KEY FEDERAL TRADE PRACTICE RESTRICTIONS
A TRADE PRACTICES PRIMER BY BETHANY K. HATEF
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s a craft distiller, you likely have some understanding of the federal and state alcohol regulatory schemes governing the distilled spirits industry. An important component of these schemes are the federal and state “trade practice” laws and regulations. These provisions are quite detailed and broad, encompassing a wide range of relationships and activities with which a craft distiller may be involved. They also vary largely jurisdiction by jurisdiction. We describe below, at a high level, the basics of the federal and state trade practice regulatory frameworks.
HISTORY OF THE FEDERAL TRADE PRACTICE LAWS The federal trade practice laws are part of the Federal Alcohol Administration Act (FAA Act). Enacted in 1935, shortly after the repeal of Prohibition, the FAA Act established what is today the federal scheme for regulating the production and sale of alcohol beverages in the U.S. At the time of the FAA Act’s enactment, legislators were concerned about keeping the Prohibition-era criminal elements out of the newly legalized industry. The FAA Act also reflected then-current views about alcohol control. As the 21st Amendment to the U.S. Constitution, which repealed Prohibition, left the regulation of alcohol largely to the individual states, the federal government plays no role in regulating retail sales or the consumption of alcohol. Instead, the focus of the FAA Act was, and still is, on “interstate” activities by upper-tier “industry members” (i.e., suppliers and retailers), as well as excise taxation. There also was a perceived need at the time to separate the retail tier from the upper tiers. In addition to the trade practice laws, the FAA Act also requires permitting for alcohol producers, importers, and wholesalers, and prescribes labeling and advertising requirements and restrictions for industry members. This article, though, focuses only on the FAA Act’s trade practice restrictions. WWW.ART ISANSP IRITMAG.COM
The FAA Act regulates four key categories of trade practices in the alcohol beverage industry: (a) exclusive outlet; (b) tied-house; (c) commercial bribery; and (d) consignment sales.
a. EXCLUSIVE OUTLET The exclusive outlet provisions prohibit any agreement or understanding between an industry member and a retailer that would exclude, in whole or in part, products of another industry member by making the industry member’s product(s) the exclusive beverage for that retailer. The prohibition can apply to specific categories or brand families — for example, distilled spirits, white wine, or a particular brand of beer. The prohibition also can apply to specific areas of large venues (e.g., no exclusive vodka handles at a particular VIP lounge area). A key feature of the exclusive outlet provisions AT THE is that they prohibit conduct that is commonTIME OF place in the non-alcohol beverage grocery and restaurant industries. For example, THE FAA ACT’S soft drink companies may (and do) have ENACTMENT, exclusive arrangements with restauLEGISLATORS rants. It is important to understand WERE CONCERNED that in the alcohol industry, such arrangements are unlawful under the ABOUT KEEPING THE exclusive outlet laws.
PROHIBITION-ERA CRIMINAL ELEMENTS b. TIED-HOUSE OUT OF THE NEWLY Probably the most talked about category of trade practice laws, the “tiedLEGALIZED house” laws, prohibit a supplier or wholesalINDUSTRY.
er from holding a (direct or indirect) ownership interest in, or providing any “thing of value,” to a retailer. Unlike the tied-house laws of many states, the federal tied-house law requires a combination of an inducement and exclusion to complete a tied-house violation. Inducements include, but are not limited to, an industry member:
> acquiring/holding
interest in a retailer’s license, business, or
property;
> providing equipment, supplies, money, services, or other things of value to a retailer;
> paying or crediting a retailer for any advertising, display, or distribution service
> guaranteeing a loan of the retailer; > extending credit in excess of usual and customary terms; or > requiring a retailer to take and sell a quota of product. Where an inducement has occurred, the Alcohol and Tobacco Tax and Trade Bureau (TTB), must show that it led to the exclusion of competing
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