The Burden of Proof: TTB’s Annual Alcohol Sampling Program

April 20, 2016

Most of what consumers know about the alcoholic beverage products they buy comes from their interaction with the label, so it is important to get it right. The Alcohol and Tobacco Tax and Trade Bureau (TTB), which regulates the labeling of most beverage alcohol products, recently released their annual alcohol beverage sampling program results, highlighting the most common compliance issues with drinks labels in the marketplace. Every year, the TTB conducts a random survey of alcoholic beverage products available for sale to the public. They select a range of brands across the distilled spirits, wine and malt beverage categories, and crosscheck the information on the label against the beverage in the bottle (or can, or alternative packaging). In 2015, well over a third of the distilled spirits and malt beverages surveyed were non-compliant (at 62 out of 154, and 61 out of 158 respectively), and just under a quarter of the wines were non-compliant (at 34 out of 138).

Many of the products in the market were found to have labels that were different from the certificates of label approval (COLAs) that the TTB had issued for those products. The TTB has worked hard in the last few years to balance its limited resources against ever increasing numbers of COLA submissions, and has published a long list of allowable changes that can be made to approved COLAs. However, some changes still require a new COLA. Some of the information on the label can be changed or removed, the shape and color can be altered, and statements and graphics can be moved, but it is difficult to add anything new without getting a new COLA.

Leaving aside COLA compliance, however, far and away the biggest issue identified by the TTB was related to the alcoholic content claims of the products surveyed. Each category of alcoholic beverages has some room to maneuver with the stated alcohol content. In particular, wine and malt beverages have greater tolerances, because the regulations recognize that they are products which can and often do continue to evolve in the bottle. However, even with these permitted tolerances, over 20% of the samples had a stated alcoholic content that was non-compliant. A table wine between 7% and 14% alcohol by volume (ABV), is allowed to be up to 1.5% either above or below the stated alcoholic content on the label (provided the wine remains in the same tax class, below 14%). Wine with over 14% alcohol can still be up to 1% over or under the stated amount. Malt beverages can be up to 0.3% different from the labeled ABV, either higher or lower. In contrast to the permitted variations for wine and beer, distilled spirits are not allowed to contain any alcohol over the stated ABV. The regulations reflect TTB’s view that there is no reason why distilled spirits should not be able to be accurately proofed upon completion of production. Spirits are allowed a small 0.15% tolerance below the labeled amount, which reduction is only to recognize possible losses during bottling. The proofing and gauging of distilled spirits is key to the TTB’s principal aim of protecting the revenue, and is directly linked to how much tax is paid by the producer. The TTB offers a range of resources to help producers and bottlers with that process, and it is important to ensure that care is taken when your product is labeled.

For any questions related to labeling of beverage alcohol, contact one of the attorneys at Strike & Techel.


Class Action Dismissed in Arsenic in Wine Claim

March 28, 2016

Just over a year ago, a class action was filed in California against a group of six winery defendants, producing 83 named wine brands, alleging that the wines contained unsafe levels of arsenic (Charles et al. vs. The Wine Group, Inc., et al, No. BC576061). The case triggered numerous articles about wine potentially being unsafe for consumption. On March 23, 2016, the Los Angeles Superior Court sustained a demurrer by the wineries defending the claim, and dismissed the action. The plaintiffs did not allege actual harm from exposure to arsenic; rather, they asserted that the non-disclosure of trace arsenic constituted a breach of California’s “Prop 65” labeling and consumer notification requirements. The court disagreed. All claims against the wineries were dismissed.

Due to its presence in soil and ground water, virtually all food and beverages contain trace elements of arsenic. There is no US regulation setting a maximum quantity of arsenic that may be present in either food or wine, although the US Environmental Protection Agency (EPA) does have a limit for inorganic arsenic in drinking water, at 0.01mg per liter. Other countries regulate arsenic levels in wine. For example, the European Union adopted a maximum of 0.2mg per liter, a standard set by the International Organization of Vine and Wine (OIV). In Canada, there is a maximum limit of 0.1mg/liter of wine. The Liquor Control Board of Ontario (LCBO), one of the world’s largest wine purchasers, conducts regular testing of wines from all over the world, including some of the wines identified in the lawsuit, and all were below the regulatory limit for arsenic.

Shortly after the original claim was filed in this matter, UC Davis published a very helpful factsheet about arsenic contamination, which can be found HERE for more information.

