TTB Approves San Luis Obispo Coast (SLO Coast) Viticultural Area
Last week was an exciting week for producers and consumers of California Central Coast wine. On Wednesday, March 9, the Alcohol and Tobacco Tax and Trade Bureau (the “TTB”) published a final rule establishing a new “San Luis Obispo Coast,” or “SLO Coast,” American Viticultural Area (“AVA”).
The SLO Coast AVA (identified in orange below) spans approximately 408,505 acres in San Luis Obispo County and is home to over 50 wineries and an estimated 78 commercial vineyards covering approximately 3,942 acres. It lies entirely within the multi-county Central Coast AVA and fully encompasses the established Edna Valley and Arroyo Grande Valley AVAs.
Located along the westernmost portion of the Central Coast AVA, the SLO Coast AVA is a region of coastal terraces, foothills, and small valleys along the Pacific Coast. Its westward orientation provides more marine fog and cool marine air compared to other regions of the Central Coast AVA, using the powerhouse of the Pacific Ocean to moderate temperatures and foster optimal vineyard conditions for growing early-to-mid-season grape varietals such as Chardonnay and Pinot Noir.
Aaron Wines in Paso Robles, CA falls within the boundaries of the new SLO Coast AVA and has planted 90% of its 4,000 planted acres within 6 miles of the Pacific Ocean. Winemaker Aaron Jackson is thrilled by the important addition of the SLO Coast AVA to the “few truly coastal AVAs” in the state of California. Brian Talley of Talley Vineyards in Arroyo Grande, CA shares Mr. Jackson’s sentiments, adding that the approval of the SLO Coast AVA will “drive awareness of the coastal part of San Luis Obispo County as a world class winegrowing region.”
The establishment of the SLO Coast AVA formally recognizes the unique topography, climate, and soils of the area and offers winemakers more diversity and flexibility in marketing their wines to consumers.
Effective April 9, 2022, vintners will be able to label bottles with “San Luis Obispo Coast,” “SLO Coast,” and “Central Coast” as appellations of origin if at least 85% of the wine is derived from grapes grown within the boundaries of the SLO Coast AVA and the wine otherwise meets the statutory requirements of 27 CFR 4.25(e)(3). Vintners producing wine from grapes grown in the Edna Valley or Arroyo Grande Valley AVAs can also continue to label bottles with “Edna Valley” or “Arroyo Grande Valley” as appellations of origin for their wines.
Dickenson, Peatman & Fogarty has represented a number of AVA petitioners before the TTB, including the SLO Coast petitioners. For more information on AVA petitions and labeling compliance, please contact Carol Kingery Ritter or John Trinidad.
New Laws Expand Winery Off-Site Tasting Room Privileges and Manufacturer Charitable Donation Advertising
This week, Governor Gavin Newsom signed three bills that expand certain winery off-site tasting room privileges and grant alcohol beverage manufacturers the right to advertise and promote charitable donations in connection with the sale of alcohol. The laws will become effective on January 1, 2022. We have summarized the new bills and how they amend current law below.
Number of Winery Off-Site Tasting Rooms (SB 19)
Under current California law, Type 02 wineries are permitted to operate tasting rooms only at their licensed Type 02 premises (i.e., the same premises where the winery’s wine is crushed and fermented), and at an off-site Duplicate Type 02 premises (where crushing and fermentation of wine is not permitted). Current law permits a winery to operate only one off-site Duplicate Type 02 tasting room.
SB 19 amends Section 23390.5 of the California Alcoholic Beverage Control Act (“ABC Act”) to increase the number of Duplicate Type 02 locations that a winery can operate to two locations.
Duplicate Type 02 tasting rooms can be quite helpful for wineries to reach consumers, as they allow wineries to operate a tasting room in another location in California and sell wine to consumers there without having to maintain a production facility on the same premises.
Sale and Delivery of Consumer-Provided Containers at Duplicate Type 02 Tasting Rooms (AB 239)
Under current law, a winery may exercise all the same privileges at its Duplicate Type 02 tasting room as at its Type 02 winery premises (such as the sale and delivery of wine), with certain important exceptions. One of those exceptions is that a winery may not, at its Duplicate Type 02 premises, sell or deliver wine to consumers in containers that have been supplied, furnished, or sold by the consumer.
