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California Business and Professions Code Section 23393.5 went into effect on January 1, 2012, authorizing the state’s new limited off-sale wine license.   The new “Type 85” license, which we first discussed here, will allow licensees to make direct sales of wine to consumers over the internet and via direct mail and telephone, without requiring the licensee to maintain a brick and mortar retail location or to hold a beer and wine wholesaler license.  Up until now, businesses looking to focus on internet wine sales have been required to obtain both an off-sale beer and wine retail license and a beer and wine wholesaler license, commonly referred to as a 17/20 license combination.  With a 17/20 combination, licensees are able to sell wine via the internet, but also must meet the requirements of a wholesaler licensee, including selling wine to other retailers.

The California ABC recently posted an Industry Advisory on the new off-sale wine license.  The advisory makes clear that Type 85 license holders may not maintain a brick and mortar store that is open to the public, and all sales must be made via direct mail, telephone or the internet.  Additionally, the ABC confirmed that the new license alleviates the need for a beer and wine wholesaler license for retailers focused on selling wine via the internet, but the ABC will continue to process applications for 17/20 license combinations.  If you would like more information about the license, please feel free to contact any of the attorneys at Strike & Techel.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2012 · All Rights Reserved ·

The California Department of Alcoholic Beverage has clarified in a recent industry advisory that alcoholic beverages do not have to be bagged prior to handing the beverages to consumers, unless a local ordinance requiring bagging exists. Thus, Californians can opt to “save a bag” and use their own tote bag or other carrying device when shopping for alcoholic beverages in most jurisdictions.

Beginning January 1, 2012, a new license will be available for direct-to-consumer wine sales. The new license is the result of approval of Assembly Bill No. 623, which revises California’s Business and Professions code to add Section 23393.5 authorizing the license. Sales may only be made to consumers. All sales must occur through direct mail, telephone or Internet; they may not be conducted from a location that is open to the public. The licensee must take possession and title to all wine sold. All wine must be delivered to the consumer from the licensee’s premises or a licensed public warehouse. The application and annual fee are the same as those applicable to a Type 20 off-sale beer and wine license. The key differences between the new limited off-sale retail license and a type 20 license are that the type 20 requires a brick and mortar store that is open to the public and a type 20 license also allows the sale of beer for consumption away from the licensed premises. If you would like more information about the license, please feel free to contact any of the attorneys at Strike & Techel.

Earlier this month, Tennessee became the 35th state to allow spirits tastings, with the passage of Senate Bill 1224, which will permit restaurants, bars, and liquor stores to offer limited alcohol sampling.  The bill, which was signed into law on June 10th and is codified at Tennessee Code Annotated Section 57-3-404(h)(2), will allow spirits retailers to conduct tastings for “sales, education, and promotional purposes.”  Similar to tasting laws in most other states, spirits wholesalers may not take part in the events, and are specifically precluded from directly or indirectly providing any “products, funding, labor, support or reimbursements to a retailer.”  The Tennessee Alcoholic Beverage Commission will be establishing rules specifying how tastings must be conducted.

Tennessee is among a growing list of states that have authorized limited tastings since 2009, joining California, Maine, Michigan, New Jersey, Vermont, Virginia, and Washington.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010-2011 · All Rights Reserved ·

Apparently, the TTB doesn’t agree that “anything goes” in Vegas. Just ask Diageo, Pernod Ricard, Moet Hennessey, Bacardi, Future Brands, and E. & J. Gallo Winery. According to the TTB, these companies allegedly violated the FAA’s tied-house “slotting fee” restrictions. A slotting fee has nothing to do with slot machines (good guess), but instead is anything of value a supplier provides to a retailer in exchange for favorable product placement. The TTB’s allegations included “that the companies collectively furnished nearly $2 million in inducements” with the purpose “to obtain preferential product display and shelf space (also known as slotting fees) at Harrah’s Hotels and Casinos.” In an industry guidance circular released shortly before the announcement of the offers in compromise, the TTB reminded industry members that while providing promotional items etc. to retailers might be legal in some contexts, doing so as an inducement for better product placement was a violation of FAA tied-house laws in general and slotting fee prohibitions specifically (at least  when the elements of interstate commerce, exclusion of other brands, and, in the case of malt beverages, similar state law are present).

Under the terms of the offers in compromise, none of the companies admitted to any wrongdoing and collectively paid out $1.9 million in fines – the largest set of offers in compromise ever accepted by TTB for trade practice violations. Jackpot.

