Trade Practices Archives - Page 7 of 12

Trade Practices

European Court of Justice Rules that a Scottish Law Establishing Minimum Unit Pricing for Alcoholic Drinks May Violate EU Law

by McDermott Will & Emery | Dec 29, 2015 | Trade Practices

On 23 December 2015, the Court of Justice of the European Union (ECJ) – Europe’s highest court – ruled that a Scottish law establishing minimum unit pricing for alcoholic drinks may violate European Union law.

The case dealt with the The Alcohol (Minimum Pricing) (Scotland) Act 2012 (2012 Act), which imposes minimum unit pricing (MPU) on the retail sale of alcohol beverages in Scotland.

The stated purpose of the 2012 Act is to protect human life and health by increasing the price of low-cost, high-strength alcohol beverages, with a view to decreasing consumption. To achieve this objective, the 2012 Act and a subsequent 2013 order prescribed that the MPU for alcohol beverages would be 0.50 GBP. The minimum sale price for alcohol beverages would then be determined by a formula that included the MPU as well as the strength and volume of the alcohol beverage.

The 2012 Act was challenged in court in Scotland, and its implementation has been delayed pending the outcome of the case. In the course of the proceedings, the Inner House of the Court of Session (the Scottish Court) referred to the ECJ certain questions concerning the interpretation of EU law. In particular, the Scottish Court asked whether the effect of the 2012 Act is to restrict the free movement of goods – a cornerstone of EU law – and if so, whether this can be justified in order to protect human life and health. The Scottish Court also asked whether the 2012 Act can be justified when alternative tax measures are available, which would not impact the free movement of goods to the same extent.

Responding to those questions, the ECJ ruled that:

The 2012 Act is likely to impede access to the UK market for alcoholic products produced in other EU Member States, and thus restrict the free movement of goods. Nevertheless, such a restriction may be permissible as long as it is an appropriate means of protecting human life and health and is proportionate to this objective.

In this respect, the ECJ ruled that a Member State cannot reject alternative measures (g., taxation measures) that may achieve the same objective and “may be less restrictive of trade and competition within the European Union.” The ECJ observed that a tax measure that increases the overall price of alcohol beverages could also protect human life and health, while still allowing suppliers the freedom to establish their prices. This suggests that the 2012 Act may not be seen as proportionate to its objective.

Ultimately, in light of the ECJ’s interpretation, it is for the Scottish Court to determine whether the MPU is justified.

The ECJ’s decision expresses a clear view that the 2012 Act restricts the freedom of goods, and that it may not be justified since other, less restrictive measures – e.g., excise taxes – could achieve the same health of objective, while not impeding trade and competition. This will undoubtedly create hurdles for proponents of the 2012 Act. [...]

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Beyond the Basics: Tied-House Policy and Things of Value

by McDermott Will & Emery | Apr 9, 2015 | Advertising and Marketing, Trade Practices

The Fall 2014 issue of Artisan Spirit introduced readers to the unusual and rather complicated legal concepts arising from the “tied-house” laws. It covered the general concepts of:

a) separating the retail tier from the upper tiers of the industry
b) federal and state regulation in this area
c) the federal scheme prohibiting “inducements” leading to “exclusion”
d) cross-tier ownership prohibitions
e) restrictions on upper-tier assistance to retailers

This new article, published in the Spring 2015 issue of Artisan Spirit, takes readers a little deeper into the subject of tied-house laws by pondering the policy behind them and examining some hot topics on what constitutes prohibited “thing of value” assistance to retailers. But remember that tied-house laws exist on the federal and state level, and that each state has the authority to enact its own particular variations on the tied-house concept. While a few states simply adopt federal law, most have enacted their own statutes and regulations, leading to substantial variations between the laws of different states. As a result, no article could possibly capture all the complexities involved, and distillers should seek their own counsel before making a particular investment or running a particular marketing program.

South Carolina Court Upholds Constitutionality of Statutory Limitation on Retail Dealer Licenses

by Jessica Bayles | Jan 15, 2015 | Distribution, Trade Practices

Retail Services & Systems, Inc., dba Total Wine & More v. South Carolina Department of Revenue and ABC Stores of South Carolina

A trial-level court in South Carolina recently issued an opinion upholding the constitutionality of the state’s statutory limitation on the number of retail dealer licenses granted to an individual or corporation. The plaintiff, Total Wines & More, argued that the state’s limitations on the number of retail dealer licenses it could obtain violated the due process and equal protection clauses of the federal and state constitutions, and exceeded the state’s police powers. The court’s decision highlights the unlikelihood of success in challenging such alcohol licensing laws on equal protection and due process grounds due to the application of rational basis scrutiny.