AB 239 amends Section 23390 of the ABC Act to delete that exception. Starting on January 1, 2022, consumers may provide their own bottles and containers to be filled at a Duplicate Type 02 tasting room premise. AB 239 provides an additional means by which wineries can provide wine to consumers that can be cost-effective for both the winery and the consumer.
Advertisements of Charitable Donations in Connection with the Sale of Alcohol (AB 1267)
Generally, California law prohibits an alcohol beverage licensee from giving a gift or “thing of value” in connection with the sale and distribution of alcoholic beverages, unless there is a statutory exception. The ABC Act permits licensees to donate to specified charities and nonprofit organizations (typically 501(c)(3)s). However, where such donations are tied to sales of alcohol beverage products and/or advertised as such – for example, when a licensee advertises that it will donate a portion or percentage of the proceeds from the sale of a product to a charity – the California Department of Alcohol Beverage Control (“ABC”) views these types of donations as “gifts” or “things of value” to consumers that “incentivize” or “entice” consumers to purchase and consume alcohol in violation of California law. During COVID-19, the CA ABC temporarily created an exception for the enforcement of this prohibition; however, this relief is limited to COVID-19 related charities only.
AB 1267 expands and codifies the CA ABC’s relief with respect to charitable donation advertising by amending Section 25600 of the ABC Act. Starting on January 1, 2022, specified manufacturers – winegrowers, beer manufacturers, distilled spirits manufacturers, craft distillers, brandy manufacturers, rectifiers, and wine rectifiers – may donate a portion of the purchase price of alcohol beverages to nonprofit charitable organizations (not limited to just COVID-19 related charities), subject to all of the following limitations:
- The donation is only in connection with the sale or distribution of alcoholic beverages in manufacturer-sealed containers.
- The promotion does not directly encourage or reference the consumption of alcoholic beverages.
- The donation does not benefit a retail licensee or a charity established for the specific purpose of benefiting the employees of retail licensees, and the advertisement for any donations does not promote or reference any retail licensee. (Note that a manufacturer may identify – but not otherwise promote – the name, address, and website of two or more unaffiliated retailers who sell the manufacturers’ product being offered in the charitable campaign, subject to the restrictions in Sec. 25500.1 of the ABC Act).
Note that this new statutory exception will sunset on January 1, 2025, so unless the exception is made permanent or extended, licensees may not advertise any donations related to the sale of alcoholic beverages at all after the date.
The bills’ text can be found on the California Legislative Information website at the following links: SB 19 (Winegrowers: tasting rooms); AB 239 (Winegrowers and brandy manufacturers: exercise of privileges: locations); and AB 1267 (Alcoholic beverages: advertising or promoting donation to a nonprofit charitable organization).
Additional Guidance For Wineries in Light of Recent Government Actions
Since the Governor’s announcement on Sunday recommending the temporary suspension of on-premise alcoholic beverage businesses, including winery tasting rooms, certain cities and counties have instituted “Shelter-in-Place” ordinances, and both the California ABC and the California Wine Institute have issued additional guidance on the operation of alcohol beverage licensed premises, including wineries.
Given the various orders and guidance currently in place, we have provided below a brief summary of the current state of play for wineries. Please note that things are rapidly changing and while we will do our best to issue updates, we highly recommend that all licensees sign up for the California ABC email updates, and also keep an eye on orders from their local governments.
GOVERNOR’S DIRECTIVE – Statewide Recommendations
- On Sunday, March 15, 2020, Governor Gavin Newsom announced that he was directing the closure of “all bars, nightclubs, wineries, brewpubs, and the like.”
- The California ABC has since clarified that the directive is aimed at suspending on-premise retail privileges (that is, the service of alcohol for consumption at the licensed premises). For wineries, the directive applies to their tasting room and event operations in pouring wine and serving customers for on-premise consumption. It has no impact on their production operations, and wineries can continue to have consumers purchase and pick up wine for off-premise consumption, subject to any further local restrictions such as the shelter-in-place orders discussed below.
- After discussing the directive with the Governor’s office, Wine Institute has recommended that wineries take the following steps:
- Ensure visitor and employee safety by intensify cleaning and sanitation procedures;
- Operate the facility in compliance with social distancing guidance (such as instituting procedures to keep individuals 6 feet apart);
- Implement recommendations from the CDC and California Department of Public Health re washing hands, avoiding close interpersonal contact, encouraging employees to remain at home when sick, and instituting additional precautions for older employees and customers.
