Magic Hat Does It Again: The West Sixth Settlement Goes Public

valuable retraction? I think not.
valuable retraction? I think not.

 

In Seattle, I first learned of the far reach of Magic Hat Brewing Company. Though they do distribute their own beer in Seattle, they certainly care about the market. And promises that they would someday return to it and sell beer led them to fight vigilantly to preserve their intellectual property in the Seattle market.

In 2009, Magic Hat went after local Seattle brewery, Georgetown Brewing Company, over its “#9″ trademark. Georgetown was selling a beer called “9lb Porter”, which was brewed in honor of one of my favorite drinking establishments – The 9lb Hammer. Though Georgetown was a purely regional brewery, only selling in Washington state, and Magic Hat did not sell a single beer in the state – they pushed hard.

Magic Hat sent formal notice that “#9″ and “9lb” were confusing and that it would dilute the brand’s image. After much deliberation, threats of federal litigation, and offers of expensive limited licenses, Georgetown simply said “enough.” They changed the beer’s name to the uber-descriptive – and no TM risk – “Georgetown Porter.”  The experience was my first real look at how Magic Hat and other larger breweries aggressively protect their brands. I don’t think they made a lot of friends over that whole incident.

Recently, Magic Hat went at it again. This time, they actually filed a federal lawsuit against Lexington, KY brewer – West Sixth Brewing Company. West Sixth’s logo is a number “6” and a “dingbat star” encapsulated in a circle. Around the logo is the name “West Sixth Brewing Company Lexington, Kentucky.” So according to Magic Hat, the dingbat star and 6 – along with the use of “Company” in the name, conjure up confusion between the products. I’m not sold.

In any event, Magic Hat flexed some muscle, spent some money, and drug the small Kentucky brewery into court. What followed may have not been expected – a social media blitz that condemned Magic Hat and urged public support for West Sixth. The campaign managed to garner the signatures of 17,000 West Sixth supporters and grab the attention of national media. Probably not the response that Magic Hat was looking for, and very likely damaging to their sales and image.

As a result of the backlash, Magic Hat filed a preliminary injunction to force West Sixth to stop the campaign (citing damages). That motion forced the two sides to quickly huddle and work out a compromise. West Sixth would remove the dingbat star and the word “Company” from the logo and Magic Hat would dismiss everything.

There was a caveat – a somewhat embarrassing public retraction of sorts by West Sixth. The two breweries issued a short public statement that essentially said that West Sixth didn’t mean anything they had been saying about Magic Hat and it was all an error. Yeah right. I think consumers are a bit more intelligent than that. What is humorous to me is that Magic Hat actually tied some sort of value to the retraction, and the possibility that West Sixth would be willing to issue it likely had a hand in getting this settled. So I applaud the team at West Sixth if they were able to convince Magic Hat of that – kudos.

The moral of the story here is that aggressive trademark enforcement has never worked out well for larger breweries. Often they become the butt of internet jokes and backlash and I rest on my statement, over and over again, that breweries need to keep these conversations to themselves. Our industry is a brotherhood and diplomacy is well rewarded.

 

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Louisiana ATC Throws a Bone to Brewers – Explains Tasting Room Rules

Got a brewery? Get a tasting room
Got a brewery? Get a tasting room

 

Many moons ago, I had a premature party over the passage of a law that I thought might have an impact on opening up taprooms to brewers in Louisiana. It turned out that the law was directed only at distillers (strange, right? distillers need a tasting room more than brewers?).  But it never was a  “live or die” issue for brewers – because the law has long provided a way to add a tasting room on premise.

 

La R.S. 26:273(C) has long provided an exception to the strict three tier regulations enforced in Louisiana. Under that law, brewers could build an on-premise tasting room and sell 10% of their monthly production directly to consumers – both in pints and growlers to go. The odd thing was that no one knew it. When I spoke with an ATC agent last year, I learned that not a single Louisiana brewer had obtained the retail A permit required to have the tasting room.

