Does ownership matter?
Charlie Papazian, President of the Brewer's Association, asked that question in last Thursday's AHA TechTalk newsgroup. It gets to the heart of a problem I've been thinking about, one that gets to the heart about how people feel about beer, and the responses from the homebrewers have been varied and interesting.
The email is below:
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From: Charlie Papazian
Sent: Thursday, September 25, 2008 12:03 PM
Subject: Does It Matter?
I think there is an ongoing debate about whether beer drinkers really care about where their beer comes from. Does it really matter that Blue Moon is made by MillerCoors? Does it matter that Pilsner Urquell is made by SABMiller? Does it matter that German brewed Becks and Diebels Altbier, Belgian brewed Hoegarden and Leffe, English brewed Bass and Boddington, Australian brewed Castlemaine XXXX, Irish Murphy's and Canadian Labatt, and likely soon Budweiser are all under the ownership of the Belgian/Brazilian world brewing corporation Inbev?
We are all beer drinkers. That said, we all have our reasons for choosing the beer we love to enjoy. Whether we realize it or not, we all think about it in one way or another. At the very least we owe it to ourselves to be knowledgeable about the beer we spend good money for. I’m wondering whether these things matter to American Homebrewers Association membership.
What's Next? The Great American Beer Festival - October 9-11, Denver, Colorado
See my page at www.Examiner.com
Charlie Papazian
President
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My response is that it obviously is going to matter to some, so the real question is how much does that count for? People buy a beer or wine for a variety of reasons: price, style, year, geography, location on the shelf, nostalgia, habit, image, or simply that they like the yellow kangaroo on the bottle. Some people harbor grudges against large breweries, either because of taste, or image, a preference for local over global, or simply because it's hip to fight The Man. Some people take issue with the advertising, practices, or politics of certain companies and will not purchase from them for ethical reasons. Point is, people will buy or not based on many factors and I believe they should be given enough information to make an informed decision should they wish to.
If they want to buy the one with the kitty on it then they are free to do that too.
I personally want as much information as possible about any beer I am considering buying. However, the brewing industry makes extensive use of trade names so it is often difficult or impossible to tell who owns a particlular beer simply from the label. Case in point, and I admit a personal peeve of mine, AB's Stone Mill Organic Pale Ale. The labels don't show Anheuser's name anywhere. The brewery is identified as Green Valley Brewing, Merrimack, NH. Of course, Merrimack, NH is home to one of AB's regional breweries and is indeed where Stone Mill is brewed.
Part of the problem here is that craft brews have built a reputation for quality and creativity, based on small production runs and more expensive ingredients and practices. To a first time purchaser however, the only indication of future quality comes from the bottle's label. If the label has a 'micro' look to it, it will be assumed that the all the expectations one has about what goes into making a craft brew will be in the final product. Not that it was made in a 100,000 barrel system, with non-organic hops, and is loaded with rice. The craft brew industry gets by on the quality of its product, and the image of small brewers, working in small batches, making what they like to make. If that image is appropriated through misleading labels and marketing, consumers are suckered and the small brewers lose their competitive advantages.
Note that the taste or quality of the faux-micro is irrelevant to this. It could be a great beer, but it's still using an image it didn't earn and doesn't deserve. Look at the Stone Mill label again, and think about what that label implies. There's a quaint stone mill, a running fresh stream, lots of foliage. The real Merrimack plant is an enormous industrial park. This is not to say it should be required to have the plant pictured on it, but only that when a company makes a claim about small batches or traditional preparation, it back it up. For example, on French wine labels you cannot use the picture of a chateau that isn't actually on the land where the vineyard is.
Speaking of wine, this problem exists in the wine industry as well. Every winery wants to sell its "story". Typically it runs something like this: a family winery that makes wine because they love it, and want to make the best small batches of wine they can, in the best traditions of the Old World. It could be argued that by purchasing a wine you are "buying into" this "wine story", so that when you drink the bottle you imagine that pastoral setting and appreciate the individual care given to that wine over its lifetime. This is all part of the experience, and probably makes drinking the wine that much more pleasurable. The fact is there are actually wineries like this, and they are understandably perturbed when a producer markets its 500,000 case wine as 'So-and-So Family Winery', with a label that typically has a quaint old farmhouse or chateau of some sort.
