Wineries Cautioned About Internet 'Ads'

Panelists identify regulatory pitfalls re DtC, social media and third-party providers

by Paul Franson
A panel including (from left) Jeff Carroll, Kristen Techel, Theresa McCarthy and John Trinidad discusses the complex regulations surrounding wine marketing and sales.

Sacramento, Calif.—Some of the most important—if confusing—issues facing wine sellers are regulations about direct-to-consumer, social media and third-party sales channels, the subject of a session moderated by attorney John Trinidad at the Unified Wine & Grape Symposium.

Traditionally, wine has been sold primarily through the three-tier system, but the Internet has introduced a number of new players to this mix, including fulfillment, shipping, order processing, compliance and especially third-party marketers and providers. “The Internet allows consumers to bypass the three-tier system,” noted Trinidad, who practices wine law at Dickenson, Peatman & Fogarty in Napa, Calif.

Facebook faux pas
Likewise, the rise of social media has created issues: The TTB regards social media from a winery as advertising and burdens it with the same restrictions as print or broadcast ads. It can even evoke other laws, such as tied-house laws, which govern relations between wineries and resellers.

Trinidad cited an example: A “fan” posts a link on a winery’s Facebook page to an article praising its newest Chardonnay, but the same article calls a competitor’s Chardonnay “disappointing” and “flawed.” TTB rules prohibit negative comparisons in ads, so should the winery remove the link?

State by state
In a well-publicized case in California, a winery was cited for mentioning a wine fair at a retailer, a violation of laws that prohibit suppliers from providing something of value to resellers.

Another issue is the fast growth of companies that deliver wine on demand—primarily in larger cities.

All of these issues create uncertainty to wineries—and some people are even exploiting these uncertainties, like a Chicago lawyer suing wineries over Illinois’ unusual application of sales tax to shipping, or online retailers who may not be following the rules and could threaten licensed wineries.

Trinidad pondered how regulatory agencies would deal with these new players and business models. “Will any of these players need to get their own alcohol beverage license?” he asked.

Another recent example is that the New York State Liquor Authority accused retailer Empire Wine of shipping wine to states where retail DtC shipping was prohibited. The NYSLA claimed this was ground for suspension, revocation or cancellation of Empire’s license, based on regulation that allows disciplinary action for licensee’s “improper conduct.”

This could affect a California winery that holds a direct shipper’s license in New York state. If a winery shipped to consumers in a state like Utah, where DTC is prohibited, would NYSLA view that as grounds for suspension of the winery’s direct shipper’s license?

Of course, federal regulations also prohibit a winery from shipping into a state that outlaws direct shipping, and the winery could have its Federal license threatened for that, too.

And most states prohibit retailers from shipping wine directly to consumers. Only 14, none other than California that are major markets, allow this, while 42 states allow at least some form of direct shipping from wineries.

A view from the TTB
Theresa McCarthy, assistant administrator of headquarters operations for the U.S. Alcohol and Tobacco Tax and Trade Bureau, also addressed social media, reiterating that the TTB considers it advertising. She suggested wineries review TTB Industry Circular 2013-1, which provides guidelines.

She defined social media to include social network services such as Facebook, video-sharing sites like YouTube, blogs, micro-blogs like Twitter, mobile applications, links and QR codes.

The same mandatory information requirements apply as in other forms of advertising, such as identification and address of the source. (It doesn’t have to be complete in each tweet; on the website is OK.) The same legibility requirements apply, and the same practices are prohibited. (These include health claims—even “gluten-free,” since no tests for this are approved.)

Considering these guidelines, wineries have to be very careful of not only their own posts, and those of their employees, but also third-party or user-generated content that they repost or reTweet. The winery isn’t responsible for what others say—unless they post it.

She also reminded the audience that listing a retailer on an industry member’s social media site is considered providing a thing of value and may be unlawful unless two or more unaffiliated retailers selling the industry member’s products also are listed on the site.

Kristen Techel, a partner with Strike & Techel law firm, added that mentioning winemaker dinners at a restaurant are one of the few exceptions, but no photos or compliments are allowed.

More regulations and guidelines
Techel continued discussions regarding social media by noting that a number of agencies other than the TTB have regulations and guidelines regulating social media posts.

The Federal Trade Commission, for example, recommends that wineries use age gates that ask for date of birth before allowing users onto their sites. (It wants at least 71.6% adults in the readership.) FTC prohibits misleading material including testimonials or paid testimonials unless disclosed, and expects sensitivity about privacy and care with user-generated content.

State alcohol regulatory authorities such as California’s Department of Alcoholic Beverage Control also have their own regulations and guidelines. California and Texas both have issued advisories, and a strong point of both is that you need a license to sell alcohol to consumers. The situation in New York is more complicated, as it has released a number of specific guidelines for different situations.

California requires a specific inquiry to allow referrals to resellers, and at least two must be mentioned. No laudatory comments or prices are allowed.

In addition, the wine industry offers guidelines: The Wine Institute has a guide to digital marketing communications, for example.

The social media sites themselves have guidelines about what can be posted and some could affect winery postings.

Techel provided some general advice to wineries on using third party providers. Look at the contract. Don’t let someone else do something you can’t do directly. And be thoughtful. If you think there’s something suspicious, it’s probably wrong.

Finally, Jeff Carroll, vice president of Ship Compliant, provided an update on direct shipping laws, a subject recently covered by Wines & Vines. (See “90% of U.S. Consumers Can Buy Wine Direct.”) In sum, 42 states allow some kind of direct shipment, and four more allow if the customer orders the wine in person at a winery. In California, that means an 02 license, not a 17/20 wholesale/retail permit.

However, he also described lawsuits being filed by Stephen P. Diamond, a Chicago lawyer, based on Illinois’ unclear law regarding sales tax on shipping. Diamond has filed more than 300 suits, and Carroll suggests that wineries make sure to not send him any wine: The address is 332 Michigan Ave., in Chicago, Ill.

Posted on 02.13.2015 - 05:51:23 PST
I guess my first question would be why is there a three tier system to begin with? Why shouldn't wineries be able, or better, why shouldn't consumers be able to buy wine over the Internet and have it shipped to them? The answer is simple; money. Everyone wants his little piece and I get that. The Internet has grown exponentially over the past ten years and it's obvious that laws can't keep up with it. That may not be a bad thing; for consumers anyway. I don't want to see wineries sued or fined for violating laws, but I do want to receive wines directly from wineries. We have too many laws for sure. I belong to a wine club. I would like to belong to more wine clubs, but the ones I like can't ship to Arizona...really, why not? Because of "the three tier system". How about the "no tier system"?

Posted on 02.06.2015 - 12:24:17 PST
It is an unfortunate fact that the regulations have no understanding of modern technology and need to be addressed. This is one of the greatest challenges for wineries trying to market in a digital society. IMHO the Wine Institute, Wine America, and other associations need to take this on as a central issue just like they did with "Free the Grapes" and other issues in times past.
Paul Mabray