Around the time of the original California state case, nearly identical arsenic lawsuits were also filed in federal courts in Louisiana, Florida, and Puerto Rico, with a long list of additional defendants. Those lawsuits were each dismissed without prejudice, and are not affected by the decision in California. The California plaintiffs have said they plan to continue to pursue their case, indicating that an appeal may be forthcoming.

For more information about the case, or about California wine labeling generally, contact an attorney at Strike & Techel.


Alcoholic Beverage Trademark Consent Agreements – Will the USPTO Be Scrutinizing Them More Closely?

March 10, 2016

It’s no secret to people in the alcoholic beverage business that finding a unique trademark to register is becoming increasingly difficult. A decade ago there were far fewer producers of alcoholic beverages and most had just one or two trademarks. Today there are thousands more wineries, breweries and distilleries – as well as importers – and many of them have not just one or two trademarks, but a portfolio of brands. This proliferation of products is great for consumers but has made it progressively harder to come up with a trademark that isn’t already in use on another alcohol product.

Compounding the problem is the fact that the U.S. Patent & Trademark Office (“USPTO”) considers all alcohol beverages to be essentially the same goods (as we previously blogged about here). When the goods are very similar, the USPTO requires less similarity between the marks to find that confusion is likely. As a result, a trademark registration for XYZ LAGER would probably prevent someone else from registering XYZ SPIRITS COMPANY or XYZ VINEYARDS, or even less similar variations, such as XYZ FABULOUS WINES or CHEZ XYZ.

One possible solution for a trademark applicant that gets a Section 2(d) refusal from the USPTO based on a similar trademark is to enter into a “consent agreement” with the owner of the registered trademark. If two parties with similar trademarks agree between themselves that they don’t think confusion is likely, or can be mitigated (e.g., by ensuring that the parties use dissimilar labels and not make the same products), they can enter into a consent agreement. The USPTO has historically given such agreements great deference and will typically withdraw a refusal to register if the parties provide a consent agreement. But a recent precedential opinion of the Trademark Trial and Appeal Board (“TTAB”) reminds us that consent agreements are not always effective in securing a registration.

In In re Bay State Brewing Company, Inc., the USPTO was not swayed by a consent agreement between the applicant for TIME TRAVELER BLONDE and the registrant of TIME TRAVELER – both for beer – and did not withdraw the refusal to register TIME TRAVELER BLONDE. Serial No. 85826258 (Feb. 25, 2016) (precedential). The applicant appealed and the TTAB affirmed the refusal.

Why did the TTAB reject the consent agreement? They raised a few issues, notably that the agreement contained geographic restrictions for the use of applicant’s mark to avoid confusion (use limited to New England and New York only) but registrant was free to use its mark everywhere, so the marks would be used in overlapping areas, despite the limitation on applicant’s use. The TTAB also noted that a registration creates a presumption of nationwide trademark rights, but applicant’s rights were geographically limited by the consent agreement, so an unrestricted registration would be misleading to the trademark-searching public. The TTAB raised a few other issues related to restrictions on the parties’ use of their respective marks, but it appears that the USPTO and the TTAB were simply not comfortable with two registrations for “virtually identical marks on identical goods that are subject to impulse purchase by ordinary consumers in the same geographical area,” and no amount of trade dress restrictions would convince them that confusion could be avoided.

What does this mean for future consent agreements? The TTAB acknowledged that consent agreements still may be afforded great weight, and it is unlikely that we’ll see the USPTO begin to ignore consent agreements in Section 2(d) analyses. But the Bay State Brewing case reminds us that consent agreements are not a guarantee of registration and they should be carefully drafted to assure the USPTO that the parties can adequately avoid consumer confusion.

If you have questions about a trademark application or consent agreement, contact one of the attorneys at Strike & Techel.


Suppliers Now Allowed to Use Social Media to Support Certain Charity Events Sponsored by Retailers

February 17, 2016

Effective January 1, 2016, the California ABC Act contains a new section that loosens the restrictions suppliers face when mentioning a retailer in a social media post. Newly added Business and Professions Code § 23353.5 is aimed at clarifying how suppliers and retailers can co-sponsor nonprofit events. It was drafted, in part, as a response to the backlash that occurred after the ABC filed accusations against several wineries for advertising sponsorship of the “Save Mart Grape Escape” charity fundraising event in 2014. In that instance, several wineries posted or tweeted their support and sponsorship of the event on social media. The ABC reasoned that the suppliers were impermissibly advertising for Save Mart, a retailer, even though the event was held under a nonprofit permit issued to a bona fide nonprofit organization. The ABC alleged that by posting or tweeting about the event, the suppliers were giving a thing of value to the retailer, a practice that has long been considered a violation of California’s tied house restrictions.

