Washington Liquor Privatization Progress Report

Washington State liquor privatization has now been in effect for a couple years.  When proponents of privatization were pitching the idea to the people of Washington, it was all about lowering costs and paying less tax.

Of course, consumers are paying less tax to the state directly, but the state is still getting its money.  In 2013, the first full year of privatization, Washington collected roughly $500 million.  This money came in part from taxes paid by the holders of private liquor licenses.  And, like anyone who has taken a college course in business knows, if costs increase, businesses raise prices.  And so they did.

A visit to any liquor store in the State of Washington will confirm that Washington has some of the highest prices for liquor in the country.

Now, whether this is part of the plan or not, the fact remains that charging high taxes on a commodity will cause a decrease in use.  Take cigarettes, for example.  Taxes have been raised and raised over the years, and consequently, consumption has gone down, and I don’t think any local or state governments really are concerned about that.  One could theorize that a slight decrease in spirits consumption similarly wouldnn’t hurt the general public’s health and safety.

But, consider this: Seattle and other parts of Washington have one of the most dynamic and unique artisanal alcohol scenes in the country.  Driven by the world-class wineries and wine regions in the state, Washington is also home to several producers making delicious beer, mead, cider, and – you guessed it – spirits and liquors.  The high taxes in this state probably won’t cripple the likes of Jack Daniels or Absolut Vodka, but small distilleries that cannot bring their products to market without significant tax hurdles really puts them behind, and by consequence, ensuring the failure of some

Hopefully, the State will recognize that it has already recouped what it lost by letting go of state-owned liquor stores.  We must hope that the State does not get used to the extra money coming in and leave things like they are now.

(This posting is not to be construed as legal advice. If any of the information in this posting relates to legal issues that you are facing, you should contact an attorney.)

© All rights reserved Kevin Guidry 2014.

Posted in Local Governments, Regulatory/Administrative Law, Spirits, Spirits/Beer/Other, State Regulations, Tax Law | Leave a comment

Changes Afoot for Chinese Trademark Law

Major revisions to Chinese trademark law are set to take effect in May of 2014.  These changes could make it much easier for American wineries to register and protect trademarks in the Chinese marketplace.

The largest hurdle for wineries at this point, in terms of trademark law, is the uncertainty in time that it takes to merely obtain a trademark registration in China.  The processes to apply for registration are not unlike those in the United States and other countries, however, in China, each step of the process has no defined time limits, and anyone who has tried to apply for a registration in China knows that it takes years to complete.

The new revisions will place time limits on various parts of the process, and they will also add new and more efficient processes that were not in place before.  For example, paper filings are currently still the primary method by which applications are processed.  Electronic applications are only allowed by a small group of qualified agents.  After these changes, any applicant will be allowed to initiate applications electronically.  Of course, from the perspective of American trademark law, this is old hat, as the USPTO was a pioneer in bringing electronic filings to the American public.

Nevertheless, this change should speed up the process for applicants.  Additionally, there currently is no time limit for the China Trademark Office (“CTO”) to review an application.  With the changes coming in 2014, there will be a 9-month time limit.

Also, just like in American trademark law, once the Office determines that a trademark is eligible for registration, it is then published for opposition by the public (and importantly, existing holders of registered trademarks).  With the new changes, the opposition period will last no more than 12 months.  And, if a pre-registered trademark is opposed, the applicant has the ability to petition for review, which also must be completed within 12 months.

These two 12-month limits add more certainty to the process.  Again, as the law currently stands, this process often takes several years to complete.

These are not the only changes coming in 2014.  The law will be further amended to attempt to protect “well-known” trademarks and curb the rampant counterfeiting and infringement that is occurring in China.  Holders of very famous marks like Nike and Louis Vuitton are probably watching this very closely.  However for wineries trying to do business in China, these changes relating to streamlining the registration process will probably have the biggest immediate impact.

(This posting is not to be construed as legal advice. If any of the information in this posting relates to legal issues that you are facing, you should contact an attorney.)

