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Alcohol Suppliers Hit with ADA Website Accessibility Lawsuits

The increasing popularity of online shopping is placing e-commerce businesses—specifically those in the alcohol beverage industry—in legal crosshairs. In lockstep with a recent uptick in website accessibility cases, plaintiff firms are sending pre-suit demand letters to alcohol suppliers and, in some cases, even filing a state or federal court lawsuit. These lawsuits—which are typically filed in California or New York—involve claims that a supplier’s website is not accessible to individuals who are blind in violation of Title III of the Americans with Disabilities Act (ADA) and related state laws. In these cases, plaintiffs seek attorneys’ fees, damages (only under state law) and injunctive relief that would require the website to conform with the Web Content Accessibility Guidelines (WCAG) standards, which have been broadly adopted by courts and regulators.

To prevail on a website accessibility claim, plaintiffs must first show that a defendant is a private entity that owns, leases or operates a “place of public accommodation.” Courts, however, are split on what it means for a website to be considered a place of public accommodation under Title III of the ADA. While some jurisdictions require that there be a “physical nexus” between the website and a brick-and-mortar store, other jurisdictions have permitted these cases to go forward against a website-only company that does not own or operate any physical retail location.

In addition to establishing that the supplier’s website is a place of public accommodation, the plaintiff must satisfy certain jurisdictional requirements which will depend upon whether products can be purchased directly from the website as well as whether the supplier ships to the state in which the suit was filed. Leveraging these defenses (among others) will be critical when it comes to either convincing the plaintiff to withdraw the claim, filing a motion to dismiss or achieving an early resolution on favorable terms.

Due to the rise in these website accessibility lawsuits, we encourage industry members to take a proactive approach:

  1. Train personnel on accessibility requirements and WCAG standards.
  2. Test the website against WCAG standards (through independent consultants or user testing).
  3. Retain testing documentation to demonstrate that users with disabilities can fully use the website.
  4. Assess potential areas of non-conformance with WCAG standards.
  5. Work with internal/external technical teams to implement accessibility features into the website.
  6. Develop an accessibility policy that informs users about the company’s accessibility practices.
  7. Consider including a link to the website accessibility policy on every webpage, including a reporting option that is appropriately routed to address accessibility issues.
  8. Regularly audit the website to assess its level of accessibility (particularly after website updates).
  9. Engage legal counsel to minimize litigation risk associated with website accessibility issues, including whether the ADA is applicable to the company’s website in light of the current state of the law.

For questions about these lawsuits, please contact Jeremy White, Alva Mather or McDermott’s Alcohol Regulatory & Distribution Group.




The Expanding Landscape of Alcohol Delivery Services

Following consumer trends and fueled by the pandemic and related loosening of restrictions on in-state retailer alcohol delivery regulations, the marketplace for alcohol delivery services has expanded exponentially over the last several years and shows no signs of slowing down. Industry forecasts predict double-digit growth year-over-year until at least 2025 for alcohol-focused e-commerce platforms. However, like anything in the alcohol beverage space, various avenues of penetration for new or existing companies come with certain restrictions that need to be balanced against opportunities for delivering customer convenience through alcohol delivery services.

Available Models

As alcohol delivery has grown and expanded in nearly every US state, numerous delivery models have developed to bring alcohol to a consumer’s doorstep. Of the various models, three have emerged as the most dominant go-to-market approaches to service this new industry sector.

The first are purely e-commerce platforms that connect consumers directly with a wide variety of licensed alcohol retailers but are themselves unlicensed (such as Drizly). The second are unlicensed white-labeled alcohol delivery services which appear as a branded website but integrate with a network of licensed retailers (like Thirstie). And the third are delivery platforms that themselves hold alcohol licenses (such as Gopuff).

