(IMBIBE+BLOG)

Last week, the TTB issued an Industry Circular on the issue of tie-in sales, which are illegal under the Federal Alcohol Administration Act (FAA Act) and 27 C.F.R. § 6.72.  Tie-in sales occur when a retailer is forced to purchase a product (which it may or may not want) in order to get the product that it wants.  Tie-in sales include combination sales in which one or more products may only be purchased in combination with other products.

In its Circular, available here, the TTB provides a list of examples of prohibited tie-in sales.  The examples include:

-          A retailer must purchase a certain amount of regular distilled spirits, whether bottled or cased, in order to be allowed to purchase distilled spirits in a special holiday container or packaging.

-          A retailer must purchase ten cases of Winery X’s Merlot from a wholesaler in order to purchase ten cases of Winery X’s Chardonnay.

-          A retailer must purchase an industry member’s pre-mixed alcohol beverage specialty product (for example, strawberry daiquiri) in order to purchase a certain amount of their regular distilled spirits case goods.  In other words, the regular distilled spirits products are not sold separately but only in combination with the specialty product.

-          A retailer is required to purchase a two-bottle package containing one each of a winery’s Merlot and Chardonnay in order to get the Merlot.  The Merlot is not available for purchase separately.

-          A retailer must purchase a slow moving wine in order to purchase a distilled spirit that is in heavy demand.  The distilled spirit is not available for purchase separately.

The take-away point is that each alcoholic beverage item needs to be available for purchase separately.  It is still permissible to package alcohol products together or with other consumer goods, subject to state and federal restrictions, but the alcohol components should also be available separately.  For additional information on the rules applicable to combination packs, contact one of the attorneys at Strike & Techel with any questions.

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

In 2005, when Granholm v. Heald was decided by the Supreme Court, the doors to direct shipping wine to consumers opened wider than ever before. But the principles behind Granholm may open more than just the direct shipping avenue. Recently, a California winery stepped down this expanded path by opening a tasting room in Pennsylvania. Several states allow licensed wineries to operate satellite tasting rooms within the state. In Pennsylvania, limited wineries may operate, separately or in conjunction with other limited wineries, up to five additional tasting and off-premises sales locations within the state. No production or bottling is required at those five separate facilities. 47 Pa. Cons. Stat. § 5-505.2(a)(3). Virginia has a similar provision allowing licensed farm wineries to sell wine for on- and off-premises consumption at up to five additional retail locations. Va. Code Ann. § 4.1-207(5).

In order to become a licensed limited winery in Pennsylvania a winery must be producing wine from agricultural products grown in Pennsylvania. While this requirement seems to preclude an out-of-state winery from opening a tasting room in Pennsylvania, the Granholm court addressed this issue when it examined New York’s former requirement that only farm wineries, which can only produce wine from agricultural products grown in New York, were allowed the most direct avenue to ship wine to New York consumers. Granholm v. Heald, 544 U.S. 460, 476 (2005). In its decision the Court stated, “States may not enact laws that burden out-of-state producers or shippers simply to give a competitive advantage to in-state business.” Id. at 472. Thus, predicating the ability to open a tasting facility where direct sales are allowed on the production of wine solely from in-state grown agricultural products violates the principles of Granholm. In 2010 this exact issue came to heard in New Jersey when a law that allowed in-state wineries to sell directly to consumers from up to six salesrooms apart from the winery premises, while prohibiting out-of-state wineries from similar direct sales activities, was found to violate the dormant Commerce Clause. Freeman v. Corzine, 629 F. 3d 146, 159 (2010). While opening up facilities in other states is a large investment of time and capital that likely would not suit many wineries, it may be a viable strategy for some. Given the rapid changes over the last few years in new paths to consumers, keeping an open mind about ways to grow sales is always a good idea.

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

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 ·

Currently, distilled spirits plants (DSPs) are required to complete and file operational report forms, which can number up to seven per month. The TTB has proposed eliminating the current forms and replacing them with two new report forms (TTB F 5110.77 and TTB F 5110.78) in order to streamline the reporting process and reduce costs. According to the TTB’s research, DSPs currently submit an average of 28.4 operational reports per year. The TTB notes that certain data within the required reports is not analyzed or used. Moreover, the increased use of alcohol as a fuel and the growth in artisanal distillers has resulted in many new DSPs and the corresponding burden on TTB to process the paperwork from these DSP has grown tremendously. If the proposal is approved, one report would be used for operations involving spirits for beverage use, while the other would handle reporting on industrial use spirits. Additionally, DSPs that submit quarterly tax returns could switch to quarterly operational reporting, as opposed to the current monthly reporting requirement. The comment period for this proposed revision runs through February 3, 2012, which is right around the corner. The full text of the proposal can be found here.

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

The Fourth Circuit of the United States Court of Appeals recently decided that North Carolina’s former Wine Distribution Act did not require that a wholesaler used by an importer of foreign wine must be used by a new importer of that wine. Country Vintner of N.C., LLC v. E & J Gallo Winery, Inc., No. 10-2289 (4th Cir., January 6, 2012). Wine from Bodegas Esmeralda, an Argentinean winery, was being imported into the United States by Billington Imports, which in turn used Country Vintner of North Carolina as its exclusive North Carolina wholesaler for the wine. Bodegas Esmeralda then switched its importer to E & J Gallo. After the switch Gallo began using its own wholesaler network, as opposed to Country Vintner. The Fourth Circuit upheld the district court’s conclusion that there had never been a commercial relationship between Gallo and Country Vintner and therefore, Country Vintner had no protections from North Carolina’s Wine Distribution Act. The protections Country Vintner had under the act with Billington Imports were no longer relevant due to the fact that Billington ceased to import the wine.

In 2010, North Carolina amended its Wine Distribution Act to provide a continuation of wholesaler rights upon a succession to importer rights; however, that amendment only applies prospectively. N.C. Gen. Stat. § 18B-1213. Thus, in importer-wholesaler relationships entered into after the 2010 amendment in North Carolina, the holding of this case will not apply. For relationships entered into prior to the change, however, the case provides instructive insight into wholesaler continuation rights in a change of importer situation.

If you’d like to discuss specific distribution issues, 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 ·