Earlier this month, a Massachusetts state trial court judge issued a decision in the matter of Craft Beer Guild LLC d/b/a Craft Brewers Guild v. Alcoholic Beverages Control Commission. The court upheld a decision by the Alcoholic Beverages Control Commission (ABCC) finding violations of Massachusetts’ trade practice laws by a large beer distributor. The case originated in the Fall of 2014, when a craft brewer alleged on Twitter that a Boston retailer had removed the brewer’s brands from the tap because suppliers and distributors were paying retailers in exchange for those retailers carrying their brands. The ABCC launched an investigation that culminated in administrative charges against Craft Beer Guild LLC d/b/a Craft Brewers Guild (CBG) for violations of Massachusetts’ anti-price discrimination statute (Mass. Gen. Laws ch. 138, § 25A(a)) (the Statute) and an ABCC regulation prohibiting inducements by licensees (204 Code Mass. Regs. § 2.08) (the Regulation).

After a hearing, the ABCC found that CBG violated the Statute and the Regulation based on its alleged implementation of schemes with multiple retailers and third-party management companies working on behalf of the retailers to provide payments in exchange for the retailers committing tap lines to CBG’s brands. The payments allegedly involved fictitious invoices issued by the third-party companies to CBG, as well as CBG’s payment of at least $120,000 to the retailers and/or third-party companies.

In lieu of a suspension, CBG paid a record-setting fine of more than $2.6 million to settle the violations. CBG then appealed the ABCC’s decision in March 2016. In June 2017, CBG filed a motion for judgment on the pleadings. The Massachusetts trial court held a hearing in September 2017, and then a few weeks later issued the order denying the motion, dismissing CBG’s complaint and affirming the ABCC’s decision against CBG. Continue Reading Massachusetts Court Upholds Record $2.6M Fine against Beer Distributor

On October 11, 2017, the Alcohol and Tobacco Tax and Trade Bureau (TTB) reopened the comment period for the following three notices of proposed rulemaking:

  1. Notice No. 160, Proposed Revisions to Wine Labeling and Record Keeping Requirements

TTB proposes to amend the labeling and record keeping requirements of 27 C.F.R. part 24. The proposed rule provides that standard grape wine containing 7 percent or more alcohol by volume (ABV) covered by a certificate of exemption from label approval may not be labeled with a varietal (type of grape) designation, a type designation containing a varietal significance, a vintage date or an appellation of origin unless the wine is labeled in compliance with the appropriate standards in 27 C.F.R. part 4 for that label information. TTB also seeks comments on alternate proposals submitted during previous comment periods for Notice No. 160. Continue Reading TTB Reopens Comment Period for Three Notices of Proposed Rulemaking

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

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

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

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

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

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

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

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

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

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

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

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

Continue Reading Latest Decision in Kona Beer Branding False Advertising Case

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

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

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

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

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

Read the full article.

Originally published in Artisan Spirit, July 2017.

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

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