Protecting Your Business From Employee Poachers

By Brian D. Kaider, Esq.

You’ve been in business for several years and have a dozen hard-working, dedicated employees working for your company, or so you think.  Out of the blue, a new competitor enters the market and the next thing you know, all 12 of your employees have jumped ship to join the new firm.  With them, they have taken company records and customer lists.  What do you do?  Do you have any legal recourse against the poaching company? Against your former employees?  How could you have prevented this?

Can a Competitor “Poach” Your Employees?

In most states, yes.  Many people are surprised to learn that, generally, poaching is a perfectly valid and legal way to find new employees. There are exceptions and limitations, of course, but the overall policy favoring poachers is that courts do not want to unduly restrict a person’s ability to seek employment in a competitive marketplace.

An Ounce of Prevention is Worth a Pound of Cure

The best defense against poachers is to create an environment in which your employees are happy and will be reluctant to leave.  That does not necessarily mean having the highest salaries in your business, though compensation is certainly one factor.  More important, though, is creating a culture of inclusion, where employees feel that they are valued members of a team, where they are challenged and know they will be rewarded for excellent performance.

Contractual Protections

There are many types of agreements that can help prevent poaching, but they generally fall into two broad categories; non-compete agreements and non-disclosure agreements.  These may be stand-alone contracts, or may be integrated as clauses in an employment agreement.

  • Non-Compete Agreements: Can be a valuable asset in protecting your workforce, because if certain conditions are met, a poaching company may be liable for “tortious interference of contract” between you and your employee. But, the first element of that legal claim is the existence of a valid contract. There’s the rub.  Many states, California in particular, disfavor non-compete agreements as an undue restriction on someone’s freedom to seek employment.  So, these contracts must be drafted carefully and narrowly tailored to your company’s specific circumstances so as not to create an unfair burden on the employee.

For instance, if you are in an industry where you have dozens of competitors within 20 miles of your business, then a restriction in your employment agreement prohibiting a departing employee from working for a competitor within 5 miles of your business might be considered reasonable.  But, if you have only one competitor in your state, and that competitor is 10 miles away, then a restriction in your employment agreement prohibiting a departing employee from working for a competitor within 20 miles would almost certainly be deemed unreasonable by the court.

  • Non-Solicitation Agreements: One form of non-compete agreement, however, is much more readily enforced; a non-solicitation agreement. This contract prohibits a departed employee from attempting to convince other employees to leave. While this can be very helpful in preventing a mass exodus, here too, the restrictions must be reasonable.  A prohibition from contacting other employees for six months following termination would more likely be enforced than such a prohibition for five years.  Note, however, that this agreement applies only to the departing employee; it does nothing to prevent the competitor from contacting more of your employees directly.

Even in the absence of a written non-solicitation agreement, in most jurisdictions, a current employee has a duty of loyalty to his/her employer.  This duty prohibits an employee who plans to leave from soliciting co-workers to leave at the same time.  The employee may, however, announce his departure and if co-workers approach him to inquire about the new employer, that is not a violation of the employee’s duty.

  • Non-Disclosure Agreements: While it may be difficult to prevent an employee from going to a competitor, often it isn’t the departure of the employee itself that is of concern to the employer, it’s the risk that the departing employee will provide confidential or trade secret information to the competitor. Fortunately, non-disclosure agreements are very common and widely enforceable.

There are many types of confidential and trade secret information, such as client lists, marketing and distribution plans, growth strategies, pricing structures, recipes, business methods, etc.  These are all valuable assets that should be protected by non-disclosure agreements with your employees.  The key to successful enforcement of these agreements, however, is that you yourself must treat the information as confidential and secret.  This means limiting distribution of the information within your organization to only those who need it to perform their jobs and not disclosing the information to anyone outside the organization (except lawyers, accountants, and other service professionals you have hired to support your business).  Further, you should ensure that hard copies of confidential information is kept under lock and key and electronic records are password protected with as few employees having access as is practical.

What Can You Do?

