Category: Legal

FAQs: Wine Industry Intellectual Property Protection

Cyndi Leave a comment
ntellectual property word cloud on digital tablet with a cup of coffee

For wineries, managing intellectual property (IP) is crucial to maintaining brand identity and protecting creative investments. While general IP principles apply across many sectors, wineries face unique challenges and opportunities.

  We have spoken to several wine industry leaders and compiled their most frequently asked questions regarding IP protection. This article provides answers regarding core IP types and effective management strategies that wineries should adopt.

What is intellectual property and why is intellectual property protection important for the success of my wine industry business?

  Intellectual property refers to valuable non-tangible assets. Even though these assets are non-tangible, they can be protected. There are several types of intellectual property:

•    Trademarks identify source through the use of symbols, names, or designs and distinguish the company’s products from those of competitors. For wineries, trademarks may include the name of the vineyard, logo designs, and even unique label features or bottle shapes. Properly registering trademarks is critical to enforce exclusive rights and prevent misuse by others. A trademarked name or logo allows consumers to associate the product with a specific winery’s quality and reputation, building loyalty over time.  Trademark protection keeps others from using similar marks that would cause consumer confusion.

•    Copyrights cover creative works such as website content, photography, and advertising material. Any unique content produced for the winery—from label artwork to promotional videos—can be protected by copyright. This protection is automatic upon creation, but formal registration strengthens the winery’s legal standing, making it easier to defend against infringement. Copyright protects against creative expression being copied by others without permission.

•    Patents protect useful inventions and may apply to novel winemaking processes or technologies. Although less common in winemaking, patents could cover novel fermentation techniques or vineyard management technologies. Patents provide exclusivity, ensuring the winery can control the use of its innovative methods.

•    Trade Secrets include confidential information such as proprietary blends, aging processes, and customer data. For trade secrets to retain their protected status, wineries must take reasonable steps to keep this information confidential, such as using non-disclosure agreements (NDAs) and limiting access to sensitive information.

What are some steps I can take to protect my brand and trademarks?

  A winery’s brand is often its most valuable asset, making trademark management a priority. A lot of effort goes into making high-quality wines and curating tasting experiences that customers will remember. When a consumer is facing a wall of wine at the wine store or an extensive wine list at a restaurant, you want these consumers to remember your wine and not confuse you with a competitor that may be piggy-backing on the reputation you have taken the time, effort, and expense to build. Here are best practices for wineries to consider:

•    Choose Distinctive and Protectable Names: Wineries should select unique, memorable, and legally protectable names. Trademarks fall into categories ranging from “fanciful” (completely made-up words) to “generic.” The less the mark naturally conveys about the product, the more protectable it is. Names like “Yellowtail” for wine are highly protectable because they bear no direct relation to aspects or qualities of the product.

•    Consider Trade Dress: Trade dress is a form of trademark protection and covers the distinctive visual appearance of products or packaging, such as wine labels and bottle designs. To be protectable, the trade dress must be unique to the winery and have come to be recognized by consumers through regular use. Distinctive bottle shapes or label layouts can qualify for trade dress protection, provided they are original and have developed a reputation in the market.

•    Monitor and Enforce Rights: Trademark protection requires ongoing vigilance. Wineries should regularly check for unauthorized use of their trademarks or similar marks that could confuse consumers. Enforcing rights may involve issuing cease-and-desist letters or, in severe cases, taking legal action.

•    Geographical Indications (GI), including AVAs: American Viticultural Areas (AVAs) and other geographical indicators are specific to wine-producing regions. To label a wine as originating from a GI, the grapes must come from that area. Napa Valley, for example, is a protected AVA, and only wines produced within this region can use the name legally.  Wine companies must be careful to confirm they are using any geographical indications properly.

Do I need to register my trademarks?

No, but there are advantages. These include:

•    Constructive Nationwide Use: If a business does not register a trademark, then it can only enforce the trademark in the geographic areas in which it actively uses the trademark. Registering a trademark grants the owner nationwide rights regardless of whether it uses its trademark nationally, though actual enforcement must wait for use in the geographic area where the infringement is taking place.

•    Presumption of Validity of Rights: Because registering a trademark involves an application and vetting process, after a registration is granted, there is a presumption that the owner’s rights to the trademark is valid. Although this presumption can be rebutted in litigation, it makes things more difficult for the opposing party. It can also make cease and desist letters more persuasive because the trademark owner is able to provide concrete proof of its trademark. 

•    Use of the ® Symbol: Although a business can use the ™ symbol without registering its trademark, the use of the ® symbol is reserved for trademark owners who have registered their trademark. The use of this symbol indicates to potential infringers that you have a trademark registration and can be a potential deterrent.

Does my U.S. registration protect me throughout the world?

  No, trademarks must be registered in each country in which you want to protect the mark. But there are some shortcuts. As an example, one registration covers the whole European Union. In certain cases, it is also possible to use a registration in one country as the basis for protection in a different country. The rules are different depending on the circumstances and the country.

What are some steps I can take to protect copyrightable material?

  Marketing content for wineries often includes unique visual and written material that benefits from copyright protection. Having clarity about who owns the copyright to different materials and how other can use this material can have substantial benefits for wine industry businesses.  For example, it can be the difference between being able to use a label for decades and profit over the built goodwill associated with it or having to pay to have a different label designed for new products because the designer, not the company, owned the rights, and then having to start building goodwill almost from scratch. It can also help wineries capitalize on the social media content of consumers, which is often free and very persuasive to other consumers. Here are several ways to manage these assets effectively:

•    Get Copyright Assignments From Contractors: Many wineries hire freelancers to create content, including label designs and websites. Without a copyright assignment, freelancers retain ownership of the work they produce. To avoid complications, wineries should require a written assignment transferring copyright ownership to the winery.

•    Register Copyrighted Works: While copyright protection is automatic, formal registration of key assets like photos, website content, and promotional videos provides a clear legal advantage in case of infringement. Registration enables wineries to seek statutory damages and attorney fees if they need to enforce their rights.

•    Get Authorization for Use of User-Generated Content: Many wineries encourage social media sharing by customers. However, they should ensure they have permission to use these posts in marketing campaigns by including terms of use that give the winery a license to repurpose customer photos or comments.

What are some steps I can take to protect my trade secrets?

  Trade secrets cover any confidential business information that gives a winery a competitive edge. This can include market research, proprietary viticultural and vinification research and practices, profit and loss information, and customers lists, in addition to many other things. To safeguard these valuable assets, wineries should:

•   Implement NDAs and Confidentiality Agreements:  Employees, contractors, and business partners who access sensitive information should sign confidentiality agreements. These legal tools restrict information sharing and set expectations about handling proprietary knowledge, from recipes to customer lists.

•   Limit Access to Sensitive Information: Only essential personnel should access trade secrets. Implementing access controls, such as password-protected systems or secure filing cabinets, can help maintain confidentiality.

•   Educate Staff on Trade Secret Policies: Employees must understand the importance of confidentiality and the specific measures implemented to protect trade secrets. This can be accomplished through regular training sessions that reinforce these practices.

  The wine industry often revolves around physical assets: acres of vineyards, tons of grapes, wine processing space, cases of wine, storage space. But the intellectual property that informs the physical products and often increase their quality and profit margins is also incredibly valuable.  Investing and protecting these intellectual property assets is crucial to long-term success in today’s wine industry.

About the Authors

  Nate A. Garhart is special counsel and MaryJo Lopez-Oneal is an associate in Farella Braun + Martel’s San Francisco office.

