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In September, the Court of Appeals for the Eighth Circuit decided a case with respect to wholesale licensing in the state of Missouri. Southern Wine and Spirits of America, Inc. (“SWSA”), the plaintiff-appellant, appealed from a lower court decision. The plaintiff-appellant, a foreign alcohol wholesaler, applied for a license to sell alcohol at wholesale in the state of Missouri. The Division of Alcohol and Tobacco Control of the Missouri Department of Public Safety denied SWSA’s application because the corporation did not satisfy the residency requirement of the state’s statute. SWSA originally filed an action against the Division of Alcohol and Tobacco Control of Missouri Department of Public Safety arguing that the state’s residency requirement for a license to sell liquor at wholesale was unconstitutional. See Southern Wine & Spirits, et al. v. Division of Alcohol and Tobacco, et al. 2013 WL 5340391 (8th Cir. Sept. 25, 2013). The district court upheld the constitutionality of the state’s statute and the Court of Appeals for the Eighth Circuit affirmed.

Under the relevant Missouri law, Chapter 311 of Missouri Revised Statutes (The Liquor Control Law), the state defines a resident corporation as:

a corporation incorporated under the laws of this state, all the officers and directors of which, and all the stockholders . . . shall be qualified legal voters and taxpaying citizens of the county and municipality in which they reside and who shall have been bona fide residents of the state for a period of three years continuously immediately prior to the date of filing of application for a license, provided that a stockholder need not be a voter or a taxpayer, and all the resident stockholders of which shall own, legally and beneficially, at least sixty percent of all the financial interest in the business to be licensed under this law

Mo. Rev. Stat. § 311.060.3.

SWSA is a Florida corporation with operations in thirty-two states and four Florida residents collectively own over 97% of SWSA’s voting shares and more than 51% of all shares. See Southern Wine & Spirits, et al. v. Division of Alcohol and Tobaccosupra. Southern Missouri is a wholly-own subsidiary of SWSA and is incorporated in Missouri. In its application for a wholesale license in Missouri, Southern Missouri declared that the company’s sole shareholder is SWSA and that the sub’s officers and directors are Florida residents. As a result, the Missouri Division of Alcohol and Tobacco Control denied Southern Missouri’s application because the subsidiary did not meet Missouri’s definition of a resident corporation. Mo. Rev. Stat. § 311.060.3 

While the Eighth Circuit recognized that this case involved the dormant or “negative” commerce clause, the Court of Appeals also highlighted the much-disputed second section of the 21st Amendment: “[t]he transportation or importation into any State, Territory or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited.” U.S. Const. amend. XXI § 2. Effectively, the Court ascertained that this provision of the 21st Amendment “grants States certain prerogatives particular to the regulation of alcohol.” Southern Wine & Spirits, et al. v. Division of Alcohol and Tobaccosupra. The Court also recognized that, in previous years, the Supreme Court has addressed and “sent conflicting signals” pertaining to the relationship and functionality of these two very important amendments and specifically focused on the Supreme Court’s most recent ruling, Granholm v. Heald. Id. See additional background at Revisited: Granholm v. Heald and the Wine Industry and The Alcoholic Beverage Legal Environment Post-Granholm.

The Eighth Circuit reasoned that the constitutionality of Missouri’s wholesaler residency requirement rested on the relationship between the Commerce Clause and the 21st Amendment. In its analysis, the Court recognized the Supreme Court’s prior holding that the three-tier system is “unquestionably legitimate,” and that state practices that determine the structure of its liquor distribution system “while giving equal treatment to in-state and out-of-state liquor products and producers are ‘protected under the Twenty-first Amendment.'” Id. citing Granholm v. Heald, 544 U.S. 460, 489 (2005). The Eighth Circuit relied heavily on dicta from the 2005 Supreme Court decision Granholm, and reasoned that since the Missouri wholesaler requirement did not discriminate against out-of-state alcohol products or producers, the law was per se valid and thus barred from attacks questioning its constitutionality with respect to the Commerce Clause. 

There is a range of differing viewpoints throughout the courts pertaining to whether the holding of the Granholm Court extends to state regulation of out-of-state retailers and wholesalers in addition to producers. One might pose the argument that reading Granholm to cover only alcohol beverage producers—and thus leaving out-of-state wholesalers and retailers from constitutional protection—without proving an alternative means is ineffective, is a clear violation of the dormant Commerce Clause; after all, out-of-state wholesalers and retailers affect interstate commerce. However many courts, like the Eighth Circuit Court of Appeals, rely heavily on the dicta from Granholm and argue that the “more natural reading” of the renowned 2005 case is to review a questioned law in light of whether the law treats in-state and out-of-state alcohol in the same manner and whether the challenged law discriminates against out-of-state products or producers. Id. If it is decided that the law treats in-state and out-of-state alcohol in the same manner and does not discriminate against either out-of-state products or producers, then it is the view of the Eighth Circuit that the law need not be reviewed further with respect to the Commerce Clause doctrine.

