Category Archives: TTB

Cautionary Tales for Suppliers and Distributors Playing Fast and Loose with Trade Practice Laws.

Compliance, TTB

Cautionary Tales for Suppliers and Distributors Playing Fast and Loose with Trade Practice Laws.

Spoiler alert. Violating trade practice laws can be expensive, both at the federal and state level. Suppliers and distributors should be cautious in the pushing the boundary in their business practices and promotional efforts. Just because everyone else seems to be doing it won’t be a defense when you are the company that is the subject of an investigation.

Both suppliers and distributors have been in the news recently for alleged trade practice violations. What’s eye catching are the large dollar amounts involved in the settlements: $300,000 and approximately $2.6 million. Amounts that make paying attention to what sometimes can appear to be laxly enforced and esoteric trade practice regulations matter. Interestingly, one settlement is at the federal level and the other at the state level.

The first example centers around the US’s largest brewery—Anheuser-Busch InBev (“InBev”) and reflects action at the federal level.

The Alcohol and Tobacco Tax and Trade Bureau (the “TTB”) recently accepted a $300,000 offer in compromise from InBev. The settlement stemmed from allegations that the company violated Federal Alcohol Administration Consignment Sales provisions under FAA Act 27 USC Section 205(d).  The prohibition is drafted expansively.

More specifically, the TTB alleged that InBev violated the prohibition on alcohol suppliers and distributors from selling their products with the ability of the retailer to later return them. In the TTB’s summary of the offer in compromise, the TTB claimed that violations stemmed from A-B’s Shock Top Lemon Shandy and Shock Top Pumpkin Wheat Ale “end of season buy-back co-op programs.” The program resulted in nearly 541,000 cases being sold to wholesalers last year.  For the math challenged, that breaks down to a fine of about 55 cents a case.

The second cautionary tale comes from Massachusetts.

The largest distributor of craft beers in Massachusetts entered into a settlement and will pay a fine of 2.6 million dollars to avoid a 90-day suspension of its liquor license. Such a sanction will be a record-setting penalty in the state. The basis for the sanction was that the company was caught paying retailers to stock its alcoholic beverage products.

An investigation by the Massachusetts Alcoholic Beverages Control Commission found that the distributor—Craft Brewers Guild of Everett—ran a “pay-to-play” scheme in violation of state alcohol laws for years. Its sales representatives and managers routinely gave retailers in the Boston area thousands of dollars in exchange for stocking beers from Craft Brewers Guild and keeping out products from competing wholesalers.

The company had the option of either serving a 90-day license suspension or paying a fine instead. The sanction was reportedly in the ballpark of $2.6 million.  The Company is likely holding its breath for a call from the TTB.

Long story short here, while enforcement of certain trade practice prohibitions can appear to be uncommon and, thus, unlikely, the magnitude of the repercussion should be front and center when considering entering a grey area, or even a not so grey area. Further, what appears not to be an enforcement priority today can quickly become tomorrow’s top enforcement priority. Staying in compliance with state and federal law is the best practice.

The TTB Reduces the Regulatory Burden on Small Brewers

TTB

The TTB reduces the regulatory burden on small brewers.  TTB

The TTB published a final rule entitled “Small Brewers Bond Reduction and Requirements to File Tax Returns, Remit Tax Payments and Submit Reports Quarterly” on September 30, 2014.  Despite the unwieldy title of the rule, it is intended to simplify the regulatory requirements for small brewers and the TTB and does so.  “Small brewers” are defined by the TTB as those which produce less than 7,200 barrels.  This definition captures a huge number of breweries.

The TTB’s rule institutes a flat $1,000 penal sum for the brewer’s bond for these small brewers if their excise tax liability is expected to be less than $50,000 in a given calendar year and who were liable for no more than $50,000 in such taxes during the preceding calendar year.  The rule also allows these small brewers to move from monthly reports on operations and taxes to a quarterly report. The goal of this rule change is to reduce administrative costs for small brewers and create greater efficiency for TTB.

The new rules will become effective on January 1, 2015 ti give small brewers time to adjust to quarterly filing and reporting. For more information, the TTB press release can be found here and the final rule can be found here.

