Pinot Law

Tom Wark over at the Fermentation wine blog has a great entry that touches on that shrill strongly worded letter from the Wine and Spirit Wholesalers that I wrote about the other day. All of Tom’s points are great ones, in particular, his observation that the state regulators must choose from the following: 1) heed Craig Wolf’s letter and spend state resources protecting wholesaler profits; or 2) adopt reasonable direct shipment laws and increase the state’s coffers. Tough choice.

Tom correctly views the wholesalers as imploding — and that’s what got me thinking. You see, in addition to being a part owner of a winery, I also work in the telecommunications field as a policy guy and yesterday I heard a fantastic speech. It was a speech about the impact of communications, and it got me thinking about direct wine shipping (bear with me!).

Throughout history, developments in communications, have led to massive societal change. The development of the written language? That led to the establishment of societies. Creation of the Printing Press? That led to the Enlightenment. The telegraph and Pony Express? Each contributed to the expansion of the West. And now of course we have that new-fangled Internet that is revolutionizing communications throughout the world — and this brings me to the wholesalers.

When massive technological change sweeps through society, people either embrace the technology, or shun it out of fear, ignorance or both. The Internet is revolutionizing how people communicate, how businesses conduct transactions, how governments function and — yes — how consumers buy wine. A major paradigm shift is underway. I do not know the role of the wholesalers in this revolution, but they either need to adapt to the technology or stand aside.

Old Bakelit Phone used under a Creative Commons License provided by aussiegall.

I thought a fair amount of time would elapse between my entry last week and the next instance in which I would have to write about alarming accusations from wholesaler interests. Unfortunately, I was sadly mistaken.

It has only been a week, but the Wine & Spirits Wholesalers of America (WSWA) just fired another shot across the bow of wineries and retailers in the never ending battle over direct shipments. The shot took the form of a letter to liquor control boards, attorneys general and governors, and voiced “grave concern” about the practice of shipping beverage alcohol to consumers across state lines, outside of regulatory channels and in violation of most states’ laws. The letter apparently went to all 50 states.

This time around at least, wineries were not compared to Tony Soprano. Instead, we are just one of a “growing number of interstate purveyors of beverage alcohol” who are “flaunting” our “disdain” for laws designed to “prevent underage access and ensure accountability.” Not only that, but we are also “remorseless”

What evidence does WSWA President and CEO Craig Wolf present to these 50 state regulators and officials as a basis for his conclusion that illegal interstate shipment of wines is rampant? Government reports? Independent studies? Detailed exposes? Actually, he offers up a couple of blog entries from Decanter.com and Vinography and throws in a single New York Times article for good measure. Don’t get me wrong. Both blogs are fantastic and Eric Asimov’s Times article made for an interesting read. But two blog entries on a contentious issue and a single NYT article shouldn’t form the basis for: 1) urging aggressive legal action by 50 State AGs across the entire nation; and 2) criticizing an entire industry based on the (alleged) actions of a few.
The bottom line of course, is that often times letters such as these can result in action. There are lots of good resources out there for wineries to use in order to ensure compliance with the often times challenging direct shipping laws, like here and here. So be careful out there.

And finally, one comment to Mr. Wolf. I’m fairly new to the winery business, but I will echo the statement of Alder Yarrow on his original vinography blog entry cited in your letter. In it, Mr. Yarrow said, “the wine industry, while competitive, is generally marked by a real collegiality.” In that regard, could you and your cohorts please stop comparing us to Tony Soprano and full time lawbreakers? We would appreciate it.

TTB recently concluded the comment cycle of a rulemaking proceeding addressing nutritional label information for . . . wine. That’s right. The Federal Government wants to ensure that every wine consumer out there is informed of how many carbs, calories and other nutritional information is in each and every bottle of wine they purchase. Is this a good idea, or just the ‘Nanny State’ run amok.

From a policy perspective, this whole proceeding surprised me. Are consumers even interested in this information? Probably not. Are the ‘benefits’ associated with implementing these proposals enough to justify the substantial costs — particularly for small wineries? Doubtful.

TTB’s notice of proposed rulemaking (NPRM), sought to answer some of these questions. I found their answers lacking.

For example, on the consumer interest front, TTB claims “numerically significant” public support for its proposal based on the fact that about 18,000 consumers signed an online petition supporting such disclosure. But when you consider that some estimates put U.S. wine drinkers at 64 million consumers, that 18,000 is hardly “significant”. It’s downright tiny.

