Wine Industry Forum, Friday, August 23, 2013 The Vintners Inn, Santa Rosa, CA

07/17/13

Plan to attend to receive the latest legal updates impacting the wine industry. Learn from leading lawyers in the wine industry. Every Dickenson Peatman & Fogarty (DP&F) attorney in every practice group works daily with wine industry clients.

Click on the image below for a PDF of the full program.

Learn the latest in creating, protecting and building equity in your wine brands, adopting and clearing a brand, trademark registration and common law rights, enforcing your brand and how copyright in label designs and design patents in

bottle shapes create additional brand equity.

Hear employment and labor law updates, including the most common employment questions, five critical steps to wage and hour compliance for the wine industry and current changes to employment law.

Review hot topics in compliance and licensing, such as marketing and sale of wine via the Internet and social media, contests and sweepstakes, differing privileges and obligations of type 02 and type 17/20 license holders and updates in the area of direct shipping.

Business topics such as current trends in wine industry agreements and the affordable care act and vineyard and winery land use update will also be presented including barriers to entry of new vineyard development, water quality and a climate change update.

To register call 877-500-1510, fax 914-574-6080 or on the web at www.networkingseminars.com.

The conference includes continental breakfast, networking luncheon and concludes with a networking reception sponsored by Sonoma County Vintners.

New York SLA Announces 8/19 Meeting re Online Alcohol Beverage Sales

07/10/13

A few months ago, we reported on the New York State Liquor Authority’s ruling on ShipCompliant’s petition regarding online alcohol beverage sales using third party marketers. We concluded by noting that a “final decision on the permissibility of sales of alcoholic beverages using third party marketers will be forthcoming from the NYSLA and NYSLA intends to hold public hearings on the matter, allowing interested parties the opportunity to present their positions.”The NYSLA has now set a board meeting for Monday, August 12 at 10a.m. to “solicit industry input regarding the regulation of Internet sales.” The meeting is open to the public and will be webcast. If you’re interested in attending, you must notify the NYSLA via email ([email protected]) to reserve a seat.

UPDATE – 7/11/2013
The NYSLA has moved the board meeting to “solicit industry input regarding the regulation of Internet Sales” to Monday, August 19 at 10 a.m.

Southern Awarded Over $1.25 Million in Nevada Suit Against Small Competitors

07/08/13

Apparently, exclusivity in Nevada is serious business. Certainly, as a jury there recently demonstrated, violating exclusivity is expensive.

In 2002, Southern Wines & Spirits, the large Miami based distributor, sued Chateau Vegas and Transat Trade, both small distributors based in Orange County, California, for selling certain Bordeaux wines and French champagnes in Nevada. Southern Wines & Spirits believed that, under state law, it was the exclusive importer of those wines. In 2011, the Nevada Supreme Court agreed and upheld Southern Wines & Spirits exclusivity. (Chateau Vegas Wine, Inc. v. Southern Wine and Spirits of America, Inc., 265 P. 3d 680 (Nev. 2011).) In late June 2013, a jury found Chateau Vegas and Transat Trade liable for $267,750 in actual damages to Southern Wines & Spirits, and a whopping $1.078 million in punitive damages. Southern Wines & Spirits is now also seeking an additional $6.5 million in attorneys’ fees from Chateau Vegas and Transat Trade.

If you are importing and selling wine in Nevada, make sure you aren’t violating someone else’s exclusivity. Even in Sin City, exclusivity can matter.

For more information or assistance on distribution litigation contact us.

Update on The Battle of Missouri and Franchise Distribution Law

07/07/13

On June 20, a Missouri Circuit Court judge issued one of the first judicial rulings in a battle that could dramatically affect the relationship between producers and distributors of alcohol.

In Missouri, Diageo PLC, Bacardi Ltd., and Pernod Ricard SA are all lobbying to end the state’s franchise laws. These laws, which ten other states also have, make it difficult for producers to switch to different distributors. In Missouri, a producer like Diageo cannot terminate an agreement with a distributor absent 90 days notice and good cause.On March 6, 2013, Diageo notified its Missouri distributor, Major Brands, Inc., that it would terminate its relationship with it as of June 30, 2013. Major Brands then sued Diageo and sought a preliminary injunction to prevent Diageo from terminating its relationship with Major Brands.

In its June 20, 2013 ruling on Major Brands’ request for a preliminary injunction, the Missouri Circuit Court, to the chagrin of the large producers, affirmedMissouri’s franchise law. The Court further held that there was no good cause for Diageo’s termination of its distribution agreement with Major Brands. However, in a partial victory for Diageo, the Court declined to issue a preliminary injunction forcing Diageo to continue working with Major Brands – Major Brands would be entitled to money damages only.

The battle in Missouri is far from over. Bacardi is also seeking to terminate its relationship with Major Brands, and litigation is pending in both Federal and State Courts. And certainly, the lobbying efforts of both distributors and producers will continue in earnest.

For more information or assistance on distribution litigation contact us.

New York SLA Proposed Advisory for “Limited Availability” Wines

07/02/13

New York distributors of highly sought after wines produced or imported in minimum quantities may soon be able to breathe a sigh of relief. The New York State Liquor Authority has issued a proposed advisory that, if approved, would let distributors favor their top accounts or prestigious retailers in their allocation of limited availability wine. New York state law prohibits wholesalers from discriminating between retailers. ABC §101-b. Wholesalers must file the price for the products they sell in New York, and provide their wines to any retailer that expresses an interest in purchasing any of their wines at the posted price:

No licensee shall refuse to sell any brand of liquor or wine to any licensee authorized to purchase such brand of liquor or wine from such licensee at the price listed in the schedule of prices … provided the purchaser pays cash therefore….