In conclusion, the Eighth Circuit recognized that Missouri established a sufficient basis for the residency requirement for wholesaler licenses and that such was properly tied to the goal of the 21st Amendment (allowing states to regulate and maintain a system for controlling alcohol beverage transportation, importation, and use within the State).

For more information on wine or alcohol law, direct shipping, or three-tier distribution, please contact Lindsey Zahn.

DISCLAIMER: This blog post is for general information purposes only, is not intended to constitute legal advice, and no attorney-client relationship results. Please consult your own attorney for legal advice.

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A few weeks ago, On Reserve documented the story of Château Listran and the winery’s inevitable trademark defeat in the Chinese market by way of brand squatters. This week, we bring you a very similar story detailing the grievances of China’s trademark laws and impact on true brand owners who pursue trademark registration in China.

In August, a Chinese wine distributor won trademark rights against an established French wine company, Castel Frères, during a trademark dispute dating back to 2005. See Castel Loses Trademark Infringement Case in China. Castel is a leading French wine producer and the top brand of imported wines in China. See Largest Trademark Lawsuit in China’s Wine Industry Won Against French Castel. In 2000, the Shanghai-based distributor, Panati Wine Co., Ltd., registered the trademark “Kasite” in China. Id. “Kasite” is the more famous Chinese translation of the French name “Castel.” In 2003, Panati offered to sell its trademark rights to Castel, who rejected Panati’s asking price of 1 million Euro. Id. Castel’s wine was present in the Chinese market since 1999, but the company did not file for trademark with the China Trademark Office (“CTMO”). As a result of China’s trademark laws, Panati successfully obtained the trademark rights to “Kasite” because Castel did not previously file for trademark ownership.

Castel filed an opposition to Panati’s trademark, but Panati established use of the trademark and could thus ascertain ownership of the mark. Subsequently, Panati sued Castel for its illegitimate use of the mark over previous years in the Chinese market. Id. The Intermediate People’s Court of Wenzhou decided in favor of Panati and instructed that Castel compensate Panati in the amount of $33.73 million RMB. See Largest Trademark Lawsuit in China’s Wine Industry Won Against French CastelCastel Loses Trademark Infringement Case in China. “After the original verdict, both plaintiff and defendant submitted appeals, and the case was brought to Zhejiang Provincial Higher Court, which upheld the previous verdict, and ordering an extra published apology from Castel.” Castel Loses Trademark Infringement Case in China

This week, Decanter reported that Castel is pursuing said case to China’s Supreme Court in Beijing and will essentially “do whatever it takes” to receive a favorable outcome. See Castel Takes Trademark Battle to China’s Supreme Court. Castel’s application for a hearing has been accepted and the wine company alleges that the lower court’s decision is full of “‘blatant errors and lacks objectivity'” and the company has no choice but to appeal. Id. (quoting Castel).

Should the Supreme Court of China rule in favor of Castel, its ruling would mark a significant change in China’s trademark processes, let alone create a more amicable environment for foreign wine companies seeking to expand to the Chinese market (and register their marks). Currently, China follows a “first-to-file” rule with respect to obtaining the rights to a trademark. This means that the first person to file a trademark application with the CTMO is usually granted the rights to register the trademark, irrespective of whether the true brand owner previously used the mark in commerce within China (compare to the U.S., where the standard is “first to use” in commerce). This method is highly contentious and likely to cause trademark battles such as those evidenced above with Castel and Panati.

For more information on wine or alcohol law, international trade, or trademark, please contact Lindsey Zahn.

DISCLAIMER: This blog post is for general information purposes only, is not intended to constitute legal advice, and no attorney-client relationship results. Please consult your own attorney for legal advice.

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On September 30, the United States Patent and Trademark Office Trademark Trial and Appeal Board  issued a decision, In Re Amuse Bouche LLC, for Trademark Application No. 77965809, originally filed March 23, 2010. See In Re Amuse Bouche LLC, Application No. 77965809 (September 30, 2013). Scott Bibb was the Trademark Examining Attorney and the appeal was before Administrative Trademark Judges Holtzman, Kuhlke, and Mermelstein.

The applicant, Amuse Bouche LLC of Napa Valley, originally sought to register a standard characters mark for PRÊT À BOIRE in the International Class of “wine,” where applicant claimed intent to use the mark in commerce. Registration was originally refused by the Examining Attorney on the grounds that the applied-for mark, PRÊT À BOIRE, is a generic description of the goods and therefore does not distinguish the applicant’s goods or services. See In Re Amuse Bouche LLC, citing Trademark Act § 23(a); 15 U.S.C. § 1091(a). The Examining Attorney noted that the phrase, “Prêt à Boire,” as translated into English, means, “Ready to Drink,” and is merely descriptive. Id. 

