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The Tito’s Lawsuit: When Approval is Not Approval

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Tito’s vodka was doing great for the past 15 years, then hit a gigantic speedbump this week in the form of a class action lawsuit.

Tito’s therefore provides a good example of when an approval is not really an approval. Tito Beveridge has more than 30 TTB label approvals for his vodka from 1997 to 2013 (as in the above image, from LabelVision). They may not do him much good in this lawsuit, even though, in years past, most would assume the federal approval would be dispositive. It’s a good thing most TTB approvals are not paper anymore because these would “not be worth the paper they are printed on.”

summonsSummary:  in Hoffman v. Fifth Dimension, Inc., Gary Hoffman (a consumer) sued Tito’s vodka on behalf of all Tito’s customers in California, claiming that the company misleads people about whether the product is “handmade.” The lawsuit was filed September 15, 2014 in San Diego county court. The federal government reviewed and approved the Tito’s labels, but has no definition for the term at issue.

The classic case of an approval that is not really an approval would be your garden variety Napa Valley Chardonnay, Vintage 2010. TTB will take almost every one of those italicized words at face value. To the extent any one of those words is not true, your approval is not going to help you too much, in the event of an inquiry. Like an IRS tax return, the COLA (and any formula approval) is, to a surprisingly large degree, something of an honor system, stapled together with the penalty of perjury on every such document.

Updates:
9/16/2014: Judge Eddie C. Sturgeon is assigned to handle the case.
9/23/2014
: Tito’s apparently put out a press release, sketching out a defense. I sure hope they have more. They took a jab at the plaintiff for botching the defendant’s proper name, Fifth Generation, Inc. Shanken points out that the brand is at 1.3 million cases per year (that’s a lot of hands!). Tito says “he will vigorously contest the lawsuit.” Tito largely hangs his hat on the fact that TTB approved the labels.
9/25/2014:  the plaintiff amended the defendant’s name, from Fifth Dimension, Inc. to Fifth Generation, Inc. In so doing the plaintiff declared being ignorant of the company’s true name, when filing the complaint on 9/15/2024. This is odd because the plaintiff used the correct name on the Affidavit of Venue filed the same day. Plaintiff did a good job covering this point, though, in the original complaint, by saying:  “Plaintiff is ignorant of the true names and capacities of the defendants sued herein as DOES 1-100, inclusive; therefore, Plaintiff sues these defendants by such fictitious names. … Plaintiff will amend the complaint to allege their true names and capacities when ascertained.”
amended9/30/2014: things just got much more serious for Tito, as the case ballooned into a nationwide class action suit. The amended complaint states:  “This is a nationwide class action case brought on behalf of all purchasers of vodka (“Vodka”) manufactured, distributed, marketed, and/or sold by FIFTH GENERATION, INC. dba Tito’s Handmade Vodka (hereinafter “TITO’S”).” Also boding ill, the original and amended complaints refer to Sidley Austin (suggesting that the small San Diego firm on the plaintiff side, may be working with a much bigger firm.)

The Forbes article explains:  “Tito’s has exploded from a 16-gallon pot still in 1997 to a 26-acre operation that produced 850,000 cases last year, up 46% from 2011, pulling in an estimated $85 million in revenue.” The article strongly suggests Tito is about to be a victim of his own success. You can say this post is a prime example of a lawyer taking something clear, like an affirmative, direct approval, and blurring it up to say it’s not really an approval. That would not change the messy, complicated reality, that TTB is not the only sheriff in town. We have a “system” and though it may be cumbersome, it actually does work pretty well. TTB approves Palcohol. Fine. That’s only one level. Then the private sector jumps in (i.e., us). This triggers the states, legislators, media, trade associations, on and on, to take action. TTB can’t and probably does not need to “do it all.” Customs jumps in on imports, states jump in on Santa and bitch issues, and now there is a clear right of private action in all such disputes. The floodgates are well open. A few weeks ago, in light of the Pom v. Coke decision, we predicted a flood of lawsuits around label claims. Some said “the sky is not falling.” Well, the water is starting to rise pretty high. Tito is up to his waist. Templeton is up to its knees. Bass and Becks are up to their ankles. All from private action with no trace of governmental intervention. Skinny Girl got dunked a few years back and we will need to go back and look to see how much water she swallowed.