 

Perhaps many were confused about the rules. I don’t blame them. So the ATC put together a nice little brief on their website, outlining the rules. Oddly enough, I just now saw it despite being published over 10 months ago. Whoops. Better late than never.  Because I think this does a better job of explaining the law to you – than my previous post did:

 

 

             July 3, 2012

                   Malt Beverage Manufacturers and Limited Use Retail Permit

 

Pursuant to R.S. 26:273C holders of a valid Louisiana Malt Beverage Manufacturer Permit, located entirely within the state of Louisiana,  may obtain a Class A retail permit if the holder of the Malt Beverage Manufacturer Permit applies for and meets all qualifications for a Class A retail permit as set out in R.S. 26:271 and 271.2.  Class A retail permits issued pursuant to the provisions of this subsection are subject to the following limitations:

 

  1. The manufacturer shall only make retail sales of products brewed by the manufacturer at the brewing facility holding the retail permit.

 

  1. The manufacturer is only authorized to make retail sales at the licensed premises where the malt beverages are brewed.

 

  1. Retail sales to visitors of the brewing facility shall only be for personal consumption by said visitors.  However, the retail sales may be made to visitors of the facility for consumption on the licensed premises and to visitors in appropriately sealed containers for consumption off the licensed premises.

 

  1. The total amount of retail sales by the manufacturer for any given month shall not exceed ten percent of the total amount of all beverages produced on the licensed premises for that month.

 

  1. The manufacturer shall obtain all local retail permits required by the municipal or parish governing authority.

 

  1. The manufacturer shall remit all applicable state and local taxes resulting from retail sales made at the licensed premises.

 

  1. A manufacturer holding a retail permit pursuant to this subsection shall comply with the terms of the Louisiana Responsible Vendor Program.

 

  1. A legal entity holding a malt beverage manufacturer permit shall not be authorized to obtain more than one Class A retail permit.

 

Louisiana Office of Alcohol and Tobacco Control

8585 Archives Avenue, Suite 220 • Post Office Box 66404 • Baton Rouge, Louisiana 70896-6404 (225) 925-4041 • Fax (225) 925-3975

www.atc.rev.state.la.us

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And Now a Word from Your Brewer……

Don't tax my Manny's.
Don’t tax my Manny’s.

 

When I first moved to Seattle, the very first beer that I had was a Manny’s Pale Ale. Georgetown Brewing was a baby at that time, yet today they continue to grow and add jobs to the Seattle area. Kudos.

Here is a word from their part-owner, Roger Bialous. I don’t need to add anything – it speaks for itself:

 

Beer tax in Washington State is a hot topic in certain circles these days. I co-own Georgetown Brewing Company in Seattle. I get a little hot about this topic. Making beer is how I make my living. It is how I support my family. It is how we pay our employees so they can support their families. This is personal for me. Because I did not want to overreact to what may simply be political posturing, I have taken some time before making a public comment on this issue.

 

 

 

Small brewers selling beer in WA pay $4.78 per barrel in state excise tax. Compared to neighboring states this put us on the high side. That is unfortunate, but it must be said, our state’s regulatory environment has done a lot to make it possible for small brewers to get started, survive, and even thrive here.  I try to mention that every time I give a brewery tour or speak about our brewery’s experience over our 10 years.  Our state made it legal for microbrewers to both brew and self distribute. Among other factors, this made it possible for breweries like Pyramid, Bert Grant’s, Redhook, and Hale’s, to create our industry here roughly 30 years ago.  Last year, in 2012, Washington brewers produced almost 294,000 barrels of beer.  Not bad.

 

 

 

Oregon got into this micro/craft beer thing about the same time WA did.  Breweries like Bridgeport, Rogue, Full Sail, Deschutes, and Widmer led the way. Oregon state beer excise tax is $2.48 per barrel.  That’s $2.30 less than WA.  That’s only 52% of WA’s tax. It is also true that Oregon craft brewers produced just over 764,000 barrels of beer in 2012, not including Craft Brew Alliance.  Yes, that is 260% of WA’s 2012 output.  Is Oregon dominating us in this industry, my industry, because of their lower excise tax?  I’m not an economist.  I can’t say for certain, but I’d place a pretty sizeable wager that their lower state excise tax isn’t hurting those guys.

