Regulatory Confusion

While growing in popularity, hard alcoholic seltzers have caused a great deal of confusion for state and federal regulators who have struggled to determine how these products fit into an existing regulatory framework that governs beer, wines, and spirits. Permit holders – big and small – have grappled with questions about whether certain restrictions, such as those limiting the sale of certain alcoholic products on Sundays and outside of restricted hours, apply to the sale of seltzers. Meanwhile, manufacturers are struggling to understand the regulatory and legal requirements imposed upon them regarding the manufacturing, advertising, and sale of their products.

Complex Regulatory Landscape

To further complicate an already complicated situation, breweries not only need to adhere to state-specific beer laws, but they are also subject to federal regulations set by bodies such as the Alcohol and Tobacco Tax and Trade Bureau (TTB). These regulations govern important aspects, ranging from alcohol sales and distribution to the labeling and marketing of their products. While the scope of their regulatory purview may be broad, even the TTB has not even defined what terms such as “hard seltzer,” “alcoholic seltzer,” “spiked seltzer,” or “hard sparkling water” mean. Instead, the TTB has defined these beverages using the historical definitions of “beer” and “malt beverage” found in the internal revenue code.

Anheuser-Busch InBev SA’s Grupo Modelo Appeal

On March 12th, a panel of the Second Circuit Court of Appeals heard oral arguments on Anheuser-Busch Anheuser-Busch InBev SA’s Grupo Modelo’s (Modelo) appeal. This appeal comes after a jury’s finding that Crown Imports LLC, a branch of beverage-maker Constellation Brands Inc. (Constellation), did not infringe upon Modelo’s trademarks in connection with its marketing and sale of certain hard seltzers under the “Corona” and “Modelo” brand names.

The Court must decide whether to set aside a jury’s finding that a 2013 licensing agreement where Modelo granted Constellation an exclusive license to use the Corona and Modelo trademarks to market and sell “beer” within the United States of America and Guam also included the right to market and sell hard seltzers bearing the same trademarks.

Modelo vs. Constellation

During oral arguments, Modelo argued that the District Court erred by failing to give the term “beer” its’ plain and ordinary meaning.” Secondly, Modelo claimed that the District Court’s determination that the term “beer” was ambiguous was also erroneous. Thirdly, Modelo argued that the Court erred by providing the jury with jury instructions which relied upon regulatory definitions – and now ordinary meaning – to define what “beer” meant within the context of the licensing agreement at issue. Modelo appeared to advocate for a bright-line definition of beer that would include requirement that the product at issue contain malt in order to qualify as a beer.

In rebuttal, Constellation argued that seltzers are regulated as beer under federal law, and that the term “beer” is inherently ambiguous, claiming it should not be whether a product contains “malt” but rather, “what’s going to be in that beer fridge in the bodega.”

Pending Court Decision

While the time it takes for the Court to issue a written order varies, we will continue to monitor this case and will provide substantive updates as they become available.