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).
Regulatory Hurdles for DTC, Social Media, and Third Party Sales Channels
During last week’s Unified Wine & Grape Symposium, DP&F attorney John Trinidad moderated a panel discussion titled, “Regulatory Hurdles for DTC, Social Media, and Third Party Sales Channels.” Trinidad led off the session with a presentation describing how the Internet has “disrupted” the wine industry’s traditional sales and marketing models. You can access Trinidad’s PowerPoint presentation by clicking on the image below:
Trinidad noted that the promise of e-commerce has become significantly more important for small wineries given the increase in the number of suppliers and continued consolidation of the wholesale tier. As noted by a respondent to a Gomberg, Fredrikson & Associates study:
“It is tougher than ever int he 3-tier channel. We have a hard time getting distributor attention as tehy have way too many brands, not enough people and we are just too small to matter.”
While wineries now have a significantly increased opportunity to reach consumers directly without having to find national distribution or share their revenues with intermediary tiers, a number of hurdles still remain. These include production caps, on site requirements, and other impediments to direct-to-consumer shipping. Additional issues arise due to regulatory uncertainty regarding how state alcohol beverage agencies will treat “new players” in the wine sales model, including third party providers. In short, e-commerce and the increased ability to ship directly to consumers offers a number of opportunities for wineries, but also raises a number of unresolved regulatory questions.
Similarly, social media provides wineries with the opportunity to interact and build relationships with consumers, but may still wonder how federal and state regulations apply to “new media.” Government agencies concerned with transparency and consumer have, by in large, ported their advertising restriction and applied it broadly to social media. This includes tied house laws, which prevent wineries from providing things of value (including free advertising) to retailers. Trinidad noted that regulatory uncertainty is likely to continue as new Internet-based business models appear and blur the line between e-commerce and social media.
Finally, Trinidad provided attendees with an update on the Empire Wine / NYSLA dispute. As noted in prior blog posts, NYSLA has accused Empire Wine, a New York based retailer, of shipping wine to states where retail direct to consumer shipping is prohibited, even though those states have not pursued any disciplinary action against Empire. NYSLA believes this action is grounds for suspension, revocation, or cancellation of Empire’s New York State License. If NYSLA prevails, a California winery that illegally ships wine to a consumer in, say, Utah, may be putting their NY Direct Shipper’s license at risk.
Gov. Brown Makes Wine Sweepstakes and Contests Legal in California
SB 778 contains significant restrictions, examples of which are described below. However, it does not contain the restrictive monetary provisions imposed by B&P section 25600 and ABC Rule 106 for “free goods” or “things of value” provided to the consumer. The most significant aspect of the new statutes is the absence of such monetary limits for prizes provided to the consumer in connection with these new marketing tools.
SB 778 addresses two major marketing concepts: contests (a game of skill) and sweepstakes (a game of chance), defined as follows:
B&P Section 25600.1 defines a contest as a game, contest, puzzle, or similar activity that holds out or offers to participants the opportunity to receive or compete for gifts, prizes, gratuities, or other things of value as determined by skill, knowledge, or ability rather than upon random selection.
B&P Section 25600.2 defines a sweepstakes as a procedure, activity, or event for the distribution of anything of value by lot, chance, or random selection where the odds for winning a prize are equal for each entry.
As for restrictions, one key restriction is that which identifies what industry members may participate in, or conduct contests and sweepstakes (referred to as “authorized licensees”).
Sections 25600.1 and 25600.2 both define “authorized licensees” as a winegrower, beer and wine importer general, beer manufacturer, out-of-state beer manufacturer certificate holder, distilled spirits manufacturer, distilled spirits manufacturer’s agent, distilled spirits importer general, distilled spirits general rectifier, rectifier, out-of-state distilled spirits shipper’s certificate holder, brandy manufacturer, and brandy importer.
These authorized licensees may conduct these marketing activities regardless of whether the licensee holds any additional license in conjunction with those defined here. It is imperative that one qualifies as an authorized licensee before entering the consumer contest or sweepstakes arena.
Note that an authorized licensee does not include a beer and wine wholesaler, a beer and wine importer general, or a distilled spirits importer general that only holds a wholesaler’s or retailer’s license as an additional license.
B&P Section 25600.1 restrictions (see below link to statute for additional restrictions and means of contest entry) include:
- Entry into or participation in a contest shall be limited to persons 21 years of age or older.
- Skill, knowledge, or ability does not include the consumption or use of alcoholic beverages.
- Entry or extra chances in a contest shall not be made available via the purchase of an alcoholic beverage.
- No contest shall involve consumption of alcoholic beverages by a participant.
- A contest may not be conducted for the benefit of any permanent retail licensee.
- A contest shall not provide for the instant or immediate awarding of a prize or prizes.
- Instant or immediate notification to the consumer that he or she is a winner is permissible.
- Except for providing a means of entry, a contest authorized by this section shall not be conducted at the premises of a retail licensee or the premises of a winegrower or beer manufacturer operating under a duplicate license for a branch office.
- Alcoholic beverages or anything redeemable for alcoholic beverages shall not be awarded as a contest prize. This shall not prohibit a contest in which the prize is cash or cash equivalent or the awarding of cash or cash equivalent.
- A retail licensee shall not serve as the agent of an authorized licensee by collecting or forwarding entries or awarding prizes to, or redeeming prizes for, a contest winner.
- A licensee that is not an authorized licensee shall not directly or indirectly underwrite, share in, or contribute to, the costs of an authorized contest, or serve as the agent of an authorized licensee to collect or forward entries or to furnish any prize to a contest winner.