California law has long permitted supplier licensees to sponsor nonprofit events if the nonprofit gets an event license, and the new law does not fundamentally change that. However, the new section clarifies that a supplier may advertise sponsorship or participation in such events even if a retailer is also a named sponsor of the event. Payments or other consideration to the retailer are still considered a thing of value, and are not allowed, but social media postings no longer fall under that broad category. There are restrictions on what the supplier is permitted to post about the retailer; posts cannot contain the retail price of alcoholic beverages and cannot promote or advertise for the retail licensee beyond mentioning sponsorship or participation in the event. The supplier can share a retailer’s advertisement for the event on social media, but the supplier is not permitted to pay or reimburse the retailer for any advertisement and cannot demand exclusivity of its products at the event. In short, the new section will allow exactly the type of supplier social media support that occurred in the Save Mart Grape Escape situation.


(Un)Happy Hour Regulations

February 10, 2016

Several states restrict or ban happy hour promotions, and many people assume that these restrictions are a remnant of Prohibition. However, the practice of “happy hour”—gathering before dinner for cocktails, wine, or beer—did not actually arise until during Prohibition. Because the sale of alcohol was illegal, drinking was a surreptitious activity performed in the privacy of homes or speakeasies. Thus, enthusiastic imbibers would gather in private for a couple of drinks prior to heading out to a public establishment for dinner, where alcohol would not be served. Following the repeal of Prohibition, happy hour specials were popular at restaurants and bars across the nation. However, the 1980s brought an increased focus on preventing drunk driving, which spurred changes to alcohol laws. In 1984, President Reagan signed a bill encouraging the nationwide adoption of 21 as the minimum drinking age, and states that refused to raise the legal drinking age to 21 lost substantial federal highway funds. Also, during this time, several states and municipalities passed laws banning happy hours in an attempt to reduce excessive consumption and drunk driving.

Happy hour regulations can take many forms. Examples of happy hour promotion types that are frequently prohibited or restricted include:

  • Unlimited Drinks — Many states, including New York, prohibit on-premise licensees from offering unlimited drinks for a single price. See N.Y. Alc. Bev. Cont. Law § 117-a.
  • Specials Lasting Only a Portion of the Day —North Carolina is one of several states that disallow on-premises licensees from offering a reduced price drink for only a portion of the day, such as between 4-6pm. See 14B N.C. Admin. Code 15B .0223.
  • Specials Only Available to a Segment of the Population — North Carolina also prohibits drink specials that are only offered to a segment of the population, such as a “Ladies’ Night” special. 14B N.C. Admin. Code 15B .0223. California also prohibits businesses from offering discriminatory price specials, such as specials that are based on a patron’s sex. Cal. Civ. Code § 51.
  • “Two-for-One” or Multiple Drink Specials — Several states, including Virginia, prohibit retail licensees from selling multiple drinks for a single price, such as a “two-for-one” special. See 3 Va. Admin. Code § 5-50-160.
  • Stacking – Massachusetts and Hawaii do not permit retail licensees to deliver more than two drinks to one person at one time, while Connecticut prohibits the delivery of more than one drink to any one person at one time. 204 Mass. Code Regs. 4.03; Honolulu Liquor Comm’n, Rule 3-84-78.52; Conn. Agencies Regs. § 30-6-A24b.
  • Temporal Restrictions — Ohio permits “happy hour” time periods, where drinks may be sold at a reduced price; however, no “happy hour” specials are permitted after 9pm. Ohio Admin. Code 4301:1-1-50.
  • Limit to Amount of Discount – Some states regulate the permissible amount of a discount for drinks for on-premises consumption, such as South Carolina which prohibits discounts greater than 50%, and Tennessee where drink discounts may not result in a price below the licensee’s cost. See S.C. Code Ann. § 61-4-160; Tenn. Code Ann. § 57-4-203.

Although many states have regulations prohibiting happy hour promotions, there have been some permissive changes in the past few years. In 2012, Kansas relaxed its laws regarding on-premises alcohol promotions, and drink specials that last only a portion of the day or apply only to a segment of the population are now permissible. In 2014, Virginia revised its happy hour laws slightly, allowing bars and restaurants to use the phrase “happy hour” via advertisements both on and off the licensed premises. In 2015, happy hour returned to Illinois, which now allows licensees to offer temporary drink specials for up to four hours per day, and not more than fifteen hours per week.