© All rights reserved Kevin Guidry 2014.

Posted in Consumer Protection law, Intellectual Property Law, International Law/Regulations, Trademark Law | Leave a comment

American Canyon Trying to Capitalize on the Napa Valley

Recently, the American Canyon Tourism Improvement District Committee was presented with an idea to boost tourism: apply for the American Canyon to be a recognized federal AVA.

The American Canyon is an area in the southernmost part of Napa County.  It is south of the town of Napa and adjacent to the Carneros AVA.

If one has ever driven through the American Canyon, one would readily see that it looks more like neighboring Vallejo, a city with a typical East Bay and suburban character, than its neighbor to the other side, Napa, a city known internationally for wine, dining, and relaxation.

So, if American Canyon is to capitalize on Napa’s tourism, it probably needs a little more than just being recognized as an AVA.  However, there is no reason to think that gaining AVA status is not a good start.

Let’s take two other nearby AVA’s as a comparison: Carneros and the Oak Knoll District.  Carneros straddles the southern parts of both Napa County and Sonoma County.  Carneros is very well known for its cool-weather wines made from Chardonnay and Pinot Noir, as well as for lesser amounts of Merlot and Syrah.  Carneros is also a big destination for tourism.

The reasons for this tourist traffic are probably numerous and hard to quantify, but for one, the main road that passes through Carneros is a convenient way for wine tasters to travel between southern Sonoma County and the Napa Valley.  The region itself is quiet and very pretty, where at some high points one can see all the way to the Pacific Ocean.  Several wineries have added luxurious tasting rooms and the Plumpjack Group added a very high-end restaurant and hotel property, The Carneros Inn.  Carneros certainly does not lack for tourist appeal.

Oak Knoll, by contrast, is hardly even known as an AVA, even by people in Napa.  Most people just think it is the part of the valley that is driven by and quickly forgotten as one approaches Yountville from the south.  It is not a region that is very well known for adding distinctive characteristics to its wines, as is a place like Carneros.

I don’t know the history, but I’m sure at some point the local growers and wineries in the Oak Knoll applied to make it an AVA, envisioning some sort of marketing benefit.  This would not be unlike the idea that is currently being tossed around for the American Canyon.

So, the lesson here is that American Canyon needs to strive to become more like Carneros than like another Oak Knoll.  These things happen slowly and organically, so doing this overnight would be impossible either way.  Nevertheless, the American Canyon folks should be thinking a few steps ahead as they try to take this multi-prong approach to making American Canyon part of the “Napa Valley” experience.

(This posting is not to be construed as legal advice. If any of the information in this posting relates to legal issues that you are facing, you should contact an attorney.)

© All rights reserved Kevin Guidry 2014.

Posted in Federal Regulations, Regulatory/Administrative Law, Terroir, Wine | 2 Comments

Pitfalls of Chasing the “Polymorphous” Drinker

It has recently been reported that studies show that younger drinkers of alcohol trend more toward higher price-point categories of alcohol – somewhat regardless of type – rather than the more traditional notion that the populace is composed of “beer drinkers,” “wine drinkers,” and so on.

Whether this is actually true or not is another question, but in terms of legal issues, there are certain things a company can think about if it is wishing to expand its offerings in order to capture this evolving so-called “polymorphous” younger drinking public.

First and foremost, regulatory agencies must be considered.  For example, the TTB (the federal body that regulates alcohol) has different regulations as applied to different categories of alcohol.  These regulations start with differences in obtaining licenses and label approvals, and continue in the life of the business to include differences in record-keeping, compliance, and labeling requirements.  All of these differences are based on the different categories of alcohol being produced (wine, liquor, beer, etc.), with the occasional overlap by design or coincidence.

Additionally, excise taxes that would be paid on different types of alcohol may affect how a company calculates excise tax, treats its bonded areas, and distributes product.

Besides the TTB, one is likely to find similar differences in government regulations at the state level, and they should be studied before making any major changes.

Outside of government regulations, which I like to think of as the “must do” things, there is also another category of considerations that would be “should do” things.