The TTB’s recent guidance on tied-house rules and slotting fees can be found here: http://www.ttb.gov/trade_practices/ttb-g-2011-3-tied-house-guidance.pdf

 The TTB’s announcement and details of the offers in compromise can be found here: http://www.ttb.gov/press/fy11/press-release-fy-11-4-faa-oic.pdf

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010-2011 · All Rights Reserved ·

In a bid to streamline the Certificate of Label Approval (COLA) process, the TTB has announced that it will no longer examine COLA applications to determine whether the label images included in the applications meet the applicable type size, characters per inch, and contrasting background requirements. They will continue to review all submitted labels for inclusion of mandatory information and exclusion of the prohibited, but the TTB has asked industry members to self police when it comes to the technical character and background requirements. This does not mean, however, that the requirements can now be ignored. In the circular announcing the new policy, the TTB reserved the right to deny and return applications on type size, etc. grounds when it “deems necessary.” To that effect, the following statement will be included on new approved COLA applications:

QUALIFICATIONS: TTB has not reviewed this label for type size, characters per inch or contrasting background. The responsible industry member must continue to ensure that the mandatory information on the actual labels is displayed in the correct type size, number of characters per inch, and on a contrasting background in accordance with the TTB labeling regulations, 27 CFR parts 4, 5, 7, and 16, as applicable.

The official reason TTB has given for making the change in procedure was to reduce the time wasted in the COLA process due to image distortions in submitted electronic files.  The good news is that the label approval process should be faster with this new policy in place.  But the flip side is that the importers and bottlers submitting COLA applications bear greater responsibility for ensuring the labels are in compliance with the labeling regulations. In addition to reserving the right to reject non-compliant labels, TTB also has the power to revoke COLAs it has previously issued, so non-compliant labels that obtain an approval still could be rejected – even after being applied to bottles.  The associated costs and logistics problems of a COLA revocation make it important to continue to pay close attention to the minutiae when creating new labels.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010-2011 · All Rights Reserved ·

Although it has not been extensively covered in the media, those involved in the manufacture and importation of certain wine products should be aware of the California Board of Equalization’s (“BOE”) proposed Regulation 2558.1, involving the definition of “wine” for excise tax purposes in California. The regulation should not affect typical wine producers; however, those that create alternative wine products where a portion of the alcohol within the product is derived from, for example, apples or malt grains, instead of grapes, but the product is marketed as a typical grape wine product, should be aware of the proposed Regulation. Enactment of the Regulation essentially means that a sangria product that is classified as “wine” by the ABC could be classified as a distilled spirit by the BOE, and thus be taxed at $3.30/gallon (the rate for distilled spirits that are 100 proof or less) as opposed to the $0.20/gallon rate applied to wine. That constitutes a tax increase of 1650%.  The proposed Regulation would define “wine” for BOE purposes as products that do not include more than .5% alcohol by volume derived from the distillation of fermented agricultural products other than the main agricultural product from which the wine is made. This is different that the California Department of Alcoholic Beverage Control’s (“ABC”) definition, which defines wine as:

…the product obtained from normal alcoholic fermentation of the juice of sound ripe grapes or other agricultural products containing natural or added sugar or any such alcoholic beverage to which is added grape brandy, fruit brandy, or spirits of wine, which is distilled from the particular agricultural product or products of which the wine is made and other rectified wine products and by whatever name and which does not contain more than 15 percent added flavoring, coloring, and blending material and which contains not more than 24 percent of alcohol by volume, and includes vermouth and sake, known as Japanese rice wine.

Essentially the ABC’s definition looks at wine as a product to which only a certain amount (15%) of “other” material can be added, while the BOE’s definition is based on a requirement that 95.5% of the alcohol in the product be derived from a single commodity. The process of this change began at the BOE’s November 17, 2010 meeting, wherein it authorized an informal rulemaking process and proceeded on an expedited basis. On December 17, 2010, after preparing an initial draft of the proposed change, an interested parties meeting was held. During the meeting, it became clear to the staff that there was an industry divergence regarding what constituted legitimate “blending material” under the ABC’s definition and what should be included under the BOE’s definition. Thus, the BOE decided that further interested party meetings would not be useful and they settled on a BOE definition that did not derive from the blending viewpoint, but rather from the alcohol derivation viewpoint. On February 23, 2011, the final proposed regulation was issued. A 45-day comment period then began and the next step is a public hearing in front of the BOE in May 2011. The proposed Regulation is scheduled to go into effect on January 1, 2012.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010-2011 · All Rights Reserved ·

The pins and needles many in the alcoholic beverage industry were on this morning remain, as the Supreme Court’s orders list issued this morningwas silent on the certiorari decision for Wine Country Gift Baskets.com, et.al., v. John T. Steen, Jr., et.al.Cases are typically distributed among the Supreme Court Justices on Fridays for their conferences, during which they discuss whether or not to grant certiorari. Orders are then typically issued the following Monday. If a case that goes to conference on a Friday is not among the order list published on the following Monday, it usually means the case is being discussed among the Justices, with a few but not a majority, arguing for the grant of certiorari. However, once a case has gone to conference more than once without a subsequent order being issued, it tends to mean that the votes for the certiorari grant are not and will not be there. This is now the second time Wine County Gift Baskets.com, et.al., v. John T. Steen, Jr., et.al. has gone to conference (first on February 18, 2011 and second on February 25, 2011) and not been included in the following Monday’s orders. Thus, it is unlikely that the case will be granted certiorari, although not impossible. If the case is denied certiorari, the Fifth Circuit’s decision will stand.  For a summary of the Fifth Circuit’s decision, see our prior post here.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010-2011 · All Rights Reserved ·

