Does the First Amendment extend to your brewery’s beer labels? You bet. Congratulations goes to Maryland’s Flying Dog Brewery for a big win this month. Unlike the brewery trademark disputes we’re used to seeing hit headlines, this brewery lawsuit involves Flying Dog’s rights to express itself on its labels. Like many cases tend to do, this one has been going on for quite some time. In fact, we reported on it here back in 2011. The background is that in 2009, Flying Dog sought to register its “Raging Bitch” beer label with the Michigan Liquor Control Commission. You can click the picture for a full-size version of the label. The MLCC did not approve the label, claiming it was offensive. In particular, it seems the MLCC took objection to language on the label that it found would be “detrimental to the health, safety, or welfare of the general public.”
The procedure gets a little messy. But, hang with me, because the outcome is important. When the MLCC denied the label, and Flying Dog lost its administrative appeal, Flying Dog filed a lawsuit pursuant to a federal statute, alleging the individuals at the MLCC had violated the brewery’s Freedom of Speech rights protected by the First Amendment. It’s not an unusual kind of lawsuit, except perhaps for the beer world. It’s the same kind of lawsuit involving government action that you’d see in headlines where a private citizen alleges that the police used excessive force. Constitutional violation. Keep in mind, however, that government actors can have different degrees of immunity from these kinds of lawsuits. It’s why you don’t see judges being sued every time they make a decision that impacts an individual’s rights. It’s prudent. We wouldn’t want a judge to be worried about being sued, for example, when trying to make the right, albeit unpopular, decision in a case. More on that soon.
At any rate, the MLCC Commissioners alleged that they had immunity, and put forth a couple of different theories, one being that their actions were quasi-judicial. The federal district court agreed, granting the Commissioners partial summary judgment. According to the court, it was the first time a court in the Sixth Circuit had decided whether members of a state administrative body who had the authority to make licensing decisions are entitled to quasi-judicial immunity. The district court thought so.
Flying Dog Brewery appealed the summary judgment ruling, and so the case went to the Sixth Circuit Court of Appeals. In reviewing the case, the Sixth Circuit observed that to determine whether an individual is entitled to quasi-judicial immunity, the court would consider factors like the nature of the government official’s functions, and how being exposed to various forms of liability for those decisions would affect the appropriate exercise of those functions. Here are some factors that are characteristic of the judicial process:
- the need to assure that the individual can perform his functions without harassment or intimidation;
- the presence of safeguards that reduce the need for private damages actions as a means of controlling unconstitutional conduct;
- insulation from political influence;
- the importance of precedent;
- the adversary nature of the process; and
- the correctability of error on appeal.
Through a measured analysis, the Sixth Circuit found that the factors divided evenly both for and against a grant of quasi-judicial immunity. For those interested, the opinion is here, and it’s worth a read. The court decided to call the close question in favor of Flying Dog, whose constitutional rights were at stake. No quasi-judicial immunity.
The court next analyzed whether the Commissioners had a different type of qualified immunity. That is, the MLCC’s commissioners would be protected against a lawsuit, only if the brewery’s freedom of speech right was clearly established, in light of the context of the case. A right is clearly established if a reasonable official would understand that what he or she was doing would violate the right.
The Commissioners urged that the right was not clearly established. It is true that “commercial speech” is afforded less protection than, say, the content of your favorite film. When evaluating whether commercial speech falls within the ambit of the First Amendment, courts apply what’s known as the Central Hudson test. First, the speech must concern lawful activity and not be misleading. Next, the asserted government interest (here, the health, safety, and welfare of the people of Michigan) must be substantial. If both answers are yes, the court asks whether the regulation directly advances the governmental interest asserted, and whether the regulation is more extensive than it needs to be to serve that interest.
The Sixth Circuit reached back to a notable case the Supreme Court took on called Rubin v. Coors Brewing Co., 514 U.S. 476 (1995). That case involved the federal government’s regulation on alcohol content on beer labels. Yes, a couple of decades ago, federal statute 27 U.S.C. § 205(e) prohibited brewers from putting any ABV information on their labels, unless state law required it. (The concern was that brewers would get into “strength” wars.) The Supreme Court applied commercial speech principles and found the whole regulatory scheme irrational, especially because the same statute required alcohol content on wine and spirits labels. The following year, the Supreme Court decided yet another brew-centric case. Rhode Island had banned ads that displayed accurate information about the retail prices of alcohol. The Court determined that Rhode Island’s ban was not justified by the Twenty-first Amendment, and that the Twenty-first Amendment does not “diminish the force” of a battery of constitutional protections, including the First Amendment.
The Commissioners pointed to a case in the Second Circuit, where state liquor commissioners had been granted qualified immunity when they banned a vulgar beer label (the aptly named Bad Frog Brewery had a label with a frog giving the finger), and where on appeal the Second Circuit determined that the commissioners reasonably believed they were entitled to reject the application. The Sixth Circuit found that, if anything, that case put all state liquor authorities on notice that banning a beer label for vulgarity does violate the First Amendment. Thus, a reasonable official would understand that his or her actions would violate the right. No qualified immunity.
