Distribution of Wine in the USA

The United States are, as of today, the largest wine-consuming country in the world.

However, contrary to any prediction, the consumption of wine by Millennials has decreased due to (1) their preference for craft beers and craft spirits; (2) their damaged financial capacity; (3) the cannabis legalization; (4) negative health messaging, absent the offset promotion of health benefits of moderate wine consumption. On the other hand, there is a shift towards wine once the consumer gets older with an increasing preference for premium wines.

Branding is fundamental: ultimately, a brand owner’s goal is to be recognized and preferred over other products. In order to protect your brand, you should register your mark at the United States Patent and Trademark Office (USPTO), where you can register your name, the design of your logo or label.

There are four bases to register your trademark, two of which refer to the existence of a foreign trademark application or registration in a treaty country:

• “Actual Use” basis under Trademark Act Section 1(a), when the applicant has been using the trademark in U.S. commerce at the time of filing with the goods/services identified in the application;
• “Intent to Use” basis under Section 1(b), when the applicant has not yet started using the trademark in U.S. commerce at the time of filing, but has a bona fide intention to do so in the near future;
• “Foreign Application” basis under Section 44(d), when the applicant owns an earlier-filing foreign application filed within 6 months of the U.S. application at the USPTO for the same mark and the same goods/services. In this case the “priority” filing date for the U.S. application would be the same date as that of the foreign application filing date;
• “Foreign Registration” basis under Section 44(e), when the applicant owns a foreign registration of the same mark and for the same goods/services from the applicant’s country of origin. In addition, Section 66(b) of the Trademark Act allows registration based upon an international trademark registration under the Madrid Protocol.

The registration fee is in the range of $250/class, unless additional filings are required. The registration procedure is completed within about 10 to 18 months depending on the chosen filing basis, and the precedence on the trademark is acquired once the application is filed. Registration lasts 10 years and can be renewed for 10 years period as long as the owner continues to use the mark to identify its goods/services and timely files all necessary documents, the first of which is between the fifth and sixth year from registration.

The U.S. is known as a three-tier system, where winery/manufacturer/importer, distributor/wholesaler and retailer/restaurant are usually three different entities:

• winery/manufacturer is the producer of the wine and if, foreign, is represented by an importer. The importer is the licensed entity authorized to import wine into the U.S. and it must obtain a Federal Basic Importer’s Permit (“Importer’s Permit”) with the Alcohol and Tobacco Tax and Trade Bureau (TTB). No fees are associated with the issuance of such permit and the application takes about 20 days to be approved, as of this writing. The importer must maintain and staff a business office/warehouse in the U.S. Importers must also register as alcohol dealers and complete the TTB "Alcohol Dealer Registration" before engaging in business. Additional registration requirements might be imposed by the State in which the importer maintains and staffs its business office. If allowed by its State Law, an importer can choose to directly sell its own products in its State and become, therefore, a Distributor too;
• distributor/wholesaler is the licensed entity, in a given State, authorized to purchase alcohol from an Importer and sell it to retail store (like restaurant, etc.) within a State. It needs to obtain a Wholesaler’s Basic Permit (federal) from the TTB, as well as licenses at State level;
• retailer and restaurants are the entity selling the wine to the consumers and they might need proper licenses at the State level.
  

After receiving the Importer’s Permit, the importer must obtain a TTB-issued Certificate of Label Approval (COLA) to import chosen wines into the U.S. Please note that, in addition to label registration, every winery needs to register with the Food and Drug Administration (FDA).

The following are the basics for the mandatory information to be included in a label:

• brand name;
• class or type designation;
• alcohol content as a specific percentage or as a range;
• name and address of the importer, preceded by the phrase “Imported by”;
• name and address of the bottler;
• net contents;
• sulphite declaration;
• health warning statement: “(1) According to the Surgeon General, women should not drink alcoholic beverages during pregnancy because of the risk of birth defects. (2) Consumption of alcoholic beverages impairs your ability to drive a car or operate machinery, and may cause health problems”;
• country of origin;
• additional requirements for certain colouring material.

Organic wines are subject to specific label requirements and are subject to compliance with the U.S. Department of Agriculture (USDA) and its National Organic Program (NOP).

Wine produced in certain countries (Canada, France, Jamaica, Mexico, Portugal, Republic of Ireland, Spain and the UK) are also subject to the Certificate of Age and Origin Requirement, meaning that the that the importer has to obtain a certificate of origin when it has been mandated by the appropriate foreign government.

