Supplier-Funded Instant Rebate Coupons No Longer Permitted on Wine in California

September 06, 2016

Last week, California Governor Jerry Brown signed Senate Bill 1032 (“SB 1032”) into law. SB 1032 amends Section 25600.3 of the California Business and Professions Code, and extends the recent prohibition on supplier-funded beer, cider and perry coupons to wine. You can read more about the prohibition of supplier-funded beer coupons in our prior blog post here.

What is permitted post-SB 1032?

The law still permits discounts on alcoholic beverages in other forms, including mail-in rebates by wine and beer suppliers, all retailer-funded coupons, and instant coupons funded by distilled spirits suppliers for distilled spirits (provided the coupon does not also discount beer or wine). Furthermore, beer manufacturers and winegrowers can still offer instant rebates at their premises, and can offer rebates direct to consumer on internet sales.

When are the changes effective?

The new law takes effect on January 1, 2017. Supplier-funded wine coupons can continue to be accepted at retail until December 31, 2016, and suppliers will be able to continue redeeming coupons accepted by a retailer until March 31, 2017.

Who can do what?

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Illinois SB 2989: Unlicensed Direct Wine Shippers Beware

September 01, 2016

On Friday, August 26, 2016, Illinois Governor Bruce Rauner signed Senate Bill 2989 (“SB 2989”) into law. SB 2989 amends various sections of the Illinois Liquor Control Act that affect direct wine shipping into Illinois as well as use of third party providers (“TPPs”). This post summarizes the changes made by SB 2989, which take effect on January 1, 2017. The higher license fees, described below, take effect immediately.

Harsher Penalties for Direct Wine Shipping Violations

SB 2989 imposes tougher penalties on direct wine shipping violations. Any person, including wineries, importers, and retailers, who distributes or sells 108 liters or more of wine (144 bottles of wine), 45 liters or more of spirits (5 12/750 cases), or 118 liters or more of beer (more than 28 12-packs of beer) without a license is guilty of a Class 4 felony for each offense, which has a minimum sentence of 1 year. Prior to SB 2989, the first offense was a business offense with a fine of not more than $1,000, and any subsequent offense was a Class 4 felony. For illegal shipments of less than 108 liters of wine, less than 45 liters of spirits, or less than 118 liters of beer, the penalty for the first offense is still classified as a business offense with a fine of not more than $1,000, and the penalty for subsequent offenses remains a Class 4 felony. Furthermore, any person who has already been issued a cease and desist notice from the State Commission could face the same felony charges.

New Disclosure Requirements for Winery Shipper’s Licensees and Reporting Requirements for TPPs

For new and renewing applicants of an Illinois winery shipper’s license, SB 2989 requires disclosure of all third parties authorized to ship the licensee’s wine, excluding common carriers, to the Illinois Liquor Control Commission (“ILCC”). Licensees must submit each third party’s name and address and file a copy of the written appointment of the TPP with the ILCC. SB 2989 provides that a TPP, other than a common carrier, shipping wine on behalf of a winery shipper’s licensee is the agent of the licensee, and that the licensee is responsible for the acts and omissions of the TPP. In turn, SB 2989 requires that each TPP consent to the jurisdiction of Illinois and the ILCC. Furthermore, SB 2989 imposes a new audit requirement on any appointed TPP, which will be required to file with the ILCC, by February 1 of each calendar year, a statement detailing each shipment made to an Illinois resident. The ILCC also has the power to deny any third party appointment if the TPP previously violated the Liquor Control Act.

Higher License Fees

Across the board, SB 2989 increases license fees for manufacturers, wholesalers, and retailers. The fees for a winery shipper’s license for a winery producing under 250,000 gallons annually have been increased from $150 to $350 for the initial application and $200 for an online renewal. The fees for a winery shipper’s license for a winery producing over 250,000 gallons, but under 500,000 gallons annually have been increased from $500 to $1,000 for the initial application and $750 for an online renewal. The fees for a winery shipper’s license for a winery producing 500,000 gallons or more annually have been increased from $1,000 to $1,500 for the initial application and $1,200 for an online renewal.

For more information about the changes to the Illinois direct shipping laws, contact an attorney at Strike & Techel.


Strike & Techel Welcomes Associate Attorney, Alana L. Joyce

August 18, 2016

Strike & Techel is delighted to announce the addition of another fabulous attorney to our team! Alana L. Joyce has joined S&T as an associate attorney, and will advise alcohol industry clients on a wide range of legal matters, including business formation, contracts, trademarks, and general alcohol regulatory advice. Alana received her J.D. from University of California, Davis, and then began practicing alcoholic beverage law at a Napa Valley law firm before deciding to join S&T. We feel very fortunate to have found another attorney who shares our passion for the quirky and ever-fascinating world of alcoholic beverage law!

To learn more about the firm, visit strikeandtechel.com or call 415-226-1400.


California ABC Announces 2016 New License Authorizations

August 15, 2016

It’s that time of year when the ABC announces priority applications, and this year’s numbers are sure to make a lot of retail business owners very happy! Every year the California ABC announces which counties are eligible for new on-sale and off-sale general licenses based on population growth versus existing license ratios within each county. The 2016 figures have been released, and the numbers this year are higher than usual.

What is a Priority application?

General retail licenses authorize the sale of beer, wine, and distilled spirits. They are restricted by county population and must typically be purchased on the open market from an existing licensee, often for a very high premium. Licenses are usually confined to the county in which originally issued, so prices vary drastically across the state. Every year, the ABC announces a ‘priority application period’ when they will accept new license applications. In addition, they announce a number of inter-county transfer allowances – where a business owner in a priority county can purchase a general license from a licensee in any other county and transfer it into the priority county.

