New Law on Winery Social Media Ads for Certain Retailer-Hosted Events
Governor Brown recently signed into law AB2452, a bill that grants wineries broader privileges in the use of social media to promote certain events held at retailer premises, such as winemaker dinners. The bill was introduced by Assembly member Cecilia Aguilar Curry, co-authored by State Senator Bill Dodd, and sponsored by the Napa Valley Vintners.
The new law amends three tied-house exceptions in the California ABC Act that govern the organization and promotion of certain events held at on- and off-premise retailers that involve supplier-side licensees (ABC Act Sections 25503.4, 25503.56, and 25503.57). Those laws restricted how the participating supplier could advertise and promote those events. For example, the advertisement could only list the name and address of the retailer and expressly prohibited pictures or illustrations of the retailer’s premises.
The new bill allows suppliers (including wineries) to now include the following in their advertisements of those permitted retailer-hosted events:
ADDITIONAL RETAILER INFORMATION – The supplier’s advertisement for the event can now include an expanded range of information about the host retailer (including the retailer’s website address and “other electronic media”) so long as such information is “relatively inconspicuous in relation to the advertisement as a whole.”
PICTURES & ILLUSTRATIONS – The new bill allows participating suppliers to include “pictures, illustrations, and depictions of the retailer’s premises, personnel, and customers” in the event advertisements. Videos, however, are expressly prohibited.
REPOSTING OF SOCIAL MEDIA POSTS – Participating suppliers are now allowed to repost social media posts that advertise the event, including posts by the host retailer, provided that the reposted advertisement complies with all other content restrictions in the ABC Act.
Wineries and other suppliers should note that these expanded advertising privileges only allows them to advertise in connection with specific events governed by ABC Act Sections 25503.4 (wine-related events, including winemaker dinners), 25503.56 (instructional tasting event at off-sale retailer premises under a Type 86 license), and 25503.57 (instructional events at on-sale retailer premises). It is not a blanket permission to begin photographing and posting about retailers on supplier social media accounts.
The new law goes into effect on January 1, 2019.
If you have any questions about the new law, tied-house issues, or winery use of social media, please contact John Trinidad.
DISCLOSURE: DPF represents Napa Valley Vintners on a variety of matters, and advised on the proposed legislation.
Tied House Enforcement: TTB Cracks Down on “Pay to Play” Schemes
The federal crackdown on “pay to play” arrangements in the alcohol beverage industry continues. In a press release issued on Friday, the U.S. Department of Treasury’s Alcohol and Tobacco Tax and Trade Bureau announced that it was conducting a joint operation with the Illinois Liquor Control Commission to look into alleged “pay-to-play” in Chicago, the Quad Cities, and Peoria. Illinois is no stranger to these types of tied house violations: in 2009, 10 Illinois wine distributors paid over $800,000 as a result of a TTB investigation into payments made by distributors to retailers for shelf space.
There has been a recent uptick in tied-house enforcement actions by TTB. Just a few months ago, the TTB launched a coordinated effort with the Florida Division of Alcoholic Beverages in what it described as “the largest trade practice enforcement operation that TTB has initiated to date.” The Illinois and Federal joint federal-state efforts come less than a year after the TTB reached a $750,000 settlement with a Massachusetts distributor that had spent approximately $120,000 in payments to Boston retailers in exchange for favorable product placement and shelf space.
Under federal tied-house law, it is unlawful for an alcohol beverage supplier to “induce,” directly or indirectly, any alcohol beverage retailer (e.g. bottle store, bar or restaurant) to purchase any products from that supplier to the “exclusion,” in whole or in part, of other suppliers’ products. Inducement under federal law can arise from a supplier furnishing or giving retailers anything of value anything of value, subject to various exceptions. “Pay-to-play” schemes generally involve payments by an alcohol beverage supplier to an on- or off-premise retailer for tap or shelf space.
