The New York SLA and Online Wine Sales: A Work in Progress

On April 9th, the New York State Liquor Authority (SLA) issued a declaratory ruling describing limits on the activities of national advertisers (marketing websites) who advertise the availability of wine for sale to consumers in New York from licensed NY retailers. While the system presented to the SLA was not the first Internet marketing platform designed to operate within the three-tier system in New York (and to attempt to comply with all of the NY laws and regulations associated with selling wine through the three-tier system), it was the first time anyone had requested a declaratory ruling from the SLA to obtain guidance on how to operate such a marketing platform.

In its eight-page ruling, the SLA analyzed an actual relationship from an earlier iteration of the model that was submitted to the SLA for the declaratory ruling. The SLA noted that the relationship did not comport with the model presented to the SLA for approval (that was because the relationship existed before the model was developed and submitted), and found that the historic day-to-day business relations between that Internet advertiser and that NY retailer violated ABCL §111, which “prohibits a licensee from making its license available to a person who has not been approved by the Authority to hold that license.” In other words, the SLA believed the advertiser in the relationship they examined was too involved with, and had too much control over, the retailer’s business.

This is far from the death knell of Internet wine marketing platforms in New York; indeed, the SLA went out of its way to acknowledge that the Internet, and Internet marketing, is of vital importance to the NY marketplace.  In announcing its ruling, the SLA said it will continue to conduct public meetings and gather more information to further address the issues raised by the more sophisticated model described in the declaratory ruling request, as well as more generally, the issues raised “by the involvement of unlicensed parties in the Internet sale of alcoholic beverages to consumers in this state,” in an Advisory to the trade.

In the meantime, there are a number of important takeaways in the ruling itself that provide helpful interim guidelines to Internet wine marketers and NY retailers.  According to the SLA, a third party advertising arrangement with a licensed NY retailer selling wines through the three-tier system should abide by the following guidelines:

(a) Flat fees to retailers (paid by the Internet advertiser to compensate for a sale) are prohibited;

(b) Advertisers may not decide what wines will be offered for sale by the NY retailer (this is a function reserved to the retailer);

(c) Advertisers may not set the website prices for the wines offered for sale by the NY retailer (this is a function reserved to the retailer);

(d) Advertisers may not perform essential retailer functions such as deciding how consumer funds are controlled and disbursed, and deciding what the retailer’s profit margin will be; and

(e) Advertisers may not retain a “substantial” portion of the sales price for their services.

Thus, a retailer who selects the products that are going to be advertised on its behalf, sets the prices for the products that are going to be advertised, determines and receives normal business margins for the products that its sells, controls the funds received from consumers, and takes normal business risks (for example from loss or breakage of product, or credit card fraud) may utilize Internet advertising services facilitated by third parties.  (These elements were all present in the advertising platform described in the request for declaratory ruling, but the SLA focused on the prior system in its ruling).

There were also some unquestionably safe harbors mentioned by the SLA as a precursor to its Advisory to come:  a third party may host and maintain a retailer’s website and perform "related services," and a retailer may advertise its own products on a third party’s website, so long as consumers are directed to the retailer's website to place orders and the advertiser’s compensation is a flat fee that is "not contingent on the number of sales or the amount sold.”

While this ruling answered some questions, it raised many others that still need to be addressed - such as, is it acceptable for an advertising and marketing fee to be something less than a substantial portion of sales made by the retailer, or must it always be a flat fee?  What kinds of banking arrangements may the retailer use to receive consumer funds?  To what extent may a retailer coordinate with an Internet advertiser who is running a national advertising program? These are all tricky questions and we look forward to further guidance on these issues from the SLA.