One possible solution would be to require that the name of the brewer who bottles and packages the beer be on the label and in advertising, and to provide that a trade name or fictitious name may not be used to replace the name of the brewer on labels and in advertising. So for example So-and-So Family Winery would be required to have its owner, Omni-Corp Int'l., on the back label.
This was tried a decade ago on the state and federal levels and was ultimately unsuccessful. However, the failure is itself instructive and lends some perspective on how labeling might work.
PETE'S BREWINGIn early 1996 Anheuser-Busch lobbied the Missouri state legislature to pass a bill requiring labels to state the true owners of the facility where beer was produced. The Missouri Legislature subsequently passed Senate Bill 933 which was codified as Missouri Revised Statute § 311.360.2. (Supp.1998). Section 311.360.2 provided:
Any malt liquor which is offered for sale in this state and manufactured at other than a facility owned by the person whose name appears on the label of the container shall include on the label the name and location of the owner of the facility which produced and packaged the malt liquor. This subsection shall become effective January 1, 1997.
In order to further clarify the terms “owner” and “facility” the Supervisor of the Missouri Department of Liquor Control filed an emergency amendment and permanent amendment to 11 CSR 70-2.060, which stated:
[I]f the name of the brewer or manufacturer of malt liquor which appears on the label is not the owner of the facility where the malt liquor was brewed or manufactured, then the name, owner and address of the facility shall also be set forth on the label.
“Owner” was defined for purposes of the regulation as:
(7)(B) An “owner” of a facility which brews or manufactures malt liquor is defined as a person, corporation, limited liability corporation, partnership or other legal business entity, who holds the entire facility in fee simple, or has a leasehold interest for a term of years in that entire facility, and is the person or business entity licensed for that entire facility by either or both, the state within which the facility is located and/or the United States Federal Alcohol Administration.
These regulations specifically addressed contract brewing and trade name usage in the brewing industry. Any beer brewed for another brewing company under contract would be forced to disclose the facility where the beer was brewed, while breweries using trade names would be forced to disclose the parent company that owned the brand. For example, Pete's Wicked Ale which was made by Pete's Brewing Co., but was brewed at a facility owned by Stroh's, would have to place Stroh's name on its label. Regarding trade names, Miller (not yet Miller Coors) would have had to place the name Miller on its Plank Road products Red Dog and Icehouse.
At the same time, Anheuser-Busch and a consortium of regional microbrewers petitioned the Bureau of Alcohol, Tobacco and Firearms (BATF) to initiate a rulemaking proceeding seeking a similar change on a federal level.2 Signing onto the petition along with Anheuser were Widmer Brothers Brewing Company, of Portland, OR; Hart Brewing Inc., of Seattle; Full Sail Brewing Company of Hood River, OR; Redhook Ale Brewing Co., of Seattle, and the Oregon Brewers Guild, of Portland. Interestingly, each of these breweries was at the time a regional microbrewery, similar in scale to Pete’s Brewing and Sam Adams, though each of these breweries actually owned their own facilities. The Oregon Brewer’s Guild represented the interests of many smaller Oregon Breweries, which often did not distribute outside of the state.
The reasons cited for this rulemaking were, outwardly, well-intentioned. "This is a dollar and cents issue for American beer drinkers," said Paul S. Shipman, president of Redhook. "Consumers are being misled. They are literally buying into an image ... paying higher prices for some brands without really knowing who actually brews their beer. Beer drinkers should get all the information they need to make informed choices."4 The request cited claims by Sam Adams and Pete’s that their beers were "brewed in small batches with only honest ingredients" and Sam Adam’s invitation "to visit us at our small traditional brewery ..." Regardless of whether or not these claims amounted to mere puffery, at least a prima facie argument could be made that consumers were being misled.
