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Advertising and Marketing

The TTB Proposes New Definition of Hard Cider

by McDermott Will & Emery | Feb 10, 2017 | Advertising and Marketing, Alcohol Excise Taxes, TTB COLAs and Formulas

On January 23, 2017 the Alcohol & Tobacco Tax & Trade Bureau (TTB) published a Temporary Rule and a Notice of Proposed Rulemaking (NPRM) related to the new definition of hard cider. Congressional action required a new definition when Congress amended the Internal Revenue Code in December 2015 by enacting the Protecting Americans from Tax Hikes (PATH) Act. The Temporary Rule lays out TTB’s current thinking on regulations to implement the revised definition, while the NPRM requests comments on the regulations spelled out in the Temporary Rule.

We view the following provisions as most significant:

1. Requiring a new mandatory tax classification statement on all products eligible for the hard cider tax rate, effective January 1, 2018.

2. Requiring the words “sparking” or “carbonated” on all hard cider with carbonation in excess of 0.392 grams per 100 ml.

3. Codifying in the regulations (although this reflects longstanding TTB policy) that materials like honey, hops, spices and pumpkin may be added to hard cider without jeopardizing the hard cider tax rate.

4. Establishing a .009 gram per 100 ml tolerance for carbonation in cider.

5. Suggesting in the pre-amble that treating materials, regardless of source, could render a product ineligible for the hard cider rate if those materials imparts a fruit flavor other than apple (under the new regulations apple or pear).

6. Codifying in the regulations for the first time (although this reflects longstanding TTB policy) that the hard cider definition and most rules also apply to imported hard cider.

The current deadline for comments on the proposed regulations is March 24, 2017, but TTB generally grants reasonable extensions (typically 60 or 90 additional days) upon request.

Avoiding Misleading Labeling

by Eleanor B. Atkins and McDermott Will & Emery | Feb 8, 2017 | Advertising and Marketing, TTB COLAs and Formulas

Current conventional wisdom in the craft beer business holds that being local helps sell more beer. This has led many brewers to emphasize their local roots on their labels and in their marketing efforts. In some ways, the trend has a “back to the future” feel, as labels and marketing materials once again feature place names that often became the brand names for many of the first generation of craft brewers in the 1980s.

But the emphasis on place can come with a price: the prospect of legal hurdles, including lawsuits, over allegations that a brand name, label, or advertisement misrepresents the beer’s place of production. Legally this subject usually goes by the name “geographic misdescription,” itself a subset of false advertising law. How can brewers minimize their chances of becoming the target of a lawsuit or government investigation alleging that a beer’s labeling or marketing deceived consumers?

Read the full article, originally published in the January/February 2017 issue of The New Brewer.

Eighth Circuit Hints at Unconstitutionality of Missouri Restrictions on Alcohol Advertising

by McDermott Will & Emery | Jan 24, 2017 | Advertising and Marketing, Trade Practices

Last week, the US Court of Appeals for the Eighth Circuit weighed in on the legality of restrictions on alcohol advertising under the First Amendment, issuing an opinion in Missouri Broadcasters Association v. Lacy that could eventually broaden free speech protections for alcohol beverage advertisements. After the lower court granted defendants’ motion to dismiss and plaintiffs appealed, the Eighth Circuit reversed the district court’s dismissal, finding that plaintiffs’ claim alleging the unconstitutionality of a Missouri statute and two regulations should be heard.

The case concerned three Missouri provisions – two regulations and a statute – that restrict the advertising of alcohol beverages:

a regulation prohibiting retailers from advertising price discounts outside of the licensed premises (but allowing the advertising of discounts by using generic descriptions (e.g., “Happy Hour”), as well as the advertising of specific discounts within the licensed premises);
a regulation prohibiting retailers from advertising prices below cost; and
a statute requiring manufacturers and wholesalers choosing to a list a retailer in an advertisement to exclude the retail price of the product from the advertisement, list multiple unaffiliated retailers and make the listing relatively inconspicuous.

Plaintiffs – a broadcasting industry group, radio station operator, winery and retailer – sued Missouri’s supervisor of liquor control and attorney general, alleging that the three provisions are facially invalid under the First Amendment in that they prohibit truthful, non-misleading commercial speech, are inconsistently enforced by the state and the challenged statute unconstitutionally compels speech.

To state a claim that a statute is facially unconstitutional under the First Amendment, Supreme Court precedent instructs that plaintiffs must show that there are no set of circumstances under which the challenged provision would be valid, or that a substantial number of the provision’s applications are unconstitutional. Alcohol beverage advertisements involve commercial speech, which receives less protection under the First Amendment than other constitutionally protected forms of expression. In Central Hudson Gas & Electric Corp. v. Public Service Comm’n of New York (1980), the Supreme Court articulated a four-part test for determining the constitutionality of laws restricting commercial speech: whether (1) the speech concerns lawful activity and is not misleading; (2) the governmental interest justifying the regulation is substantial; (3) the regulation directly advances the governmental interest; and (4) the regulation is no broader than necessary to further the governmental interest.

