Pinot Law

“I say to you that the VCR is to the American film producer and the American public as the Boston strangler is to the woman home alone.”

-Jack Valenti, Motion Picture Association of America (1982)

Jack Valenti had it all wrong when he said that to Congress back in 1982, but he was merely doing what he thought was right at the time. Hollywood was terrified that VCRs would destroy their industry through illicit copies and — God Forbid! — fast forwarding through commercials.

Fast forward to today, and of course it is a different story. Hollywood embraced the VCR years ago, and has now transitioned to the DVD. And of course by embracing the technology, it has reaped the rewards. According to this report, in 2002 just over 50% of households in the US had DVD players, but by 2006 that number skyrocketed to nearly 86%. And according to this report, the movie ‘Transformers‘ has generated over $302 million in DVD sales alone. Keep in mind, that number does not include rentals and box office.

Now I know what you are asking: I thought this was a wine law blog. It is. And here’s why the MPAA and VCRs in 1982 is relevant to wine today.

Because much in the same way that the movie industry in 1982 feared technology, ignored the desires of consumers and failed to see the business potential of the VCR, the wholesalers in this country today are doing the exact same thing, this time with the Internet. In case you missed it, the Wine & Spirit Wholesalers of America (WSWA) issued a press release a couple of days ago touting a recent study indicating that their industry contributes over $137 billion to the U.S. economy every year and adds 1.1 million jobs that pay almost $71 billion in wages.

The press release and related studies are nothing more than defense of — in many respects — an outdated system. The WSWA’s CEO Craig Wolf, says that the U.S. wholesale system is “explicitly designed to prevent a black or gray market” and it keeps “all transactions for beverage alcohol in the U.S. on the books.” He then says the wholesaler system is “one of the main reasons we need to guard against attempts to erode the regulations we have in place.” Of course, that’s wholesaler code for “don’t permit self distribution by wineries” and “don’t permit direct sales to consumers over the Internet.”

And in case you doubt me, go to their “Wholesaler Economic Impact Wizard” and you can see what I am talking about. It is essentially a menu of reports available on a state-by-state basis. I pulled up the report for Direct Shipping in Wine in Virginia and learned that my home state “further harms the industry by allowing the direct shipment of products to consumers.”

I do not wish to belabor the point, but the sooner the wholesalers realize that a major paradigm shift has occurred in the wine market, the better off they will be. The Internet is not going away any time soon, and it is already revolutionizing how wineries and consumers interact. Arguably, by permitting self distribution and direct shipments to consumers, small wineries can grow into big wineries — and big wineries will need a wholesaler to ship their goods. As the wine industry goes larger and more competitive throughout the country, that is great news for consumers, wineries and yes, even wholesalers.

I bet somewhere Jack Valenti is smiling.

Untitled photo used under a Creative Commons license, courtesy of Marcin Wichary.

The TTB announced late last week that it was expanding the footprint for two West Coast AVAs — San Francisco and Alexander Valley — and establishing a new AVA in Lehigh Pennsylvania. Wines and Vines has a good summary of all three approvals here.

What I find most interesting, however, is that TTB had put a hold on AVA processing last November. Last week’s action represents the first movement in this area since TTB instituted its rulemaking proceeding late last year regarding proposed changes to how it reviews and approves AVAs. It remains unclear how TTB will ultimately rule in its AVA proceeding, although the indications are that the AVA approval process could get more strict.

We will keep you posted, but in the meantime, keep your eye peeled for wine from the newest AVA region in Lehigh, Pennsylvania!

There is something that has been troubling me lately. I have been reading a fair amount about AVA issues at the TTB. Particularly, they have one rulemaking proceeding addressing establishment of the Calistoga AVA, and another proposing broad changes to the AVA process. But in each of these proceedings, TTB — and even some of the commenters — seem to give short shrift to trademark.While I understand that TTB has broad authority with respect to labeling issues, does that authority trump trademark law? It seems to me that if the Patent and Trademark Office deems a trademark suitable for commerce, an argument could be made that the TTB lacks the requisite statutory authority to prevent the use of that trademark by a winery.

I examined some of the various AVA proceedings posted on the TTB website, and each makes passing reference to TTB’s view that wineries cannot use a designated AVA in their brand name, even if they have a trademark. At least one of the commenters in the Calistoga AVA proceeding raised a takings argument that a COLA is a protected property interest for purposes of the due process clause, requiring procedural due process before it may be revoked. They cited to the Cabo Distributing Co., Inc. v. Brady case, although this case seems to have a different outcome. But neither of these cases delve extensively into trademark issues?

Anyway, I thought it was an interesting issue and that I would throw it out there. If any of you have thoughts, feel free to comment.

The Law of Property in Shakespeare and the Elizabethan Drama used under a Creative Commons license provided by umjanedoan.

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.

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.

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.

I stumbled across an interesting article yesterday, that hits on a topic near and dear to many a winemaker’s heart: appellation. At its most basic level, the appellation on the wine label tells the consumer where the grapes in that bottle of wine come from. Appellations can include counties, states, multi-states, and what are also known as viticultural areas. There are about 200 viticultural areas in the United States, and they are identified in the code of federal regulations, here.

The article does a good job of highlighting a few points. First and foremost, it notes that obtaining label approval from the TTB (which regulates all domestic wine labels) can “be a real headache sometimes.” But it also points out that often times wineries must obtain grapes from outside of their area — so, for example, a Virginia winery, may need to buy grapes from California or New York to process their wines. Moreover, the winery can only use the appellation if 75% or more of the grapes come from that region, and the wine is made in the area of appellation.

And of course, the appellation can have a major marketing impact for the wine seller. A Chardonnay from Napa valley, will almost certainly fetch more than a Chardonnay from the North Fork of Long Island (not that I have anything against Long Island). Ultimately, it is about where your wine is from — and that can be a good thing . . . even if it’s from Long Island.

Horse’s Ass, used under a Creative Commons license provided by eamills.