One such consideration is trademark ramifications.  If one has already registered trademarks in relation to a particular type of product, for example “wine,” it may be worth considering whether the registration should be amended to include the new product being produced, or possibly new trademarks may be registered, based on whether new marks are being used with the new products.

Even if a company is not choosing to expand the breadth of its alcohol offerings, this expansion of consumer tastes should still be considered through the rubric of trademark.  For example, enforcement against other categories of alcohol is probably quite important.  This is so, because, even if a winery is small and making only a small portfolio of wines under a strong trademark, that winery should probably pursue enforcement efforts against companies that use a similar trademark even in relation to other non-wine products.

The USPTO has long considered most beverages to be similar to each other for trademark purposes, so failing to enforce a similar trademark – even if being used in relation to a different type of alcoholic beverage – may have negative consequences for long-term protectability due to lack of enforcement.  In plain terms, if you sit on your hands too long, sometimes you lose your rights.

As is hopefully apparent, expanding from producing one type of alcoholic beverage to another is not as easy as flipping a switch.  However, based on the evolving trends and preferences of younger consumers, this process may become increasing important, and so a functional checklist of how to do it should be made and followed.

(This posting is not to be construed as legal advice.  If any of the information in this posting relates to legal issues that you are facing, you should contact an attorney.)

© All rights reserved Kevin Guidry 2014.

Posted in Uncategorized | Leave a comment

“Go Texan” Mark As Applied to Wines

A debate has begun over ownership of trademark rights in the term “Go Texan,” by the Texas Department of Agriculture. The debate – as it pertains to wine – began regarding the way the regulations relating to use of the mark applied to wineries. It was allowed that the mark could be used for wine “produced or processed” in Texas, which allowed a loophole for a winery buying fruit from, say California for example, and then making (that is, fermenting) the wine, in Texas.

There have been initiatives by the public in Texas to modify the use of this mark in relation to Texas wines, and that is a positive sign. Notwithstanding, what is interesting about a collective mark relating to geography like “Go Texan” is that it has a geographical descriptor in the mark.

Federal law contains a rather robust area of trademark doctrine relating to the use of geographical descriptors in trademarks. One category that causes a mark to lose all ability to be protected is the category known as: Primarily Geographically Deceptively Misdescriptive. Another category, which may be allowed some level of protection is the category known as: Primarily Geographically Merely Descriptive. Both are mouthfuls, but they operate quite differently in terms of trademark protection under federal law.

To fall victim to being in the former, the mark would meet these elements: (1) the primary significance of the trademark is a generally known geographical location; (2) the consuming public is likely to believe that the location identified by the mark indicates the source of the goods; and (3) the misrepresentation (between the source of the goods and the location in the mark) is a material factor in consumers’ buying decisions. However, even if a mark evades being this category, it might still only be entitled to a sliver of protection under the Primarily Geographically Merely Descriptive category. This is so, because even if a mark is only merely descriptive, it is just that: descriptive.

As far as trademark law is concerned, descriptive marks get quite a bit less protection than stronger, more arbitrary marks. For example, Apple computers get strong trademark protection because Apple makes computers, and not apples. On the other end of the spectrum, Seattle’s Best Coffee gets some protection, but not much. Why? Because descriptive marks have a functional aspect to them in that they describe the goods to which they are affixed. If these marks received stronger protection, it would stop other would-be businesses from simply describing the products that they sell. Insofar as trademark law falls under the broader category of laws aimed at consumer protection, any other system would defeat the purpose.

Therefore, the lesson here is that using geographical indicators in trademarks is risky business either way, because if the description is deceptive, then no trademark protection is available, and even if it is accurate, the protection is thin. As to how these doctrines would apply to wine made from California grapes in a Texas winery with the term “Go Texan” on it, is a mixed question of law and fact, mainly based on whether consumers would see the mark and think that the grapes that made the wine came from Texas.

(This posting is not to be construed as legal advice. If any of the information in this posting relates to legal issues that you are facing, you should contact an attorney.)

