During the Wine, Beer & Spirits Law Conference, Marc Sorini discussed recent legal developments in federal and state trade practice law. He provides a background for each and explores recent and pending investigations.
During the International Wine Association’s 2018 Conference, Marc Sorini presented on the latest law developments, including the Commerce Clause and First Amendment.
The topic was made particularly timely by the Supreme Court’s September 27 decision to grant certiorari review of the Byrd v. Tennessee Wine and Spirits Retailers Association decision.
Craft distillers know the value of a good trademark. The name of a particular spirit, a logo, or a label design can be vitally important to a brand’s identity (and a distiller’s bottom line). They also know how complicated—and legally fraught—branding can be. For better or worse, trademark disputes involving alcohol beverage products are becoming increasingly common. The disputes that make it to court provide valuable insight that could prevent future legal headaches surrounding the selection, protection, and enforcement of alcohol beverage trademarks.
Originally published in Artisan Spirit: Fall 2018.
The latest development in a lengthy legal challenge to advertising restrictions in Missouri’s tied house laws and regulations raises practical economic issues for the alcohol beverage industry and significant legal and policy issues for legislators and regulators at all levels of government. On June 28, Judge Douglas Harpool of the US District Court for the Western District of Missouri filed a decision in Missouri Broadcasters Association vs. Dorothy Taylor. The Missouri Broadcasters Association (MBA) is a trade association representing media outlets. Two licensed Missouri retailers were also plaintiffs in the lawsuit. Ms. Dorothy Taylor is the Supervisor of the Missouri Division of Alcohol and Tobacco Control (DATC).
The basic issue in the case is whether several Missouri alcohol beverage advertising restrictions violate the plaintiffs’ commercial speech rights protected by the First Amendment to the US Constitution.
The June District Court decision follows a bench trial held in February 2018. The trial occurred as the result of prior legal proceedings culminating in a 2017 decision by the US Court of Appeals for the Eighth Circuit, which found that the MBA’s amended complaint “plausibly demonstrates that the challenged provisions [of Missouri’s tied house law] do not directly advance the government’s asserted substantial interest, are more extensive than necessary and unconstitutionally compel speech and association.”
Perhaps the most important Missouri law challenged in this litigation is an exception in the tied house laws that authorizes a manufacturer to pay for advertising that lists “two or more affiliated retail businesses selling its products” subject to four conditions:
(a) The advertisement shall not contain the retail price of the product;
(b) The listing of the retail businesses shall be the only reference to such retail businesses in the advertisement;
(c) The listing of the retail businesses shall be relatively inconspicuous in relation to the advertisement as a whole; and
(d) The advertisement shall not refer only to one retail business or only to a retail business controlled directly or indirectly by the same retail business.
This language may be familiar to many practitioners and regulators as a nearly identical provision appears in the Federal Alcohol and Tobacco Tax and Trade Bureau (TTB) tied house regulations. Laws and regulations of several states include similar express exceptions and TTB regulations are incorporated by reference in the trade practices regulations of other states. Innumerable TTB and state tied house laws and regulations restrict advertising in similar ways and may be invalidated if the analysis in Missouri Broadcasters is applied by other courts and ultimately upheld by federal appellate courts.
Other Missouri laws and regulations that were successfully challenged by MBA in the trial court prohibit (a) media advertising of price discounts, (b) beer and wine coupons, (c) outdoor advertising of discounts by retailers and (d) below cost advertising.
Unlike many cases based solely on theoretical legal arguments and the text of laws and regulations, the trial in the Missouri case resulted in a wide-ranging inquiry that included expert witnesses on advertising and the level of effort invested by the Missouri DATC in enforcing the challenged laws and regulations. The court’s decision suggests that the state struggled to provide any credible evidence that the challenged laws “directly reduce overconsumption of alcohol and underage drinking.”