Why U.S. Wine Labels Leave Consumers in the Dark

Cyndi Leave a comment
three black wine bottles with blank lables

By Greg Martellotto

As an Italian Wine Ambassador and a winemaker, I’ve had the privilege of immersing myself in the world of wine from both sides of the glass. While the complexities of terroir and the delicate art of winemaking have captivated me for years, a growing concern has emerged: the glaring lack of transparency in the U.S. wine industry. It’s a subject that not only perplexes but frustrates me as both a producer and consumer of wine.

While Americans have become increasingly conscious of the ingredients in their food and beverages, wine—a product enjoyed by millions across the country—remains shrouded in mystery. Unlike most other consumables, wine in the United States escapes the rigorous scrutiny of nutrition and ingredient labeling. This lack of transparency is not only puzzling but also problematic in an age where consumers demand to know what they’re putting into their bodies. With every other product, from packaged snacks to soft drinks, offering detailed breakdowns of ingredients and nutrition facts, the wine industry stands out as a notable exception. It’s time we ask: why is wine treated differently?

The Opaque Reality of U.S. Wine Labels

To truly understand the issue, we need to consider the labeling regulations—or lack thereof—that govern wine in the United States. Current U.S. regulations primarily focus on alcohol content, producer information, and origin, leaving out crucial details such as ingredients, additives, and nutritional information. This is in stark contrast to the global trend toward transparency, particularly in Europe, where wine labels often provide comprehensive nutritional and ingredient information.

The European Union, for example, has recently moved toward implementing mandatory ingredient and calorie labeling for wine. Consumers in the EU can expect to see labels indicating the use of preservatives, stabilizers, added sugars, and other additives. This trend is not just limited to wine but applies across the food and beverage sector, reflecting a broader consumer demand for transparency and informed choice.

In the U.S., however, wine labeling remains woefully outdated. Consumers are often unaware of the dozens of additives that could be present in their wine—ranging from sulfur dioxide, which is used as a preservative, to Mega Purple, a concentrated grape juice used to enhance color and sweetness. These additives are legal and commonly used in winemaking, yet most consumers have no idea they exist, let alone how they might affect their health.

Hidden Ingredients in Plain Sight

Wine is a natural product at its core: grapes are harvested, crushed, fermented, and aged to create the drink we love. But winemaking, especially at the industrial scale, can involve a variety of processes and additives that are far removed from the idyllic image of grapes ripening under the sun. Additives such as fining agents, preservatives, flavor enhancers, and colorants can all be used to achieve a desired taste, texture, or appearance. In some cases, additional sugar is added to adjust the sweetness of a wine, while acids might be used to alter its pH level.

One of the most glaring omissions on U.S. wine labels is the amount of sugar in the wine. While consumers are increasingly aware of sugar content in other beverages, many wines, including those marketed as “dry,” can contain significant amounts of residual and added sugars. These sugars can contribute to the flavor profile, but for consumers trying to watch their sugar intake, this lack of information can be problematic. When consumers think they are choosing a dry wine with little to no sugar, they may be unwittingly consuming sugar that has been added to balance flavors or boost sweetness.

This issue of hidden sugars is compounded by the lack of clarity about other additives. Many consumers would likely be surprised to learn that certain mass-produced wines contain additives like artificial coloring agents, flavor enhancers, and clarifying agents like egg whites or gelatin. Some of these additives can trigger allergies or intolerances, yet without ingredient labeling, consumers are left in the dark.

I had sent Napa Cabernet for independent testing, marketed as “dry,” contained 10g/L residual sugar–information the winery deemed proprietary. This raises transparency concerns, especially with “American wine” requiring just 75% U.S. grapes and Napa Cabernet needing only 75% Cabernet Sauvignon. Grocery stores and large producers exploit these loose regulations, leaving consumers in the dark about the contents of their bottles.

The Case for Transparency

Why does this lack of transparency persist in the U.S. wine industry? The answer is multi-faceted, involving a combination of industry resistance, historical precedent, and regulatory inertia. The wine industry has long argued that listing ingredients on labels would complicate the winemaking process and confuse consumers. There is also a concern that ingredient labeling could expose the use of additives, which might deter consumers who prefer a more natural product. However, these arguments overlook a growing trend: consumers want transparency and are capable of understanding it.

The U.S. Food and Drug Administration (FDA) requires nutritional labeling for almost all packaged food and drink products, yet wine remains under the jurisdiction of the Alcohol and Tobacco Tax and Trade Bureau (TTB), which has less stringent requirements. This bifurcation in regulatory oversight is a key reason why wine labeling standards have lagged behind other industries. While the TTB enforces rules related to alcohol content and certain health warnings, it does not mandate the same level of ingredient disclosure required for non-alcoholic beverages.

The European Union’s recent push for ingredient and calorie labeling offers a compelling case study. There, winemakers are embracing the move toward transparency, recognizing that it can build trust with consumers. Far from confusing the marketplace, these new labels are empowering consumers to make informed decisions based on their dietary needs and preferences. For producers who prioritize quality and sustainability, these labels offer an opportunity to differentiate their products in a crowded market.

Consumers are increasingly drawn to wines that are organic, biodynamic, or made with minimal intervention, and transparent labeling can help highlight these qualities.

The Benefits of Transparency

As a winemaker, I understand the importance of building trust with my customers. For me, transparency is not just a regulatory obligation; it’s a philosophy. When I craft my wines, I strive to use the highest quality grapes and minimal intervention. I believe consumers deserve to know exactly what goes into their bottle. This is why I’ve always been open about my practices, even without a legal requirement to do so.

Transparency in labeling could offer a range of benefits, both for consumers and the industry at large. For consumers, it would allow for informed decision-making. People with dietary restrictions, allergies, or simply a desire to consume fewer additives could choose wines that align with their preferences.

Nutritional information, particularly calorie counts and sugar content, would also help consumers make more informed choices about their alcohol consumption. In an age where consumers can instantly access information about virtually anything via their smartphones, the lack of detailed labeling on wine bottles feels increasingly out of step with the times. For the wine industry, transparency could foster innovation and differentiation. Winemakers who prioritize quality, sustainability, and minimal intervention would have the opportunity to showcase their products to a discerning consumer base. As consumers become more aware of the contents of their wine, they will naturally gravitate towards brands that align with their values. This could encourage more producers to adopt sustainable practices and reduce the use of unnecessary additives.

Moreover, transparency could help dispel some of the misconceptions about wine. For years, the wine industry has been hampered by conflicting studies about the health impacts of wine consumption. By providing clear, consistent information about what is in the bottle, the industry could contribute to a more nuanced understanding of wine’s role in a healthy diet. Consumers who are concerned about sugar, additives, or alcohol content would have the information they need to make choices that align with their health goals.

The Road Ahead

Implementing mandatory nutrition and ingredient labeling for wine in the U.S. will undoubtedly require adjustments from the industry. Producers will need to invest in new labeling systems and, in some cases, reformulate their wines to reduce the use of additives. However, the potential benefits far outweigh the challenges. By embracing transparency, the wine industry can build trust with consumers, foster innovation, and elevate the entire sector.

The time has come for the U.S. to catch up with the rest of the world. Mandatory nutrition and ingredient labeling for wine is not just a matter of consumer rights; it’s also an opportunity to elevate the industry. Let’s uncork transparency and usher in a new era of consumer trust in the U.S. wine industry.

Greg Martellotto is a winemaker, Italian Wine Ambassador, and the founder of Big Hammer Wines.

bottles of wine in a bar counter

Timely Reporting Changes to Operations is Essential

Cyndi Leave a comment
a line of different bottles of wine behind a counter

By: Brad Berkman and Louis Terminello, Greenspoon Marder

As likely every reader of this article knows, some type of federal and state permit(s) is required to engage in any aspect of the alcohol beverage industry. Suppliers of beverage alcohol, also known by the term of art, Industry Members, are required to hold either production permits and/or importer/wholesaler permits. For the purpose of this article and this publication, wineries, brand owners and distributors should be considered Industry Members, however, the discussion which follows is certainly applicable to virtually all licensees and/or permittees.