The TTB Expands the Allowable Revisions to Approved Alcohol Beverage Labels

TTB

The TTB expands the allowable revisions to approved alcohol beverage labels.  Wine Glass

On Monday, September 29 2014, the TTB issued Industry Circular 2014-2.  The Circular expands the list of allowable revisions to approved alcohol beverage labels effective on the date of the circular.  These changes will be added to the COLA form when it is next revised.

Industry members may make certain changes to previously approved alcohol beverage labels without applying for a new COLA.  There are currently 28 allowable revisions which may be found on the COLA form.  Furthermore, TTB has announced in various rulings and guidance documents that specific changes to labels may be made without resubmitting labels for approval.  See Industry Circular 2014-1.

Industry Circular 2014-2 permits the following changes to already-approved malt beverage, wine and distilled spirits labels without the need for a new certificate of label approval (COLA):

  1. The deletion or revision of sponsorship themed graphics, logos, artwork, and/or sponsorship information.
  2. The addition, deletion, or revision of awards, ratings, or recognition, such as “Rated a Top Value Wine of 2014 by xyz Association.”
  3. The deletion of organic claims provided that all organic claims are removed from the label.  A new COLA would be required to delete individual “organic” references while maintaining other “organic” references.
  4. The revision of an approved sulfite statement according to the formats prescribed by the Industry Circulars.  The options are: “Contains Sulfites,” “Contains (a) Sulfiting Agent(s),” “Contains [the name of specific sulfating agent],” “Contains Naturally Occurring and Added Sulfites” or “Contains Naturally Occurring Sulfites”.
  5. The addition, deletion, or revision of information regarding the number of bottles made, produced, distilled, or brewed in a batch.
  6. The addition of certain instruction statements about how best to consume or serve a product.  Only the following statements may be added: “Refrigerate After Opening”, “Do Not Store In Direct Sunlight”, “Best If Frozen For ___ to ___ Hours”, “Shake Well”, “Pour Over Ice”, “Best When Chilled”, “Best Served Chilled”, “Serve Chilled”, or “Serve at Room Temperature”.

Please see the circular for additional information.

The TTB Suspends Pending Wine Growler Rulemaking

Compliance, OLCC, TTB

The TTB Suspends Pending Wine Growler Rulemaking.

Good news for Oregon licensees selling wine growlers.  The TTB has suspended its pending TTB Ruling 2014-3 entitled “Bottling Taxpaid Wine in Growlers or Similar Containers for Consumption Off of the Premises.”

In short, the ruling held that the filling of growlers with taxpaid wine for consumption off of the premises (in plain English, “to go”) was a bottling activity subject to the taxpaid wine bottling house provisions of the Internal Revenue Code of 1986.

Thus, the ruling held that businesses filling wine growlers were required to meet a number of requirements:

  1. Apply for approval as taxpaid wine bottling houses,
  2. Label their growlers,
  3. Keep certain records, and
  4. Comply with other regulations regarding their operations.

The end result would be mountains of extra paperwork for licensees and the TTB with virtually no public safety or protection of revenue benefit.  For more information, see my earlier post on the subject.

The TTB was likely inundated with negative feedback from industry members across the country, but particularly Oregon, including from U.S. Senator Ron Wyden.  As a result, the TTB backed away from the ruling, but tried to save face at the same time by stating that “our existing regulations were intended to cover traditional taxpaid wine bottling activities, rather than the filling of wine growlers.”  Agreed.

As a result, the TTB will now engage in formal rulemaking on this issue to “modernize” their regulations on wine growlers.  This will allow the TTB to balance protecting revenue (which was never at stake since the vast majority of wine growlers are being filled by retailers using taxpaid wine) without unduly burdening businesses that want to sell wine growlers (as with beer growlers, just get out of the way).  The rulemaking process will enable all interested parties to provide input.  Expect plenty of input.

Fearless prediction–the TTB’s rulemaking will clear the way for wine growlers across the country.  Wine growlers–great wine with less environmental impact and for less $$$’s.  Everyone wins.

