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Distribution

Join Marc Sorini and Art DeCelle at the Wine, Beer & Spirits Law Conference – September 18-19, 2014

by Emily Townsend | Jul 21, 2014 | Advertising and Marketing, Alcohol Excise Taxes, Distribution, Food Safety and FDA, Import/Export, Non-Beverage Alcohol, Trade Practices, TTB COLAs and Formulas

Wine, Beer & Spirits Law 19th Annual National Conference
The Mayflower Renaissance Hotel
Washington, D.C.
September 18-19, 2014
Click here to register.
View the conference brochure.

McDermott Speakers
Marc E. Sorini, Partner, Program Co-chair
Arthur J. DeCelle, Counsel

Please join McDermott partner and program co-chair, Marc Sorini, at the Wine, Beer & Spirits Law 19th Annual National Conference on September 18-19, 2014. This year’s program will bring direct access to experts in the alcohol beverage industry, including speakers from the Alcohol and Tobacco Tax and Trade Bureau, Beam Suntory, BLDS, the California Department of Alcohol Beverage Control, Diago North America, Dogfish Head Craft Brewery, E&J Gallo Winery, the Federal Trade Commission, Ippolito Christon & Co., New Belgium Brewing Company, New Jersey Office of the Attorney General, Department of Law and Public, Safety, Division of Alcoholic Beverage Control, Precision Economics, Virginia Department of Alcoholic Beverage Control, Washington State Liquor Control Board, and the Wine Institute, as well as speakers from many of the nation’s leading law firms.

Of particular note, Marc Sorini will make a presentation titled, Federal Excise Tax Strategies and Tactics. McDermott counsel Art DeCelle will be moderating a panel of representatives from the industry’s leading national trade associations to discuss “The Future of Federal Regulation of Alcohol.”

To view the full conference brochure, click here. For more information and to register, please visit: https://cle.com/WashingtonDC.

Hard Cider for Brewers

by McDermott Will & Emery | Jul 15, 2014 | Advertising and Marketing, Distribution, Food Safety and FDA, TTB COLAs and Formulas

Hard cider has shown phenomenal growth in the past several years. With rising consumer demand, more and more craft brewers are entering this rapidly expanding market. Although hard cider is typically distributed and marketed like a beer product, the federal government and most states actually tax and regulate cider as a type of wine. Brewers contemplating the production of cider accordingly must carefully consider the legal issues surrounding cider production and distribution that distinguish cider from beer. This article outlines some of the most important (though certainly not all) of these issues.

This article was originally published in the May/June 2014 issue of The New Brewer.

Distilling 101 for Brewers

by McDermott Will & Emery and McDermott Will & Emery | Jul 3, 2014 | Advertising and Marketing, Alcohol Excise Taxes, Distribution, TTB COLAs and Formulas

The craft distilling movement is growing rapidly. Indeed, the torrid pace of new distillery openings and the boundless enthusiasm of new entrants seem strangely reminiscent of craft brewing (then “microbrewing”) in the late 1980s and early 1990s. Craft distillers even have a simmering product integrity issue (the use of purchased neutral spirits) that splits the new industry like contract brewing divided craft brewers 20 years ago. There are, no doubt, significant differences, but craft distilling today seems poised for a period of growth like the one craft brewers have been (mostly) enjoying for the past 25 years. Not surprisingly, then, a growing number of craft brewers have followed the path of Anchor Brewing (or should I say Anchor Distilling) and expanded their offerings to include distilled spirits. But as brewers quickly discover, there are numerous legal, regulatory, and tax differences between these related, but distinct, businesses. While a full exploration of those differences could fill a rather thick book, this article briefly highlights the most important.

This article was originally published in the March/April 2014 issue of The New Brewer.

Legal Considerations of Warehousing Spirits

by McDermott Will & Emery | Jun 27, 2014 | Alcohol Excise Taxes, Distribution, Import/Export

Warehouses aren’t exciting or sexy. In fact, they are usually boring to look at and think about. But a surprising amount of specialized alcohol beverage law surrounds the use of warehouses for the storage of distilled spirits.

This article, originally published in the Spring 2014 issue of Artisan Spirit, will briefly explore some of the basics.

Franchise Law for the Craft Distiller

by McDermott Will & Emery | Jun 12, 2014 | Distribution

Mastering distribution is as important to a successful distiller as mastering distilling, packaging or advertising. In a heavily-regulated industry, this requires knowledge of the applicable laws and regulations.