Regulatory Opportunities and Impediments

While each of these models presents growth opportunities to service consumers’ desires to receive alcohol at their doorsteps, they also come with a host of restrictions that entities—and any investors in these companies—need to understand. Chief among these considerations are:

  • “Sale of Alcohol”: If the alcohol delivery service is itself unlicensed, the “sale” of alcohol must be between the consumer and the ultimate retail license holder. This means that the service cannot itself first receive the funds for the sale, take its fee and then pass the monies forward to the license holder. In some states, the provider may, however, be able to direct funds in the first instance to an escrow account or other independent account if the licensee retains a degree of control over the account. The licensed retailer should also always maintain control over the “sale” of alcohol, including setting pricing and accepting or rejecting orders.
  • Fee Structure: While state regulators allow for platforms to charge for their delivery and hard costs related to their services, how that fee is derived can be of particular significance if it is or can be correlated with alcohol sales. This restriction is premised on the fact that only a licensed entity should receive the benefit or privilege of the sale of alcohol. Accordingly, certain states like New York have suggested that if the fee structure is not a “flat fee” for services, receiving more than 10% of the revenue from a retailer as part of the sale of alcohol renders the platform a “Co-Licensee” and subject to the state’s authority and licensee vetting process.
  • Supplier Advertising: The ability of alcohol suppliers to pay to advertise on alcohol delivery platforms is of particular focus to alcohol state regulators. First, if the platform is itself unlicensed, the [...]

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TTB Issues Four-Part Series on Health-Related Alcohol Marketing Claims

As consumers continue to trend toward more health-conscious options, including in their choice of alcoholic beverages, the Alcohol and Tobacco Tax and Trade Bureau (TTB) has responded with guidance on health-related marketing claims in a four-part weekly newsletter. The guidance is in response to what TTB categorized as an “increasing number of alcohol beverage advertisements…suggesting a relationship between alcohol beverage consumption and purported health benefits or effects” and provides industry members general guidance utilizing specific examples to help the industry navigate marketing in this space.

As a reminder, the TTB prohibits industry members from making any health-related statement in advertising that is (1) untrue or (2) tends to create a misleading impression of the effects of alcohol consumption on health.

Throughout the four-week focus, TTB provided some examples of unsubstantiated advertising statements that suggest consuming a particular alcohol beverage will mitigate health consequences typically associated with alcohol consumption that would be considered prohibited:

  • “No headaches”
  • “Hangover free”
  • “Diabetic friendly”

TTB also provided examples of unsubstantiated advertising statements that suggest consuming an alcoholic beverage will result in health benefits that would also be considered prohibited:

  • “Recovery drink”
  • “Anti-inflammatory”
  • “Aphrodisiac”
  • “Health benefits”

In week three, TTB weighed in on the use of the term “clean” in alcohol labeling and advertising. TTB reminded readers that it does not define the word “clean,” nor does it have a standard for the use of the term on labels or in advertisements. Accordingly, it alerted consumers that the use of the term should not be interpreted as suggesting a product is organic or has met any other production standard set by TTB. Whether the use of the term is permissible depends upon the totality of the label or the advertisement in which the term appears.

TTB did provide some examples of when the term is used permissibly and when its use may be misleading:

  • If the term “clean” is used as a descriptor for the taste of the beverage and is considered puffery, it may be used permissibly. For example, “X winery makes clean, crisp wine.”
  • If the term “clean” is used in a way that suggests that consumption of alcohol will have health benefits and/or that the health risks otherwise associated with alcohol consumption will be mitigated, the term’s use may be prohibited. For example, “X malt beverage is clean and healthy” or “Y vodka’s clean production methods mean no headaches for you.”

The final iteration of the four-part series reminded readers simply that “TTB advertising regulations prohibit any health-related statement that is untrue in any particular or tends to create a misleading impression as to the effects of alcohol consumption on health.”

With the amount of attention the TTB has dedicated to this area, we encourage industry members to monitor health-related advertising and marketing closely. For questions about health-related claims in the alcohol industry, please contact Alva Mather, Nichole Shustack, Isabelle Cunningham or McDermott’s Alcohol Regulatory [...]