The Tito’s lawsuit (Hoffman v. Fifth Dimension, Inc.) is here. Some juicy highlights are as follows (and on this page).

This is a class action case brought on behalf of all purchasers of all vodka (“Vodka”) manufactured, distributed, marketed, and/or sold by FIFTH DIMENSION, INC. dba Tito’s Handmade Vodka (hereinafter “TITO’S”). Through a fraudulent, unlawful, deceptive and unfair course of conduct, TITO’S, and DOES 1 through 100 (collectively “Defendants”), manufactured, marketed, and/or sold their “TITO’S HANDMADE” Vodka to the California general public with the false representation that the Vodka was “handmade” when, in actuality, the Vodka is made via a highly-mechanized process that is devoid of human hands. There is simply nothing “handmade” about the Vodka, under any definition of the term,1 because the Vodka is: (1) made from commercially manufactured “neutral grain spirit” (“NGS”) that is trucked and pumped into TITO’s industrial facility; (2) distilled in a large industrial complex with modern, technologically advanced stills; and (3) produced and bottled in extremely large quantities (i.e., it is “mass produced”).

The plaintiffs are asking for all the money, plus attorney fees, punitive damages, interest, costs, and taxes:  “all monies acquired by means of Defendants’ unfair competition.”

Right about now, every beer, wine and spirits company should be re-examining their labels, new and old, approved and prospective, and making sure every part is on firm ground. If you lack TTB approval it may hurt you a lot, but if you have it, it may not be sufficient to save you.

* A small disclaimer is, I have no idea about the underlying facts here. I am evaluating this from my couch, based on TTB approvals, public records, the plaintiff’s allegations, and the press. We look forward to presenting Tito’s side of the story, when it comes out.

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Rye Beer

 

Latrobe did a “brilliant” job here, picking up on a lot of important trends.

Let’s see how many instructive legal issues this one label raises. Extra points for anyone who can raise additional issues. No more ALS challenges, please.

  1. It is beer but it more or less screams spirits.
  2. In a variety of ways. (For example, the brand name refers to moonshine paraphernalia, as Tickle’s sidekick helpfully explains.*)
  3. Within the rules, probably.
  4. Even though spirits terms are not allowed on beer labels.
  5. Even though this product contains and purports to contain absolutely no whiskey of any sort.
  6. It mentions George Dickel at least three times.
  7. It mentions Rye but not Rye Whiskey. This is very smart in that, though they mean about the same thing to most people, rye is just a grain, and it’s not necessarily whiskey without the second word attached. Like Bourbon is not sufficient on even a Bourbon Whiskey label, without the second word.
  8. Latrobe used a formula, notwithstanding that TTB has eased way up on formula requirements.
  9. The label raises a lot of good trademark issues, tied up with Latrobe’s use of another company’s highly protected brand name.
  10. TTB seems to be allowing the term “refreshing” these days, on a pretty liberal basis, even though this policy has wavered a bit over the years.

This Tequila-themed beer shows that the above Whiskey-themed beer label is not just a fluke.

What did we miss?

* John’s parents will be proud that we have done some work for Tim Smith, Junior Johnson, The Hatfields & McCoys, Jesse Jane, Popcorn Sutton, Jesse James and other rapscallions. And this guy just looks guilty — I am not sure of what — but moonshining at least.

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Craft is about MADE in USA

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It took me a long time (perhaps too long) to realize that — craft is (largely) about MADE IN USA. With an emphasis on made. And less emphasis on USA.

This dawned on me when looking at gleaming copper, at Vendome in Louisville, with welders crawling around on the concrete floor — making stuff. It has become rare to have any real connection to people making stuff nearby, and quite apparently, we have a craving to get back to our roots, much as we flock to the beach every summer. If you have any doubt, take a look at the copper porn, arrayed here.

In trying to get to the essence of what is craft — and distill it down — so far I have the above concepts. I added MADE IN USA to this list just today. Please comment away to let me know what the concept really means or should mean.

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Craft Beverage Association, Survey

As of this date and writing, we have 168 good surveys.

