TABC Invites Comment on Malt Beverage Rules

On January 27, 2012, staff of the Alcoholic Beverage Commission held a meeting and open discussion with representatives of the alcoholic beverage industry to discuss what rule changes might be necessitated, or made advisable, by the recent court ruling in Authentic Beverages v TABC, No. A-10-CA-710-SS, Federal District Court for the Western Dist. Texas, Austin Division. The staff proposes to present any proposed rule changes to the Commissioners during their public meeting on March 27, 2012. Subject to the Commissioners’ approval, the staff’s proposed rule amendments would be published in the Texas Register thereafter with a call for public comment. The staff intends to present such rules to the Commissioners for final adoption during their July meeting.

Since the meeting, the staff has particularly called for more comment on the question of whether beer manufacturers should be allowed, under the Authentic Beverages decision, to publicly preannounce their promotional activities to be conducted on retailer’s premises or whether such advertisements should continue to be considered an illegal “collusion” between upper tier member and retailer. Comments on this question, which could prompt an amendment of TABC Rule 45.113, should be made to the agency staff before February 6, 2012. Comments may be sent to Martin Wilson, TABC Assistant General Counsel, at Martin.Wilson@tabc.state.tx.us

In Authentic Beverages the court ruled that the bans on publishing the alcoholic content or descriptors of a product’s strength, either by label or on other advertising, constitutes an abridgment of liberties secured by the First Amendment. Further, the use of the word “ale” to designate high alcohol content malt beverages with its consequent ban on use of that descriptor on low content products is also unconstitutional. Finally, the court ruled that preventing manufacturing and wholesale tier members from advertising the retail outlets for their products also constituted a violation of First Amendment principles. Accordingly, the agency is now enjoined from enforcing §108.01(a)(4) of the Code and rules 45.77, 45.79(f), 45.82(f), 45.90, 45.110(c)(3) and “any other provisions of Texas law inconsistent with the court’s opinion. The agency will not appeal this judgment so it is now final and enforceable.

During the course of the meeting the agency staff did not reach or announce conclusions on the issues before them but rather, for the most part, simply listened to comments from attendees. However, after some initial ambiguity, the agency staff did recognize that rules applicable to labels will be equally applicable to other forms of advertising, such as cartons and secondary packaging.

One suggestion put to the staff was to replace the beer/ale-malt liquor distinction currently in place with label symbols designed to distinguish between low and high alcohol content products. They symbols “TX” and “TX+” were offered. Others commented that this would create a Texas specific label and so an unnecessary barrier to market entry for producers outside Texas.

A similar suggestion was made that the agency simply compel manufacturers to place alcoholic content by volume on labels and cartons. Other commentators argued that this also was unnecessarily burdensome on manufacturers. Indeed, a third suggestion was that no particular distinction between high and low alcoholic content products be required on either labels or secondary packaging. According to this line of suggestion, all necessary distinction between product types is handled by normal invoicing practices. Finally, a suggestion was made that a statement of alcohol content only be required for malt beverages containing 5.1% or more alcohol by volume. This would be consistent with the former “beer/ale” distinction and have the added benefit of providing useful information to the consuming public.

A body of Texas law untouched by the Authentic Beverages ruling holds that it is illegal to engage in deceptive or misleading statements in advertising, or on labels or secondary packaging. See Alcoholic Beverage Code §108.01(a)(1),(2), Rules 45.82(a)(1), 45.90(a)(1). A final suggestion made to the staff was that, to allow use of the word “ale” as a function of alcoholic content, as is the case under current practice, can result in misleading and deceptive advertising contrary to the law insofar as it would allow the ale designation to be applied to a product not manufactured as ale.

A second major area of discussion centered on what types of advertising relating to specific retailers should be permitted and what types banned. From the courts’ ruling it is clear that manufacturing and wholesale tier members can now publish lists of retailers who carry their product. One commenter suggested that upper tier advertising benefitting only a particular retailer, or a select group of retailers, should be unlawful. Others suggested that advertising should only be unlawful if it involved some exchange of real value between upper tier member and retailer.

These considerations led to a discussion of the impact of the Authentic Beverages case on the ability of upper tier members to “preannounce” promotions conducted on retail premises. This is allowed for wine and distilled spirits as an exception to the broad general bans on providing benefits to retailers. See Alcoholic Beverage Code §102.07(g). Heretofore it has not been permitted for malt beverages. See Code §102.15.

A number of commenters pointed out that such public preannouncement is the type of advertising that the agency was enjoined from interdicting by the court’s order. Further, conduct that is lawful for wine and distilled spirits cannot and should not be unlawful for malt beverages. As mentioned above, the Commission staff has called for more comment on this point.

Finally, it was pointed out that upper tier members are permitted to engage in sponsorships and other forms of advertising at “public entertainment facilities” served by “independent concessionaires.” These conditions were placed into law to create an exception to the general ban on upper advertising benefitting a particular retailer. Code §108.71 – 108.81 Since the agency can no longer ban such retailer specific advertising, it was suggested that the type of advertising permitted by the Public Entertainment Facilities Act is now permissible at any licensed premises.

Please let us know if you have any questions or would like to discuss a response to Mr. Wilson’s request for comments on the amendment of Rule 45.113.

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