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TTB Publishes Phase 2 of Labeling and Advertising Modernization Rule

On February 9, 2022, the Alcohol and Tobacco Tax and Trade Bureau (TTB) published a final rule that implements Phase 2 of its rulemaking modernizing certain labeling and advertising regulations for malt beverages and distilled spirits. This follows Phase 1, implemented on April 2, 2020, which undertook multiple liberalizing measures, including increasing the tolerance applicable to the alcohol content statements of distilled spirits labels, removing the prohibition against age statements on certain classes and types of distilled spirits, and removing outdated prohibitions on the term “strong.”

Phase 2 is focused on improving the clarity and usability of the regulations regarding labeling and advertising of malt beverages and distilled spirits products. Note that these changes do not require industry members to make changes to labels or advertisements but will allow industry members greater flexibility in labeling and advertising their products moving forward. This final rule is effective March 11, 2022. The below provides a selection of the key changes implemented as part of Phase 2 rulemaking:

  • “Brand label” to “single field of vision.” TTB will no longer require mandatory labeling information appear on the so-called “brand label.” Previously, labeling mandatories had to appear on the “brand label,” defined as the “principal display panel that is most likely to be displayed, presented, shown or examined under normal retail display conditions.” Under the revisions of Phase 2, TTB will allow mandatory information to appear anywhere on the label so long as it appears within the same field of vision—meaning a single side of the container (which for a cylindrical container is 40% of the circumference)—where all the pieces of information can be viewed simultaneously without the need to turn the container.
  • Wholesaler, retailer or consumer information on malt beverage labels. TTB will allow the addition of a label identifying the wholesaler, retailer or consumer to malt beverages, so long as the label does not reference the characteristics of the product, does not violate the labeling regulations and does not obscure any existing labels on the product.
  • “Disparaging” statement prohibitions revised. TTB will prohibit only false or misleading statements that explicitly or implicitly disparage a competitor’s product. TTB does not prohibit statements of opinion or non-misleading comparisons between products.
  • Revised guidance on use of flags and certain US symbols. TTB has removed the blanket ban on the use of flags and other symbols of the United States and Armed Forces. The regulations now reinforce TTB’s existing policy of prohibiting the use of these symbols only when they create a misleading impression that there was an endorsement by, or affiliation with, the governmental entity represented.
  • Adding a “distilled spirits specialty products” class. TTB is adding a “distilled spirits specialty product” class designation for distilled spirits that do not meet one of the other standards of identity. Distilled spirits specialty products must be designated in accordance with trade and consumer understanding, or, if no understanding exists, with distinctive or fanciful name (which may be the name of a cocktail) appearing in the same field of [...]

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Legal Considerations for Ready-to-Drink Cocktails

The ready-to-drink cocktail or “RTD” category has exploded in recent years, and it’s occupied by more than merely craft distillers familiar with a carefully made cocktail. Brewers, distillers and even vintners have joined in, capitalizing on consumers’ desires for pre-made, no-fuss beverages. The most unexpected development to emerge with RTDs, however, is the legal complexity surrounding these products—something the industry is only beginning to understand.

Many of these legal issues stem from the fact that the legal regulatory landscape in most states has not caught up with the rapidly evolving alcohol industry. That leaves ready-to-drink cocktails, much like hard seltzers, as not having a specific class or type in certain states. Suppliers looking to enter the space have plentiful options when creating a new product, subject to what licenses the manufacturer holds and what those licenses allow them to produce.

Ready-to-drink cocktails can be spirits, malt, sugar, cider or wine-based. The base of the RTD product, nonetheless, is the key federal factor. It is also an important factor in most states when determining how the product will be treated from a legal perspective in the following areas:

  • Licensing needed to manufacture, distribute and sell the product;
  • Applicable franchise law (Do beer franchise laws apply to low-proof spirits?);
  • Available channels of distribution (Can you sell this product in grocery or convenience store?);
  • Excise tax rate charged to the manufacturer (Does state law have a lower excise tax rate for low ABV products?);
  • Labeling and advertising considerations (Is your product a modified traditional product?); and
  • Trade practice considerations/promotions (Do spirits laws apply?).