Almost all of them are submitted by people with relevant experience; 77% of the respondents have more than two years of work experience in the alcohol beverage field.

The term “craft” has become crucially important to thousands of producers and millions of consumers in recent years.  And yet it has no agreed meaning.  We intend to change that within one year from launch, and fill the term with meaning in a fair, flexible, enforceable, modern way, to save it from abuse.

- Craft Beverage Association, July 19, 2014

These surveys provide solid feedback on what the term “craft” does mean or should mean, in relation to beer, wine and spirits.

ssIf you have not yet completed a survey, and you work in the alcohol beverage field, please complete the survey here. We would like to have at least 500 responses before drawing any major conclusions. We are off to a good start, with 152 responses in the first week.

The survey is sponsored by the Craft Beverage Association. This is a Washington, DC-based non-profit trade association that seeks to define the term “craft,” within one year from launch, in a fair, enforceable and flexible way, to fill it with meaning and save it from abuse. We would certainly appreciate your help. Please use the comments below, and the survey, to get involved, or to let us know the very best people who can help.

We will share the highlights on the Craft Beverage Association website, within a few weeks. But for now, we want to share a few excerpts from as below. Please note we will aggregate the survey data and keep it non-personally identifiable (like Google gathering traffic data) unless you clearly indicate a preference to the contrary (or we get your explicit permission). Based on the responses so far, it should take no more than 10-15 minutes to complete this thoughtfully.

Who should regulate?

whoMany responses say TTB is in a good position to help with this. The responses also say that trade associations would be good. Though parts of this are surprising, we need more responses on this point because there were many skips. But this is encouraging because our plan would leverage the strengths of TTB and trade associations.

Criteria?

criteriaLess surprisingly, a lot of respondents are saying that batch size and total annual production are crucial. Not so many respondents assert that the following criteria are at odds with true craft:  a) no change to ingredients or method in many years; b) the bottler grew/produced a majority of the ingredients.

Other

70% think the topic is important. 72% say they are more likely to buy a product marketed as craft and 60% say they would pay at least a few dollars more per bottle. 51% say they would like to help with this project.

Favorite quotes so far

Washington distiller:  Wow. Good luck with that. I mean that sincerely and without snark. I kind of think it’s like jumping into a shark tank with a sirloin in your shorts, but if you can get folks together on it, more power to you.

California distiller:  Without a meaningful definition that can galvanize everyone involved — makers, wholesalers, retailers, the media and the public — then craft beverage (liquor particularly) will become nothing more than a throwaway line. Most focus too narrowly on minuscule volumes and hobby level techniques without much regard for how customers see craft and what they’re looking for from craft made products. Am willing to help craft a new, better version with like-minded folk. This will create a level field and reduce the chances of confusion (or cheating)…assuming that craft can deliver on its promise to the public to deliver quality and innovation. If not — i.e., craft = amateur hour — then any small producer who makes decent products will run as far away from the term as possible. This is a tricky and touchy subject that will only get sorted out in time through a shakeout, but it’s important to discuss it openly.

mapMontana producer with 8-15 years of experience:  The term has very little useful meaning at this time. It has been diluted and there is no universally accepted definition, let alone an enforcement mechanism.

Colorado brewer:  We stir our mash by hand, turn every pump on/off manually, climb inside our kettle and tanks to clean and sanitize, etc. I would love to see craft have definition so that those who brew with robots separate themselves from those that brew by hand.

Colorado distiller:  I run all the mashes for my whiskey in-house. At the end of the day I’m picking grain dust out of my ears and eyes. That’s craft. Seriously though… it’s insanely hard to put words to, but I’ve heard folks propose that craft must involve substantial alteration of the initial ingredients for the sake of achieving a superior and/or interesting final offering.

California beverage lawyer with more than 32 years of industry experience:  It is a term of art that needs to be defined.

Idaho producer with 8-15 years of industry experience:  Putting “craft” on our packaging would be akin to a woodworker doing the same on a chair. It is unnecessary.

Texas producer with 16-32 years of industry experience:  The term has already been defined too broadly to be useful and it would be effectively impossible to narrow the definition now. The term no longer carries any practical meaning.