For other operational recommendations, please see our Employer Guide to Navigating COVID-19 from earlier this week.
LOCAL GOVERNMENT “SHELTER-IN-PLACE” ORDERS – Enforceable Restrictions
- As of March 18, 2020, a number of counties in Northern California (including Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, Santa Clara, Santa Cruz, and Sonoma) have issued shelter-in-place orders.
- Wineries that have operations in any jurisdiction that have implemented such an order have legal obligations to alter their current operations to comply with their specific county’s order.
- In its recent guidance, issued prior to the Sonoma County order, Wine Institute concluded that winery businesses meet the definition of “essential businesses” because they constitute “businesses that supply other essential businesses (grocery stores and other food outlets) with the support or supplies necessary to operate.” According to Wine Institute, wineries can engage in the following activities in those Shelter in Place jurisdictions: “vineyard management, wine production operations, bottling, warehousing, sales, delivery and shipping.” However, this “does not include wine tasting and events ….”
- The Sonoma County order includes a provision that more directly addresses winery operations. Specifically, the following activities are deemed “essential” under the Sonoma County Ordinance: “Agriculture, food, and beverage cultivation, processing, and distribution, including but not limited to, farming, ranching, fishing, dairies, creameries, wineries and breweries in order to preserve inventory and production (not for retail business).” It is unclear whether, by excluding “retail business,” Sonoma County is restricting wineries and tasting rooms from engaging in the sale of wine in sealed containers for off-premise consumption, or whether the language is only meant to address retail sales for on-premise consumption.
- Napa County’s order goes into effect at 12:01am on Friday March 20. It includes a provision that deems the following businesses as “essential”: “Any form of cultivation of products for personal consumption or use, including farming, ranching, livestock, and fishing, and associated activities including but not limited to activities or businesses associated with planting, growing, harvesting, processing, cooling, storing, packaging, and transporting such products, or the wholesale or retail sale of such products, provided that, to the extent possible, such businesses comply with Social Distancing Requirements set forth in subsection (j) of this Section 10 and otherwise provide for the health and safety of their employees.”
Please note that this is a rapidly evolving situation, and many more cities and counties may implement Shelter-in-Place measures over the next days and weeks ahead. It is also possible that the ordinances on which this blog post, and Wine Institute’s guidance are based, may be revised.
ADDITIONAL ABC GUIDANCE
- ABC has issued additional guidance regarding the Governor’s directive on steps licensees can take to minimize risk.
- ABC has stated that retail licensees that comply with the Governor’s directive or local government restrictions will not have their licenses suspended.
- ABC offices in shelter in place jurisdictions are closed to the public. ABC Staff will be available to answer questions over the phone, and you can still mail applications to those local offices. Other ABC local office closures will be posted here.
- ABC is not currently accepting, processing, or approving special event or daily licenses in light of guidance on gatherings.
ADDITIONAL WINE INSTITUTE INFORMATION
- Wine Institute has been in direct communication with ABC and has shared the following information:
- ABC will not enforce state regulations that limit the extension of credit to 30 days.
- ABC is looking at additional relaxation of regulations in light of the current situation.
- For more information, go to https://wineinstitute.org/news-alerts/ca-abc-suspends-ca-credit-regulations-enforcement-clarifies-wine-take-out-sales-in-restaurants
- In addition, TTB has informed Wine Institute that “it does not expect any service interruptions but urges all wineries to register and utilize COLAs Online and Permits Online immediately since most of its staff is now teleworking.” For more information, go to https://wineinstitute.org/news-alerts/ttb-relaxes-consignment-sale-restrictions-urges-online-colas-and-permit-submissions
Wine Institute has a helpful resource page dedicated to Coronavirus related updates, which can be accessed here.
For a list of Coronavirus related resources, please see our Resources Page.
Federal Court Rules in Favor of Wine Retailer DTC Shipments
Wine retailers received a double dose of good news last week.
