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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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Total Wine Tests the Boundaries of FTC CIDs

Total Wine & More (Total Wine) and the Federal Trade Commission (FTC) are currently clashing in federal court over a civil investigative demand (CID) that the FTC issued to Total Wine, a third party in the FTC’s investigation of Southern Glazer’s Wine & Spirits, LLC (Southern Glazer).

Total Wine has fervently resisted producing certain corporate documents and data in response to the FTC’s subpoena. It is rare that companies challenge the FTC’s authority to compel production and take such a strong stance against complying with agency CIDs for information. This dispute could have wide-ranging implications for third-party CID compliance, regardless of the industry. For companies operating in the alcohol industry and following the FTC’s investigation into Southern Glazer, the court’s decision could have a serious impact on the investigation as it will impact the breadth of documents and data to which the FTC will have access to for its case.

Under Section 20 of the FTC Act, 15 U.S.C. § 57b-1, the FTC is empowered to issue CIDs, a type of administrative subpoena, to require any person—including third parties—to produce documents or other information, file written reports or answers and give oral testimony relating to any FTC enforcement investigation. When third-party companies are issued CIDs, they usually negotiate the scope and comply, albeit reluctantly, with the requests, as refusing to comply typically is not advised. As part of the FTC’s investigation into Southern Glazer’s business practices and, specifically, whether the company has engaged in discriminatory practices in its sales to retailers in violation of the Robinson-Patman Act or engaged in other unfair competition practices in violation of Section 5 of the FTC Act, the agency issued a number of CIDs to third parties, as is customary. However, in a rare turn of events, a third party, Total Wine, and the FTC have ended up in a court battle over the subpoena.

After making limited productions, Total Wine filed an administrative petition with the FTC to limit the CID’s scope. This action is rarely taken by third parties, who often focus on negotiating the scope of the requests and limiting the burden of compliance to the extent possible, as opposed to challenging the CID itself. The FTC outright denied Total Wine’s petition, and in October, after four months of Total Wine’s resistance to comply fully, the FTC filed a petition seeking a federal court order to force Total Wine to comply with the CID.

In its petition to the court, the FTC alleged Total Wine “unilaterally narrowed the scope of the CID in a manner inconsistent with the CID’s specifications and refused to search any employee’s custodial files for responsive documents.” Although Total Wine has produced purchase-related transaction data to the FTC, it has persistently refused to produce information relating to email communications, business strategies and competitor assessments, and it has described the scope of the FTC’s demand as “truly alarming.” Despite FTC staff and Total Wine trying to work cooperatively together, the FTC has deemed Total Wine’s CID response severely [...]

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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 | Going Green: Environmental and Sustainability Risks and Opportunities for Alcohol Companies

In a recent webinar, Alva MatherJacob HollingerCarl 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 discussed 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

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

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

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…)




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Data Security for Craft Brewers

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. 




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FDA Publishes Supplemental Guidance on Menu Labeling for Chain Restaurants

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

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!




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Environmental Claims in Advertising

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.




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