One or more of your employees has left for a competitor; what do you do?  First, take a breath.  You can’t keep all of your employees forever, people will come and go.  So take stock: how much does this departure hurt your business?  Did the employee have access to confidential or trade secret information?  Was the employee close friends with any of their coworkers in your employ?

If the employee has given you notice, but not left yet, meet with them.  Let them know they will be missed, but remind them of their duty of loyalty while they remain with you.  Identify the confidential information they have been privy to and discuss what may and may not be communicated to their new employer. If the employee received hard copies or electronic files that you consider confidential or secret, ask the employee to sign a sworn statement that they will return or destroy all copies.  If the employee is unwilling to sign such a statement or gives you indicia of hostility toward you or your company, consider terminating them on the spot.  Depending on the circumstances, you may have to pay their salary if you have a contractual notice period for termination, but at least they will have no further access to your confidential information or direct communication with your other employees.

If the employee has already left and you believe that they have taken confidential or trade secret documents and/or provided such information to their new employers, you must act quickly in order to protect your rights.  Below are some examples of legal actions to take.

Breach of Contract

If you and your employee had a written contract (non-compete or non-disclosure) you can take legal action against the employee for breach of contract.  You will need to demonstrate three elements: the existence of a valid contract, that the terms of the contract were violated by the former employee, and that the breach caused or will cause economic harm.  As discussed above, particularly for non-compete agreements, the contract must be reasonably drafted for the court to consider it valid.

Tortious Interference with Contract

If there is a valid contract with the employee, you may also be able to take action against the competitor for tortious interference with the contract.  This cause of action has five elements that must be satisfied:  1) the contract must be valid, 2) the competitor must have knowledge of the contract, 3) the competitor must intend for the new employee to breach the contract, 4) the terms of the contract must actually be breached, and 5) you must be damaged by the breach.

The second element, requiring actual knowledge of the contract by the competitor may seem a little tricky.  As a first step before filing a legal action, you can send the competitor a cease and desist letter describing the nature of the contract (non-compete, non-disclosure, etc.) and how you believe that contract will be violated by the competitor’s continued behavior.  If the competitor continues, then you can proceed with the legal action and your letter will provide proof of actual knowledge of the contract.

The most difficult element of the claim is that of damages.  In cases where you can directly tie the breach to a loss in sales, economic damages may be easy to define.  That is seldom the case, however, so seeking equitable remedies such as preventing the employee from working for the competitor may be a better approach.

Breach of Duty of Loyalty

In the absence of a non-compete/non-solicitation agreement your employees still owe you a duty of loyalty.  While the language may vary state to state, essentially the employee owes a duty to act with good faith in the furtherance of the employer’s interests  If a departing employee actively solicits others to join the new company, copies files to bring to the new company, deletes or sabotages data to inhibit your business operations, or otherwise acts in a manner that is hostile to your company, they violate this duty.  Damages may include lost profits and also punitive damages if you can demonstrate that the breach of duty was willful.

Misappropriation of Trade Secrets

Though the language of what constitutes a trade secret varies state-to-state, it is generally information that 1) is not known to the public, 2) derives independent economic value, and 3) is subject to secrecy, meaning that you have to actively maintain its secrecy.  The classic example of a trade secret is a recipe, such as the formula for Coca-Cola® or the Kentucky Fried Chicken® secret blend of 11 herbs and spices.  But, the general skills, knowledge and expertise an employee acquires through experience in the field, even while working for you, are the employee’s assets, not yours.  So, pricing information committed to their memory through servicing your clients is not protectable.  But, if they access and download a password protected pricing strategy on the company’s server and bring that information to a competitor, that would be a misappropriation.

Unfair Competition

Although poaching employees is generally a legitimate and legal business practice, there are limitations. For example, except in very specific and highly skilled fields, it is uncommon for one company to employ all of the competent people in the field.  So, while it is not per se illegal to recruit more than one employee from a competitor, engaging in a pattern of solicitation of a single company’s employees may be evidence of intent to destroy the competitor’s business or a crucial department thereof and may be actionable unfair competition.  To prevail on an unfair competition claim, you must demonstrate that the loss of key personnel will harm the company and that the competitor intended to drive you out of business. For example, if the competitor offers salaries to your entire sales team that are well-above market rate, that may be evidence of a bad faith attempt to cripple your business.