As we reported earlier, on Thursday, the U.S. Supreme Court agreed to hear an appeal by the Tennessee Wine and Spirits Retailer Association in a case challenging Tennessee’s state residency requirement for persons or entities that hold a state alcohol beverage retail license. Tennessee Wine & Spirits Retailers Ass’n v. Byrd, No. 18-96 (6th Cir., 883 F. 3d 608; cert. granted Sept. 27, 2018). In determining the constitutionality of the state’s residency requirement, the Court may also weigh in on a key question that could have a big impact on direct-to-consumer shipping by wine retailers: does the Supreme Court’s 2005 decision in Granholm v. Heald, which prohibited state from discriminate against out of state wine producers, also prohibit state laws that discriminate against out-of-state retailers.
On Friday, a federal district court in Michigan answered that very question in favor of retailers, and concluded that if the state permits in-state wine retailers to ship direct to consumers, it must also grant the same privilege to out-of-state retailers. Lebamoff Enterprises v. Snyder, Case No. 17-10191, (E.D. Mich. Sept. 28, 2018). The Michigan law in question allowed in-state wine retailers that held a “specially designated merchant license” to ship to Michigan consumers, but prohibited out-of-state retailers from so doing. The court held that the law was not protected by the the 21st Amendment and unconstitutional in light of the Supreme Court’s holding in Granholm. In granting plaintiff retailer’s motion for summary judgment, the court concluded:
“Michigan is … operating an unjustifiable protectionist regime in its consumer wine market, a privilege unsanctioned by the Twenty-first Amendment and forbidden by the dormant Commerce Clause.”
As a remedy, the court opted not to nullify the offending law, but instead extended its shipping privileges to out-of-state retailers. Unless the state legislature repeals the law, then out-of-state wine retailers will be allowed to either apply for the state’s specially designated merchant license or a comparable out-of-state license.
Best Practices in Winery Operations Conference (Napa, 3/19 – 3/20)
James W. Terry Director at Dickenson, Peatman & Fogarty and chair of the firm’s business practice group, will serve as as program co-chair at the annual “Best Practices in Winery Operations” conference hosted by The Seminar Group, to be held on March 19 and 20, 2015 at The River Terrace Inn in Napa, California. The conference touches on many key issues facing the wine industry today including:
- The history and future of Napa’s Winery Definition Ordinance.
- Employment law issues surrounding winery volunteers, interns, and immigration.
- Applying for, and creating value in, an AVA
- Issues facing next generation winemakers.
In addition to the usual group of legal experts leading the panels, this year’s seminar features many noted voices from the wine industry, including Andy Beckstoffer, Cathy Corison, Genevieve Janssens, Tegan Passalacqua, Matthew Rorick, and Richard Sanford. A full program schedule can be downloaded here, and you can register here.
Richard P. Mendelson Of Counsel at DP&F will moderate a session on Napa’s Winery Definition Ordinance which will include panelists Andy Beckstoffer (Owner, Beckstoffer Vineyards).
Gregory J. Walsh, Director at DP&F, will co-present a session on Volunteers, Interns, and Immigration.
Carol Ritter, Director at DP&F, will provide a presentation on the AVA application Process, and then lead a panel discussion on “Creating and Maintaining AVA Value,” with panelists Richard Sanford (Alma Rosa Winery & Vineyards) and Rex Stults (Government Relations Director, Napa Valley Vintners).
Katja Loeffelholz, Of Counsel at DP&F, will moderate a panel discussing on diversity in teh Vineyard and the Cellar, featuring leading women in the wine industry, including Cathy Corison (Corison Winery), Genevieve Janssens (Robert Mondavi Winery), Vanessa Robledo (Black Coyote Winery), Coral Brown (Brown Estate Vineyards, LLC) and Remi Coehn (Lede Family Wines/ Cliff Lede Vineyards).
John Trinidad, an attorney with DP&F’s Wine Law practice group, will lead a discuss about the opportunities and challenges facing young winemakers as they try to establish their own brands and locate vineyard sources. Panelists include Tegan Passalacquia (Head winemaker and Vineyard Manger for Turley Wine Cellars and Proprietor of Sandlands Wines), and Matthew Rorick (Winemaker and Proprietor, Forlorn Hope Wines).
Loeffelholz / Trinidad on Wine Labeling Legal and IP Issues
Wine Business Monthly recently published an article by DP&F attorneys Katja Loeffelholz and John Trinidad on wine labeling legal and intellectual property issues. You can access the article using the following link:
(Published with the permission of Wine Business Monthly).