  The Alcohol Tax and Trade Bureau or TTB, part of the US Treasury Department is tasked with the administration and issuance of federal production permits (wineries, distilleries, breweries and importers), including wholesaler permits, while state alcohol regulatory agencies are tasked with the issuance of the state(s) level license equivalents, among other types of licensees (including vendors).

  Initial licensure can be a time-consuming process. Regulatory agencies, among other things, will look at certain operational aspects of the soon-to-be licensee/permittee as well as the qualifications and issues of impairment for the individual applicant. Many of the readers are likely familiar with the processes and procedures for initial licensure. What many Industry Members are unaware of, however, are the changes after initial licensure qualification that should or must be reported to the regulatory agencies. This article will focus on some of the important reporting requirements that affect licensure after initial qualification and related concerns.

Issues of Timing:  As a quick note, those changes which require reporting should be done so in a timely manner. Failure to report, whether at the state or federal level will be highly problematic.

As a general rule, at the Federal level, changes to the legally licensed entity must be reported within thirty (30) days from the date of change. All federally licensed Industry Members should take note of that thirty (30) day rule. If changes are not reported within that timeframe, federal licensure becomes null and void by operation of law. Continued operation in this instance is problematic and exposes the once licensed entity to administrative action and financial penalty if unlicensed operations continue.

Perhaps the most important area that required reporting, whether it be at the federal or state(s) level, is any change of ownership issues. Changes usually take two forms which are generally referred to as a change in control or change in proprietorship.

Change in Control:  As TTB defines this “a change in actual or legal control occurs when there are changes in stock ownership, LLC membership, or possibly major changes in the corporate officers or directors of a corporation.  Here, the legal entity which operated the business in the past continues to operate the business.  In other words, the same legal entity remains in existence and continues to operate the business in question. Only the shareholders or percentage of ownership amongst shareholders shifts amongst the existing shareholders. All changes of control must be reported to TTB.

  For wineries, TTB and Federal regulations require an amended application to Establish and Operate Winery be submitted within 30 days of the change of control, as mentioned above.

  As for Basic Permits, these are not transferable by reason of a change in control of the company. The Basic Permit will automatically terminate unless, within 30 days of the change, an application for a new Basic Permit is filed with TTB.  If an application is filed within the required 30-day period, the outstanding Basic Permit will remain in effect until TTB takes final action on the new application.

Change in Proprietorship:  A change in proprietorship occurs when there is a change in the entity that owns and operates the business.  It is synonymous with a change in ownership, or it may be due to a change of entity type. The entity which owned the business no longer operates or owns the operations at the designated location.

   In the change of proprietorship scenario, the new owner may continue to operate, if, within 30 days of the change, an application is filed for a new Basic Permit.  The outstanding Basic Permit will remain in effect until such time as TTB takes action and issues a new permit.

  If a change in proprietorship occurs prior to the filing and approval of the new winery registration or if the Basic Permit application is not filed within the required 30-day period, all regulated operations must stop until approval is granted by TTB.

  Clearly, from an operational perspective and at the federal level, untimely reporting will have a deleterious effect on operations. Advanced planning is essential.

State Licensing:  As with federal licensure, changes in control and/or changes in proprietorship must be reported to state regulatory authorities as well. Using the State of Florida as an example, where this writer resides, as a general rule, a change of proprietorship requires a new application process with original qualifications being made by the disclosed parties. The state will issue a new license to the new operator under this scenario.

  Changes in control, even of a de minimis nature must be reported on a proscribed form within a proscribed timeframe with each new directly interested party qualifying. Once again, using Florida as an example for illustration purposes, reports in a change of control must be submitted within 10 days from the date of change. The original underlying license remains in effect with the interested parties disclosed on the existing license.

  It is very important to note that state(s) reporting requirements vary significantly by state. Some states require reporting prior to the occurrence of any change, while others may do so after the change in control or proprietorship. A careful plan must be developed in advance of any change (for example new investors coming on board or in particular in the merger or acquisition setting). This general caveat applies to Industry Members and Vendors (retailers) alike. Further, some states reporting requirements after initial qualification are quite detailed (some might say, onerous). As a rule of thumb, plan, plan, plan in advance.

Other Considerations:  Although change in control and change of proprietorships are the two most common scenarios that require timely reporting, there are other areas for Industry Members, and in particular wineries, that must be reported. Though not wholly exhaustive, below is a list of operational changes, taken from TTB, that require reporting. The licensee should make specific inquiries with each state(s) regulatory agency for their reporting requirements.

•             Change in Premise Location

•             Change in Mailing Address

•             Add / Remove Signing Authority

•             Add / Remove Power of Attorney

•             Change in Business Name

•             Add/ Remove Variance or Alternate Method

•             Add / Remove Change in Alternation of Wine Premises

•             Add/Remove Wine Alternation of Proprietor

•             Add/Remove Trade Name

•             Add/Remove Non-Contiguous Extension of Wine Premises

•             Bond- Superseding/Strengthening/Adding/Terminating

•             Change in Bonded Wine Premises

•             Change in Winery Premises Location

•             Termination of Business

  This article leans heavily into the requirements for Industry Members as defined, with an emphasis on wineries. The reader should bear in mind that regardless of the tier of the industry it is operating in, it is virtually a certainty that reporting changes after initial qualification will be required. Proper planning and the execution of these reporting requirements, particularly in the larger M&A setting, is essential.

individual signing contract

The Contract Packaging Agreement

Cyndi Leave a comment

By: Brad Berkman and Louis Terminello, Greenspoon Marder

A few times on these pages, we’ve written about contracts of various types to assist brand owners in proper planning for brand manufacture, introduction and distribution. In this article, we’ll take something of a deeper dive into production agreements in a contract package or custom crush arrangement.

  First, building a winery, and perhaps developing a vineyard, is an extraordinarily time-consuming and expensive process. Returns on investment may take many years to see back. In addition, winemaking (as well as brewing and distilling), is a manufacturing process that requires great deals of expertise, technological know-how and a deep appreciation for the art form. Taking a brand to market and getting placed on wine lists and by-the-glass programs require a very different set of skills. Enter: the brand owner and the contract package relationship.

  It’s worth noting that brand owner, though a common term in the industry, is also a term of art in the beverage law. Since the writers of this article are striking their keyboards in Florida, we’ll refer to Florida Beverage Law for quick analysis.

  561.42 FL. Stat. makes the first reference to “brand owner” in the Florida Beverage Law. The statute is Florida’s tied-house evil statute prohibiting direct and/or indirect interests between upper-tier industry members and retailers. Brand owners are lumped in and treated similarly to manufacturers, distributors, importers, primary American sources of supply, registrants, and/or any broker or sales agent or salesperson. By this definition, brand owners, absent the presence of a statutory exception, are treated as upper-tier industry members and subject to tied-house laws and restrictions. This is generally true in all states.

  Brand owners, when appropriately licensed, are permitted to enter into contract packaging agreements with manufacturers. Both are upper-tier industry members and certain tied-house restrictions are inapplicable. Prior to finalizing the production agreement, a federal wholesalers permit is required, as issued by the Alcohol Tax and Trade Bureau (TTB), and in many instances, state permits are required as well. The reader should keep in mind that an alternative licensing paradigm exists called an “Alternating Proprietorship” arrangement where the brand owner, via a different licensing scheme, acts as a tenant of the winery and produces its own product on the winery’s premises. This article will focus on the former arrangement.

