ALCOHOL LAW ADVISOR
ALCOHOL LAW ADVISOR
Regulatory and Distribution Law Updates for the Alcohol Industry
ALCOHOL LAW ADVISOR
Regulatory and Distribution Law Updates for the Alcohol Industry
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Key Takeaways | Going Green: Environmental and Sustainability Risks and Opportunities for Alcohol Companies

By , , and on Apr 27, 2023
Posted In , ,

In a recent webinar, Alva Mather, Jacob Hollinger, Carl Fleming and Parker Lee guided attendees through the unique energy-related challenges and opportunities for alcoholic beverages companies presented by current megatrends relating to environmental, social and governance (ESG), carbon and sustainability.

Some of the significant topics discuss included:

  1. Sustainability Trends
  2. Related Trapdoor Risks
  3. Sustainability Opportunities Across the Alcohol and Other Industries
  4. New Tax Opportunities Under the Inflation Reduction Act of 2023
  5. Case Study: Beam Suntory’s Renewable Energy-Powered Jim Beam Expansion

Access the webinar and key takeaways.



Treasury Responds to Biden Administration Executive Order with Report, Recommendations to Increase Alcohol Industry Competition

By and on Feb 15, 2022
Posted In

On February 9, 2022, the US Treasury Department (Treasury) released a report with recommendations for how the Tobacco Tax and Trade Bureau (TTB), Federal Trade Commission (FTC) and Department of Justice (DOJ) can help drive competition in the beer, wine and spirits markets by stepping up conduct enforcement, adopting creative and nuanced theories of harm in merger reviews and implementing new regulations to decrease the burden on smaller industry participants.

TREASURY REPORT SUMMARY

  • Treasury released a report entitled “Competition in the Markets for Beer, Wine, and Spirits” in response to President Biden’s July 2021 Executive Order 14036 that assesses the current market structure and conditions of competition, including an assessment of threats to competition and barriers to entry.
  • Treasury’s report is based, in part, on hundreds of comments received from industry participants and paints a detailed picture of the current landscape for alcohol beverage distribution and sale across the United States.
  • The report focuses on how changes could benefit smaller participants in the beer, wine and spirits industry. Given that the stated goal of Executive Order 14036 was, in part, “to reduce the trend of corporate consolidation, increase competition, and deliver concrete benefits to America’s consumers, workers, and small businesses,” it is not surprising that the report is focused on analyzing how a shift in enforcement priorities may be able to help eliminate impediments that make it difficult for smaller producers, distributors and retailers to compete with the larger players in the industry. Treasury specifically recommends that TTB cease bringing cases against “smaller industry members whose conduct does not have obvious effects on competition” (i.e., the investigation several years ago against small wineries for ‘consignment sales’).
  • Treasury makes recommendation on enforcement priorities for FTC, DOJ and TTB. To address the market concentration concerns that the report describes, Treasury makes recommendations regarding how the TTB, FTC and DOJ should focus investigations and enforcement of mergers and conduct in each of the three tiers of the beer, wine and spirits markets: producers, distributors and retailers.
  • Many of the recommendations are likely to be pursued given that the Attorney General and FTC Chair were consulted. The report and its recommendations should be considered carefully as a clear indication of the kinds of issues that FTC and DOJ are likely to focus their investigations on in beer, wine and spirits because the report was developed “in consultation with the Attorney General [DOJ] and the Chair of the FTC.”

TREASURY’S KEY RECOMMENDATIONS

  • While there are myriad competition-focused suggestions in the report, we think the areas that are most likely to receive increased focus from FTC, DOJ and TTB are the following:
    • Anticompetitive Conduct: Treasury noted that FTC, DOJ and TTB have generally not brought any conduct cases on many theories of harm for which myriad complaints were received. Treasury suggests that TTB should act on [...]

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Washington Court of Appeals Upholds Multi-Million Dollar Fine for 5-Hour Energy Advertising Claims

By on Apr 4, 2019
Posted In , ,

On March 18, 2019, the Washington Court of Appeals upheld a trial court’s decision that three advertising campaigns for 5-Hour Energy® made by Living Essentials, LLP and Innovative Ventures, LLP (collectively, Living Essentials) violated the Washington Consumer Protection Act (CPA) by making deceptive advertising claims.

