Next  Level  Compliance:    Legal  Growth  in  a  Sea  of  Red  Tape  

Daniel Christopherson

John Messinger Lehrman Beverage Law PLLC

WWW.BEVLAW.COM

LABELS · FORMULAS · PERMITS · TRADEMARKS · CONTRACTS · ADVERTISING · TRADE PRACTICES

Presented at ACSA’s 2017 Distillers Convention and Vendor Trade Show February 16, 2017

NEXT LEVEL COMPLIANCE: LEGAL GROWTH IN A SEA OF RED TAPE

DAN CHRISTOPHERSON JOHN MESSINGER

LEHRMAN BEVERAGE LAW, PLLC

TRADEMARKS • LABELS • FORMULAS • PERMITS • CONTRACTS • STATE

ROBERT VOLZ FRANK

• AMATEUR PHOTOSHOP

2017 UPDATES TTB

•  PATH Act: If annual excise tax liability is less than $50k (~3,704 proof gallons) •  Can elect to file annually instead of quarterly, and •  exempt from the bond requirement.

•  TTB Ruling No. 2016-3: Formula approval not required for vodka, whisky, brandy, or rum with certain coloring, flavoring, or blending materials added.

Trademarks •  Christian Faith Fellowship v. Adidas: the sale of marked goods to an out-of-state

resident is use “in commerce.” •  Luxco, Inc v. Consejo Regulador del Tequila, A.C.: registration of the certification mark

“TEQUILA” upheld.

AN INSPIRING STORY OF GROWTH Lehrman’s Likkers has come a long way in the 5 years since Robert and Frank left their stills in the backwoods of the Shenandoah Valley for a chance to go legit at a fully licensed distillery in DC.  Now feeling like they’ve maxed out their profits at selling legal moonshine in the Commonwealth of Virginia, they are ready to branch out to do bigger and better things.

PAYING FOR EXPANSION Common fundraising options include: 1.  Private investor (equity) fundraising 2.  Bank loans 3.  Private loans 4.  Crowdfunding (equity or non-equity) 5.  Drawing from a 401k

PAYING FOR EXPANSION – PRIVATE INVESTORS If Lehrman’s Likkers takes on Mr. Volzopoly as a new investor, they should consider:

•  Character and three-tier issues

•  Modifying their current corporate structure

•  At least updating their existing TTB permit (and likely their state license)

•  Possibly getting a new permit

•  Options to avoid red-tape

RAISING THE MONEY TO EXPAND Crowdfunding

•  Equity crowdfunding

•  Non-equity crowdfunding

Loans

•  Types: Private loans, Bank loans, Equipment loans

•  Issues: Collateral, Guarantors

Other

•  401k contributions

THEY RECEIVED FUNDING! NOW WHAT? So Frank and Robert hopped in their houseboat to celebrate, grabbed a bottle of shine, and got to thinking. The ideas they came up with were:

1.  Releasing a new line of spirits.

2.  Expanding their production capacity.

3.  Distributing their products to new states.

4.  Exporting their products outside the US, and

5.  Pursuing non-traditional revenue streams.

EXPANDING PRODUCTION CAPACITY TTB Issues •  Amended Basic Permit

•  Adding space (bonded vs. non-bonded) •  Adding equipment •  Adding operations (e.g. warehousing) •  Adding non-contiguous spaces and limitations

State/Local Issues •  Check with your state/locality prior to making changes

RELEASING A NEW LINE OF SPIRITS TTB Issues

•  Formula (if required) and label approval

•  Restrictions on certain types of products

Trademark/Intellectual Property Issues

•  Trade secrets: who will own the formulation?

•  Clear your new names and logos

•  Apply for them early (intent-to-use)

State/Local Issues

•  Brand and/or label registration

•  Price posting

Distributors

•  Plan to use same distributor?

•  Is it a “brand extension”?

•  Does the new product require special handling?

•  Different goals, price points, etc.

DISTRIBUTING TO NEW STATES TTB Issues

•  Label approval

Trademark Issues

•  Effect of federal registration

•  Prior common law users / state trademark registrations

•  Brand registration where conflict with trademark

State/Local Issues

•  17 control states for spirits

•  Different treatments of obscene/lewd/controversial images

•  Three-tier issues? Distributors •  Franchise states •  Exclusivity •  Right of first refusal for geographic

extensions

DISTRIBUTING OUTSIDE THE US TTB Issues

•  Label and formula approval, required?

•  Exporting Taxpaid vs. Untaxpaid spirits

•  Required forms, reports and when notice or approval is required

Trademark Issues

•  Territorial restriction on trademarks

•  Madrid protocol vs. direct foreign filing (Canada, Great Britain)

•  Foreign filing requirements (use, priority claim)

•  U.S. Customs recording

State/Local Issues

•  Permission to export generally not required

PURSUING OTHER REVENUE STREAMS Direct Shipping/Internet Sales

•  Generally not permitted, depends on state

Importing

•  Requires TTB Importer’s basic permit to import bottled spirits or bulk spirits

Contract Production

•  Production agreements, intellectual property

Alternating Premises/Proprietorships

•  Potential to make beer, wine, non-beverage products at your existing facility

•  Ability to alternate your space with another distillery

QUESTIONS? Dan Christopherson

dan.christopherson@bevlaw.com

202-449-3739 x708

John Messinger jdmessinger@bevlaw.com

202-449-3739 x2

Lehrman Beverage Law, PLLC 2911 Hunter Mil l Road, Suite 303, Oakton, VA 22124

LABELS · FORMULAS · PERMITS · TRADEMARKS · CONTRACTS · ADVERTISING · TRADE PRACTICES

Web: www.bevlaw.com Blog: www.bevlaw.com/bevlog

Thank you, Daniel Christopherson

John Messinger Lehrman Beverage Law PLLC

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