  Negotiating and finalizing the terms of a production agreement can be a daunting task. The brand owner and manufacturer share a common goal, but agreeing on the terms which will lead to the goal of a final product could be challenging generally because of the bargaining positions and goals of the parties.

  What follows is a look at some of the essential terms of a contract package or custom crush agreement that both parties to the contract should consider carefully. By no means is this an exhaustive list, and competent alcohol beverage contract attorneys should be retained to assist.

•             Quantities and Pricing:  Total quantities produced under the agreement require careful consideration, and for the brand owner in particular. There must be a meeting of the minds on production levels prior to focusing on other areas. Brand owners should be careful not to enter into agreements where production quantities and commensurate pricing/costs are higher than anticipated sales over the same time period. Managing brand building resources against production costs is essential. Phrased another way, brand owners should carefully manage their production dollars to ensure the required monies are available for marketing and sales spends.

                  On the flip side, manufacturers must consider the volume expectations of the brand owner. They must consider whether they can meet the production requirements of the brand owner. In the alternative, they must carefully consider allocating valuable production time to brand owners whose volume requirements are too low, which ultimately cuts into revenue potential.

•             The Juice:  Manufacturing services need to be clearly stated. The parties need to determine whether the winery will actually be producing and supplying the wine to be used or if it will be outsourced from a different winery and bottled at the contract packer’s premises. Quality specifications need to be determined and assurances need to be made that the end product will comply with quality standards established by the parties. By extension, provisions should be included for how to deal with a finished product that does not comply with agreed upon quality standards.

•             Raw Goods and Production Material:  Any ingredient specifications, if required, should be determined, agreed to, and set forth in the agreement. As with the above, finished product assurances (as to quality) should be included, as well as methods for dealing with materials not in compliance with quality standards.

                  The same should be considered with production materials. Bottles, caps, labels, cases and other constituent parts must be considered. Central issues such as how these items will be procured, that is whether the winery will procure these items and build their costs into the finished product or whether the brand owner should source them out and supply these items as required. Quality assurances need to be addressed as well, and in particular, how to manage materials that do not comport with quality standards.

                  Another seemingly innocuous issue is storage fees associated with the storing of raw goods and production materials at the packager’s location. Associated costs for storage services should be memorialized in the agreement. Hidden or undetermined fees may add up quickly, causing revenue issues for the brand owner and could potentially lead to disputes among the contracting parties.

•             Exclusivity and Production and Supply Goals:

                  Serious consideration must be brought to the issue of exclusivity by both parties. Brand owners need to determine early on whether a potential contract packager has the ability to supply all the requirements of the brand owner. Conversely, the packager must also make honest inquiries as to its ability to produce and pack according to the brand owners’ requirements. Generally, the preferred approach is the middle ground.  That is to say, a reasonable production number based on the brand owners’ requirements and the contract packer’s ability to produce should be agreed upon and memorialized in the contract packaging agreement. Under this scenario, both parties have a reasonable expectation as to their respective performance requirements under the agreement and an understanding of the benefits incurred. The issue of exclusivity could become moot, if the production and supply numbers are agreeable to both parties.

•             Production Forecasting and Scheduling:  Another area for the parties to agree upon prior to execution of the agreement, is anticipating production needs over time to ensure that the packer can produce according to a set schedule and the brand owner can rely on goods being ready according to their sales and marketing needs. Anticipated variances and procedures for adjusting product forecasts and scheduling should be memorialized as well.

•             Recall:  A system and procedures for recall should be established and memorialized as well, with allocation of costs based upon the reasons for recall. Recalls may occur for myriads of reasons, and when addressing this issue parties to an agreement should devise a method for determining the cause that led to recall. It should be clear that determining cause guides the parties in allocating costs for the same.

  Contract packaging agreements can be complicated agreements to negotiate and draft, requiring many more provisions than those stated above. Ultimately, agreeing on terms that satisfy the operational requirements of both parties is ideally supported by the legal protections required by both parties. As a word of warning, take care in proceeding forward with these types of agreements. Having experienced legal counsel involved is the most prudent course of action.

A Short and Quick Guide to Wine Importation Regulatory Process

Cyndi Leave a comment
row of Spanish wine bottles

By: Brad Berkman and Louis Terminello

Importing wine into the United State may initially seem like a daunting task. Licensing requirements and related matters appear to be complex with requirements at both the federal and state levels. With proper planning and guidance, the insurmountable becomes a manageable process. This article will act as a short guide to the initial licensing and regulatory concerns encountered by new importers.

Licensure At the Federal Level

  Importation of wine into the stream of commerce of the United States is regulated by the Alcohol and Tobacco Tax and Trade Bureau (TTB). Prior to importation, the potential importer must qualify to hold a TTB Basic Permit as an Importer. TTB examines the qualifications of the owners and officers through a personal questionnaire process that is executed under the penalty of perjury to ensure that the individual applicant is not impaired from holding the permit. Qualifications of applicants can be found in the Code of Federal Regulations. Printed below are the code sections showing the requirement for licensure and the required qualifications for licensure.

§ 1.20 Importers.

  No person, except pursuant to a basic permit issued under the Act, shall:

(a) Engage in the business of importing into the United States distilled spirits, wine, or malt beverages; or

(b) While so engaged, sell, offer or deliver for sale, contract to sell, or ship, in interstate or foreign commerce, directly or indirectly or through an affiliate, distilled spirits, wine, or malt beverages so imported.

§ 1.24 Qualifications of applicants.

  The application of any person shall be granted, and the permit issued by the appropriate TTB officer if the applicant proves to the satisfaction of the appropriate TTB officer that:

(a) Such person (or in case of a corporation, any of its officers, directors, or principal stockholders) has not, within 5 years prior to the date of application, been convicted of a felony under Federal or State law, and has not, within 3 years prior to date of application, been convicted of a misdemeanor under any Federal law relating to liquor, including the taxation thereof; and

(b) Such person, by reason of the person’s business experience, financial standing or trade connections, is likely to commence operations as a distiller, warehouseman and bottler, rectifier, wine producer, wine blender, importer, or wholesaler, as the case may be, within a reasonable period and to maintain such operations in conformity with Federal law; and

(c) The operations proposed to be conducted by such person are not in violation of the law of the State in which they are to be conducted.

  In conjunction with the personal questionnaire process, the applicant entity is disclosed including ownership structure. Among other things, certain signing authorization forms are prepared, and parties are assigned signing authority on TTB documents.

  In addition to the Importers Basic Permit, it is wise for the applicant to apply for a federal wholesaler’s permit. This permit will allow the licensee to ship alcoholic beverages in interstate commerce. The process for applying for this license is quite similar to the federal importers permit. For consistency purposes, below is a reprint of the code section establishing the requirement for this license.

§ 1.22 Wholesalers.

  No person, except pursuant to a basic permit issued under the Act, shall:

(a) Engage in the business of purchasing for resale at wholesale, distilled spirits, wine, or malt beverages; or,

(b) While so engaged, receive, sell, offer or deliver for sale, contract to sell, or ship in interstate or foreign commerce, directly or indirectly or through an affiliate, distilled spirits, wine, or malt beverages so purchased.

  Both federal permits, if the application process is managed properly and barring any unforeseen issues, should be issued within 45-60 days.

  It’s important to note that basic permits do not expire. They remain in effect until revoked, suspended, voluntarily surrendered or automatically terminated. Automatic termination can occur by operation of law when there is an unreported change in the licensed entity. In particular, change in ownership or stock transfers, among other things, must be reported to TTB on the appropriate forms within 30 days of the occurrence. If they are not reported, the basic permit will terminate by operation of law. It is essential that any contemplated change to the business be analyzed for its effect on the license and reported appropriately if required.