Living Essentials makes and markets the energy drink 5-Hour Energy®. The three advertising claims at issue involve claims about the efficacy of the drink. Living Essentials claimed or implied that: (1) 5-Hour Energy® was “Superior to Coffee” (Superior to Coffee claim); (2) decaf 5-Hour Energy® was effective “for hours” (Decaf claim); and (3) 73 percent of doctors would recommend 5-Hour Energy® (Ask Your Doctor claim). The trial court found all three advertising claims in violation of the CPA. It also assessed a civil penalty against Living Essentials of $2,183,747 and awarded the State $1,886,866.71 in attorney fees and $209,125.92 in costs. The court of appeals affirmed.

Living Essentials argued on appeal that the trial court (1) erred by adopting the Federal Trade Commission’s (FTC) prior substantiation doctrine; (2) that the prior substantiation doctrine violates article I, section 5 of the Washington State Constitution and the First Amendment to the United States Constitution; (3) that Living Essentials’ claims were mere puffery which did not require substantiation; (4) the trial court applied the wrong standard for necessary substantiation; and (5) the trial court erred in concluding that Living Essentials’ Ask Your Doctor claim was deceptive. Living Essentials also challenged the trial court’s penalty and award of attorney fees. (more…)



Data Security for Craft Brewers

By on Jan 25, 2018
Posted In

Over the past few years, news headlines have been filled with reports of large data security breaches impacting major brand names and affecting millions of people. It seems like with each new day comes a new breach. The reports are alarming for businesses and consumers alike.

No industry is immune from the soaring increase in data security breaches—not even craft brewing. Many small businesses owners erroneously believe they are too small to attract a hacker or fall victim to a breach. Scotty’s Brewhouse, the Indiana-based brewery and restaurant chain, experienced a data breach in January 2017 when an employee emailed 4,000 employee W-2 tax forms to an unknown scammer posing as the brewery’s CEO. Continue Reading.

Originally published in the January/February 2018 issue of The New Brewer. 



FDA Publishes Supplemental Guidance on Menu Labeling for Chain Restaurants

By on Nov 20, 2017
Posted In , , , , ,

On November 7, the US Food and Drug Administration (FDA) published the latest in a series of industry draft guidance documents to help implement menu labeling and nutrient disclosure regulations applicable to chain restaurants (Draft Guidance). FDA guidance documents are advisory in nature and represent the views of the FDA at a given point in time. Accordingly, guidance is subject to change, but is useful for developing a compliance plan for retail establishments covered by the menu labeling regulations. Changes are usually incremental and based on agency experience and input from regulated industry members.

The FDA established a 60-day period for comments on the draft menu labeling and nutrient disclosure guidance. The comment period ends on January 6, 2018.

The current compliance date for menu labeling and nutrient disclosure regulations is May 7, 2018.

Implementation of federal menu labeling and nutrient disclosures by chain restaurants is a study in modern American political and administrative processes. For those who already tried to comply with the formal FDA regulations and prior guidance, an explanatory note about delays in the administrative process appears at the end of this post.

Two sections of the Draft Guidance explicitly address alcohol beverages.

  • Guidance is offered for beer lists on menus and the discussion has broader application to wine and spirits products and cocktails that are standard menu items on chain restaurant menus.
  • Sources of nutrient information for beer, wine and spirits are also discussed to provide an alternative to expensive laboratory testing for each brand that a manufacturer offers.

The Draft Guidance also:

  • Includes several plain-language explanations of key terms in FDA regulations with useful distinctions between regular menu items and season or special items;
  • Displays a number of graphics designed to assist retailers with standardized formats to communicate calorie content of various foods to consumers and to distinguish menus from marketing materials;
  • Directs manufacturers and retailers to reliable sources and methods to prepare and display compliant nutrient disclosures; and
  • Provides information on presentation of mandatory standard menu notices alerting consumers to the federal government’s recommended 2,000 calorie diet and availability of nutritional information for standard menu items upon request to a server or manager at a retail establishment.

The FDA guidance and the formal regulations use subjective terms about legibility (e.g., contrasting, clear and conspicuous). Those terms aim to ensure that information is consumer-friendly, but they could lead to nuisance complaints from regulators. FDA regional personnel and local inspectors under contract with the FDA will monitor compliance with menu labeling regulations. Since chains will, by nature, have locations in multiple jurisdictions, consistency in enforcement poses a challenge to industry and government.

