Urban Winery and Brewery Seminar a Great Success!

The second annual seminar on “Owning and Operating an Urban Winery or Brewery” was held yesterday at the DoubleTree Hotel in downtown San Diego. The event was a huge success and a great learning experience for the 50 or so attendees who came. The first speaker was alcohol beverage law veteran Lynne Carmichael, who spoke on the permitting and licensing aspects of starting a winery or brewery. Wendell Lee, General Counsel of the Wine Institute, gave a rousing PowerPoint presentation on the ills of HR 5034 and the bill’s attack on the Commerce Clause.  Seminar co-Chair Charles Reidelbach spoke on trademarking and labeling, while Anil Shrikhande, executive at Constellation Wines (and my father!), discussed the standards and profitability of various price points for wine. Later in the day, urban winery pioneer Michael Brill of Crushpad explained the bright future of urban “wine pubs” and the difficulties faced in starting a business of such.  This was followed by keynote speaker Jack White, owner and founder of Ballast. His passion for the beer industry was obvious. In addition to those I have discussed, I’d like to thank all the other speakers for taking the time to come and share their insight. We are already thinking of ways to make next year’s seminar even better!

Visit TheSeminarGroup.net to viewthe entire seminar, which will be posted online soon.

The Wine Law Blog featured by the European Union’s Center for Wine Origins

I am currently the Center for Wine Origins’ “Spotlight Blogger”, and they are featuring my piece on the current WTO negotiations for an international registry of geographical indications for wine.

Wine Origins is a campaign funded by the European Union, France, and Portugal, to promote the importance of wine locations and protect the integrity of wine regions by assuring accurate labeling.  The link to the feature is above.

Thanks to the Center for Wine Origins for this great honor!

Image credit to Dan / FreeDigitalPhotos.net

New California Law to Allow Out of Bottle Wine Tastings at Instructional Events

Senate Bill 1101, recently passed unanimously in both the California Senate and Assembly, has now been made official by Governer Schwarzenegger. The new legislation will amend the previous policy that forced wineries holding winemaker dinners or instructional events at retail premises to serve wine straight from the barrel or tank, and not from bottles. This rule was part of a general scheme under the Alcoholic Beverage Control Act to prevent wine and other alcohol producers from gifting bottles. The purpose of rules such as this trace their descent to post-Prohibition “Tied-House” restrictions that required a separated three tier system of alcohol sales (manufacturer, distributor, and retailer being independent entities). This separation was meant to prevent monopolization in the alcohol business, promote temperance, and ensure proper tax collection by certifying that sales were conducted through the proper channels.

But the alcohol sales environment of today is much different than in the past, with exceptions in 37 states (including California) allowing a broad range of alcohol producers the ability to sell directly to customers or retailers outside of the three-tiered system.  Today only a handful of truly large alcohol beverage companies exist, primarily Constellation, Diageo, and Gallo here in the U.S., whom, due to pressure and a close eye from the many regulatory agencies, follow tied-house restrictions fairly carefully.  Today much of the power in the industry has been concentrated in large alcohol distribution companies and major retail stores such as Costco and Trader Joes, that many times dictate the business models of smaller wine producers.  This power shift is one reason so many states now allow small winemakers to sell directly to consumers. Further, it makes overly burdensome measures like forcing winemakers to transport wine directly from the barrel to attendees of an instructional event less meaningful.

The new plan will limit tastings at these events to three per person, and will retain the rule that disallows the sales of bottles and transfer of gifts or free goods to consumers at these events.

Here is a link to the bill itself

Image credit to Carlos Porto / FreeDigitalPhotos.net

History in a Bottle: Opus One

When you’re one of the Napa Valley’s most high profile wines and getting shoutouts in raps from Jay-Z, you know you’re doing something right.  Opus One is the brainchild of famous French winemaker Philippe de Rothschild and California wine guru Robert Mondavi.  The two legends sought to craft a classic Bordeaux blend made with Napa Valley Cabernet Sauvignon, a combination of traditional French winemaking juxtaposed with California’s bold fruit flavors, and successfully did so for the first time in 1979.  Constellation Brands bolstered their portfolio by acquiring 50% of Opus One in 2004 when they purchased Robert Mondavi, Inc.  Last summer I was lucky enough to visit the Oakville winery, which is made of beautiful off-white limestone and built around a lush center courtyard.   Their 2005 vintage “offers concentrated aromas of blueberry, rose petals, white truffle, licorice and nutmeg. Flavors of cassis, black olives, raspberry and dark chocolate (winemaker’s notes).”  A bottle of this collectible wine will cost you around $150-$180 online, so you might have to crack open the piggy bank, but it would be well worth it for that certain special occasion.  Below is an interview with Opus One CEO David Pearson from WineTasteTV.

