MICHIGAN FLORIDA ILLINOIS NEW YORK CANADA CHINA POLAND

Winery Legal Update 2014 Michigan Grape and Wine Conference

Presented by Joseph Infante

Food, Beverage and Agri-Business Practice Team

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Regulatory Compliance and Internal Audits

Penalties

• Proper recordkeeping practices and routine audits are important given the possible penalties.

• Federal regulations allow for a fine of $1,000 or up to 1 year in prison for each offense.

• “Offense” can be treated differently by each investigator.

Recordkeeping

• Wineries are required to maintain an amazing amount of records.

• Important to have recordkeeping practices in place. • Depending on the size of the operation, this burden

might be placed on one individual or spread among several.

• Computerized software is available. • Records required at the time the activity took place and

no later than three business days following. • Maintain for three years. • Google: “TTB Compliance Seminar”

Recordkeeping

• 27 CFR 24.300-.323 • 27 CFR 24.301: Bulk still wine (11 daily items)

– Examples • Volume produced by fermentation • Type of production method • Volume produced by blending • Volume of wine removed for refermentation or distillation

• 27 CFR 24.302: Daily records for sparkling wine production. • 27 CFR 24.305: Daily records for sweetened wine production.

Recordkeeping: Transferring in Bond

• Transferring in Bond: 27 CFR 24.309

• 13 items which must be on the bill of lading

• Examples: – Name, address and registry

number of proprietor – Name, address and registry

number of consignee – Shipping date – Class and type of wine – Alcohol content or tax class – Information necessary for

varietal, appellation or other label information.

• Return of Tax Paid Wine to Bond: 27 CFR 24.312

• Must maintain records which contain:

• a) The kind, volume, and tax class of the wine;

• (b) With regard to each tax class, the amount of tax previously paid or determined;

• (c) The location of the wine premises at which the wine was bottled or packed and, if known, the identity of the bonded wine premises from which removed on determination of tax;

• (d) The date the wine was returned to bond; • (e) The serial numbers or other identifying

marks on the cases or containers in which the wine was received; and

• (f) The final disposition of the wine.

Shiners

• The requirements for transfers in bond are important when discussing “shiners”

• The information on the bill of lading must match up with the COLA application by the bottler.

• If receiving unlabeled wine from a bottler, ensure the bottler includes a COLA and the transfer records.

• Only the bottler can apply for a COLA.

Taxpaid Wine on Bonded Premises

• If you are going to maintain taxpaid wine on bonded premises, the following records are required.

• a) Record of receipts. • (1) The name and address of the person/wine

premises received from; • (2) The registry number (if any) of the wine

premises from which received; • (3) The date of receipt; • (4) Class and type; • (5) Alcohol content or tax class of the wine; and, • (6) The volume of wine received in liters and

gallons. • (b) Record of removals. • (1) The name and address of the person to whom

removed unless sale of less than 80 liters; • (2) The date of removal; • (3) Class and type; and • (4) The volume of wine shipped in liters or gallons.

• (c) Record of cases or containers filled. • (1) The date the cases or containers were filled; • (2) Class and type of wine bottled or packed; • (3) The number of the tank used to fill the bottles or

other containers; • (4) The size of bottles or other containers and the

number of cases or containers filled; • (5) The serial number or date of fill marked on the

cases or containers filled; and • (6) The total volume of wine bottled or packed in

liters or wine gallons.

Inventory Issues

• Losses by Theft – Must establish that loss

was not result of own fraud or negligence.

• Inventory Losses – Typical losses due to

spillage, evaporation, soaking, etc in bulk can claim an allowance. Limited to 3% or 6% depending on operation.

– Bottled losses must be explained or taxes must be paid.

• Annual Inventory – Required to be taken on

June 30 of each year. (Dec. 31 if filing annual report of operations.)

– Inventory includes: • Description of wine • Volume in bulk • Volume in bottles • Total volume. • Consecutively numbered

and signed.

Reporting and Tax Payment

• Report of Operations – Typically performed

monthly and due by the 15th of the following month.

• The tax value of wine is determined when the wine is produced.