So, the outcome of the Raging Bitch case. It’s not a complete win, it’s a win of a case within a case. That is, the Sixth Circuit determined that the Commissioners were not entitled to any form of immunity. However, because the district court had never reached the issue of whether the MLCC commissioners violated Flying Dog’s clearly established First Amendment rights, the case gets kicked back down to the district court, where we can only imagine the commissioners are hoping to settle. This is especially so because a dissenting judge on the Sixth Circuit thought that the factual record was developed enough that Flying Dog should be entitled to summary judgment in its favor as a matter of law! It’s worth noting here that the federal statute permitting Flying Dog’s claim has a fee-shifting provision, whereby a court may allow Flying Dog Brewery to recover its attorneys’ fees if it prevails. Those fees would be in addition to any judgment Flying Dog received for its constitutional injury. Keeping in mind that this dispute has been alive since 2009, you can do the math.
If you made it this far, you’re either a lawyer or a truly brave and persevering soul. Ultimately, I’ve gotten so deep into this case today because (1) I love a good Con Law session and (2) because there’s no doubt now that, thanks to one Ragin’ Bitch, state authorities are firmly on notice that a brewery’s beer labels have significant constitutional protections. I’ll raise a beer to that.
The latest brewery trademark dispute has the same notes, just a different rhythm. This time the matter involves Austin, Texas-based brewery Oasis and the much larger New Belgium. I spoke with Ronnie Crocker at the Houston Chronicle, who wrote this insightful article covering the latest dispute. As I noted to Ronnie in the article, and I note here quite frequently, these matters are largely preventable. Here’s how.
If there is any brand material you would be upset to change, conduct a full clearance search and file an intent-to-use trademark application before you adopt the mark. Don’t wait. Indeed, as this matter highlights, a mark you might think is clear can become fraught with problems in just a couple of weeks. Your filing date is the basis for your federal rights. Without a federal priority date, you might wind up locked out of using that brand name anywhere but your hometown. There’s no reason for that, especially if the brand in question is your brewery’s name or main logo.
Today, if you’re investing in a brand, especially if you’re getting packaged branded material to the shelves and have any aim to expand, file. Clear today, file today. File. The up-front investment is minimal compared to the costs to your brand and to your budget if you bump into issues with another beverage company. Put a little more into your start-up budget. Make proactive brand protection a part of your ongoing recipe-production and beer-release strategy.
I don’t know anyone who has regretted having the registration.
— Ronnie Crocker (@rcrocker) March 3, 2015
I want to point you to excellent reporting by Chris Drosner (aka the Beer Baron) over at the Wisconsin State Journal on the potential impact of the two competing beer tax bills. Check out his article here. We covered the Beer Institute’s Fair BEER Act and the Brewers Association’s Small BREW Act last week here, and through insightful discussion with Chris, edited it to correct and improve our coverage. Good stuff, and glad the Brewery Law Blog can help create a dialogue on these important topics, which is what Doug envisioned when launching five years ago. Most importantly for this story, Chris helps tell the part that keeps getting lost in other coverage; the Fair BEER Act is not just beneficial for “big beer.” Of course, that act would cause the biggest cuts to the federal revenue, but may also position the majority of today’s brewers for the most explosive growth. Check out Chris’s article for more details on that. What do you think?
Note: I should disclose, I’m a member of the Brewers Association. However, as a member and given my position as a small-brewery lawyer, I’m interested in what’s best for craft breweries but also the beer industry at large. At times, the line drawing between “us” and “them” and “our growth” vs. “their growth” can seem less important, and this tax scenario might be a case where everyone could come together and agree that more jobs and growth in the entire beer industry is a good thing. After all, consumers still seem to be cheering for the little guys, even when they’re not so little anymore. I doubt that tax cuts and attendant growth across the board will dupe craft consumers and change their David-leaning preferences. Even if big beer exposes more would-be craft beer lovers to the product through their efforts to become more relevant, I think that, just like all of us did, we’d eventually still see those consumers start coming out to their local taprooms, plugging into the truly craft beer scene, and evangelizing the awesome awesome stuff microbreweries are making today. That excites me more than line drawing on these tax issues here. Either way, passage of some measure of brewery tax reform would be a wonderful thing, and a huge accomplishment for the industry.
Here’s an overview of some TTB brewery requirements related to tax determination. We regularly hear from start-up breweries concerned about complying with TTB’s tax-determination requirements and this is understandable, as the regulations and attendant record-keeping requirements are confusing. Beyond that, this is one of the areas where a homebrewer entering the commercial brewing environment for the first time has a lack of experience and skills. The notes here are no substitute for checking in with your brewery attorney, and potentially taking a cruise through the Code of Federal Regulations to get hip to all of this. Still, here’s an overview of what you’re looking at. More notes on record-keeping will be posted on the Brewery Law Blog before long.
