Monterey County Wines Subject to New Conjunctive Labeling Requirements
Are you planning on bottling and labeling any wines with the name of a Monterey County AVA in the new year? Then you’ll need to comply with a new conjunctive labeling requirement. See Cal. Business and Professions Code Sec. 25247.
In 2015, the state legislature passed a law requiring wine labeled with the name of an AVA that is entirely within Monterey County to also include a “Monterey County” designation. This includes the Arroyo Seco, Carmel Valley, and Santa Lucia Highlands AVAs. The law applies to wines bottled on or after January 1, 2019.
The law does not apply to AVAs that straddle Monterey County and any other county. For example, the Chalone AVA bridges Monterey County and Benito County, so a wine labeled with the Chalone AVA is not covered by Sec. 25247.
There is one other exception to the conjunctive labeling requirement: wines labeled with the Monterey AVA. This is where things get a little confusing. Under federal law, a wine can carry the name of a county as an appellation of wine origin. AVAs are also considered appellations, but in order to carry the name of an AVA, a higher percentage of the grapes must come from that AVA. In both cases, the wine must be fully finished in the state in which the county or AVA is located (assuming the AVA is entirely within one state).
Federal regulations recognize both a “Monterey County” appellation, as well as a Monterey AVA. The Monterey AVA is located in Monterey County, but does not cover all of Monterey County (see map below). Any wine that is labeled with the Monterey AVA is exempt from the California conjunctive labeling requirement found in Cal. Business and Professions Code Sec. 25247.
For more information regarding conjunctive labeling or wine labeling regulations, please contact John Trinidad.
Protecting Wine Origins is Pro-Consumer and Pro-Industry
TTB’s attempt to put an end to an inherently misleading labeling practice and protect the AVA wine origin labeling rules has garnered significant reaction from certain commentators and some in the industry. In order to shed some light on the proposed amendments to federal labeling rules and why Napa Valley Vintners, the Wine Institute, over 50 members of Congress and others have supported TTB’s Notice of Proposed Rulemaking 160, we have prepared the following summary.
I. Current regulations allow certain wineries to employ misleading labeling practices.
Producers selling wine in interstate commerce must obtain a Certificate of Label Approval (“COLA”) and comply with federal regulations aimed at protecting consumers from misleading labeling practices. This includes federal standards for using vintage date, grape variety designations, and wine origin designations such as county, state, and country appellations and American Viticultural Areas (“AVAs”).
Wineries wishing to avoid enforcement of these federal truth-in-labeling standards can do so simply by filing for a COLA exemption and noting on the wine bottle that the wine is “For Sale Only” in the state in which the producing winery is located. This leads to the potential for misleading wine labeling practices. For example, federal regulations require that an AVA wine sold in interstate commerce with a 2015 vintage date must be made from at least 95% grapes grown in that vintage. But those regulations do not apply, and therefore would not prevent, a wine with a certificate of label approval exemption from using a lower percentage of 2015 harvested grapes and still being labeled as “2015.” Wines with certificates of label approval can be labeled with a varietal name, such as Pinot Noir, if it is made from at least 75% of grapes of that variety, but get an exemption and slap on a “For Sale Only” sticker, and then there is no obligation under federal regulations that the wine meet that 75% requirement.
Certain wineries have taken advantage of this COLA exemption loophole to designate their wine with an AVA while not complying with federal standards governing wine origin labeling, specifically, 27 C.F.R. Sec. 4.25 which requires that wine labeled with an AVA (a) be derived 85 percent or more from grapes grown within the boundaries of that AVA, and (b) be fully finished within the state in which the AVA is located. This “fully finished” federal requirement ensures that California wine production and labeling laws apply to wines that are identified with a California appellation or AVA.
These federal appellation labeling rules assure consumers that when they buy an appellation-designated wine, they are buying a product wherein both the grape source and the place of production are closely tied to the named place. Absent such rules, retail shelves could be stocked with wine labeled as “Burgundy” that was made in Sweden, “Barolo” that was actually produced in Slovenia, or “Sonoma Coast” made in Alaska.
II. TTB’s Notice 160 Proposes to Close the Loophole By Requiring All Wines to Follow the Same Vintage, Variety, and Appellation Labeling Standards.
In September 2015, 51 members of Congress wrote to TTB with a fairly simple request: “ensure that all wines bearing AVA terms—regardless of where they are sold—meet the clear and understandable American Viticultural Area rules.”
On June 22, 2016, the U.S. Department of Treasury’s Alcohol and Tobacco Tax and Trade Bureau (TTB) responded by issuing Notice of Proposed Rulemaking 160, in which the agency proposed eliminating the COLA-exemption loophole by requiring COLA-exempt wines to comply with federal standards for vintage, varietal, and wine origin designations and to keep records to support such labeling claims. TTB subsequently granted a 90-day extension on September 8, 2016 and, in so doing, requested “comments regarding whether any geographic reference to the source of the grapes used in the wine could be included on a wine label in a way that would not be misleading with regard to the source of the wine” (emphasis added).