There is some flexibility for items with limited availability. ABC §101-b(4-a)(d) states, “For good cause shown to the satisfaction of the authority, permission may be granted for the filing of schedules limiting the distribution or resale of a brand to retailers.“

The proposed advisory provides additional details on what constitutes a limited availability wine and how a distributor can allocate those wines while still complying with New York ABC laws. The advisory applies to wines which the manufacturer, importer or wholesaler “has reason to believe market demand exceeds or will soon exceed available inventory” as well as wines for which those entities has price posted for subsequent vintages (i.e., older vintages of wines the distributor previously sold and price posted in New York). It also applies to wine that the distributor “dos not intend to purchase or cannot purchase further inventory for a period of at least one year,” “seasonal item[s],” discontinued items, and wines from suppliers with whom the supplier has ended its relationship.

If a wine falls into these categories, the manufacturer can notify the NYSLA that those wines are “limited availability,” and describe how they intend to allocate those wines. The advisory also specifies acceptable means of allocating limited availability wines. For example, distributors will be able to favor on-premise accounts in allocating limited availability wines; take into account past sales; and also favor retailers identified in “respected third party sources” such as the Michelin Guide, Zagat Guide, or Wine Spectator’s restaurant wine list award.

The NYSLA will consider the proposed advisory on July 17, 2013, and public comments are welcome. If approved, the revised guidelines will go into effect in September of this year.

For a copy of those guidelines as well as additional information on where to send public comments, please go to: http://www.sla.ny.gov/proposed-limited-availability-advisory

For more information or assistance on alcohol beverage law / wine law, 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

USPTO Finds Trademark CHAMPARTY Not Confusingly Similar to CHAMPAGNE Appellation

07/01/13

Comite Interprofessionel du Vin de Chamagne (CIVC) and Institut National de l’Origine et de la Qualite (INAO) who under French law are charged with controlling, promoting and protecting the common law certification mark CHAMPAGNE, opposed the registration of the mark CHAMPARTY for “alcoholic beverages except beers.” CIVC/INAO argued that the marks CHAMPAGNE and CHAMPARTY are confusingly similar.

The Trademark Trial and Appeal Board (Board) found the parties goods to be identical. While normally this factor alone would weigh heavily in favor of finding a likelihood of confusion, the Board found the marks CHAMPARTY and CHAMPAGNE dissimilar. The Board stated that “customers of average perceptual abilities would not mistake one mark for the other or find the marks to be significantly similar” even if used on identical goods. CIVC/INAO argued that CHAMPAGNE is often associated with celebrations and thus PARTY might suggest a connection with CHAMPAGNE especially given that the initial letters are identical in both marks. The Board was not persuaded as CHAMPAGNE is a term well known as a type of sparking wine, but CHAMPARTY has no literal meaning. In fact, the Board noted that the English word “party” is a prominent feature of the CHAMPARTY mark and that the PARTY portion of the mark is “likely to counteract the visual similarities between the two marks in the perception of the consumers.” Unfortunately for CIVC/INAO, there was no evidence of record that CHAMPAGNE is more closely connected with celebrations than that of any other alcoholic beverage. Similarly, the Board saw no support for the argument that consumers would view CHAMPARTY as a kind of “brand extension” of the CHAMPAGNE mark nor did not discern any other rationale why consumers might perceive a relationship or connection between the marks.

The Board concluded that the mark CHAMPARTY differs substantially from the mark CHAMPAGNE, “so as not to be likely to cause confusion, mistake or deception as to the source of applicant’s goods.” Alas, CIVC/INAO has the CHAMPAGNE, but nothing to celebrate.

Link to:

Comité Interprofessionel du Vin de Champagne and Institut National de l’Origine et de la Qualité v. Shlomo David Jehonadav, Opposition No. 91195709 (March 8, 2013) [not precedential].

For any questions or assistance on trademark matters contact Katja Loeffelholz at [email protected].

Chateauneuf-du-Pape Syndicat Denied by USPTO in Attempt to Protect Appellation

06/24/13

Like a bottle of Chateauneuf-du-Pape

I’m fine like wine when I start to rap

We need body rockin’, not perfection

Let me get some action from the back section

~ “Body Movin'” by The Beastie Boys

The Beastie Boys cannot be pleased and there undoubtedly will be no body rockin’ at the Syndicat Des Proprietaires Viticulteurs De Chateauneuf-Du-Pape.

On June 14, 2013, the U.S. Patent and Trademark Office (“USPTO”) Trademark Trial and Appeal Board (“TTAB”) issued a decision denying an opposition brought by the Syndicat Des Proprietaires Viticulteurs De Chateauneuf-Du-Pape against negociant Pasquier DesVignes which applied to register the trademark CHEMIN DES PAPES for wine. The Syndicat asserted a claim of confusing similarity based on a registered trademark for CHATEAUNEUF-DU-PAPE CONTROLE and Design for wine in class 33 (see below) and based on an alleged common law certification mark for CHATEAUNEUF-DU-PAPE for wine.

A link to the decision may be found here:

http://ttabvue.uspto.gov/ttabvue/ttabvue-91179408-OPP-104.pdf

While not krush groovin’, the case is quite interesting (to trademark lawyers and appellation geeks) on many levels. One of the more interesting issues (although not electro-shocking) is the strategy employed by the Syndicat in protecting the geographical indication “Chateuneuf-du-Pape” and how this played out in the opposition refusal.

The Syndicat claimed that it owned a common law geographical certification mark for CHATEAUNEUF-DU-PAPE under U.S. law as a result of the control it asserted over the appellation “Chateuneuf-du-Pape.” However, the TTAB found that the Syndicat could not claim ownership of a common law geographical certification mark in CHATEAUNEUF-DU-PAPE because there was evidence that other entities also controlled the use of the appellation, most notably L’institut National de l’Origine et de la Qualité (“INAO”), the French governmental agency in charge of appellation standards throughout France. The TTAB also noted that there was no evidence that there were any agreements between the Syndicat and these other parties as to control of the appellation (this is in contrast to other cases where the Bureau National Interprofessionel du Cognac successfully proved a common law geographical certification mark in COGNAC by demonstrating its relationship with INAO). As a result, the TTAB found that the Syndicat could not claim common law rights in CHATEAUNEUF-DU-PAPE as a geographical certification mark as it did not appear to have exclusive control over the term. Thus, the common law certification mark claim was not to be the Syndicat’s hyperspace in this game of Defender.