Owning & Operating an Urban Winery or Brewery

Over the last few months I have been assisting in organizing a seminar to take place here in San Diego titled Owning and Operating an Urban Winery or Brewery.  My supervising attorney at Higgs, Fletcher, and Mack LLP is the Program Chair, and I have been working aggressively with him to put together an incredible lineup of speakers from the alcohol beverage industry.  Attorneys from some of the most successful alcohol beverage firms in the nation, as well as representatives from the Wine Institute, California Alcohol Beverage Control, and Constellation Wines U.S. will be speaking.  In addition, the CEO’s/Presidents from Crushpad, Ballast Point, and Karl Strauss will also be speaking.  The seminar will be beneficial to anyone involved in or interested in owning a brewery or winery.  Attorneys who attend will also get CLE credit.

The seminar is set to take place November 10th, 2010 at the Doubetree Hotel in San Diego’s downtown Gaslamp District.  The link above is to a PDF of the seminar brochure, and here is the link to The Seminar Group website for the event.

San Diego County Boosts Local Wine Industry with New Ordinance

Wine producers and wine enthusiasts of Southern California should rejoice as San Diego County has finally eased restrictions on the establishment of tasting rooms for smaller “boutique” wineries.  Local wineries that bottle less than 12,000 gallons per year will now be able to operate tasting rooms that offer retail sales.   Also, wineries that bottle 120,000 gallons annually or less can now register under a new “small winery” classification which allow for pre-approved events to be held on the winery premise, such as weddings or other types of parties.

In the past, efforts to allow for tasting rooms were stunted by those worried about intoxicated wine tasters driving irresponsibly on the privately owned roads used to get to these wineries.  A provision in the new ordinance now calls for those operating tasting rooms to work out easement issues with the owners of these private roads.

The new ordinance displays a conscious attempt on behalf of the San Diego County government to expand the local wine industry by streamlining regulations and making them more simple to understand.  The movement was spearheaded by the Ramona Valley Vintner’s Association, who have been advocating this change in policy for many years.  It is estimated that nearly half a dozen new tasting rooms will open by the end of this year.  In addition to spurring growth in the wine industry, the project is aimed at increasing the already booming tourist business, and expected to boost the number of restaurants, cafes, and hotels to accommodate those seeking to explore the San Diego wine trails.

From a broader outlook, the move further strengthens a California wine industry which already makes up over 90% of the total U.S. wine business.  As appellations like Napa and Sonoma became increasingly congested, winemakers sought to establish new wine destinations such as Paso Robles or Temecula.  San Diego could be the next in line to achieve this status.

This San Diego Union Tribune article explains the new tasting room situation in more depth.

Image credit to Filomena Scalise / FreeDigitalPhotos.net

Recent Article in Practical Winery & Vineyard

I was recently published in the July/August 2010 edition of Practical Winery & Vineyard, a prestigious wine industry journal.   The article analyzes the recently introduced and highly controversial House Bill 5034, which would effectively shield state legislators from Commerce Clause restrictions when enacting laws regarding alcohol sales and regulation.  Here is the link…

http://www.practicalwinery.com/julaug10/freerun.htm

Image credit to Publisher/Editor Don Neel at Practical Winery & Vineyard

A Growing Realm of Intellectual Property in Wines and Spirits: Geographical Indications

A geographical indication (GI) is the name of a place or region within a country that serves a primary identifying function for a product originating from that location.  A primary example of a GI is the term Bordeaux, which refers to red wine from the Bordeaux region of France.   A GI may be present when the name of the location drives consumer recognition of the quality, reputation, or other characteristic of the product.  Typically these regions keep strict standards and police how products baring the name are produced and manufactured.  The same name used on products without these same standards can dilute its significance or  value in the marketplace.

The United States currently protects GI’s under the construct of the system for registering trademarks.  The system allows nationals and foreigners alike to apply to protect terms through the United States Patent and Trademark Office (USPTO).  Examples of domestic GI’s that are protected are terms such as Florida Oranges or Napa Valley Wines, while foreign marks such as Cognac and Darjeeling are equally protected.  There is no individual GI registry in the U.S., so one would search for a GI through the registry for trademarks.  Also, a GI can be registered as a certification mark, where the owner of the mark allows third parties to use the term if they meet the standards or qualifications for the product.  Some GI’s are also protected outside of the intellectual property regime and under the common law (case law).

