LEX VINI

Tied House Enforcement: TTB Cracks Down on “Pay to Play” Schemes

The federal crackdown on “pay to play” arrangements in the alcohol beverage industry continues.  In a press release issued on Friday, the U.S. Department of Treasury’s Alcohol and Tobacco Tax and Trade Bureau announced that it was conducting a joint operation with the Illinois Liquor Control Commission to look into alleged “pay-to-play” in Chicago, the Quad Cities, and Peoria.   Illinois is no stranger to these types of tied house violations:  in 2009, 10 Illinois wine distributors paid over $800,000 as a result of a TTB investigation into payments made by distributors to retailers for shelf space.

There has been a recent uptick in tied-house enforcement actions by TTB.  Just a few months ago, the TTB launched a coordinated effort with the Florida Division of Alcoholic Beverages in what it described as “the largest trade practice enforcement operation that TTB has initiated to date.”   The Illinois and Federal joint federal-state efforts come less than a year after the TTB reached a $750,000 settlement with a Massachusetts distributor that had spent approximately $120,000 in payments to Boston retailers in exchange for favorable product placement and shelf space.

Under federal tied-house law, it is unlawful for an alcohol beverage supplier to “induce,” directly or indirectly, any alcohol beverage retailer (e.g. bottle store, bar or restaurant) to purchase any products from that supplier to the “exclusion,” in whole or in part, of other suppliers’ products.  Inducement under federal law can arise from a supplier furnishing or giving retailers anything of value anything of value, subject to various exceptions.  “Pay-to-play” schemes generally involve payments by an alcohol beverage supplier to an on- or off-premise retailer for tap or shelf space.

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