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

22 Jun

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 20th 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 10th.  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

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The Emerging Asian Wine Market

2 Jun

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 10th 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 8th 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

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Turning Water into Wine

19 May

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

Kerry Bill to Decrease Excise Tax for Breweries

13 May

Senate Bill 3339, introduced yesterday in the Senate by John Kerry, would decrease excise taxes for about 1,500 small breweries.  The bill is similar to one introduced in the House in December, and would cut the excise tax from $7 to $3.50 on small breweries first 60,000 barrels.  It would also decrease the tax from $18 to $16 on all subsequent barrels up to 2 million.

A small brewery is defined as one that produces no more than 6 million barrels of beer per year.  San Diego, a haven for quality microbreweries, would be greatly benefitted if this bill is passed.  It would also be valuable for those that enjoy drinking craft beers, who should see the decrease in excise taxes reflected in their beer prices.

Regarding the bill, Senator Kerry stated, “Small and independent brewers are vital small businesses,” and that “relieving their tax burden will keep them hiring and expanding”.

A study of the potential impact of the bill shows it to be advantageous and efficient.  The bill is expected to create 2,700 new jobs in the beer industry in its first year, and around 375 new jobs in each year after that.  The increased income and payroll taxes collected from these jobs would offset the loss in government revenue, and cost the government only $10.6 million in the first year of the bill being implemented.  At the same time, the bill would increase economic activity by $115 million in the first year, which when calculated out means that for every dollar lost in government revenue, overall economic activity would increase by nearly $11.  The bill is a huge win-win situation if the research is true.

This bill will likely be passed, as it is one of the few bills of late to have bipartisan co-sponsorship and support in both the House and Senate.  There should be more smart and cost-effective bills like this that increase economic activity and build jobs with minimal cost to the government.  Brewers and beer enthusiasts should be ecstatic about this proposed change in beer tax rates.  Legislators should look into introducing an analogous bill for the wine industry that could spur similar growth.

Image credit to Ahmet Guler / FreeDigitalPhotos.net

Conjunctive Labeling: Fair or Foul?

11 May

The Sonoma County Vintners plan to follow in the footsteps of the Napa Valley and require any wine produced in a Sonoma County American Viticultural Area (“AVA”) to have the words “Sonoma County” placed underneath the AVA designation on all wine labels.  All nine of the major wine and grape trade associations are now behind the proposed legislation, called the “Sonoma County Conjunctive Labeling Initiative”.

The proposed benefits of conjunctive labeling would be to promote the Sonoma County brand and give the individual AVA’s of Sonoma County enhanced name recognition.  The vintners believe this would increase awareness of Sonoma wines and help grow the wine industry of Sonoma.  On behalf of Sonoma County, WineOpinions, a market research firm, examined the law’s potential effects.  They concluded that consumers recognize a wine as having higher quality when the Sonoma name is attached.

While sentiment about the proposal is generally favorable, many still question the initiative, particularly the fairness of forcing wineries to market their wines in a particular way for the greater good of the Sonoma County brand.  Currently, any wine from a Sonoma County AVA may place the phrase “Sonoma County” on their bottle if they choose to.  This law would force those who chose not to place the designation on their wine to now do so, and if they fail to, be subject to criminal prosecution.

While the law may benefit a small Sonoma winery or lesser known AVA by creating a common thread with more known names like Russian River Valley, would it have any benefit to the more recognized wine or AVA?  There is probably a reason some wineries from Sonoma County have chosen not to place the phrase “Sonoma County” on their labels.  Some wineries may believe their name is of higher regard by itself and differentiated from Sonoma County.  Others may believe that being forced to do this would clutter their logo, or may simply not wish to pay the increased costs of changing their labeling practices.  Also, some may not wish to sound redundant on their label by having to place “Sonoma County” under an AVA such as “Sonoma Coast”.  It is arguable that these wineries should have the right to make those business decisions that they believe is critical to their success.  Many wineries pride themselves in their uniqueness, and may not wish to be related to wineries which may be of lesser quality or reputation in their minds.

The crux of the argument is that of free trade, and the right to market or advertise a product in a particular way is usually included in that bundle of sticks.  The proposed restriction would limit free trade for the good of the Sonoma name.  A winery that believes excluding the Sonoma County designation on their bottle would have to give up this perceived market advantage for the sake of enhancing the Sonoma County brand.  Other than the reputation and price of a wine, the wine’s label itself is the strongest marketing tool in attracting consumers.  While the Sonoma Vintner’s research showed that the Sonoma tag would increase marketing potential, should wineries have to rely on outside and potentially biased research in their own marketing research and decisions?

Further, approval of the law is placed in the hands of the State legislature, where not only elected officials from Sonoma, but officials from throughout California, will be the ultimate decision makers on the future of Sonoma labeling practices.  Legislators from other districts do not necessarily have the best interest of Sonoma in mind, which needs to be thought about before this proposal is sent to Sacramento.

On the other hand, a similar law passed for Napa Valley in the late 1980’s, turning Napa wineries into a collective force on the industry.  Napa has flourished since, becoming the preeminent wine appellation in all of the States.  Sonoma could have a similarly successful result, and it seems all their major wine associations believe that.

