A-B Makes Case in Illinois MillerCoors Makes Case in Virginia
FILED OCTOBER 2, 2012
The irony isn't lost on me that the nation's two largest brewers are currently fighting high profile state laws regarding ownership stakes in distributorships. Both seem to be going poorly. But with the government, you never know until the final decision is handed down, so let us be diligent in reviewing the facts.
CITY BEVERAGE AND A-B. Remember A-B and the state of Illinois? Yep, they're still fighting over whether A-B can own a stake or all of City Beverage in Chicagoland.
The Illinois Liquor Control Commission held a hearing yesterday on that very matter. Recall that A-B says it can be both a brewer and a distributor but the Commission's legal division has said this violates the Illinois alcohol code. After reading countless briefs (which we've read -- snore) and hearing hours of testimony yesterday, the Commish is taking the matter "under advisement" and will render a decision in its good time. No idea when that will be. Basically, A-B says that the Commish's legal advisors are wrong in denying the license because, after all, A-B has had a license there for 30 years. There's a lot more legal wrangling, but that's the gist of the matter.
"If ABI was allowed to own distributorships, craft brewers, new imported brands, and new domestic brands would have reduced access to market. Independent distributors provide an avenue for those products to reach consumers that brewery-owned distributors won't provide," said Bill Olson, president of Associated Beer Distributors of Illinois last night.
It is expected that A-B will challenge the ruling if the Commission revokes their distributor license, so this ain't near over. "Since ABI is expected to file suit challenging such a determination by the Commission to revoke their license, there is no reason to grant an exception to City Beverage to stay a revocation if ABI has any direct or indirect ownership interest. It is inconceivable that City Beverage would be unable to find a buyer," continued Bill.
RECAP OF WHAT'S HAPPENED SO FAR. Okay. This fight has been going on for two years, and even I am fuzzy on what's happened, so let's recap. Back in 2010 (see BBD 03-02-2010 ) A-B had asked the Commish to transfer the licenses of City Beverage to A-B as part of the purchase. In mid-March of that year the Commish ruled that A-B couldn't have the license because they are an out-of-state brewer, and Illinois law doesn't allow out-of-state brewers to be distributors. That caused a Granholm-sian response from A-B (see BBD 03-11-2010 ), with them saying the Commish's ruling violated the Commerce Clause by permitting in-state brewers to obtain a distributor license while prohibiting out-of-state brewers to do the same. The complaint further stated that the Commission interfered with A-B's contract to purchase City Beverage, and it did not interpret Illinois' alcohol code correctly or fairly.
Then, in early September of 2010 (see BBD 09-03-2010 ), a federal district court in Illinois has ruled that the Illinois law is unconstitutional under Granholm. However, Judge Dow leveled down: He denied A-B's "request to remedy the unconstitutionality of Illinois' system by extending the self-distribution privilege to out-of-state brewers." He continued, "That remedy would be more disruptive to the existing statutory and regulatory scheme than the alternative remedy of withdrawing the self-distribution privilege from in-state brewers." He stayed his opinion until March 31, 2011, "...in recognition of the General Assembly's ultimate authority over Illinois public policy, including a remedy for the constitutional defect ...."
So then we have the legislation. Illinois state Senate bill SB 754, which amends the Illinois Liquor Control Act of 1934 to define craft brewers as those that make less than 15,000 barrels per year and allows them to distribute up to 7,500 barrels of their own beer (see BBD 05-24-2011 ), passed both houses. It also prevented larger brewers from doing the same. On May 23, 2011, during legislative debate, House sponsor Rep. Frank Mautino said, "In other words, all brewers, in-state and out-of-state, manufacturing beer above the craft brewer limits may not self distribute or own a distributorship in Illinois." The bill passed and became law on June 1, 2011.
In May 2012, the Commish issued "findings" which were clear as mud. But basically, the Commish found that A-B couldn't hold the licenses. (see BBD May 14, 2012).
On June 7, 2012, the Commish asked City Beverage to appear and asked why each license "should not be fined, suspended or revoked for a violation of the Illinois Liquor Control Act...." The citation further indicated that the Legal Division of the Illinois Liquor Control Commission recommended "that the City Beverage ... licenses be revoked and that the revocation be stayed pending the divestiture of ownership interests of Anheuser Busch, LLC and its affiliates from City Beverage...."