• Tax is not paid when produced but when wine is removed for consumption or sale.

• Must keep a daily record of wine removed, by tax class, to the 10th of a gallon.

Reporting and Tax Payment

• Not all removals of wine require tax payments – Wine used for testing on or off

premises – Wine used for tasting on the

bonded premises. – Family use – up to 200

gallons. – Destroyed wine – Breakage – Exported wine – Transferred in bond.

• Filing a claim for wine lost or destroyed in bond. – Must provide:

• Original volume which sustained loss

• Tax class • Quantity lost • Percentage lost

Updating Permits – Ownership Changes

• There are many occurrences which may require updating to federal permit. – Forms

• 5100.18 • 5120.25 • 5000.9

– TTB will accept changes by letter with prior permission. • Change in Partners - Immediately • Change of > 10% Stockholders - Immediately

– In addition to annual report on May 1. • Change in Members - Immediately • Officers/Directors: Amended application within 30 days.

Updating Permit – Other Changes

• Premises – Change of address – Any change to doors, walls or other infrastructure or

the adding of a building requires a notice be sent to the National Revenue Center with a detailed description.

• Addition/Deletion of Trade Name • Change in Operating Name • Changes to bond amount/surety

Bond Coverage

Wine/Spirits Tax Class Tax Rate Tax Liability

10,000 gallons Not over 14% $.17/gallon $1,700 7,500 gallons Over 14-21% $.67/gallon $5,025 84 proof gallons Distilled Spirits $13.50/proof

gallon $1,134

Total Liability $7,859

Important to ensure sufficient bond coverage and update the bond as necessary. Below is an example of calculating bond requirement for a small winery (producing less than 250,000 gallons)

Wine Labeling

• Required Information – Brand Name – Class or Type Designation – Alcohol Content – Bottler’s Name and Address – Net Contents – Sulfite Declaration – Health Warning Statement

Cider Labeling

• Because cider is considered wine, labeling falls under the wine provisions of the FDA and TTB depending on alcohol content.

• 27 CFR 24.257(4)(iii) states that if wine/cider contains less than 7 percent alcohol by volume, labeling is under the jurisdiction of the FDA.

• What this means is that the label must include a list of ingredients, nutritional facts and volume in fluid ounces.

• Exception: Nutritional information is not required if: – Less than 100 full time employees, and – Less than 100,000 units produced yearly.

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Employment Law: Avoiding Pitfalls

Agenda: Avoiding Pitfalls

• Importance of Employee Handbooks • Wage/Hour Laws

Employee Handbooks: Do You Need Them? • Detail Work Policies, Expectations, Protocols • Help Establish “At-Will” Employment • Help Establish Affirmative Defenses • Some Workplace Policies Mandated by Statute

Handbook Provisions: Must Haves…

• EEO/Anti-Discrimination/Anti-Harassment • Disability Accommodations • FMLA (50+ employees / 75 mile radius) • Military Leave • Payroll Practices • Confidential Info. and Non-Disclosure • Workplace Violence/Weapons • Vacation – use it or lose it…?

Handbooks: Must Haves…

• Email, Internet, and Electronics Usage • Social Security Number Privacy Policy • Code of Conduct / Disciplinary Procedures • Drug / Alcohol Policy • Acknowledgement Form (to be signed) • Many more…

Wage / Hour Pitfalls

• Fair Labor Standards Act (FLSA); Michigan’s Minimum Wage Act

• Statutes require all employees to be paid minimum wage (Mich. $7.40/hr)

• Statutes require “non-exempt” employees to receive overtime compensation for each hour worked over 40 hours in a week (@ 1.5x “regular rate”)

• Penalties for violations are stiff

Wage / Hour Pitfalls

• Classifying Employees Correctly

– Exempt (ineligible for overtime) vs. Non-Exempt (eligible for overtime) – Independent Contractors vs. Employees

– Interns vs. Employees

– Volunteers vs. Employees

Tipping

• State and Federal Law Permit Employers to Rely on “Tip Credits” to Satisfy Minimum Wage Burden for “Tipped Employees”

• Tipped Employees = those who customarily and regularly receive more than $30 per month in tips.