Industry members dabbling in a sphere that is relatively new to the market, state regulators and legislatures should be mindful of the patchwork of emerging regulations. Like hard seltzer, ready-to-drink cocktails are not a clearly defined category under existing alcohol law. Meanwhile, states are working quickly to legislate in this domain. New Jersey is considering a reduced alcoholic beverage tax rate on low-ABV liquors to align with the beer tax rate (NJ SB 701), Vermont is considering legislation to define “low alcohol spirits beverage” and treat it as a “vinous beverage” (VT HB 590) and the Washington State Senate has a bill pending that would establish a tax on low-proof beverages (WA SB 5049).

From franchise issues to excise tax, the issues discussed here are only a glimpse of the nuanced and complicated legal landscape that governs the distribution of RTDs and alcoholic beverages across all categories. Consulting with competent legal counsel with experience in the industry is crucial to ensuring compliance with applicable federal, state and local regulations.




Five Tips for Making Boozy Ice Cream That’s Legal

When you think of the relationship between alcohol and food, the classics come to mind: tiramisu, coq au vin and beer cheese. While there is a long culinary tradition of using alcohol in food, the newest trend is to utilize alcohol in innovative ways in the culinary world. Recently, a popular food/alcohol combo has been in the freezer aisle where alcohol has lent its flavor to ice cream and freezer pops. Fans consider this a win-win…it cools us down in the summer and acts as a little adult refreshment at the same time. As the tasty treats gain popularity, more and more states are approving the manufacture and sale of such items. 

Recently, New York Governor Andrew Cuomo signed legislation that allows ice cream to be mixed with liquor. He stated this would, “help New York’s dairy farmers, liquor and craft beverage producers, dairy processors and manufacturers, food retailers, and restaurants meet the increasing consumer demand for these new and innovative products.” While New York has been able to have beer and wine mixed ice cream, liquor is new. Other states, like Ohio, have created special licenses for the explicit manufacture and sale of ice cream with beer or intoxicating liquor. 

While we believe this is a win-win for adults, this space lends itself to a number of legal hurdles. We suggest the following tips:

1. Advertise specifically to adults. While this is a given in alcohol beverages, it is a good reminder to gear your advertising towards adults only. 

2. Ensure your label is clearly marked with 21+ and the Government Warning Statement. New York specified in its most recent legislation that the label must have warnings and label requirements similar to confectionary products that contain beer, wine and cider.

3. Avoid the risk of unaware consumption. Ensure that the packaging and marketing make it very clear that the product contains alcohol.

4. Check each state to learn its specific laws. For example, in New York the maximum alcohol by volume allowed in ice cream is 5% while Ohio allows up to 6%.

5. Food that has alcohol mixed in requires the submission of a nonbeverage formula to the Tax and Trade Bureau (TTB).   




Non-Alcoholic Beer Regulation 101

As part of the general move to better-for-you beverages, non-alcoholic (NA) options have been and will likely continue to be on the rise. However, how NA is treated, or not treated, as “beer” has significant impact on its potential route to market. The below summarizes the overall treatment of NA beer under US federal law, as well as examples of restrictions on direct-to-consumer (DTC) shipments imposed by certain states.