As a side note, during its analysis the TTAB did acknowledge that CHATEAUNEUF-DU-PAPE is a geographical indication, which we believe is the first time that the USPTO, or any other US governmental body, has acknowledged a term as a “geographical indication” thereby recognizing the legal significance of geographical indications in the U.S. This is of some consolation to some proponents of geographical indications, but not the robotic-satisfaction for which others may have hoped.

Having found that the Syndicat could not assert rights in a common law certification mark in CHATEAUNEUF-DU-PAPE, the TTAB turned to the claim of likelihood of confusion based on the registered trademark for CHATEAUNEUF-DU-PAPE CONTROLE and Design in class 33 for wine. The TTAB analysis of the fame of the CHATEAUNEUF-DU-PAPE CONTROLE and Design trademark turned back again to the issue of who actually controlled the appellation. The TTAB repeatedly questioned evidence of fame of the mark based on sales and advertising of wine identified as CHATEAUNEUF-DU-PAPE noting that the Syndicat did not own or exclusively control the appellation, but rather the mark CHATEAUNEUF-DU-PAPE CONTROLE and Design. Thus, evidence of sales and marketing for all CHATEAUNEUF-DU-PAPE wine could not support a claim that the Syndicat’s mark CHATEAUNEUF-DU-PAPE CONTROLE and Design was famous. So perhaps some body rockin’, but not perfection.

At the end of the day, whether or not the Syndicat was able to demonstrate that it owned common law rights in CHATEAUNEUF-DU-PAPE as a geographical certification mark was probably a moot point given the fact that the TTAB ultimately determined that CHEMIN DES PAPES and CHATEAUNEUF-DU-PAPES and Design were simply not similar given the differences between the marks and the fact that there were numerous other third party “PAPES” marks for wine in the marketplace such as L’ESPRIT DE PAPE, CAVES DES PAPES and VIEUX PAPES.This case is a good read for anyone interested in the intersection of geographical indications and trademarks and highlights the difficulty of trying to protect geographical indications as certification marks under U.S. law. Tell me party people, is that so wrong?

For questions or assistance on trademarks and geographical indications contact Scott Gerien at [email protected].

Third Party Providers: Current state of play in California and New York

06/24/13

The June 2013 edition of Wines & Vines Magazine / Practical Winery & Vineyard Journal contains an article by DP&F’s John Trinidad on working with Third Party Providers to increase winery sales. The article discusses the current state of play in both California and New York — two of the top wine consuming states in the U.S.Click on the image below or on this link to view a PDF of the article (made available with the permission of Wines & Vines / Practical Winery & Vineyard).

For more information or assistance regarding third party providers, 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

TTB Ruling on Voluntary Serving Facts Statements for Alcohol Beverage Labels and Advertising

06/04/13

Last week, the TTB issued an interim policy (TTB Ruling No. 2013-2) allowing alcohol beverage producers to voluntarily use nutrient content statements –often referred to as “Serving Facts statements ”– on labels and advertisements. The TTB’s ruling is part of an almost decade-long review of the use of nutrient content statements on alcohol beverage labels and advertisements.

Exemplar from TTB of Serving Facts Statement for 750ML bottle of wine
(NOTE: ABV and fl. oz of alcohol are optional)

Wine producers wishing to use Serving Fact statements on bottle labels should review the Ruling, and keep the following points in mind.

Serving Facts statements include the following information: serving size, the number of servings per container; and the number of calories, grams of carbohydrates, protein, and fat per serving size.
For wine of 7-16% ABV, the average serving size is 5 fluid ounces; for wine over 16% ABV but less than 24% ABV, the average serving size is 2.5 fluid ounces.
The Serving Facts panel may include (but does not need to include) the percentage of alcohol by volume. If the Serving Facts statement includes the ABV, then it may also include a statement of the number of ounces of alcohol per serving. However, the inclusion of ounces of alcohol per serving does not relieve an industry member from their obligation to comply with other regulations regarding the disclosure of alcohol by volume.
The tolerances and lab procedures for testing calorie, carbohydrate, protein, and fat content is laid out in TTB Procedure 2004-1.
No new COLA is required for simply adding a Serving Fact panel to your already approved label. In other words, you can simply add a neck or strip label to your already approved wine bottle label without submitting a new COLA application.
The rulemaking process regarding the use of Serving Fact statements is still ongoing and producers should keep in mind that the TTB ruling is simply a temporary policy until the rulemaking process is completed.

The TTB’s decision to allow producers to include information regarding the fluid ounces of alcohol per serving is of particular interest to wine industry members. The Wine Institute previously opposed the the inclusion of such information on Serving Fact statements, claiming that it would be confusing for consumers. Other alcohol beverage industry members, primarily Diageo, have been outspoken in their support of alcohol-per-serving statements.

For more information or assistance on TTB labeling issues, 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

New TTB Guidelines on Social Media and Alcohol Beverage Advertising

05/16/13

Earlier this week, the TTB issued an Industry Circular providing additional guidance for alcohol beverage producers, importers, and wholesalers using social media.

The TTB regulates the advertising of wine, distilled spirits, and beer, and generally prohibits deceptive or misleading advertising. The TTB also prohibits industry members from engaging in certain advertising practices or making certain statements. For example, wine advertisements may not disparage a competitor’s products or make statements or including designs that are “obscene or indecent.” There are a number of other restrictions in the Code of Federal Regulations.

In addition, there are certain mandatory statements that must appear in advertisements for alcohol beverages, including but not limited to the name and location of the industry member and the class and type of alcohol.