 

The TTB Issued a Ruling Regarding “Wine” Growlers

Laws & Rules, OLCC, TTB, , , ,

The TTB issued a ruling yesterday regarding “wine” growlers that should be of particular interest to Oregon licensees because it conflicts with Oregon law.  Oregon passed legislation in 2013 that made it legal under state law for most on- and off-premises licensees to sell growlers of malt beverage, wine and cider.  The OLCC has created an FAQ detailing this law change.  The Ruling is particularly important to any licensee that is currently selling wine growlers without a TTB taxpaid wine bottling house approval.  The OLCC could charge such licensees with permitting unlawful activity for such sales.  Permitting unlawful activity is a category III violation under Oregon law and is subject to the OLCC’s escalating penalty schedule.

The Ruling.  In short, the TTB Ruling has held that the “filling of growlers with taxpaid wine for the purpose of consumption off of the premises is an activity that may be conducted lawfully only by a qualified taxpaid wine bottling house” (emphasis added).  You can view the Ruling here.

Growlers are increasingly popular.  Growlers are increasingly popular with brewers and consumers.  Many, but not all, states allow certain licensees to sell growlers.  States are also increasingly enacting laws that allow brewers and other licensees to sell growlers.  In addition, advocacy groups are pushing to allow the sale of growlers in more states and to expand the privileges in states that already allow growler sales.  This Ruling could substantially impact the continued growth of this trend, particularly for wine and cider growlers.

What is a growler?  A growler is a container used to store, transport and dispense beer.  Growlers are typically made of glass or ceramic materials and have a mechanism for securely closing the container.  Growlers often hold 64 ounces, but can hold more or less than that.  A properly sealed growler can maintain the freshness of beer for a week or more.  The term “growler” is thought to date back to the late 19th century when fresh beer was carried from the local pub to one’s home using a galvanized pail and the sound that the CO2 made when it escaped from the lid as the beer sloshed around sounded like a “growl”.  Consumers can typically bring their own growler to a retailer, or purchase a growler from the retailer at the time that it is filled.

Growlers and federal law.  The TTB has issued formal guidance regarding beer growlers that clarifies that beer growlers are allowed.  The TTB’s Ruling on wine growler explains that federal law is different for the various alcoholic beverage commodities: malt beverage, wine and spirits.  Accordingly, the fact that beer growlers are permitted under federal law does not necessarily mean that they are permitted for other commodities, such as wine.

More on beer growlers.  The TTB makes a distinction between when a growler is a bottle or a large glass.  The determination turns solely on how the growler is filled.  If a growler is filled in advance of sale, it is a bottle.  If a growler is filled at the time of sale, it is a large glass.  The distinction is important because a growler that is considered a “large glass” is not subject to Federal labeling requirements and “bottles” are.  The TTB’s Ruling on wine growlers makes a similar distinction.

For those of us who were looking forward to the wide availability of wine growlers, this Ruling is disappointing.

 

TTB Closed for Business Due to the Government Shutdown

TTB

All the talk about the general public not noticing the government shutdown is just talk for anyone that hopes to open a winery, brewery, distillery or any other business that requires a TTB approval in the near future. The TTB has shutdown its Permits Online and has given notice that its staff will not be responding to queries, whether via email, telephone or otherwise. This will also impact existing businesses that may want to make a change to their operation, or obtain approvals for labels or formulas.

For more information on the TTB shutdown, click here.

The TTB will continue to collect taxes and pursue criminal violations according to their Shutdown Plan.

The impact on new businesses that have already made a significant capital expenditures, signed a lease, etc., but cannot start operations without a TTB permit, could be catastrophic.

Eleven New AVA’s are Proposed for the Paso Robles Viticultural Area

Laws & Rules, TTB, ,

The Paso Robles American Viticultural Area Committee has submitted eleven petitions to the TTB for the creation of 11 new AVA’s within the Paso Robles viticultural area.  The local wine industry group consists of 59 members that own or manage over 10,000 acres of vineyards within the proposed area.  Comments are due on or before January 21, 2014.

For more information, click here.

The TTB Recently Issued Guidance on Social Media Advertising

Advertising, Laws & Rules, TTB

The TTB Recently Issued Guidance on Social Media Advertising

The TTB recently issued Industry Circular 2013-01, “Use of Social Media in the Advertising of Alcohol Beverages.” You can find it here.

