“Visual Links” between Beer, Wine and Spirits Labels and Retailers Ruled Unlawful in California — the tied house laws run amok

In an exceptionally overreaching and disturbing decision issued by the ABC Appeals Board on May 9, 2014 [AB-9358 - American Vintage Beverage], the Board affirmed an ABC finding that a producer’s use of a retail name on a flavored malt beverage (FMB) product violated the California prohibition on supplier-provided “things of value.”  This is so even though the party that licensed the retail name to the producer for use on its FMB labels was not a California retailer but instead was a non-California corporation that owned the right to license the name for use by others. Although the California licensed retailer received no revenue from the licensing of the name – the license royalties went to the non-California corporation that owned the right to license the retail name – the ABC nevertheless found that the producer had given a “thing of value” to the California retailer.

The Board agreed, finding that the existence of a “visual link” between a product sold by a supplier and the name and identifying characteristics of a retailer acted as advertising for the retailer. A visual link could be a logo, trade dress, a common name or any combination of the foregoing. In this case it was the name and logo of the California retailer, which was part of a national restaurant chain. To make matters worse, the findings in the decision that Section 25500(a)(2) [“things of value”], Rules 106 (a) [free advertising] and (f) [cooperative advertising] were violated was not limited to FMB’s but rather encompass the entire spectrum of alcoholic beverage products.

This ruling affects producers and retailers alike and calls into question the common California practice of retailers (especially large multi-state on and off premises chain retailers) commissioning alcoholic beverage products produced under their own intellectual property and trademarks; and often under their own formulas.  The decision made no distinction between broad market products such as the one in this case, which was produced for general retail sale (and, ironically, was not even sold at the California retailer premises themselves) and “private label” products, which are products produced exclusively for sale at a retailer or retail chain using intellectual property owned or controlled by that retailer. In other words, are the latter – hundreds of thousands of products that make up a significant percentage of all alcoholic beverage products sold at retail accounts across the country – suddenly to be banned under the ABC’s rationale?

A few choice quotes from the decision:

[from the ABC on why they didn’t enforce this before] “We are aware that there are some products that are in circulation that should not be, and we are going to look at those going forward…”
 

[on the effect of the violation and the use of shared IP] “The effect of this ‘sharing’ is to create a visual link between the retail licensees and appellants products, and increases the brand recognition for both. This constitutes free advertising for retail licensees in violation of Rule 106 subdivision (a), and cooperative advertising in violation of subdivision (f).”
The appellants raised a number of defenses, all of which were rejected by the Board: (1) the ABC has no authority over labels – not so said the Board; (2) The TTB preempts label art – nope, concurrent jurisdiction says the Board; (3) royalty payments for the use of IP went to a third party, not the retailer – it’s an indirect benefit to the retailer says the Board; (4) Rule 106(a) and (f) don’t apply to labels – not so says the Board, the labels become signs when the products are put on retail shelves; (5) 48 states have approved the labels – so what, says the Board, we are not bound by rulings in other states; (6) identically situated wine, beer and spirits products are being sold throughout the state and enforcement in this case would violate equal protection – The ABC is going to go after all the others (that’s their job) says the Board; and (7) the ABC issued a Trade Advisory [Third Party Providers – October 2011] that acknowledged that a license may receive compensation for licensing  its IP – that’s just an Advisory and cannot trump the statute and the rule, says the Board.

One important constitutional argument that was not raised is that a label and associated intellectual property are First Amendment-protected free speech. While the ABC and the Appeals Board do not have the authority to adjudicate the constitutionality of a statute, under a First Amendment defense the burden would have been on the government – here, the ABC – to provide compelling reasons why its prohibition of these labels outweighed the protections the First Amendment gives to alcoholic beverage labels as commercial speech.

Where does this leave the hundreds and thousands of alcoholic beverage products on California’s shelves and in California’s restaurants bearing visual links with a retailer?  In limbo until this is all cleared up — if it ever is. In the meantime, however, given this outcome the ABC has no choice but to start enforcing this law.  Regardless, this decision is going quickly to the appellate courts so stay tuned for that battle.

But think about it, if you are a producer making Joe’s Wine you had better hope that there is no licensed Joe’s Wine Shop out there because even if the two of you are NOT connected there is now a “visual link” between your wine and Joe’s Wine Shop. Under the rationale of this decision, both of you would be subject to license revocation for violating the tied house laws.