Procedural Posture: Applicant responded and the Examining Attorney issued a final refusal to register PRÊT À BOIRE, upon which applicant filed both a notice of appeal and request for reconsideration. Id. The appeal was stayed and the case remanded to the Examining Attorney who, upon review of the applicant’s arguments and evidence, rejected the request for reconsideration on the grounds of descriptiveness. Id. The appeal resumed and both the applicant and Examining Attorney filed briefs with the Board. Id. Applicant subsequently filed an amendment requesting registration on the Supplemental Register. Id. The Board treated this request as a remand and sent the application back to the Examining Attorney, who issued a refusal on the grounds that the applicant’s mark was generic. Id. The appeal was again resumed after applicant responded and Examining Attorney issued a final refusal to register. Id.

Analysis: The Board noted that if a mark is descriptive and prohibited from registration in the Principal Register, the mark can still be registered in the Supplemental Register “but only if it is ‘capable of distinguishing an applicant’s good or services.'” Id. citing Trademark Act § 23(a). To determine if a mark is generic, the Board applied a two-step test:

First, what is the genus of goods or services at issue? Second, is the term sought to be registered or retained on the register understood by the relevant public primarily to refer to that genus of  goods  or services? Id. citing H. Marvin Ginn Corp. v. Int’l Ass’n of Fire Chiefs, Inc., 782 F.2d 987, 228 USPQ 528, 530 (Fed. Cir. 1986).

The Board examined the evidence submitted by both the Examining Attorney and the applicant. In its review of the Examining Attorney’s evidential submission, which consisted of significant internet references and examples, the Board noted that the term, “Prêt à Boire,” is mostly used to designate a wine’s age or readiness to drink. However, the Board recognized that three of the sources provided by the Examining Attorney  used the phrase, “Prêt à Boire,” or, “Ready to Drink,” with reference to how a good is packaged or sold, e.g., “ready-to-drink wine by the glass.” Id. The Board discussed several other uses of the term, “Prêt à Boire,” provided by the Examining Attorney as discussed here.

Amuse Bouche LLC Pret a Boire Wine TrademarkApplicant, in its response to the Examining Attorney, provided multiple sources of evidence, including an excerpt from Amuse Bouche LLC’s website and a copy of its Certificate of Label Approval (“COLA”) from the Alcohol Tobacco Tax and Trade Bureau, as pictured right. The official COLA is viewable here and here. In its request for reconsideration, applicant submitted sixty-one registrations of third parties demonstrating the use of the term, “PRÊT À ____” or, “Ready to ____” for a variety of goods and services (e.g., “PRÊT À MANGER,” for restaurant services, Reg. No. 2071984). Finally, applicant submitted evidence from Mr. Rhett Gadke, the Wine Director of Bounty Hunter Rare Wine & Provisions in Napa, who certified that the term “Prêt à Boire” is recognized as referring to Amuse Bouche LLC’s wine.

In its review, the Board references the Doctrine of Foreign Equivalents, which translates “foreign words from common language . . . into English to determine genericness, descriptiveness, as well as similarity of connotation in order to ascertain confusing similarity with English work marks.” In Re Amuse Bouche LLC, quoting Palm Bay Imps. Inc. v. Veuve Clicquot Ponsardin Maison Fondee En 1772, 396 F.3d 1369, 73 USPQ2d 1689, 1696 (Fed. Cir. 2005); In Re Sambado & Son Inc., 45 USPQ2d 1312, 1315 (TTAB 1997). The Board noted, however, the Doctrine is not an absolute rule and is subject to limitations. Generally, speaking, the Doctrine is limited to situations where an American consumer will see a foreign term and translate said term into English. Id. The Board agreed that the term “Prêt à Boire” clearly translates into English as, “Ready to Drink.” Additionally, the Board noted that the applicant translated the term in its application and on the true back side of its wine label. Thus, the Board found it appropriate to apply the Doctrine of Foreign Equivalents to this particular case for some of the following reasons: 

There is no evidence of record suggesting that that the translation in this application is inaccurate, that “prêt à boire” is so obscure that it would not be easily recognized and translated by French speakers in the U.S. marketplace, or that it is an idiom which is not equivalent to its direct English translation . . . . Wine drinkers familiar with French are thus likely to “stop and translate” prêt à boire when encountering it used in connection with wine. Id.

Applicant confirmed that the term “Prêt à Boire” is at least descriptive of wine. In response, the Board highlighted that the true question is whether, as shown by evidence, the term “Prêt à Boire” is also a generic name for wine thus precluding applicant from registering the applied-for mark, PRÊT À BOIRE, on the Supplemental Register. Through evidence provided, the Board noted that the term, “Prêt à Boire,” is used as an adjective to describe the point in time when a wine will be at its peak in quality, but contrasted with the fact that some adjectives have been held to be generic. Id. 