FTC Criticizes Franchise Laws…in Automobile Industry
“Regulators should differentiate between regulations that truly protect consumers and those that protect the regulated.”
So concluded the Federal Trade Commission in a recent blog post criticizing franchise laws in the automobile industry. Tesla Motors, a leading manufacturer of high-end electric cars, implemented a sales model to allow it to sell cars direct to consumers. This has upset auto dealerships who have complained that Tesla’s efforts violated state franchise laws that require automobile manufacturers to sell their cars through local, independent auto dealerships.
Last week, the FTC weighed in, and criticized such laws as “bad policy” that protects middlemen and harms consumers. “We hope lawmakers will recognize efforts by auto dealers and others to bar new sources of competition for what they are — expressions of a lack of confidence in the competitive process that can only make consumers worse off.”
Numerous states have protectionist franchise laws that govern supplier-distributor relationships in the alcohol beverage industry. Such franchise laws vary in their scope from state to state, but generally restrict producers from terminating distributors absent “good cause.” In practice, “good cause” has been narrowly defined by state regulatory agencies and courts, making it difficult for producers to terminate even for well-founded business reasons. Some states impose severe penalties for terminating or restructuring distribution arrangements absent “good cause,” including significant fines and potential suspension or revocation of the wineries’ state permits.
One has to wonder if the FTC’s recent statement on automobile dealership franchise laws could have any repercussions in the alcohol beverage industry.
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.
New York State Liquor Authority Sets 4/23 Meeting re Internet Wine Sales
The New York State Liquor Authority has scheduled a special board meeting for April 23, 2014 to consider two requests for declaratory rulings related to internet wine sales. Both Lot 18 and Connoisseur Encounters Co., Inc (doing business as “The Wine Cellar at Rye Ridge”) have asked the NYSLA for guidance regarding their proposed business operations. The Lot 18 petition is here and the Wine Cellar petition is here. According to its petition, Lot 18 plans to partner with “brand-strong Marketing Agents [such as magazines and other media entities] that have their own consumer lists, readership or website viewers, on-site customers and a recognizable brand” to deliver “personalized wine selections” to consumers.
Last year, the NYSLA rejected a request for a declaratory ruling regarding a platform that allowed for third party marketers, such as Lot 18, to operate in New York without an alcohol beverage license. The liquor authority subsequently held a hearing regarding internet-based sales of alcohol beverages, but to date has not issued any further guidance regarding third party marketing.
Earlier this year, we reported that Lot 18 had secured a New York state brick and mortar retail license.
DP&F does not represent Lot 18 in this matter.
Federal Court Dismisses Diageo’s Complaint in Franchise Law Case
Earlier this week, Missouri distributor Major Brands, Inc. won the most recent round in its year-long franchise law litigation with Diageo Americas, Inc. The federal district court in Connecticut has dismissed Diageo’s complaint, and the parties dispute appears to be gearing up for a trial in Missouri state court this summer.
Last March, Diageo brought suit in federal district court in Connecticut seeking declaratory relief to allow Diageo to terminate its relationship with Major Brands. In its complaint, Diageo argued that the parties’ contract included a clause that stated that their agreement would be construed under Connecticut law. Enforcement of such a clause would avoid the application of Missouri franchise law. Even though Connecticut also has a franchise law, Diageo argued that it only applied to franchise agreements that would require the distributor to maintain a place of business in that state. Since Major Brands was not required to establish a business in Connecticut, then the Diageo-Major Brands agreement falls outside the scope of Connecticut’s franchise laws, according to Diageo’s complaint.
Major Brands brought its own suit in Missouri state court against Diageo and its new Missouri distributor, Glazer’s, and filed a motion to dismiss in Diageo’s federal court case. In that motion, Major Brands argued that the forum selection clause did not apply and also argued that the federal court should abstain given the parallel state court litigation and Missouri’s strong interest in regulating and enforcing its own alcohol beverage laws:
“The heart of this suit is the applicability of Missouri’s Franchise Act to the relationship between Plaintiff, a supplier of liquor in Missouri, and Defendant, a licensed liquor distributor and wholesaler doing business in Missouri. The Twenty-first Amendment recognizes each State’s sovereign interest in regulating and enforcing its own liquor distribution laws….”