To mitigate regulatory risks, a conservative approach is advisable to mandatory disclosures. All aspects of calorie and nutrient disclosure should be reviewed by counsel or a knowledgeable compliance professional. The review should start with the manner used to ascertain calories and nutrients and continue through preparation and publication of new and easy-to-read menus and nutrient disclosures. [...]

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Federal Trade Commission Reminder about Advertising Disclosures

By on Apr 24, 2017
Posted In , ,

In mid-April, the Federal Trade Commission (FTC) sent out 90 letters to advertisers, celebrity endorsers and influencers who use their fame and the power of digital advertising to help promote products.  The facts in each letter vary, but the FTC’s message was a strong reminder that clear and conspicuous disclosure is required if a “material connection” exists between and endorser and the marketer of a product.

Typically, the marketer is a manufacturer, importer or an advertising agency that establishes a relationship with an endorser.  In 2009, the FTC created endorsement guides to ensure that consumers are on notice that an endorser or influencer is being compensated by a marketer.  In 2015, the FTC published an Enforcement Policy Statement on Deceptively Formatted Advertisements.  Those sources provide straightforward guidance to inform consumers that an endorser is acting on behalf of a marketer and to differentiate advertising from truly independent news or reviews of products.

Throughout history, producers of consumer goods marketed their wares with endorsements from famous people and “satisfied consumers.”  Social media provides an enormous boost to the most ancient form of marketing, “word of mouth.”  An image of your product with a celebrity or the perfect “ordinary consumer” in a creative setting can quickly go viral to millions of consumers or receive hundreds of thousands of likes on Facebook.

All ads should be truthful, targeted appropriately, and compliant with industry codes.  If appropriate, ads should also be clearly identified as paid endorsements or advertising material to reduce the risk of consumer deception.  These principles are especially important in the digital domain where viewers tend to move rapidly from one destination to another.

A successful ad that includes use of celebrities or influencers should meet the FTC’s standards to avoid future enforcement initiatives.  The reputation of the advertiser and endorser as well as the integrity of the brands should not be placed at risk by the failure to include clear and conspicuous notices or disclaimers.  Congress granted the FTC broad jurisdiction to police deceptive ads.  The FTC’s guidance has now been around long enough to be on the checklist of every advertiser—particularly those under pressure to publish the next iconic image on Facebook or Instagram!



Environmental Claims in Advertising

By on Mar 27, 2017
Posted In , ,

Arthur DeCelle wrote this bylined article describing how brewers can use product labels, point of sale (POS) advertising, social networks, and other media to tell customers about their environmental responsibility efforts. Such information “must be truthful and substantiated by evidence [and] must not be deceptive to reasonable consumers,” Mr. DeCelle wrote, urging brewers to “carefully consider the language you use and any potential for consumer deception [regarding] false or deceptive environmental claims.”

Read the full article.

Originally published in New Brewer, March/April 2017.



Implications of EU Ingredient Labeling Proposal for US Suppliers

By on Mar 21, 2017
Posted In , , , , ,

On March 13, the European Commission approved a report that calls on members of the alcohol beverage industry to develop a comprehensive self-regulatory system of ingredient and nutritional labeling for beer, wine, and distilled spirits. The Commission is composed of representatives of each member nation of the European Union (EU) with a range of administrative responsibilities and authority to develop and propose legislation for consideration by the European Parliament.

The European Commission characterizes access to ingredient and nutrition information as a right of EU consumers, and called on industry members to develop a self-regulatory proposal over the next year. Current EU policy on alcohol beverage labeling is analogous to US policy. The EU regulation on food labeling exempts alcohol beverages containing more than 1.2 percent alcohol-by-volume.

The European Commission proposal warrants careful attention by US alcohol beverage suppliers across all beverage categories. The initial industry response by European suppliers will likely start a lengthy process leading to new ingredient disclosures.

US regulations are largely based on the presumption that consumers have a working knowledge of ingredients in alcohol beverages. Alcohol & Tobacco Tax & Trade Bureau (TTB) and its predecessor agency considered and rejected mandatory ingredient labeling proposals several times since 1970s. TTB’s most recent assessment of ingredient and nutritional labeling of alcohol beverages was an advance notice of proposed rulemaking published in 2005 soliciting public input on the existing TTB policy. No further rulemaking activity followed the TTB inquiry.

