Recent Uptick in Tied House Enforcement Actions by State and Federal Agencies
Clients often ask us about enforcement of the various alcohol beverage regulations and tied house laws that apply to industry members. “Tied-house” laws generally prohibit supplier-side licensees (including producers and wholesalers) from giving, directly or indirectly, any premium, gift, or “thing of value” to retail licensees, unless a specific exception applies.
Over the past year, we have seen an increase in enforcement actions by the California Department of Alcoholic Beverage Control (“ABC”) and the federal Alcohol and Tobacco Tax and Trade Bureau (“TTB”) in connection with state and federal tied house laws. These actions serve as important reminders that the agencies are both monitoring the activities of industry members and taking action to ensure that the rules and regulations are complied with.
Last month, ABC announced a $400,000 settlement with Anheuser-Busch, LLC wholesalers for the wholesaler’s engagement in marketing practices prohibited under California’s tied house laws. Approximately 34 retail licensees were also sanctioned. The settlement and related sanctions arise from an investigation by ABC’s Trade Enforcement Unit that found that the wholesaler paid for, or at least partially financed, refrigeration units, television sets and draught systems on behalf of various Southern California retailers. ABC’s settlement with Anheuser-Busch, LLC is the largest monetary penalty in ABC history.
As we highlighted in a blog post last year, TTB has issued guidance regarding the extent to which “category management” practices by wholesalers are permissible under federal tied house laws. In that ruling, TTB stated unequivocally that any “category management” services provided by wholesalers to retailers beyond the development of a shelf plan or schematic constitute tied house violations if the services result in the exclusion of competitor products. While this ruling was not surprising considering the language of the regulation that allows wholesalers to provide retailers with shelf plans, suppliers and retailers had long been engaging in practices aimed at optimizing the promotion of a particular “category” of products for years that exceeded the scope of this regulation. Read more about TTB’s ruling here.
We have also seen an increase in ABC’s investigation of supplier-side events occurring at retail premises.
Considering this increase in focus and enforcement of trade practice issues by both ABC and TTB, supplier-side licensees should seek legal counsel prior to planning events at retail premises or engaging in any other marketing activities that involve a retail licensee.