© All rights reserved Kevin Guidry 2014.

Posted in Consumer Protection law, Intellectual Property Law, Regulatory/Administrative Law, State Regulations, Trademark Law | Leave a comment

Paper Boy Wine as Trade Dress

A new product located in a grocery store wine section near you is called “Paper Boy,” which is a brand of wines from Paso Robles, California, where the wines are packaged and sold in “bottles” made from compressed, recycled paper. Such is the first ever wine sold in paper bottles and the bottles weigh roughly one-seventh the weight of an ordinary glass wine bottle.

Unique packaging like this is no stranger to the wine business. The following packages have been used over the years to market and sell wines to consumers:

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These alternatives packages are interesting in the way that they overlap with trademark law. Trade dress is a specific sub-category of trademark law, and it basically is a type of trademark where a party can protect certain elements of a product’s design or packaging, provided that the elements of trade dress act in a trademark way (i.e. they indicate the source of the goods).

The classic example of protectable trade dress is something like the old school Coca-Cola bottle.

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The wavy design is protectable trade dress, and in addition to the other trademarks and protectable IP associated with that bottle (the word COCA-COLA, the image of the word, the slogan “Enjoy,” the copyright rights of the image, and maybe even just the color red), the unique shape of that bottle is probably protectable as trade dress. An example more close to the alcohol beverage industry would be the signature red wax found on the top of a Maker’s Mark bourbon bottle.

 

 

 

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So, one might see Paper Boy and believe that packaging wine in this type of paper bottle could be protectable trade dress. Well, not so fast. One of the primary requirements to have protectable trade dress is that the trade dress must not be functional as its primary purpose. Why? Because if one can own trademark rights in trade dress, that means he or she can stop everyone else from using that trade dress. If something is primarily functional, then it would mean that one person or company can have a monopoly on a particular functional design, and that is contrary to the purpose of trademark law (table the fact that patent law might seek to promote this, however).

Nevertheless, if a company wants to protect an aspect of trade dress by registering it at the federal level, it must convince the trademark examiner that the claimed design features are not primarily functional. Thus, you never see Maker’s Mark touting the wax as being the ideal way to seal a bottle of whiskey. No, they use it to promote the brand in a cosmetic sense, and never in a functional sense.

By contrast, on Paper Boy’s website under the “About Us” section, there includes the following marketing jargon: “It’s the first 100% fully recyclable wine that is 80% lighter than glass and made with ultra-green packaging.” (Again, table the fact that it is the “bottle” that is recyclable and lighter than glass, not the wine itself) Nevertheless, if Paper Boy were to try to register as protectable trade dress the Paper Boy packaging, the examining attorney might use this language as evidence to deny the registration, arguing that even the company itself admits that the packaging is primarily functional.

The good news, however, is that companies that purport to care about the environment create and market packaging like this for the exact purpose that it is functional. I doubt these companies would deny this, and Paper Boy probably would have no problem with the next winery down the street using the same eco-friendly recycled paper wine bottles. However, once someone is on to something good, it is only natural to try to find a competitive advantage against other companies however it may come. In terms of trying to corner the market for paper wine bottles, that advantage will have to be found elsewhere.

(This posting is not to be construed as legal advice. If any of the information in this posting relates to legal issues that you are facing, you should contact an attorney.)

© All rights reserved Kevin Guidry 2014.

Posted in Consumer Protection law, Copyright Law, Intellectual Property Law, Patent Law, Spirits, Spirits/Beer/Other, Trademark Law, Wine Marketing, Wine Sales/Marketing | 2 Comments

The Patented Grape Caper

Recently, there was a case in the area of patent law where grape growers in California sued to cancel patents owned by the U.S. Department of Agriculture (USDA) for two grape varieties, the Scarlet Royal and the Autumn King.

