The Massachusetts Franchise Law and Introducing “New Brands” – Do They Have To Go To Your Wholesaler?

Law Offices of John P. Connell, P.C.: As most wineries, breweries, distilleries and importers are aware, once a manufacturer of alcoholic beverages has regularly placed a particular “brand” with a Massachusetts wholesaler within the last six months, it cannot refuse to sell that “brand” to that wholesaler pursuant to G.L. c. 138, §25E in the absence of a written contract stating otherwise or without properly terminating the relationship for “good cause,” which can be difficult to prove. This statutory prohibition against a manufacturer’s ability to simply change wholesalers whenever they want was enacted to protect wholesalers that may have spent years building-up a demand in the marketplace for a particular “brand” only to have that effort lost without any according financial benefit being retained.

The issue often arises, however, when a manufacturer has placed a particular “brand” or perhaps all of its “brands” with a wholesaler, does the manufacturer have to provide its existing wholesaler with all “new brands” that it develops and wishes to distribute? The answer in most cases is “no,” provided the “new brand” is indeed a “new brand.” Accordingly, in litigation, the question often arises: is it a “new brand or not?” Indeed, under the law, the protection granted to wholesalers under §25E is limited to only each specific individual “brand” item:

The Commission has stated that “because the protection of 25E is specific to each brand item, the Commission has held that the continued sales requirement does not apply to new products as long as they do not replace protected items.” In Re Branded-New England Co. v. Beringer Wine Estates Co., ABCC Decision dated January 5, 2000 (quoting Whitehall Co. Ltd. v. Heublein, ABCC Decision dated December 6, 1989).

In Classic Wine Imports, Inc. v. Rosemount Estates, Inc., ABCC Decision dated January 20, 2000, the ABCC dismissed a Section 25E petition that sought to require the respondent, Rosemount Estates, to make sales of a new brand item that Rosemount had not previously sold the complaining wholesaler. In that case, using its “Rosemount” house mark, Rosemount Estates had sold “Merlot” and “Cabernet” wines to its wholesaler for many years but refused to sell it a “Cabernet Merlot” blend. The ABCC found that the new wine was a blend of two varietals that, as a brand, had never been shipped to its wholesaler before and therefore was not entitled to the protections of Section 25E.

In deciding what constitutes a “new product” under Section 25E, the ABCC therefore looks to the alcoholic beverage contained in the bottle to determine whether it is substantially the same or different from another alcoholic beverage that has been shipped to a wholesaler in the past. For example, in Branded-New England Co. v. Beringer Wine Estates Co., ABCC Decision dated January 5, 2000, the ABCC looked extensively at two different lines of wine and found that, although the new wines were made by the same manufacturer from the same grape varietal, they were developed from different vineyards through a slightly different fermenting and aging process, and were therefore a “new product” which the manufacturer was not obligated to sell to its previous wholesaler pursuant to Section 25E.

In that case, the manufacturer, Beringer Wine Estates Co., distributed wines to its wholesaler for years under brands that used the “Berginer” house mark followed by a varietal mark, such as “Beringer Sauvignon,” “Beringer Sauvignon Blanc,” “Beringer Chardonnay” and “Berginger Merlot.” Beringer Wine Estates Co. then began to offer to a different wholesaler wine that continued to use the same “Beringer” house mark and varietal mark, but which also included the words “Founders’ Estate’” in between the house mark and the varietal mark, such as “Beringer Founders’ Estate Cabernet Sauvignon,” “Beringer Founders’ Estate Sauvignon Blanc,” “Beringer Founders’ Estate Chardonnay” and “Berginger Founders’ Estate Merlot.”

In deciding whether the wholesaler had the right to distribute Beringer’s “Founders’ Estate” line of wines, as opposed to the straight forward “Beringer” line of wines, the ABCC determined whether the wines contained within the “Founders’ Estate” labeled bottles were substantially the same or different wines from the wines contained in “Beringer” bottles previous shipped to its wholesaler:

Although the types of grapes used to produce the Beringer wines and the Beringer Founders’ Estate wines are from the same type of grape, there are many other differences between Beringer wines and Beringer Founders’ Estate wines. Beringer wines’ grapes are grown in certain viticultural areas of California and are grown on vineyards or predominately on vineyards that are owned or controlled by Beringer. While the Beringer Founders’ Estate wines’ grapes are grown in various vineyards throughout California and are predominately grown on vineyards not owned by Beringer. Further the wines are produced differently. For example, Beringer Merlot is produced with more than 90% of the wine being derived from Merlot grapes, with all of the wine being aged in French oak barrels from a certain forest in France and aged for over twenty months. Beringer Founders’ Estate Merlot is produced with less than 90% of the wines being derived from Merlot grapes, with 22% of the wine being aged in French oak barrels and the remainder in American oak barrels and stainless steel tanks and contains six times the residual sugar than Beringer Merlot. Also, there price difference per case between Beringer and Beringer Founders’ Estate that range from $16.50 (Sauvignon Blanc) to $245 (Merlot). Branded-New England Co. v. Beringer Wine Estates Co., ABCC Decision dated January 5, 2000.

The ABCC reasoned that even though the varietals of grapes used to produced the wine by Beringer Wine Estates Co. was the same, the two lines of wines offered under the “Beringer” house mark were different and new brand items under Section 25E because they differed in the vineyard locations from where the varietals were grown, they were manufactured differently and they were sold at different prices. Id.

The ABCC’s practice of distinguishing the alcoholic beverage contained in the bottle to discern whether a brand item is the same or different from another alcoholic beverage under Section 25E was followed in United Liquors, Ltd. v. Beck’s North America, Inc., ABCC Decision dated June 13, 2013. In that case, the manufacturer, Beck’s North America, sold “Beck’s Light” to its wholesaler, United Liquors, from 1991 to 1995, but then discontinued the brand due to poor sales. In 2000, the manufacturer re-launched the brand “Beck’s Light” but would not sell the product to United Liquors, which then filed a Section 25E petition with the ABCC.

The ABCC held that although the “Beck’s Light” brand name was used on the product sold to United Liquors from 1991 through 1995 and the product re-launched in 2000, “there are substantial differences in the content of the product and the packaging design, which in and of itself does not make the product a new brand item.” The ABCC held this was not a case of “old wine in a new bottle,” and accordingly the ABCC found that “Beck’s Light currently produced by Beck is a new brand item” and therefore not protected by Section 25E. United Liquors, Ltd. v. Beck’s North America, Inc., ABCC Decision dated June 13, 2013.

Accordingly, when introducing a “new brand” to the marketplace, breweries, wineries, distilleries and importers should be aware of its relative freedom to contract appropriately without the limitation of 25E mandating their decisions.

Contributed by: John P. Connell, Esq.

© 2015 Law Offices of John P. Connell, P.C.

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