Summary

The law generally favors a person’s freedom to seek employment and is skeptical of efforts to restrict that freedom.  Nevertheless, an employer has the right to loyalty from current employees and is protected from efforts to unfairly undermine its business by stealing secret information or luring away its entire workforce.  Whether concerned with protecting trade secret information from departing employees or exposure to legal liability when recruiting a competitor’s workers, early consultation with an attorney is always a wise approach.

Brian Kaider is a principal of KaiderLaw, an intellectual property law firm with extensive experience in the craft beverage industry.  He has represented clients from the smallest of start-up breweries to Fortune 500 corporations in the navigation of regulatory requirements, drafting and negotiating contracts, prosecuting trademark and patent applications, and complex commercial litigation.

bkaider@kaiderlaw.com

 (240) 308-8032

TTB Proposes New Rules for Wine Labeling & Advertising

By Brian D. Kaider, Esq.

On November 26, 2018, the TTB published in the Federal Register a notice of proposed rulemaking, titled, Modernization of the Labeling and Advertising Regulations for Wine, Distilled Spirits, and Malt Beverages (83 Fed. Reg. 60,609).  The purpose of these proposed rules is to “simplify and clarify regulatory standards, incorporate guidance documents and current policy into the regulations, and reduce the regulatory burden on industry members where possible.”

When the federal government wants to change rules Americans are subject to, they must first publish the proposed rules and provide a period of time for the public to comment and make suggestions.  The government agency is required to review and consider all suggestions before implementing a final rule.

This process is not a formality.  TTB wants the rules to adequately protect the public while being as fair and unobtrusive as possible to industry members.  It is actively seeking comment on many issues in this notice.  As members of the industry affected by these rules, winery owners would be well-advised to review TTB’s proposals and provide feedback before the March 26, 2019 deadline.

This article is meant to introduce some of the key issues with which TTB is grappling.  For more detail, please see the full proposal (linked at the end of the article).

Organization

One of the most fundamental proposed changes is a reorganization of parts.  Currently 27 CFR parts 4, 5, and 7 relate to wine, distilled spirits, and malt beverages, respectively.  TTB is proposing to keep those parts, but to consolidate all advertising issues to a new part 14.  They will also make the organization of parts 4, 5, and 7 more uniform.  Subjects will be in the same order and the same section numbers will be used within each part.  For example, regulations identifying the mandatory information for wine, spirits, and beer labels will be in sections 4.63, 5.63, and 7.63, respectively.

COLAs

In section 4.14.1, TTB is proposing to change the definition of “COLA.”  Currently, only changes specifically authorized on the COLA form itself may be made to an approved label without filing for a new COLA.  The new definition would allow TTB to authorize additional changes in other ways, such as through issuance of a guidance document on the TTB website.

Certificates of Exemption

Current TTB practice enables an applicant to obtain a certificate of exemption from label approval conditioned on the applicant’s agreement to add the statement, “For sale in [name of State] only” to the label.  Proposed rule 4.23 will require the applicant to include the statement on the label submitted with the application.

Personalized Labels

Proposed rule 4.29 clarifies TTB policy on “personalized labels,” labels on which certain changes may be made without having to resubmit the label for TTB approval.  The personalized label may contain a personal message, picture, or other artwork specific to the consumer, such as for a wedding or anniversary.   The COLA applicant must submit a template for the personalized label with a note as to the specific information that may change. Changes that discuss the wine itself, the alcohol content, or that include information inconsistent with the provisions of TTB regulations or other applicable law are not permitted.

Alteration of Labels

Proposed rules 4.42 and 4.43 describe, in detail, the circumstances when proprietors of bonded wine premises, importers, and certain others may relabel a wine product without obtaining separate permission from TTB for the relabeling activity.  In all cases, the new label must be covered by a valid COLA.  Industry members who would be affected by these rules are encouraged to thoroughly review the relevant areas of the proposed rules.  TTB seeks comments on whether they will protect the integrity of labels in the marketplace without imposing undue burdens on the industry.