  As an additional note, the foreign winery/production facility must be registered with the FDA as a food facility. A registration number is assigned and must be available at the time of importation or the wine will not clear customs.

Product Approval

  Prior to importation, certain wines may be required to go through a formula approval process conducted by the TTB laboratory, though most do not. Generally, if there are added ingredients including flavorings, formula approval process is required. However, most wines produced and containing only grapes should not require formula approval. Other alcoholic beverages such as spirits and malt must be analyzed separately, as those products tend to have a more stringent formula approval process.

Certificates of Label Approval (COLA’s)

  All imported wine labels must be submitted to the TTB prior to importation and approved. Approval results in the issuance of a Certificate of Label Approval, more commonly called a COLA, which is required to be presented to US Customs at the port of entry, along with other documents.  TTB will examine the label to ensure that all mandatory labeling requirements are met. The wine label approval process can be complex, particularly for a first-time submitter. Certain pieces of information need to be affixed and positioned according to the regulations or the label will be rejected by TTB until brought into compliance. It would be beneficial, especially for the first-time submitter, to consult an expert when commencing the COLA process.

State Licensing

  As noted, TTB regulates the importation of beverage alcohol in foreign and interstate commerce. Prior to brand introduction in any state, it is incumbent on the importer to determine which state licenses are required prior to selling the wine within the borders of that state. As a general rule, some sort of non-resident permit is required, and often times brand registration as well. This is not a one-size-fits-all model, and these writers stress that each state’s requirements be examined carefully, and the appropriate licenses must be obtained.

Will Crop Insurance Cover Losses to My Vines?

Cyndi Leave a comment
man on cell phone inspecting grapes in vineyard

By: Trevor Troyer, 
Vice-President of Operations 
for Agricultural Risk Management

Does crop insurance cover losses to my vines? What can I do about vine loss or damage?  Half of my vineyard got burned due to wildfires.  I have major freeze damage on half my vineyard.  What can you do?  Crop insurance only covers losses to your grape crop not your vines.  Is there any vine coverage or assistance for that?

  Yes there is! I get a lot of questions on this so thought to address it in this article.

  Grapevine crop insurance coverage is available for the 2025 crop year. The sign-up deadline is November 1st in all states where it is available.

  The states where you can obtain this coverage are: California, Idaho, Michigan, New York, Ohio, Oregon, Pennsylvania, Texas and Washington.  It is not available in all counties though.  The counties that are listed in the actuarial documents are not the same as the Grape crop insurance program.  This  program is available for grafted grapevines only.

  What is covered with this insurance product?  The Causes of Loss that are listed in the Grapevine Crop Provisions are below:

11. Causes of Loss

(a) In accordance with the provisions of section 12 of the Basic Provisions, insurance is provided only against the following causes of loss that occur within the insurance period:

(1) Freeze;

(2) Hail;

(3) Flood;

(4) Fire, unless weeds and other forms of undergrowth have not been controlled or pruning debris has not been removed from the vineyard;

(5) Insects, diseases, and other pathogens if allowed in the Special Provisions; and

(6) Failure of the irrigation water supply if caused by an unavoidable, naturally occurring event that occurs during the insurance period.

(b) In addition to the causes of loss excluded in section 12 of the Basic Provisions, we will not insure against damage other than actual damage to the vine from an insurable cause specified in this section

  The vine needs to be completely destroyed, or is damaged to the extent that it will not recover in the 12-month insurance period from November 30th.

  Any damage other than damage to the grapevine from an insured cause is not covered.  For example, chemical drift, terrorism etc. are not covered.  Failure to follow good farming practices or the breakdown of irrigation equipment are also not covered.

  For the grapevines to be insurable they must be adapted to the area they are being grown in.  They must be being grown and sold for fruit, wine or juice for human consumption.  The vines must be grafted to be insurable as well.  The Crop Year begins December 1 and extends through to November 30 of the following year. You must have a minimum of 600 vines per acre to be insurable also.

  Vines are classified into 3 stages of growth for the policy.  Here are the exact definitions:

(a) Stage I, from when the vines are set out through 12 months after set out;

(b) Stage II, vines that are 13 through 48 months old after set out; and

(c) Stage III, vines that are more than 48 months old after set out.

  Values are determined by the Stage (age) of the vine and the county they are located in.  Obviously Stage III vines are worth more than Stage I vines.  These prices are set by the USDA Risk Management Agency.

  You can choose coverage levels for your Grapevine insurance from CAT (Catastrophic) to 75%.  CAT insurance is 50% coverage but you only get 55% of that 50% value per vine. Coverage increments are 5%, so you have 50%, 55%, 60%, 65%, 70% and 75%.   There is a sort of a double deductible with Grapevine insurance.  You have a damage deductible and a value/price deductible.  For example, if you choose 75% coverage you would have a 25% damage deductible.  That means that the first 25% of damage is not payable.  So, if you had 30% of your vines killed because of a freeze you would have a payable claim of 5% (30% minus 25% deductible).  There is also a value deductible as well. Again, if you have 75% coverage you would have a grapevine value deductible of 25%. For example, if the grapevine is Stage III in California in Napa County it would be worth $39.  At the 75% coverage level the dollar amount for that vine would be $29.25.

  There is an optional endorsement that changes the damage deductible.  This endorsement does cost a little more but is worth it, in my opinion.  This is called the Occurrence Loss Option or OLO for short.  It changes the damage deductible to a 5% damage trigger.  If your loss is 5% or more of the total value of the vines in a unit you would have a payable loss.  Plus, you are paid on the full value percentage of the loss.  So, if you had a 30% loss, you would get paid on the full 30%.  This does not change the value percentage of the coverage level, if you choose 50% you get that amount.  You cannot exceed the total insured value, Liability, of the vines in any case. 

  Once you sign up and complete all the forms with your agent, they are then submitted to the underwriter.  The underwriter will open an inspection and an adjuster will come and take a look at your vineyard.  The adjuster will determine if the grapevines in your vineyard are insurable.  The vines could be uninsurable for any of the following reasons.  The vines are unsound, diseased or in someway unhealthy.  They could have been grafted within a 12-month period before the beginning of the insurance period. Or they could have been damaged prior to the beginning of the insurance period.  Once the adjuster has completed the inspection, it is sent to the underwriter and then on to the USDA Risk Management Agency for final approval. 

  If you have damage from an insured Cause of Loss, you should contact your agent to get a claim opened.  It is always best to get a claim opened up sooner rather than later.  48 – 72 hours after discovering damage is best.  I know that a lot of growers want to wait and see how much damage there is before they do anything.  It is always better to get a claim opened up rather than wait and see.  If there is not enough damage, then you just let the adjuster know.  After you open up a claim an adjuster should be out within 10 days to inspect the vineyard.  Do not remove any damaged vines until it has been inspected!   In my opinion this is a good program, and it will provide protection to vineyards.  It will help to mitigate losses from Freeze, Hail, Flood, Fire et

CBMA: A Short Guide to the Rules of the Road

Cyndi Leave a comment

By: Brad Berkman and Louis J. Terminello, Greenspoon Marder

As is said, the only thing certain is death and taxes. As it applies to beverage alcohol, the tax at issue addressed in this article is an excise tax which is based on volume and alcohol-proof gallons. There are two levels of excise taxes collected for alcoholic beverages: one at the state and the other at the federal level. As the reader likely knows, state excise tax, in most instances, is paid by the distributor. This article will examine federal alcohol beverage excise tax rates established by the U.S. Internal Revenue Code and the changes to these rates under the Craft Beverage Modernization Act (the “CBMA”).