Meanwhile, in Missouri the Department of Liquor Control began trying to enforce Section 311.360.2. Trouble began in November, 1996, when the state notified Pete’s and Miller that some of their labels might not be in compliance. This was the first notice these companies received, even though enforcement of this statute was scheduled to begin in twenty-one days. Rather than submit new labels they filed a federal lawsuit seeking an injunction from enforcement of Section 311.360.2.5
While the lawsuit in Missouri was progressing, the attempt at the federal level was failing as well. Though outwardly calling itself a consumer protection measure, the petition was beginning to look more like an attempt by Anheuser-Busch to stifle competition. Consequently, in May, 1997, the Oregon Brewers Guild (OBG) sent a letter to the BATF withdrawing their support for the petition. Mike Sherwood, Executive Director of the OBG stated that "The Guild's primary function is to promote craft brewing in Oregon. It appears that our goals of promoting truth in labeling may be in conflict with Anheuser-Busch's intent with this petition.” Gary Fish, founder of Deschutes Brewing Co. and President of the OBG said, "The petition has been used to create acrimony and disharmony in the craft brewing industry. This was never the intent of the Guild. The Oregon Brewers Guild will continue to promote the voluntary listing of the 'brewery of origin' on the label by all breweries."6
In its opinion issued September 10, 1998, the court in Pete’s Brewing agreed with the Plaintiff breweries’ contention that § 311.360.2 violated the Dormant Commerce Clause.7 Citing SDDS, Inc. v. South Dakota, the court noted that a state law may discriminate against interstate commerce on its face, in its purpose, or in its effect.8 Even if a state law does not overtly discriminate against interstate commerce, it may nonetheless be contrary to the Commerce Clause if it unduly burdens interstate commerce.9 Non-discriminatory state laws, however, are subject to a less rigorous balancing test. The court cited Pike v. Bruce Church, Inc., arguing that such a law “will be upheld unless the burden imposed on ... commerce is clearly excessive in relation to the putative local benefits.”10
With the analysis laid out, the court set out to prove discriminatory effect, purpose and/or intent. The court relied heavily on Hunt v. Washington Apple Adver. Comm., (a statute has a discriminatory effect if it raises the cost of doing business for out-of-state producers but does not raise the cost for in-state producers) and Exxon Corp. v. Governor of Maryland, (statutes which “raised the cost of doing business for out-of-state dealers, and, in various other ways, favor[ ] the in-state dealer in the local market” have a discriminatory effect.)11
The statute’s impact on out of state brewers was clear. There was no evidence to suggest that a single Missouri brewer would have to change its labels. The three biggest brewers in Missouri, which accounted for 99.8% of the Missouri-brewed beer sold in the state, would not have to change their labels.
The court analogized this to the situation in Hunt. In Hunt, Washington State apple growers were being forced to change the label on boxes of apples sent to North Carolina. The apple producers were left with three choices: “obliterate” the prohibited writing on their old labels, develop labels only for use in North Carolina, or change all of their labels to accommodate North Carolina's law. The court argued that beer producers and importers in this case were faced with almost identical considerations and burdens. Brewers could develop Missouri only labels, resulting in higher costs. They could change all of their labels to meet the Missouri statute, which, the court stated, might lead to market confusion and competitive disadvantages in other states. Finally, they could simply stop selling their products in Missouri.