This article, originally published in the Winter 2013 issue of Artisan Spirit, explores, albeit at a very general level, how to manage one important category of those laws; so-called “franchise” laws.

Five Common Franchise Law Myths

by McDermott Will & Emery | Jun 4, 2014 | Distribution

Most people working for a U.S. packaging brewery are aware of so-called beer “franchise” laws. Such legislation—enacted in some form in most U.S. states—limits or restricts the ability of a brewer to change distributors. The author leaves for another article any discussion of the fairness and logic of such enactments. For now, this article explores some important basics about these laws and how they impact the brewer-distributor relationship.

This article was originally published in the November/December 2013 issue of The New Brewer.

Recent Alcohol Liability Decision Focuses on Insurance Policy Terms

by Arthur J. DeCelle | Jan 6, 2014 | Distribution, Food Safety and FDA, Import/Export

A December 16, 2013 federal appeals court decision on alcohol liability coverage provides an important reminder to industry members to carefully review the terms of their insurance policies.

In 2011, a group of insurance companies filed suit against Phusion Products (Phusion), the manufacturer of Four Loko, a popular flavored malt beverage that contained caffeine and other stimulants. (Four Loko has since been reformulated without stimulants.) The insurance companies asked an Illinois federal district court to issue a declaratory judgment that the insurers did not have a duty to defend Phusion in a series of lawsuits involving consumers of Four Loko. The lawsuits involved persons injured or killed after consuming Four Loko or third parties who were injured or killed in accidents involving persons who had consumed Four Loko.

While many legal issues were raised in the litigation, the U.S. District Court and the 7th Circuit Court of Appeals focused on the language of Phusion’s insurance policy, which included a broad “liquor liability exclusion” that denied coverage for bodily injury or property damage for which Phusion could be liable “by reason of: Causing or contributing to the intoxication of any person.”

The District Court and the Court of Appeals decided that Phusion’s insurance policy does not cover claims that Phusion’s actions caused or contributed to the injuries of consumers or third parties harmed by intoxication after drinking Four Loko. The 7th Circuit opinion held that “the supply of alcohol, regardless of what it is mixed with, is the relevant factor to determine whether an insured caused or contributed to the intoxication of any person.”

Both courts reviewed the factual allegations in five lawsuits filed against Phusion. In four instances, the courts found that the death and injuries resulted from intoxication of an individual who allegedly consumed Four Loko. The fifth case involved allegations of heart damage from consumption of Four Loko and the district court found that the insurance companies did have a duty to defend Phusion.

The underlying lawsuits against Phusion involve complex claims of negligence, failure to warn, and violations of state consumer protection laws. The status of those lawsuits is unclear at this point in time, but legal fees and any resulting settlement costs or damages are certain to be costly. The liquor liability exclusion in Phusion’s insurance policy is common in many commercial insurance policies. Liquor liability exclusions are common in many commercial insurance policies. Industry members in all tiers should seek additional coverage beyond standard terms of insurance policies to protect against injuries and lawsuits involving the safety of the alcohol beverages they produce or sell. Coverage should also be obtained for sales and promotional activities. Even if an industry member is ultimately absolved of liability, the costs of defending a lawsuit are usually significant.

Decisions:

Netherlands Insurance Company v. Phusion Products, Incorporated, Case No. 12-1355, (7th Cir., decided December 16, 2013).

Netherlands Insurance Co. and Indiana Insurance Company v. Phusion Products, Inc. and Phusion Project, LLC, Case No. 11 C 1253, (U.S. Dist. Ct. N.D. [...]

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Supreme Court of Ohio Clarifies Beer and Wine Franchise Law

by McDermott Will & Emery | Nov 8, 2013 | Distribution

Last month the Supreme Court of Ohio helped clarify an oft-litigated feature of the state’s beer and wine “franchise” law. Like most such enactments, Ohio’s franchise law (the “Ohio Alcoholic Beverages Franchise Act”) generally requires a manufacturer or importer to show “cause” in order to terminate an Ohio distributor. But a provision of the law permits the “successor manufacturer” of a brand to terminate Ohio distributors without cause within 90 days of acquiring that brand. The successor must compensate the terminated distributor for the value of the distribution rights terminated.

The successor manufacturer provision, Ohio R.C. 1333.85(D), has been the subject of significant litigation in the past decade. The recent opinion of Esber Beverage Company v. Labatt USA, Ohio S. Ct. No. 2012-0941 (Oct. 17, 2013), clarifies one important question surrounding the application of the law.