Applying the third and fourth factors of the Central Hudson test (plaintiffs and defendants agreed on the first two factors of the test), the court found that the facts plaintiffs alleged were “more than sufficient” to state a plausible claim. First, the court opined, plaintiffs made sufficient allegations that the challenged provisions do not directly advance Missouri’s substantial interest in promoting responsible drinking. Although defendants argued that a link exists between advertising promotions and increased demand for alcohol beverages, the court noted that “multiple” inconsistencies in the regulations demonstrate that the regulations do not advance Missouri’s interest in promoting responsible drinking. Likewise, the court determined, plaintiffs pled sufficient facts to support [...]

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TTB Publishes a Federal Register Notice Adjusting the Civil Monetary Penalty under ABLA

by McDermott Will & Emery | Jan 17, 2017 | Advertising and Marketing, TTB COLAs and Formulas

On January 10, 2017, TTB published a Federal Register notice adjusting the civil monetary penalty imposed for violations of the Alcohol Beverage Labeling Act of 1988 (the ABLA). The ABLA requires the labels of alcohol beverages sold in the United States to bear the now-familiar Government Warning Statement. When first enacted, the maximum civil penalty for violations was $10,000 per day.

Under TTB’s latest inflation adjustment, the maximum penalty will stand at $20,111 per day, beginning with all penalties assessed after January 10, 2017. This new amount will apply even in cases where the underlying violation occurred prior to the effective date of the new penalty amount. View the full text of TTB’s notice here.

TTB Changes Under the Fall Edition of the Unified Agenda

by McDermott Will & Emery | Jan 10, 2017 | Advertising and Marketing, Import/Export, Non-Beverage Alcohol, TTB COLAs and Formulas

On December 23rd, 2016 the federal government published its Fall edition of the “Unified Agenda” – a bi-annual compilation of all ongoing federal rulemaking projects. Attached is a copy of the TTB detail from this latest Unified Agenda. As always, projected future publication dates should be viewed with a very healthy dose of skepticism.

TTB’s portion of the Unified Agenda identifies the following “priority” items:

Final rules implementing the International Trade Data System (ITDS). TTB published these final rules on December 22, 2016 – mission accomplished.
Revisions to TTB regulations to implement the “Protecting Americans from Tax Hikes Act of 2015” (PATH Act). Among other things, the PATH Act amended the Internal Revenue Code definition of “hard cider” and changed the bonding requirements for small excise taxpayers. While listed as a priority for action in late 2016, TTB has shown little ability to quickly amend its regulations to reflect statutory changes enacted by Congress (see Taxpayer Relief Act note below).
Revisions to modify and streamline TTB’s wine, distilled spirits, and malt beverage labeling regulations. This item has appeared in the Unified Agenda for several years, and apparently stems from a January 2011 Executive Order requiring the identification and elimination of outmoded and burdensome regulations. The Unified Agenda lists a December 2016 publication date for a Notice of Proposed Rulemaking (NPRM) on this subject.
Back on the “priority” list of this Unified Agenda is the NPRM permitting the self-certification of nonbeverage product formulas. Projected publication of that NPRM now has slipped to September 2017.
A project to combine the current four forms required for reporting by distilled spirits plants (DSPs) into two report forms now receives priority status. Originally proposed in December 2011, TTB now expects to publish a 2017 “Supplemental NPRM” to gather more comments on the subject.

Among the other TTB rulemaking projects industry members may take an interest in are the following:

TTB’s allergen labeling rulemaking, initiated in April 2005, remains on the Unified Agenda, but under the heading of “Next Action Undetermined.” This suggests that TTB may walk away from mandatory allergen labeling altogether.
TTB is considering amendments to the “standards of fill” for wine and distilled spirits, with an NPRM projected date of April 2017.
A new item proposes an NPRM to amend the wine labeling regulations in order to better address the labeling of flavored wines. The project arises from a petition received by TTB and projects an April 2017 publication date.
TTB has withdrawn (and presumably abandoned) the rulemaking project, commenced in 2010, to further define the use of terms like “estate bottled” on wine labels.
TTB continues to plan for a “Supplemental NPRM” to solicit additional comments on the use of an American viticultural area as an appellation on a wine finished in an adjacent state. TTB now expects to publish the Supplemental NPRM in January 2017.
Final rules arising from the August 2016 NPRM proposal to impose certain Federal Alcohol Administration Act labeling requirements on [...]