It is called everything from the bombastic “corkage” to the everyperson “BYOB,” but it means the same across all fifty states and beyond: bringing ones own bottle of alcohol to a restaurant for consumption with ones meal. Not every state allows the practice, but Virginia is on the brink of joining the list of states where brown-bagging is permissible. On February 8^th, the Virginia Senate passed SB 1292 (27-Y, 13-N) and the bill passed the House on February 22^nd (78-Y, 18-N), leaving only Governor Robert McDonnell’s signature to make it official. The bill was introduced by Republican state Senator Jeffrey McWaters, who argued passage of SB 1292 would help boost Virginia’s restaurant and wine industries. SB 1292 will add Section 16 to § 4.1-201(A) of the Code of Virginia, thereby allowing licensed restaurants to permit customers to consume legally acquired wine on a restaurant premises and allowing the restaurant to charge a corkage fee if desired.

Each state that allows BYOB has its own unique set of regulations. Virginia’s neighbor to the South, North Carolina, has a “brown-bagging” permit, which allows customers in permitted establishments to bring and consume on the premises “up to eight liters of fortified wine or spirituous liquor, or eight liters of the two combined.” Restaurants, hotels and community theaters are only allowed such permits if they are located in a county where the sale of mixed beverages has not been approved. Eight liters of fortified wine, which in North Carolina is defined as 16-24% alcohol by volume, or distilled spirits, may seem like an exorbitant amount of alcohol. However, unlike Virginia’s SB 1292, North Carolina’s law is not about enjoying a glass of ones own wine with dinner, but rather about consuming a gin and tonic at ones local haunt when such establishment is not allowed by law to sell gin. Attending “liquor locker” provisions in North Carolina allow patrons to store their brown-bagged alcohol in individual lockers at licensed facilities, so that they can drain their provisions over time. Traditional bottle opening fees do not apply in such situations, rather the restaurant makes money selling the mixer used by the patron, commonly referred to as a “set-up.”

The North Carolina arrangement would be defined as an illegal “bottle club” in California. California only allows people to bring their own alcohol to a licensed premises, and one can only bring alcohol that could have been sold by the licensee at the establishment. So if a restaurant only sells beer and wine, one cannot bring in vodka.  Also, in California any unfinished portion of the BYOB must be left at the restaurant, so if you bring a bottle of expensive wine to a restaurant, bring enough friends to drink it all!

As we head into the weekend, we’ll leave you to ponder these burning questions: Is it counterintuitive for California to forbid people from bringing wine to restaurants that do not serve it, but permit patrons to bring wine to restaurants with the exact same bottle available for sale on their wine list? Also, who pays more in BYOB alcohol costs—North Carolina patrons bringing in eight liters of distilled spirits or New York patrons (blind item) dining at a well known restaurant with a $90 corkage fee? 

 Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010-2011 · All Rights Reserved ·

We get lots of questions on the topic of “fanciful names” in the context of certificate of label approvals (COLAs) through the Alcohol & Tobacco Tax & Trade Bureau (TTB). The TTB recently posted a helpful clarification, which we wanted to pass along:

Fanciful Name.  Have you ever wondered what information should be entered into the “fanciful name” field on the COLA application?  A fanciful name is a term used in addition to the brand name for the purposes of further identifying a product.  A fanciful name is mandatory for any malt beverage product that is not known to the trade under a particular designation (27 CFR 7.24(a)) or distilled spirits products that do not meet the standards of identity or does not conform to trade and consumer understanding (27 CFR 5.34(a)).  The use of a fanciful name on a flavored wine product or any wine product that meets a standard of identity is not required.  Please note that if a fanciful name is used on a flavored wine product, it must appear in direct conjunction with a truthful and adequate statement of composition. (27 CFR 4.34(a))

In other words, if your distilled spirits or beer product does not fall within one of the specifically defined classifications, e.g., whiskey, gin, rum, tequila, beer, lager, ale, porter, stout, etc., then it must be labeled with a “truthful and adequate statement of composition” and a fanciful name in addition to the brand name.  This generally occurs when a product starts as a distilled spirit or malt beverage product, but then additional flavorings or ingredients are added and those additional items are not permitted within the standard defined classifications.   In the case of wine, the fanciful name is optional.  Brand names and fanciful names cannot contain the name of a class or type of alcohol, so “vodka” or “whiskey” cannot serve as a fanciful name.

When a fanciful name is mandatory, it is important to plan ahead when creating a new product name and label.  We have seen products identified by a single brand name that could not obtain a label approval because they were required to also have a fanciful name.  Applicants in that situation are required to add a new name to be used as a fanciful name and revise their labels so that it is included.  An example of a properly identified distilled spirits product is “ABC Brand, Peachy Passion, neutral spirits with added fruit juice and natural flavorings.”  It uses a brand name, a fanciful name, and a statement of composition, as required under the labeling regulations. For most products, fanciful names are not required but it’s important to consider how TTB will classify your product before you create your labels and brand identity.    

 Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010-2011 · All Rights Reserved ·