Section 25600.2 restrictions (see below link to statute for additional restrictions and means of sweepstakes entry) include:
- No entry fee may be charged to participate in a sweepstakes.
- Entry or extra chances in a sweepstakes shall not be made available via the purchase of an alcoholic beverage.
- Entry into or participation in a sweepstakes shall be limited to persons 21 years of age or older and shall be open to all residents ofCalifornia.
- No sweepstakes shall involve consumption of alcoholic beverages by a participant.
- A sweepstakes may not be conducted for the benefit of any permanent retail license.
Under both statutes, an authorized licensee that violates any provision of sections 25600.1 or 25600.2 in addition to any other penalty imposed may be prohibited by the department from offering a contest or sweepstakes to California residents for a period of 12 months.
FINAL NOTE: Now that these new tools are legal we envision many authorized licensees participating by offering consumer contests and sweepstakes as part of their marketing programs. With that said, be sure you understand the new privileges being given and the many limitations associated with them. We think it is safe to say that ABC as well as your competitors in the industry will be watching closely. As in all cases if you are unsure of how to proceed seek guidance. For more information contact Dickenson, Peatman & Fogarty at [email protected].
West Sonoma Coast: Investing in Marketing over AVA Recognition
Brand Trends for Wine Revealed in Trademark Filings
Brand trends in an industry, or at least branding plans for a particular player in an industry, can often be seen before they actually debut in the market by watching trademark filings. Under U.S. Trademark Law, a brand name, or trademark, can be protected before the brand name is ever used in the marketplace. This is accomplished by the filing of an intended-use trademark application with the U.S. Patent and Trademark Office (USPTO). An intended-use application allows the applicant to essentially lock up a name for a particular product or service for a period of time. If the intended-use application is approved by the USPTO and not opposed by another party based upon some prior right, the applicant then only has to use the name on the identified goods or services in order to perfect the trademark registration, and the trademark rights in the name are then retroactive to the filing date of the trademark application. After registration, the trademark registrant can then stop any intervening users who may have adopted the same or similar names between the filing date of the application and the date of registration (a period which may be several years long), even if such intervening user actually used the name before the trademark registrant used the name.
Because this process allows a party to secure national rights in a name before use has begun, it is one of the first steps many producers will take once they have decided to adopt a particular brand name. Accordingly, watching trademark filings can reveal interesting market trends.
For instance, a review of filings for trademarks for wine in February of 2011 reveals the following interesting tidbits:
- Paterno Wines International, aka Terlato Wines, appears to be pursuing a branding strategy involving text messaging abbreviations and acronyms including the following: BTW; BRB; BFF; FML; FYI; IDK; TLC; TMI; WTF; XOXO (extra credit for anyone who can identify the meanings for all of these abbreviations; do you think TTB will approve a COLA for WTF?)
- The Wine Group appears intent on beating to death the “pastry” market it first exploited with its CUPCAKE brand with new trademark applications for the following names: SMALL CAKES; SWEET SHOPPE; JELLY DONUT; LEMON CHIFFON PIE (I wonder how Layer Cake feels about these new marks?)
- Precept Wines also appears intent on jumping on this band wagon with applications for the following:
CONFECTIONER’S CHOCOLATE; CONFECTIONER’S ANGEL CAKE; CHOCOLATE SHOP CRÈME DE COCOA (something just unappealing about wines named after bakery sweets).
Most Interesting New Wine Trademark Applications Filed in December 2010
Each month the editors of Lex Vini will select the most interesting wine trademark applications filed with the U.S. Patent and Trademark Office in the prior month. In keeping with the broad meaning of “interesting,” the marks may be selected because they have significant business interest, they demonstrate potential new themes in branding, or simply because they are quirky and different.
In December of 2010, there were two themes which appeared to have some popularity for trademarks in the wine sector: lust and candy (surprising for Christmas considering these are usually reserved for Valentine’s Day).
In the lust category, there were filings for NAUGHTY VIRGIN (App. Ser. No. 85/202,467 by Pazdar Beverage Company), LIVING IN ZIN (App. Ser. No. 85/194,073) and PEEP SHOW (App. Ser. No. 85/189,663 by Terravant Wine Company).
In the candy category, there were filings for the marks CHOCOLATE CUVEE (App. Ser. No. 85/203,314 by One Plus Two, Inc.), LOLLIPOP (App. Ser. No. 85/199,787 by Paterno Imports Ltd.) and ITALIAN CHOCOLATE (App. Ser. No. 85/200,611 by Rocland Estate Pty Ltd).
Also, in the “odd combination, but undoubtedly distinctive” category of wine trademarks were STEAK AND POTATOES (App. Ser. No. 85/189,627 by Terravant Wine Company) and FALCON AND HIPPO (App. Ser. No. 85/205,742 by Clare Ranch LLC).
In an apparent attempt to capitalize on the shift in Congressional leadership there was also RIGHT WING RED (App. Ser. No. 85/203,291 by One Plus Two, Inc.), in what might be an homage to Jersey’s favorite mobster was TATTOO TONY’S from Atlantic Bottling, LLC in Ocean, NJ (App. Ser. No. 85/208,584), and in what might be marks “inspired by” Bay Area rock bands there was GRAPEFUL RED (App. Ser. No. 85/191,662 by R.H. Winery LLC) and RHUBY DOOBY (App. Ser. No. 85/206,440 by Guinan Family Winery & Vineyard, Inc.)(although this last one could also be a tribute to 70s cartoon icon Scooby Doo — “rhuby dooby doo”).
Never boring in the world of wine trademarks.
For assistance on your trademark matters contact Scott Gerien at [email protected]