If you’re in the market for an Off-Sale General Package Store License (Type 21), an On-Sale General Eating Place License (Type 47), or a Special On-Sale General Club License (Type 57) within a county where licenses are available, you should apply.

Licenses Available by County

The maximum number of priority applications the ABC typically authorizes for each category (new on-sale, new off-sale, inter-county on-sale, inter-county off-sale) is twenty-five. The ABC has authorized the maximum number of priority applications in several counties, including Alameda, Contra Costa, Los Angeles, Orange, Riverside, Sacramento, San Bernardino, and San Diego. For a complete list of license available by county, click here.

2016 Filing Period

ABC District offices will accept priority applications by mail or in person from September 12-23, 2016. If by mail, it must be postmarked on or before September 23rd. If the ABC receives more applications than licenses available, a public drawing will be held at the District office. Successful applicants will have 90 days to complete a formal application for the specific premises.

Fees

Priority application fees are $13,800 for new general licenses and $6,000 for inter-county transfers. A certified check, cashier’s check, or money order must be submitted along with the priority application. Unsuccessful applicants will be refunded the application fee, minus $100 service charge.

Residency Requirements

Every applicant must have been a resident of California for at least 90 days prior to the scheduled drawing. Exact drawing dates vary by District office, but all are in mid-late October. For corporations, limited partnerships, and limited liability companies, the 90-day residency requirement starts ticking upon registration with the California Secretary of State. Individual and general partnership applicants must submit proof of California residency.

If you’re interested in applying for a new or inter-county on- or off-sale general priority license, contact an attorney at Strike & Techel.


New FDA Menu Labeling Regulations Will Be Enforced Beginning May 2017

May 31, 2016

The Food and Drug Administration (“FDA”) recently released final industry guidance on the new menu labeling requirements in accordance with 21 C.F.R. § 101.11, implemented to comply with a provision of the 2010 Affordable Care Act. The new menu labeling rules require chain restaurants to provide calorie information on the menu and provide, upon customer request, additional nutritional information for menu items. The FDA’s final guidance can be found here, and will help industry members comply with these new menu labeling rules, which the FDA will begin to enforce in May 2017. This blog post provides a summary of the menu labeling rules and the FDA’s industry guidance.

What businesses must comply?

The new menu labeling rules apply to restaurants or similar retail food establishments, such as a bakery, a convenience store selling foods intended for immediate consumption, or a concession stand, that are a part of a chain with 20 or more locations that do business under the same trade name and that offer substantially the same menu items for sale. Additionally, a restaurant or retail food establishment may voluntarily register to be subject to the menu labeling requirements.

What is required of those businesses?

Under the new menu labeling rules, these businesses will be required to include calorie information on menus for all standard menu items. Additionally, these businesses will be required to have written information available upon customer request, regarding nutritional information for standard menu items, including the amount of total calories, calories from fat, total fat, saturated fat, trans fat, cholesterol, sodium, total carbohydrates, dietary fiber, sugars, and protein. These requirements apply to standard menu items, and do not apply to daily specials, custom orders, alcoholic beverages on display that are not self-service, or temporary menu items that only appear on the menu for less than sixty days per calendar year.

Are alcoholic beverages included?

Yes, the new menu labeling rules apply to alcoholic beverages sold in a restaurant or similar retail food establishment that is required or has registered to comply with the menu labeling rules. The rules apply to all alcoholic beverages that are listed on the establishment’s menu, subject to the exceptions for daily specials, custom orders, alcoholic beverages on display that are not self-service, or temporary menu items that only appear on the menu for less than sixty days per calendar year. The exception for alcoholic beverages on display that are not self-service will be helpful for establishments preparing mixed drinks. If the liquor bottles are on display, and the drinks are not listed on the menu, the establishment will not be required to make available calorie or other nutritional information.

How can calorie and nutrient information for alcoholic beverage products be obtained?

An establishment must have a “reasonable basis” for determining the calorie and other nutritional information for standard menu items. Establishing a “reasonable basis” may include utilizing nutrient databases, published cookbooks that contain nutritional information for recipes in the cookbook, nutrition information determined by laboratory analyses, or any other means that is reasonable. The
U.S. Department of Agriculture (“USDA”) maintains a nutrient database, available here, which the FDA’s guidance refers to as reasonable basis for calorie and nutrient calculations.

How will alcoholic beverage producers be affected?

The new menu labeling regulations will impact all alcoholic beverage producers that sell products to chain establishments with 20 or more locations. Those establishments will likely request that the alcoholic beverage producer provide the calorie and nutritional information for its products sold at the establishment. As most alcoholic beverages are not subject to the FDA rules governing labeling and nutritional information, this law will mainly affect alcoholic beverage producers that do not currently maintain calorie or nutritional information regarding the beverages that they produce. Alcoholic beverage producers should check the USDA database referenced above to see whether their products match entries currently listed in the database, as the database includes entries for several common types of alcoholic beverages. Additionally, the Brewers Association has announced that it will be running laboratory analyses for approximately 100 beer styles over the next year, which the Brewers Association plans to submit for inclusion in the USDA database. Alternatively, producers could submit their products for laboratory analyses in order to obtain accurate nutritional information.

For more information about menu and product labeling requirements, contact one of the attorneys at Strike & Techel for a consultation.


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.


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