On March 19, 2014, the federal court granted Major Brands’ motion, finding that the forum selection clause that Diageo relied on did not apply to the products at issue in the immediate case. The court did not address Major Brands’ abstention argument.
But this does not bring an end to the Diageo-Major Brands battle. Major Brands’ state court suit in Missouri continues, and the parties have engaged in extensive discovery in that forum. A trial date is set for July 21, 2014.
Branding Strategies in Agricultural Commodities: Vineyard & Block Designates
By Katja Loeffelholz, Dickenson, Peatman & Fogarty
The prominence of vineyard-designated wines is another lesson in value-added agricultural branding which presents both the winery and the vineyard owner or lessee with a number of marketing and legal issues. Recognizing the value of vineyard designated names, vineyards have long been designating blocks within their vineyards with proprietary names.
In this way, even though multiple wineries are purchasing grapes from the same vineyard property, each winery can have a distinct name to refer to the vineyard block where the grapes were grown, also known as the “block designate.” If a vineyard owner sells wine grapes to a winery under a vineyard designate or block designate, the winery may use that vineyard or block name on wine produced from those grapes to designate origin so long as such use complies with the vineyard designation labeling requirements of the Alcohol and Tobacco Tax and Trade Bureau (TTB). Accordingly, the vineyard owner — not the winery – theoretically owns rights in the name.
Wineries may consequently find their vineyard-designated wines embroiled in a trademark dispute between different winery owners. One of the most well-publicized vineyard name trademark disputes involved the famed To Kalon Vineyard. Originally planted in 1868, To Kalon was eventually divided up and by the 1990s, both the Robert Mondavi Winery and Andy Beckstoffer owned portions of the vineyard. Mondavi secured federal trademark registrations for both the TO KALON and TO KALON VINEYARD marks. Schrader Cellars had entered into an agreement to purchase grapes from Beckstoffer, and Schrader planned to use the “Beckstoffer Original To Kalon Vineyard” designation on its wine label. In 2002, Mondavi sued Schrader Cellars, and sought an injunction to bar Schrader’s sale of “To Kalon Vineyard” designated wine. The parties eventually settled their dispute, and Beckstoffer was granted a royalty free license to continue to use the To Kalon name.
Thus, when the vineyard is owned by another party, the risk to the winery in marketing vineyard and block designated wines made from contract grapes is that once the contract ends, so can the rights to continue use of the vineyard and/or block designation. A winery must accept that by producing and marketing vineyard-designated wine made from grapes grown in a vineyard that the winery does not own, the winery is potentially spending time and money building brand equity for someone else. When the grape contract ends, there is considerable risk that the “brand” of the vineyard owner may be used by the vineyard owner itself, or potentially by other wineries that contract with the vineyard owner.
Wineries are often unaware that the vineyard designation or block designation actually belongs to the vineyard owner. Many wineries feel that if they are using the vineyard designation on wine and popularizing the vineyard name, they should own the rights in the vineyard or block designate as a trademark. While this may be a questionable legal position, this attitude among some wineries may nevertheless be problematic from a practical perspective. Should a winery successfully register rights in a mark which is used as a vineyard or block designate, the vineyard owner will need to spend considerable time and money in a potentially unsuccessful effort to regain clear rights in the name. The best way a vineyard owner can protect itself is to register its brands and properly license them to a winery.
To maintain trademark rights, an owner must control the quality of goods sold under the mark. For a vineyard owner, this can be accomplished through specific provisions in a grape contract or through a related trademark license agreement which is separate from the grape contract. A license will clearly establish that, as between the vineyard and the winery, the vineyard is the owner of the mark and that the winery (and its use of the designate) is subject to the terms of the license, as well as, the vineyard owner’s control of the quality of wine provided under the mark. In practice, such quality control can often be administered in a non-disruptive, nonintrusive manner (e.g., sufficient quality may be presumed based on maintenance of quality heretofore maintained by the winery operation).
The strategy of enhancing the value of grapes by naming the grapes from a certain vineyard is also widely used to enhance the value of other agricultural commodities, such as cattle from a certain ranch, or spinach from a particular farm. As the commodity producer, it is important to register the trademarks for the brands used with these agricultural products so that the commodities themselves (as well as the land from which they come) can accrue value, prestige and reputation which inures to the brand assets.
Are you adequately protecting your vineyard designate or agricultural commodity?