TTB acknowledged that much of that support was generated through the “Know Your Drink” website. That website — which extols the virtues of mandatory wine labeling — was sponsored by Diageo, which also happens to be a $3 billion dollar a year, multinational corporation with more than 22,000 employees in excess of 80 countries. Gee. Why would a multi-billion dollar, multinational corporation want to impose onerous regulatory obligations that will increase costs for wine and alcohol manufacturers, particularly smaller competitors who happen to be creeping into the market share of larger brand name companies? I wonder.

Anyway, I will be writing some more about this issue in the weeks ahead, but in the meantime, you can read comments I filed at the TTB on behalf of my vineyard here (my comments are on the last page).

Nutrition Info used under a Creative Commons License provided by blmurch.

Because the U.S. Supreme Court just issued a decision regarding chewing tobacco that could have implications for direct wine shipments. The Supreme Court opinion in in Rowe v. New Hampshire Motor Transport struck down a Maine law that required common carriers — for example FedEx — to obtain signatures of those having tobacco products shipped to them. The Supreme Court in this case concluded that federal law governing common carriers preempted the Maine regulation that required signatures.

So what does this have to do with direct shipments of wine? Well, as a press release from the Specialty Wine Retailers Association points out, the distributors will likely use this case as their latest bogeyman to scare lawmakers and regulators. But if any of your distributor friends try to make this argument, you just tell them the following: 1) retail winery’s are committed to ensuring the safe delivery of their product to legal age consumers (which is why we pay common carriers to confirm age upon delivery); 2) the Rowe case — while interesting — does not impact wineries in any way, shape or form; and 3) internet delivery of wine is not how most teenagers get their liquor — most get it from their parents.

Collection Device for Chewing Tobacco used under a Creative Commons License provided by midnightcom.

There is an interesting — and important — rulemaking taking place over at the TTB involving the manner in which that agency deals designates American Viticultural Areas (AVAs).

Among other things, TTB seeks comment on the effect that approval of an AVA may have on established brand names.  In other words, winery’s with brand names matching new AVA designations could be prevented from using that brand name in commerce.  TTB discusses this dilemma in its rulemaking.  To address this issue, TTB is considering a new grandfathering provision that would enable winery’s with brand names matching newly designated AVAs to continue using their brand name in commerce.

This to me is one of the more interesting aspects of the TTB’s rulemaking.  With the remarkable increase in the number of wineries in recent years, many have incorporated quasi-geographic regions into their names.  TTB notes — correctly I believe — that accomadations need to be made for  such circumstances.  Something not addressed by the TTB rulemaking is AVA designations may conflict with Trademark law.  In other words, solely on the basis of a newly designated AVA, could TTB prevent a winery from using an approved Trademark in commerce?  I will let the Trademark lawyers argue that one.

Other items the TTB is tackling include clarification of the regulatory standards for the establishment of AVAs within AVAs.  It also seeks to clarify the rules for preparing, submitting, and processing viticultural area petitions.  In this regard, TTB is really ‘upping the ante’ on what will be required to establish a sufficient petition.  Finally, from an administratve law perspective, TTB also inquires whether it can decline to proceed with a rulemaking.  In effect, TTB seeks the ability to deny an AVA petition without public comment.

The bottom line, there are a lot of key issues for wineries out there to be aware of in this rulemaking.  Comments are due on March 20th.  So if you are thinking of filing, get cracking on those comments!

Rhineland-Palatinate used under a Creative Commons License provided by Wolfgang Staudt.

As a follow-up to my post last week, the Washington Post today ran an article on the Maryland General Assembly hearing on the wine distribution law. The good news? There seems to be a lot of support for this common sense bill. The bad news? Steve Wise, a lobbyist for the Maryland State Licensed Beverage Association, compared out-of-state wineries to Tony Soprano.

Now I understand he was exercising some rhetorical flourish, but it really seems that some members of the liquor lobby will say anything to oppose self distribution measures. The most common bogeymen raised by these interests are the specter of underage drinking, and claims of unfair competition.

But let’s just quickly take these in turn shall we? Concerns about minors accessing alcohol through the internet is a tired, old argument that needs to be put to rest. First, minors are less ikely to consume wine, as opposed to beer, wine coolers, and hard liquor. Second, minors who decide to disobey the law have more direct means of doing so. Third, direct shipping is an imperfect avenue of obtaining alcohol for minors who, in the words of the past president of the National Conference of State Liquor Administraors, “ ‘want instant gratification.’ ”

But, those reasons are not my own: they are the (verbatim) words of Justice Kennedy in Granholm v. Heald.  That decision, in addition to paving the way for revamped distribution, also threw out the internet distribution concerns as pure bunk.  Indeed, the American Medical Association found that one third of teens obtained liquor from their own parents, and two out of five obtained liquor from their friends’ parents.  Sounds like the problem is parents, not the Internet.

