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Tips for Alcohol Suppliers Utilizing Social Media

In light of the Federal Trade Commission’s (FTC) 2023 revisions to its Endorsement Guides, it is essential to ensure that your business is compliant. While the alcohol industry is known for product innovation, the industry is also embracing innovation on the marketing and advertising front, most notably with the use of social media. Given the FTC’s recent announcements and enforcement actions, any business marketing their products via social media, influencers or endorsements, including alcohol advertisers, should be aware of basic requirements. Below are recommendations based on that guidance to help ensure your company keeps its social media activity compliant.

  • Third-Party Media Content: Endorsement Requirements
    • The endorser is subject to the same rules and obligations as the industry member. In other words, the alcohol rules that apply to suppliers advertising alcohol also apply to the endorser.
    • Endorsements cannot convey expressed or implied claims that would be deceptive if the advertiser made them directly.
      • For example, a post can be false or misleading if an influencer presents health claims associated with consuming the product.
    • All claims made through endorsements (express or implicit) must have adequate substantiation.
    • Endorsements must reflect the honest opinions, findings, beliefs or experience of the endorser.
    • If the ad represents that the endorser consumed the product, they must have been a genuine user.
    • The endorser’s audience should be at least 73.8% 21 years of age or older.
  • Third-Party Media Content: Disclosure Requirements
    • Material connections must be adequately disclosed on all social media endorsements.
      • Material connections include any financial, employment, personal or family relationship with a brand (e.g., receiving free product, free admission to an event, swag or anything of value).
      • Note posts from employees and the requirements that may be triggered in the event they post about your product.
    • Adequate disclosure includes the following:
      • It requires the connection to be clear and conspicuous (i.e., it “can’t be missed”).
      • It can be satisfied with “#ad” or other hashtags that sufficiently convey the material connection (such as #advertisement, #sponsored, #paid ad, #promotion).
      • You must display it before “clicking more” on the post, which is typically within the first two or three lines. However, a best practice is to place the disclosure at the beginning of the post.
      • It requires the disclosure to be “standing alone” in the endorsement (i.e., not buried within the post and not buried in a string of hashtags).
  • Tips When Drafting Endorser/Influencer Agreements
    • Incorporate appropriate provisions in agreements with influencers and celebrities.
        • Include a description of the content the influencer will be creating, including timing, mentions and aesthetics. Ensure you understand not just what the endorser or influencer plans to say but also what they plan to do (actions).
        • Include the type, form and frequency of the posting [...]

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Contracts Corner: Sponsorship Agreements

Sponsorships continue to be one of the alcohol beverage industry’s primary methods of promoting brands to drinkers. In professional sports alone, alcohol beverage brands contributed $480 million in sponsorship revenue across the four major professional sports leagues during the 2022–2023 season, according to a SponsorUnited study. As suppliers look to better target audiences via sponsorships, it’s important for industry members looking to enter into a sponsorship relationship, as well as those hoping to engage an alcohol beverage brand as a sponsor, to understand how the regulation of the alcohol industry impacts these relationships and the contracts that solidify them.

The Federal Alcohol Administration (FAA) Act prohibits an industry member (a supplier or wholesaler of alcohol beverages) from inducing a retailer to purchase a particular product to the exclusion of competitive products. See 27 U.S.C. § 205. An “inducement” may include a partial ownership stake in a retailer, money, free goods or other “things of value” provided to a retailer. The “exclusion” element requires the Alcohol and Tobacco Tax and Trade Bureau to show a potential real-world impact (i.e., the inducement results in a retailer purchasing less of a competing product than it otherwise would have, and the inducement places or threatens to place a retailer’s independence at risk) before a violation is found.

Sponsorships in other industries often involve a commitment that the brand paying sponsorship dollars will be the exclusive offering of a team, venue or event, or at a minimum, require that a particular brand be offered or available to consumers as part of the sponsor benefits. In the alcohol space, an industry member paying a retailer in exchange for the retailer’s commitment to serve the supplier’s brand(s) of alcohol beverages, often called “pouring rights,” typically satisfies both elements necessary to find a violation of the FAA Act: that the sponsorship fee is a thing of value, and it leads to the exclusion of competitive products.