  1. The RBS Chronicles: If Your Business serves Alcoholic Beverages YOU NEED TO READ THIS AND TAKE ACTION!
  2. RESPONSIBLE BEVERAGE SERVICE ACT HEARING – OCTOBER 11TH IN SACRAMENTO – BE THERE!
  3. WHEN THE INVESTIGATOR COMES CALLING – BEST PRACTICES.
  4. RESPONSIBLE BEVERAGE SERVICE ACT PROPOSED ABC RULES 160 TO 173 – WHY THE RUSH?
  5. The TTB Crusade Against Small Producers and the “Consignment Sale” Business Model
  6. TTB Protocols, Procedures, and Investigations
  7. Wine in a 250 ML can – the Mystery of the TTB packaging Regulations and Solving the Problem by Amending the Regulations
  8. 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.
  9. 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
  10. How ADA Website Compliance Works – The Steps You Can Take to Protect Yourself, Your Website and Your Social Media from Liability
  11. Supplier and Distributor Promotional “Banks,” Third Party Promotion Companies and Inconsistent TTB Enforcement, Oh My!
  12. “A Wrong Without a Remedy – Not in My America” – The TTB Death Penalty for Not Reporting Deaths
  13. Is a 1935 Alcohol Beverage Federal Trade Practice Law Stifling Innovation?
  14. Decoding the BCC’s Guidance on Commercial Cannabis Activity.
  15. Prop 65 - Escaping a "Notice of Violation"
  16. TTB Consignment Sales Investigations - What is Behind the Curtain of the TTB Press Releases?
  17. Heads Up! The ABC Is Stepping Up Enforcement Against Licensees Located Near Universities
  18. Coming Soon: New Mandatory Training Requirements for over One Million “Alcohol Servers” In California – September 1, 2021 will be here quickly
  19. 2019 Legislative Changes for California Alcohol Producers – a Blessing or a Curse?
  20. A Picture (On Instagram) Is Worth A Thousand Words
  21. Playing by the Rules: California Cannabis Final Regulations Takeaways
  22. Hinman & Carmichael LLP Names Erin Kelleher Partner and Welcomes Gillian Garrett and Tsion “Sunshine” Lencho to the Firm
  23. Congress Makes History and Changes the CBD Game for Good
  24. Pernicious Practices (stuff we see that will get folks in trouble!) Today’s Rant – Bill & Hold
  25. CBD: An Exciting New Fall Schedule… or Not?
  26. MISSISSIPPI RISING - A VICTORY FOR LEGAL RETAILER TO CONSUMER SALES, AND PASSAGE OF TITLE UNDER THE UNIFORM COMMERCIAL CODE
  27. California ABC's Cannabis Advisory - Not Just for Stoners
  28. NEW CALIFORNIA WARNINGS FOR ALCOHOLIC BEVERAGES AND CANNABIS PRODUCTS TAKE EFFECT AUGUST 30, 2018, NOW INCLUDING ADDENDUM REGARDING 2014 CONSENT AGREEMENT PARTIES AND PARTICIPANTS
  29. National Conference of State Liquor Administrators – The Alcohol Industry gathers in Hawaii to figure out how to enforce the US “Highly Archaic Regulatory Scheme.”
  30. Founder John Hinman Honored with the Raphael House Community Impact Award
  31. ROUTE TO MARKET AND MARKETING RESTRICTIONS - NAVIGATING REGULATORY SYSTEM CONSTRAINTS
  32. Alcohol and Cannabis Ventures: Top 5 Legal Considerations
  33. ATF and TTB: Is Another Divorce on the Horizon? What’s Going on with the Agency?
  34. STRIKE 3 - YOU REALLY ARE OUT! THE ABC'S STRICT APPLICATION OF PENALTIES FOR SALES TO MINORS
  35. TTB Temporarily Fixes Problem with Fulfillment Warehouse Tax Credits - an “Alternate Procedure” for Paying Taxes & Reporting
  36. CUSTOMERS WHO HAVE HAD ONE TOO MANY - THE FREE TRANSPORTATION DILEMMA
  37. The Renaissance of Federal Unfair Trade Practices - Current Issues and Strategies
  38. ‘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
  39. Big Bottles, Caviar and a CA Wine Strong Silent Auction for the Holidays!
  40. The FDA and the Wine and Spirits Industry – Surprise inspections anyone?
  41. NORTHERN CALIFORNIA WILDFIRES: UPDATED REGULATORY AGENCY DISASTER RELIEF RESOURCES AT A GLANCE
  42. NORTHERN CALIFORNIA WILDFIRES: REGULATORY AGENCY DISASTER RELIEF RESOURCES AT A GLANCE
  43. Soon to come to your Local Supermarket– Instant Redeemable Coupons of the digital age!
  44. The License Piggyback Dilemma – If it Sounds Too Good to be True, it Probably is