The specific area of patent law that was in question was 35 U.S.C. 102(b), which is more commonly known as the “more than one year statutory bar” rule.  The actual text of the statute reads:

“A person shall be entitled to a patent unless . . . (b) the invention was patented or described in a printed publication in this or a foreign country or in public use or on sale in this country, more than one year prior to the date of the application for patent in the United States.” (Emphasis mine)

In this case, the two varieties had been created and patented by the USDA and licensed for use by the California Table Grape Commission.  As it turns out, when the grapes were still in experimental stages at a USDA breeding facility (i.e. before the patents had issued), two men visited the USDA facility as part of an open house and obtained rootstocks through fraudulent means.

The men then proceeded to plant the rootstocks, grow grapes, and sell them for several years.  At first glance, this would seem to be an easy case if those growers were selling and growing the grapes in public for that amount of time.

However, not so fast.  The federal judge held that the growing and selling did not constitute public use, because the grapes themselves have no identifiable visible marks that denote what types of grapes they are.  Moreover, the men who took the rootstocks and who knew that they were growing the grapes in violation of patent laws, sold the grapes as a different variety: Thompson seedless.

Therefore, even though the patented grapes were being grown and sold in the public in fact, it was held that they were not “in public use” for purposes of the statute, because members of the public would not know for all practical purposes what they were.

(This posting is not to be construed as legal advice.  If any of the information in this posting relates to legal issues that you are facing, you should contact an attorney.)

© All rights reserved Kevin Guidry 2014.

Posted in Federal Regulations, Intellectual Property Law, Litigation, Patent Law, Regulatory/Administrative Law | Leave a comment

Glazer’s vs. Southern in Canada

It was recently reported that Glazer’s Distributors (out of Dallas, Texas) will be opening a branch of its distributor network in Canada based out of Toronto.  This move could prove to be a key strategic one in terms of Glazers’ ability to keep pace with one of the other large domestic distributors: Southern Wine and Spirits.

If one were to peruse the front page of each company’s website, one would quickly surmise that Southern is the most prominent distributor of liquor and wine the country.  However, there is a curious band of states located in the middle of the country beginning with North Dakota and ending in Texas where Southern does not operate.  A quick glance over to the Glazer’s website shows that in most of states where Southern does not operate – no surprise – Glazer’s is there.

Even though there are only a few states where these two companies co-exist and compete directly against each other, it would be plainly false to state that they do not also compete with each other in terms of holding the title as the most prominent distributor in the country, and by consequence, the one that coveted suppliers seek to align with.

As a former employee of Glazer’s, I can say with confidence that the prevalent attitude generally is that Glazer’s is smaller in an absolute sense, but in the states where Glazer’s does exist, it dominates.  Southern has managed to take a strong foothold in many large markets such as Florida (its headquarters), New England, parts of the Midwest, and the West Coast.  Southern is also known for having a very dominating approach to meeting sales goals for its suppliers in the markets where it operates.  In this regard, Glazer’s and Southern have similar reputations.

So, until recently, neither of these companies appeared to have made a move across the border to Canada.  On the one hand, Canada could be likened to just another state, where the overall annual sales would probably place it somewhere below states like Texas, California, and New York, but above states like Alabama, Maryland, or Indiana.  In that way, this is a good move for Glazer’s in terms of increasing its overall gross revenue.

However, Canada is not just another state.  It is (obviously) an independent sovereign nation, but it is also the home to some of Glazer’s strongest brands.  Strangely enough, Crown Royal and other blended Canadian whiskies are the most popular and highest selling spirits in Texas.  By contrast, in most of the rest of the country, the top selling whiskey is Jack Daniels (made in Tennessee).

Nevertheless, Diageo, the supplier and marketer of Crown Royal, is located in London, but it has a very strong partnership with Glazer’s in the markets where Glazer’s operates.  Canadian whiskey sells much better in Canada than it does in the United States (in terms of percentage), much like Texas.  Therefore, it will not be surprising if Diageo aligns with Glazer’s in this new venture in Canada.

Such would be a boon for Glazer’s.  And, given Glazers’ success with selling Canadian whiskies in Texas, it will probably do a good job in Canada as it has done in Texas.