TTB Tax-Determined Beer Overview
Keep in mind that TTB is the Alcohol and Tobacco, Tax and Trade Bureau. Tax is the biggie here. TTB is concerned about protecting the revenue, and they want to make sure you’re not evading tax by serving untaxed beer or miscalculating how much beer you’re producing.
1. Brewery Tax-determination Vessel
In your Brewers Notice, you’ll be asked to tell TTB how you’re measuring your tax-determined beer. For more breweries, this is through calibrated brite tanks. Your equipment supplier can help you understand how these work if you’re not familiar.
2. Calibrating Your Brewery Tax-Determined Beer Measuring System
Note that if you’re using a meter, gauge glass, or the like to measure your tax-determined beer, this is the sort of thing you’ll need to test periodically. This works both ways, no one wants to be overpaying taxes, and TTB doesn’t want to see you underpay, either. In accordance with 27 C.F.R. §25.42, you need to test it “periodically” and maintain the following records in the brewery available for inspection by TTB: (1) Date of test; (2) identity of the meter or the measuring device; (3) result of test; and (4) corrective action taken, if necessary. Note that the variation in the beer meter can’t exceed +/- .5 percent. If it does, that’s when you need to take corrective action to get it as close to zero variation as possible.
3. Using/Labeling Your Brewery’s Tax-Determination Tanks
Pursuant to 27 C.F.R. §25.25, TTB wants your tax-determination tanks labeled in a durable way with the words “tax-determination” tank. Bear in mind that the purpose of the tank is to determine tax every time you add beer to it, and TTB expressly forbids simultaneously pumping into and out of a tax-determination tank. And, note, while it’s always fun to have a “brewer’s tap” in back for the gang to sip on or to offer to visitors, if that’s your beer for consumption, that must be tax-determined beer.
Opening and running a brewery is complicated, and Washington Brewery Law Resources aren’t necessarily all neatly gathered in one place. It can be hard to know where to look when your curiosity encourages you to start poking around. Today, I’ll do my best to help you start your research on how breweries in Washington State are regulated. There’s a bevy of laws/code/regs out there, that’s for sure. Here are some jumping off points for your legal excursions.
Keep in mind, these sources aren’t exactly written with readability as a primary objective. Important nuances pop up in all different places. That’s what we’re here for, if you’re ever not sure about something. Indeed, it’s through the code, and our understanding of it, that we can help answer all kinds of questions on the fly, such as: (1) Can my Washington brewery deliver beer to customers in Seattle?; (2) If I’m only selling beer within Washington’s borders, do I still need a Certificate of Label Approval?; (3) May those under the age of twenty-one come into my brewery without us having food service? The list of fun questions that vary from state to state goes on.
For anyone interested in checking out primary Washington Brewery Law Resources, here are some links along with my notes to help you navigate them.
Washington Brewery Law Resources – State Brewery Law
Revised Code of Washington. This is the law that the state legislature creates and revises. Primarily, you’re looking at the content in RCW 66, although keep in mind that other provisions relating to your business, potential distribution agreements, etc. all fall in other places in the code.
Washington Administrative Code. This is where administrative agencies put their regulations. In Washington, the primary administrative authority is the Washington State Liquor Control Board. They were created by the legislature by way of RCW 66 and given authority to do certain things relating to booze in Washington State. Any regulations they promulgate become part of the Washington Administrative Code. Unfortunately, this means that there are often provisions in RCW that address some of your questions, and then provisions in WAC that address other questions. It just depends on whether the legislature contemplated something or it’s LCB creating regulations by virtue of its authority.
Between those two, that’s the heart of Washington brewery law. Keep in mind there are some sanitation requirements set forth by the Washington State Department of Agriculture, and your compliance therewith is a part of maintaining your LCB microbrewery license. Further, there are some places where the County and your Municipality step in, particularly with respect to health codes and building codes.
Washington Brewery Law Resources – Federal Brewery Law
Of course, we all know that state and local government isn’t the final authority on breweries in Washington. Indeed, Uncle Sam, through the Alcohol and Tobacco Tax and Trade Bureau (TTB), has a say on a number of matters. When it comes to TTB, you’ve got to jump to the Code of Federal Regulations (CFR) to see all the regulations they’ve promulgated, and Title 27 is the place to go. Bear in mind, if you’re brewing off-the-wall beers, such as those without hops, the Food and Drug Administration (FDA) may be your labeling authority. And, very technically, FDA has concurrent authority over your brewing business—but TTB really is the place to go when you have questions of federal brewery law. Fortunately, they’ve put together helpful resources on their website to help you wade through labeling and advertising issues.