California Tied House Law Upheld by Federal Appeals Court
An en banc panel of the U.S. Court of Appeal for the Ninth Circuit (the federal appeals court with jurisdiction for the nine western states) has rejected a First Amendment challenge to California’s tied house laws. In so doing, the court overturned an earlier decision by a three-judge panel that had applied a more rigorous standard for regulations that restrict commercial speech and, thereby, raised questions about the state’s ability to enforce certain laws that restrict supplier-sponsored advertisements at alcohol beverage retail premises. The case is Retail Digital Network v. Prieto, Case No. 13-56069 (9th Cir. June 14, 2017).
The case involved a company, Retail Digital Network (“RDN”), that installed and operated digital displays in wine and spirit retail stores. RDN sold advertising space on those displays to companies, and RDN shared a portion of its advertising revenue with retail stores. Alcohol beverage manufacturers were wary of buying advertising on the RDN displays in light of California ABC Act Section 25503 which prohibits alcohol beverage manufacturers, importers, and wholesalers from “paying money” or providing “anything of value for the privilege of placing or painting a sign or advertisement…on or in any” alcohol beverage retail premises. RDN filed suit, claiming that Section 25503 impermissibly restricted commercial speech in violation of the First Amendment.
The Ninth Circuit concluded that Section 25503 did not violate the First Amendment, holding in pertinent part that the regulation directly advances the government’s interest in preventing the undue influence of manufacturers and wholesalers over alcohol beverage retailers, and that the regulation was not more extensive than necessary to serve that interest.
If you have any questions regarding tied house laws, please contact John Trinidad at [email protected].
Recent Uptick in Tied House Enforcement Actions by State and Federal Agencies
Clients often ask us about enforcement of the various alcohol beverage regulations and tied house laws that apply to industry members. “Tied-house” laws generally prohibit supplier-side licensees (including producers and wholesalers) from giving, directly or indirectly, any premium, gift, or “thing of value” to retail licensees, unless a specific exception applies.
Over the past year, we have seen an increase in enforcement actions by the California Department of Alcoholic Beverage Control (“ABC”) and the federal Alcohol and Tobacco Tax and Trade Bureau (“TTB”) in connection with state and federal tied house laws. These actions serve as important reminders that the agencies are both monitoring the activities of industry members and taking action to ensure that the rules and regulations are complied with.
Last month, ABC announced a $400,000 settlement with Anheuser-Busch, LLC wholesalers for the wholesaler’s engagement in marketing practices prohibited under California’s tied house laws. Approximately 34 retail licensees were also sanctioned. The settlement and related sanctions arise from an investigation by ABC’s Trade Enforcement Unit that found that the wholesaler paid for, or at least partially financed, refrigeration units, television sets and draught systems on behalf of various Southern California retailers. ABC’s settlement with Anheuser-Busch, LLC is the largest monetary penalty in ABC history.
As we highlighted in a blog post last year, TTB has issued guidance regarding the extent to which “category management” practices by wholesalers are permissible under federal tied house laws. In that ruling, TTB stated unequivocally that any “category management” services provided by wholesalers to retailers beyond the development of a shelf plan or schematic constitute tied house violations if the services result in the exclusion of competitor products. While this ruling was not surprising considering the language of the regulation that allows wholesalers to provide retailers with shelf plans, suppliers and retailers had long been engaging in practices aimed at optimizing the promotion of a particular “category” of products for years that exceeded the scope of this regulation. Read more about TTB’s ruling here.
We have also seen an increase in ABC’s investigation of supplier-side events occurring at retail premises.
Considering this increase in focus and enforcement of trade practice issues by both ABC and TTB, supplier-side licensees should seek legal counsel prior to planning events at retail premises or engaging in any other marketing activities that involve a retail licensee.
TTB Provides Guidance on Category Management Practices
On February 11th, the Alcohol and Tobacco Tax and Trade Bureau (“TTB”) issued a new ruling regarding the extent to which “category management” practices are permissible under federal tied-house laws.