Next, the Board examined whether the term refers primarily to wine (in this case, the genus of goods or services).  The Board reasoned that, the majority of the evidence as provided by the Examining Attorney shows that the term “Ready to Drink” or “Prêt à Boire” describes a characteristic or attribute of wine. “These terms are not used as the ‘name’ of the wine or sub-genus of it (such as ‘red,’ ‘sparkling,’ or ‘chardonnay’). Although we imagine a wine collector may speak about the wines in her cellar that are ‘ready to drink,’ the evidence of record tends to show that the term is used primarily to say something about wine, rather than to name or categorize it.” Id. The Board noted that, while adjectives can be recognized as generic, the evidence as provided in this case did not show public view widely in support of the term “ready to drink” or “prêt à boire” as “a central aspect of wine.” Id. (emphasis added). The Board placed emphasis on the fact that the term designates the absolute best quality of the wine in its lifespan.

Conclusion: In conclusion, the Board determined that, although “Prêt à Boire” is descriptive and frequently applicable to wine, the Examining Attorney did not meet his burden to show that the term “Prêt à Boire” is generic. Thus, the Board reversed the refusal to register “Prêt à Boire.”

Image property of United States Patent and Trademark Office Trademark Trial and Appeal Board, as per In Re Amuse Bouche LLC, Application No. 77965809.

For more information on wine or alcohol law, labeling, or trademark, please contact Lindsey Zahn.

DISCLAIMER: This blog post is for general information purposes only, is not intended to constitute legal advice, and no attorney-client relationship results. Please consult your own attorney for legal advice.

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On October 1, 2013, TTB announced a cessation in its operations, citing the lack of government funding as the reasoning. While the TTB website, www.ttb.gov, remains partially accessible, the ability to submit, review, or retrieve Certificate of Label Approvals (“COLAs”), Formula Approvals, or Permits is not permissible. This means that label, formula, and permit applications that were submitted to TTB prior to the shutdown remain at a standstill until government funding is restored. Additionally, the shutdown makes copies of previously approved labels, formulas, and permits inaccessible—and this includes the public COLA database that TTB maintains. Endusers can still, however, file electronic payments and returns for federal excise taxes and operational reports through the U.S. Department of Treasury.

What does the TTB shutdown mean for industry?

TTB is a division of the Department of Treasury and is the federal agency in the United States that—generally speaking—regulates wine, beer, and spirits. It is also the federal agency that grants pre-market approval to labels, formulas, and permits of TTB-regulated beverages and beverage producers, importers, wholesalers, and distributors. The shutdown means that no new labels or formulas can be submitted to TTB for approval and no new alcohol beverage-related permits can be granted. In its announcement, TTB also noted that no personnel will be available to respond to telephone calls, e-mails, faxes, or other communications. Essentially, this means label, formulate, and permit approvals will be backed up for many weeks, if not months, to come.

Some outside publications have noted that the shutdown has been particularly egregious to importers of wine, who need an active COLA for wine imports to be released from Customs ports. See Shutdown Affecting Wine Importssee also TTB Shutdown Means Wine Label Slowdown. Without a valid COLA, Customs will not release TTB-regulated beverage products from its custody.

For more information on wine or alcohol law, labeling, advertising, or TTB matters, please contact Lindsey Zahn.

DISCLAIMER: This blog post is for general information purposes only, is not intended to constitute legal advice, and no attorney-client relationship results. Please consult your own attorney for legal advice.

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A common theme in the age of the Internet is a concept known as cybersquatting (or domain squatting). Simply put, cybersquatting entails the registration of a domain name in bad faith, i.e., registering a domain name of a trademark with the intent to later sell the domain to the company or person with rights to the trademark. In the world of wine, a concept known as brand squatting is very similar.

Recently, Château Listran, a winery in the Médoc region of France, changed its brand name from Listran to L’Estran. This alteration in name, while similar to the original, was not performed voluntarily. In fact, the French winery was forced to change its brand name because a third party in China pre-registered the name Listran. According to Céline Baillet, a European trademark attorney, “These and other problems with trademark law are usual in China . . . . In China, the person who registered is right, no matter if a trademark already exists abroad and is known on international markets. So, more and more foreign trademarks are prevented from being sold in China. Then, the original trademark owner is required to take over the rights because otherwise he has no choice but to change his name.” Trademark Law in China Leads to Name Change of Château Listran. This means that whoever is first to register a trademark in China establishes the right to a mark in China regardless of whether or not another party has previously used the mark in commerce. To make matters worse, importers in China will not distribute wine whose brand is registered to another party in China, thus blocking the wine from being sold on the Chinese market. See Bordeaux Chateau Changes Name to Bypass Chinese Trademark ‘Squatters.’

“Tak[ing] over” rights can be expensive, though. Generally, this entails litigation and other legal costs. Alternatively, the rights to the trademark can be rebought, but as a rule in China, this generally costs between 8,000 and 30,000 euro (and can be even more costly for internationally-known names). See Trademark Law in China Leads to Name Change of Château Listran. Registering a trademark for ten years, however, can cost around 1,000 euro. Id. As a result, many victims of brand squatting—including Château Listran—choose to register an alternative trademark as opposed to diving into what can be a costly legal battle.