The court found that the plaintiffs’ expert testimony provided substantial evidence “that there is in fact no demonstrative relationship between media advertising of alcohol and overall consumption rates of underage drinking…The State failed to present any evidence contradicting the testimony, empirical studies, and statistical analysis relied on by the Plaintiffs’ expert.”
The court agreed with the plaintiffs and cited language from the 8th Circuit decision that “the multiple inconsistencies within the regulations poke obvious holes in any potential advancement” of the state’s interest, “to the point the regulations do not advance the interest at all.” This finding is a threat to dozens of federal and state alcohol beverage laws that are riddled with exceptions that allow alcohol beverage advertising in one context and expressly prohibit the same advertising in another context (e.g., prohibiting exterior signs and permitting indoor signs).
Because the challenged Missouri laws restrict commercial speech rights protected by the First Amendment, the court also awarded legal fees to MBA and the retailer plaintiffs.
Advertising can be removed from the “marble cake” of state and federal tied house restrictions without dire consequences for regulators. If the reasoning in Missouri Broadcasters survives, the most significant effects will occur in intra-industry negotiations where parties will determine how advertising costs and activities are apportioned across the three-tier system.
Before proclaiming the death of the three-tier system, hundreds of state licensing and tied house laws have nothing to do with advertising. Prohibitions on ownership interests in more than one tier of the alcohol beverage industry are not affected by the recent decision along with substantial restrictions on industry trade practices other than advertising.
Finally, the reasoning in Missouri Broadcasters may have to survive another appeal and must be adopted by other courts to broadly affect house restrictions on advertising throughout the United States. Perhaps a state (or more likely a state with support from interested industry members) will develop credible evidence to support similar laws in other jurisdictions. For example, California aggressively defended analogous laws and regulations, which were ultimately upheld last year by the Ninth Circuit Court of Appeals.
Last month, the Court of Appeal of California, Second Appellate District, Division Four, issued an opinion in Charles v. Sutter Home Winery, Inc. (2018 Cal. App. LEXIS 418*; 2018 WL 2126987). The court considered the Plaintiffs’ appeal of their dismissed putative class action complaint brought under the Safe Drinking Water and Toxic Enforcement Act of 1986, commonly known as Proposition 65. The appeal challenged the adequacy of the warning label that the Defendants, a group of wine suppliers, provided on wines that contained allegedly unsafe levels of inorganic arsenic, a chemical listed by the State of California as a carcinogen and a reproductive toxicant (a “listed chemical”). In a win for the wine industry, the Court of Appeal upheld the dismissal of the case.
Proposition 65 requires that any person who knowingly and intentionally exposes another person to a “listed chemical” in the course of doing business must provide a “clear and reasonable” warning before the exposure. California’s Office of Environmental Health Hazard Assessment (OEHHA), the lead agency responsible for implementing Proposition 65, has adopted several “safe harbor” warning provisions deemed to satisfy Proposition 65’s requirements, including a safe harbor warning for general consumer products and one for alcohol beverages, specifically. Continue Reading California Court of Appeal Holds That “Safe Harbor” Defense Precludes Suit Based on Presence of Inorganic Arsenic in Wines
In an article published by The New Brewer, Marc Sorini discusses five issues most likely to have a meaningful impact on craft brewers in the coming years, including:
- The Craft Beverage Modernization and Tax Reform Act’s (CBMTRA) new tiered excise tax rate structure, its extending benefits to foreign producers, and its authorization for brewers to transfer beer in bond between breweries of different ownership.
- The Sixth Circuit’s published opinion in Byrd v. Tennessee Wine and Spirits Retailers Association, affirming a decision finding that the “durational-residency” requirements imposed by Tennessee law for alcohol beverage retail licensees are unconstitutional under the “dormant” Commerce Clause.
- The TTB’s creation of a new unit within its Trade Investigations Division to focus on trade practice enforcement.