Mandatory Label Information – Packaging

Proposed rule 4.62 clarifies the requirements for open or closed packaging.  Packaging such as a covering, carton, case, or carrier used for sale at retail (not shipping cartons) that require a consumer to open, rip, untie, unzip, or otherwise manipulate the package in order to view any mandatory information on the bottle is considered “closed packaging” and must include all mandatory information required to appear on the label.  If a consumer could view all mandatory information on the container by merely lifting the container up, or if the packaging is transparent or designed such that all mandatory information can easily be read by the consumer, the packaging is considered “open” and may display any information not in conflict with the label on the container inside the packaging.

TTB seeks comment on the following three points:  1) whether it should require mandatory information to appear on open packaging when part of the label is obscured; 2) whether the proposed rules will require significant change to labels, containers, or packaging materials, and 3) whether the proposed revisions will provide better information to the consumer and make it easier to find mandatory information on labels, containers, and packages.

Prohibited Practices

TTB proposes to break this section into three parts:

  1. Restricted Labeling Statements

Proposed rule 4.87 loosens the restriction on using vineyard, orchard, farm, or ranch names.  Current practice allows these names in the brand only if at least 95 percent of the wine was produced from fruit grown on the named property. If used as a trade name in the bottling address, the proposed rule will allow the name as the brand even if no grapes are grown on the property or even if there is no such property with that name.

Proposed rule 4.90 makes five changes to the current law relating to “multistate” appellations:  1) removes the requirement that the states be contiguous; 2) reduces the minimum percentage of grapes from the states named in the appellation from 100% to 85%; 3) removes the requirement that the percentage of the wine derived from grapes of each state be shown on the label 4) adds the requirement that the percentage of wine derived from grapes of a named origin be greater than the percentage from an unnamed origin; and 5) adds the requirement that the states be listed in descending order according to the percentage of wine derived from grapes grown in those states.

While proposed rule 4.90 appears to allow “multistate” appellations for noncontiguous states, proposed rule 4.135, prohibiting misleading references to the origin of wine, appears to contradict this rule. It explains, a wine made from grapes 50% from New York and 50% from Virginia would be ineligible for a multistate appellation because the states are not contiguous.  TTB was unable to be reached for clarification in time for publication of this article.

  1. Prohibited Labeling Practices

In The Grapevine Magazine’s September 2017 issue, the article “Where Never Is Heard A Disparaging Word… Until Now” described the U.S. Supreme Court case, Matal v. Tam, wherein the Court ruled the Trademark Office could not refuse registration of a trademark considered disparaging to a group of people. The Court reasoned that registration of a trademark was not “government speech.”  Further, it was concerned if it were to hold otherwise, “other systems of government registration could easily be characterized in the same way.”  Thus, the article suggested TTB restrictions on COLA registrations containing “disparaging” content were likely unconstitutional under Tam.

TTB seems to agree.  The language of former rule 4.38(f), incorporated into proposed rule 4.56, omits reference to disparaging content.  Further, the proposed rules indicate Industry Circular 1963-23, “Use of Disparaging Themes or References in Alcoholic Beverage Advertising is Prohibited” was not incorporated into the proposed rules.

However, proposed rule 4.103 says, “[w]ine labels… may not contain any statement or representation that is obscene or indecent.”  On December 15, 2017, the U.S. Court of Appeals for the Federal Circuit decided the case In re Brunetti, finding that in light of Matal v. Tam, the Lanham Act’s bar on registration of “immoral or scandalous” marks was unconstitutional, as well.  Whether TTB has not yet determined the applicability of the In re Brunetti decision or will continue to deny COLA registrations containing “obscene or indecent” material until challenged in court remains to be seen.

  1. Labeling Practices Prohibited if Misleading

This subpart generally prohibits any statement or representation, irrespective of falsity, that is misleading to consumers as to the age, origin, identity, or other characteristics of the wine (see proposed rule 4.122, for example).

Proposed rule 4.124 prohibits false or misleading statements that disparage a competitor’s product. The rule does not preclude expressions of opinion, such as “We think our wine tastes better than any other.”  By contrast, a statement like “We do not add arsenic to our wine,” although truthful, would be considered disparaging because it falsely implies other producers do.

