show any reliance on that policy in order to claim that an agency had violated that requirement.  The court held that nothing in its prior cases required a showing of reliance.

The Supreme Court has agreed to review the case, see Perez v. Mortgage Bankers Ass’n, No. 13-1041, cert. granted 6/16/14, but on a broader issue than whether a person claiming that an agency changing its interpretation of a regulation must show reliance.  Instead, the court agreed to examine whether a federal agency must engage in notice-and-comment rulemaking before it can significantly alter an interpretive rule that articulates an interpretation of an agency regulation.  The court will hear oral argument on December 1, 2014.  Thus, the court may be poised to overrule the entire line of D.C. Circuit cases holding that an agency must engage in notice-and-comment rulemaking before changing definitive but un-codified interpretations of regulations.

A reversal of current D.C. Circuit precedent has troubling implications for the alcohol beverage industry.  Many policies of the federal agencies that regulate the industry become established through informal decisions never reduced to formal regulations.  To take one example, TTB’s policies towards the documentation of exports without payment of tax depart significantly from TTB’s published regulations, and instead rely on well-recognized and followed policies published only in informal Industry Circulars and private letter “variances” from regulations.  Consider, too, the dozens of unpublished “policies” TTB applies in the review of alcohol beverage labels, some of which go back decades and have formed the basis of entire brand propositions by the industry.  Should the law allow TTB to walk away from such longstanding but informal precedent without any process to let the industry be heard?

One potential solution is to tie a reversal of existing D.C. Circuit precedent with the reversal of the so-called Auer doctrine.  In establishing the Auer doctrine, the Supreme Court held that an agency’s interpretation of its rules (as opposed to agency regulations adopted through notice-and-comment procedures) receive deference from the courts unless “plainly erroneous.”  See Auer v. Robbins, 519 U.S. 452 (1997).  In other words, under Auer an administrative agency receives a substantial benefit of the doubt when its actions are challenged, even if those actions were not subject to the public scrutiny of notice-and-comment rulemaking procedures.  Some organizations have argued or implied in friend of the court briefs that, because Auer in effect confers the force and effect of law on agency interpretations of a regulation, the interpretation may not be changed without notice-and-comment rulemaking.

The already-powerful administrative state would receive a substantial boost if, in addition to the deference extended through the Auer doctrine, agency actions to change prior policy positions were not subject to any notice-and-comment requirement.  Indeed, such a combination would, no doubt, encourage agencies to avoid notice-and-comment rulemaking altogether, as they would receive all the benefits of such rulemaking under Auer yet could change their decision at will without going through notice-and-comment at all.

Regardless of the outcome, the Supreme Court’s decision in Mortgage Bankers will substantially affect when and why federal agencies must engage in notice-and-comment rulemaking procedures.  And, depending on the outcome, the final decision could hand FDA, TTB and other federal agencies far greater latitude to modify, repeal or change longstanding policies without any notice to or consultation with the industry.  The stakes are high indeed.

Supreme Court’s 2014-15 Term: Case Will Test an Important Limitation on the Ability to Challenge State Tax Laws

Posted in Alcohol Excise Taxes, Distribution

On December 8, 2014, the United States Supreme Court will hear oral argument in a case that could have significant implications for the ability to use the federal courts to challenge state attempts to tax remote sellers of goods.

In Direct Marketing Association v. Brohl, 735 F.3d 904 (10th Cir. 2013), the Tenth Circuit Court of Appeals found that the Direct Marketing Association’s (DMA) challenge to a Colorado revenue statute was barred by the federal Tax Injunction Act (TIA).  Current Commerce Clause precedent bans a state from requiring a retailer with no in-state presence from collecting sales or use taxes, see Quill Corp. v. North Dakota, 504 U.S. 298 (1992), an important shield against state taxation of remote online and catalogue sellers of goods.  This precedent, however, allows states to collect sales and use tax from the buyers of the goods (i.e., citizens) located within the state.

Seeking to reach this significant source of potential tax revenues, in 2010 the Colorado legislature enacted legislation requiring major out-of-state sellers to provide a series of notices and reports related to sales taxes.  First, the selling retailers must notify Colorado purchasers that tax is due on their purchases.  Second, these retailers must send annual notices to Colorado customers who purchased more than $500 in goods in the preceding year, “reminding” these purchasers of their obligation to pay sales tax to the state.  Third, the law requires these out-of-state retailers to report information on Colorado purchasers to the state’s tax authorities.  Not surprisingly, the law gives retailers the ability to avoid these obligations by simply collecting sales tax from Colorado consumers and providing those collections to the state.

The DMA filed suit, challenging the Colorado law on several Commerce Clause grounds.  The District Court granted summary judgment in favor of DMA, relying on Quill to hold that the law placed an impermissible burden on interstate commerce.