Annual “Best Practices in Winery Operations” Seminar (March 27-28, 2014)
Dickenson Peatman & Fogarty attorneys will be featured speakers during the upcoming “8th Annual Best Practices in Winery Operations: Risks and Rewards” to be held on March 27 & 28, 2014 in Napa. The seminar (which offers California CLE Credits) will cover the following:
- Legal and Regulatory Update
- County Audits and Compliance with Land Use Regulations Lessons Learned while Creating the Largest High-end Vineyard Development Portfolio
- Hot Topics in Land Use Law
- Marketing and Selling Wine Online: Opportunities and Speed Bumps
- Franchise Laws: Knocking Down Trade Barriers
- Building Brand Equity in the Global Marketplace
- Trademark Licensing: Being a “Wine Brand” without being a “Winery”
- Wineries in a Growth Mode – Human Resources
- Trends in Vineyard and Winery Acquisitions
- Passing the Torch: Family Business Transition Planning
- Bias in the Legal Profession and the Wine Industry
James W. Terry Director at Dickenson Peatman & Fogarty (DP&F) is the program co-chair and will introduce the session. Richard P. Mendelson Of Counsel at DP&F will give a special presentation “Legal and Regulatory Update: What is the Next Battleground?”
In addition, Tom Adams, Director at DP&F will present on lessons learned while creating the largest high-end vineyard development portfolio. Gregory J. Walsh, Director at DP&F will cover human resource issues such as how to secure talented people and keep them. Finally, Katja Loeffelholz, a registered attorney with the United States Patent and Trademark Office and Of Counsel at DP&F, will moderate a panel discussing bias in the legal profession and wine industry.
The seminar will be held March 27 & 28 from 9:00 am to 5:15pm at the Napa River Inn. For more information and online registration, please follow this link or contact The Seminar Group at [email protected].
TTB Proposes New Oregon AVA, Cites Wine Blogs as Support
Winegrowers vying to become the 18th American Viticultural Area in Oregon have reached an important milestone. On February 26, 2014, a new notice of proposed rulemaking was published in the Federal Register, soliciting comments regarding the proposed “The Rocks District of Milton-Freewater” AVA. The comment period is open until April 28, 2014, and comments can be submitted online.
The proposed 4.9 square mile AVA is located just south of the Oregon/Washington border, in the southern part of the Walla Walla AVA, which in turn is nested in the Columbia Valley AVA. If TTB approves the new AVA, Washington wineries sourcing grapes from there will have to have their wines “finished” in Oregon in order to use the AVA name on their label pursuant to 27 CFR 4.25(e).
Wine blogs may end up playing a role in petitioner’s efforts to secure an AVA. Petitioners must submit evidence that the proposed AVA name is “currently and directly associated with an area in which viticulture exists.” The notice of proposed rulemaking cited two wine blogs (Washington Wine Report and Wine Peeps) that have referred to the area as “the rocks” in the section discussing “Name Evidence.” The petition submitted in support of the new AVA can be found through this link.
Dickenson, Peatman & Fogarty has represented a number of AVA petitioners before the TTB. For more information on AVA petitions, please contact Carol Kingery Ritter at [email protected] or John Trinidad at [email protected].
Napa County Winery Audits: What are the odds?
St. Helena City Council Rescinds Amendments to Small Winery Ordinance
St. Helena’s City Council unanimously voted to approve an emergency ordinance repealing recently passed amendments to the Small Winery Ordinance. We wrote about this matter earlier in the week. Tuesday’s vote prevents the amendments from being put on the November ballot as a referendum item, and effectively reopens debate regarding the proposed amendments.
A video of Tuesday’s meeting is available on the City Council website.
St. Helena City Council Will Consider Rescinding Amendments to Small Winery Ordinance
Lot 18 Secures Brick & Mortar Retail License from NYSLA
Over the past year, the New York State Liquor Authority has wrestled with how to treat third party wine marketers like Lot 18. As we discussed in an earlier blog post, the NYSLA questioned whether third party marketers were essentially operating as unlicensed alcohol beverage retail business.
