Tag Archives: wine law

Urban Winery and Brewery Seminar a Great Success!

11 Nov

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.

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

25 Aug

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

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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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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