Consignment Sales – Don’t Do Them!

As a friendly reminder to all alcoholic beverage industry members, consignment sales of alcoholic beverages are illegal under both California and Federal law. Consignment sales are transactions where title to the alcoholic beverages in question is retained by the seller or where the licensee receiving the alcoholic beverages has the right at any time to return them to the original seller if they don’t sell. However, Section 25503 of the California Business and Professions Code (the “ABC Act”) specifically prohibits consignment sales by manufacturer, winegrowers, manufacturer’s agents, California winegrower’s agents, rectifiers, distillers, bottlers, importers, or wholesalers. Federal law similarly prohibits consignment sales in interstate or foreign commerce. While returns of products are allowed under very specific and enumerated circumstances under the ABC Act, the general rule continues to be that products must be sold in a bona fide sales transaction by the supplier to an authorized licensee and title to the product must pass before that licensee makes a subsequent sale of the product. While consignment sales may still be occurring in the industry, all licensees should remember that the excuse of “other people are doing it” is not a valid defense in the event of an ABC or TTB enforcement action!

For more information or questions regarding consignment sales or other licensing regulations, please contact Bahaneh Hobel at [email protected]

Napa County Winery Audits: What are the odds?

St. Helena City Council Rescinds Amendments to Small Winery Ordinance

St. Helena’s City Council unanimously voted to approve an emergency ordinance repealing recently passed amendments to the Small Winery Ordinance. We wrote about this matter earlier in the week. Tuesday’s vote prevents the amendments from being put on the November ballot as a referendum item, and effectively reopens debate regarding the proposed amendments.

A video of Tuesday’s meeting is available on the City Council website.

St. Helena City Council Will Consider Rescinding Amendments to Small Winery Ordinance

Exporting Wine to China Seminar – Part II

New Chinese Trademark Law – Effective May 1, 2014

For decades, China has been criticized for shielding “trademark hijackers” – individuals or entities who have registered well known U.S. marks in China despite having no affiliation with that brand. If a winery failed to apply for their trademark in China often it was not too long thereafter that the brand would be registered in China without knowledge or permission from the brand owner. While this practice continues to this day, the new Chinese Trademark Law (adopted on August 30, 2013 and entering into effect on May 1, 2014) will emphasize the principal of good faith to aid in the crack down against trademark hijacking and will impact trademark matters in China occurring from May 1, 2014 forward.

The new law states that trademarks shall be registered and used in accordance with the principal of good faith. An injured party can use the good faith principle to challenge a trademark hijacker’s Chinese trademark registration during an opposition or invalidation proceeding even if the injured party does not hold an identical or similar trademark registered in China covering identical or related goods or services. The new law also increases the penalty cap for trademark infringements to RMB 3 million (around $491,892 U.S. Dollars). Despite these amendments, it may likely remain difficult and frequently impracticable for western entities to quash bad-faith filings of their trademarks if their brands are not registered in China.

The new law provides for specific measures to discourage bad-faith filings under certain circumstances. On the one hand, distributors and manufacturers are advised to refrain from applying for a trademark identical or similar to a trademark which has been used earlier (but not yet registered) by their partners, with respect to identical goods or services. “Partnership” is interpreted in a broad way to include contractual relationships, business relationships and other relationships.

As an added boon, the amendments prohibit a trademark agent in China to handle a trademark application if it knows or should know that the client’s application is an attempt to usurp or hijack another person’s trademark or is made with intent to preemptively register, in an unfair manner, a trademark that is already in use (but not registered) by another person who enjoys a certain reputation. Moreover, trademark agencies are prohibited from registering trademarks in their own names for other services outside IP services.

Even with the new law, the best defense is a good offense–register your brands in China. Like the United States, China is a contracting member to the Madrid Protocol. Under the Madrid Protocol, U.S. trademark counsel can apply for a trademark in China based on a client’s U.S. trademark application or registration. Utilizing the Madrid Protocol may remain the most effective strategy for protecting your brands in China.

Considering that the world has more than 7 billion inhabitants of which the majority or 1,317,471,458 billion of them reside in China, (in comparison, the U.S. population is estimated to contain 317,471,460 inhabitants[1]), with such a large potential market, it makes sense to register your brand in China. Doing so is cost effective especially in light of the frequent hijacking of wine brands. If you are planning to sell in China in the near future or would be upset to learn that your brand has already been registered in China, albeit to someone else, the most cost effective strategy to prevent such abuse is to register your brand in China. The initial outlay in registering a brand in China pales in comparison the costs associated with losing your brand to a hijacker or marshaling resources to get the brand back.

Part I of the “Exporting Wine to China Seminar” was published on LexVini on October 17, 2013.