On appeal, the Tenth Circuit did not reach the merits of the Commerce Clause issue.  Instead, the Court held that the TIA barred DMA’s lawsuit and required dismissal.  The Tax Injunction Act prohibits federal courts from interfering with the collection of state taxes.  DMA argued that because it was not a taxpayer subject to the new reporting requirements, the TIA should not apply.  Moreover, TIA reasoned that the Colorado law in question only imposed notice and reporting obligations, and therefore was merely a tax collection method, not an actual tax.  The Tenth Circuit rejected both arguments, concluding that any suit that would hamper a state’s ability to collect a tax falls within the TIA’s jurisdictional bar.

The Supreme Court has agreed to review the Tenth Circuit’s decision.  Its ultimate decision about the reach of the TIA could have implications to operations involved in the direct shipping of wine.

Current state licensing systems for direct alcohol shippers already require the payment of state taxes as a condition of licensure.  Nevertheless, statutes like Colorado’s law, if left unchallenged due to operation of the TIA, could allow states to gain more control over the direct shipment of any number of products.  Indeed, by making it harder to challenge state laws seeking to regulate online sellers in general, a Supreme Court affirmance could alter the current political balance in which many states legislatures have authorized licensed direct shipping in exchange for securing a means to collect taxes on such wine sales.

A decision from the Supreme Court on the application of the TIA to DMA’s legal challenge will likely occur in the first half of 2015.  In the meantime, DMA refiled its Commerce Clause challenge in state court (where the TIA does not apply) and obtained a preliminary injunction barring enforcement of the Colorado statute while the case proceeds.

Supreme Court’s 2014-15 Term: Antitrust Case May Impact the Activities of Alcohol Industry Public/Private Organizations

Posted in Trade Practices

On October 14, 2014, the United States Supreme Court heard oral argument in a case that could have significant implications for hybrid public/private “regulatory” bodies.  Many such bodies, like state and local wine commissions, operate in the alcohol beverage space.

In North Carolina State Board of Dental Examiners v. Federal Trade Commission, 717 F.3d 359 (4th Cir. 2013), the Fourth Circuit Court of Appeals held that the actions of a state’s Board of Dental Examiners (Board) were subject to antitrust scrutiny by the Federal Trade Commission (FTC).  North Carolina clothes the Board with considerable authority to enforce the state’s laws concerning the unauthorized practice of dentistry by non-licensed persons.  The majority of the Board, however, consists of practicing dentists and dental hygienists.

The case arose from the Board’s actions to stop non-licensed persons from offering “teeth whitening” services within the state.  Seemingly responding to complaints from established dental practices, the Board issued cease-and-desist letters to numerous non-dentists offering teeth whitening services, effectively driving such over-the-counter services from the state.  The FTC subsequently investigated the Board’s actions, ultimately issuing an order prohibiting the Board from taking further action to restrict competition in teeth whitening services to persons licensed by the Board.

The issue before the Supreme Court is whether the Board’s actions are immune from antitrust scrutiny under the State Action Doctrine.  That doctrine shields from antitrust scrutiny the actions of a state when functioning in its capacity as a sovereign government.  For example, while private parties cannot set or fix prices, the legislature of a state may fix prices free from the restrictions of antitrust law.

The Fourth Circuit, agreeing with the FTC, held that the state action doctrine did not apply.  The Court of Appeals explained that public/private hybrid entities (such as bar associations) remain subject to the antitrust laws to ensure that their private members do not act in their own commercial self-interest.  Relying heavily on the Supreme Court’s 1980 Midcal Aluminum decision that struck down a post-and-hold price posting law in California, the Fourth Circuit required the Board to show “active supervision” by the state government before it would permit the Board’s actions to receive the benefit of state action immunity.  The court then agreed with the FTC that the Board had failed to make that showing.

How the Supreme Court rules in the North Carolina State Board of Dental Examiners case will impact how public/private hybrid entities must operate within the alcohol beverage industry.  A number of states, for example, have established wine boards and commissions consisting primarily or wholly of private participants in the state’s wine industry.  These boards, however, may have the power to shape and implement state policies, such as establishing marketing orders, state wine trails and the like.  Clear national application of the antitrust laws to such bodies’ conduct could restrict current activities or at least require more careful internal policing to avoid potential exposure under the antitrust laws.

Local Wholesaler-Retailer Dispute Has Federal Implications

Posted in Distribution, Trade Practices

On August 14, the U.S. District Court for the Southern District of Mississippi issued an opinion finding that state regulations bolstered one antitrust claim and hindered another in an ongoing dispute between a northern Mississippi convenience store chain, Major Mart, and an Anheuser-Busch InBev (ABI, a/k/a “Red Network”) distributor, Mitchell Distributing Company.