FEDERAL TREATMENT OF NA BEER

  • Tax Treatment: The Alcohol and Tobacco Tax and Trade Bureau’s (TTB) regulations define “beer” as a fermented beverage containing 0.5% or more alcohol by volume (ABV) and brewed or produced from malt, wholly or in part, or from any substitute for malt. (See: 27 C.F.R. § 25.11.) The regulations refer to a malt beverage containing less than 0.5% ABV as a “cereal beverage.” (See: 25.11.) Because NA beer contains less than 0.5% ABV, TTB will not treat it as a “beer” under the Internal Revenue Code (IRC), and accordingly it will not be subject to federal alcohol excise taxes in the United States.
  • Formula Requirements: Once a process is developed for an NA malt beverage and prior to production, a formula must be submitted and approved by TTB. If an NA malt beverage is “alcohol-free,” TTB policy is to require submission of laboratory testing results.
  • Labeling: The Federal Alcohol Administration Act (FAA Act) regulates malt beverages, regardless of their alcohol content, if they meet the Act’s requirements of containing some malted barley, some hops (or hop parts or products) and having been subject to fermentation. An anomaly exists because the FAA Act’s definition of “malt beverage” does not include any minimum or maximum threshold of alcohol content. Because nonalcoholic and alcohol-free beers are produced like conventional beer and then de-alcoholized, they fall under TTB’s labeling and advertising jurisdiction. Several regulations specifically address such products. (See: 27 CFR § 7.71.)
  • FDA Requirements: The Food and Drug Administration (FDA) requires NA beverages that are not malt beverages under the FAA Act (beverage without malt and hops or an unfermented beverage) to be labeled in accordance with the Food, Drug, and Cosmetic Act (FD&C Act), Fair Packaging and Labeling Act (FPLA) 15 U.S.C. §§ 1451-1461, and the Nutrition Education and Labeling Act 21 U.S.C. §§ 343-350. (Click here for more information.) These statutes and the FDA regulations require a full ingredient list and nutritional facts label. If an NA beverage without malt or hops or an unfermented beverage is being considered, a full explanation of the FDA requirements will be needed to develop a compliant production, labeling and marketing plan. The FDA has industry guidance on labeling and formulation of “dealcoholized beer.” (See: FDA CPG Sec. 510.400, updated Nov. 2005.)
  • Production Process Issue: If the production process for an NA beverage includes removal of alcohol from beer through reverse osmosis or other processes that separate alcohol from the other components of a beverage, the process may be considered distilling operations, which will require a federal basic permit for a distilled spirits plant. (SeeATF Ruling 85-6.)
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Eighth Circuit Strikes Down Multiple Missouri Alcohol Beverage Advertising Laws

In another blow to the constitutionality of alcohol beverage laws, the Court of Appeals for the Eighth Circuit struck down on First Amendment grounds a number of Missouri’s alcohol beverage advertising laws on the basis that Missouri failed to meets it burden to demonstrate that such laws both advanced the state’s substantial interest and were narrowly tailored to achieve that interest.

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What to Know About FDA’s Recent Statements on CBD

Last week FDA issued a public release on CBD titled, “What You Need to Know (And What We’re Working to Find Out) About Products Containing Cannabis or Cannabis derived Compounds, Including CBD.”

The FDA document does not break much new ground, though it emphasizes again FDA’s concern with the safety of CBD, some of which comes from FDA’s review of the CBD-based epilepsy drug Epidiolex. FDA does not believe it has enough information about certain aspects of CBD, such as what happens if someone takes CBD daily for sustained periods. In addition, FDA specifically identifies as a potential harm the use of CBD with alcohol because of the increased risk of sedation and drowsiness, which can lead to injuries. FDA, in addition to issuing this document, sent 15 warning letters to companies marketing CBD products that FDA views as unapproved drugs primarily because of the drug like claims made for such products.

FDA appears to be on a path toward considering a regulation to allow the marketing of CBD in conventional foods or as a dietary supplement. This approach will likely take a long time—perhaps some 2-4 years—absent legislative changes that do not appear likely in an election year. In the meantime, FDA continues to view putting into interstate commerce a food to which CBD has been added or to market CBD as or in a dietary supplement as a violation of the Federal Food, Drug, and Cosmetic Act (FD&C Act).




Learning from Recent Trademark Cases

Recent cases offer lessons for brewers navigating the often-tricky obstacles surrounding the selection, use and enforcement of trademarks. Whether a brewery is choosing a logo or naming a new beer, the latest decisions highlighted in this article underscore the importance of doing due diligence when it comes to trademarks.

Access the full article.

Originally published in The New Brewer, September/October 2019.




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