The “tied-house” laws promulgated under the Federal Alcohol Administration Act (the “FAA Act”) generally prohibit industry members from giving “things of value” such as supplies, money, or services to a retailer to induce the retailer to purchase their products to the exclusion of others. In 1995, TTB adopted an exception to these tied house prohibitions (27 CFR Sec. 6.99(b)) allowing industry members to stock, rotate and affix prices to their products at a retail account, provided that the products of other industry members are not altered or disturbed. The exception also states that the provision of a shelf schematic or plan by the supplier to the retailer does not constitute “a means to induce” within the meaning of the FAA Act.
Over the past few years, suppliers and retailers have engaged in certain practices commonly referred to as “category management” which are aimed at optimizing the assortment, price, shelf presentation and promotion of particular “category” of products found at a retail location. Recently, industry members asked TTB to clarify its position with respect to the scope of the Sec. 6.99(b) exception to federal tied house laws to determine if such category management practices by alcohol beverage industry members fall under the exception.
In its ruling, the TTB took a very narrow reading of that exception. Unsurprisingly, TTB held that furnishing retailers with a shelf plan or shelf schematic, as stated unambiguously in the exception, is permissible and in and of itself not an inducement. However, additional services provided by suppliers to retailers beyond the mere provision of the shelf plan or schematic exceed the bounds of the exception and may constitute a tied house violation if the practice results in the exclusion of competitor products. Practices that may result in TTB scrutiny include, but are not limited to:
- Assuming, in whole or in part, a retailer’s purchasing or pricing decisions, or shelf stocking decisions involving a competitor’s products;
- Receiving and analyzing, on behalf of a retailer, confidential and/or proprietary competitor information;
- Furnishing to the retailer items of value, including market data from third party vendors;
- Providing follow-up services to monitor and revise a shelf schematic where such activity involves an agent or representative of the industry member communicating (on behalf of the retailer) with the retailer’s stores, vendors, representatives, wholesalers, and suppliers concerning daily operational matters (such as store resets, add and delete item lists, advertisements and provisions);
- Furnishing a retailer with human resources to perform merchandising or other functions, with the exception of stocking, rotation or pricing services of the industry member’s own product.
As noted above, in order to find that a federal tied house violation had occurred with respect to such “category management” practices, the agency would have to find that the practice in question had the effect of excluding a competitor’s product.
New Law Amends California Tied-House Law
Governor Jerry Brown has signed AB 780, a law which helps clarify the rules that permit an alcohol beverage producer, importer, or wholesaler (collectively, a “supplier”) to list or mention on- and off- premise retailers in supplier-sponsored advertising, including supplier websites and social media channels. As described in more detail below, the new law is fairly limited, and does not give suppliers carte blanche to begin mentioning retailers in their social media posts.
State alcohol beverage law prohibits suppliers from providing retailers with “things of value.” These “tied-house” restrictions are generally aimed at preventing undue influence by suppliers over retailers. The ABC Act, however, also contains numerous exceptions to tied-house laws. For example, ABC Act Sections 25500.1 and 25502.1 allow suppliers to list certain information such as the address, phone number, email address and website address of two or more unaffiliated retailers so long as the listing (1) is made in response to a direct consumer inquiry, (2) does not contain the product’s retail price, and (3) is made by, produced by, or paid for exclusively by the supplier.
AB 780 amends these tied-house exceptions that pertain to on- and off-premise retailer listings. Here are a few key things that AB 780 will do when it goes into effect on January 1, 2016.
- Creates one set of rules for producer’s listing of on- and off- premise retailers . Previously, the ABC Act had two different rules that governed supplier listings of retailers: on-premise retailer listings were governed by ABC Act Sec. 25500.1, and off-premise retailer listings were governed by Sec 25502.1. AB 780 repeals 25502.1 and consolidates rules governing on- and off- premise retailer listings into Section 25500.1, meaning that there is now one set of rules that governs retailer listings.