In Mississippi, by statute, like those of many other states, beer manufacturers must designate exclusive sales territories for each brand.  Mitchell holds the exclusive right to sell ABI brands to retailers in the counties in which Major Mart operates its 11 convenience stores.

The relationship between Mitchell and Major Mart started to break down in 2010, when Major Mart claimed that it was receiving inaccurate and confusing price information from Mitchell.  Major Mart asked Mitchell for compensation of lost profits due to the incorrect pricing information.  Mitchell denied the request, and Major Mart decided later to remove ABI displays and signs, lower the prices of competitors’ products, and reduce the cooler space allocated to ABI in some of its stores.  According to Major Mart’s complaint, Mitchell retaliated by (1) demanding shelving allocation that represented ABI’s market share of approximately 70 percent, (2) demanding price parity with competing products of ABI, (3) changing its deliveries to Major Mart stores to once a week so as to fill up Major Mart’s coolers and storerooms, leaving no room for competitor products and (4) delivering on Fridays so that Major Mart stores would not have cold beer on the “best selling day of the week.”

After litigation was first initiated, the parties reached a settlement in 2011, agreeing that Mitchell would increase its deliveries to at least twice per week and Major Mart would reconsider shelf space allocation and increase prices on competing brands of beers to the same price as ABI products.  This temporary resolution, however, failed when Major Mart did not reallocate its shelf space.  In response, Mitchell once again cut deliveries to one day per week and thereafter began to provide sales coupons and promotional giveaways exclusively to Major Mart’s competitors.  Major Mart also claimed that Mitchell delivered beer that was close to the end of its shelf-life, replaced fresher beer Major Mart had with older beer and missed deliveries during key dates, including July 4 and just as students were returning to college.  Eventually, Major Mart sued.

Major Mart alleged that Mitchell engaged in monopolization and attempted monopolization in violation of the Sherman Act and price discrimination in violation of the Robinson-Patman Act.  In response, Mitchell filed a motion for summary judgment asserting that the Sherman Act did not apply, as (1) Mitchell’s actions were immunized by the State Action Doctrine—the principle that the Sherman Act does not apply to states acting in their capacities as sovereigns—and (2) Mitchell’s actions, which occurred solely in Mississippi, did not affect interstate commerce—as required for Sherman Act jurisdiction.

Quickly discarding the State Action Doctrine assertion, the court noted that to qualify as a state’s action, conduct must be “undertaken pursuant to a clearly articulated an affirmatively expressed state policy to displace competition.”  And, while Mississippi’s statutory scheme clearly prevents intra-brand competition by requiring exclusive territories, it does nothing to restrict competition between brands, which was the subject of Major Mart’s claims.  Further, no state statute or regulation expressly or impliedly allowed any of Mitchell’s actions.

The court also found that Major Mart had met the interstate commerce requirement because the beer sold by Mitchell had been acquired from breweries outside the state and the restrictions on beer sales affected sales of other products in interstate commerce, such as the tobacco, food and gasoline sold at Major Mart stores.

Regarding Major Mart’s monopolization claim, the court analyzed the elements of that claim under the Sherman Act: that the defendant (1) possesses monopoly power in the relevant market, and (2) has willfully acquired, maintained or enhanced that monopoly power through exclusionary conduct.  Mitchell argued that no evidence showed that it had effectively wielded any monopoly power and that Major Mart had not demonstrated that other wholesalers are so “capacity constrained” as to prevent them from effectively competing with Mitchell. The court disagreed, pointing to Mitchell’s 70-75 percent market share of wholesale beer sales as sufficient evidence to raise a question of fact as to Mitchell’s monopoly power.

On the issue of Mitchell’s exclusionary conduct, Major Mart argued that Mitchell was using its market power to punish Major Mart for selling other brands of beer by slowing or ceasing deliveries, delivering damaged product, and taking other retaliatory actions when Major Mart lowered prices or refused to reconsider allocation of shelf space.  The court ultimately denied Mitchell’s summary judgment motion, finding that the issues presented in Mitchell’s motion required the evaluation of testimony to resolve.

Major Mart’s price discrimination claims centered on Mitchell’s practice of “granting discounts, promotions, special services and rebates to other retailers, but not to Major Mart.” Sections 2(d) and 2(e) of the Robinson-Patman Act protect against suppliers granting promotional benefits in connection with sales to favored customers.  A supplier violates 2(d) if it discriminates by compensating only selected customers for customer-performed promotion and violates 2(e) if it discriminates in performing promotional services for selected buyers.