Proposed rule 4.126 eliminates the blanket prohibition against the use of the American flag or symbols of the U.S. armed forces, provided the usage does not create the impression of an endorsement by, or affiliation with, the governmental entity represented.

Proposed rule 4.127 retains prohibitions against simulated government stamps, but only if the usage is misleading.  TTB seeks comments on whether there is still a need for regulations on this issue.

Proposed rule 4.128 prohibits wine labels or packaging from containing a statement, design, or representation tending to create a false or misleading impression the wine is or contains a distilled spirit or malt beverage.  While statements about aging wine in barrels previously used in the production of distilled spirits are acceptable, statements implying the product contains distilled spirits (such as ‘‘bourbon flavored wine’’) are prohibited as misleading.  TTB solicits comments on whether the proposed rules adequately protect consumers and whether they will require changes to existing labels.

Proposed rule 4.211 allows bottlers and importers to provide  TTB or customs officers with COLAs in photocopies, electronic copies, or records showing the TTB identification number of the approved COLA, rather than an original paper copy.

Dessert Wine

Without proposing a new rule, TTB requests comments about the designation “dessert wine.”  Current rule 4.21 requires a dessert wine to be 14-24% alcohol.  While rejecting applications for dessert wines below 14%, TTB has approved COLAs for such wines stating “may be served as dessert wine.”  Because many consumers associate dessert wine more with the level of sweetness than with alcohol content, TTB requests comments from the public as to: 1) the use of “dessert wine” as a designation of alcohol content; 2) whether there is a more appropriate term for wines containing 14-24% ABV; 3) whether “light” wine to indicate alcohol content is consistent with industry and consumer understanding, and 4) whether the term “natural” wine is understood by the industry and consumers as being a wine with no added brandy and, if not, how the term “natural” is understood in relation to wine.

Citrus Wine

Proposed rule 4.145 incorporates all citrus wines into the category of fruit wines, eliminating citrus wine as a separate class.  TTB requests comment as to whether this change would require the change to any existing labels.

Providing Feedback to TTB

TTB’s proposed rules involve many issues and details not summarized above.  If you would like to provide feedback to TTB on one or more issues, the entire 132-page document can be found here: https://www.gpo.gov/fdsys/pkg/FR-2018-11-26/pdf/2018-24446.pdf.  To submit your feedback, you may use the online comment form here: https://www.regulations.gov/comment?D=TTB-2018-0007-0001 or via U.S. Mail to the Director, Regulations and Rulings Division, Alcohol and Tobacco Tax and Trade Bureau, 1310 G Street NW, Box 12, Washington, DC 20005.

Brian Kaider is a principal of KaiderLaw, an intellectual property law firm with extensive experience in the craft beverage industry.  He has represented clients from the smallest of start-up breweries to Fortune 500 corporations in the navigation of regulatory requirements, drafting and negotiating contracts, prosecuting trademark and patent applications, and complex commercial litigation. bkaider@kaiderlaw.com (240) 308-8032

Navigating the Minefield of Wine Advertising and Promotion

By Brian D. Kaider, Esq.

One of the take-home messages from the State of the Industry address at this year’s Unified Wine and Grape Symposium was that per capita alcohol consumption is flat.  This means that the various sectors of the alcohol industry can only increase sales by re-dividing the pie in their favor.  Although wine and spirits are making headway at the expense of beer, new players in the space, such as hard seltzers and pre-mixed cocktails are carving out their own slices.

One of the areas where wine is losing market share is with millennials, who are adopting wine as their drink of choice at a slower pace than prior generations.  Winning in this sector, and others, will require strong marketing efforts.  But, advertising and promotion in the alcohol industry is a messy affair with wildly contradictory rules in different jurisdictions.

This article surveys the laws in several states, not to provide a complete picture as to allowable advertising practices in the wine industry; that would be impossible, but to highlight some of the issues and how differently they are addressed in different states.