- Impact. Under current law, a supplier listing of on-premise retailers could include the “names, addresses, telephone numbers, email addresses, or Internet Web site addresses, or other electronic media” of those retailers. The law governing listings of off-premise retailers did not include the “other electronic media” language. Thus, current law could be interpreted to prohibit a supplier from including the Twitter handle of an off-premise retailer in a listing because the handle may be considered “other electronic media” of the retailer. Once AB 780 goes into effect, the listing of on- and off-premise retailers’ “other electronic media” is allowed so long as the other requirements of Sec 25500.1 are met.
- Deletes language requiring customer inquiry for retailer listing. Under the ABC Act, any listing of a retailer could only be made “in response to a direct inquiry from a consumer.” AB 780 eliminates this requirement.
- Impact. The current law could be interpreted as prohibiting a producer from issuing a social media post (such as a tweet) listing two or more twitter handles of on-premise retailers unless it was in direct response (and potentially in a direct message not viewable by the general public) to a consumer inquiry. AB 780 would allow such a post, whether or not it was in direct response to a consumer, provided that all other requirements are met.
- Continues to restrict the type of listing allowed. Once amended. Section 25500.1 will continue to prohibit any supplier sponsored listing from referring to only one retailer or listing the retail price of the product. In addition, the listings must be made, produced, or paid for exclusively by the supplier.
- Impact. Suppliers should familiarize themselves with the limitations contained in Section 25500.1.
- Does not change rules governing events at retailer locations. AB 780 does not alter the sections of the ABC Act that govern the promotion of producer events at retailer locations, such as ABC Act Sec. 25503.4 (regarding winegrower instructional events).
- Impact. Suppliers wishing to promote upcoming events at on-premise retailer must continue to follow the applicable rules for events, which may be more restrictive than the amended Sec. 25500.1. For example, under ABC Act 25503.4, a winemaker instructional event held at a retailer cannot include laudatory statements about the retailer, nor can they include pictures of the retailer.
Finally, suppliers should keep in mind that the adoption of AB 780 does not repeal state tied-house laws and that it is still generally impermissible for a producer to provide a “thing of value” (such as free advertising) to a retailer, absent an explicit exception in the ABC Act. AB 780 simply clarifies one exception to the state’s tied-house laws by declaring that certain listings of retailers are not considered “things of value.”
For more information or assistance on alcohol beverage advertising, social media, and tied house laws, 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.
California Tied House Laws and Social Media
According to a recent article in the Sacramento Bee, the California Department of Alcoholic Beverage Control (“ABC”) recently accused a California winery of violating tied house laws by sending the following tweet: “Two days till @SaveMart Grape Escape in Downtown #Sacramento!” SaveMart Supermarkets holds a California alcohol beverage retailer license, and the ABC considered the tweet free advertisement given by a supplier to a retailer in violation of California tied house laws.
Tied-house laws are federal and state laws that attempt to prohibit brewers, distillers, winegrowers and other alcohol beverage suppliers from exerting undue influence over retailers. In theory, such laws minimize the potential for unfair business practices in the industry and protect against social ills such as over-consumption. Certain tied house laws bar suppliers from providing anything of value (such as a free advertisements) to alcohol beverage retailers. Both federal and state regulators have treated winery websites and social media pages and accounts as advertising platforms, so mentioning retailers on such channels can give rise to tied-house claims.
Federal and state tied-house regulations share the same intent, but their provisions differ greatly.
A. Federal Tied-house Laws
Under federal tied-house law, it is unlawful for an alcohol beverage manufacturer or supplier to “induce” directly or indirectly, any alcohol beverage retailer (such as a bottle store, bar or restaurant) to purchase any products from that supplier to the “exclusion,” in whole or in part, of other suppliers’ products. Inducements include, but are not limited to, furnishing, giving, renting, lending, or selling to the retailer anything of value (subject to various exceptions).