France has implemented a strong domestic GI system, known as the appellation d’origine contrôlée, which has been existence since the early 20^th century that protects over 500 wine and spirits GI’s.  A system in which geographical indications and registration of appellations are congruent is practical and more easily understood, while the US system tends to confuse some because of the division between GI’s as trademarks and appellations as American Viticulture Areas (AVA).

The World Trade Organization (WTO) has held wines and spirits as a special class of GI’s due to the uniqueness of a wine depending on the climate, soil, and other geographical considerations of a particular region.  Due to this the WTO believes wine and spirits garner increased protection, from which a special system for the registry and notification of wine and spirits GI’s has been in development.  

A system for the multilateral notification and registry of geographical indications for wines and spirits has been in the works since 1997, when Article 23.4 of the TRIPS Agreement (Trade-Related Aspects of Intellectual Property Rights) was agreed to by WTO member states.  The purpose of the system would be to facilitate the protection of GI’s on an international scale.  In 2001 the Doha Declaration once again affirmed this mandate.  In the years since, there has been a tug-of-war on how to implement the system between two factions, one lead by the European Community (EC), India, China, and others (the Draft Modalities proposal) and another by the U.S., Chile, Argentina, New Zealand, and Australia, among others (the Joint Proposal).  Another proposal by Hong Kong seeks a middle ground between the two.  The key distinction is to what extent notification and registry of a geographical indication will bind members that agree to be part of the system to act, and also how the registry will affect third parties that do not wish to be a part of the system or stand to gain no benefit from the system (essentially those that do not have a wine and/or spirits industry).  Other contentious issues involve the costs of such a system, special treatment for developing or least-developed countries, and whether member states should have the ability to make reservations or exceptions to the agreement.

The Draft Modalities is more rigid and includes more obligations than the Joint Proposal, which is unsurprising because Europe has the most to gain from an international GI system.  Terms synonymous with the concept of GI’s such as Port, Champagne, and Bordeaux are just a few of the many GI’s that originate from Europe.  The Draft Modalities seeks to amend Article 23.4 of TRIPS, the provision which required a system of notification and registry of GI’s for wines to be created in the first place.  They seek to create additional elements to the system which they believe are necessary for its effectiveness: binding legal effects on all members, a rebuttable presumption in favor of registered GI’s, and the ability of members to make reservations to the agreement (if a particular GI term is  deemed generic or not within the definition of a GI to the member state’s IP administrative body).  They assert that the Joint Proposal is too weak to be successful.

The Joint Proposal is a less rigorous system which seeks to stay in line with the text of the TRIPS agreement.  Membership to the system would be voluntary, and those that did join would be required to consult the registry when making decisions regarding GI protection in their own country.  Those states that are not members would have access to the system and be encouraged to use it, but would not be required to.  They contend the Draft Modalities proposal is unfair because it would force member states that have nothing to gain from a GI system for wines and spirits to bear the economic and administrative burden of it.

Both sides bolster their arguments using treaties pivotal to international law.  The problem is international law is a fluid concept that is very much up to the interpretation of language and intent, and where many contradictions arise between the multitude of instruments and international or regional bodies that are in existence.  For example, the Vienna Convention on the Law of Treaties was created by the UN to dictate how treaties are negotiated for between states.  A fundamental provision of that document states that a treaty cannot impose obligations on third party states without its consent.  The Joint Proposal asserts that due to this provision, a system such as the EC’s which would legally obligate all WTO members to opt into the GI system for wine and spirits goes against this principle of international law.  On the other hand, the Draft Modalities contingency argues that the definition of a multilateral agreement used in practice by the WTO obligates all members to be a part of the system. 

The International Trademark Association (INTA), a highly regarded international organization which has promoted the protection of intellectual property worldwide for 125 years, recently published an opinion on the current status of negotiations.  INTA believes the GI registry should be similar to current international instruments which facilitate patent and trademark protection.  While INTA doesn’t explicitly side with the Joint Proposal, the opinion makes clear that they do not agree with a system that binds all members, and seek a system which respects the territoriality of administering intellectual property protection.  They believe the system should put the decision of whether to protect a GI into the member state’s hands, but which would also allow decisions to be challenged in the national courts of that member state.  The reason intellectual property protection is administered on the national level is because different terms have different meanings depending on where you are.  A potential GI may be deemed generic or have already been trademarked in a particular member state, which would impact that states ability to protect the particular GI.

It will be difficult for the Draft Modalities contingency to overcome apprehension to the strict system they wish to impose that would force the registry on member states.  In a report by the former TRIPS Chairman in November 2009, he conveyed this same apprehension. 