The Industry Circular makes clear that TTB’s regulations regarding mandatory statements and prohibited practices extends to social media channels, including social network services such as Facebook, video sharing sites such as YouTube, blogs, and “microblogs” (which according to TTB, includes Twitter and Tumblr), and mobile applications.

Here’s a quick summary of the guidelines regarding those channels:

Social Networks (incl. Facebook)	Applies to “fan pages for alcohol beverage products or companies and any content regarding alcohol beverage products posted to the pages by the industry member.” Mandatory statements must be included on any “member fan page,” and should not be “hidden or buried.” TTB “strongly recommends” these statements be included in a conspicuous location, such as the profile section of the fan page (such as the “About” section on a Facebook fan page).
Video Sharing Sites	Applies to “[v]ideos about alcohol beverages that are posted to video sharing sites by industry members.” Mandatory statements should be included in “profile” section of individual videos or on the “channel” information if the industry member maintains a channel.
Blogs	Applies to any blog maintained by an industry member that “discusses issues related to the company, its products, or the industry in general….” Also applies to “anything posted by the industry member on the blog” Mandatory statements must be included.
Microblogs (incl. Tumblr, Twitter)	Applies to any written statement “calculated to induce sales in interstate or foreign commerce.” Mandatory statements must be included and TTB recommends including these statements on the profile page.
Mobile Applications	Applies to apps for mobile or other handheld devices “related to alcohol beverages.” Such apps are considered “consumer specialty advertisement,” similar to ash trays, matches, cork screws, etc. Thus, only mandatory statement is the company name or brand name of the product.

A few interesting take-aways from reviewing the TTB guidelines.

First, industry members that maintain a social network presence, such as a Facebook fan page, are responsible for content that they post, but the advisory seems to carve out posts by consumers on industry member sites or pages. For example, in discussing social networks, the circular states: “TTB considers fan pages for alcohol beverage products or companies and any content regarding alcohol beverage products posted to the pages by the industry member to …[be] subject to the provisions of the FAA Act and TTB regulations.” By focusing on content “posted to the pages by the industry members,” the TTB apparently recognized that alcohol beverage companies should not be held responsible should a “fan” post a comment that violates federal regulations.

Second, the mandatory information provisions related to “microblogs” do not take into account the fact that Twitter’s profile is limited to 160 characters. While the TTB explicitly stated that each individual “microblog post” (i.e., “Tweet”) need not contain the mandatory statements because the 140 character limitation makes it “impractical” to do so, it also recommended that the mandatory statements should appear on the “microblog profile page.”

Third, the TTB also stated that if an industry member includes a “link” to another website or other content, the TTB may consider the contents of that link as part of the industry member’s advertisement. Thus, by including a link to other content, the industry member may be responsible should that content fail to comply with TTB advertising regulations.

Finally, the TTB Industry Circular made no mention of third party marketing websites, and whether producers were responsible should the content of those websites violate the advertising regulations.

While there are still some unanswered questions regarding federal regulation of alcohol beverage online advertising, one thing is clear: producers, importers, wholesalers, and anyone involved in the promotion or sale of alcohol beverages should comply with the mandatory statements and prohibited advertising practices regardless of what channel they use for advertising.

For more information or assistance on alcohol beverage advertising, 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

Diageo Americas v. Major Brands: Franchise Law Litigation and Forum Selection

04/19/13

Wineries big and small face difficulties in trying to terminate distribution ageements in franchise law states. We posted an article a few weeks ago about a lawsuit filed by Diageo Americas, Inc. against its Missouri distributor, Major Brands, Inc. Diageo has asked the federal district court in Connecticut to issue a declaratory judgment allowing the company to terminate its Missouri distribution agreement. The court will first have to determine which state (Connecticut or Missouri) is the proper forum to hear the parties’ dispute.

Diageo filed its complaint in federal district court in Connecticut pursuant to a “forum selection” clause in the agreements stating that jurisdiction and venue for any litigation between the parties would be in the State of Connecticut.

Major Brands wants this dispute heard in Missouri state court, and has taken numerous steps to take the case out of Connecticut. First, Major Brands filed its own lawsuit in Missouri (Cause No. 1322-CC00534) shortly after Diageo filed its complaint, claiming that Diageo’s attempted termination of the parties’ agreement violated Missouri franchise law. The Missouri lawsuit also names Mid-Continent Distributors, Inc. d/b/a Glazer’s Midwest as a co-defendant.

In addition, Major Brands filed a motion to dismiss Diageo’s federal court case in Connecticut earlier this month, arguing in part that the court should deem the forum selection clause unenforceable because of Missouri’s strong public policy interest in liquor control and protection of a Missouri franchisee. “Because of Missouri’s complex and specific regulations regarding both liquor control and termination of Missouri franchisees, a ruling by this Court would disrupt the State’s attempt to establish a coherent policy regarding these important concerns….” It is not surprising that Major Brands is attempting to keep the dispute in state court. Distributors in franchise states may believe that a state court provides a friendlier forum for their claims than federal court.

The Federal District Court’s ruling on Major Brand’s motion will be closely watched by suppliers and distributors in franchise law states. If the court denies the motion and concludes that the forum selection clause is enforceable, then alcohol beverage suppliers may be well served by including similar forum selection clause provisions in any agreement governing distribution in franchise states.

For more information on distributor termination or franchise law issues, please contact John Trinidad at [email protected].

The NYSLA Ruling – What it Really Means to Licensees and Third Party Marketers

04/12/13

We have received several questions from clients regarding the New York State Liquor Authority’s ruling on April 9, 2013 regarding the “legality of internet advertising platforms.” The ruling, which addresses the relationship between a New York state wholesaler, a New York state retailer, a third party internet marketer and ShipCompliant, is narrow and specifically applies only to sales under ShipCompliant’s MarketPlace Platform conducted through New York’s three tier system. The NYSLA does however also provide some guidance as to the type of third party marketing arrangements that would be permitted, pending issuance of a more thorough advisory on the matter in the future.

