Longtime bev alc attorney Marc Sorini of McDermott Will & Emery lead the Brewers Association Power Hour yesterday, giving a 50,000 foot view of trade practice law in the beer business.
Marc kicked things off with a thorough rundown of the ins and outs of the federal and state laws, which we plan to report on later. But for now we're going to jump to the end of Marc's presentation where he discussed some of the current legal issues percolating in the industry. First up was category management.
You may recall that this decades-old concept came under fire last year when Kroger proposed to place alcoholic beverages in a single category under the watch of a single nationwide captain (Southern Wine & Spirits).
WHAT THE TTB'S RULING MEANS. Shortly after Kroger's proposal, the TTB published Ruling 2016-1. The ruling says essentially all category management practices are inducements, that includes providing scan data or even following up to monitor or revise the schematic.
"Another interesting part of the ruling," Marc said, "is it doesn't really spell out what constitutes exclusion." Generally, exclusion is defined as doing something that threatens the retailer's independence, Marc said. "But these programs are initiated by the retailer, and in today's economy the large chain retailer has the most economic leverage." So the TTB has "left us all guessing" on that one, Marc said.
He then noted an interesting observation from a number of brewers that have told him "it's actually kind of comforting that instead of having an Anheuser-Busch or a MillerCoors being the category captain, you would have Southern in charge, which frankly we don't do business with." So he's heard some people question whether Kroger's program was the one that bothered TTB the most, but he doesn't agree with that view. He thinks everybody paying one 3rd party made it materially different.
Before moving on to the next current development, Marc presented one final argument on the TTB ruling: "If you're bringing data to a retailer to help them decide on how to set up their shelf sets, isn't that truthful non-misleading speech?"
SPEAKING OF THE 1st AMENDMENT. That argument segues right into the next current development - the Retail Digital Network case - which challenges tied-house laws as a violation of the First Amendment.
For those of you who don't know, Retail Digital Network (RDN) is a third-party company that puts video ads in retailers and takes money from bev-alc producers/distributors to do it. But when RDN went shopping around for business, the suppliers and distributors said "no thanks" out of fear that they were indirectly paying a retailer to advertise and therefore violating the state's tied house law.
RDN finally got tired of suppliers/distributors telling them "we would, but we can't" and they brought suit to challenge the ban on paying a retailer for advertising, arguing that this is truthful non-misleading commercial speech.
9th CIRCUIT SET TO RE-HEAR THE APPEAL THIS MONTH. The District Court dismissed RDN's challenge relying on the 1986 Stroh case. But a 9th Circuit panel surprisingly sent the case back to the lower District Court (remanded) and instructed them to apply heightened judicial scrutiny to restraints on commercial speech. But the decision is not up to the lower court anymore, as a few months ago the 9th Circuit Court granted an "en banc" review meaning the entire 9th Circuit would re-hear the appeal. The appeal is now set for oral argument in a few weeks to decide whether the entire 9th circuit agrees with that panel, Marc said.
THE LATEST ON THE CRAFT BREWERS GUILD CASE. Then we have the case surrounding the Sheehan's Craft Beer Guild in Massachusetts. As you know, CBG currently has a lawsuit pending challenging the ABCC's legal position towards CBG's payments to retailer affiliates.
THEY'VE GOT SOME "PRETTY INTERESTING" ARGUMENTS. Marc says they have some "pretty interesting" arguments. One of them is that apparently the "thing of value prohibition" is not in the Massachusetts statute. The prohibition was actually repealed in the '70's. The ABCC has since passed a regulation that in effect continued the ban, Marc said. But CBG argues that if legislators pulled the law from the books then the regulators (who are subordinate to the legislature) can't reinstate it, Marc says.
Another one of their arguments is that the anti-discrimination prohibition are all tied to post-and-hold as well as price affirmation schemes, which were struck down many years ago as a violation of the Sherman Antitrust Act. "So the vestiges of this, which is the general non-discrimination rule, are all tied to this illegal and unenforceable scheme and should be equally unenforceable," says Marc.