Lot 18 Secures Brick & Mortar Retail License from NYSLA

Over the past year, the New York State Liquor Authority has wrestled with how to treat third party wine marketers like Lot 18.  As we discussed in an earlier blog post, the NYSLA questioned whether third party marketers were essentially operating as unlicensed alcohol beverage retail business.

Although the NYSLA has promised to issue additional guidance for third party marketers, Lot 18 decided not to wait, and instead applied for a retail liquor store license which would allow them to legally ship wine to New York state customers.  On January 14, 2014, Lot 18 representatives appeared before the NYSLA to answer questions related to their May 2013 application for a liquor store license for a storefront located at 2 Clark Place in Mahopac, New York.  Lot 18 provided an overview of their online and brick and mortar operations, how orders and funds would be processed, how they would work with other marketers.  After some deliberation, the board approved Lot 18’s request, and a declaratory ruling should issue in the next few weeks.

Lot 18’s decision to secure an alcohol beverage retail license is an interesting move by one of the most widely recognized online wine businesses.  Most third party marketers have been operating based on an assumption that their business model does not require a state alcohol beverage license.  Lot 18 went through a nine month process to apply for and secure a retail license, which will allow them to reach consumers in New York, which is second only to California in direct-to-consumer wine shipments (according to the ShipCompliant / Wines & Vines 2013 Direct to Consumer Wine Shipping Report).

DP&F does not represent Lot 18 in this matter.

For more information on third party marketing, internet marketing, or wine law in general, please contact John Trinidad at [email protected].

Five Key Points for Alcohol Beverage Distribution Agreements

Recently, Bahaneh Hobel, Senior Alcohol Beverage Attorney from Dickenson, Peatman & Fogarty, provided the Beverage Trade Network with some insights on the “5 Key Points You Must Cover in Your Distribution Agreements.”  To review her article and learn more about important issues to consider in drafting distribution agreements.  View Article

For more information or assistance on any alcoholic beverage law matters, contact Bahaneh Hobel

Sonoma Conjunctive Labeling Law Applies to Wines Bottled on or after Jan. 1, 2014

Producers using the name of an AVA entirely within Sonoma County on your wine labels take note: California law requires you to include a “Sonoma County” designation for all wine bottled on or after January 1, 2014.

In 2010, the California legislature approved a new “conjunctive labeling” law that requires wines labeled with the name of an AVA that falls entirely within the boundaries of Sonoma County (Russian River Valley, Sonoma Coast, etc.) to also carry a “Sonoma County” designation.  Although the law, Cal. Bus & Prof. Code Sec. 25246, became effective on January 1, 2011, it only applies to wines that are bottled on or after January 1, 2014.  In other words, there is no need for wineries to re-label wines already bottled, labeled, and in inventory prior to January 1, 2014. A full text of the Sonoma County conjunctive labeling law is found below:

CAL BUS & PROF. CODE SEC. 25246
(a) Any wine labeled with an American Viticultural Area established pursuant to Part 9 (commencing with Section 9.1) of Title 27 of the Code of Federal Regulations, that is located entirely within a county of the 19th class, shall bear the designation “Sonoma County” on the label in a type size not smaller than two millimeters on containers of more than 187 milliliters or smaller than one millimeter on containers of 187 milliliters or less.
(b) The department may suspend or revoke the license of any person who violates this section.
(c) This section shall not apply to any wine labeled with a viticultural area appellation of origin established pursuant to Part 9 (commencing with Section 9.1) of Title 27 of the Code of Federal Regulations when the name of the appellation includes the term “Sonoma County.”
(d) This section shall apply to wines bottled on or after January 1, 2014.

For more information or assistance on alcohol beverage labeling, contact John Trinidad ([email protected]).

This post is made available for general informational purposes only and none of the information provided should be considered to constitute legal advice

Comparing Apples and Grapes; Not the Same for Trademarks

In most all cases that come before the United States Patent and Trademark Office Trademark Trial and Appeal Board (Board) involving relatedness of wine and other beverages, both alcoholic and non-alcoholic alike, the Board almost always finds the goods to be related for purposes of its likelihood of confusion analysis.  A likelihood of confusion analysis involves analysis of several factors, any one of which can be determinative to the outcome of the case.  Usually a finding that the marks are similar goes a long way in demonstrating a likelihood of confusion.

Domaine Pinnacle, Inc. (“Domaine” or “Applicant”) is a family-owned orchard and cidery located in Quebec, Canada.  Domaine applied to register the mark DOMAINE PINNACLE & Design for “apple juices” and “apple based non-alcoholic beverages.”   The word “domaine” was disclaimed.