It is important to note that the ruling does not address or impact shipping by out of state wineries that hold direct to consumer shipper licenses for New York or the legality of ShipCompliant’s Producer Direct program used by some wineries to assist with their direct to consumer shipments.

Summary of NYSLA Decision

Following an inquiry into the relationships and responsibility of the involved parties, the NYSLA found that the retailer and wholesaler in this case (the “licensed sellers”) exercised little to no control over the sales being made by the third party marketer/advertiser and played a “passive” role. The unlicensed third party marketer, on the other hand, exercised a “high degree of control over the business operations of the participating licensed seller”, including selecting which wines would be sold, setting the prices at which the wine would be sold, managing the storage and shipment of the wines sold and controlling the advertising for the wines sold, all with little to no oversight from the licensed sellers. According to the NYSLA, the third party marketer also received a “predominant proportion of the proceeds from the sale of alcoholic beverages,” while the licensed sellers simply received a flat fee. Based on these facts, the NYSLA held that the unlicensed third party marketer/advertiser was making sales without a license and that, therefore, the “relationship between the advertiser and the licensed seller in the MarketPlace Platform system” violates New York state regulations which “prohibit a licensee from making its license available to a person who has not been approved by the NYSLA” to hold that license.

Because of the narrow nature of this decision, the NYSLA stated that it intended to issue an advisory that will provide comprehensive guidance to the industry on the involvement of unlicensed parties in Internet sales of alcohol beverages to consumers. However, until such time, the NYSLA offered the following guidance to industry members:

* Licensees may rely on an opinion by the NYSLA Office of Counsel that provides that “a third party may allow a licensee to advertise its products on the third party’s website, provided that consumers are directed to the licensee’s website to place an order” and that the third party’s compensation is limited to a flat fee that is not contingent on the number of sales or the amount sold.

* Arrangements where licensed sellers take a passive role and/or incur no business risk are prohibited.

* Arrangements where an advertiser, third party marketer or other unlicensed party performs or is permitted to perform retail functions, such as deciding what products will be sold, what prices should be charged, how funds are controlled and distributed or the amount of the licensee’s profits are prohibited.

* Arrangements where the compensation to a third party constitutes a substantial portion of the sales or sales made are prohibited.

Notably, the NYSLA made clear that in evaluating the legality of these types of arrangements, it would not only look at the written agreements between the parties, but would also “evaluat4e the actual, practical, day-to-day functioning of the arrangements”, as it did in this case.

Comparison to California ABC Third Party Provider Advisory

On November 1, 2011, the California Department of Alcoholic Beverage Control issued an advisory on Third Party Providers, in which it stated that unlicensed third party marketers can facilitate the sale of wine over the Internet, provided that the benefited alcoholic beverage licensee at all times retains control over all sales transactions, including all decisions regarding pricing, selection, shipping and fulfillment. Under the California Advisory, a third party marketer would therefore be permitted to place advertising for an alcoholic beverage at the direction of a licensee, make buying recommendations to a consumer, direct consumers to specific licensees, receive orders and pass them on to the licensee for acceptance and fulfillment, process payments (although the licensee ultimately must control the funds and the flow of funds) and assist with shipping arrangements. But again, the licensee must at all times retain control over pricing, selection and fulfillment. The third party marketers may be compensated for their services, so long as the compensation is reasonable and does not result in any “actual or de facto control” over the licensee by the third party marketer.

The CA Advisory and the NYSLA ruling are consistent to the extent that both require that control for alcoholic beverage sales be held by a licensed seller. However, there are notable differences between the approaches taken by these two agencies and it is unclear whether the NYSLA’s ultimate stance on these issues will be in line with the CA ABC. For instance, the NYSLA suggested that, pending the NYSLA’s definitive statement on these issues, licensees should rely on an opinion by the NYSLA Office of Counsel that provides that “a third party may allow a licensee to advertise its products on the third party’s website, provided that consumers are directed to the licensee’s website to place an order” and that the third party’s compensation is limited to a flat fee that is not contingent on the number of sales or the amount sold. These requirements are not included in the CA ABC Advisory and in fact sales made on third party marketers’ sites (rather than on the licensee’s site) and reasonable fee arrangements (other than solely flat fees) would be permissible under California’s regulations so long as they comply with the remaining portions of the CA ABC Advisory and California alcoholic beverage rules and regulations.

A final decision on the permissibility of sales of alcoholic beverages using third party marketers will be forthcoming from the NYSLA and NYSLA intends to hold public hearings on the matter, allowing interested parties the opportunity to present their positions. In the meantime, license holders, third party marketers and other entities participating in third party marketing-type sales in New York should operate in accordance with the guidelines set forth by the NYSLA in the ruling.

In the end, licensees, third party marketers and other parties involved with these transactions should keep in mind that the sales of alcoholic beverages using third party marketers remains a grey area and should keep close eye on how these issues develop throughout the country.

For more information or assistance with third party marketing issues, please contact Bahaneh Hobel at [email protected]

Franchise Laws and Diageo’s Recent Distributor Termination Action in Missouri

04/08/13

Ohio,New Jersey,North Carolina,Virginia, and a number of other states restrict a winery’s ability to terminate distributors in that state through “franchise laws.” The Virginia Wine Franchise Act, for example, prevents a winery from unilaterally amending, cancelling, terminating or refusing to renew anyVirginia distribution agreement absent good cause, and good cause is very narrowly defined. A winery wishing to end its distributor agreement in violation of franchise laws may face stiff penalties. InNorth Carolina, violation of state franchise laws may lead to the suspension of sale of the alcohol beverage supplier’s products in that state or revocation of a winery’s permit. In Missouri, Missouri Revised Statutes Sec. 407.413, an alcohol beverage supplier is prohibited from “unilaterally terminat[ing] or refus[ing] to continue or change substantially the condition of any franchise with the wholesaler unless the supplier has first established good cause for such termination, non continuance or change.” Good cause is limited to failure by the wholesaler to comply with the provisions of the supplier-wholesaler agreement, bad faith or failure to observe reasonable commercial standards of fair dealing, or revocation or suspension of the wholesaler’s federal permit or state/local licenses.

