In the past decade, millions of Americans have converted to gluten-free diets. Originally a practice dictated solely by the medical needs of those who suffer from celiac disease, gluten-free has entered the mainstream. This article will explore the evolving and somewhat uncertain status of labeling and advertising beer as “gluten-free.”
Read the full article, originally published in the July/August 2015 issue of The New Brewer.
In a Federal Register Final Rule to be published tomorrow (July 10, 2015), the U.S. Food and Drug Administration (FDA) will announce that it has extended by one year (to December 1, 2016) the date by which covered restaurants must comply with FDA’s regulation requiring nutrition labeling of standard menu items. FDA explains that it took this action in response to several requests for such an extension, and FDA believes it needs additional time to provide the industry with further clarifying guidance to facilitate compliance.
In addition, FDA says it will continue discussions with affected businesses and to answer questions about how the rule applies in particular situations. To this end, next month FDA plans to issue draft guidance that answers some of the more frequently asked and crosscutting questions that FDA has received. In accordance with past Agency practice, FDA’s guidance will be a “draft” to reflect FDA’s openness to further public comment and dialogue and to augment the guidance as new questions arise.
FDA also plans to provide educational and technical assistance for affected businesses and for FDA’s state and local regulatory partners to support reasonable and consistent compliance nationwide. FDA says it is committed to being flexible and to working collaboratively with individual companies making a good faith effort to comply with the menu labeling regulations.
On December 1, 2014, the United States Supreme Court will hear oral argument in a case that will have significant implications for federal regulatory agencies like the U.S. Food and Drug Administration (FDA) and the Alcohol and Tobacco Tax and Trade Bureau (TTB).
The case is Mortgage Bankers Ass’n v. Harris, 720 F.3d 966 (D.C. Cir. 2013). In that decision, the United States Court of Appeals for the D.C. Circuit refined a line of cases involving the Administrative Procedures Act (APA). The APA governs the activities of federal agencies and, among other things, generally requires notice-and-comment rulemaking procedures, including publication in the Federal Register and a period of time for industry and the public to comment on proposed regulations, in order for a federal agency to adopt a new “rule.” These procedural requirements aim to ensure transparency in governmental operations and a public “vetting” process before an agency adopts new regulatory requirements.
Beginning in the 1990s, the D.C. Circuit – which hears a large percentage of the cases involving challenges to federal agency actions – has held that the notice-and-comment rulemaking requirement extends to agency attempts to change a settled agency interpretation of a regulation. In other words, once an agency establishes a position on a particular issue, the D.C. Circuit has required that an agency proceed through notice-and-comment procedures to change its earlier position.
In Mortgage Bankers, the D.C. Circuit held that a person challenging an agency change in policy need not show any reliance on that policy in order to claim that an agency had violated that requirement. The court held that nothing in its prior cases required a showing of reliance.
The Supreme Court has agreed to review the case, see Perez v. Mortgage Bankers Ass’n, No. 13-1041, cert. granted 6/16/14, but on a broader issue than whether a person claiming that an agency changing its interpretation of a regulation must show reliance. Instead, the court agreed to examine whether a federal agency must engage in notice-and-comment rulemaking before it can significantly alter an interpretive rule that articulates an interpretation of an agency regulation. The court will hear oral argument on December 1, 2014. Thus, the court may be poised to overrule the entire line of D.C. Circuit cases holding that an agency must engage in notice-and-comment rulemaking before changing definitive but un-codified interpretations of regulations.
A reversal of current D.C. Circuit precedent has troubling implications for the alcohol beverage industry. Many policies of the federal agencies that regulate the industry become established through informal decisions never reduced to formal regulations. To take one example, TTB’s policies towards the documentation of exports without payment of tax depart significantly from TTB’s published regulations, and instead rely on well-recognized and followed policies published only in informal Industry Circulars and private letter “variances” from regulations. Consider, too, the dozens of unpublished “policies” TTB applies in the review of alcohol beverage labels, some of which go back decades and have formed the basis of entire brand propositions by the industry. Should [...]
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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 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.
On June 5, 2014 the Alcohol and Tobacco Tax and Trade Bureau (TTB) issued TTB Ruling 2014-4, exempting from TTB’s formula and pre-import approval (PIA) submission requirements beer made with dozens ingredients as well as beer subjected to wood aging processes. TTB now finds these ingredients and processes to be traditionally used in the production of beer. The Ruling stems from a Brewer’s Association Petition filed with TTB in 2006 with the assistance of McDermott Will & Emery. As the Ruling explains, TTB initially rejected the petition, but with continued industry interest and additional fact-finding the TTB has reversed its position. The Ruling includes an attached list of exempted ingredients and processes, as well as examples of acceptable label designations.
Materials that brewers (including for imported or PIA beer) can now use without the need for a formula include:
Ingredients
TTB determined that ingredients including honey, certain fruits, certain spices and certain food ingredients are part of the traditional beer making process. Industry members remain responsible for ensuring that all ingredients are suitable for food consumption in compliance with applicable Food and Drug Administration regulations and standards. TTB notes that when using brown sugar, candy (candi) sugar, maple sugar/syrup or molasses/blackstrap molasses in the fermentation of a beer, the beer label is not required to refer to these ingredients. Instead, the label may identify it as a “beer,” “ale” and so forth.