Is there hope for change in China’s trademark registration? Some point to the recent victory of Château Ausone in May 2013. The winery was able to annul a third party registration of its name. See Chateau Ausone Wins Trademark Case in China. Others, however, are not so lucky. See, e.g., Kasite Trademark Sours for French Vintner Caste.

For more information on wine or alcohol law, international trade, or trademark, please contact Lindsey Zahn.

DISCLAIMER: This blog post is for general information purposes only, is not intended to constitute legal advice, and no attorney-client relationship results. Please consult your own attorney for legal advice.

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As many wine law enthusiasts know, the issue of direct shipment is a significant legal issue for wineries selling in the U.S. The legal atmosphere within the states is continually changing with new regulations, so it is important for wine industry professionals to stay up-to-date on direct shipping. This October, ShipCompliant will host its eighth annual virtual seminar on direct sales. The seminar, which is open to the public and free of charge, will discuss the current nature of direct shipment throughout the states. 

Topics include:

  • This year’s most impactful regulatory changes;
  • Tips to complete your reports faster and more accurately;
  • New ShipCompliant tools unveiled; and
  • Q&A – Submit questions in advance or during the session.

See Direct Shipping Virtual Seminar. In addition, the seminar will discuss new legislation that will impact wineries in the upcoming year, including new wine shipping regulations and the Marketplace Fairness Act. See Direct Wine Sales Virtual Seminar Scheduled for October 17.

The recommended attendees are winery owners, wine club managers, compliance managers, shipping department manages, and those interested in direct shipment laws and regulations. To register, visit the ShipCompliant registration website here

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In July of 2012, Steele Wines, Inc. filed an application to register a mark with the U.S. Patent and Trademark Office asserting use in commerce since May 2012. See 15. U.S.C. § 1051(a). The mark, which is pictured below, features the words, “A Scarlet 2009 Lake County Red Wine” with a woman in Puritan era costume.

A Scarlet Letter 2009 Lake County Wine

After filing, the trademark examining attorney refused to grant registration on the grounds that the mark of Steele Wines, Inc. resembles a previously registered mark “The Scarlet Letter” for “‘wine’ in International Class 33 as to be likely to cause confusion.” In re Steele Wines, Inc., Serial No. 85683619 (August 23, 2013); see 15 U.S.C. § 1052(d). Shortly after the examining attorney refused to grant applicant trademark registration, applicant appealed the refusal.

In its appeal, applicant argued the following:

In re Steele Wines, Inc., supra.

The examining attorney, upon appeal, maintained the following:

  • The channels of trade and consumers are the same;
  • The marks of “A Scarlet” and “The Scarlet Letter” are similar to the extent that both marks are the name of Nathaniel Hawthorne’s The Scarlet Letter, a classic and well-known American novel; and
  • Applicant’s mark, which includes the term “Scarlet” in bold, red lettering and a woman dresses in Puritan-era clothing with the letter “A” inscribed on her chest, connotes Hawthorne’s novel.

Id.

The Board examined the abovementioned facts when analyzing the likelihood of confusion issue. “In any likelihood of confusion analysis, two key considerations are the similarities between the marks and the similarities between the goods.” Id. citing Federated Foods, Inc. v. Fort Howard Paper Co., 544 F.2d 1098, 192 USPQ 24, 29 (CCPA 1976). In its analysis, the Board turned to the first du Pont factor regarding similarity of foods, affirming that applicant’s goods are identical to those of the registered mark and thus “must be presumed to travel in the same channels of trade and be sold to the same classes of consumers.” Id.

After confirming the identicalness of the goods, the Board then turned to the second du Pont factor: the comprehensive similarity or dissimilarity of the marks with respect to appearance, sound, connotation, and commercial impression. Id. citing In re E. I. du Pont De Nemours & Co., 177 USPQ at 567. The Board found that the marks were significantly similar as per the following reasons:

  • Both marks contain the term “SCARLET” as a prominent feature;
  • Registrant’s mark contains “THE SCARLET LETTER,” the primary significance of which is Hawthorne’s novel;
  • Applicant’s mark consists of the term “SCARLET” as a prominent word and a “woman dressed in puritan garb with a large, scarlet colored letter ‘A’ affixed to the bodice of her dress, and carrying a swaddled wine bottle in place of a child” along with a second figure dressed in similar clothing;
  • The combination of the images, use of the red color, letter “A,” and the term “SCARLET” in applicant’s mark “unmistakably evoke the novel The Scarlet Letter;” and
  • Applicant’s wording, “2009 Lake County Red Wine,” is descriptive “if not generic” and adds marginally to the overall mark.

Id.

Additionally, the Board found that because the applicant’s mark referred to The Scarlet Letter and the registrant’s mark is “The Scarlet Letter,” the marks are highly similar “in connotation and, as a whole, convey highly similar commercial impressions.” Id. Notably, similarity in any one of the du Pont factors is sufficient to support a likelihood of confusion determination. The Board noted that the existence of several third-party registrations was not enough to compel an alternate result and further discussed the differing factors of each referenced mark. Thus, in totality, the Board found “that the similarities in connotation and commercial impression would lead consumers to mistakenly believe that the identical goods identified thereby emanate from a common source.” Id. The Board affirmed the examining attorney’s decision, refusing the registration under Trademark Act Section 2(d).