While U.S. wine producers may question the need for an international system of registry when there is already a functioning domestic GI protection scheme in place, the real benefit may come down the road.  At some point emerging wine producing nations such as China, India, Chile, and New Zealand may look to sponge off of the success of AVA’s such as Napa or Sonoma, just as American wineries did with European appellations such as Champagne, Port, and Bordeaux.   American wine producers need to make it clear to these nations that AVA designations must be respected, which the international registry would help accomplish.  While the American delegation understands this, they also do not want to concede too much leverage to the EC, whose proposed GI’s may be generic or trademarked in the U.S.  The two butted heads in 2005 when the WTO ruled in favor of  the U.S. on a long standing complaint against the EC for insufficiently protecting U.S. trademark owners and discriminating against non-EC products.

The WTO recently held another special session on the issue on June 10^th.  Once again, “the stumbling block”, described by current Chairman of TRIPS, Ambassador Darlington Mwape of Zambia, was the legal effects/consequences of registering and participating in the system.  Both sides have shown willingness to further progress in the negotiations though, so hopefully a consensus will be achieved soon.  The Hong Kong proposal may be a converging point, which seeks to impose binding effects on members more so than the Joint Proposal, but not as restrictive as the Draft Modalities faction.  In any case, a registry such as this would impact winemakers throughout the world and should be followed closely by those in the wine industry here in the U.S.

Image credit to Dan / FreeDigitalPhotos.net

The Emerging Asian Wine Market

There is a new frontier to be explored by U.S. wine producers, one where wine consumption is growing exponentially.  The combination of an expanding middle class and increased interest in wine has turned Asia, particularly India and China, into a lucrative new marketplace for those wishing to grow their wine business.  The Chinese palette is shifting from grain wines to more healthy grape wines, while Indians, who in the past drank primarily whiskey and beer, are increasingly gravitating towards wine as well.  While protectionist regimes in both countries have created trade barriers for those exporting wine to them, such as exorbitant excise taxes and complicated sales and distribution chains, the sheer growth of these markets and the gradual liberalization of wine policies in these countries illustrates their true potential.

The joint population of these two countries equals around 2.5 billion people, a little over one-third of the world’s inhabitants, which makes India and China massively untapped markets for wine consumption.  As these countries continue to improve their infrastructure, international business prowess, and level of education, they will undoubtedly challenge the United States’ position as the preeminent world power.  With all this growth comes an increased per capita spending power, an ideal scenario for the promotion and sale of wine.  The potential for growth can be seen by looking at per capita wine consumption.  In 2008, the U.S. consumed 9.8 liters per capita, while China consumed 1.08 per capita, and, astoundingly, only .01 liters per capita in India.  As the living standards in these countries continue to grow and disposable income becomes more readily available, wine has the potential to be a staple alcoholic beverage of choice for Indians and Chinese, just as it has become for many Americans.

India is the 10^th largest growth nation for wine, and within Asia expected to be the biggest growth market, with annual consumption expected to double from 2009 to 2013.  Ten years ago India only had three vineyards, today it has 69.  The highest level of wine consumption is in the cities of Mumbai and New Delhi, bustling metropolitans comparable to New York and Los Angeles.  Other major cities such as Bangalore and Kolkata are seeing increased wine consumption as well.  A softening of traditionally negative views of alcohol by many Indians (the icon of Indian independence from the British, Mahatma Gandhi, was a teetotaler), combined with higher levels of disposable income and glamorization of wine culture by Bollywood, are all factors making India a prime candidate for increased wine consumption, and thus wine exportation from the U.S.

China is the 8^th largest wine consumer in the world, and  consumption is predicted to increase by 32% from 2009 to 2013.  The high end wine market is succeeding in China, where uncorking a $1000+ bottle of wine is sign of generosity and culture, and becoming a typical way wealthy Chinese close business deals.  Wines of the opposite end of the spectrum, sold for a few dollars each, are also very popular.  The next step is to promote the sales of mid-level wines to consumers wishing to drink quality wines but not those of excessive prices.  Once this is accomplished China will truly be a wine consuming behemoth.

Both nations realize this enormous potential, and have enacted protectionist policies to benefit those producing wine within their borders.  India and China have both only become members of the World Trade Organization within the last 15 years.  As WTO members both are bound to certain caps on tariff rates, but still manage to circumvent these limits through additional taxes on top of the agreed upon tariffs.