Wood Aging
The Ruling finds that the process of aging beers in barrels (or with woodchips, staves or spirals from those barrels) that were used previously in the production or storage of wine or distilled spirits is a traditional process. This finding does not apply to the use of woodchips soaked or infused with wine or spirits for the sole purpose of making beer. Moreover, brewers must ensure that the use of previously-used barrels or chips will not add any “discernible quantity” of wine or distilled spirits to the beer. Labels do not need to state that the beer was aged in these types of containers.
Labeling
TTB determined that the use of the ingredients listed in the Ruling will no longer require a statement of composition on the label that distinguishes between the exempt ingredients added before or during fermentation and those added after. A brewer or importer now has the flexibility to label the products in accordance with the trade understanding, and the precise wording is left up to [...]
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On March 3, 2014, the Food & Drug Administration (FDA) published a Notice of Proposed Rulemaking (NPRM) that, if and when finalized, would make important changes to the labeling of all foods subject to FDA’s primary labeling jurisdiction. While most alcohol beverages fall under the primary labeling authority of the Alcohol and Tobacco Tax and Trade Bureau (TTB), wines below 7 percent alcohol by volume (ABV) and beers containing no malted barley or no hops fall within the scope of FDA’s primary labeling authority.
The NPRM seeks to adjust FDA’s labeling and related rules to address certain concerns about the American diet, particularly the so-called obesity epidemic. As such, it aims to increase and improve the amount of labeling information about critical attributes like calories and the addition of sugars to food. FDA’s proposed regulations would:
Significantly, the NPRM expressly addresses the subject of wines below 7 percent ABV and beer falling within FDA labeling jurisdiction in its proposed rules for added sugar labeling. As noted above, a proposed regulation would require the mandatory declaration of added sugars as a line item in the familiar Nutrition Facts label required by current regulations. That declaration would include any brown sugar, corn sweetener, corn syrup, dextrose, fructose, fruit juice concentrates, glucose, high-fructose corn syrup, honey, invert sugar, lactose, maltose, malt sugar, molasses, raw sugar, turbinado, sugar, trehalose and sucrose. And because (according to FDA) no scientific means permits the measurement of added sugars (as distinguished from sugar intrinsic to the food), the NPRM proposes a new record-keeping requirement to document the addition of sugars to foods subject to the labeling rule.
Fermentation, of course, consumes sugar as yeast converts that sugar into alcohol (and other byproducts like CO2). The NPRM acknowledges this fact, but indicates that FDA does not possess adequate information to assess the degradation of added sugars during the fermentation of wine and beer. FDA asks commenters to provide information on this issue.
Notwithstanding FDA’s apparent lack of information on the subject, it proposes a specific regulation for beer and wine (plus [...]
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On January 10, 2014, the U.S. Supreme Court agreed to hear an appeal by Pom Wonderful LLC against The Coca-Cola Company. The Court will examine whether Pom can bring a federal Lanham Act false advertising claim against a Minute Maid juice product label that had been approved by the U.S. Food and Drug Administration (FDA). (Pom Wonderful LLC v. The Coca-Cola Co., U.S. Supreme Court case no. 12-761).
At issue in the lawsuit is a Minute Maid label for “Pomegranate Blueberry Flavored Blend of 5 Juices.” The label presents the words “Pomegranate Blueberry” in larger type than the remainder of the phrase. Pom claimed that the label was misleading because the product contains 0.3 percent pomegranate juice and 0.2 percent blueberry juice.
A California federal trial court and the 9th Circuit federal appeals court in California both ruled that Pom could not bring a Lanham Act false advertising claim against the label, since it had been specifically examined and approved by the FDA. Pom has argued that the decisions were contrary to established law in other U.S. courts, and that federal regulations establish a floor –but not a ceiling — on what an advertiser is required to do to avoid a claim that the advertising is false and misleading. Coca-Cola has argued that product labeling that is specifically authorized by the Food, Drug and Cosmetic Act (FDCA) and approved by the FDA cannot be charged as false or misleading under another federal statute such as the Lanham Act.
Although the question before the Supreme Court is whether a private party can bring a Lanham Act claim challenging a product label regulated under the FDCA, the Supreme Court’s decision could potentially have significant implications for the alcohol beverage industry. For example:
The Supreme Court is expected to hear argument this spring and decide the case by June 2014. Depending on the decision, alcohol beverage industry members could find they have additional insulation against a federal false advertising claim, but they may likewise be limited in bringing a federal false advertising lawsuit against a competitor’s label that has been approved by TTB.
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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The Food and Drug Administration (FDA) has announced that it will soon extend for 60 days the comment period on its proposed rules for (1) Foreign Supplier Verification Programs for Importers of Food for Humans and Animals and (2) Accreditation of Third-Party Auditors/Certification Bodies to Conduct Food Safety Audits and to Issue Certifications. The current comment period for both proposed rules is scheduled to end November 26, 2013. The extension will mean the comment period will now end on or about January 24, 2014. A formal Federal Register Notice is expected shortly.
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