Photos property of U.S. Patent and Trademark Office Trademark Trial and Appeal Board, In re Steele Wines, Inc., Serial No. 85683619 (August 23, 2013). For another analysis, please see WYHA? Section 2(d) and Faulty Specimen Refusals Sink SCARLET Wine Application.

For more information on wine or alcohol law, labeling, or trademark, please contact Lindsey Zahn.

DISCLAIMER: This blog post is for general information purposes only, is not intended to constitute legal advice, and no attorney-client relationship results. Please consult your own attorney for legal advice.

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On August 22, 2013, TTB announced that the agency will be reviewing its policy on the use of the term “gluten-free” on alcohol beverages that are regulated by TTB. See Use of “Gluten-Free” on TTB-Regulated Alcohol Beverages. This announcement is timely because, as TTB properly highlighted, the United States Food and Drug Administration (“FDA”) recently published its final rule on the term “gluten-free” on food products that fall within FDA’s jurisdiction for labeling. FDA’s final rule on gluten-free for food products was published in the Federal Register, which can be accessed hereSee Food-Labeling; Gluten-Free Labeling of Foods. To comply with FDA’s new rulings, a food product that falls within FDA’s jurisdiction for labeling must contain less than 20 parts per million of gluten in order for the product to be labeled “gluten-free” or a similar phrase. See FDA Establishes Definition of ‘Gluten-Free” for Food Labels.

On its Questions and Answers page, FDA specifically noted that the final rule does not apply to food and beverage products regulated by the United States Department of Agriculture (“USDA”) and the TTB. The agency clarified that, “USDA regulates the labeling of meats, poultry, and certain egg products (FDA regulates the labeling of shell eggs). TTB regulates the labeling of most alcoholic beverages, including all distilled spirits, wines that contain 7 percent or more alcohol by volume, and malted beverages that are made with both malted barley and hops.” Questions and Answers: Gluten-Free Food Labeling Final Rule. In other words, FDA’s newly published regulation on the term “gluten-free” for food products excludes food and beverages products that fall within the labeling jurisdiction of either the USDA or TTB. However, “FDA will continue to work with USDA and TTB on the issue of gluten-free food labeling to harmonize the requirements for foods labeled gluten-free among agencies whenever possible.” Id. (Note: Some wine beverages — e.g., low volume alcohol wines — fall within the jurisdiction of FDA for labeling purposes.)

In its announcement, TTB noted that, while the agency is currently reviewing its policy on “gluten-free” labeling for TTB-regulated alcohol beverages, TTB Ruling 2012‐2, Interim Policy on Gluten Content Statements in the Labeling and Advertising of Wines, Distilled Spirits, and Malt Beverages, is still in effect for alcohol beverage products that are within the agency’s jurisdiction as under the Federal Alcohol Administration Act. See  TTB Ruling 2012‐2, Interim Policy on Gluten Content Statements in the Labeling and Advertising of Wines, Distilled Spirits, and Malt Beverages. For more information, see Craft Brew Alliance One Step Closer to Being Able to Label Omission Beer as “Gluten-Free.”

For more information on wine or alcohol law, labeling, or using claims on alcohol labels, please contact Lindsey Zahn.

DISCLAIMER: This blog post is for general information purposes only, is not intended to constitute legal advice, and no attorney-client relationship results. Please consult your own attorney for legal advice.

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Continuing Legal Education (“CLE”) International is hosting its 18th annual national conference on wine, beer, and spirits law. “For the past 17 years, this program has brought together the premier in-house counsel, private attorneys, regulators, retailers, wholesalers, distributors, vintners, and others involved in the alcohol beverage industry. This year will be no exception.” See  CLE International’s 18th Annual National Conference on Wine, Beer & Spirits Law. The conference, which will take place September 19, 2013 through September 20, 2013  at the Omni Hotel in San Diego, will feature topics including history of beverage licensing, liquor control, a model ABC act, consumer promotions, cider, distribution, and more. The topic lineup and schedule can be viewed at CLE International’s 18th Annual National Conference on Wine, Beer & Spirits Law.

The 18th Annual Conference is co-chaired by James M. Seff, Esq. of Pillsbury Law and Marc E. Sorini, Esq. of McDermott Will & Emery LLP. In addition, the conference faculty include many alcohol beverage attorneys and keynote speaker is Tom Stolpman, esq., attorney at Stolpman, Krissman, Elber & Silver and president of Los Olivos-based vineyard Stolpman Vineyards. Up to 12 hours of MCLE credit can be earned, including one hour of ethics or substance abuse training credit. For more information on signing up and tuition, please visit CLE International’s 18th Annual National Conference on Wine, Beer & Spirits Law.