 

 

 

Now some in our state government are working to increase our beer tax.  The governor’s budget proposal suggested raising it $15.50 per barrel to $20.28, more than quadrupling our tax rate.  Wow.  The Senate’s budget included no beer tax increase, which we very much appreciate.  The House’s budget came out with a $4.65 per barrel increase, which would take us to $9.43, nearly doubling our tax rate.   

 

 

 

To have some context for the house proposal, it is important to understand that in the old days, small brewers paid $4.78 per barrel and big brewers paid $8.08.  Then, three years ago, big brewers got hit with an additional $15.50 per barrel, bringing their total to $23.58. That is really high. Small brewers were mercifully exempted from this. To our credit, over that time (and the whole time, frankly) our industry has done nothing but create jobs and pump money back into our state’s economy buying hops from the Yakima valley and malt from Vancouver, and of course our employees spend their checks in the towns where they live.

 

 

 

That additional $15.50 is supposed to end this June, which is a big cash flow hit to our already cash strapped state government. I understand why the House doesn’t want to let the big brewer tax sunset, the McCleary v. State decision regarding funding basic education has put us on the hook for billions of dollars over a short time frame.  That our financial situation is so dire makes it all the more baffling that the House’s proposal to drop the big brewer tax from $15.50/bbl to $7.75 would cost the state about $25.2 millon per year and raising the small brewer tax by $4.65 would gain the state about $3.7 million.  That is a net loss of about $21.5 million per year…all while putting the squeeze on local businesses and jobs. 

 

 

 

I can not fathom why the House has proposed to do this, especially when if they did something as simple as lowering the big guys tax a little less, say from $15.50/barrel to $9.61 or so, they would still collect the $58 million they have budgeted from beer over the next two years, while giving the big multi-national corporations a 38% tax cut, and leaving small local brewers alone so we can keep on creating jobs in EVERY legislative district of our fine state.

 

 

 

I think it is fair to ask what the big multi-national corporate breweries do for us, the citizens of Washington State.  They don’t create a lot of jobs that wouldn’t otherwise be here.  They employ a handful of brand reps. They aren’t located here and don’t spend their profits here, nor do their employees, because they don’t have many employees here.  Will they move their companies and take all those jobs out of state if we don’t cut them a tax break?  No.  They can’t, because they aren’t located here and they don’t employ here in any meaningful way. Do they promote Washington and increase tourism like our breweries?  No.

 

 

 

Our company sells well over 90% of our production here in state.  We will feel any tax increase, just as every small brewery that sells beer in Washington will.  Everyone who enjoys beer made by small brewers here in our state will feel it, too.  And why?  Apparently, so multi-nationals can get a 50% tax cut instead of a 38% tax cut.

 

 

 

Please join us in our opposition of raising the small brewer beer tax.  Contact your elected officials in Olympia and ask them to care more about the small breweries in our state and the jobs they create in their own districts than for the multi-national corporations.  If they must continue the beer tax of three years ago in some form, ask that they please continue to exempt the small brewers.

 

 

 

Roger Bialous, co-owner

 

Georgetown Brewing Company

 

Seattle, WA

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House Democrats Anger Craft Brewers, Justified Responses Ensue

A Ballard beer fan?
A Ballard beer fan?

At a press conference today in Olympia, House Democrats disclosed their new tax proposal. The Governor’s insane proposal to raise the tax on microbreweries by $0.50 a gallon, was watered down to a proposed $0.15 hike. Better, not good.

 

The new proposal would raise the tax on Big Beer, but just a bit higher than what craft brewers are going to pay. At least they are on the right path, but Washington brewers are going to fight tooth and nail on any tax increase. I am with them. The industry is too young and too fragile. Furthermore, few industries passively invigorate others like the brewery industry does. Farming, hospitality, creative, and many other industries benefit greatly – in Washington state – from these businesses.

 

So the Washington Brewers Guild has responded, and so has the great Dick Cantwell of Elysian Brewing. Read each of their justified responses. But brace yourself for a tax increase, because legislators have finally proposed an incremental approach. It’s time to rally your consumers and get them in contact with their congress person.