Traditional Ads in Print and Digital Media, Radio, and Television

Generally, traditional ads in these types of media are allowed in most jurisdictions.  However, in the words of the Genie in Disney’s Aladdin, “there are a few provisos; a couple of quid pro quos.”  For example, in Texas, a winery cannot buy title sponsorship of “hotlines” from radio stations where listeners call to hear prerecorded list of events at retail locations.  In Virginia, advertisements in print or electronic media are permitted so long as they are not in publications primarily marketed to persons under the age of 21.  And, in Missouri, emergency legislation was passed in response to Missouri Broadcasters Association v. Taylor, expanding the definition of advertising to include electronic means of dissemination, though this legislation will expire on April 17, 2019 unless further action is taken.

Outdoor Advertisements

Typically, in states that allow the use of billboards for general purposes, they are allowed for alcoholic products, as well.  Maryland requires, however, that the ad specifically identify the supplier and not be for the benefit of a specific retailer.  Texas requires the supplier to get a permit for a billboard if it is within 200 feet of a retailer that sells the advertised product.

Texas also prohibits the use of an inflatable advertisement outside a retailer’s establishment and only allows them indoors if they are not visible from the outside.  Maryland allows the use of inflatables in parades and other functions as long as they not brought to permanent rest in front of a retailer premises.  However, they may be on or near retailer premises if promoting an event sponsored by the supplier and not intended to promote a particular retailer.

In Oregon, a winery may give exterior signage to a retailer, so long as it does not exceed 2,160 square inches in size.  In Virginia, however, a winery may not sell, rent, lend, buy for, or give to any retailer any outdoor alcoholic beverage advertising.In Texas, a winery may display a branded promotional vehicle inside or outside of a retail licensee’s establishment, but for no more than five hours per day.

Cooperative Advertising

In Oregon, a winery may list on its website the retailers carrying its products, but it must include all such retailers and may not include pricing information that would appear to promote one retailer over another.  In neighboring Washington State, wineries can not only list their retailers, but include links to their websites, as well.  The law is silent as to whether all retailers must be listed, but that would certainly be the safest practice.

In Virginia, a winery may not engage in any cooperative advertising on behalf of any retail licensee.  But, in Michigan, while a winery’s advertising material may not include the name of a retailer, it may include that of a wholesaler.  A winery may also pay the cost of painting a wholesaler’s trucks and may supply brand logo decals and advertising mats to the wholesaler at no cost.

Signage Inside Retail Establishment

Most jurisdictions will allow a winery to provide retailers with indoor signage, though paying directly or indirectly for sign location, floor space, shelf space, or other advertising space is a big no-no.  What a winery is allowed to provide, however, varies widely.  In Maryland, the value of any single advertising item may not exceed $150 and the total cost of all advertising at a particular retailer may not exceed $450 without authorization from the Comptroller, which may allow up to $600 on a case-by-case basis.

In Missouri, the total value of all permanent signage and point-of-sale materials given to a particular retailer may not exceed $500 per calendar year per brand, though the signage may include the name and address of the retailer.  In Virginia, a winery may only provide (either for free or for a cost) to a retailer non-illuminated advertising materials made of paper, cardboard, canvas, rubber, foam, or plastic that have a wholesale value of $40 or less per item.  And, in Michigan, a winery may only provide non-illuminated signage less than 3,500 square inches (unless in a sports/entertainment venue) and it may not include the name or address of the retailer.

Coupons

In many jurisdictions, such as Missouri, Texas, Oregon, and California, a winery may not issue coupons for its products.  In Maryland and Virginia, however, coupons may be provided to consumers at the point of sale, through direct or electronic mail, or through print media.  The coupon must have a definite expiration date, require proof of purchase, and require purchaser to be 21 years old or older.  Virginia further requires that the coupon may not exceed 50% of the normal retail price of the item and must be redeemed via mail by the manufacturer or their designated agent, but not by the retailer or wholesaler.

Sweepstakes and Contests

Most states allow wineries to hold sweepstakes and contests.  Generally, in a sweepstakes, every entry has an equal chance of winning, whereas in a contest, the winner is determined by skill, knowledge, or ability rather than random selection.  In states that allow such events, several features are commonly required.  First, consumption of alcoholic beverages may not be an element of the game and alcoholic beverages may not be awarded as a prize, though in California, alcoholic beverages may be included if they are incidental to the total prize package.  Second, participants must be of legal drinking age.  Third, there must be a way to enter without purchase.