The following program postcard is provided by Kerry Mason, the Program Attorney for CLE International (brochure property of CLE International):

wine beer spirits conference San Diego

Wine Beer Spirits Law Conference

 

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Revisited: Granholm v. Heald and the Wine Industry

This blog entry was originally posted on August 7, 2010, five years after the Supreme Court decided a major case impacting the wine industry. The decision Granholm v. Heald remains important to the wine industry and provides great context for the types of legal issues the American wine industry faces on a day-to-day basis. Because I believe this case to have such a strong influence on the American wine industry, I think it is worth revisiting. Below please find a summary of the background pre-Granholm, a summary of the case, and the legal environment post-Granholm.

General Information on Granholm

In the 2005 opinion of Granholm v. Heald, the Supreme Court ruled in a 5–4 decision that state laws allowing in-state wineries to make direct sales to customers but effectively authorizing out-of-state wineries to make sales only through wholesalers at a greater expense are unconstitutional. The Court reasoned that these laws discriminated against interstate commerce, thus violating the Commerce Clause of the United States Constitution (Art. I, § 8, cl. 3), and were not defensible under the Section 2 of the 21st Amendment. It was further acknowledged that “the constitutional authority of the state to regulate the importation of intoxicating liquors was limited by the requirement under U.S. Const. art. I, § 8, cl. 3, that such regulation could not discriminate against the out-of-state wineries in favor of in-state wineries.” Granholm v. Heald, 544 U.S. 460 (2005). Granholm still serves as good law today for state regulations pertaining to wine sales amongst interstate and intrastate wineries, as well as its constitutionality discussion, and is one of the most recent cases entailing wine laws to reach the Supreme Court.

Legal Environment Pre-Granholm

The nexus of Granholm spans from two distinct and conflicting district court rulings. Two states, New York and Michigan, had laws that prohibited or effectively prevented out-of-state wineries from selling products directly to consumers. Michigan’s law, which was facially discriminatory, allowed in-state wineries to ship directly to in-state consumers, subject to licensing requirements, but all out-of-state wine products were required to be sold from in-state wholesalers before said products could be sold to consumers. New York’s law was more regulatory: it required (1) all wine to be sold through a licensee fully accountable to the state, (2) in-state producers, in order to ship directly to consumers, to obtain an applicable license, and (3) out-of-state producers, in order to become a licensee and gain direct shipment advantages, to establish an in-state distribution operation (consisting of a branch office and warehouse, which posed to be costly, especially for smaller wineries). Moreover, the New York law prohibited out-of-state wineries from obtaining a “farm winery” license, which provided for the most direct manner of shipment to consumers and were not permitted to distribute their wines through direct shipment of applicable in-state licensees.

During this time period, the majority of wine distributors opposed allowing direct shipment by wineries, asserting that even a small winery’s direct shipment was a threat to distributors. Many distributors believed their line in the distribution process served as a barricade against even the remote possibility for criminal influences in the liquor industry and/or the illegal sales of liquor to minors over the Internet. Remember that much of the direct sales, especially from out-of-state wineries, were conducted over the Internet during a time period of global technological expansion. (In fact, from 1994 to 1999, the amount of consumer spending on direct wine sales doubles and reached about $500 million, or about 3% of all wine sales.) (Federal Trade Commission.) In addition, that time period saw a dramatic growth in the number of small wineries throughout the United States, and direct shipping via the Internet was viewed as a means for such small wineries to increase their sales and shipments.

Essentially, a group of Michigan residents brought suit against state officials in federal district court, alleging that Michigan’s direct-shipment laws discriminated against interstate commerce and violated Article I, § 8, cl. 3 of the United States Constitution. The district court granted summary judgment to the defendants, but on appeal, the Sixth Circuit reversed, remanded, and concluded that the 21st Amendment was not grounds for defense of the laws and Michigan’s regulations were unconstitutional because the state did not prove that it could not meet its procedural objectives through nondiscriminatory manners.

The story for New York is quite the contrary. Out-of-state wineries and several New York consumers filed suit against state officials in New York federal court, also alleging that the New York laws violated the commerce clause. The district court granted plaintiffs summary judgment, but on appeal, the United States Court of Appeals for the Second Circuit reversed and held that New York’s laws fell within legal scope of the 21st Amendment.

The United States Supreme Court, in 2005, granted certiorari to both of these cases. In its decision, it affirmed the judgment of the Sixth Circuit and reversed that of the Second Circuit.

Supreme Court’s Analysis in Granholm

Justice Kennedy delivered the majority opinion of Granholm, asserting that the direct-shipment laws of both New York and Michigan violated the Commerce Clause because neither state substantiated that its objectives could not be obtained by other nondiscriminatory mechanisms and that Section 2 of the 21st Amendment was not a justifiable ground to regulate interstate commerce in a discriminatory manner, giving preferential treatment to in-state wineries.