(This posting is not to be construed as legal advice.  If any of the information in this posting relates to legal issues that you are facing, you should contact an attorney.)

© All rights reserved Kevin Guidry 2014.

Posted in Distributors, Wine Sales/Marketing | Leave a comment

How Granholm is Applied to Distributors

The end of September brought another wrinkle in the on-going discourse as to the exact reach and scope of the U.S. Supreme Court’s 2005 decision in Granholm v. Heald.  A refresher: Granholm was a decision where the Supreme Court held that the Commerce Clause required that individual states refrain from unfairly discriminating against out-of-state alcohol producers in favor of in-state alcohol producers, in the course of regulating alcohol (which is the states’ prerogatives).

This newest wrinkle concerns Missouri laws that regulate alcohol distributors, as opposed to producers.  In Missouri, state law provides for a residency requirement in order for a company to distribute within the state.  The residency requirement includes minimum numbers of officers, directors, and shareholders that a company must have, who reside in Missouri, as a threshold for doing business as a distributor in Missouri.

Southern Wine and Spirits, the nation’s largest distributor of alcoholic beverages, and who operates in approximately 35 states, has been trying to establish a business operation in Missouri.  However, because SWS is located in Florida, the Missouri state laws have prevented this from moving forward.

Unsurprisingly, SWS brought suit against the State of Missouri, arguing that the residency requirement for distributors violates Granholm by unfairly treating in-state and out-of-state distributors differently.  In effect, SWS argues that although the letter of Granholm applied to discrimination between alcohol producers, SWS asserts that the same reasoning should also be applied to distributors all the same.

The 8th Circuit Court of Appeals did not accept that argument.  It held, “States have flexibility to define the requisite degree of ‘in-state’ presence to include the in-state residence of wholesalers’ directors and officers, and a super-majority of their shareholders.”  For now, SWS will have to find another way to enter the Missouri market.

(This posting is not to be construed as legal advice.  If any of the information in this posting relates to legal issues that you are facing, you should contact an attorney.)

© All rights reserved Kevin Guidry 2013.

 

Posted in Distributors, Granholm v. Heald, Litigation, Regulatory/Administrative Law, State Regulations, Wine Sales/Marketing | Leave a comment

Montana changes laws for direct shipping

In October, the State of Montana joined the party of allowing in-state consumers the option to have wine shipped directly to their homes from out-of-state wineries.

The previous system in Montana was actually one of the rare ones.  In most states that do not allow direct shipping from out-of-state wineries, the system is basically one of two models: that one is either completely barred from having wine shipped from out-of-state wineries, or one may only have wine shipped from out-of-state wineries who do not have a distributor in that state.  Montana had the latter system.

What made Montana slightly different, though, was that it also had an individual licensing system that could be used to overcome that basic setup.  For example, an individual consumer could apply for and obtain what was called a “Connoisseur’s License,” and by holding one, he or she could have wine shipped directly to the home from out-of-state wineries.  Nevertheless, I am not clear on the specific threshold requirements that were in place to obtain this license, but its primary purpose, as far as the State of Montana was concerned, was mostly for tax collection.  To illustrate, in order to keep and use the license, a person had an individual reporting requirement that included paying taxes on the amount of wine purchased.

Now that Montana has opened up direct shipping and done away with these licenses, it has shifted the same burden to the out-of-state wineries.  Now, the wineries must obtain licenses from the State in order to ship to Montana residents.  In addition, the wineries have the duty to report and pay taxes on the purchases.

However, for wineries and other producers of alcohol who ship out-of-state, this is no new thing.  Collecting different states’ sales taxes is an on-going part of the process, and many companies now specialize in keeping track of the different tax and reporting requirements for all of the states in the country (or at least all that allow direct shipping).  Montana is now a new addition to the list.

(This posting is not to be construed as legal advice.  If any of the information in this posting relates to legal issues that you are facing, you should contact an attorney.)

© All rights reserved Kevin Guidry 2013.

Posted in Uncategorized | Leave a comment