Federal Regulations of Wine

Author: Dusty Wetton

Last week’s article was about wine regulation according to the state compliance and governance. Thus, to complete the circle, this article is focused on complying with the federal regulations. In our federal system, many things are often controlled by local, state, and national bodies; this idea is also true for wine. Wine is under the jurisdiction of The Alcohol and Tobacco Tax and Trade Bureau (TTB). This body is responsible for observing those in the wine industry comply with the federal regulations, IRS code, and the U.S. Code. All of these compliances are vital to operating a successful, and legal, wine business.

The Federal laws that relate to the wine industry can be found at the TTB's website for free. Under the Code of Federal Regulations, Title 27, there are many issues related to basic permitting, licensing, and uses of wine. There are also sections focused on wine labels and trademark issues. Corresponding to these labels are sections about American Viticulture Areas and names of non-generic significance related to geographic areas.

Other codes are the following:

Internal Revenue Code (IRC), Title 26 United States Code (USC), Chapter 51

Federal Alcohol Administration Act, Title 27 United States Code (USC), Chapters 6 and 8

Most of the laws and regulations that you will need can be found in Title 27 of the Code of Federal Regulations. If you are in the wine industry, be sure to check there frequently to ensure that you are in full-compliance with all necessary regulations.

For legal services or questions regarding this blog, please contact me at dwetton@lauruslaw.com.

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The ABC’s of Wine Licensing

Author: Dusty Wetton

In California, in order to produce, sell, or distribute alcohol, you must first obtain a liquor license. For wine, this can mean many things. California's Department of Alcoholic Beverage Control, known commonly as “ABC”, is the governmental body that is in-charge of distributing the licenses. Through their control, they have several different license types.

Each license carries different basic privileges. For example, license type #02 is a winegrower (winery) license. It authorizes the sale of wine to consumer’s on premise, the sale regardless of the source for on premise consumption, and for on premise use in preparing food. It also allows for wine tastings, as described under the business code.

Another common license issued is for events that will sale wine. This special license authorizes type 02 licensees to sell bottled wine produced by the winegrower for consumption off the premises where sold and only at fairs, festivals or cultural events sponsored by designated tax exempt organizations. The license holder must notify the city or county where the event is being held

These are just two types of liquor licenses related to the wine industry. There are many different types, and the definitions of which license you should obtain is governed by the definitions given under the Business and Professions Code. To learn more about the various types and their granting abilities, go to the California Department of Alcoholic Beverage Control.

For legal services or questions regarding this blog, please contact me at dwetton@lauruslaw.com.

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Conjunctive Labeling

Author: Dusty Wetton

After writing last weeks article about American Viticulture Area’s, I found information about a much related area of wine law that I thought would be a perfect coupling to last weeks article. If you have ever, as I am sure you have, ordered a bottle of wine from the AVA Napa Valley, you would have seen on the bottle “Napa Valley.” Now if you have ever been to Napa Valley, you would know that there are many different parts to the valley, each with their own characteristics that may cause it to stand out on its own from Napa Valley. The reason that it must say Napa Valley is that this particular AVA is part of a conjunctive labeling law. This law passed back in the early 1980’s, and has brought fruition to the area, and has caused Napa to been known internationally since.

So what exactly is conjunctive labeling? In a general sense, it is the labeling of wine that requires the label of the “main AVA region” to be placed on the bottle. For instance, all wine grown in Sonoma Valley must say “Sonoma Valley” on the label. The law is governed as a recording with the Alcohol and Tobacco Tax and Trade Bureau, as well as the California Alcohol Beverage Control. If a bottle produced in one of these regions does not possess the proper labeling under the law, then the company could get fined and criminally prosecuted against for violating the conjunctive labeling law.

The opponents to conjunctive labeling believe that these laws infringe on the rights of free marketing. For instance, the Los Carneros region is not allowed to just have “Los Carneros” labeling, it must also state “Sonoma Valley.” Therefore, it could loose an edge over other regions in Sonoma Valley that are not yet developed or established in the wine industry. Proponents of conjunctive labeling of course bout against these arguments. They state that the conjunctive label is left open to style, font, and other design options. Also, the conjunctive label does not have to directly above the sub-region name, nor does it have to be the same sized font of the sub-region. The size of the conjunctive label must be no smaller than 2mm and must appear on the front of the label, but all other creativities are left open to interpretation and application.

Yet the debate continues, is it better for the region to have conjunctive labeling or to not have this regulation. I guess the answer would of course depend upon how the winery is established and what area they grow in prior to the law being enforced. For some it’s better, for others it may infringe upon their success. What is important is to understand when it applies to your wine and how to comply with the laws to best market your wine.