  1. TTB Protocols, Procedures and Investigations
  2. Wine in a 250 ML can – the Mystery of the TTB packaging Regulations and Solving the Problem by Amending the Regulations
  3. The Passing of John Manfreda of the TTB: a Tragedy for his family and a Tragedy for the Industry he so Faithfully Served for so Long.
  4. Pride in a Job Well-done, or Blood Money? The Cost of Learning the Truth from the TTB about the Benefits to Investigators from Making Cases Against Industry Members
  5. How ADA Website Compliance Works – The Steps You Can Take to Protect Yourself, Your Website and Your Social Media from Liability
  6. Supplier and Distributor Promotional “Banks,” Third Party Promotion Companies and Inconsistent TTB Enforcement, Oh My!
  7. “A Wrong Without a Remedy – Not in My America” – The TTB Death Penalty for Not Reporting Deaths
  8. Is a 1935 Alcohol Beverage Federal Trade Practice Law Stifling Innovation?
  9. Decoding the BCC’s Guidance on Commercial Cannabis Activity.
  10. Prop 65 - Escaping a "Notice of Violation"
  11. TTB Consignment Sales Investigations - What is Behind the Curtain of the TTB Press Releases?
  12. Heads Up! The ABC Is Stepping Up Enforcement Against Licensees Located Near Universities
  13. Coming Soon: New Mandatory Training Requirements for over One Million “Alcohol Servers” In California – September 1, 2021 will be here quickly
  14. 2019 Legislative Changes for California Alcohol Producers – a Blessing or a Curse?
  15. A Picture (On Instagram) Is Worth A Thousand Words
  16. Playing by the Rules: California Cannabis Final Regulations Takeaways
  17. Hinman & Carmichael LLP Names Erin Kelleher Partner and Welcomes Gillian Garrett and Tsion “Sunshine” Lencho to the Firm
  18. Congress Makes History and Changes the CBD Game for Good
  19. Pernicious Practices (stuff we see that will get folks in trouble!) Today’s Rant – Bill & Hold
  20. CBD: An Exciting New Fall Schedule… or Not?
  21. MISSISSIPPI RISING - A VICTORY FOR LEGAL RETAILER TO CONSUMER SALES, AND PASSAGE OF TITLE UNDER THE UNIFORM COMMERCIAL CODE
  22. California ABC's Cannabis Advisory - Not Just for Stoners
  23. NEW CALIFORNIA WARNINGS FOR ALCOHOLIC BEVERAGES AND CANNABIS PRODUCTS TAKE EFFECT AUGUST 30, 2018, NOW INCLUDING ADDENDUM REGARDING 2014 CONSENT AGREEMENT PARTIES AND PARTICIPANTS
  24. National Conference of State Liquor Administrators – The Alcohol Industry gathers in Hawaii to figure out how to enforce the US “Highly Archaic Regulatory Scheme.”
  25. Founder John Hinman Honored with the Raphael House Community Impact Award
  26. ROUTE TO MARKET AND MARKETING RESTRICTIONS - NAVIGATING REGULATORY SYSTEM CONSTRAINTS
  27. Alcohol and Cannabis Ventures: Top 5 Legal Considerations
  28. ATF and TTB: Is Another Divorce on the Horizon? What’s Going on with the Agency?
  29. STRIKE 3 - YOU REALLY ARE OUT! THE ABC'S STRICT APPLICATION OF PENALTIES FOR SALES TO MINORS
  30. TTB Temporarily Fixes Problem with Fulfillment Warehouse Tax Credits - an “Alternate Procedure” for Paying Taxes & Reporting
  31. CUSTOMERS WHO HAVE HAD ONE TOO MANY - THE FREE TRANSPORTATION DILEMMA
  32. The Renaissance of Federal Unfair Trade Practices - Current Issues and Strategies
  33. ‘Twas the week before New Year’s and the ABC is out in Force – Alerts for the Last Week of 2017, including the Limits on Free Rides
  34. Big Bottles, Caviar and a CA Wine Strong Silent Auction for the Holidays!
  35. The FDA and the Wine and Spirits Industry – Surprise inspections anyone?
  36. NORTHERN CALIFORNIA WILDFIRES: UPDATED REGULATORY AGENCY DISASTER RELIEF RESOURCES AT A GLANCE
  37. NORTHERN CALIFORNIA WILDFIRES: REGULATORY AGENCY DISASTER RELIEF RESOURCES AT A GLANCE
  38. Soon to come to your Local Supermarket– Instant Redeemable Coupons of the digital age!
  39. The License Piggyback Dilemma – If it Sounds Too Good to be True, it Probably is
  40. A timely message from our Florida colleagues on the tied house laws, the three-tier system and the need for reform
  41. ABC Declaratory Rulings – A Modest Proposal Whose Time has Come
  42. More on FDA Inspections - Breweries, Distilleries and Questions
  43. WHY THE FDA IS INSPECTING WINERIES
  44. Senate Bill 378—The Proposed Demise of Due Process for Alcohol Licensees
  45. ABC Enforcement - Trends and Predictions
  46. The Corruption Chronicles – Volume One: A New Hope
  47. New Alcohol Delivery Oversight on the Horizon