In considering the plaintiff’s claims, the court set forth the due process and equal protection tests, which, in the absence of a fundamental right or suspect classification, both require only a reasonable relationship between the challenged law and a legitimate legislative purpose. In finding the requisite reasonable relationship, the court noted possible purposes of such licensing limitations, including preventing concentration of power within the liquor industry, preventing monopolies, avoiding indiscriminate price cutting and excessive advertising, and protecting small, independent liquor dealers. The court also held that the licensing laws did not exceed the state’s police powers, as such licensing is a typical exercise of the police power designed to protect the “morals and welfare of the public.”

The court cited copiously to the laws and cases of other jurisdictions, noting that virtually every court has upheld limitations on the number of licenses against due process and equal protection challenges.

Supreme Court’s 2014-15 Term: Antitrust Case May Impact the Activities of Alcohol Industry Public/Private Organizations

by McDermott Will & Emery | Oct 17, 2014 | Trade Practices

On October 14, 2014, the United States Supreme Court heard oral argument in a case that could have significant implications for hybrid public/private “regulatory” bodies. Many such bodies, like state and local wine commissions, operate in the alcohol beverage space.

In North Carolina State Board of Dental Examiners v. Federal Trade Commission, 717 F.3d 359 (4th Cir. 2013), the Fourth Circuit Court of Appeals held that the actions of a state’s Board of Dental Examiners (Board) were subject to antitrust scrutiny by the Federal Trade Commission (FTC). North Carolina clothes the Board with considerable authority to enforce the state’s laws concerning the unauthorized practice of dentistry by non-licensed persons. The majority of the Board, however, consists of practicing dentists and dental hygienists.

The case arose from the Board’s actions to stop non-licensed persons from offering “teeth whitening” services within the state. Seemingly responding to complaints from established dental practices, the Board issued cease-and-desist letters to numerous non-dentists offering teeth whitening services, effectively driving such over-the-counter services from the state. The FTC subsequently investigated the Board’s actions, ultimately issuing an order prohibiting the Board from taking further action to restrict competition in teeth whitening services to persons licensed by the Board.

The issue before the Supreme Court is whether the Board’s actions are immune from antitrust scrutiny under the State Action Doctrine. That doctrine shields from antitrust scrutiny the actions of a state when functioning in its capacity as a sovereign government. For example, while private parties cannot set or fix prices, the legislature of a state may fix prices free from the restrictions of antitrust law.

The Fourth Circuit, agreeing with the FTC, held that the state action doctrine did not apply. The Court of Appeals explained that public/private hybrid entities (such as bar associations) remain subject to the antitrust laws to ensure that their private members do not act in their own commercial self-interest. Relying heavily on the Supreme Court’s 1980 Midcal Aluminum decision that struck down a post-and-hold price posting law in California, the Fourth Circuit required the Board to show “active supervision” by the state government before it would permit the Board’s actions to receive the benefit of state action immunity. The court then agreed with the FTC that the Board had failed to make that showing.

How the Supreme Court rules in the North Carolina State Board of Dental Examiners case will impact how public/private hybrid entities must operate within the alcohol beverage industry. A number of states, for example, have established wine boards and commissions consisting primarily or wholly of private participants in the state’s wine industry. These boards, however, may have the power to shape and implement state policies, such as establishing marketing orders, state wine trails and the like. Clear national application of the antitrust laws to such bodies’ conduct could restrict current activities or at least require more careful internal policing to avoid potential exposure under the antitrust laws.

Local Wholesaler-Retailer Dispute Has Federal Implications

by McDermott Will & Emery | Oct 16, 2014 | Distribution, Trade Practices

On August 14, the U.S. District Court for the Southern District of Mississippi issued an opinion finding that state regulations bolstered one antitrust claim and hindered another in an ongoing dispute between a northern Mississippi convenience store chain, Major Mart, and an Anheuser-Busch InBev (ABI, a/k/a “Red Network”) distributor, Mitchell Distributing Company.

In Mississippi, by statute, like those of many other states, beer manufacturers must designate exclusive sales territories for each brand. Mitchell holds the exclusive right to sell ABI brands to retailers in the counties in which Major Mart operates its 11 convenience stores.

The relationship between Mitchell and Major Mart started to break down in 2010, when Major Mart claimed that it was receiving inaccurate and confusing price information from Mitchell. Major Mart asked Mitchell for compensation of lost profits due to the incorrect pricing information. Mitchell denied the request, and Major Mart decided later to remove ABI displays and signs, lower the prices of competitors’ products, and reduce the cooler space allocated to ABI in some of its stores. According to Major Mart’s complaint, Mitchell retaliated by (1) demanding shelving allocation that represented ABI’s market share of approximately 70 percent, (2) demanding price parity with competing products of ABI, (3) changing its deliveries to Major Mart stores to once a week so as to fill up Major Mart’s coolers and storerooms, leaving no room for competitor products and (4) delivering on Fridays so that Major Mart stores would not have cold beer on the “best selling day of the week.”