For legal services or questions regarding this blog, please contact me at dwetton@lauruslaw.com.

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¿De dónde eres? The AVA’s of Wine

Author: Dusty Wetton

When I used to work in fine-dining, I was often asked by customers what the difference was between a Merlot from Napa Valley from a Merlot from the Russian River Valley. I always answered that the grapes grew up in different neighborhoods and therefore had different experiences. While this was mostly meant as a joke, it was also comically wise. A grape is grown and experiences many different things depending upon its location of harvest. Things such as the weather, climate, moisture, soil, sunshine, temperature, and other factors can lead to very different wines, even if they are created in the same year and are of the same grape variety. To help consumers, and wine marketing, determine what wines should have similar experiences, the Alcohol and Tobacco Tax Bureau of the Department of the Treasury have created American Viticulture Areas (“AVA’s”).

AVA’s are designated wine grape-growing regions in the U.S. distinguishable by geographic features. There are currently approximately 200 AVA’s in America, which allow for certain wine producers to place the AVA designation on their particular bottle. To qualify your wine’s origin from a particular locale, it must have at least 85% of its grapes grown from that specific AVA. The size of the AVA is not limiting in any way, yet because they are defined by their geographic settings and similarities, it is difficult to create a miniature AVA. An AVA is also not limited by the variety of grapes that can be grown there, any methods on growing, or vinification techniques.

There are also sub-AVA’s and larger AVA’s. For instance, the Russian River Valley is an AVA in the larger North Coast AVA. Here in Southern California, most of our wines originate from the South Coast AVA. Within that are familiar sub-AVA’s such as Ramona Valley, San Pasquel Valley, and Temecula Valley. In order for each AVA to be created, its area must be evidenced that the area is locally or nationally recognized to hold such a name, have some sort of historical evidence proving the boundaries are accurate, and proof that the soil, climate, elevation, and other physical features are unique to this area.

Now as a consumer, you know the difference and you can use it as an ace in your pocket for your next wine mixer. As a producer, the AVA is also useful for certain marketing benefits, as if 85% of your wine is from a certain AVA, it may allow you to join a more prestigious and established group than you may have reached on your own yet.

For legal services, comments, or questions regarding this blog, please contact me at dwetton@lauruslaw.com.

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What exactly is Wine Law?

Ever since Father Junipero Serra planted the first vineyard at the Mission Basilica San Diego de Alcalá, wine has been a part of California. Today, wine from California vineyards account for almost 90% of all U.S. wine production. So naturally, with so much industry here in California, problems are sure to follow. Thus, wine law has developed to address such issues.

All things surrounding wine has its own particular set of challenges, such as heavy government regulation, fierce competition both locally and internationally, contractual relations with various persons, and intellectual property issues. Planned precautionary measures now can minimize or avoid a lot of legal troubles later on. Unfortunately, when running any business, disputes will arise between your business and others, and therefore, wine law can be used as both a preventive tool as well as a protection for certain needs that may arise.

Wine law covers more than what most people realize. Here are some examples:

• Business formation: vineyard owners, wineries, retailers, and more may have certain business decisions to make such as what type of business formation to use (S Corp, LLC, partnership, etc.), business tax, fictitious business names, FIEN, and more.
• Alcoholic beverage licensing: both State (ABC) and Federal (TTB) government regulate alcohol, including new legislation and regulations.
• Trademark law: wine bottle labels are much more complex than they appear. A thorough trademark search should be conducted for every new bottle in production, and a strong trademark should be filed.
• Contracts and License Agreements: Many types of contracts, such as custom-crush agreements, on-premise event contracts, material purchases agreements, sales agreements, bottling contracts, and distribution agreements.
• Assist in land acquisition: land acquisition for vineyards or other uses related to wine is quite a complex process.
• Environmental law: issues from water management, waste control, endangered species, and storm water discharges.
• Hiring contractors for building or repair: wineries are often in the need of change, and hiring an independent contractor can open wineries up for potential liabilities.
• Employment law: issues such as labor management issues, pensions, wrongful discharge, civil rights, federal and state occupational safety laws, wage and hour laws, and workers' compensation.
• Tax law: whatever their specific tax accounting and filing regulations may control.
• Business Governance and Maintenance: website privacy, business filings, trademark review, advertising, unfair business practice checks, and antitrust review.
• Shipping Laws: interstate direct-to-customer shipping laws, self-distribution to retailers, and ecommerce issues.
• Compliance: wholesale compliance and importation compliance.
• Litigation: wineries are sometimes sued for a variety of reasons, often though related to all of the above issues.