And that brings us to today. "Beer distributorships, independent businesses in the three-tier regulatory system, play a vital role in controlling how alcohol enters Illinois, facilitate the collection of taxes, and assure that alcohol is sold only to licensed retailers," said Bill. "These independent distributors create competition, are easy to regulate, and are a vital part of the local communities they service." [Ed. Note: Thanks to Carol Shirley for helping me get our chronology straight].
MILLERCOORS MAKES ITS CASE: VIRGINIA CASE NOT A THREAT TO THREE-TIER
In a note to distributors late last night, MillerCoors chief Tom Long set forth a document which seeks to make the argument that their actions in Virginia are not contrary to the tenets they set forth in their Three-Tier System Doctrine of 2010.
That Three-Tier Doctrine, says Tom, was crafted in order to "encourage renewed distributor confidence in the future integrity and investment potential of the three-tier system; (2) to affirm MillerCoors and its distributors' shared commitment to the three-tier system and shared belief that this system is integral to their mutual success; (3) to identify those aspects of the three-tier system that are the most important to MillerCoors and its distributors; and (4) to set forth those actions that MillerCoors and its distributors will take to preserve, defend and support the three-tier system."
Tom says that their actions in Virginia support all of those commitments. How? Here's what Tom writes:
"Virginia law and our right of first refusal work together to balance and protect both distributor and brewer rights and interests. Virginia law protects the rights of existing distributors, not prospective purchasers, and our right of first refusal protects our right to pick our distributors. Both work together to promote the three-tier system by protecting the selling distributor's right to receive full value when it transfers its distributorship, while also protecting the right of MillerCoors to ensure the most effective distribution of its brands. State laws around distributor transfers, like those in Virginia, regulate how a brewer exercises its right of approval, not whether it has one in the first place. This protects distributors from bringing forward one purchaser after another to a brewer, only to have the brewer say 'no' every time.
"That is not the case with Chesbay. We have offered Chesbay a strong alternative buyer that makes the seller whole. As long as Chesbay gets its value, the equities weigh in MillerCoors favor to determine who will sell our brands going forward.
"There is a role for federal law in this debate - and that protection comes through the Lanham Act . [Emphasis ours]. Our decision to invoke the Lanham Act is not about seeking to preempt state law, but rather about our trademark rights and how those rights need to be considered when interpreting state law. Allowing a selling distributor to transfer the license to use our brand trademarks to a third party without the consent of the very entity who owns the brands in the first place undermines the value of brands that we and our distributors have worked so hard to enhance. It's wrong - for us and for the system. Protecting our brand equity and who manages it on a local basis is vital to MillerCoors and to our entire system. The Lanham Act recognizes this right to protect brand equity, and that is why we included the Lanham Act claims. We think they help to solidify our interpretation of Virginia law and the legitimacy of our right of first refusal.
"Our arguments in this case are absolutely consistent with the 21st Amendment. We have consistently stated that there must be a balance between state and federal law, and this case is no different. The Lanham Act claim only applies if the federal court says state law deprives MillerCoors of the ability to have meaningful say in who purchases distribution rights to our brands. This is clearly within the framework of the 21st Amendment, and it protects the legitimacy and importance of the three-tier system. The 21st Amendment does not empower states to dictate to brewers how they should handle their own assets, their own brands and their own intellectual property, and it does not block the brewer's effort to get the best, most competitive distributor in each territory. This case embodies that fact.
"Our actions and arguments are completely consistent with and promote the Three-Tier System Doctrine. The first sentence of the Doctrine is clear: Its purpose 'is to define a clear and enduring set of shared beliefs, principles and commitments related to the existing structure and value of the three-tier system.' Nothing would undermine the value of the system faster than us being deprived of the ability to determine who will represent our brands in a local area. And none of the issues in the Chesbay lawsuit will impact the traditional route-to-market pathway, nor should it. We do not - nor would we ever - claim state three-tier system laws supporting separation between the tiers should be preempted by federal trademark law, or that federal law requires a different type of distribution system. We stand behind the three-tier system as resolutely as ever. And as the Doctrine states, we will always use 'appropriate federal and state authority to protect the interests of both national and local businesses to effectively operate across their respective territories.'