Although the NYSLA has promised to issue additional guidance for third party marketers, Lot 18 decided not to wait, and instead applied for a retail liquor store license which would allow them to legally ship wine to New York state customers. On January 14, 2014, Lot 18 representatives appeared before the NYSLA to answer questions related to their May 2013 application for a liquor store license for a storefront located at 2 Clark Place in Mahopac, New York. Lot 18 provided an overview of their online and brick and mortar operations, how orders and funds would be processed, how they would work with other marketers. After some deliberation, the board approved Lot 18’s request, and a declaratory ruling should issue in the next few weeks.
Lot 18’s decision to secure an alcohol beverage retail license is an interesting move by one of the most widely recognized online wine businesses. Most third party marketers have been operating based on an assumption that their business model does not require a state alcohol beverage license. Lot 18 went through a nine month process to apply for and secure a retail license, which will allow them to reach consumers in New York, which is second only to California in direct-to-consumer wine shipments (according to the ShipCompliant / Wines & Vines 2013 Direct to Consumer Wine Shipping Report).
DP&F does not represent Lot 18 in this matter.
Five Key Points for Alcohol Beverage Distribution Agreements
Recently, Bahaneh Hobel, Senior Alcohol Beverage Attorney from Dickenson, Peatman & Fogarty, provided the Beverage Trade Network with some insights on the “5 Key Points You Must Cover in Your Distribution Agreements.” To review her article and learn more about important issues to consider in drafting distribution agreements. View Article
For more information or assistance on any alcoholic beverage law matters, contact Bahaneh Hobel
Sonoma Conjunctive Labeling Law Applies to Wines Bottled on or after Jan. 1, 2014
Producers using the name of an AVA entirely within Sonoma County on your wine labels take note: California law requires you to include a “Sonoma County” designation for all wine bottled on or after January 1, 2014.
In 2010, the California legislature approved a new “conjunctive labeling” law that requires wines labeled with the name of an AVA that falls entirely within the boundaries of Sonoma County (Russian River Valley, Sonoma Coast, etc.) to also carry a “Sonoma County” designation. Although the law, Cal. Bus & Prof. Code Sec. 25246, became effective on January 1, 2011, it only applies to wines that are bottled on or after January 1, 2014. In other words, there is no need for wineries to re-label wines already bottled, labeled, and in inventory prior to January 1, 2014. A full text of the Sonoma County conjunctive labeling law is found below:
CAL BUS & PROF. CODE SEC. 25246
(a) Any wine labeled with an American Viticultural Area established pursuant to Part 9 (commencing with Section 9.1) of Title 27 of the Code of Federal Regulations, that is located entirely within a county of the 19th class, shall bear the designation “Sonoma County” on the label in a type size not smaller than two millimeters on containers of more than 187 milliliters or smaller than one millimeter on containers of 187 milliliters or less.
(b) The department may suspend or revoke the license of any person who violates this section.
(c) This section shall not apply to any wine labeled with a viticultural area appellation of origin established pursuant to Part 9 (commencing with Section 9.1) of Title 27 of the Code of Federal Regulations when the name of the appellation includes the term “Sonoma County.”
(d) This section shall apply to wines bottled on or after January 1, 2014.
For more information or assistance on alcohol beverage labeling, contact John Trinidad ([email protected]).
This post is made available for general informational purposes only and none of the information provided should be considered to constitute legal advice
Cal Bar CLE Event for Attorneys at Kendall-Jackson
2.0 units of general MCLE sponsored by LaRiviere, Grubman & Payne,
Friday, December 6th, 9:30-2:30
The California State Bar Agribusiness Committee’s annual Winery Tour will start at Kendall-Jackson Wine Estate & Gardens in Santa Rosa, California and we will visit a nearby wine production facility and vineyard. Following the tour, attendees will enjoy a lunch prepared by Kendall-Jackson’s culinary team, together with wine pairings. During lunch, attendees will learn from leading legal experts on key issues that affect product marketing in the wine industry:
The Use & Defense of Product Appellations of Origin
Scott Gerien, Dickenson Peatman & Fogarty,
Current Issues in Advertising and Marketing
Kristen Techel, Strike & Techel,
Tour begins and ends at: Kendall-Jackson Wine Estate & Gardens
This program is $50 per person, and qualifies for 2.0 hrs of general MCLE credit.
Coffee, Light Breakfast and Buffet Lunch by Kendall-Jackson Culinary Team, and wine pairings.
Please RSVP to Tabatha Morgan ([email protected] or (831) 649-8800) $50 per person payments should made by check payable to Kendall-Jackson.