Sponsor benefits should not include a commitment that a retailer purchase or not purchase a particular brand or brands of alcoholic beverages. Because of restrictions on the flow of money from suppliers to retailers, most sponsorship agreements involving an alcohol brand are between an industry member and a third-party unlicensed entity, not the entity holding the license to sell or serve alcohol at an event or within a venue. However, conduct that is prohibited for an industry member to engage in directly is also prohibited if undertaken indirectly using a third party as a pass-through entity. Accordingly, the entity selling sponsorship rights should represent and warrant the following:

  • It does not hold a license to sell alcohol at retail.
  • The funds paid under the terms of the agreement will not be passed on to a retailer.
  • Nothing contained in the agreement is intended to require or prohibit any retailer or concessionaire from purchasing or not purchasing a particular brand or brands of alcoholic beverages.

As we support clients in negotiating sponsorship agreements and understanding the scope of sponsor [...]

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The Fine Print: Avoiding IP Pitfalls in Unlicensed Fonts

When developing a new brand or product, creatives often give considerable attention to avoiding intellectual property infringement. Trademark lawyers are similarly vigilant to avoid infringing another company’s mark. However, when a company creates its labeling and marketing materials, they tend to not give enough thought to the issue of fonts. The fonts that a beverage company uses to create its website, print advertisements, bottling, labeling, and packaging may be protected by copyright and the company may not have appropriately licensed them. If a company uses a font without the permission of the owner of that font, or outside of the scope of that company’s license, that company could be subject to a claim of copyright infringement.

Typeface Versus Fonts

First, we need to draw a distinction between two terms that are often used interchangeably: fonts and typeface. A typeface refers to a set of characters that share the same design or style. Typeface is the collective name of a family of related characters (e.g., Times, Arial and Garamond). It describes the overall look of the characters—their design and aesthetics. A font, on the other hand, is a computer program that is used to create text characters. Fonts are often installed into, and made available through, a word processing program such as Microsoft Word or design programs such as Adobe InDesign. In the digital era, the distinction between these two terms has become blurred, as many people use “font” to refer to what is technically a typeface.

Copyright Protection

In the United States, typefaces themselves are not protectable under copyright law. Code of Federal Regulations, Ch 37, Sec. 202.1(e) states: “[t]he following are examples of works not subject to copyright. . . (e) Typeface as typeface.” In addition, the Copyright Office’s Compendium of US Copyright Office Practices states that “[t]he Office cannot register a claim to copyright in typeface or mere variations of typographic ornamentation or lettering, regardless of whether the typeface is commonly used or unique.” Typefaces may be eligible for a design patent, which protects new, original and ornamental designs. However, design patents have significant limitations, must meet very specific requirements and are rarely used.

A font, on the other hand, is computer software that is protectable under copyright law because it is an original work of authorship in the form of software code. Typefaces cannot be copyrighted, but the font software used to display them can be. This distinction is crucial because it separates the visual design of characters (typeface) from the underlying code that instructs computers and printers how to reproduce those characters (fonts).

Font Infringement and Enforcement

Type foundries have made available a number of fonts that are free (often referred to as open source fonts) or are otherwise in the public domain. However, if a font is copyright protected, then copyright owners can sue companies and others who use that font without a license for copyright infringement, and a finding of copyright infringement can result in substantial liability. A copyright owner can seek actual [...]

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Key Takeaways | Seeing Around the Corner: Alcohol Industry Updates

In this webinar, Alva Mather, Lesli Esposito, Rachel Gartner and Nichole Shustack teamed up to unpack how recent regulatory shifts will significantly affect alcohol companies and distributors. They discussed product innovation in the spirits industry, “zero-proof” beverage options and how companies are leveraging the benefits of artificial intelligence for advertising and marketing.