For advice regarding your state’s regulations governing happy hours and other alcohol promotions, contact one of the attorneys at Strike & Techel.


2015 at the TTAB: Are All Alcoholic Beverages Related Goods for Trademark Purposes?

January 25, 2016

In 2015, the Trademark Trial and Appeal Board (“TTAB”) continued the trend of finding different categories of alcoholic beverages to be related goods for purposes of a Section 2(d) likelihood of confusion analysis. Although there is no per se rule that all alcoholic beverages are related goods, trademark examiners at the Patent and Trademark Office (“PTO”), the TTAB, and reviewing courts routinely find that beer, wine, spirits, and other alcoholic beverages are related goods. For the average consumer or business owner, the grouping of all alcoholic beverages together as related goods for trademark purposes makes little sense. As the TTAB has stated, “[w]hile it is clear that tequila and wine are both beverages that contain alcohol, not even an unsophisticated purchaser would mistakenly buy one expecting the other.” In re Proximo Spirits, Inc., Serial No. 85865962 (Mar. 16, 2015) (not precedential). However, the question is not whether the goods are similar or competitive, but rather the question is whether a consumer encountering the goods in the market “would mistakenly believe that they share or are affiliated with or sponsored by a common source.” Anheuser-Busch, LLC v. Innvopak Systems Pty Ltd., 115 U.S.P.Q.2d 1816 (TTAB 2015) (precedential).

Why does the TTAB frequently find, when the marks are similar, that consumers would believe alcoholic beverages of different types originate from a common source? One reason is that some manufacturers produce multiple types of alcoholic beverages and sell those beverages under the same mark. In In re Sugarlands Distilling Company, LLC, the TTAB cited five examples of wineries also engaged in distillation and the sale of spirits, as well as “internet evidence show[ing] that there are a number of combination wineries and distilleries,” and that evidence alone was sufficient for the TTAB to find that the goods, wine and spirits, were related. Serial No. 85818277 (Nov. 20, 2015) (not precedential); see also In re Sonoma Estate Vintners, LLC, Serial No. 85842056 (Jan. 9, 2015) (not precedential) (citing fifteen registrations showing that various entities registered a single mark for wine and beer). The TTAB also typically finds that alcoholic beverages are sold in the same channels of trade, such as liquor stores and restaurants, and thus that consumers will encounter multiple types of alcoholic beverages in the same stores. In re Brent Theyson, Serial No. 85663894 (Dec. 4, 2015) (not precedential); In re Millbrook Distillery, LLC, Serial Nos. 85924732 and 85954556 (Feb. 9, 2015) (not precedential). Further, the TTAB commonly finds that alcoholic beverages of all types can be found at lower price points, and thus that consumers may purchase alcohol “without exercising great care.” In re Millbrook Distillery, LLC, Serial Nos. 85924732 and 85954556; Anheuser-Busch, LLC, 115 U.S.P.Q.2d 1816. These factors all tend to lower the bar for a finding of likelihood of confusion by the PTO and TTAB.

See below for examples of cases involving the relatedness of alcoholic beverages that were considered by the TTAB in 2015:

Contrary to the above trend, the TTAB reversed a refusal to register REUBEN’S BREWS (and design) in Class 32 for beer, despite the prior registration of RUBENS (and design) in Class 33 for wine. In re Reubens Brews LLC, Serial No. 86066711 (Oct. 27, 2015) (not precedential). The TTAB found the marks to be different in appearance, meaning, and commercial impression, although they were similar in sound. Considering evidence of manufacturers producing both beer and wine, an overlap in trade channels, and similar price points, the TTAB conceded that the “record establishes that there is some degree of relationship between beer and wine.” However, the TTAB acknowledged that the PTO “has in the recent past taken inconsistent positions when it comes to likelihood of confusion between marks for beer and wine,” and cited eighteen examples of similar or identical marks registered to different owners in beer and wine. The TTAB ultimately found in favor of the applicant, and reversed the refusal to register. However, the TTAB stressed that the finding was based on the “overall differences between the marks in their entireties.”

Notwithstanding the TTAB’s reversal in the REUBEN’S BREWS case, it would be premature to conclude that the PTO or the TTAB will increasingly recognize the potential differences between types of alcohol products, so it would be wise to consider trademarks in use on beverages of all types when evaluating a trademark for use with an alcoholic beverage product.

For specific trademark guidance, contact one of the attorneys at Strike & Techel.