We usually see this alleged “breach of franchise agreement” used as the basis for a counter-claim by the purchaser of our client’s wine. Typically, XYZ Winery sells its wine to a retail establishment in a franchise state, which then doesn’t pay for the wine. When our client sues the purchaser in California state court, the purchaser counter sues for breach of the alleged franchise agreement, and will sometimes remove the case to federal court. The purchaser will then use the cost of litigation of its counter-claim to negotiate a discount on the amount owed, or a complete “walk-away” settlement.

In a recent Missouri case, however, Diageo sued its distributor in the state to terminate its distribution agreement. Diageo argues thatMissouri state law should not apply to the two distribution contracts in question. Diageo relies on language in its distribution contract with Major Brands that states that the contract’s terms are to be governed by Connecticut law for certain products, and New York law for certain other products. In the alternative, Diageo argues that it has good cause to terminate the agreement should Missouri law apply, claiming that Major Brands failed to devote sufficient resources to the promotion of Diageo’s products, among other things.

We will be watching this case and will report on its outcome.

For more information or assistance on distributor termination issues contact David Balter ([email protected]) or John Trinidad ([email protected]).

Vineyard Purchases: Avoid Attorney Fees, Get a Survey

02/25/13

All too often purchasers of real property make assumptions about the extent of land included in their purchase, relying on visible landmarks such as tree lines and existing fences. Despite the opportunity, and many times admonitions, to engage a land surveyor prior to the consummation of a purchase, prospective buyers often times wait until after the fact, or not at all, to conduct a survey. In doing so, the buyers may be setting themselves up for serious consequences that translate into large dollar expenditures.

Let’s assume that you’ve purchased land on which you intend to plant a vineyard. Let’s further assume that there is an existing fence that you were either told or presumed was the common boundary between you and your adjacent neighbor. Now let’s go one step further and assume that you have gone to the time, trouble and expense of assessing the soil, contracting for vines, installing the trellising and irrigation and planting the vines. All is proceeding along until the adjacent land is sold, the new neighbor has a survey performed, and several rows of your maturing vines are now indisputably located on your neighbor’s property. What recourse do you have? Californialaw provides for use and ownership interests in the lands of others provided that certain conditions are satisfied.

You may claim a possessory (versus ownership) right if you have used the land in question openly and notoriously, under claim of right (without permission), for five continuous uninterrupted years, hostilely (figuratively speaking) to the true owner of the property in question. If you personally have not used the land in question for five continuous years, you may be able to “tack” your predecessor’s time of possession onto your actual possession to satisfy the five-year time frame. Assuming you can unequivocally establish these five elements, you may claim a prescriptive easement in the property; a right to use the property distinct from ownership of it.

If you can establish one more element, i.e., that you paid real property taxes on the land in question for five continuous years, you may be able to claim exclusive possession, i.e., ownership, of the property under the theory of adverse possession. You have the burden of proving that you not only used the property openly and notoriously, under claim of right, for five continuous uninterrupted years, hostilely to the true owner, but also that you paid the assessed taxes on the property.

Conclusively establishing your claim of use under a prescriptive easement or ownership under adverse possession often times requires a lawsuit to quiet title, which can be an expensive proposition.

When buying land for a vineyard or even planting a vineyard on land you believe have owned for a while, engaging a professional land surveyor to confirm the exact boundary line may be the proverbial ounce of prevention needed to avoid costly issues in the future.

For more information on real estate issues contact Delphine Adams at [email protected]

Wine Industry Lawsuits: How to Avoid Them

02/22/13

No one expects to have to go to court when they start a business deal or venture, or when they plant a vineyard or purchase real estate, but in today’s world no industry is free from lawsuits, particularly not the wine industry. Disputes over grape purchase agreements (duration, termination, quality standards, etc.), vineyard development agreements (quality of vines, planting and maintenance, and sufficiency of site evaluation and preparation, etc.), wine storage agreements (condition of wine, losses, damage to wine, etc.), custom crush agreements(compensation, quality control, etc.), real property matters (title, ownership, boundaries, easements, etc.), and even employment relationships (statutory requirements, executive agreements, workplace safety, etc.) can rise to the level of a lawsuit involving the smallest or largest members of the wine community and costing from tens of thousands to hundreds of thousands of dollars. All too often, however, it is not until the fighting begins that the parties and their attorneys look back and see where the dispute could have been avoided or at least how the parties could have better protected themselves before the dispute arose.

Simple measures are usually the most effective. For example, many people don’t review their written agreements until a dispute arises, and then they often find that the paperwork does not read like they recalled it read, or they find that the agreement is ambiguous on a matter that was not an issue until circumstances changed. Instead of shelving your paperwork once it’s signed, there is tremendous value in periodically reviewing written agreements to confirm that they match your understanding of a deal, as well as to confirm that the agreement is being correctly followed. Such a review can, but need not, involve the assistance of counsel. At the very least, such reviews help keep everyone on track while they are still getting along, and when things are not on track, the parties can usually make mid-course corrections in the paperwork or their conduct (or both) without much debate or fanfare because there is no dispute pending. Once a dispute arises, however, such corrective measures are more difficult to achieve.

It is even more important to take such a proactive approach in cases that do not involve written agreements because differences in recollection often cloud the dispute resolution process once a legal battle has begun.