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Summary Judgment Granted in Tito’s “Handmade” Vodka Case

by McDermott Will & Emery | Oct 11, 2016 | Advertising and Marketing

On September 27, 2016, the Northern District of Florida issued a decision in Pye v. Fifth Generation, Inc., N.D. Fla. No. 4:14cv493-RH/CAS, one of many false advertising class actions brought against the makers of Tito’s “Handmade” Vodka.

Although Tito’s has lost a number of decisions on motions to dismiss and summary judgment motions in other jurisdictions, Pye delivers a win. Having already dismissed claims related to the generic “handmade” claim, the recent Pye decision grants summary judgment on the final challenged claim – that Tito’s is made in “an old fashioned pot still.” According to the court, any pot still can be described as “old fashioned” when compared to a column still, and no reasonable consumer could read the claim to represent that all Tito’s comes from the same still.

Texas Court Strikes Down Prohibition on Payments for Brand Rights

by McDermott Will & Emery | Aug 30, 2016 | Advertising and Marketing, Distribution

Late last week, a district judge in Texas declared unconstitutional under the Texas Constitution a provision of the state’s Beer Industry Fair Dealing Law (i.e., the beer “franchise” law) that expressly prohibits a brewer from accepting a payment in exchange for a grant of territorial distribution rights. Section 102.75(a)(7) of the Texas Alcoholic Beverage Code, enacted in 2013, applies generally to “manufacturers,” including both in-state brewers and out-of-state brewers holding nonresident manufacturer’s licenses in Texas. In 2014, three small Texas brewers – Live Oak Brewing Company, Revolver Brewing and Peticolas Brewing Company – sued the Texas Alcoholic Beverage Commission (TABC) and its executive director, Sherry Cook, arguing that Section 102.75(a)(7) violates the Texas Constitution.

In a short summary order, the district court judge agreed. The court found that Section 102.75(a)(7) violates the Texas Constitution’s “Due Course of Law” provision, Texas’ analog to the US Constitution’s Due Process Clause, which states that a Texas citizen may not “be deprived of life, liberty, property, privileges or immunities, or in any manner disfranchised, except by the due course of the law of the land.” Tex. Const. Art. I, § 19.

The court granted the plaintiff breweries’ motion for summary judgment on their Due Course of Law argument and enjoined the TABC and Ms. Cook (and their respective employees, agents and successors) from enforcing Section 102.75(a)(7) against the plaintiffs and any other brewers. The court dismissed the plaintiffs’ claim that Section 102.75(a)(7) amounted to a taking of private property in violation of the Texas Constitution, though, and also dismissed the plaintiffs’ request for attorney’s fees.

Although the judge’s order did not contain any detail regarding her reasoning, the case restores an important opportunity for brewers distributing – or interested in distributing – beer in Texas. Further, although the TABC may appeal, the decision should remind state legislatures that state restrictions on the conduct of private parties in the alcohol industry in the name of protecting the three-tier system must still pass muster under federal and state constitutional principles.

Join McDermott Partners Marc Sorini and Andrew B. Kratenstein at the 21st Annual CLE International Wine, Beer & Spirits Law Conference

by Emily Townsend | Jul 20, 2016 | Advertising and Marketing, TTB COLAs and Formulas

The annual Wine, Beer & Spirits Law Conference will be held on September 22-23, 2016 in Colorado Springs, CO to discuss the latest developments in alcohol policy and practice. Co-Chair and McDermott partner Marc Sorini has again lined up a great program of speakers on legal topics of interest to the industry. In addition, Marc and McDermott Partner Andrew B. Kratenstein will give the following presentations:

Thursday, September 22, 9:30-10:15 am: Marc will help kick off the conference by discussing the intersection of the First Amendment and tied-house law.
Thursday, September 22, 3:15-4:30 pm: Andrew will join three other lawyers to explore the strategies and tactics of supplier-distributor disputes, touching on venue, injunctions and other topics.

For more information or to register, please visit https://www.cle.com/Broadmoor.

Non-Compete Agreements: Friend or Foe?

by McDermott Will & Emery | Jul 5, 2016 | Advertising and Marketing, Distribution

With the boom of craft producers, competition is ever-increasing. If you’re thinking about going into the business or you already have, undoubtedly you have considered how you can best protect your products, recipes, methodologies, and distribution from imitation or recreation. The sale and manufacture of unique craft drinks creates a unique set of issues and considerations.

Read the full article, originally published in the Summer 2016 issue of Artisan Spirit.

The Evolving Alcohol Regulatory System

by McDermott Will & Emery | Jun 2, 2016 | Advertising and Marketing, Distribution

Most participants in the alcohol beverage industry are very familiar with the “three tier system.” What will surprise many, however, is learning that the system did not emerge immediately after Prohibition.

Read the full article, originally published in the May/June 2016 issue of The New Brewer.