A violation of federal law only occurs if the inducement leads to “exclusion.” Exclusion occurs when a supplier directly or indirectly places retailer independence at risk because of a connection between the supplier and retailer or by any other means of control over the retailer; and where such practice by the supplier-side licensee results in the retailer purchasing less than it would have of a competitor’s product.
B. California State Tied-house Laws
Under California law, no alcohol beverage manufacturer or supplier may “[f]urnish, give, or lend any money or other thing of value, directly or indirectly, to” an on- or off-premise alcohol beverage retailer. Unlike federal law, there is no need for there to be actual exclusion for a violation to arise. Nor does the supplier’s intent play any role in evaluating if a tied house violation has occurred.
Although an advertisement placed by a supplier for a retailer is a “thing of value,” there are certain exceptions to California tied house laws. For example, supplier advertisements of instructional tasting events held on a retailer’s premise do not violate state tied house law, so long as they adhere to certain restrictions. See ABC Ac Sec. 25503.4. Such ads cannot contain the retail price of the wines, any “laudatory references” to the retailer, or any picture or illustrations of the retailer’s premises, and any mention of the retailer must be “relatively inconspicuous in relation to the advertisement as a whole.”
It should be noted, however, that not all states have tied house exception, and before posting information related to a retailer outside of California, wineries should review the tied house provisions of the retailer’s home state.
Tied House Laws: Alive and Kicking
The New York State Liquor Authority issued a stern reminder that tied house laws are not only still on the books, but will be strictly enforced. On Tuesday, March 25, the NYSLA accepted a plea offer from the numerous entities associated with restaurateur Joe Bastianich to pay $500,000 penalty, close down Manhattan-based wine store Eataly Wines for six month, and remove Lidia Bastianich (Joe’s mother) as an owner of that store due to tied house violations.
Tied house laws are aimed at prohibiting alcohol beverage suppliers (manufacturers, wholesalers, importers) from exerting control over retailers (including restaurants, bars, and liquor stores). To that end, state laws typically prevent an owner of a licensed supplier from holding an ownership interest, direct or indirect, in a licensed retailer. In this case, Bastianich and a number of his partners apparently held ownership interests in a number of New York retail licenses while also holding ownership interests in wineries in Italy.
In a sign that not all publicity is good publicity, counsel for the NYSLA stated that their investigation started as a result of a cover story on Eataly owner Oscar Farinetti in Wine Spectator. The article reported that “Eataly now owns stakes in six wine estates across northern Italy” and that Joe Bastianich was the “owner of several Italian wineries….” NYSLA reviewed the various alcohol beverage retail licenses held by Bastianich-related entities and discovered that these various winery interests were never disclosed in the initial or renewal license applications.
The NYSLA’s enforcement of tied house laws is not surprising given past precedent. In 2011, the Authority issued two separate declaratory rulings stating that an applicant holding an interest in a foreign-based alcohol beverage manufacturer could not hold a New York retail liquor license under New York tied house laws. In fact, one of those rulings applied to an Italian wine producer seeking a New York restaurant license.
California also has tied house laws, but provides exceptions allowing winegrowers (i.e., Type 02 license holders) to own an interest in an alcohol beverage retail license so long as they disclose their ownership interests and accept certain restrictions. For example, under certain circumstances, a licensed California winegrower may own interests in multiple restaurants holding California alcohol beverage licenses so long as they do not sell their wine at more than two of those establishments and their wines do not constitute more than 15% of all brands offered for sale at those restaurants. (This exception does not apply to custom crush clients / “virtual wineries” that operate under a Type 17/20 license.). As the Eataly matter demonstrates, however, that winegrower would be barred from obtaining a New York alcohol beverage retail license.
For more information on wine law or tied house issues, please contact John Trinidad at [email protected]. Mr. Trinidad was interviewed by Levi Dalton of Eater NY in an earlier article on this same matter.