On the second argument, I am of the belief that competition breeds fantastic results.  In the numerous states that have adopted direct shipment laws, the threatened ’sky is falling’ predictions have failed to occur.  To the contrary, consumers win; out-of-state wineries win, and in-state wineries win.  The only ones who don’t win, are the lobbyists for wholesalers and in-state retailers.

Well the Tennessee Volunteers Legislature, is coming to the rescue. Apparently, the Tennessee Legislature is looking to pass legislation that creates a wine direct shipper license to be issued through the alcoholic beverage commission that would allow an in-state or out-of-state entity to ship wine directly to consumers. The bills are Senate Bill 1977 and House Bill 1850.

Not surprisingly, the Wine and Spirit Wholesalers of Tennessee are extremely upset about the possibility of consumers buying their wine through this new-fangled invention called the “internet.”

Henry Hildebrand, a lobbyist for the Wine and Spirit Wholesalers of Tennessee, was quoted in a recent article as saying that his group opposes direct shipments of wine because it could put alcohol in the hands of minors. “We as a state should be seeking ways to bolster the safe, controlled method of distribution currently used in Tennessee, not loosen it,” he wrote in the statement.

He also made the remarkable statement that such legislation would cut state revenues. I don’t quite understand how passing legislation that taxes interstate and intrastate shipments of wine would cut state revenues. If you have any thoughts on that one, please let me know.

In the meantime, I just wanted to applaud the legislators of Tennessee, who are clearly acting in the best interests of: 1) consumers; 2) Tennessee wineries; 3) non-Tennessee wineries. And if you are a wine consumer, or a winery owner, be sure to let the legislators in Tennessee know how you feel — in the Senators Stanley and Jackson who sponsored the Senate bill and Representatives Fraley and Todd who sponsored it in the House!

Go Volunteers Legislators!

Tennessee State Capitol used under a Creative Commons License provided by Jimbowen0306.

Like many other new, small, farm wineries in Virginia, I can tell you that our winery is starting to take a closer look at direct shipment laws — especially in neighboring states. It was therefore with great relief that I saw that our friends over at Free the Grapes are reporting on important news out of Maryland.

Apparently, Maryland’s state legislators are considering Senate Bill 616 and House Bill 1260, which, if passed, will significantly expand both the right of consumers to but wine, and the right of wineries to ship wine. The bills would allow any licensed winery or retailer in the US, regardless of its location, to ship a limited amount of wine to consumers residing in Maryland. I am also quite thrilled that one of my old law professors at American University is sponsoring the Senate version of the Bill — way to go Professor Senator Raskin!

Free the Grapes has a consumer action website here. Please take a moment to show your support to the Maryland legislature on these important bills.  They will be holding hearings on HB1260 early next week, so be sure to do your part!

Vines used under a Creative Commons License provided by by lanL.

This could be interesting. According to TTB’s website, it will be hosting its “TTB Expo 2008” on June 17 - 18, 2008, at the Northern Kentucky Convention Center in Covington, Kentucky. The Expo is targeting “alcohol, tobacco, and firearms and ammunition industry members” as well as relevant trade associations, consultants and state government officials. I really like the idea of mixing alcohol, tobacco and firearms, all in one place — especially Kentucky!

All kidding aside, I think shows like these can be very useful for industry members. Most usually include educational seminars, and you can almost always meet many of the Federal and State regulators who have a tremendous impact on your business. Finally, it is a great way to network in the industry.

As I see more information on this, I will be sure to post it to the blog. In the meantime, try not to mix your alcohol and firearms!

The Los Angeles Times covered an issue the other day that many wineries throughout the country – including in Virginia — are beginning to deal with on a more regular basis. The article is identical to a similar story covered by the New York Times in July. discusses the problem of drunks — usually in limos or tour buses — coming to wineries and generally . . . well, one winery employee sums it up here:

It’s a pervasive problem,” said Craig Root, a tasting-room consultant based in the Napa Valley town of St. Helena. “The limo crowd appears to have great demographics on the surface, but some of them tend to — and there’s no polite way to put this — they tend to just get juiced.”

Both articles are worth the read, and what many people may not realize is that wineries can be summonsed for serving a drunk. That’s certainly the case in Virginia and most other states. As a result, a lot of wineries are just saying ‘no’ to limos and tour buses. But another interesting approach raised in the article is that some of these wineries have banded together and forced the tour operators to police their customers. This seems to me to be an interesting approach, but judging from the article, it has mixed results.

Dec. 07 200, used under a Creative Commons License provided by Lord Jim.