  First, a little history, the CBMA was initially meant to be a temporary measure, however, Congress, in 2020 made the CBMA a permanent law and transferred the administration of the CBMA to the Alcohol Tax and Trade Bureau (TTB) on December 31, 2022. As virtually all industry members know, TTB is tasked with administering excise tax collections for domestic and foreign producers of alcoholic beverages, among many other things. In 2017, as part of the Tax Cuts and Jobs Act, the CBMA came into effect reducing excise taxes imposed on wine, beer, and spirits at certain volume levels, produced in the U.S. and those items produced abroad and imported into the U.S. 

  At the introduction of the CBMA, TTB was tasked with administering the domestic component of the CBMA, (that is for wine, beer and spirits produced in the U.S.), and U.S. Customs and Border Protection, (CBP), was responsible for the administration and collection of taxes for imported alcoholic beverages (as they had always done for imported alcohol). Excise tax for imports was due at the time of entry of the product into the U.S. stream of commerce, (once it cleared U.S. customs). This required thorough and accurate reporting by importers and/or their customs brokers at that time to CBP. Incorrect or incomplete reporting to CPB led to the loss of importer revenue for many wine industry members. CPB reporting requirements were, and arguably still are an arcane process.

  Under the CBMA, importers are still required to pay excise tax to CBP upon entry of the product but the administration of the CBMA for importers is now carried out by TTB. TTB has created a reasonably friendly system or portal where licensed importers can register and file their claims to receive the reduced tax benefit.

  The process requires that the foreign producer must first register with TTB, using the portal at myttb.com, and disclose certain basic information such as ownership information, email address and phone number and key contact information including key personnel. After registering, the foreign producer, through the online system, may then assign all or a portion of available CBMA credits to an appointed importer. It is worth noting here that foreign producers are allocated the same tax credit benefits as U.S. manufacturers of beverage alcohol.

  After supplying the importer information (using the importer TTB issued Basic Permit number), the foreign producer must identify the commodity (wine, beer and/or spirits), the tax rate or credit, the quantities of proof gallons or beer barrels and the tax quantities being assigned to the specific importer. Foreign producers can assign all of their credits to one importer or allocate in any way they choose to their various importers, should they have more than one.

  As a side note, it is strongly recommended that the allocation of tax credits is addressed in the negotiating process between the importer and foreign supplier and memorialized in any import agreement that may come into being between the parties. Obviously, this will help avoid future confusion and potential strains on the business relationship.

  Importers are also required to register on my.ttb.com on the importer interface and submit their refund claims electronically, which they may be eligible for as a result of the reduced rate. All that said, below is a quick and dirty reference guide for importers to refer to when navigating the CBMA process, which will assist both the foreign supplier and the importer.

For the Foreign Producer

•   Foreign producers must assign tax benefits to the US importer for importer to be eligible for the benefit.

•   Foreign producers may assign all or a limited tax benefit based on commodity type.

•   Foreign producers must first register with TTB using the link: ohttps://my.ttb.gov/.    

•   Producer will receive a foreign producer ID.

•   After the producer receives the ID, they will be able to assign the benefit to the importer on the on-line portal with TTB.

•   The foreign producer will need to provide TTB with the following information:

            o Calander year for which the benefit is being assigned.

            o The importer to whom it is being assigned using the importers TTB permit number.

            o Commodity type (wine, beer, spirits).

            o The reduced tax rate being assigned.

            o Total proof gallons that the benefit is being assigned to.

 The Importer

•   Importers pay full tax rate to Customs and Border Protection (CPB) at the time of importation.

•   To use the CBMA reduced rate, the importer must:

            o File a refund claim (online) with TTB at the close of each calendar quarter covering the entries made in that quarter.

•   At the time of entry (likely using your customs broker), importer must submit in their customs entry filings, the identity of the products that will be subject to the claim which includes:

            o Commodity type.

            o TTB Foreign Producer ID

            o The rate or credit assigned to the

             imported quantity.

            o The above information is submitted on CBP ACE system.

            **The authors advise trying to use a customs broker that is familiar with the above process.

            o Importer or its broker must file the TTB “Message Set” electronically in the ACE system.

•   Once again, the importer files its claim with TTB on a quarterly basis and once processed, TTB will pay the difference between the tax paid at entry and the credits assigned by the foreign producer.

  The CBMA offers an opportunity for importers to take advantage of reduced tax rates under the CBMA. Navigating the process is challenging and will greatly assist importers to understand the reporting processes up front so as not to leave valuable tax dollars on the table.

Basic Mechanics & Benefits of the Alternating Proprietorship Arrangement

Cyndi Leave a comment
2 men looking at wine bottles on a table with a country map

By:  Louis J. Terminello, Esq. and Bradley Berkman, Esq.

Brand owners and wineries have options available when negotiating a wine packaging arrangement. This article will focus on the mechanics of an alternative to the standard contract packaging relationship. As a jumping-off point, contract packaging arrangements are one in which a winery will contract with a brand owner to produce and bottle wine for the brand owner. In the world of wine production, this is commonly referred to as a custom crush arrangement.

   It is a relationship of independent contractors, memorialized in an agreement where the brand owner pays a fee for the bottling services of the winery, and the winery, in most instances, delivers the final bottled product to the brand owner. The beverage alcohol licenses required are both federal and state production/winery licenses held by the winery, and almost always a federal wholesales license issued by the Alcohol Tax and Trade Bureau (TTB) – which is held by the brand owner – and other state licenses are required.

  All production reporting prepared and submitted by the winery and excise taxes, though almost always charged to the account of the brand owner, are reported, and paid by the winery. For all intents and purposes, the brand owner acts as both brand owner and distributor within the three-tier system and reports and pays excise tax at the state level, if required. Both parties benefit from this type of bottling arrangement. For the winery, this arrangement is an additional revenue stream. For the brand owner, a product can be brought to market without the high costs of investing in a production facility.

  Separate from the above arrangement, TTB has a unique licensing scheme available that may be more advantageous to wineries and brand owners for numerous reasons and is referred to as an alternating proprietorship arrangement.

Alternating Proprietorship Defined

  In the alternating proprietor relationship, an existing winery agrees to lease its winery premises to another party for the production of the “lessees” wine. The parlance typically used is “host” and “tenant.” The established winery acts as the host of the premises (think landlord) while the tenant “leases” the winemaking premises to produce its wine. There is an actual and permissible operational shift. Responsibility for, and the activities of, production may be taken over by the tenant operator. The relationship should be memorialized in an agreement between the parties, but the relationship requires application and approval by TTB before commencing production. 27 USC 24.136 (the Federal Code of Regulations) establishes the terms and requirements of the arrangement and is reprinted here for the reader’s review.

27 USC 24.136

§ 24.136 Procedure for alternating proprietors.

(a) General. Wine premises, or parts thereof, may be operated alternately by proprietors who have each filed and received approval of the necessary applications and bonds and have qualified under the provisions of this part. Where operations by alternating proprietors are limited to parts of the wine premises, the application will describe areas, buildings, floors, or rooms which will be alternated and will be accompanied by a diagram delineating the parts of the wine premises to be alternated. A separate diagram will be submitted to depict each arrangement under which the wine premises will be operated. Once the qualifying documents have been approved, and operations initiated, the wine premises, or parts thereof, may be alternated. Any transfer of wine, spirits, or other accountable materials from one proprietor to the other proprietor will be indicated in the records and reports of each proprietor. Operation of a bonded winery engaged in the production of wine by an alternate proprietor will be at least one calendar day in length.

