California Tied House Laws and Social Media
According to a recent article in the Sacramento Bee, the California Department of Alcoholic Beverage Control (“ABC”) recently accused a California winery of violating tied house laws by sending the following tweet: “Two days till @SaveMart Grape Escape in Downtown #Sacramento!” SaveMart Supermarkets holds a California alcohol beverage retailer license, and the ABC considered the tweet free advertisement given by a supplier to a retailer in violation of California tied house laws.
Tied-house laws are federal and state laws that attempt to prohibit brewers, distillers, winegrowers and other alcohol beverage suppliers from exerting undue influence over retailers. In theory, such laws minimize the potential for unfair business practices in the industry and protect against social ills such as over-consumption. Certain tied house laws bar suppliers from providing anything of value (such as a free advertisements) to alcohol beverage retailers. Both federal and state regulators have treated winery websites and social media pages and accounts as advertising platforms, so mentioning retailers on such channels can give rise to tied-house claims.
Federal and state tied-house regulations share the same intent, but their provisions differ greatly.
A. Federal Tied-house Laws
Under federal tied-house law, it is unlawful for an alcohol beverage manufacturer or supplier to “induce” directly or indirectly, any alcohol beverage retailer (such as a bottle store, bar or restaurant) to purchase any products from that supplier to the “exclusion,” in whole or in part, of other suppliers’ products. Inducements include, but are not limited to, furnishing, giving, renting, lending, or selling to the retailer anything of value (subject to various exceptions).
A violation of federal law only occurs if the inducement leads to “exclusion.” Exclusion occurs when a supplier directly or indirectly places retailer independence at risk because of a connection between the supplier and retailer or by any other means of control over the retailer; and where such practice by the supplier-side licensee results in the retailer purchasing less than it would have of a competitor’s product.
B. California State Tied-house Laws
Under California law, no alcohol beverage manufacturer or supplier may “[f]urnish, give, or lend any money or other thing of value, directly or indirectly, to” an on- or off-premise alcohol beverage retailer. Unlike federal law, there is no need for there to be actual exclusion for a violation to arise. Nor does the supplier’s intent play any role in evaluating if a tied house violation has occurred.
Although an advertisement placed by a supplier for a retailer is a “thing of value,” there are certain exceptions to California tied house laws. For example, supplier advertisements of instructional tasting events held on a retailer’s premise do not violate state tied house law, so long as they adhere to certain restrictions. See ABC Ac Sec. 25503.4. Such ads cannot contain the retail price of the wines, any “laudatory references” to the retailer, or any picture or illustrations of the retailer’s premises, and any mention of the retailer must be “relatively inconspicuous in relation to the advertisement as a whole.”
It should be noted, however, that not all states have tied house exception, and before posting information related to a retailer outside of California, wineries should review the tied house provisions of the retailer’s home state.