An insightful way to evaluate the initiative may be to hypothesize how conjunctive labeling would effect a less preeminent wine community.  For example, while San Diego has a strong wine culture with many high-quality wines, the name San Diego itself does not hold as strong a weight in the wine community as say Napa Valley, that would deem it beneficial to all wineries in any San Diego AVA to be forced to designate so on the label.  By requiring this designation, the overall reputation of San Diego wines may increase over time, but well known and successful wineries currently not using the designation may not be helped out by it, and could be hindered.  In Napa, the strength of the name was already strong, and the law allowed the region and its wineries to reach new heights.  Sonoma probably falls somewhere in between Napa and San Diego in this regard, and thus on the fringe of whether the law would end up being fair balanced against free trade arguments.

Both sides of the debate have valid points, and if passed, the Sonoma law could be the ultimate litmus test on the effectiveness of conjunctive labeling laws.

Image credit to Matt Banks / FreeDigitalPhotos.net

House Bill Threatens Local Wineries and Microbreweries

10 May
A recently introduced bill in the House of Representatives may limit the choice of consumers in purchasing wine and beer from small wineries and microbreweries. The Comprehensive Alcohol Regulatory Effectiveness Act (“CARE”), would effectively allow State legislators to strictly enforce the three-tier-system which mandates that alcohol sales must flow from producer to distributor to retailer.

37 states, including California, have enacted rules that allow direct to customer sales of alcoholic beverages. These rules benefit small wineries and microbreweries, and in turn wine and beer enthusiasts, by allowing sales to be made directly to the consumer. Currently, a handful of major distributors control a bulk of the sale of wines in the U.S., and these big distributors make it difficult and prohibitively expensive for smaller operations to get their wines and beers to retailers, favoring larger wine entities. If forced to go through distributors, these small ventures will either have to pay the high expenses of a distributorship (costs which would be passed on to the consumers), or be forced to take the financial hit of decreased overall sales, which could be crippling.

It is important for small wineries and microbreweries to be able to sell directly to customers, otherwise these operations may cease to exist. The proposed bill could have a largely negative impact in San Diego, where the microbrew industry is akin to the wine industry in Napa.

Further, the diverse array of local wineries in Temecula and San Diego could similarly be pushed into a corner.

The purpose of the bill, introduced by Rep. Bill Delahunt (D-Mass), is to protect the states right to regulate alcohol sales practices. Their legal argument is based in the belief that the 21st Amendment, ratified in 1933 to repeal the Prohibition era and put alcohol regulation in the hands of states themselves, creates a higher standard for courts to scrutinize state laws which may have discriminatory effects on alcohol producers out-of-state.

The bill, if passed, would effectively overrule a Supreme Court decision in 2005 which held the Commerce Clause of the Constitution prevented state legislatures from enacting laws which allowed in-state wineries to sell directly to consumers but did not afford the same ability to out-of-state wineries. CARE creates a high burden of proof for out-of-state winemakers and a strong presumption in favor of the state laws that would make it nearly impossible to invalidate discriminatory state laws. Its passing would allow states to give beneficial treatment to in-state wineries and breweries, at the behest of out-of-state ones. This would by far have the biggest impact on California, which is home to around 90% of the American wine growth and countless breweries, by potentially limiting exportation to other states.

The law also benefits wholesalers and distributors interests in keeping themselves as middlemen between producers and consumers or retailers. The National Beer Wholesalers Association and the Wine and Spirits Wholesalers of America are the strongest supporters of this bill. It is probably no coincidence that Rep. Delahunt received one of his largest campaign contributions in 2008 from the National Beer Wholesalers Association. The wholesalers true interest is solidifying their position between manufacturers and retailers in the alcohol sales chain, to prevent beer manufacturers from selling directly to retailers, as is done with Wal-Mart and Costco. As a side effect though, it could cripple many small wineries and microbreweries that sell a majority of their products directly to consumers or retailers.

This bill could also adversely impact future creative endeavors in the wine industry. With the rise of the internet and globalization, it is logical and more practical to allow winemakers and microbreweries to sell directly to customers without having to clear an unnecessary and overly expensive hurdle. The law could also stagnate innovative and forward-thinking ways of selling wine, such as Wine.com’s recent sale of futures of a vintage Bordeaux to high-end luxury wine customers. Sales on the periphery of the three-tier-system such as this may cease to exist.

Wine and beer consumers should not fret though, this bill has an uphill climb. Speaker of the House Nancy Pelosi herself owns a small vineyard and will likely side against the bill. Further, a new Facebook group of over 10,000 people and counting is battling this legislation, in addition to many other websites against the bill. In the interest of protecting free trade in the alcohol industry, carrying on the rich culture that independent wineries and microbreweries provide, and preventing a lobbyist driven attempt to line the pockets of alcohol distributors, hopefully this bill will never pass.

Image credit to Graeme Weatherston / FreeDigitalPhotos.net

New Wine Law Blog!

10 May

Welcome to my blog!  I will be updating this blog with pertinent legal issues affecting the wine and microbrewery industry, along with some posts on wine culture in general.  I am a 3rd year law student and am currently working in the wine law practice of Higgs, Fletcher & Mack, a prestigious San Diego law firm.  I have also interned in the past for Constellation Brands U.S., the largest wine producer in the world.