BUSINESS ADVISORY SERVICES
Pitfalls to Avoid When Starting a Brewery By Dan Christopherson
Starting a brewery is a @iStock by Getty Images/Portra
difficult and complicated undertaking that requires compliance with countless federal, state, and local rules and laws. Starting a brewery is a difficult and complicated undertaking that requires compliance with countless federal, state, and local rules and laws. Careful planning can help avoid costly delays or other disadvantages. Below are some of the most common pitfalls that breweries encounter.
Beware tied-house issues The Alcohol and Tobacco Tax and Trade Bureau (TTB) is the federal agency that regulates the production, distributing, and importing of beer in the United States. One branch of TTB deals with unfair trade practices, the most common being “tied-house” violations. TTB defines a “tied-house” as a practice whereby an industry member induces a retailer to purchase its alcoholic beverages. Tied-house issues often come up within the context of the “three tiers” of ownership for alcoholic beverage distribution. This system divides the alcoholic beverage market between producers (i.e., brewers, wineries, and distilleries), distributors, and retailers. While TTB does not outright ban ownership across multiple tiers, most states only permit an individual to have an
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ownership interest in one tier (e.g., an owner of a brewery may not also own a bar/liquor store). Even worse, some states levy strict penalties on companies that cross into multiple tiers. For example, the New York wine shop Eataly was fined $500,000 in 2014 because one of the owners had an interest in several wineries in Italy. Tied-house issues also come up when producers offer incentives to distributors or retailers to sell their products. Depending on the state, illegal incentives can include everything from monetary payments to free advertising. For instance, California refused to allow the brand registration of a malt beverage label that used the name of the onpremises retail chain TGI Fridays, and determined that “a beer manufacturer can not [sic] provide free advertising for retail licensees.” A brewery should exercise great care to avoid tied-house violations. A solution that works in one state may become problematic when a brewery decides to start distributing its beer into a new state. An internal analysis should be made every time a brewery enters into a new state to make sure that the brewery does not run afoul of that state’s tiedhouse rules.
Consider intellectual property rights issues early As a brewery grows its brands and develops a reputation for its beers, the brewery’s intellectual property rights will become its most important and valuable assets. If a brewery fails to take early steps to ensure that its brands, logos, and other identifying features are available for use without violating the intellectual property rights of another company, that brewery risks losing out on the good will it creates early in its brands or, even worse, might end up on the wrong end of a trademark infringement lawsuit. Similarly, if a brewery does not take early steps to secure exclusive rights to a brand, it may lose the ability to secure such rights in the long run. Clear Your Marks Federal trademark registration provides an owner with the exclusive right to use a mark in connection with goods described therewith, and with related goods. The trend in US law has been to consider wine, beer, and spirits to be highly related goods, and find a likelihood of confusion between products sold across these goods with similar brands. There has also been a recent
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