III. NVV and Wine Institute Support Notice 160 to Put an End to Misleading Labeling Practices.
Napa Valley Vintners (NVV), a non-profit trade association with over 500 members and our client, issued a comment letter supporting Notice 160, pointing out that the COLA exemption loophole was being used to mislead consumers and allow COLA-exempt wines to “unfairly benefit from the goodwill and brand recognition of appellation names without having to comply with the appellation regulations.”
NVV also pointed out that out-of-state wineries passing off their products as California wines by using the names of California appellations on their wine labels were able to avoid compliance with state laws regarding wine production and labeling. For example, wines produced outside of California but labeled with the name of a California AVA have no obligation to follow the state’s conjunctive labeling, wine composition and production, or misleading brand name statutes.
Similarly, wines produced outside of Oregon but using the name of an Oregon AVA, would have no requirement to follow the much stricter Oregon varietal composition (requiring at least 90% for most varieties) and appellation of origin (requiring 100% from Oregon and 95% for all other appellations). As David Adelsheim, founder of Oregon’s Adelsheim Vineyard, pointed out in his support of Notice 160, “the reputation of Oregon’s AVAs, hard won through years of experimentation and work” would suffer as a result of allowing COLA exempt wines to avoid enforcement of state wine-related laws.
After significant consultation, Napa Valley Vintners (NVV) and Wine Institute, a public policy advocacy association representing over a thousand California wineries and affiliated businesses responsible for 85 percent of the nation’s wine production and more than 90 percent of U.S. wine exports, issued a joint letter in further support of Notice 160, noting that the proposed amendments “put an end to the inherently misleading practice of using a Certificate of Label Approval … exemption to avoid compliance with federal labeling laws.” Sonoma County Vintners also issued a letter in full support of the NVV and Wine Institute position.
IV. NVV and Wine Institute Put Forward a Proposal that Allows For Optional Grape Source Information for COLA Exempt Wines.
In their joint letter, NVV and Wine Institute directly respond to TTB’s request for information as to whether grape source information could be included on COLA-exempt wines in a manner that was not misleading as to wine origin designations. The joint proposal directly addresses concerns that Notice 160 would prevent producers from providing consumers with truthful information regarding where the grapes used to make the wine came from, and at the same time protects AVA names as designators of wine origin. It also addresses concerns raised by wineries that had previously used COLA exemptions suggesting that they could continue to label their wine with truthful vintage and variety designations..
The NVV / Wine Institute proposal permits wineries to provide the following “Grape Source Information” on their wine: (a) the name of the county(-ies) and state(s), or just the state(s), where all of the grapes are grown; (b) the percentage of the wine derived from grapes grown in each county or state shown on the label; and (c) the city and state, or just the state, where the wine was fully finished. In order to avoid any confusion with wine origin designations, no name of an AVA (other than a county or a state) could be used as part of the Grape Source Information, and the wine itself would have to be designated using the “American” appellation. By using the American Appellation, (under current Federal regulations), the wine could also be designated with the vintage and grape varietal.
In short, NVV and Wine Institute are in favor of truthful labeling practices that protect the integrity of the AVA system. The goal of the joint proposal is simple: when consumers come across a wine labeled with an AVA name, they should be assured that the wine actually meets the legal standards for AVA labeling.
V. Support for Notice 160 comes from Industry Members That Believe Protecting Wine Origin Labeling is both Pro-Consumer, Pro-Grower, and Pro-Vintner.
Notice 160 is supported by a broad swath of industry members that believe the integrity of wine origin labeling regulations is essential to the U.S. wine industry. Regional associations (including the New York Wine Industry Association and Washington Wine Institute) and industry members from well-established as well as up-and-coming wine growing regions have written to TTB to note their support for the proposed amendments.
For example, Andy Beckstoffer, a noted grape grower with vineyards in Napa Valley as well as the Red Hills Lake County AVA wrote TTB to voice approval of Notice 160, stating:
It is vitally important to grape growers that the integrity of the AVA system be maintained, and I applaud TTB’s efforts in ensuring that all wine labeled with the name of an AVA meet the well-established federal wine labeling requirements. Grape growers, whether they farm vineyards in well established AVAs or in newer AVAs, benefit greatly from regulatory efforts to protect those place names.
This sentiment was shared by the High Plains Winegrowers Association, a group of winegrowers and vintners from the Texas High Plains AVA. They feared that the current COLA exemption loophole “is detrimental to Texas wineries that support locally grown wine grapes,” and further concluded that “[f]ailing to uniformly treat the labeling of all wine—whether distributed in-state or in interstate commerce—results in inequitable treatment within the same industry.” Douglas Lewis, a Texas Winemaker, also supports Notice 160 because it “helps consumers get more accurate information [about wine origin] by closing the loop hole.” And Andrew Chalk, a Dallas based wine writer, noted that by eliminating the COLA exemption loophole, TTB would be “remov[ing] the biggest impediment to the Texas wine industry’s growth.”