• Tips are property of the employee. • Employers may not use an employee’s tips for any

reason other than satisfy the “tip credit” or in furtherance of a valid “tip pool”

Tipping: Tip Credit

• Section 3(m) of the FLSA • Employer may take a tip credit toward its minimum wage

obligation equal to the difference between the required cash wage for tipped employees ($2.65/hr Mich.) and the minimum wage ($7.40/hr Mich.)

• In other words, you can rely on the tips an employee receives to make up the difference…

• What happens if not enough tips…?

Tipping: Tip Pool

• Valid Tip Pools (or “sharing arrangement”) among employees who customarily and regularly receive tips, such as waiters, hosts/hostesses, service bartenders, bussers.

• “Back of the House” not eligible • Requirements: inform employees of the details of the tip

credit; that the credit claimed cannot exceed the amount of the tips actually received; that all tips are to be retained by employees except for tip pooling; and details of tip pool

Tipping: Other Considerations

• Employee Performing Dual Jobs (tipped and non-tipped) – Tip credit is available only for the hours spent by the employee in

the tipped occupation – Incidental (less than 20% of workweek) non-tipped work is okay

(e.g., hostess occasionally washing dishes, which is not tip-producing work)

• Michigan law requires written tip statement dated and signed by the employee before the date the paycheck is received for each pay period

• Tips on credit cards: tips attributable to employee may exclude 3% service charge by credit card company

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Selecting and Protecting

Your Brand

Trademarks

Trademarks are words, symbols, designs, combinations of letters or numbers, or other devices that identify and distinguish the source of products and services in the marketplace.

Purposes

• To identify and distinguish the source of goods or services of one party from those of others

• To permit consumers to identify goods coming from a particular source

• To permit businesses to attract customers and build goodwill

• To secondarily protect consumers from confusion

Selecting a Trademark

Marketable/descriptive and protectable/distinctive

Marketing ease versus unique trademark

Distinctiveness Spectrum

Inherently Distinctive Protectable

May be protectable (secondary meaning)

Not Protectable

Fanciful/Arbitrary>>> <<<Suggestive>>> <<<Descriptive>>> <<<Generic

1. Fanciful Arbitrary Trademarks

• “Coined" (made up) terms that had no meaning before being trademarks.

• Common words used in a unique way so that the

word has no relationship to the product.

2. Suggestive Trademarks

• Indirectly allude to a quality or characteristic of the product.

• Consumer must exercise some degree of

imagination

3. Descriptive Trademarks

• Describe the goods or a characteristic, including geographic and surnames.

4. Generic Words

• Connotes a particular genus or class of which a product or service is but a member.

• Never trademarks

• “Genericide” lost distinctiveness THERMOS, CELLOPHANE, TRAMPOLINE,

ASPIRIN

Tips for Selecting a Suggestive Mark

• Choose a related term from another area such as a different culture, mythology, field of study, etc.

• Use a term that connotes ideas or

principles of your company.

Selecting a Suggestive Mark (cont’d)

• Truncate or use an acronym rather than a descriptive term. Exs: ALLEVE for alleviate.

• Utilize a term that expresses the connotations you want to convey.

• Family of marks

Proper Trademark Usage

• ALWAYS have the trademark stand out from surrounding text.

• Differentiate from surrounding text using ALL capital letters or at least "Initial Caps", bold,

color or italic fonts or by placing the trademark within “quotation marks,” or, for stylized or graphic marks, in the form associated with the mark.

Proper Trademark Usage (cont’d)

• ALWAYS use a trademark as an adjective modifying a noun. NEVER use a trademark as a noun.

• NEVER use a trademark as a verb. Trademarks are products or services, never actions.

• Ideally, make sure to use the product’s generic name with the trademark. (e.g., APPLE computers, XEROX photocopiers).

• As a minimum requirement, the generic term should be used after the trademark at least once in each written communication, preferably the first time the mark appears.

When you use "Xerox" the way you use "aspirin:' we get a headache. There's a new way to look at it.