"Our actions emphasize the importance of our written Distributor Agreement. Our contracts with our distributors underpin our distributor's business value, putting in writing their distribution rights; strong, well-known trademarks; exclusive territories; rigorous performance expectations; and quality control standards. The value and viability of the three-tier system would be undermined if a selling distributor were allowed all of the benefits of the agreement, but not be held to the obligations. A balanced approach provides value to everyone - brewer, distributor, retailer and consumer."
What do you think? Does a "balanced approach" provide value to both distributors and brewers, or does a stronger middle tier save suppliers from themselves?
I know what state association execs think . In fact, after Florida and Texas, we got letters supporting Chesbay from Maryland, Illinois, both associations in Florida, the Washington DC distributor association, California, Pennsy, and more to come (see below). I've never seen state associations come out in force for one issue in a long time (except the Care Act). I think this is a fight of ideology that suppliers and distributors will be fighting for some time, because it's really not about Reyes or Virginia law, it's about what rights accrue to whom between suppliers and distributors. Distributors currently hold the stroke at the state level, brewers at the federal/judicial level. The tension will remain between those two.
WHERE ARE OTHER SUPPLIERS?
The other brewers/importers have remained largely quiet on this issue, happy to let their competitor MillerCoors take the heat. But in my private conversations with them, several have expressed sympathy for MillerCoors, with many expressing their belief that brewers should indeed have the final decision on who their brands are sold to in a market, and many others lamenting what they call the "one-sidedness" of franchise laws in some states.
One of those suppliers called the foreign-owned argument a "slippery slope" pointing out that distributors' value is partially derived from foreign-owned imports, and it leaves the industry open for taxation which hurts demand. "Welcome to 2012 -- it's a global market," he added. He pointed out that Reyes does business in South America and is twice the size of MillerCoors. "My concern is that wholesalers don't have much behind their argument beyond a protectionist strategy. Brand trademarks are most definitely brewer property and should be regulated at the federal level or we become - India," said this supplier on condition of anonymity. (Ed. Note: Nobody wants to go on record -- it's a testament to how suppliers truly do want distributors to like them).
Here are the letters distributor associations sent regarding the MillerCoors / Chesbay lawsuit:
Associated Beer Distributors of Illinois letter: https://docs.google.com/open?id=0B_AxpKotj17vX0d6c1NNR1NWNmM
District of Columbia Wholesalers Letter: https://docs.google.com/open?id=0B_AxpKotj17vYTh4NTNYSzMweUk
The Beer Industry of Florida letter: https://docs.google.com/open?id=0B_AxpKotj17vQkVBeDYzVmh5em8
Florida Beer Wholesalers Association letter: https://docs.google.com/open?id=0B_AxpKotj17vMTJYMHUzbndKdUU
Maryland Beer Wholesalers Association letter: https://docs.google.com/open?id=0B_AxpKotj17vU3RDR21BN2RpbXc
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louis vuitton Even if we consider the question in another aspect, the state has no means want to enforce the authority of their laws, and preventing the commission of crimes. Let the ruling power standing to do their best to such sources of immoral acts as well as in the state constitution itself will close found, they can accelerate the vigilant work of the police with regard to the crimes actually committed, leave it on the judicious addition of Visit punishment, and the desired end will be properly secured. It certainly can not be forgotten that the freedom of thought and enlightenment that never blooms but under his protection, are the most efficient of all funds for the promotion of safety. While all other methods, the mere suppression of actual outbreaks are limited, free inquiry acts immediately to the very dispositions and feelings, and while only serve to hold by order and decorum in foreign policy, this creates an inner harmony between the will and the endeavor. When will we learn beyond the mere value is set to less visible outcomes of actions, as to the temperament and disposition of the soul, from which they flow? When will it occur to the legislation, which Rousseau won for education to reach out and draw our attention from the mere external physical results to the inner life and the development of the soul?