Virginia producer with 8-15 years of industry experience:  It is a term that is loosely used and I think lost meaning. Currently, are you more likely to buy a product marketed as “craft,” or more willing to pay more for it? Yes; I am a sheep. If TTB or another entity set out fair and enforceable rules for the use of this term (“craft”), would you be more likely to market your product as such, or to buy a product marketed as such, or pay more for a “craft” product? I do like rules and clearly defined lines.

From a Virginia brewer:  The most ridiculous excuse used by politicians to not make rules is that someone will take advantage of them. That may be true but there is no other choice in a society based on the rule of law.

New Jersey producer with 16-32 years of industry experience:  There is quite a lot of debate, it would be great to have a definition. Craft does not mean it is good or a good value.

South Carolina distiller:  For Jack Daniels, if they made a small batch product I do not see why they would not be able to market it as “craft”. I don’t think that they will though. For Anheuser Busch, I believe they already make a craft product called Ziegenboch that is limited in production, differentiates itself from all other mass produced beers and is only available in Texas. And is delicious. Who cares about wine.

Hawaii producer with more than 32 years of industry experience:  We practice craft methods and believe in them. Craft methods are the kind of work that humans are engineered for. That kind of work is satisfying and enriching. The words should be protected so that the trade and the consumer are not misled. There is a lot of mediocre product labeled craft. Also, non-craft producers are using it. If the product was genuinely craft-made, why not? Gallo has made excellent small-production wine. E&J is better than most VS Cognac.

California distiller:  It’s really more about where the inspiration for a beer, wine or spirit comes from, the methodology used in making it and the transparency shown by the craftsperson. Too many people insist on size of production being a criterion, while I would argue that there are large producers making better products than many of those who would qualify based on size alone. Others would argue that the founder has to be responsible for producing every batch, which is like saying that the chef at a restaurant has to make every dish to qualify for their Michelin stars. When we first started distilling, the terms “artisan distiller,” “craft distiller” and “micro distiller” didn’t exist. [We were] a great, world-class distillery that just happened to be small. I’m willing to argue obnoxiously about this.

Virginia distiller:  It is an inherently difficult topic. The people at Jack Daniels, for instance, spend a great deal of time crafting their product, and make use of a good bit of automation in doing so. Who am I, Joe Littleguy, to say that they are not craftsmen any more than I am?

Tennessee distiller:  I think this craft thing is mostly a marketing trend. It is a bad idea to make legislation that will increase bureaucracy and make the TTB more difficult to work with based on current marketing trends. I’m a small producer and don’t see the need to explain to my customers that I make my product by hand. I think it’s pretty self-explanatory. My iphone is made by hand in China. Should that be considered a craft product?

Colorado distiller:  Please don’t let those with the largest pocketbook be the ones to define what Craft truly is. It will be a travesty to those who consider themselves craftsman, those who work with their hands and hearts to produce as high a quality and enjoyable a product as possible.

Ontario distiller:  Consumers enjoy authentic craft products because it gives them a connection to community and geography. If consumers grow to mistrust these misrepresentations, something meaningful will be lost.

Please make sure to complete the survey and share it with knowledgeable people if you have not already.

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TTB Eases Way Up on Formulas for Many Beers

There is some big news from TTB, via dcbrewlaw. TTB has recently decided to ease up on the formula requirements for malt beverages made with common ingredients and processes such as some barrel aging, as well as various fruits and spices. This should help considerably with TTB’s overwhelming workload, and the related delays.

At dcbrewlaw, Dan reports:

There is good news for brewers who are tired of waiting for formula approvals from TTB (currently 74 days):  you may not need it. On June 5, 2014, TTB issued a fairly significant ruling, Ingredients and Processes Used in the Production of Beer Not Subject to Formula Requirements. The ruling clearly spells out which Exempt Ingredients and Processes are now deemed “traditional” and, therefore, do not require a TTB formula approval.

The new ruling expands upon the rules as of 2013. Here are two good examples of products that needed formula approval under the old rules, before this week, and will continue to need a formula approval prior to label approval:  Bud Light Lime; Joose. By contrast, here are two products that would no longer need formula approval:  Bourbon County, Harlem. On each, the formula is highlighted in yellow. Read more about TTB Ruling 2014-4 at dcbrewlaw and TTB’s site.

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