Social Media = Advertising
In short, the Circular’s point is that the TTB considers social media to be advertising, and, as such, it is subject to TTB’s advertising regulations. The TTB has provided clear guidance that it plans to hold industry members responsible for the content related to alcohol beverage products posted by industry members on social media sites. Industry members should be careful to comply with the mandatory statements and prohibited advertising practices in both social and conventional media contexts, and to generally take into account the same considerations. Because social media moves faster and has been sometimes operating in parallel to convention media promotions, industry members may be well served by auditing their current social media content and practices.

Key points include:

  • Social Media as Advertising. An industry member’s social media pages, video sharing sites, blogs, and microblogs (aka Twitter or Tumblr) are considered advertisements for purposes of the FAA Act and the implementing regulations. Links may also be considered advertisements depending upon the nature of the linked content.
  • Apps as Consumer Specialty Advertisements. Mobile applications are considered consumer specialty advertisements, because they are designed to be downloaded and “carried away” by a consumer’s mobile electronic device.
  • Mandatory Statements. Advertisements must include all mandatory statements. Generally speaking, the industry member must include the name and address of the responsible advertiser, along with the relevant class and type. The TTB provides some advice about the location of the mandatory statements for each type of social media with the guiding principal that they should be placed where a viewer would expect to find them.
  • Prohibited Practices. Federal law on prohibited practices or statements applies to these advertisements. Examples of prohibited practices or statements are those that are:
    • false, misleading or deceptive;
    • disparaging of a competitor’s product;
    • obscene or indecent;
    • suggestive of intoxicating qualities;
    • inconsistent with labeling; or
    • making certain health-related claims.

Social Networking Pages
The TTB has determined that these pages are “advertisements” under federal law. Anything posted to a page by an industry member is considered part of the advertisement, including information, images, or content created by a third-party and re-posted by the industry member. Because pages are advertisements, they must include all mandatory statements. The entire fan page is considered one advertisement, so the mandatory statements need only appear once such as on the home page. The regulations do not require that mandatory statements appear in a specific location, but they should appear where viewers would “most logically expect to find information about the brand or company,” such as an “About” section. Importantly, the mandatory statements should not be “hidden” or “buried.” The prohibited practices apply.

Video Sharing Sites
Videos and channels created by the industry member are considered advertisements. As a result, the rules on mandatory statements and prohibited practices apply. Again, the TTB recommends that industry members place the mandatory statements where viewers would expect to find such information. Additionally, the videos themselves must each contain the mandatory statements if they are downloadable by viewers, or if there is no associated channel or profile page. As a best practice, the TTB recommends placing the mandatory information on both the channel or profile page and the individual videos.

Blogs
An industry member’s blog is considered to be an advertisement if it discusses its products, which is the point of a blog. As a result, the rules on mandatory statements and prohibited practices apply.

Microblogs
Unlike blogs, microblogs (Twitter and Tumblr) contain very short posts, brief sentence fragments, images, or links to videos. These microblogs are considered by the TTB to be advertisements and, accordingly, subject to the mandatory statement and prohibited practice rules. Because microblogs, by definition, have strict character limits, it is impractical to require the inclusion of mandatory statements in each post. For this reason, the TTB allows industry members to include the mandatory statements on its home or similar pages.

Mobile Apps
Some industry members are creating apps for mobile phones that have some utility to the consumer. Apps may provide drink recipes, help consumers find locations where a product is served, or provide other information related to the relevant alcoholic beverage.  The TTB has determined that apps are consumer specialty advertisements, i.e. “items that are designed to be carried away by the consumer…” because they are downloaded by the consumer onto a mobile device. As a result, the only mandatory statements required are the company name or the brand name of the product. Not surprisingly, the regulations on prohibited practices also apply to apps.

Links
Industry members often post links to other sites. The TTB has retained discretion to determine whether the linked content will be considered an advertisement based on the totality of the circumstances. The TTB did indicate that the industry member’s description of the linked site or page is considered part of its advertisement and thus must comply with the prohibited practices or statements rules. If the industry member provides links to other websites or pages for different alcoholic beverages or companies for which it is the responsible advertiser, the linked website or page is considered to be a separate advertisement that must contain all necessary mandatory information and comply with the prohibited practices or statements regulations.