 

Here is the Washington Brewers Guild’s response because I fear it will be removed from their site at some point since it was posted on the front page:

 

House Budget Proposal

 

Listening to the press conference was pretty astounding that Rep. Carlyle wanted to be fair by continuing the R&D tax break for the small of the small, but going ahead and raising taxes on microbreweries. Here is our response:

April 10, 2013

Washington is believed to have the second highest market share for craft beer in the nation. Below are some statistics on why maintaining the small brewer tax rate at its current level allows for continued jobs production. Production data sheds light on the debate about equalizing alcohol tax rates among producers.

The Big 3 (Anheuser-Busch InBev, MillerCoors) employ around 25,000 people in the nation. Craft brewers employ over 100,000 people with only 6% of the marketshare. Which is a better investment in jobs growth? The current excise tax level is working. Washington breweries employed 3,499 people at the end of Q4 2011. Breweries are growing, expanding production facilities and adding jobs. Why lower the tax rate for multi-national breweries while raising it for homegrown Washington microbreweries, thereby cutting off the potential for job growth in a locally-owned and operated industry?

Equality in alcohol taxation: Anheuser-Busch InBev produced 99 million barrels in 2012 with MillerCoors following at 59 million. Together, the Big 3 produced 158 million barrels. Washington craft brewers, combined, only produced 293,716 barrels. 158 million : 0.24 million. To suggest that craft beer be taxed at the same rate as the Big 3 is hard to understand when combined, we make up less than 0.19% of their annual production. There is nothing equal about our industries. They probably spill more beer on their floor than the volume of my brewery’s annual production (2,700 bbls). We are so insignificant compared to the amount of beer they produce; suggesting that there be tax equality between such a Goliath and an itty-bitty microbrewery is astounding. They have economies of scale that we can not even begin to comprehend.

Washington State’s total beer sales were 4,013,072 barrels in 2012. An estimated 1,000,000 barrels are attributed to craft beer. Washington State craft brewers produced 293,716 barrels. We cannot even produce 1/3 of the demand for craft beer in our state. Washington brewers need the ability to continue to grow our industry, add jobs, and re-invest our profits back into our communities.

Annual Production in Barrels

Big 3: WA Craft Brewers

158,000,000: 293,716

1: 0.0019

 

While an appreciated reduction, the current House proposal of a tax increase of $0.15/ gallon still almost doubles our tax rate. Is favoring multi-national corporations over at-home jobs growth really the message the Washington government wants to send to citizens of Washington?

Heather McClung

Schooner EXACT Brewing Company
Washington Brewers Guild President

 

 

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This Whole New Beer Tax Thing, Is Gross

Don't tax my keg.
Does a 4x tax make any sense at all?

I imagine that everyone in Washington has heard about the newly proposed beer tax raise. The proposal would rake brewers for 425% increases (up to $20.28 per barrel) in the current tax (from $4.78 per barrel) Wow, Mr. Governor, that much!?

I have often wondered why politicians seek the big score rather than making modest and reasonable increases. If Gov. Jay Inslee thought this was the way to prove that he understood small business – a platform he ran very hard – then yikes. If he was smart, he would have tried something incremental, but this is just nuts. A 425% increase of anything is business-changing, I don’t care what your business, success level, or profit margin.

The State of Washington is facing a big budget crisis and education has been the publicly acknowledged loser. Losing the stranglehold that the state had on liquor has apparently left the state low on short term funds for alcohol education and enforcement. But that is just a single component of the issue, and the Governor has looked to the, finally, growing beverage industry for help.

I have disagreed with the Brewer’s Guild in the past, but not here. This tax increase is a huge burden for brewers to stomach. The Guild has hit the nail on the head, citing that any tax increase needs to be broad-based and not industry-specific. I just hope that the Governor does not propose simply shifting the tax from the producer side (barrel tax) to the consumer side (sales tax on beer).

I am often perplexed why lawmakers see fit to curtail growth in an industry that can be uber-important to the public sentiment, culture and economy of a state. But this tax increase would quadruple what those brewers in Oregon are paying. Brewer flight is not out of the picture.

Read more about the tax increase at the Brewer’s Guild’s website. They have also issued this Letter of Opposition and a form letter for citizens to send to their congress person. Luckily, the Brewers Association has joined the fight.

Let us all hope that reason wins out in the end.

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