Before the goods arrive at customs, the importer must have already prepared and filed an application for customs clearance. In order to get the wine cleared, the importer needs to hire a Customer Broker, as it is the only person who is authorized by the tariff laws of the US to act as agents for importers in the transaction of their customers’ business. An importer should consider about two weeks to a month for shipment and custom clearance, depending on the route of the shipment and on possible delays at either port.

Tax legislation is rather complex, and it is based on the kind and quantity of wine imported into the country. Importers need to consider Federal Excise Taxes on Wine and specific duty rates. Fortunately for certain European winemakers, the 25% tariff imposed by the Trump Administration as part of the World Trade Organization judgement following the Airbus subsidy dispute between the US and the European Union, have been suspended for five years, during which the United States and the European Union will work on a cooperative framework to address the large civil aircraft disputes , tariff on wine included (as announced by the Office of the United States Trade Representative on June 15, 2021).

Usually in a business plan, the figure allocated in average for ocean freight, taxes, duty, associated container charges, overland freight and delivery to the importer’s warehouse is about $12.00 for a case of wine (12x750ml case).

As of today, the US is the largest wine-consuming country in the world with the importation of wine increasing, at the expense of U.S. producers.

New channels of sales, such as direct-to-consumer sales should be more developed in the US. However, this does not work well for imported wines as they do not have a direct relationship with their customers within the U.S. territory. Also, notwithstanding a global increase in online wine shopping, in the U.S. it lags way behind China. The primary reasons for this lack of growth are the high cost of shipping and the U.S.’s complicated alcohol regulations (consider that, for instance, in many States, consumers cannot purchase wine shipped from out-of-state retailers, which means they can’t buy a lot of imported wines).

Branding and marketing become essential to enter and succeed in the U.S. wine industry, especially as there is also a decrease in on-premises sales, as consumers become aware that they can purchase the same bottle at a lower price off-premises. Therefore, labels, for example, become essential as they catch the consumer eyes in a liquor store shelf.

It is important to mention that, because of the peculiarity of the U.S. system in relation to the wine industry, it is challenging to have commercial power when negotiating a distributor agreement due to the presence of few strong distributors controlling the majority of the market.

Theoretically speaking, two types of contractual relationships need to be considered:

• the relationship between the winery and the importer (unless they are the same entity – see below) is an agency relationship, where the importer becomes the representative of the winery in the U.S. Often, such relationship is not regulated by a written agreement. However, few points should be agreed upon in writing:
• payment terms and Currency of the payment. Usually payment terms are 60 to 90 days from Bill of Lading, Freight on Board or Port of Origin. However, the winery might want to be paid upfront or to have the first shipment under a Letter of Credit;
• the type of wines to be imported should be clearly defined;
• determination of the States in which the appointment of the importer is effective;
• preference towards conservative expectations;
• intellectual property rights protection – The agreement should clarify that any IP rights is property of the winery;
• exclusivity of the Importer, if allowed by the States in which the appointment is effective.
• the relationship between the winery and the distributor (also when importer and distributor are the same entity):
• which distributor to choose? It is always advisable to choose a financially sound distributor that (i) shares your own general business philosophy; (ii) covers the geographical area you are looking for; (iii) plans to invest in the brands you own or represent; (iv) is not too big, so it can focus as much as possible in your brand;
• terms. Usually it is of 1 or 2 years with possibility of renewal;
• exclusivity. It has to be allowed by state law – it is usually not advisable as it is seen as a leap of faith towards the distributor;
• determine if the distributor is allowed to distribute also any “brand extension”, meaning that it will be the distributor for any other type of wine of a certain winery – Often, distributor has a right of first refusal for new products of brands they already distribute;
• intellectual property rights protection – The agreement should clarify that any IP rights is property of the winery and that the distributor has a right to use such IP in the marketing, promotion and sale of the related products;
• franchise States and termination provisions. Choosing a distributor in one of the so-called “Franchise States” means dealing with laws overprotective of the distributor, to the point that the agreement can be terminated by the importer only for good cause and the possibility of amending the agreement are very restricted. If the distributor is not in one of the Franchise States, the parties can decide to terminate the agreement for cause or convenience;
• post termination provisions – Establish what to do with pending orders and inventory repurchase;
• applicable law and jurisdiction. The applicable law and jurisdiction will most probably be those of the State where the wine will be distributed.

In addition to these general suggestions, it is important to keep in mind that typical issues of private international law, as the law applicable to the contract or the choice of forum, could arise. Considering that often the winery, even if big and famous, has likely less contractual power, such issues of private international law would be solved in favour of the law and the forum of a State of the U.S.