The Esber Beverage case arose after KPS Capital Partners acquired Labatt USA after U.S. antitrust authorities required the sale of U.S. Labatt rights following the purchase of Anheuser-Busch by InBev. KPS/Labatt USA sought to terminate Esber Beverage under the authority of the successor manufacturer provision. The Ohio trial court, however, held that the law’s successor manufacturer provision only applied if no written franchise agreement existed between the distributor and the former manufacturer. Because KPS assumed the agreements Labatt USA had with Esber Beverage and other distributors, the trial court reasoned that the successor manufacturer provision did not permit termination. An Ohio court of appeals reversed, and the Supreme Court of Ohio took the appeal.

Evaluating the question, the Ohio Supreme Court held that the successor manufacturer provision “is clear and unambiguous and permits successor manufacturers to assemble their own team of distributors so long as the successor manufacturers provide timely notice and compensate those distributors who are not being retained.” Rejecting Esber’s argument that the successor provision should not apply where it held a contract with Labatt, the Supreme Court invoked the franchise law’s provision that prohibits parties from waiving any provision of the law.

While the Esber Beverage case does not resolve every question surrounding Ohio’s successor manufacturer provision, it does settle an important one. Indeed, just one day before publication of the Ohio Supreme Court’s opinion, a U.S. District Court, applying Ohio law, enjoined a termination under the successor provision partially in reliance on the very contract argument rejected in Esber Beverage. See Tri Country Wholesale Distributors v. Labatt USA, S.D. Ohio No. 2:13-CV-317 at *35 (Oct. 16, 2013).

Towards Liquor Control: A Critical Analysis

by McDermott Will & Emery | Oct 7, 2013 | Advertising and Marketing, Alcohol Excise Taxes, Distribution, Trade Practices

First published in 1933, shortly before passage of the 21st Amendment repealing Prohibition, Raymond Fosdick and Albert Scott’s Toward Liquor Control is still used by many in the industry to support various positions of current alcohol policy. In his September 19 presentation for CLE International’s Wine, Beer & Spirits Law Conference, Marc Sorini provides an overview and critical analysis of the impact of this work on alcohol law and regulatory policy, licensing, distribution, taxation, advertising and education.

To view the presentation, click here.

Alcohol Advertising in Digital Media, Part 4: Industry Self-Regulation

by Arthur J. DeCelle | Sep 12, 2013 | Advertising and Marketing, Distribution, Trade Practices

Alcohol beverage suppliers were among the first U.S. business sectors to embrace self-regulation of advertising and marketing in the 1930s and 1940s. Voluntary codes have evolved from simple commitments to truthful advertising to comprehensive guidance documents containing mechanisms for independent review of consumer complaints.

Compliance with voluntary industry codes does not absolve an advertiser from compliance with laws and regulations covered in Part 2 and Part 3 of this series. The codes cover areas that would be difficult for government to regulate such as non-misleading advertising content, which enjoys significant First Amendment protection. The codes also provide best practices in minimizing exposure of persons under the legal drinking age to alcohol advertising.

As indicated in Part 1 of this series, the Federal Trade Commission (FTC) views compliance with voluntary codes as an essential part of an alcohol beverage advertising and marketing function. A detailed FTC review of advertising practices initiated in 2012 will likely result in a report to Congress by the end of 2013. That report will include a detailed analysis of digital advertising activities and expenditures along with recommendations for future code enhancements.

The codes subject the digital marketing space to the same list of traditional “dos and don’ts” in advertising content that apply to all other media. Beyond those fundamentals, digital advertising is subject to unique placement and audience measurement requirements that require communication with host networks and/or advance research on the audience demographics of traditional web sites or networks.

Voluntary industry codes are developed and disseminated by trade associations for distillers, vintners, and brewers. Similar guidelines exist across all codes for advertising content. Audience demographic standards are included in the codes of the Distilled Spirits Council of the United States, Beer Institute and Wine Institute. Those standards are the same as they are based on U.S. Census data. Links to major industry codes and examples of media policies follow:

Beer Institute Advertising and Marketing Code and Buying Guidelines

Brewers Association Advertising Code

Distilled Spirits Council of the United States Code of Responsible Practices and Note on Responsible Digital Marketing Communications

Facebook Alcohol Advertising Policy

Google Alcohol Advertising Policy

Wine Institute Code of Advertising Standards