Franciscan Vineyards, Inc. (“Franciscan” or “Opposer”) a wholly-owned subsidiary of Constellation Brands Inc., an international wine company and U.S. beer importer, opposed the registration of Domaine’s mark on the grounds of priority of use and likelihood of confusion with its marks PINNACLES and PINNACLE RANCHES covering wines. 

In the first step of the analysis, the Board considered the similarity or dissimilarity of the marks in their entireties as to appearance, sound, connotation and commercial impression.  While acknowledging the difference in wording and the presence of a design element in Domaine’s mark, the Board found the term PINNACLE to be the dominant element in the mark and found the parties’ marks are “similar in appearance, sound, connotation and commercial impression.”   Thus, the similarity of the marks weighed in favor of the Board finding a likelihood of confusion.

However, when considering the relatedness of the goods, the Board stated that “we cannot per se deem wines and non-alcoholic apple juices or beverages as related goods; rather, we must examine the particular factual circumstances of each case.”

Franciscan, as plaintiff in the proceeding, bore the burden of establishing a likelihood of confusion by a preponderance of the evidence.  Here, Domaine did not even submit evidence nor file a brief with the Board. Nevertheless, the Board found that Franciscan failed to introduce evidence that the same entities produce and sell both wine and “[a]pple juices” or “apple-based non-alcoholic beverages,” or that they market the productsunder the same mark in the United States.  Further, Franciscan failed to present evidence showing that the products are complementary (e.g., consumed together at the same meal), or that the goods are sold in proximity to each other in retail outlets. 

The lack of evidence regarding relatedness of the goods outweighed the similarity of the marks and all other factors which favored a finding of likelihood of confusion.  Thus, the Board concluded that Opposer failed to prove a likelihood of confusion by a preponderance of the evidence and dismissed the Opposition.  For a full text of the case see:  Opposition No. 91178682 (October 16, 2013) [not to be cited as precedent].

http://ttabvue.uspto.gov/ttabvue/v?pno=91178682&pty=OPP&eno=63

It just goes to show that each case must be considered on its own merits and the apple doesn’t fall far from the tree (and into the wine vat).

For more information or assistance on trademark matters contact Katja Loeffelholz at [email protected]. 

International Wine Law Educational Session Friday in Santa Cruz

This Friday. November 22, 2013, the International Wine Law Association and Continuing Education of the Bar California (CEB) will be sponsoring an educational session for wine industry professionals and attorneys on legal topics related to the international and domestic wine trade.  The conference will take place at Hotel Paradox in Santa Cruz, California.  There will be a morning session and afternoon session with a hosted lunch in between.

Legal Highlights from CalPoly’s New Wine & Viticulture Program

Dickenson, Peatman & Fogarty attorneys Carol Kingery Ritter and Katja Loeffelholz were recently guest lecturers at Cal Poly San Luis Obispo’s new Wine and Viticulture program. The class was led by Professor William H. Amspacher who is promoting the interdisciplinary major of Wine and Viticulture. All students in the interdisciplinary major are educated about all aspects of the wine industry, with a curriculum that combines an understanding of vineyards, winemaking and wine business. 

Ms. Kingery Ritter presented “Planning Your Entry Into and Exit from the Wine Industry” and discussed business planning, business structures and the acquisition of assets. Ms. Loeffelholz, a registered attorney with the United States Patent and Trademark Office presented “Protecting Your Intellectual Property Assets in the Wine Industry” which reviewed the various aspects of wine labels and packaging that can be trademarked, copyrighted and patented. Ms. Loeffelholz also presented detailed information on protecting trademarks abroad, focusing on protecting wine brands in China. Ms. Loeffelholz’s presentations can be accessed at the following links:

https://www.dpf-law.com/userfiles/news/KL—IP-Dynamics-In-the-Wine-Industry-2013.pdf

https://www.dpf-law.com/userfiles/news/Trademark-Protection-for-Wine-in-China.pdf

To learn more about the Wine and Viticulture program at Cal Poly San Luis Obispo please contact Dr. Jim Cooper at [email protected]. For more information on how you can structure your wine business and plan for your wine business, please contact Carol Kingery Ritter at [email protected]. To obtain more information about protecting all aspects of intellectual property in your wine label and packaging in the United States and abroad please contact Katja Loeffelholz at [email protected].

New York Issues Survey re Proposed “At Rest” Legislation

Disruptive Technologies: The Internet and Wine

Dickenson, Peatman & Fogarty attorney John Trinidad recently gave a presentation at the University of California-Berkeley School of Law on the impact of the Internet on the regulations that govern the wine industry.  You can download a copy of Mr. Trinidad’s presentation here.