Likewise, where property issues are involved, it is better to find out about your state of title before you are in a dispute with a neighbor. Such early knowledge not only presents the opportunity to find a solution with your neighbor while everyone still gets along (or at least has not been antagonized by the existence of dispute), but it also allows you to get properly informed as to what you should or should not do to protect your property rights in the absence of a negotiated solution since many of the legal rules involved with property disputes are counter-intuitive to non attorneys.

In short, sometimes you need to look back to move forward in the safest way.

For more information or assistance on litigation matters, and how to prevent them, contact Paul Carey at [email protected]

New York State Liquor Authority to Examine Third Party Marketing

01/11/13

The New York State Liquor Authority (“NY SLA”) is holding a special meeting on January 17, 2013 to discuss the role of third party providers in internet advertising and sales. This meeting is the result of a request from ShipCompliant for a declaratory ruling that its MarketPlace Platform does not violate New York state laws or NY SLA rules.Wineries as well as third party marketers should closely follow the result of this meeting, as it will impact their ability to market wine to New York state residents. These same entities have until end of the day on January 11, 2013 to submit comments to the NY SLA. Interested parties can attend the meeting, which is scheduled to start at 1pm at the NY SLA office in New York City (317 Lenox Avenue, New York, NY).

According to ShipCompliant and Wines & Vines presentation, New York is among the top three states for direct to consumer wine sales.

For more information on third party providers and third party marketing, please contact John Trinidad at [email protected].

Food Facilities Registration for Alternating Proprietors and Mobile Bottling Units

12/13/12

In October, we published a blog post regarding the 2002 Bioterrorism Act which required “food facilities” to register with the FDA. Given some of the uncertainties regarding what constitutes a “food facility,” a follow up post seemed appropriate.In 2002, Congress passed the Public Health Security and Bioterrorism Preparedness and Response Act (often referred to simply as the “Bioterrorism Act”), directing the FDA to take steps to protect the general public from potential terrorist attacks on the nation’s food supply. Part of that law requires all owners, operators, or agents of facilities that manufacture, process, pack, or hold food for consumption in the U.S. to register with the FDA. The food facilities registration can be completed online and there is no registration fee.

The regulations define “facilities” as “any establishment, structure, or structures under one ownership at one general physical location… that manufactures/processes, packs, or holds food for consumption in the United States.” 21 C.F.R. § 1.227(a)(2). Food includes alcohol beverages, such as wine. 21 C.F.R. § 1.227(a)(4)(ii).

In drafting the regulations, the FDA anticipated the potential of two or more owners sharing the same physical space. “A facility may consist of one or more contiguous structures, and a single building may house more than one distinct facility if the facilities are under separate ownership.” 21 C.F.R. § 1.227(a)(2). Thus, each alternating proprietor at a host winery must register even if the host winery has already registered.

The FDA also took into account mobile facilities that travel to multiple locations for the processing, packaging, or holding of food, unless the vehicle is being used “to hold food only in the usual course of business as carriers.” 21 C.F.R. § 1.227(a)(2). Therefore, mobile bottling units are considered facilities for the purpose of the 2002 Bioterrorism Act, and should be registered with the FDA.

Please contact us if you have any questions regarding the registration process.

Is a COLA necessary to Establish Lawful Use of a Wine Trademark?

11/27/12

In the United States, trademark rights may be established through the lawful use of a mark in association with goods in commerce. When one is selling a product that is not subject to government regulation, such as t-shirts, it is fairly simple to make lawful use of a mark in commerce; you label the t-shirt with your trademark and you then offer it for sale via the Internet, a retail store, or some other sales outlet. However, when it comes to products that are regulated by the government, such as wine, there is the additional question of whether a use is lawful if the seller of the wine has not complied with all of the government regulations necessary to sell the product. For instance, the Alcohol and Tobacco Tax and Trade Bureau (“TTB”) requires that before a wine may be released from bond or Customs a party must first obtain a Certificate of Label Approval (“COLA”) for the label for such wine. So, if a party has not obtained a COLA when it first sells its wine, can that party establish lawful use of the mark in commerce as of that date of first sale absent the COLA?

This issue was recently addressed in a proceeding before the U.S. Patent and Trademark Office (“USPTO”) Trademark Trial and Appeal Board (“TTAB”) in the case of Churchill Cellars, Inc. v. Brian Graham, Opp. No. 91193930 (TTAB 2012). Following is a link to the opinion: http://ttabvue.uspto.gov/ttabvue/ttabvue-91193930-OPP-23.pdf

In the Churchill case the TTAB found that even though the party claiming rights in the trademark at issue had not first obtained a COLA before making use of the mark on wine in commerce, such use was not necessarily unlawful so as to preclude the establishment of trademark rights. The TTAB noted that it is not in a position to evaluate whether a party is in compliance with the regulatory schemes of other government agencies and absent some finding from a Court or an administrative agency such as TTB, TTAB cannot make a determination of whether the administrative failure to obtain a COLA made the use of the mark on the wine illegal. The TTAB further noted that there was no evidence that the party would have been denied a COLA had it applied for one, and in fact a COLA was subsequently obtained for the label featuring the mark by the producer of the wine. Therefore, TTAB concluded that it would not deny the party its claim of trademark rights simply because it failed to follow an administrative procedure.

This is good news in the sense that a party cannot be denied its trademark simply because it did not obtain a COLA. However, it can hardly be recommended that a party attempt to make use of a mark before obtaining a COLA simply to establish trademark rights. Had the party opposing the trademark in this case raised the issue with TTB of the other party’s failure to obtain a COLA it is possible that there may have been a decision from TTB finding the sale of the wine to be unlawful thereby providing the USPTO TTAB with a basis for finding that the use of the mark was also unlawful. Furthermore, the sale of wine without a COLA could result in significant penalties from TTB which could have a much more significant impact on a winery’s overall business. Thus, while this decision may be positive from a trademark rights perspective, it should not act to encourage wineries to sell wine without a COLA simply to establish trademark rights.