- The opinion in Mission Beverage Co. v. Pabst Brewing Co. from the California Court of Appeals, which found that “an existing distributor’s receipt of the ‘fair market value of the affected distribution rights’ under [the California statute] does not necessarily make that distributor whole.”
- The US District Court for the Northern District of California’s decision in a putative class action alleging that the labeling and marketing of a successful California-based craft brewery was false and deceptive.
Originally published in The New Brewer, May/June 2018.
The Agricultural Marketing Service of the US Department of Agriculture (USDA) recently published a proposed rule containing regulations to implement the National Bioengineered Food Disclosure Standard mandated by Congress in 2016. See 83 Fed. Reg. 19860 (May 4, 2018). The proposed regulations would govern the labeling of raw agricultural products and packaged foods whose labeling is governed the federal Food, Drug & Cosmetics Act, including wines below 7 percent alcohol by volume and non-malt beer (e.g., “hard seltzers”). The proposed regulations would not directly apply to alcohol beverages whose labeling is governed by the Federal Alcohol Administration Act, including all distilled spirits, wines containing 7 percent alcohol by volume or greater, and beer containing malted barley and hops. Nevertheless, the Alcohol and Tobacco Tax and Trade Bureau may look to the bioengineered food disclosure regulations as persuasive guidance in developing its own policies towards the disclosure of bioengineered ingredients (often called “genetically modified organisms” or “GMOs”). Continue Reading USDA Publishes Proposed GMO Labeling Regulations
The Food and Drug Administration (FDA) is extending the compliance dates for updating the familiar Nutrition Facts labels, from July 26, 2018 to January 1, 2020, for manufacturers with $10 million or more in annual food sales. Manufacturers with less than $10 million in annual food sales will receive an extra year to comply – until January 1, 2021.
FDA explained that after considering a range of stakeholder comments, there was a need for manufacturers to have additional time to make required label changes. The approximately 18-month extension accomplishes this goal and will provide sufficient time to transition to the new version of the Nutrition Facts label. Finally, FDA said it is committed to ensuring that all manufacturers have guidance to help implement the required label changes by the upcoming compliance dates and the additional time will help FDA achieve that objective.
Changes in Administration and other political shifts can have subtle and, occasionally, not-so-subtle influences in the Alcohol and Tobacco Tax and Trade Bureau (TTB) policies and priorities. In the article, “TTB in a Deregulatory Mood” published by Artisan Spirit, Marc Sorini explores how the Trump Administration’s desire to reduce regulatory burdens on business has already influenced TTB’s regulatory priorities. Particularly, in the most recent “Unified Agenda,” a bi-annual compilation of federal regulatory initiatives, TTB placed a priority on deregulatory projects, several of which would alter the regulatory environment for the industry. Marc discusses how the change in administration appears to have an effect on TTB’s rulemaking efforts.
Originally published in Artisan Spirit, Spring 2018.
On February 5, 2018, the US District Court for the Eastern District of Missouri issued an opinion in one of the many false advertising class actions brought against the industry in the past five years.
Penrose v. Buffalo Trace Distillery, E.D. Mo. 4:17-cv-00294-HEA, involves the labeling of Old Charter bourbon. For years, Old Charter sold an 8-year-old version and a 12-year-old version, with their labels very prominently displaying “8” and “12” (respectively) in several places. According to the complaint, in January 2014 Old Charter “8” was re-formulated to use less-aged bourbon, described by the court as “non-age stated” or “NAS” bourbon. The labels, however, continue to prominently display the number “8” in the same manner as the prior label. In addition, while the label previously stated “aged 8 years,” the NAS bourbon’s label states “gently matured for eight seasons.” The court’s opinion catalogues a number of alleged complaints by consumers that they were deceived into purchasing the NAS product on the mistaken belief that the bourbon was still aged for eight years. Significantly, the complaint alleges that the price for Old Charter “8” remained the same after the reformulation. Continue Reading District Court Issues Opinion in Old Charter Bourbon False Advertising Class Action