Top takeaways included:

  1. Introducing a nonalcoholic beverage may mean getting to know a new federal agency. For alcohol brands looking to launch a zero-proof or nonalcoholic beverage, the Alcohol and Tobacco Tax and Trade Bureau (TTB) may not be the only federal agency regulating your product. The Food and Drug Administration (FDA) oversees the safety and efficacy of various consumer products, including nonalcoholic and conventional beverages. How a product is manufactured (e.g., dealcoholized products versus products that never contain alcohol) will play an important role in determining how a product is regulated. Industry members should be aware of what their obligations are to the FDA, TTB and relevant state agencies before launching a zero-proof or nonalcoholic beverage.
  2. In alcohol advertising, claim substantiation is the key to risk mitigation. Across all industries, we are seeing an uptick in sustainability claims, the use of reviews as part of advertising, claims around diversity, equity and inclusion efforts, and the continued use of social media influencers in marketing. Industry members should understand what constitutes a “claim” in advertising (e.g., what an influencer does with your product may be as important as what they say about it) and ensure they have the evidence to back up those claims.
  3. Keep an eye on the FTC. The Federal Trade Commission (FTC) is busy, both updating guidance for industry and taking sweeping enforcement actions. The FTC is in the process of revising its Guides for the Use of Environmental Marketing Claims (Green Guides). As sustainability claims become more prevalent, and as consumers rely on them more to make buying decisions, these updated Green Guides will be an important tool for industry members. As for enforcement, the alcohol industry has not been spared, and where the FTC’s current investigations ultimately go will be determinative of how the agency, under the Biden administration, views antitrust issues in the alcohol space.
  4. A new wave of direct-to-consumer shipping litigation is here. The familiar debate about direct-to-consumer (DTC) shipping laws returns. The litigation is primarily coming from out-of-state retailers challenging laws that allow in-state retailers to ship DTC but prohibit the same for out-of-state retailers. A new batch of litigants, primarily smaller suppliers, are also challenging laws that allow in-state self-distribution and DTC sales but prohibit the same for out-of-state suppliers.

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Key Takeaways | Trends in Customer Data Acquisition and Use for Alcohol Companies

In a recent webinar, Alva Mather, Scott Ferber, Amy Pimentel and David Saunders reviewed how alcohol companies should be thinking about and maximizing their data. They shared innovative marketing strategies and addressed privacy and cybersecurity considerations from an alcohol commercial side.

Some of the significant topics discussed included:

  1. Keeping Ahead of Supply Chain Cyber Threats
  2. Using Collected Data
  3. Leveraging Personal Data for Marketing
  4. Transparency

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Contracts Corner: Distribution Agreements

Finding the right distributor is critical to the success of an alcohol brand—as is ensuring the agreement appointing that distributor provides ample protection for the supplier or brand owner. At a high level, suppliers should keep the following top of mind when entering into a distribution relationship or negotiating a distribution agreement:

(1) What territory do you wish the distributor to service? Consider the following: Does the distributor call on the accounts/channels that a supplier wishes to target with its brand? Does the distributor have the capability, sales force and reach to cover the entirety of the area assigned, whether it be a portion of a state, a region or the entire country? Where not mandated by franchise law, does assigning exclusive distribution territories make sense, or is dualing the brand a better option?

(2) Whether a state has franchise law applicable to the distribution of its product that will govern the relationship between supplier and wholesaler. With respect to the term and termination provisions of a contract, whether the state(s) where the distributor will handle products have franchise laws may heavily impact what within a distribution agreement is ultimately enforceable. This is particularly important in states that have alcohol franchise protections that make the termination of a wholesaler difficult. Distilled spirits and wine manufacturers should take advantage of the fact that far fewer states have franchise protections for the distribution of spirits than those that have franchise laws applicable to the distribution of malt beverages.

(3) What sales goals or distribution targets do you want the distributor to achieve? You can bake sales goals into a distribution agreement or agree to affix sales goals in annual planning or marketing meetings.

(4) What allocations will be made for marketing, if any? Contemplate the use of a marketing fund in a distribution agreement. These funds are often funded by both parties, with the use of the funds mutually determined by the parties during annual planning meetings. Note that a limited number of states prohibit these funds, or they require participation in them on the part of a wholesaler to be voluntary as opposed to compulsory.

(5) What factors will determine whether the distributor is adequately servicing a brand? Carefully spelling out what the obligations and expectations of a distributor are is critical to creating a successful distribution relationship. Include measurable and specific obligations, particularly in states where good cause must be established in order to terminate a relationship.