The court never evaluated these claims, however, as Mitchell successfully contended that Major Mart did not satisfy the “in commerce” requirement for jurisdiction under the Fifth Circuit’s interpretation of the Robinson-Patman Act.  This “in commerce” requirement is interpreted more narrowly than the interstate commerce requirement of the Sherman Act.  Under Fifth Circuit precedent, the “in commerce” requirement “is not satisfied unless the sales actually cross a state line,” which may be met if the goods are sold or resold in interstate commerce or the goods were sold to those who compete in interstate commerce.  Because Major Mart did not buy the beer or resell the beer in interstate commerce—just in Mississippi—nor compete in interstate commerce, since “those who received rebates and coupons from Mitchell are located in Mississippi,” the “in commerce” requirement of Robinson-Patman was not met.  So, while Major Mart satisfied the Sherman Act interstate commerce requirement because its purchase of beer from a wholesaler affected interstate commerce, it could not satisfy the Robinson-Patman Act “in commerce” requirement because its sales of beer did not take place across state lines.

This case serves as a reminder of how regulation can affect the antitrust treatment of beer and other beverage distributors.  Regulation of licensing procedures or territorial restrictions, for example, can erect barriers to entry that practically insulate wholesalers from competition within a brand, but cannot shield a wholesaler from antitrust claims of misuse of market power bestowed by that state-sanctioned “monopoly.”  While distributors of dominant brands who have exclusive rights within a geographic area do not have to worry about losing those rights to competing firms absent rare circumstances, they must be on guard against antitrust claims arising from their dealings.  Conduct toward retailers, manufacturers or other distributors that would otherwise be considered merely “rough dealing” can rise to the level of a federal antitrust violation or invite state and federal regulatory antitrust scrutiny because of that exclusive distribution relationship.

This case also reminds us that state regulatory schemes and franchise laws cannot insulate wholesalers from antitrust scrutiny under state action immunity, even though a wholesaler’s exclusive right to distribute the brands it carries often is conferred by state law.  For a private actor to obtain state action immunity, the state must clearly articulate a policy to displace competition and actively supervise the private actor’s conduct under the statutory scheme.  These types of regulations and laws typically make no such articulation, and in this case, the alleged exclusionary conduct of the wholesaler bore no relation to the regulatory scheme that permitted its exclusive distribution relationship.

Finally, as illustrated by this case, despite the risk of federal antitrust violations for wholesalers of dominant brands articulated above, wholesalers of any brands typically face no risk of violating federal price discrimination laws related to the pricing of beer to retailers because those transactions do not cross state lines.  Perhaps that is small comfort, however, given the existence of state price discrimination laws and the potential for certain pricing schemes by wholesalers of dominant brands to constitute exclusionary conduct in violation of the Sherman Act.

Brewers Association Marketing and Advertising Code

Posted in Advertising and Marketing

Successful advertising and marketing are essential to the continued growth and success of the craft brewing movement.  Brewers’ freedom to advertise in the United States is a privilege that brewers in other nations, and some industries in our own country, do not share.  This article by Art DeCelle, originally published in The New Brewer, discusses the best means of protecting commercial free speech in the brewing industry, including complying with the Brewers Association Marketing and Advertising Code.

Read the full article here.

TTB Issues Expanded List of Allowable Changes to Approved Labels

Posted in TTB COLAs and Formulas

On Monday, September 29 2014, the Alcohol and Tobacco Tax and Trade Bureau (TTB) issued Industry Circular 2014-2, which expands the list of Allowable Revisions to Approved Alcohol Beverage Labels.

Industry Circular 2014-2 permits the following changes to already-approved malt beverage, wine and distilled spirits labels without the need for a new certificate of label approval (COLA):

  1. Deletion or revision of sponsorship themed graphics, logos, artwork, events, etc. and/or sponsorship information
  2. Addition, deletion or revision of awards, ratings or recognitions (i.e., “rated as the best 2012 wine by x association”)
  3. Deletion of organic claims (Note: The deletion of a single organic claim is not permitted.  All organic claims must be removed from the label or a new COLA is required to delete individual references.)
  4. Revision of an approved sulfite/sulphite statement according to the formats prescribed in the Industry Circular (“Contains Sulfites/Sulphites,” “Contains (a) Sulfiting//Sulphiting Agent(s),” “Contains [name of specific sulfating/sulphating agent],” “Contains Naturally Occurring and Added Sulfites/Sulphites” or “Contains Naturally Occurring Sulfites/Sulphites”)
  5. Addition, deletion or revision of information regarding the number of bottles made, produced, distilled or brewed in a batch
  6. Addition of instructional statements vis-à-vis how to best consume and/or serve the product specified in the Industry Circular (“Refrigerate After Opening,” “Do Not Store In Direct Sunlight,” “Best If Frozen For ___ to ___ Hours,” “Shake Well,” “Pour Over Ice,” “Best When Chilled,” “Best Served Chilled,” “Serve Chilled,” “Serve at Room Temperature”)