Quite apart from the increased cost of doing business, the court noted that the statute would also deprive out-of-state producers and importers of marketing advantages. The court cited Hunt, noting that in that case, the statute was unconstitutional in part because it stripped the Washington apple growers of the economic advantages they had established through their own grading system.12 In Pete’s Brewing, the statute stripped Plaintiffs of the brand equity they had built up through advertising and trade names. The opinion argued:
The public may associate a brewery owner's name with completely different product qualities of brand identity than the brewer. This compromises the effectiveness of competitive strategies which the Plaintiffs feel best meet their business needs. These competitive strategies include the use of trade names to create distinctive brands and broaden the product's appeal, and the use of other companies' factories to avoid the expense of buying or building a brewery. Though legal in every state, Missouri brewers do not employ these competitive strategies and they would benefit if other out-of-state brewers were prevented from being able to use them.13
The court found that both the increased costs to out-of-state brewers and their potential loss of brand equity were sufficiently of the type of burden found unconstitutional in Hunt.14
The court next looked to whether the in-state brewers were benefited by the statute. Here the overbearing manner in which Anheuser-Busch had pushed for the law was used against it. Apart from the competitive advantages mentioned above, the court took Anheuser’s aggressive support for the bill as evidence that it derived a benefit from the statute. In a particularly damning piece of evidence, Anheuser’s goal of removing its rivals was made perfectly clear to the court.15 The court looked not just at the discriminatory effect of the statute but considered evidence of discriminatory purpose. Testimony by administrators and the legislative history of the bill clearly showed that the statute was a product of Anheuser-Busch’s lobbying. There was no evidence that consumers had been complaining, or that the statute advanced a legitimate state interest. The court subjected the statute to strict scrutiny and it was summarily found to be an unconstitutional violation of the dormant commerce clause.16 Alternatively, the Court found that § 311.360.2 failed even the more flexible balancing test set forth in Pike.17
The Defendants argued that the statute could be saved by § 2 of the Twenty-first Amendment.18 The Supreme Court has recognized that the Twenty-first Amendment provides an exception to the limitations of the dormant Commerce Clause in certain situations. The court relied heavily on the “balancing” aspects of Brown-Forman Distillers Corp. v. New York State Liquor Authority and Bacchus Imports, Ltd. v. Dias in its analysis of the aims of the statute versus its impact on interstate commerce.19 Ultimately it decided that the statute did not adequately support any of the core temperance goals of the 21st Amendment.20 The injunction was issued and statute was not enforced. After Pete’s Brewing, the petition for rulemaking to the BATF died as well.
At first glance, it would seem that Pete’s Brewing forecloses the entire idea of requiring labels to state the actual brewing facility. However, the context in which this law came to the court must be taken into account. Based on the patently obvious way that § 311.360.2 was a product of Anheuser-Busch lobbyists, and on its near exclusive benefit to the largest brewery in the country, the court was understandably suspicious. The success or failure of any such regulation is entirely dependent on the reasons proffered for its existence and the evidence used to support its effectiveness. In Pete’s Brewing there was simply no reason offered that could dispel the impression that the statute was passed solely to benefit Anheuser-Busch.
However, in the case of interested craft brew consumers, Pete’s Brewing is essentially inverted. Instead of the largest brewery fighting its next two rivals, it is a case of smaller brewers and consumers against the Big Three. Ten years ago, Anheuser didn’t have any faux-craft brews, and now it has several. Meanwhile the industry has continued to grow, and the base of educated consumers has grown. In many states, there are no remaining major breweries, but there is a thriving craft brew industry. A well lobbied campaign, run by consumers and small brewers could address many of the reasons Pete’s Brewing came out the way it did. Studies and rallies conducted by a consumer group could be used to support a claim of legitimate public interest.21 Intrastate regulation would be an easy way to begin, as a state would be well within its power to require in-state brewers to provide detailed labels.
If a state was legitimately interested in more extensive origin labeling, it would have to emphasize the public interest served by informing consumers. They would have to provide evidence that the cost of redesigning labels was minimal. The statute should be worded such that the name brewery or trade name is on the bottle as well as the production brewery, in order to lessen the impact on the brand equity of the trademark. For example, trade names could be allowed on the front label, but the back label must specify the actual brewing company as well. This would let interested consumers inquire while minimally impacting the presentation to uninterested consumers.
Finally, this suggested regulation is, of course, just that: a suggestion. The practical complexities of the brewing industry, the lobbying power of the major breweries, the fractious nature of the craft brewing industry, and the byzantine complexities of United States alcohol law all might well prevent such a regulation from ever happening. However, this analysis suggests that were there to be a will, there would be a way.