(6) What events trigger the termination of the distribution agreement or relationship? Consider both events that may trigger a for-cause termination and not-for-cause termination rights (typically after payment of a termination fee).

(7) How to address a change in control of the parties. Change in control terms in a contract should address a change in control within a wholesaler’s and a supplier’s business. Suppliers should advocate for approval rights and the right to request reasonable information about a new owner or another fundamental change of a wholesaler, even in franchise states. For changes [...]

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2022 TTB Industry Circular 1: Consignment Sales

Each year the Alcohol and Tobacco Tax and Trade Bureau (TTB) issues “Industry Circulars” that apply statutory or regulatory requirements to a “specific circumstance or set of facts” or restate existing requirements. TTB also uses Industry Circulars to announce new statutory requirements or to discuss certain corrective actions. The last few years have been relatively quiet in terms of TTB Industry Circulars, with only seven released in the last three years. Industry Circulars are an incredibly useful tool for a range of industry members and can provide clarity and direction on complicated regulatory issues.

In 2022, TTB issued three Industry Circulars. The first, released March 4, 2022, provided clarity on TTB’s views on the Federal Alcohol Administration Act’s (FAA Act) consignment sales provisions. The second, released November 16, 2022, reminded industry members of certain advertising rules, as well as clarified how those rules apply in the world of social media advertising. The third and final Industry Circular, released December 29, 2022, provided guidance for distilled spirits plants and importers on how to calculate certain reduced or effective tax rates under the Craft Beverage Modernization Act (CBMA).

As we gear up for 2023, the following is our take on how TTB’s guidance may be useful for you and your business.

Industry Circular 1: Consignment Sales

TTB issued its first Industry Circular of the year to clarify how it views extended payment terms under the consignment sales provisions of the FAA Act. The FAA Act makes it unlawful for an industry member (supplier or wholesaler) to sell, offer for sale, or contract to sell to any trade buyer (wholesaler or retailer), or for a trade buyer to purchase, offer to purchase or contract to purchase any products:

  1. On consignment
  2. Under conditional sale
  3. With the privilege of return
  4. On any basis other than a bona fide sale, or
  5. Where any part of the sale involves, directly or indirectly, the acquisition by the industry member of other products from the trade buyer or the agreement to accept other products form the trade buyer.

See 27 USC § 205(d). Sales “on consignment” are arrangements where a trade buyer is under no obligation to pay for product until they have been sold by the trade buyer. See 27 CFR § 11.22.

This Industry Circular reminds industry members that although TTB generally prohibits consignment sales, the regulations do not specifically impose payment term limitations for sales between industry members and trade buyers. That does not mean, however, that all payment terms are “beyond scrutiny as potential sales on consignment.”

In particular, TTB advised that “in the absence of explicit terms that violate the consignment sale regulations, payment terms of up to 30 days are unlikely to constitute consignment sales.” Conversely, payment terms exceeding 30 days may invite scrutiny from TTB to determine whether those payment terms were “merely a subterfuge” to sell goods on consignment because the buyer is effectively under no obligation to pay for product until the trade buyer has sold [...]

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2022 TTB Industry Circular 2: Social Media Advertising

Due to the uptick in alcohol advertisement on social media platforms, the Alcohol and Tobacco Tax and Trade Bureau (TTB) issued guidance on advertising via social media and how TTB’s rules on advertising generally apply in this new and important context, as summarized below.

  • TTB views an entire page or site as a single advertisement, so mandatory statements need only appear once on the page, but they should be conspicuous and readily apparent to the viewer.
    • This includes Facebook, LinkedIn, your brand’s Instagram or YouTube, TikTok, etc.
  • On social networking sites where providing all the mandatory information may be difficult because of space restrictions, TTB allows you to provide a link to another webpage that contains the mandatory information.
    • You must clearly name or mark it to indicate that the mandatory company and/or product information can be found by clicking the link.
    • The link should take users directly to the mandatory information and not to a “general website” that would require additional action to find the information.
  • TTB also considers content created by another party that is reposted or “liked” by an industry member or other similar action that would cause the content to show up in the feed of their page followers to be “advertising” and therefore subject to the advertising rules.
  • Your brand’s Instagram, for example, is considered a single advertisement by TTB but if a photo or video is posted to a site and is not associated with a profile section that bears mandatory information about the product, the industry member must include the mandatory statements within the photos/videos themselves.
    • Influencer marketing, for example, requires the same mandatory advertising statements that are required for industry members’ social media sites. This requirement may also be satisfied with the influencer including a clearly marked link to another website that contains all the mandatory information

SeeTTB Industry Circular 2022-2.