Boy, what a headache! And all because some of you may be using our name in a

generic manner. Which could cause it to lose its trademark status the way the

name "aspirin" did years ago. So when you do use our name, please use it as

an

adjective to identify our products and services, e.g., Xerox copiers. Never

as a verb: "to Xerox" in place of "to copy," or as a noun: "Xeroxes" in

place of "copies." Thank you. Now, could you excuse us, we've got to lie

down for a few minutes.

C 2003 XEROX CORPORATION. All rights reserved. XEROXf•The Document Company' and There's a new way to look at it are trademarks of XEROX CORPORATION.

THE DOCUMENT COMPANY

XEROX.

Proper Trademark Usage (cont’d)

• ALWAYS use proper trademark form and spelling. Do not deviate from the established spelling, including appropriate spaces, hyphens, or other punctuation. Use the trademark consistently. Each deviation creates a new, different trademark. Do not use hyphenated variations or combine the mark with other words.

Proper Trademark Usage (cont’d)

• Markings and Notice • ® symbol for marks registered with the U.S. Trademark

Office. • Asterisk *Registered in the U.S. • "TM" and “SM” for marks that are not registered

Proper Trademark Usage (cont’d)

• The ™, SM or ® symbol need only appear in the first or most prominent mention of the mark.

• Police infringing and improper use.

Types of U.S. Applications

• Types – Use-based – Intent-to-use

• Forms

– Word – Stylized – Design

Clearance

• Trademark availability searches - Preliminary knock-out search - Trademark search report - Full searches • Purpose - Uncover similar marks/Likelihood of confusion - Avoid oppositions

Trademark Application

• First dates of use 1) anywhere and 2) in commerce. • Specifically describe goods/services and identify classes. • Specimens must show mark in connection with applied-for

goods/services. 1. For goods - catalogs, tags, labels, instruction manuals, containers or displays. 2. For services – brochures, advertisements, website pages and other marketing materials.

• $1,375 to file application in 1 class (includes availability search, obtaining and selecting specimens, preparing and filing application).

Trademark Application Timeline

• Reviewed by Examining Attorney within 4-6 months. • Either cleared for publication or office action issued to

address problems with application. - Likelihood of confusion with registered marks - Descriptiveness refusal - Goods/services not properly identified or described - Specimen not sufficient - Drawing/logo/design not properly described

Trademark Application Timeline (cont’d)

• Mark published for opposition for 30 days. - Opposition proceeding is similar to litigation. - Includes discovery, depositions, hearings, trial, etc., before TTAB. • Generally takes a year before registration is granted. • Must be renewed after first 5 years; then every 10 years.

Alcohol-Specific Regulations

Federal law prohibits: • Depictions of nudity, obscenity or indecency • Statement that consumption enhances athletic

prowess • Illustrations which induce minors to drink • Statement that use has curative or therapeutic

effects, if untrue or misleading • Words such as “high proof,” “full strength,” “extra

strong” or similar references to intoxicating effect

Alcohol-Specific Regulations (cont’d)

• Representation relating to the Armed Force, the American flag, state flag, emblem or seal

• Statement that the product was manufactured or imported from somewhere other than the actual origin

For wine: • Statement of age or dates, except for the year of

vintage

The Benefits of Registering your Trademarks in the United States

• Designating and recording a property right for the trademark.

• Providing constructive notice nationwide of the trademark owner’s claim.

• Blocking federal registration of confusingly similar trademarks.

• Providing evidence of ownership and the registrant’s exclusive right to use the trademark with the goods or services specified in the registration.

• Allowing for incontestable status after filing the appropriate declaration.

The Benefits of Registering your Trademarks in the United States

• Permitting jurisdiction of federal courts. • Allowing for filing with U.S. Customs to prevent

importation of infringing foreign goods. • Serving as a basis for obtaining trademark protection in

foreign countries. • Granting the right to use the circled “R” symbol, ®, with

the registered trademark.

The Importance of Protecting and Policing your Trademarks

• It is your duty to police your trademarks, not the USPTO

• If you do not do it and let others use marks similar to your own, you weaken your mark and risk cancellation or the inability to enforce it

• Cease and desist letters and filing lawsuits