During his presentation, Mr. Trinidad provided an overview of how the spread of e-commerce influenced the Supreme Court’s landmark decision in Granholm v. Heald; discussed third party marketing, California’s guidelines thereto, and New York’s recent hearings on Internet marketing; and also summarized the U.S. Department of Treasury’s Alcohol and Tobacco Tax and Trade Bureau’s social media guidelines.  He also discussed the blending of social media and mobile commerce.

For more information on third party marketing, internet marketing, or wine law in general, please contact John Trinidad at [email protected].

International Wine Law Conference Wraps Up in Vienna

The annual meeting of the International Wine Law Association wrapped up today in Vienna, Austria. The two day meeting featured speakers from Europe, South America, North America and Australia.

Topics covered included wine law developments in up and coming wine markets, geographical indications, advertising restrictions for wine, use of expert testimony in litigation, how government regulators can assist wineries and alternative dispute resolution. 

The Internet’s Impact on Wine Law

DPF attorney John Trinidad gave a presentation at the University of California-Berkeley School of Law in October 2013 on the impact of the Internet on the regulations that govern the wine industry.  During his presentation, Mr. Trinidad provided an overview of how the spread of e-commerce in the wine industry, and how it influenced the Supreme Court’s landmark decision in Granholm v. Heald.  discussed third party marketing, California’s guidelines thereto, and New York’s recent hearings on Internet marketing.  Other topics discussed include:

• The evolution of third party marketing;
• California’s guideliens for third party marketers and recent developments in New York;
• How companies like Amazon are changing the wine industry and creating new opportunities for suppliers;
• Evolving mobile commerce opportunities for members of the wine industry; and
• TTB’s social media guidelines;

For more information on third party marketing, internet marketing, or wine law in general, please contact John Trinidad at [email protected].

Trinidad Wine Internet and Law Presentation 2013-10-23

Eighth Circuit Rejects Southern Wine and Spirits Appeal, Says States May Discriminate Against Out of State Wholesalers.

Harvest Time and Grape Growers’ Liens – Custom Crushers Beware

A few years ago, we wrote about the producer’s lien.  As I explained in my prior post, the law provides a grape grower with an automatic lien against any wine made from the grower’s grapes.  This lien, called a “producer’s lien,” means that the winery cannot lawfully sell the wine without paying the grower.  It gives a grower great legal protection.

While the concept behind the producer’s lien is simple, it can get complicated in practice.  For example, a recent situation involved a grower who sold grapes to a winery, but delivered the grapes to a custom crush facility for crushing and fermentation.  The winery then failed to pay both the grower and the custom crush facility.  Does the grower still have a producer’s lien?  Does the custom crush facility have a producer’s lien?

In this situation, the custom crush facility claimed it was a “producer” and consequently entitled to a lien against the wine it had now made for the winery.  The custom crush facility would not, therefore, release the wine to the grower or the winery until it was paid.  The grower, however, also claimed a lien against the wine, and demanded that the custom crush facility give the wine to the grower, even though the grower had not been paid.  The winery also demanded the wine, because it needed to sell the wine to pay both the custom crush facility and the grower.

Unfortunately for the custom crush facility, only the grower can claim a producer’s lien.  While the custom crush facility might argue it is a “producer”, the producer’s lien applies only to a producer who “sells any product which is grown by him. . .”  (See  CaliforniaFood and Agricultural Code § 55631.)  The custom crush facility didn’t grow anything; it couldn’t, therefore, obtain a producer’s lien.

This means that the grower can force the custom crush facility to return the wine to the grower so the grower can sell the wine to recover what it is owed.  The grower obtains the lien automatically (and this lien takes priority over all other liens), but the grower may need to take legal action to force the custom crush facility to cooperate and turn over the wine to the grower.

But what is the custom crush facility to do?  In this situation, the custom crush facility will need to take action to obtain a junior lien against the wine.  It will want to make sure that, if the grower sells the wine, it can still get whatever money is left after the grower’s bills are paid.  It does not automatically obtain the benefit of a lien, as the grower does.  It has to go out and get its lien.

Happily in this situation, the grower, the custom crush facility, and the winery were all able and willing (with the assistance of counsel) to cooperate without legal action.  The grower sold the wine and took a portion of the proceeds to satisfy its bills.  The custom crush facility then took some of the proceeds left over to satisfy its bills.  And, there was still a little left over for the winery.

If you have any questions about contract disputes or producer’s liens, please contact us.

New York State Liquor Authority Approves Limited Availability Advisory

How to Deal with License Transfer Issues in the Sale of a Winery

NYSLA Revises Proposed Advisory re "Limited Availability" Sales