After litigation was first initiated, the parties reached a settlement in 2011, agreeing that Mitchell would increase its deliveries to at least twice per week and Major Mart would reconsider shelf space allocation and increase prices on competing brands of beers to the same price as ABI products. This temporary resolution, however, failed when Major Mart did not reallocate its shelf space. In response, Mitchell once again cut deliveries to one day per week and thereafter began to provide sales coupons and promotional giveaways exclusively to Major Mart’s competitors. Major Mart also claimed that Mitchell delivered beer that was close to the end of its shelf-life, replaced fresher beer Major Mart had with older beer and missed deliveries during key dates, including July 4 and just as students were returning to college. Eventually, Major Mart sued.

Major Mart alleged that Mitchell engaged in monopolization and attempted monopolization in violation of the Sherman Act and price discrimination in violation of the Robinson-Patman Act. In response, Mitchell filed a motion for summary judgment asserting that the Sherman Act did not apply, as (1) Mitchell’s actions were immunized by the State Action Doctrine—the principle that the Sherman Act does not apply to states acting in their capacities as sovereigns—and (2) Mitchell’s actions, which occurred solely in Mississippi, did not affect interstate commerce—as required for Sherman Act jurisdiction.

Quickly discarding the State Action Doctrine assertion, the court noted that to qualify as a state’s action, conduct must be “undertaken pursuant to [...]

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Tied-House Basics for Distillers

by McDermott Will & Emery | Sep 24, 2014 | Advertising and Marketing, Trade Practices

Tied-house laws and related trade practice restrictions rank among the most baffling legal issues faced by a newcomer to the spirits industry. While issues like distribution contracts, labeling requirements, trademarks and taxes all have parallels in other businesses, tied-house laws have few analogs outside the drinks industry.

This article, originally published in the Fall 2014 issue of Artisan Spirit, aims to provide a very general overview of these laws so a newcomer can at least spot potential issues.

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.

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

Alcohol Advertising in Digital Media, Part 3: State Regulation

by Arthur J. DeCelle | Aug 28, 2013 | Advertising and Marketing, Distribution, Trade Practices

In Part 2 of this series, we highlighted recent developments in federal regulation and oversight of alcohol beverage advertising with implications for digital media. State alcohol and consumer protection laws also apply and can make regional or national ad campaigns challenging.

An overarching concern to state officials is the potential appeal of alcohol beverage advertising to persons below the legal drinking age. In the digital space state attorneys general and regulators quickly responded to the advent of social media and asserted authority to prevent dissemination of inappropriate advertising content to children. Attorneys general signed consent agreements on alcohol and tobacco advertising with Facebook, MySpace and several other social networks in 2008. As a result, the networks developed technology to limit access to alcohol advertising content to registered users over the age of 21. Advertisers must ensure that they set up their social network pages properly so that the technology limiting access to alcohol ads is functioning.

The 21st Amendment to the U.S. Constitution grants states a degree of unique authority over alcohol beverages that does not apply to most other consumer products. In advertising, that authority has been somewhat eroded by the First Amendment’s commercial speech doctrine and other case law, but most states continue to actively regulate the source of funds used to pay for advertising based on older legal concepts designed to protect the independence of retailers from domination by manufacturers. In the post-Prohibition period, officials feared that large brewers and distillers would dominate local grocery stores, bars and other retailers, most of which were then “mom and pop” operations.

While the retail sector has changed dramatically, many state laws still contain restrictions on advertising or promotional activities by manufacturers that benefit specific retailers. Recent examples of these trends are found in changes in Texas law effective September 1, 2013 that have significant implications for regional and local advertising via digital media in a large and diverse state.

In response to a 2011 court decision (Authentic Beverages Company, Inc. v. Texas Alcoholic Beverage Commission), the Texas Legislature repealed longstanding advertising restrictions and authorized prearrangement and preannouncement of promotional activities to be held on a retailer’s premises. Texas law now permits manufacturers and wholesalers to utilize digital media to inform consumers of the identity and location of retailers where their products are available. Restrictions apply to payments or reimbursements to retailers for the cost of an alcohol beverage ad. Finally the Texas Legislature repealed a prohibition on advertisements that refer to the alcohol content of beer as well as a requirement to label malt beverages as “beer” or “ale” based on the alcohol content even where that designation (from an industry understanding) was inaccurate. Those types of archaic restrictions made it difficult to run national or regional digital advertising campaigns without technical violations of Texas law.

While you can now use factual statements about product availability and attributes in digital and other media in Texas, many analogous state restrictions remain on the books.

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