Federal Definition of “Hard Cider” Will Be Expanded in 2017

January 18, 2016

On December 18, 2015, President Obama signed into law the Protecting Americans from Tax Hikes Act of 2015 (“PATH Act”) (LINK). The PATH Act provides for changes to the definition of “hard cider,” which will bring valuable tax rate changes for some makers of cider and perry. Currently, “hard cider” is defined as a “still wine derived primarily from apples or apple concentrate and water, containing no other fruit product, and containing at least one-half of 1 percent and less than 7 percent alcohol by volume.” 26 U.S.C. § 5041(b)(6). Because the current definition of hard cider states that the wine must be still, the definition excludes ciders with carbonation in excess of 0.392 grams of carbon dioxide per 100 milliliters. 26 U.S.C. § 5041(a). The current definition also excludes perry, which is wine made from pears. Finally, the alcohol content of many wines made from cider apples ranges from approximately 5% to 8.5% alcohol by volume, and cider products with more than 7% alcohol do not meet the current hard cider definition.

Beverages that meet the definition of hard cider are taxed at the rate of 22.6 cents per gallon. 26 U.S.C. § 5041(b)(6). This rate is much more favorable than the $1.07 per gallon tax rate on still table wines, as well as the $3.40 per gallon tax rate on sparkling wines, and the $3.30 per gallon tax on artificially carbonated wines. 26 U.S.C. § 5041(b). Passage of the PATH Act will be welcome news to the cider and perry producers who have advocated for an expansion of the definition of hard cider in order to get the lower tax rate. Beginning on January 1, 2017, the definition of hard cider will be a wine that meets the following parameters:

  • Contains not more than 0.64 grams of carbon dioxide per 100 milliliters;
  • Made from apples, pears, or concentrate of apples or pears and water;
  • Contains no other fruit product or fruit flavoring other than apple or pear; and
  • Contains at least 0.5% and less than 8.5% alcohol by volume.

For more information on cider and perry, see our July 29, 2015 blog post “Comparing Apples and Pears” (LINK), and contact one of the attorneys at Strike & Techel for further guidance.


TTB Further Expands List of Malt Beverage Ingredients Exempt from Formula Approval

December 28, 2015

The Alcohol and Tobacco Tax and Trade Bureau (TTB) has further expanded the list of ingredients used in the production of beer that are exempt from the formula requirements of 27 C.F.R. § 25.55. On December 17, 2015, the TTB issued Ruling 2015-1, Ingredients and Processes Used in the Production of Beer Not Subject to Formula Requirements (LINK), which modifies and supersedes Ruling 2014-4. Ruling 2014-4 exempted 35 ingredients from formula approval requirements, including ingredients such as honey, chocolate, cherries, oranges, allspice, and clove. Ruling 2015-1 now exempts more than 50 additional ingredients from the formula requirements, including ingredients such as tea, oyster shells, jasmine, rosemary, grapes, and figs. A complete list of ingredients used in the production of beer that are exempt from formula requirements is located in Attachment 1 to Ruling 2015-1 (LINK).

Ruling 2015-1 also clarifies the TTB’s position regarding extracts, essential oils, and syrups. These preparations may contain alcohol or other ingredients, and thus are not exempt from formula requirements. For example, although vanilla, spearmint, and strawberries are included on the list of exempt ingredients, the use of vanilla extract, essential oil of spearmint, or strawberry syrup would still trigger the formula requirements of 27 C.F.R. § 25.55.

Ruling 2015-1 was issued in response to an ongoing conversation between the TTB and the Brewers Association, which has been petitioning the TTB since 2006 to expand the list of exempt ingredients. The most recent Brewers Association petition was submitted on September 30, 2015, and Ruling 2015-1 exempts all of the ingredients requested by the Brewers Association in that petition, with the exception of licorice, juniper branches, pluot, spruce leaves, squid ink, and woodruff. The TTB declined to adopt licorice as an exempt ingredient due to Food and Drug Administration (FDA) regulations regarding that ingredient. The TTB declined to adopt the remaining ingredients at this time because it did not find that the available data established that these ingredients are “traditional” in the production of beer. Although the TTB did not exempt all the ingredients requested by the Brewers Association, the TTB is open to future petitions from brewers regarding additional ingredients that brewers believe should be exempted from formula requirements. A procedure for such a petition is located at 27 C.F.R. § 25.55(f).

Contact an attorney at Strike & Techel today with any questions about beer regulations or formula requirements.


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