As a reminder, below are the basic TTB requirements for mandatory information that must appear on all alcohol advertisements:

Basics of Alcohol Advertising

TTB requires certain mandatory statements appear in advertising for a malt beverage, wine and distilled spirits products:

  • For malt beverages and distilled spirits: the name, city, and state OR the name and other contact information (phone number, website or email address) where the responsible advertiser may be contacted.
  • For wine: the name and address (city and state) of the permittee responsible for the advertisement (TTB has modernized the advertising rules for malt beverages and distilled spirits but has not yet finalized modernization of wine advertising rules).
  • For all commodities: the class to which the product belongs, corresponding with the information shown on the approved label.
  • For distilled spirits only: the alcohol content presented as a percentage of alcohol by volume (the same alcohol content that appears on the label of the distilled spirits you are advertising) and, if needed, the percentage of neutral spirits and the name of the commodity.

There are several [...]

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TTB Industry Circular 3: Calculating Tax Rates and Tax Credits on Imported Distilled Spirits

In the Alcohol and Tobacco Tax and Trade Bureau’s (TTB) final Industry Circular of the year, they provided DSPs guidance on how to calculate effective tax rates for distilled spirits products eligible for the Craft Beverage Modernization Act (CBMA) reduced tax rates, as well as providing importers with guidance on calculating and using effective tax rates or standard effective tax rates (SETRs) for imported products that are eligible for CBMA tax benefits. This Industry Circular supersedes Industry Circular 2018-4. This 2022 iteration essentially restates the procedures for DSPs calculating effective tax rates for distilled spirits products subject to CBMA reduced tax rates, but updates guidance for importers on how to calculate and use effective tax rates or SETRs for imported products that are eligible for CBMA tax benefits.

Because the guidance for DSPs on calculating effective tax rates remains essentially unchanged, we summarize the updated guidance for importers set forth in the Industry Circular below:

The Taxpayer Certainty and Disaster Tax Relief Act of 2020 transferred responsibility for administering the CBMA tax benefits for imported alcohol from US Customs and Border Protection (CBP) to the US Department of the Treasury (Treasury) beginning with products entered for consumption in the US on or after January 1, 2023. That responsibility was then delegated by the Treasury to TTB.

Generally, the Internal Revenue Code of 1986 (IRC) imposes a tax of $13.50 per proof gallon on distilled spirits produced or imported into the U.S. See 26 USC § 5001(a)(1). However, reduced tax rates of $2.70 and $13.34 per proof gallon may be available under certain circumstances. Id. at § 5001(c). Section 5010 of the IRC allows certain credits against the tax imposed in Section 5001 on each proof gallon of alcohol in a distilled spirits product derived from eligible wine or from eligible flavors to the extent the eligible flavors do not exceed 2.5 percent of the finished product on a proof gallon basis (5010 credits).

An effective tax rate for an imported distilled spirits product is the tax rate applicable to the product after subtracting allowable 5010 credits. TTB must approve an effective tax each time a distilled spirits product containing eligible wine or eligible flavors is imported into the US. The procedure for securing approval of an effective tax rate is located in 27 CFR § 27.76.

An SETR for an imported distilled spirits product is established under 27 CFR § 27.77 based on the least quantity and lowest alcohol content of eligible wine or eligible flavors used in the manufacture of the distilled spirits products. TTB must also approve an SETR for distilled spirits in accordance with the procedure set forth in 27 CFR § 27.77.

Beginning January 1, 2023, importers who want to take advantage of CBMA tax benefits must pay the full tax rate to CBP and then submit a claim to TTB for a refund of their claimed benefits. TTB advises importers to follow the procedures set forth in 27 CFR § 27.76 to establish effective tax [...]

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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.




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