  48. Michigan: Canary in the DtC Coal Mine?
  49. California ABC and Federal Credit Laws – Active Enforcement and Lots of Questions!
  50. Big Bottles For The Holidays - The Highest Calling Of The Winemaker's Art
  51. FINAL COMMENTS TO TTB NOTICE 160 DUE ON WEDNESDAY DECEMBER 7TH – WE ARE ASKING THE TTB TO EXTEND THE COMMENT PERIOD AGAIN TO ALLOW FOR INDUSTRY NEGOTIATION AND ALIGNMENT OF INTERESTS
  52. SONOMA COUNTY WINERY USE PERMITS, EVENT RESTICTIONS AND DTC
  53. New TTB Labeling Requirement Regulations: Out-of-State Bottling Is Not Created Equal and Consumers Right to Know Where the Grapes in their Wine Come from is Compromised
  54. Isn't A Written Agreement With A Distributor Worthless In A Franchise State?
  55. Crowd Funding for Alcohol Producers and Retailers – Down the Rabbit Hole with the Tied House laws
  56. Everything you ever wanted to know about the BPA Warning Statement but were afraid to ask
  57. AB 2082 - A Hunting License for Police and a Lethal Weapon for Politicians that Deprives Licensees of Currently Available Due Process Rights
  58. “Better Late Than Never”-- Judge in Illinois Dismisses 201 Sales Tax Cases against Retailers
  59. The Day the Music Almost Died: The Story of the BottleRock ABC Accusations, the ABC Appeals Board and a Victory for a Common Sense Interpretation of the Tied House Laws
  60. The Arsenic in Wine Class Action Dismissal – what it means
  61. Counterfeit or Artisanal Mexican Spirits? Pick your Poison, or your lime wedge
  62. Warning - CA ABC enforcement teams are on the prowl this weekend!
  63. RELIEF AT LAST! ILLINOIS MOVES TO FIX THE SALES TAX LAWSUITS AGAINST OUT-OF-STATE SELLERS BUT PROPOSES TO PENALIZE WINERIES AND RETAILERS THAT SHIP WITHOUT PERMITS
  64. The TTB Speaks on Category Management or, be Careful What you Ask for Because you might Get it!
  65. Hinman & Carmichael LLP Announces the Addition of Jeremy Siegel to its team of top beverage law lawyers
  66. 2016 LEGISLATIVE UPDATES: Part IV
  67. 2016 LEGISLATIVE UPDATES: Part III
  68. 2016 LEGISLATIVE UPDATES: Part II
  69. 2016 LEGISLATIVE UPDATES: Part I
  70. Hinman & Carmichael LLP is Hiring!
  71. John Hinman Presents NBI Webinar on Basics of Alcohol Beverage Law
  72. ABC DISMISSES SAVE MART GRAPE ESCAPE ACCUSATION BUT REFUSES TO ADOPT JUDGE’S DECISION FINDING NO STRICT LIABILITY FOR ABC VIOLATIONS
  73. Speakeasies are still with us, and proliferating!
  74. The War for the Soul of Sonoma County – the Winery Working Group Battle
  75. Santa Claus isn’t the only one coming to town this Christmas!
  76. Arizona's Direct to Consumer Shipping Rules - An Exercise in Complexity
  77. AB 780 - Social Media and the ABC: The California Legislative “Fix” that Fails
  78. Illinois Finally Offers Certainty and Relief for Victims of Sales Tax Lawsuits, but Prompt Action is Required in Pending Cases
  79. A Modest Proposal – Adopt the federal rule on Tied-House liability in California
  80. The Grapes Escaped - Why the First Amendment Matters
  81. Appellate Court Ruling Strikes Blow Against State’s Arbitrary Beer Label Ban
  82. Illinois Attorney General's Office Announces Intention to Dismiss False Claims Act Against Liquor Retailers
  83. Commercial Speech And Alcoholic Beverages - Part III
  84. Commercial Speech And Alcoholic Beverages - Part II
  85. Craft Beverages: Social Media Marketing the Effective and Compliant Way
  86. Commercial Speech And Alcoholic Beverages - Part I
  87. A LAYPERSON LOOKS AT ARSENIC IN WINE
  88. The Biggest Retailer in the World vs. the TABC
  89. Rebecca Stamey-White presents Emerging Issues in Wine Law
  90. Top Beverage Alcohol Law Firm Adds and Elevates Partners
  91. Illinois Qui Tam Lawsuits—Private Enforcement Of a State Claim: A Bonanza For A Plaintiff’s Lawyer And A Rip-Off Of Retailers
  92. BOOZE RULES OF SOCIAL MEDIA: The Retailer Right to Pay Exception
  93. LIONS AND TIGERS AND TWEETS, OH MY!
  94. AB 2004: Brewer's Incremental Parity with Wine Makers
  95. Expanding, Proud Of It, and Wanting to Tell the World
  96. DC Weighs in Strongly on Third Party Marketer Delivery Services
  97. “Visual Links” between Beer, Wine and Spirits Labels and Retailers Ruled Unlawful in California — the tied house laws run amok
  98. Hard Cider Legislative Update
  99. New Marketing Model for New York – Lot 18 and the NYSLA
  100. Sweeping Changes in Proposed NYSLA Bill Include Expansion for Craft