Stone Dragging MillerCoors Distributors Into its Keystone Suit

FILED SEPTEMBER 13, 2018

Dear Client:

Things continue to heat up in the trademark dispute between Stone Brewing and MillerCoors [see BBD 02-13-2018]. The California craft brewer, which claims MillerCoors bit off of its STONE trademark in the recent rebranding of Keystone, is now threatening to lug MillerCoors distributors into the fight.

Attorneys for Stone Brewing fired off letters to a "number" of MillerCoors' distributors earlier this month, BBD understands, in which they ask the distributors to "not destroy things related to Stone or Keystone until the dispute with MillerCoors has concluded." The letters clearly went to MillerCoors distributors who don't also carry Stone.

DISTRIBS PART OF THE PROBLEM, SAYS STONE. These "Legal Hold" letters as Stone's attorneys call them, alleges to their recipients that "for better or worse" your company "has elected to aid and abet Keystone's infringement."

Consequently, Stone's attorneys have asked the distributors on the receiving end of this letter to "confirm" that they "will preserve and not destroy any documents" or any "electronically stored information" in reference to Stone or its products, "or regarding Keystone's branding, sales, distribution, marketing, consumer reaction, or regarding this dispute.

"The purpose," of this letter, Stone's attorneys said, "is to ensure that our client has access to the evidence it will need to prove liability and the amount of damages owed by MillerCoors and those who have aided and abetted its infringement."

SO HOW MANY DISTRIBS RECEIVED LETTERS? MillerCoors learned of the letters last week, according to a "supplement to the joint discovery plan" filed by the brewer yesterday. MillerCoors states in the filing that they know of "at least two of MillerCoors' non-party distributors" that received the letters. The brewer got Stone's counsel on the horn a couple days ago to try and uncover who else or how many other non-party distributors received such letters, but the craft brewer's counsel wouldn't say, per filing.

"Stone Brewing's counsel only indicated that it planned to send letters to even more non-parties, and these were only 'legal hold' letters that Stone Brewing was free to send," claims MillerCoors.

Of course, MillerCoors has a different interpretation of these letters.

LETTERS "DESIGNED TO HARASS AND INTIMIDATE." "Although disguised as a non-party 'legal hold,' these letters appear to be designed to harass and intimidate non-party distributors from selling Keystone beer," MillerCoors writes in the filing. Adding, that these "letters serve no purpose but to threaten MillerCoors' distributors with baseless legal action and interfere and denigrate MillerCoors' Keystone business."

BOTTOM LINE FROM MILLERCOORS. "These letters are typical of the PR we have seen from Stone and are simply an attempt to harass and threaten our distributors," writes MillerCoors in a statement to BBD. "They should be assured we are fully cooperative with the court process and are handling this matter accordingly. We continue to be confident that the court will uphold our rights to sell and market the Keystone brands as we have been doing for nearly 30 years."

OUR TAKE. Greg Koch is a provocateur by trade and a brewer second. His sob story about being tooled around by a Miller distributor in San Diego in the early days has been shared a few times and doesn't exactly pass muster with a source who was with that distributorship at the time, but they declined to elaborate lest they also get sued by the litigious brewer.

Secondly, I wonder how many consumers are actually confusing STONE Brewing Co. with Keystone. It seems implausible that there is much confusion amongst consumers.

TOM HOGUE ON THE NATURE OF OFFERS IN COMPROMISE

Last week we reported that the TTB would be announcing the latest resolutions from several trade practice investigations. That often involves an offer in compromise (or "OIC"), where industry members found in violation of laws do just that: Offer a monetary amount in exchange for the TTB to not take the case they've built for judicial review. Offers are not a "fine," says TTB's Tom Hogue: Their primary goal is deterring trade practice violations.

Some have come forth and questioned the amounts involved in offers in compromise for trade practice violation. TTB head Bob Angelo has expressed the sentiment that the $900,000 fine that Warsteiner remitted earlier this year [see BBD 05-03-2018] for violations involving exclusive outlet, tied house, and more could be the bottom for such offenses.

YES, OICS WILL LIKELY GET HIGHER -- OR RESULT IN PERMIT ACTION. Offer in compromise numbers to seem to be jumping quickly: Consider that in late 2016, the TTB accepted a then-record $750,000 offer from Sheehan Family Companies' Craft Brewers Guild, stemming from trade practice violations regarding pay-to-play allegations in Massachusetts. So in about a year, the amounts jumped significantly, causing some to wonder whether these fine amounts are escalating too.

Tom Hogue doesn't believe so. A lot has to do with the alleged infractions.

"All things being equal, if you come in with same fact pattern [of violations] -- then you should probably be looking at, needing to come in at a similar [OIC] amount." Still, "each of these is on a case-by-case basis."

And if an OIC hasn't seemed to deter an action, it would make sense that it would be higher in the future. (If that doesn't seem to be working in steering the industry away from such violations, says Tom, perhaps they'll instead look to take action against permits.)

If Distributor X has XYZ violations, and Distributor Y has XYZ violations, it wouldn't make sense for a lower compromise offer from the latest infraction, says Tom. Moreover, they're not looking to compromise in a way that could be perceived as these offerings simply being the cost of doing business.

SMALL BREWER PROTECTIONS DRIVING SOME ACTION. Because: With the explosion of brewers in the last half decade or so, Tom believes, leveling the playing field is that much more important, for access to market issues. Since 2012, we've seen this astronomical, triple-digit growth of brewers, he says. "Most of those brewers are so small they can't afford the pay to play ... so if we're not out there reporting this, they get excluded."

As for whether they've been scrutinizing things like permit validity more recently, such as the case with Skokie, Tom says: Not necessarily. "That's something that's been coming to our attention more recently; that's not been our focus, it's been on trade practice violations."

HOW TO UPDATE FEDERAL PERMITS. What's easiest way distribs can update their federal permits?

"They can use our permits online system to provide the additional information," says Tom. "We'd strongly encourage anyone who thinks they've got unreported changes, to go ahead try to resolve those issues. Our goal is, want to promote voluntary compliance. We want people to fix whatever issues they've got. But if you have a permit issue on top of other issues -- you probably want to consider fixing all of that at once."

Until tomorrow,

Harry, Jenn, and Jordan

"You do your best work if you do a job that makes you happy."

- Bob Ross

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Register here: https://www.beernet.com/beer_summit.php

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