(b) Alternation. All operations in any area, building, floor, or room to be alternated will be completely finished and all wine, spirits, and other accountable materials will be removed from the alternated wine premises or transferred to the incoming proprietor. However, wine, spirits, and other accountable materials may be retained in locked tanks at wine premises to be alternated and remain in the custody of the outgoing proprietor.

(c) Bonds. The outgoing proprietor who has filed bond as required under § 24.146 and intends to resume operation of the alternated areas, buildings, floors, or rooms following suspension of operations by an alternating proprietor shall execute a consent of surety to continue in effect all bonds. Where wine, spirits, or other accountable materials subject to tax under 26 U.S.C. chapter 51 are to be retained in tanks on the wine premises to be alternated, an outgoing proprietor who has filed bond as required under § 24.146 shall also execute a consent of surety to continue the liability of all bonds for the tax on the materials, notwithstanding the change in proprietorship.

(d) Records. Each proprietor shall maintain separate records and submit a separate TTB F 5120.17, Report of Bonded Wine Premises Operations. All transfers of wine, spirits, and other accountable materials will be reflected in the records of each proprietor. Each proprietor shall maintain a record showing the name and registry number of the incoming or outgoing proprietor, the effective date and hour of alternation, and the quantity in gallons and the percent alcohol by volume or proof of any wine, spirits, or other accountable materials transferred or received.

Summation of Basic Requirements:

  An examination of the code helps us parse out the basic requirements and responsibilities of the proprietor under the alternating relationship. Foremost, bear in mind that under this production paradigm, both entities, while conducting their respective operation, are treated as  proprietors under the law. Focusing on the requirements of the tenant proprietor, TTB requires that:

•    The alternating tenant proprietor must qualify as a bonded winery and obtain a Federal basic permit as a wine producer to conduct operations at the host’s location. 

•    The tenant proprietor must comply with record and reporting requirements of its operations by preparing and submitting its own operational reports to TTB just as any other fully functioning wine operation must do.

•    The tenant proprietor must obtain TTB approval of an application for a Certificate of Label Approval (COLA) before bottling the wine at the host’s location.

•    The tenant alternating proprietor must pay the excise tax for wine bottled and removed from the host’s location.

•    By extension, the tenant proprietor must hold an adequate bond to conduct its operations.

  There are a variety of benefits to the tenant producer under this production relationship. Perhaps the most significant, depending on the production levels of the host, is the availability of the reduced excise tax rates under the Craft Beverage Modernization Act (CBMA). The tenant’s own production levels are considered exclusive of the host’s production levels. The reduced tax rate, which may not be available under a standard custom crush arrangement, may now be available to the tenant winery contingent upon its own production levels which is an attractive benefit to the tenant proprietor.

  Note that TTB will scrutinize applications of alternating proprietorship to be sure the arrangement is not jeopardizing tax revenue, among other issues. Some of those additional areas of concern include an applicant’s attempt to qualify as a producer to take advantage of state tasting room regulations or to engage in direct-to-consumer (DTC) sales.

   Although these options may be available to a tenant proprietor, the spirit of the intent of this bottling relationship should be the guiding principle. All other benefits may be available and are certainly worth exploring. Experienced counsel should be consulted if any uncertainty is present as to the permissibility, processes, and procedures of structuring an alternating proprietorship arrangement.

Drinks Development, Initial Legal Concerns and Protections

Cyndi Leave a comment

By:  Louis J. Terminello, Esq. and Bradley Berkman, Esq.

It’s invigorating to be in the presence of a creative. A glance at the dictionary reminds us that the definition of creative is one who is capable of creating original things. The drinks business has no dearth of creatives. The industry is replete with driven and creative people who generally take the form of winemakers, brewers, distillers, and brand developers/owners. Their palette is in fact their palate and their medium is a must, mash and/or unique package design. Praise the beverage entrepreneur – they take our tastebuds to new and exciting places. But, as the poet Robert Burns instructed in 1785, the best laid schemes o’ Mice an’ Men Gang aft agley (Scottish for often go wrong). In more contemporary words, without proper planning, and a bit of luck, all original ideas risk plummeting from the lofty perch where creatives reside.

  Enter stage left; The drinks lawyers who can assist with legal issues surrounding brand creation and launch.  Careful business planning coupled with a punch list of the legal issues likely to be encountered during the process of drink creation is a harbinger of success. What follows are the first few legal concerns that should be considered and sorted through prior to a project launch.

The Novel Idea and the Need to Protect It

  For the entrepreneurial brand developer, creative inspiration can come from anywhere and at any time. Ideas for beverage flavor profiles may come while preparing a unique meal or from stumbling on an accidental blend of flavors while creating a cocktail at home. Brand names may be inspired by a song, or book, or emerge from the ether like an apparition. But the apparition must take physical form if it is to ever end up on the shelves or back bars of saloons everywhere. For the brand developer, without their own means of production, a manufacturer is required. Choosing the right producer is a complicated process with many sub-parts. 

  The first step of course, which may seem obvious, is discussing formulation and taste profile with potential brewers, distillers, or wineries, but how do we protect the novel idea from being misappropriated by a dishonest party. Clearly, the process requires the brand developer to share his secret idea with others to determine if, in fact, the producer can make the stuff.  The dangers of disclosure are obvious – the producer has the ability to take your idea and bring it to market on his own leaving the brand developer out in the cold. In fact, this could happen with anyone the brand developer discusses their new concoction with.

Nondisclosure Agreements-Protecting the Secret

  Prior to engaging in any discussions with any potential producer, it is incumbent on the brand developer/owner to have a well-drafted nondisclosure and confidentiality agreement (“NDA”). The core function of the NDA is to prevent a producer, or any other party, from disclosing the developer’s idea to another or independently producing the product without remuneration to the brand developer. The NDA should call for injunctive relief in order to stop the activity complained of as well as other damages, including money, should that be an available remedy. Commencing good faith negotiations with an honest opposite party is what we all expect and want. However, the developer’s next million, maybe even billion-dollar idea should be protected from the outset with a well-crafted NDA and should be entered into with any party prior to discussing the novel idea.

Intellectual Property Including Trademark

  More importantly, there is a greater area of concern related to protecting one’s brand ownership. The next area of concern and of paramount importance is that the brand name and associated designs and logos be protected. The reader is likely aware that the next item on our brand launch checklist is protecting one’s intellectual property through a trademark (TM). For the uninitiated, trademark applications are submitted to the United States Patent and Trademark Office (USPTO), which once granted, identifies the brand owner of the product, and protects ownership of the name, design, logo, or symbol. A trademark allows the holder of the TM to pursue legal action against a party who may try to use the mark as its own and without the consent of the true trademark holder.

  The first step in the TM process, once the brand developer has come up with a name and/or logo, is to search the USPTO database to be sure the mark is not held by another person or entity, and that the name is available for use. There are only a few more disheartening things than investing resources in brand name development only to find out that it has been trademarked by another party. It should be noted here that all is not lost if the mark is already held by another party.

  These issues are best explored in another article but suffice it to say, there may be ways to gain control and ownership of the TM. Also, as brand sales grow and the brand increases in value significant equity will reside in the brand name. Protecting that equity is paramount particularly if an interested and significant buyer knocks on the door and desires to purchase the brand for enough money which allows the brand developer to retire to their own Caribbean island for the remainder of their days.  It’s important to note that there are various legal mechanisms available to trademark holders that protect their ownership rights to the mark while allowing other parties to use the mark to fulfill contracted obligations.