Notice 160 has caught the attention of industry members since it was first issued back in June, over 170 days ago, as more than 100 comments have been submitted to TTB on this matter. TTB will consider those comments as it comes to a decision on whether: (a) the COLA exemption loophole should continue to exist; and, (b) additional and truthful grape source information can be included on such wines in a way that does not undermine the AVA system for wine origin designation.
Wine industry members and consumers who believe that wine is a product of place and that place names are worthy of protection should support Notice 160. Although certain individuals may benefit financially from the COLA-exemption loophole, that is no reason for the federal government to allow an inherently misleading labeling practice to continue unabated. Moreover, elimination of the COLA-exemption loophole does not necessarily prohibit wineries from providing additional truthful, non-misleading information about grape sourcing. Any regulation that allows for such information, however, must also be crafted in a manner that maintains the integrity of the AVA regulatory system. The joint NVV / Wine Institute proposal does just that.
Furthermore, if the U.S. allows U.S. wineries to skirt the rules for proper use of American appellations and American Viticultural Areas, then the U.S. will be in no position to insist that other countries require that their wineries also follow the rules in respect of American appellations and American Viticultural Areas. Undoubtedly wine production is less costly in countries outside the U.S., and if wine grapes from Napa Valley can be shipped to Texas and the wine produced in Texas is allowed to use the “Napa Valley” AVA on the label, there is no basis to object to a Chinese or Canadian winery producing a “Napa Valley” wine from Napa Valley grapes shipped to those countries. Not only is that bad for the U.S. industry, but it diminishes the value of the AVA and harms all consumers.
NOTE – DP&F serves as outside counsel to several regional wine trade associations including Napa Valley Vintners with interests in protecting the integrity of regional appellations.
TTB Proposes to Shut Down COLA Exemption Appellation Labeling Loophole
The U.S. Department of Treasury’s Alcohol and Tobacco Tax and Trade Bureau (TTB) has proposed amendments to federal wine labeling laws that protect the integrity of the appellation of origin labeling system in its Notice of Proposed Rulemaking No. 160 (NPRM 160). If adopted, the proposed amendments would close off a loophole that allows certain wines to be labeled with the name of an appellation of origin, including the name of an American Viticultural Area (AVA), even though those wines do not meet the strict legal requirements for appellation labeling.
A winery wishing to sell AVA-labeled wines in interstate commerce must meet strict criteria. Specifically, not less than 85 percent of the wine must be derived from grapes grown in the AVA and the wine needs to be fully finished in the state (or in the case of a multi-state AVA, in one of the states) in which the AVA is located. 27 C.F.R. §4.25(e)(3)(iv). The second prong of this test ensures that wines that carry an AVA name also comply with the laws of the state in which the AVA is located regarding wine production, composition and labeling – laws that state legislatures adopted in order to protect and promote their local wine growing regions.
However, under the current system, wineries that choose to sell wine solely within their home state can apply for a Certificate of Label Approval (COLA) exemption for that wine, and benefits from the use of an appellation name to market their wine without having to comply with the federal and state requirements mentioned above. TTB’s proposed rule would eliminate this loophole and thereby create a uniform system for the use of appellations of origin and AVAs on wine labels.
By creating one set of rules that all wineries must follow in labeling wines with appellation names, the proposed amendment not only prevents unfair competition among wineries, but also protects against consumer confusion. Let’s say an Indiana consumer comes across a wine labeled with the Napa Valley AVA, produced and by an Indiana winery and sold in Indiana pursuant to a COLA exemption. Because the wine is marketed and sold under the Napa Valley AVA, the consumer is led to believe that the wine meets all the criteria necessary for the use of the Napa Valley AVA. But that’s not the case. That wine, even if made from 85% Napa Valley grapes, was not fully finished in California, which is a requirement for use of the Napa Valley AVA, and it was not subject to California’s production, composition, and labeling laws. TTB’s proposed amendments would ensure that when consumers are evaluating wines carrying a certain AVA name, they are assured that those wines have all met the same standard.
Furthermore, the proposed rule protects the significant investment states have made in promoting and regulating the use of their regional wine appellations which provide significant financial contributions to their state economies. If the TTB were to continue to allow wineries in other states to use appellations in disregard of the TTB rules and flout the rules of the states in which the appellations are located, the U.S. would have very little recourse in objecting to the foreign use of those same appellations if the grapes were shipped to other countries and the wine produced overseas. Surely the U.S. wine industry does not wish to see a wine labeled with the name of a U.S. AVA or appellation produced in China or Australia and shipped throughout the world in direct competition with such same domestically produced wines. Such a result would severely undermine the integrity and “brand value” of U.S. AVAs and appellations of origin around the world and impair the ability of U.S. wineries to compete in the global wine market.
The adoption of regulations aimed at closing off a loophole will invariably have an impact on those that have relied on the existence of that loophole as part of their business plan. But that alone is not sufficient to reject reforms needed to create a uniform standard and protect against potential consumer confusion. The AVA system has been a fundamental component of the growth of the U.S. wine industry, and TTB’s proposed amendments are necessary to protect the integrity of that system.
NOTE – DP&F serves as outside counsel to several regional wine trade associations with interests in protecting the integrity of regional appellations