For example, the state of Maharastra, home to Mumbai, charged a 200% excise tax on any imported wine, while local wine producers are exempted from the tax.  In India, a $10 bottle of wine here in the States may end up costing three or four times more, which combined with the low exchange rate for the Rupee makes purchasing imported wine costly and impractical.  All this taken into consideration, pressure from the WTO  in unison with globalization and an increased demand for quality imported wines will eventually erode these barriers.  Also, while customarily wine has not been allowed to be sold in groceries stores and malls in India, some states have liberalized policies to allow for wine to be sold at these retailers.  This could very positively impact a wine market in which most wine sales currently occur in restaurants and hotels.

China imposes a 50% tax on imported wine, also making it less likely for imported wines to be sold.  Further, the French have come to dominate the imported wine market by convincing the Chinese over the last few decades that their wine is of higher quality.  In 2008, the U.S. only made up 5% of China’s wine import market, while France held 46% of it.  Australian and New Zealand producers also have a distinct geographical advantage in exporting to both China and India because of their relatively closer distance.  Nonetheless, California wines are making progress as the Napa brand grows in recognition.  The Wine Institute has recently begun a campaign to educate Chinese wine drinkers on the high quality and exceptional terroir of California wines.

California has a great amount to gain from these new markets.  Of the total amount of wine exported from the U.S. around the world, 95% come from the Golden State.  California is also home to the most prestigious American Viticultural Area, the Napa Valley.  It would be advantageous for a state currently in dire economic circumstances to promote its strongest industry in the burgeoning markets of India and China.  The potential for wine sales in these countries is boundless, and U.S. winemakers would be wise in being forward thinking and innovative in exporting wine to this new and unique market.

Image credit to Arvind Balaraman / FreeDigitalPhotos.net

Turning Water into Wine

While the statewide battle over water resources continues, a ruling yesterday by U.S. District Judge Oliver Wanger may prove beneficial to California agriculture interests, including many grape growers of the Central Valley and Southern California.  In the court case, which challenged restrictions on water exports from the Sacramento-San Joaquin delta created to protect the future of salmon and other fish, Judge Wanger held that the restrictions “lack factual and scientific justification, while effectively ignoring the irreparable harm those actions have inflicted on humans and the human environment.”

Fisheries and conservationists maintain that the more water is pumped out of the delta, the more at risk migrating salmon are.  In 2008, Wanger ruled in favor of the fisheries, concluding that water pumping had put the salmon population in peril.  In the current case, reflecting on the regulations that occurred as a result of his previous decision, Wanger concluded that the restrictions were a “product of guesstimations”.  He then ordered a hearing on the usefulness of the 7% reduction in water delivery from the delta that took effect in 2009, and how that policy should be amended.

As the debate rages on, lets take a look at the opposing arguments.  Fisheries and other environmental groups claim that dams and water diversions create an unnatural environment for the fish, in which they are frequently destroyed in the delta pumps or affected by the warmer waters created by the pumps.  The problem also affects other species of fish, in addition to killer whales that feed on salmon.  Environmentalists and fisheries seem to exaggerate the harm done by water diversion because that critical line where salmon will be detrimentally hurt, in addition to the domino effect on other marine life, is difficult to find. 

On the other hand, limiting water diversion has hindered the agriculture industry of California, especially in the Central Valley.  Many farmers have been unable to sufficiently irrigate their farmlands, those which provide our state and the rest of the country with grapes, almonds, pistachios, lettuce, and more.  Further, this has only exacerbated the lack of employment that is currently afflicting our economy.  The cutbacks on water have also severely decreased levels of drinking water in many California communities.

Many Central Valley farmers hoping to keep their lands from drying up are attempting to find alternate sources of water.  Fresno State recently held a workshop for local farmers on building wells to replace the shorted amounts flowing from the Sacramento delta.  Well water tends to be of lower quality though, containing some harmful substances and levels of sand.  In order to get higher quality water, wells must be dug deeper and deeper, and need to be treated properly, which all serve to increase expenses for farmers already economically impacted by the recession and limited irrigation. 

Hopefully Judge Wanger’s decision will lead to a new policy which will find the correct equation for how to maintain fish populations in the delta while still allowing for enough water to be pumped out as not to hinder the agricultural industry and drinking water for many Californians.  Either side will likely never be satisfied though, as the amount of fresh water is on the continual decline due to increased consumption, pollution, and global warming. 

Other means of limiting the water problem are available though.  One method is limiting water waste, which is the responsibility of all California citizens, businesses, and industries, and can be accomplished by being more resourceful in using water.  Curbing global warming, which warms water and creates a poor environment for fish survival, would also help ease the water dilemma.  Hopefully green technologies, a decline in the use of fossil fuels, and an overall decrease in carbon emissions will eventually put the environment in a better place, at which point water may not have to be such a volatile issue.

Image credit to Michelle Meiklejohn / FreeDigitalPhotos.net