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louis vuitton bags Both suppositions I think this is wrong. Virtue harmonizes so sweet and of course the people the original inclinations, feelings of love, social harmony, justice, something in them so sweet and engaging, the exalted of the unselfish efforts of self-sacrifice, something so and finishing, and the thousand relationships that grow out of these feelings in domestic and social life, thus contributing largely to human happiness, that it is far less necessary to create new incentives for virtuous action look as easy, save for those who are already implanted a free in the soul and unhindered operation. However, if we are disposed to go further, and strive to provide new and additional encouragement to a moral course of life, we should not forget to hit through a spirit of one-sidedness, the balance between its beneficial and harmful tendencies. After so much of the pernicious results has been told from Restricted freedom of thought, it seems hardly necessary, this carefully enforce by a lengthy exposure, and I have it already sufficiently dwelt, in the former part of this chapter, on the harmfulness of all positive promotion of religion by the state. If these damaging effects of the restriction were only limited to the results of the queries, if it causes nothing but incompleteness or inaccuracy in our scientific knowledge we could continue with a show of reason, to the benefits that could be expected perhaps rightly, estimate flow from such a policy. But as it is, the risk is much more serious. The importance of free inquiry extends to our whole way of thinking and acting itself.
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A more general character of this argument (mainly directed as it is, the political concern about the spread of certain religious teachings) to enter, I cite the principle stated before that all influence of religion on morality primarily dependent if not entirely on the form in which the religious sentiment exists in the individual, and not on the particular tenour of the lessons that make it sacred in his eyes. Well, all state institutions, as well as before I maintained that act solely on the content of teaching in a more or less, while with regard to the form of their acceptance by the individual, the channels of influence on all political agency are closed. The way in which religion springs in the human heart, and the way in which it is received in each case depends entirely on the whole manner of the man's existence the whole system of his thoughts and feelings. But if the state could this according to his views (a possibility which we can hardly imagine) remodel, I must be very unhappy at the exposure of my principles, if it were necessary to restore the conclusion that meets these remote possibility viz., that the people of the state not an instrument subservient to the arbitrary designs, and to induce him to neglect his proper ends for this individual. And that there is no absolute necessity as it might alone justify an exception in this case arises from the perfect independence of morality to religion, which I already tried to determine, but get a stronger confirmation, if I show that the maintenance of a state homeland security, not necessary that a proper and clear direction to the national morality should be given in general. Well, when it calculates a thing more than the other, a fertile ground for religion in preparing the minds of citizens,-if there is something that religion lead, which was infused into the system of thought and feeling, to beneficial respond to the morality, it is the freedom which always (even if it is just to be in the least) suffers from the performance of a positive care by the state.
What would then be the task of the statesman who should carry out such reform? So first in each new step, the outside of the course of things as they exist, he must be performed strictly according to the dictates of abstract theory, unless there are circumstances in the present, try on the graft, it would frustrate all or part of the right consequences of this theory. Second, it must ensure that all restrictions on the freedom remain unaffected, which is once rooted in the present, so long as people do not by unmistakable signs that they regard it as an exciting bond that they feel their oppressive influence that they are ready for which show an increase of freedom in this respect, but when this is appropriate, it must be removed immediately. Finally, he must make men so ripe for increased freedom with all possible means. This last requirement is undoubtedly the most important and at the same time with regard to this system, the easiest. For nothing this maturity and ability to freedom is as much as encouraged by freedom itself. This truth, perhaps, not of those who so often use this lack of capacity have to be acknowledged as a plea made for the continuation of repressive influences. But it seems to me undoubtedly arise from the nature of man. The inability to freedom can come only from a lack of moral and intellectual force, to collect this power is the only way this will work against, but to do so, on the exercise of this power, and this exercise is the freedom that spontaneous activity awakened. But it is clear, we call it does not give freedom to be solved when shackles, as such, not of him who wears it to feel. But no man on earth neglected, but by nature, but deteriorated by circumstances-this is true of all bonds that inspire him and to suppress. Let us be undone one by one, like the feeling of freedom awakens in the hearts of people, and we will accelerate the progress of each step. It can still have great difficulty able to recognize the symptoms of this awakening. But this does not, in theory, as much as in its execution, it is obvious never are special rules, but in this case, as in every other, the work of genius are alone. Theoretically, I should endeavor to solve these confessedly complicated problem.
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