Existing TTB regulations focus on disclosures of certain ingredients that pose unique health risks or allergic reactions. Industry members are permitted to disclose ingredients on a voluntary basis.  A few alcohol beverages are subject to US Food and Drug Administration (FDA) regulations, which require comprehensive ingredient and nutritional labeling.

Many US products are exported for consumption in the EU. If a new system is adopted in the EU, producers in the US must provide ingredient and nutritional information to their customers overseas with no corresponding requirements in their home markets. EU suppliers are major players in the US market and may decide to voluntarily provide the same information to their American customers that they will ultimately have to provide in their home markets.

These dynamics will likely reinvigorate calls by consumer advocacy organizations and government agencies (e.g., Federal Trade Commission, Food and Drug Administration, and National Institutes of Health) in support of ingredient labeling of alcohol beverages in the US. In the current era of dwindling government resources, the European Commission’s call for an industry self-regulatory initiative provides an opening for a similar initiative in the US. Industry members and associations should monitor developments in the EU and consider appropriate responses directly to the EU initiative and to analogous proposals in the US.

An English version of the European Commission proposals is available here.



Federal Trade Commission Policy Statement on Deceptively Formatted Advertisements

By on Jan 12, 2016
Posted In

On December 22, 2015, the Federal Trade Commission (FTC) published an “Enforcement Policy Statement on Deceptively Formatted Advertisements” (2015 Policy Statement) with unanimous support of the Commissioners.[i]  The Policy Statement applies to advertising and promotion of all goods and services, and it supplements prior FTC guidance that advertisers have relied on since the 1960s.[ii]  Given the FTC’s longstanding interest in alcohol beverage advertising by large and small suppliers, industry members should pay particular attention to the latest guidance on deception.

The 2015 Policy Statement focuses on so-called “native advertising” or “sponsored content,” which reasonable consumers may perceive to be “non-promotional content” such as news, articles, feature stories or educational information.  The FTC provides an example of digital advertising content in a publication that is formatted in the same manner as the publication itself.  The deception standard is summarized as follows:

Regardless of the medium in which an advertising or promotional message is disseminated, deception occurs when consumers acting reasonably under the circumstances are misled about its nature or source, and such misleading impression is likely to affect their decisions or conduct regarding the advertised product or the advertising.[iii]

Extensive guidance is provided for advertisers to avoid consumer deception in online and digital placements using fairly straightforward disclosures or other means of distinguishing ad content from the publication in which the ad content appears.  Recent enforcement actions are also discussed.  The key to compliance and avoiding FTC enforcement actions is to clearly inform consumers that they are viewing or reading advertising content.

The FTC has also prepared further specific guidance with discussions of issues arising in all forms of media and examples of recommended disclosures and formatting.  Guidance supplementing the 2015 Policy Statement is titled, “Native Advertising:  A Guide for Businesses.”[iv]

Over the last 15 years, several FTC special orders have been issued to beer, wine and spirits manufacturers requiring production of virtually all advertising content for a specified period (e.g., six months or a year).  The FTC staff reviewed those materials thoroughly with a focus on (i) voluntary compliance with industry advertising codes and (ii) compliance with federal laws prohibiting deceptive and unfair advertising practices.  The 2012 special orders issued to the top 14 beer, wine and spirits suppliers in the U.S. also requested privacy policies and terms and conditions of web sites and social media pages.[v]

Four detailed reports on alcohol beverage advertising have been issued since 1999 summarizing the FTC’s findings on alcohol beverage advertising.  The 2014 report was one of the first widely publicized reviews of digital advertising practices by a consumer products industry.[vi]

[i] Full statement is available at https://www.ftc.gov/public-statements/2015/12/commission-enforcement-policy-statement-deceptively-formatted

[ii] See, e.g. Statement in Regard to Advertisements That Appear in Feature Article Format, FTC Release, (Nov. 28, 1967), 73 F.T.C. at 1307 and FTC Statement on Deception, 103 F.T.C. 174, 175 (1984) (appended to Cliffdale Assocs., Inc., 103 F.T.C. 110 (1984)) (“Deception Policy Statement”).

[iii] See, [...]

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

By on Oct 17, 2014
Posted In

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.



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