Marc E. Sorini is a partner in the law firm of McDermott Will & Emery LLP, based in the Firm’s Washington D.C. office. He leads the Firm’s Alcohol Regulatory & Distribution Group, where he concentrates his practice on regulatory and litigation issues faced by supplier-tier industry members. His practice includes distribution agreements, distribution counseling and litigation, product formulation, labeling, promotional compliance, compliance strategy, and federal and state tax and trade practice enforcement defense.
TIED-HOUSE BASICS FOR DISTILLERS
the need to evaluate both federal and state
BY MARC E. SORINI
restrictions when examining a potential tiedhouse issue. In a federal system, both the federal (United States) and state governments theoretically possess the authority to regulate. In practice, however, many
areas of law impacting distillers will be almost exclusively
ied-house laws and related trade practice restrictions rank among the most baffling legal issues faced by a newcomer
to the spirits industry. While issues like distribution contracts, labeling requirements, trademarks, and taxes all have parallels in other businesses, tied-house laws have few analogs outside the drinks industry. This article aims to provide a very general overview of these laws so a newcomer can at least spot potential issues. The tied-house laws separating retailers from their producer and wholesale suppliers arose immediately after the repeal of Prohibition. At that time, many lawmakers and policy leaders viewed the “tie” between pre-Prohibition “saloons” and either distillers or brewers as a factor contributing to the drunkenness, illegal activity, and violence found in those saloons. Moreover, freeing newly-legal drinks retailers from the influence of their organized crime-controlled wholesale suppliers of the Prohibition era was equally valuable. “Tied-house law” today is often used to describe virtually every restriction in the alcohol beverage industry. This article will take a slightly narrower view and, consistent with their history, focus on those laws (like the federal tied-house statute and regulations) that restrict the relationships distillers and their wholesalers can have with alcohol beverage retailers.
governed by federal law — such as product labeling and trademarks — or by state law — such as distribution agreements and the regulation of sales at retail. Examining the legality of a distiller’s or wholesaler’s relationship with retailers, by contrast, requires an analysis of federal and state law. Federally, the Federal Alcohol Administration Act (“FAA Act”) contains four provisions regulating relationships between “industry members” (the FAA Act term for producers, importers and wholesalers) and either “retailers” or, in one case, “trade buyers” (the person buying from an industry member). These prohibit:
1. “Exclusive outlets” between an industry member and retailer.
2. “Tied-house” relationships between industry members and retailers.
3. “Commercial bribery” of retailer-affiliated persons by an industry member.
4. Consignment sales of alcohol beverages by industry members to trade buyers. State laws include a wide variety of prohibitions, with endless variations between the states. Most state codes contain various cross-ownership prohibitions between industry members and retailers, restrict the ability of industry members to provide
One of the great frustrations distillers encounter with tied- assistance (“things of value”) to retailers, and include “indirect” house laws arise from the lack of uniformity between states and interests and assistance to cover cross-ownership and assistance