Of course, this list is not conclusive, but it does convey the variety of what a wine lawyer would practice. I hope that this snapshot of wine law has opened your eyes to the tangled obstacles and complexity that is behind a simple bottle of wine.

For legal services, comments, or questions regarding this blog, please contact me at dwetton@lauruslaw.com.

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Mail-Ordered Wines are Becoming Fruitful

Author: Dusty Wetton

In Maryland today, the State Senate passed a measure that will allow wineries to ship directly to Maryland residents, approving the measure 45-0. In Tennessee today, the State Senate approved a bill allowing direct mail-ordered shipments of wine to consumers anywhere in Tennessee, thus expanding a previous regulation that only allowed shipment to cities with liquor stores. In Rhode Island, legislation is pending allowing the same right to its residents. There seems to be a lot of change in the air, but why are some states not budging?

Currently there are 36 states that allow such shipments, but there are few remaining states, such as Rhode Island, that have yet allowed such commerce. States are able to inhibit such transactions under the Dormant Commerce Clause of the Constitution. This clause allows states to control commerce into the state if the federal congress has failed to govern it, or it is part of governance that is not normally controlled by the federal government. The state is allowed to do so as long as it does not create any protective trade practices that favor in-state wineries over out-of-state wineries. Thus, states must ban shipment from all wineries, not just those out of the state. However, some believe that by not allowing shipments directly to residents, it creates a burden on the residents to obtain out-of-state wineries and allows for the local wineries to benefit more. Regardless of the ultimate reason, recent changes are spreading like wild fire in state legislations around this issue and it should bring many transformations to the wine industry as a whole.

In line with these recent changes, here are some tips I learned from a host at Belle Marie Wineries in Escondido, CA (www.bellemarie.com) that changed some of my preconceived notions on wine. First, don’t waste money on wine stoppers. While the top of the line stoppers can afford an elongated taste to the wine, turning over the used and original cork and inserting it back into its original home will do just fine. It will loose aromatics through oxidation, but if it is consumed within a week, it will taste just about the same as the day it was opened. Hopefully finishing a bottle within a week won’t be pressuring any of you to become alcoholics. Another tip I received was that red wine could actually be chilled. Red wine is to be consumed at just below room temperature to get the best taste out of the wine. However, way too many of us place our red wines on our counter-tops in front of windows, next to stove tops, and other places where the temperatures are varying daily. This is not good for the wine, and therefore, it may be best to store the red wine in the fridge and then to take it out about 30 minutes before consumption to let it heat up. Lastly, and on the same note, white wines are not to be frozen upon consumption; they are to be chilled. Thus, take them out of the fridge and let them heat up a bit before consumption. Chilled does not mean cold, its time to break that habit to truly enjoy the efforts behind the wine.

I guess the states aren’t the only ones who are going to be trying to change their habits in regards to wine.

For legal services, comments, or questions regarding this blog, please contact me at dwetton@lauruslaw.com.

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Bottle Shock Part II

Author: Dusty Wetton

It first occurred in 1976 in the countryside of France, and it forever changed the world. It was then known as the “Judgment of Paris”, when on that May afternoon, California wines toped French wines in every tasting category in an organized wine blind-tasting competition. This was a shock to the world, for it was popularly believed that Europe, especially France, made and knew the most about wine. This led to a dramatic boost to the Napa region, and to a growth in California wines in general. And just yesterday, the Associated Press announced that wine sales in the U.S. topped France for the first time in history.

While of course this figure is not as exciting as it could be, as per-capita consumption, the French are still well ahead of America, but still, the jump in wine sales sheds light on a potential trend for vintners around the world. The studies were completed by the Wine Institute, Gomberg Fredrikson & Associates, and the Nielsen Company. Boosts in the wine industry over the years can be attributed to a larger population of wine-lovers, a smaller world due to globalization, and a wider variety of wines. Even during the recession, the wine industry saw a continued growth.

In this study, California topped the country in its production of wine. According to the associated press, the report is based on trade shipments of wine, thus, it is based upon wine being consumed at a variety of venues and retailers. Yet still, in the lands of laws and economics, noticing trends is vital, and thus as a vineyard, wine retailer, or distributor, it is important to be ready for the potential growth and popularity boost of wine culture here in America. What record is going to get broken next?

For legal services or questions regarding this blog, please contact me at dwetton@lauruslaw.com or find out more at www.lauruslaw.com.