  Generally, trademarks can be licensed to another party for any use whatsoever but generally, in the world of beverage alcohol, nonexclusive licensing agreements are often used in production and distribution agreements granting limited rights to the non-mark holder. Note that licensing agreements can be complex and are discussed here only to point out their existence and present the option. Any licensing agreement must be carefully drafted to protect the rights of the parties and all trademark matters should be handled by a competent Intellectual Property attorney.

Formula Protection & Production Agreements

  After sourcing a reliable producer for the drink idea, the next crucial step is negotiating and entering a formulation and packaging agreement. It is highly probable that the producer selected will assist in developing the formulation. It is also not uncommon to secure the services of a third-party formula service provider to create the liquid beverage. Whichever avenue is pursued, the brand owner must be sure that they will have ownership rights to the finished product, particularly if the formulation is unique, and that no other party shall have the right to the formula absent the brand owner’s consent. An agreement memorializing all terms of formula ownership must be drafted and executed by the interested parties.

  Well-crafted supply and bottling agreements are the next integral part of the brand development process. In a nutshell, once a partner producer is identified, the brand owner and producer will commence negotiating the essential terms of the business relationship. Essential terms will include items such as production and purchase quantities, pricing and payment terms and delivery terms. Issues such as how to deal with adulterated products and recalls should be memorialized also. In sum, this agreement will memorialize the rights and duties of the parties and ideally will allow for the smoother production of the finished goods allowing the brand owner to focus on securing distribution, selling and marketing to consumers and other brand-building activities.

  In conclusion, the areas above are the first few items that should be addressed when launching a new brand. Protecting the developer/brand owners’ rights in all aspects of product introduction is essential and working with seasoned beverage law professionals should be seriously considered. Experience tells us that brand launch problems can be avoided upfront with proper and competent Beverage Law and business law guidance.

The Producers’ Blind Spot

Cyndi Leave a comment

The Role of the Municipality and Local Ordinances and the Producers’ Operational Goals

picture entitled zoning ordinance zoning and land use planning

By:  Louis J. Terminello, Esq. and Bradley Berkman, Esq.

Let’s face it, many of us, likely including the writer(s) and readers alike, find the making of wine, beer, and spirits not only to be a labor of love that allows oneself to create artistic expressions in bottles, but we also find the trade and its finished products to be pretty darn exciting. It’s very much a lifestyle industry, that, simply put, is fun.

  Even in the arena that this writer operates in – that is, alcohol beverage law – the romance of the trade is far from lost. There is, however, one especially important regulatory area that is often overlooked by beverage alcohol producers and even legal practitioners in the field: the role of municipal ordinances and zoning regulations and its impact on beverage alcohol sales, service, and for the purposes of this article, production. It is doubtful that many winemakers, distillers, and brewers find this topic engrossing but without proper guidance and planning, a misstep at the local level could lead to disastrous consequences.

  Briefly, most in the trade understand the role of the federal and state governments, particularly those who produce beverages. Licensing schemes, reporting requirements, excise taxing structures, and trade practice issues (as in tied house) are all federal and state concerns. In fact, some local jurisdictions, namely cities and counties, do enforce local alcohol licensure and regulatory schemes that some readers may be aware of, but that is not the focus of this article. The issues that require parsing out in the limited space here are land use concerns and the various local administrative processes and procedures that affect all actors in the alcohol industry. Put another way, package stores, bars, restaurants, wineries, breweries, and distilleries alike must comport themselves and comply with local ordinances and zoning regulations.

Advent of Craft

  And along came the craft producer, and the spider sat down beside her. The rise of craft wineries, distilleries, and breweries has brought about a nuanced set of local challenges, encompassing aspects such as production facilities, warehousing for potential distribution, and the popular tasting room –often referred to as the bar. Not to be overlooked at the craft venue, are food sales in the various forms that they could take, including a restaurant on the premises or the ubiquitous food truck.

Zoning Districts-What are they?

  With the municipal jurisdiction in mind, i.e., a city or county, one must carefully analyze the zoning district within the city or county that is the site of the proposed operation, prior to commencing any real investment in building out the facility. Of course, an essential part of this process is having a detailed business plan that outlines all operational issues of the facility. A full understanding of the contemplated uses is essential. In land use terms, a use can be best described as the economic activity permitted in the zoning district. Sticking to our theme, as applied to a typical craft operation, “uses” may include activities such as “manufacturing” and “retail” operations, as examples.

  With the above in mind, many counties and cities are delineated into zoning districts. A zoning district, in simplified terms, is a local subdivision of a municipality where certain activities or uses are permitted within the subdivision, and by extension, some activities or uses may be precluded. Staying with the craft production analysis, some zoning districts may permit manufacturing uses and not retail, while in others, retail may be permitted but not manufacturing and, in some districts, neither may be permitted at all. By now, the prospective manufacturer should realize that aligning all desired operational uses with the zoning district is essential before build-out. Imagine investing significantly in a wine production facility where the contemplated revenue stream is to come from tasting room sampling and sales, only to discover late in the build-out process that the retail sales of alcohol are not permitted within the zoning district. Someone is about to lose their job!

  Other considerations that the readers are likely familiar with, as applied to alcohol, are distance requirements. Virtually every municipality and the zoning district within has distance separation requirements from alcohol businesses and certain other types of venues such as schools, religious establishments, and other alcohol beverage licensees. Being aware of these requirements is mandatory prior to commencing any construction on a sort of alcohol facility. As stated, lack of knowledge of the foregoing will lead to problems.

Available Remedies to Certain Land Use Problems

  In certain instances, contemplated producer operational uses are not permitted by right. That is to say, and using this as one example, the retail sales of alcohol from a tasting room may not be automatically permitted in a zoning district. However, certain administrative procedures may be available to the producer that will allow for specific uses within the zoning district only after process and approval.

  These exceptions generally take the form of conditional use permits or special exceptions. These administrative remedies may be available depending on local ordinances. These exceptions usually require an extensive application process and public hearings before zoning boards and city commissions where the public generally can attend and offer support, or criticism and objection, to a desired operation. These procedures are quasi-judicial in nature, where arguments are heard and made by the producer and the producer’s counsel to board members and the commission. As noted, the commission may approve the proposed operation and issue a conditional use permit. As the name suggests, these permits come with conditions affixed that must be complied with. If they are not, the holder then risks cancellation of the permit. Negotiating conditions is an integral part of the process between the local government and the producer. Clearly, the goal is to not include conditions that adversely affect operational objectives. It is worth noting that these are quasi-judicial proceedings. Records of the proceedings are established, and should the commission deny the issuance of a permit for a stated and unsubstantiated reason, the applicant has the ability to take the matter to state court and appeal the decision.

  Other remedies to zoning restrictions include perhaps the familiar “variance.” Back to our craft operation… imagine that you’ve located the perfect wine-making facility. All the stainless steel tanks fit nicely in the plant space, the layout allows for the contemplated bottling line, and just by chance, there’s a perfect space that can be the dedicated tasting room. The only problem is that the Church of the Sacred (pick your deity), is within 100 feet of the tasting room and as such, retail sales of alcohol are not ordinarily permitted. Well, if available, a variance could be the solution. In essence, a variance is a request to deviate from the specific zoning requirements within the zoning district. The process generally includes public notice and hearing but is a potential solution to all sorts of distance separation requirements.

  The above is merely a basic primer on zoning and land use issues that may affect wine, spirits, and beer production and sales issues. Municipal matters and zoning issues are complex areas of alcohol beverage law that are often overlooked by producers of beverage alcohol. In the contemporary production environment, particularly in the craft area with its complex and mixed-use environment, a producer would be well served by doing their land use homework or working with experienced counsel prior to groundbreaking. After all, the goal is to sell the drink produced, not to drink it to numb the pain of poor land use planning.