  45. A timely message from our Florida colleagues on the tied house laws, the three-tier system and the need for reform
  46. ABC Declaratory Rulings – A Modest Proposal Whose Time has Come
  47. More on FDA Inspections - Breweries, Distilleries and Questions
  48. WHY THE FDA IS INSPECTING WINERIES
  49. Senate Bill 378—The Proposed Demise of Due Process for Alcohol Licensees
  50. ABC Enforcement - Trends and Predictions
  51. The Corruption Chronicles – Volume One: A New Hope
  52. New Alcohol Delivery Oversight on the Horizon
  53. Michigan: Canary in the DtC Coal Mine?
  54. California ABC and Federal Credit Laws – Active Enforcement and Lots of Questions!
  55. Big Bottles For The Holidays - The Highest Calling Of The Winemaker's Art
  56. 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
  57. SONOMA COUNTY WINERY USE PERMITS, EVENT RESTICTIONS AND DTC
  58. 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
  59. Isn't A Written Agreement With A Distributor Worthless In A Franchise State?
  60. Crowd Funding for Alcohol Producers and Retailers – Down the Rabbit Hole with the Tied House laws
  61. Everything you ever wanted to know about the BPA Warning Statement but were afraid to ask
  62. AB 2082 - A Hunting License for Police and a Lethal Weapon for Politicians that Deprives Licensees of Currently Available Due Process Rights
  63. “Better Late Than Never”-- Judge in Illinois Dismisses 201 Sales Tax Cases against Retailers
  64. 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
  65. The Arsenic in Wine Class Action Dismissal – what it means
  66. Counterfeit or Artisanal Mexican Spirits? Pick your Poison, or your lime wedge
  67. Warning - CA ABC enforcement teams are on the prowl this weekend!
  68. 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
  69. The TTB Speaks on Category Management or, be Careful What you Ask for Because you might Get it!
  70. Hinman & Carmichael LLP Announces the Addition of Jeremy Siegel to its team of top beverage law lawyers
  71. 2016 LEGISLATIVE UPDATES: Part IV
  72. 2016 LEGISLATIVE UPDATES: Part III
  73. 2016 LEGISLATIVE UPDATES: Part II
  74. 2016 LEGISLATIVE UPDATES: Part I
  75. Hinman & Carmichael LLP is Hiring!
  76. John Hinman Presents NBI Webinar on Basics of Alcohol Beverage Law
  77. ABC DISMISSES SAVE MART GRAPE ESCAPE ACCUSATION BUT REFUSES TO ADOPT JUDGE’S DECISION FINDING NO STRICT LIABILITY FOR ABC VIOLATIONS
  78. Speakeasies are still with us, and proliferating!
  79. The War for the Soul of Sonoma County – the Winery Working Group Battle
  80. Santa Claus isn’t the only one coming to town this Christmas!
  81. Arizona's Direct to Consumer Shipping Rules - An Exercise in Complexity
  82. AB 780 - Social Media and the ABC: The California Legislative “Fix” that Fails
  83. Illinois Finally Offers Certainty and Relief for Victims of Sales Tax Lawsuits, but Prompt Action is Required in Pending Cases
  84. A Modest Proposal – Adopt the federal rule on Tied-House liability in California
  85. The Grapes Escaped - Why the First Amendment Matters
  86. Appellate Court Ruling Strikes Blow Against State’s Arbitrary Beer Label Ban
  87. Illinois Attorney General's Office Announces Intention to Dismiss False Claims Act Against Liquor Retailers
  88. Commercial Speech And Alcoholic Beverages - Part III
  89. Commercial Speech And Alcoholic Beverages - Part II
  90. Craft Beverages: Social Media Marketing the Effective and Compliant Way
  91. Commercial Speech And Alcoholic Beverages - Part I
  92. A LAYPERSON LOOKS AT ARSENIC IN WINE
  93. The Biggest Retailer in the World vs. the TABC
  94. Rebecca Stamey-White presents Emerging Issues in Wine Law
  95. Top Beverage Alcohol Law Firm Adds and Elevates Partners
  96. Illinois Qui Tam Lawsuits—Private Enforcement Of a State Claim: A Bonanza For A Plaintiff’s Lawyer And A Rip-Off Of Retailers
  97. BOOZE RULES OF SOCIAL MEDIA: The Retailer Right to Pay Exception
  98. LIONS AND TIGERS AND TWEETS, OH MY!
  99. AB 2004: Brewer's Incremental Parity with Wine Makers
  100. Expanding, Proud Of It, and Wanting to Tell the World