From a legal analysis perspective, it should also be noted that this decision is precedent in the USPTO where decisions are made as to registration of trademarks. However, the USPTO has no jurisdiction to stop a party from using a mark. Such jurisdiction rests exclusively with the state and federal courts. Furthermore, the decision of the Ninth Circuit Court of Appeals in the case of CreAgri, Inc. v. Usana Health Services, Inc., 474 F.3d 626 (9^th Cir. 2007) took an arguably broader view of the unlawful use issue in the context of labeling requirements for dietary supplements under the Food, Drug and Cosmetic Act such that it could be argued that the Ninth Circuit could reach a decision different than that reached by the TTAB in the Churchill Cellars case.

Therefore, it seems apparent that it is still in a winery’s best interest to obtain a COLA before selling a wine rather than selling the wine without the COLA simply to establish trademark rights. The better course of action to quickly establish trademark rights in a wine brand is to file an intent-to-use trademark application with the USPTO which establishes rights as of the day of filing without having to first use the mark in commerce, lawfully or unlawfully.

For any questions or assistance on trademark matters contact Scott Gerien at [email protected]

Wineries and Vineyards Need Not be Frightened by Bioterrorism Act Rules and Requirements

10/23/12

Is your winery or tasting room registered under the Bioterrorism Act? If so, did you know that this year you are required to renew your registration? If not, are you sure you’re not required to register? Despite its sinister-sounding name, the Bioterrorism Act is nothing to fear. Let’s review some of the basics:

1. What is the Bioterrorism Act? According to Federal Register Interim Final Rule – 68 FR 58893, the purpose of Bioterrorism Act registration is to enable the FDA to act quickly in responding to a threatened or actual terrorist attack on the U.S. food supply by giving FDA information about facilities that manufacture/process, pack, or hold food for consumption in the United States. Additionally, in the event of an outbreak of food-borne illness, such information will help FDA and other authorities determine the source and cause of the event, and quickly notify the facilities that might be affected by the outbreak.

2. Who is required to register? In general, any facility engaged in manufacturing, processing, packing, or holding food for consumption in theUnited States is required to register. Note that “food” includes alcoholic beverages. Therefore, wineries, custom crush facilities and warehouse facilities that meet the definition will need to register.

3. Who is exempt from registration? Since the rules are pretty broad and complex, we’re just going to focus on the likely exemptions for winery and vineyard related businesses here.

A. Farms don’t have to register unless they are also production facilities. This exempts many grape growers from the registration requirements.

B. Tasting rooms don’t have to register if they sell food products directly to consumers as their primary function. The FDA definition of “consumers” does not include other businesses. In order to calculate the “primary function” of a business, the test is whether the dollar value in sales of food products sold directly to consumers exceeds the value of sales to all other buyers. In other words, if you’re selling most of your wine directly to consumers out of your tasting room then you are considered a “retail food establishment” and don’t need to register. However, if your tasting room is on-site at the winery, the facility will need to register, since it will be considered a “mixed-use” facility.

4. When do I need to register? If you are required to register you should have done so already. The registration requirements have been in place since 2003. Registration is a fairly straightforward process and can be completed online.

If you are already registered, it’s time to re-register! Registration renewal is required under 21 U.S.C. § 350d(a)(3). Specifically, during the period beginning on October 1 and ending on December 31 of each even-numbered year, each registrant must renew their registration.

5. How do I register? You can mail in the questionnaire, or submit it online. Information on how and when to register can be found through the link above. While you may have read that renewal registrations were not yet open, the FDA site has recently begun accepting renewals.

For assistance with the registration process or with other questions related to winery or grower issues, please contact Dickenson, Peatman & Fogarty at [email protected].

Insight into TTB’s Approach to AVAs: The Inwood Valley AVA

10/17/12

Since the establishment of the Augusta AVA in 1980, ATF, and now TTB, has varied its approach to executing its legislatively delegated task of establishing American Viticultural Areas (AVAs). In early 2011, TTB amended the AVA rules entirely. With the recognition of the Inwood Valley AVA, effective as of October 15, 2012, we gain insight into TTB’s process and priorities when reviewing petitions to form new AVAs.

As originally conceived and petitioned to TTB, the Inwood Valley AVA was to be a 32,647 acre viticultural area with 60 acres of vines planted in 4 vineyards. TTB pushed an amendment prior to publishing the Notice of Proposed Rulemaking (NPRM), which reduced the acreage to 28,298 acres and used distinctive soil types to reform the boundaries. TTB sought to remove areas not containing viticultural activities from the AVA. TTB received four comments to the NPRM- 3 supported the formation of the new AVA and 1 opposed the name “Inwood Valley” on the ground that labels with the “Inwood” name would be unable to add the word “Valley” to a future label without satisfying the 85% grape source requirement. Because no existing labels would be impacted by forming the AVA, TTB dismissed the objection.

After the comment period closed, TTB received a comment from a vineyard owner just outside the proposed AVA boundary who wanted to be included. TTB found that a “slight modification to the boundary to include the vineyard at issue is consistent with the distinguishing features evidence submitted….” As a result, Inwood Valley AVA, as established, is a 28,441 acre viticultural area with 62.5 acres planted to wine grape vines or 0.2% of the AVA planted for viticulture. Although in response to a supportive comment to the NPRM, TTB noted that “Whether or not, and to what extent, there is any economic benefit from the approval of a viticultural area is not a factor that TTB considers in determining whether or not to approve a petition for a viticultural area,” it seems clear that TTB does consider whether the formation of an AVA will disenfranchise wine industry participants. The Federal Register excerpt for the establishment of the Inwood Valley AVA may be found at the following link:

http://www.gpo.gov/fdsys/pkg/FR-2012-09-13/pdf/2012-22595.pdf

For more information or assistance on petitions for establishment of AVAs contact Carol Kingery Ritter at [email protected]