In his analysis, Kennedy greatly relied on the history of the Commerce Clause, the text of which is cited below:

“[The Congress shall have power] To regulate Commerce with foreign Nations, and among the several States, and with the Indian tribes;” U.S. Const. art. I, § 8, cl. 3.

Historically, this clause has been read to disallow states, except in the narrowest of circumstances, from discriminating against interstate commerce. In other words, a law in one state that denotes preferential treatment to the business of the state and grants subordinate power or substantial burdens to outside states, without proper justification proving that these objectives could not be achieved in another non-discriminatory fashion, would most likely be declared unconstitutional under U.S. Const. art. I, § 8, cl. 3. Kennedy justified that the systematic laws of both New York and Michigan were “obvious” in their discrimination and that the results “could effectively bar small wineries” from those markets. 544 U.S. at 474. Although New York’s laws were not outright discriminatory, through its analysis of the culmination of the state’s law, the Court “[had] no difficulty concluding that New York, like Michigan, discriminates against interstate commerce through its direct-shipping laws.” 544 U.S. at 476.

To contend this, both states argued that their statutes were constitutional under Section 2 of the 21st Amendment, affirming that the Amendment gave the states the authority to discriminate against out-of-state goods. The text of Section 2 of the 21st Amendment reads as follows:

“The transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors in violation of the laws thereof, is hereby prohibited.” U.S. Const. amend. XXI, § 2.

Through another historical analysis of the 21st Amendment, the Court visited the purposes of both the Wilson Act (1890), which granted the states the power to regulate imported liquor “to the same extent and in the same matter” as domestic liquor but did not allow states to discriminate against out-of-state liquor, and the Webb-Kenyon Act (1913), which essentially provided federal support to prohibition endeavors to curb liquor consumption and extended aims of the Wilson Act.

In rejecting the states’ arguments, the Court explained that “the aim of the Twenty-First Amendment was to allow States to maintain an effective and uniform system for controlling liquor by regulating its transportation, importation, and use. The Amendment did not give States the authority to pass nonuniform laws in order to discriminate against out-of-state goods, a privilege they had not enjoyed at any earlier time.” 544 U.S. at 484–485. The Court recognized that, although the states do have broad power under section 2 of the 21st Amendment, “this power, however, does not allow States to ban, or severely, limit the direct shipment of out-of-state wine while simultaneously authorizing direct shipment by in-state producer.” 544 U.S. at 493.

The states also argued that, by allowing direct shipment of wine by out-of-state wineries, their 10th Amendment “policing powers” were severely limited and that minors with access to credit cards and the Internet could purchase an illegal substance through direct shipment. The Court rejected this argument, affirmed that, “the States provide little evidence that the purchase of wine over the Internet by minors is a problem. Indeed, there is some evidence to the contrary. A recent study by the staff of the FTC found that 26 States currently allowing direct shipment report no problems with minors’ increased access to wine.” 544 U.S. at 490. The Court also reasoned that, if credit were to be attributed to the states’ argument, that the discriminatory laws against interstate commerce would still not be justifiable. “As the wineries point out, minors are just as likely to order wine from in-state producers as from out-of-state ones . . . . In addition, the States can take less restrictive steps to minimize the risk that minors will order wine by mail.” 544 U.S. 490–491.

Finally, the Court rejected New York’s argument that tax-collection was a justifiable ground for its direct-shipment regulations. Kennedy’s opinion reasons that this is not illusory, but reiterates that such objectives can be attained through other non-discriminatory measures.

What is the Result of Granholm for the Wine Industry?

Essentially, the legal result of Granholm is this: a state’s regulation that permits in-state wineries to directly ship to consumers but restricts or prohibits out-of-state wineries from direct shipments violates the Commerce Clause of the United States Constitution and is not authorized by Section 2 of the 21st Amendment.

What does this mean to wineries? Manifestly, state laws must comply with the Granholm ruling. However, not all state direct-shipment regulations are identical and certainly do not procure matching ramifications. However, after Granholm, direct shipment laws must apply identically to both in-state and out-of-state producers such that if state laws allow direct shipment to one type of producer, the same remittance must be given to the other. Post-Granholm, some states allow a relatively low volume of direct shipment to consumers whereas other state laws allow direct shipment to consumers only if the wine was purchased in person at the winery. Other states have adjusted their laws to accommodate smaller wineries and allow direct shipment to wineries that produce under a certain amount of gallons of wine per year. States are also allowed to completely ban direct shipment, and essentially mandate wholesale distribution, as long as the laws apply equally to both in-state and out-of-state producers. Regardless of its effect, Granholm incorporates an important postulate: know your direct-shipment laws.

For more information, access the full opinion at Granholm v. Heald or listen to the opinion at Granholm v. Heald.

For more information on wine or alcohol law, direct shipping, or three-tier distribution, please contact Lindsey Zahn.

DISCLAIMER: This blog post is for general information purposes only, is not intended to constitute legal advice, and no attorney-client relationship results. Please consult your own attorney for legal advice.

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