Some states have additional requirements.  For example, in Missouri, point-of-sale advertising is allowed only if no value is provided to the retailer for conducting the sweepstakes or contest.  In Texas, prizes cannot be awarded on the retailer’s premises.  In Maryland, proposals must be submitted to the Alcohol and Tobacco Tax Bureau of the Comptroller of the Treasury in time to be approved at least 14 days before the start of the sweepstakes or contest.  Maryland also allows instant winner vouchers, but only if placed randomly in product packages and the retailer has no knowledge of the placement.

In Virginia and California, entry forms may be attached to removable neck hangers, but Virginia requires that they be offered to all retailers equally and each retailer must provide their consent for such materials, whereas California will allow them so long as there is no purchase required to enter.  California also allows codes to be affixed to the original label, container, or packaging that can be scanned by the consumer to enter.  Instant or immediate awarding of a prize is not permitted in California, but, like Maryland, instant notification that a consumer is a winner is allowed.

Novelties

Perhaps the biggest discrepancies, and the most surprising, involve novelty items.  One of the most permissive jurisdictions is Missouri, where wineries may give shirts, hats, bottle openers, corkscrews, etc. to retailers for unconditional distribution to the public.  Even the $500 aggregate limitation on point-of-sale advertising does not apply to these items.

Virginia law draws several distinctions.  Items not in excess of $10 wholesale value may be given to retailers in quantities equal to the number of employees of the retailer present at the time the items are delivered; and the employees can wear or display the items thereafter.  Wineries and retailers may not give such items to customers unless they are participating in a tasting at the retailer’s premises.  Smaller items, such as napkins, placemats, and coasters may be provided to retailers only if they contain a message relating solely to and promoting moderation and responsible drinking.  They may contain the name, logo, and address of the winery, but only if subordinate to the message.  Finally, items such as glasses, napkins, and buckets may be sold to retailers, but the retailer must maintain records of such sales for two years.

In Maryland, promotional items such as paper cups, matches, brochures, napkins, calendars, etc. may be provided to retailers if the advertising is general in nature, does not identify a specific retailer, is provided in “trivial” quantities, and does not relieve the retailer of an ordinary business expense.  Hats, shirts, glassware, etc. must be sold to the retailer at fair market value.

Michigan allows wineries to give matchbooks and calendars directly to customers, if nothing else of value is included. The winery can only give calendars or matchbooks to a retailer for distribution to customers upon written order of the commission.  Nothing of value may be given to a customer.  Other novelty items bearing the winery’s advertising may be sold to retailers only with a written order from the Liquor Control Commission and may not be sold below cost.

Finally, Washington State allows wineries to provide branded promotional items of nominal value, such as lighters, coasters, napkins, clocks, mugs, glasses, bottle openers, corkscrews, hats, shirts, etc. to a retailer, but they must be: used exclusively by the retailer or its employees; include only the advertising matter of the winery and/or a professional sports team for which they have a license; and may not be provided by or through retailers to retail customers.

Conclusion

In a crowded market where every winery is competing against not only every other winery, but every brewery, distillery, meadery, cidery, and other alcoholic beverage supplier, good advertising and promotion is essential.  The issues highlighted in this article represent only a fraction of the issues surrounding the advertising and promotion of wine and do not provide a complete picture of those issues even within the jurisdictions mentioned.  Before engaging in any marketing campaign, it is imperative that a supplier know the laws and regulations affecting their plans.  Consultation with a knowledgeable attorney is always the best practice.

Brian Kaider is a principal of KaiderLaw, an intellectual property law firm with extensive experience in the craft beverage industry.  He has represented clients from the smallest of start-up breweries to Fortune 500 corporations in the navigation of regulatory requirements, drafting and negotiating contracts, prosecuting trademark and patent applications, and complex commercial litigation.

bkaider@kaiderlaw.com

 (240) 308-8032