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1 It is interesting to note that, at the time of this litigation, Pete’s Brewing did not in fact have any facilities of its own, a fact used proudly in its investment prospectus. Similarly, Sam Adams retained its original Boston brewery, but due to volume limitations had ceased to brew all but its experimental and premium beers there. The brewery’s flagship Sam Adams Boston Lager, distributed throughout the US, was contract brewed in various locations around the country.
2 Letter from Patrick T. Stokes, President, Anheuser-Busch, Inc., et all, to Brad Buckles, Deputy Director, BATF, Re: Truth in Beer Labeling/Petition for Rulemaking (Jan. 25, 1996) available at http://www.thefreelibrary.com/Brewers+seek+new+federal+rules.-a017863701
3 To give an idea of how complex these ownership problems can become, of these original regional breweries: Redhook purchased Widmer in 2007, though Anheuser-Busch retained its prior minority interest in both companies and its exclusive distribution agreement; Hart Brewing became Pyramid Brewing and was purchased by Vermont-based Magic Hat Brewing in 2008; Full Sail actually became employee-owned in 1999, but does contract brew for SABMiller under the 150 year old Henry Weinhard’s label, which Miller acquired from Stroh’s in 1999.
4 Brewers Seek New Federal Rules, BUSINESS WIRE, Jan. 25, 1996, available at http://www.thefreelibrary.com/Brewers+seek+new+federal+rules.-a017863701
5 Pete's Brewing Co. v. Whitehead, 19 F. Supp. 2d 1004 (W.D.Mo., 1998).
6 OBG WITHDRAWS BATF PETITION, BEERWeek, May 12 - 19, 1997.
7 U.S. Const. Art. 1, § 8, cl. 3
8 SDDS, Inc. v. South Dakota, 47 F.3d 263, 267 (1995).
9 Id. 47 F.3d at 268.
10 Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970).
11 Hunt v. Washington Apple Adver. Comm., 432 U.S. 333, 352 (1977). Exxon Corp. v. Governor of Maryland, 437 U.S. 117, 126 (1978).
12 Hunt, 432 U.S. at 351-52
13 Pete’s Brewing at 1012.
14 Id. at 1014.
15 “On November 17, 1997, A-B sent a letter to all Missouri wholesalers. The letter highlighted the fact that the Missouri Supreme Court had just upheld § 311.360.2 and went on to state: In other words, retailers will also be in violation of this law if they sell any non-complying products. There is a possibility that this will create a shelf-space opportunity for us as some of these products are eliminated from the Missouri package mix. In particular, you should target the following brands if their labels are not changed: Samuel Adams, Pete's Wicked Ale, Red Dog, Icehouse, Blue Moon. Please cover this topic with your sales force during upcoming sales meetings and take advantage of any opportunities as a result of competitive brand fallout in the market place.(Ex. 315).” Id. at 1014, FN9.
16 Id. at 1017.
17 Pike at 142.
18 Section 2 states “The transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited.” U.S. Const., Amdt. 21, § 2.
19 Brown-Forman Distillers Corp. v. New York State Liquor Authority, 476 U.S. 573 (1986). Bacchus Imports, Ltd. v. Dias, 468 U.S. 263 (1984).
20 The Court must inquire “whether the interests implicated by a state regulation are so closely related to the powers reserved by the Twenty-first Amendment that the regulation may prevail, notwithstanding that its requirements directly conflict with express [federal] policies.” Bacchus at 275-76.
21 Perhaps along the lines of the United Kingdom’s Campaign for Real Ale (CAMRA) http://www.camra.org.uk/
Word on the vine is that Gov. Gregoire signed Senate Bill 5060 into law on Wednesday, making it legal to remove up to 20 gallons of homemade beer or wine from your house for tastings, competitions, and most importantly enjoyment outside the confines of your house. Hopefully this will pave the way for a robust new calendar of competitions and national events like the AHA conference.
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