Source: Beer Business Daily
Feb 5th
In a sweeping win for distributors, the California Attorney General issued a stern industry advisory which warned brewers that certain contractual controls that they seek to have over wholesalers are unenforceable under California law and therefore illegal.
Now, you will recall that MillerCoors in particular has been quarreling with their wholesalers regarding their new distributor contract in California since November 2008, culminating in June with the California AG writing a letter to MillerCoors advising it that parts of its distributor agreement are in violation of California law. MillerCoors fired back, asking distributors to sign it anyway because the agreement says that "state law enjoys primacy over the terms of our agreement and that state law will prevail in the event of any conflict." [from MillerCoors president-west Ed McBrien's letter to California distributors, June 2009]. Other supplier watched on as this struggle progressed, aware that they have many of the same provisions in their own distributor contracts, particularly as distributor consolidation has created several lawsuits and arbitrations in the state.
The California Attorney General wrote that after reviewing several documents over the last year and a half, including several distributor contracts, market share numbers, trade press reports (wow, the AG read little ole me? I should check my spelling more closely), and "proposed promotions", as well as meeting with industry folks, they concluded that "there are serious threats to the ability of the distribution tier licensees to maintain the independence of their business operations." And it's not just MillerCoors. The AG wrote that after reviewing other brewers' and importers' contracts, they found "that they too contain provisions that grant manufacturers unlawful control over licensed wholesalers" and that these contracts are "spreading throughout the industry."
The California Beer and Beverage Distributors, NBWA and other state associations have been working behind the scenes on these types of issues as they relate to their core concerns of protecting distributors' independence, specifically under the 21st Amendment. Indeed, the California AG wrote that independent distributor "licensure [by the state] is the foundation of California's regulatory system of alcoholic beverages, and it it is fundamental to the State's regulat ory control under Section 2 of the Twenty-First Amendment and Section 22 of Article XX of the California Constitution."
THE CRAFT CONNECTION. One interesting thing about the AG's industry advisory is that it is interpreting California law in this fashion not just to help its local distributors stay independent, but specifically to help craft brewers maintain access to market through independent distributors. The AG writes that big brewers having too much control over distributors could "result in a detrimental impact upon competition in this industry, particularly as to small and craft breweries, and we intend to monitor that issue closely." This is another instance where craft brewers and distributors have aligned perspectives.
AG'S OPINION. So what sorts of things does the California AG say that brewers can't force distributors to do via contract? Lots of things, actually. The AG takes a swipe out of huge swaths of most big brewers' distributor agreements. Brewers can't control, force, or have approval over distributor:
1. Personnel decisions
2. A distributor's business plan
3. Mergers or acquisitions, including designating an approved buyer, or right of first refusal
4. Amendments to the contract or changes in distributor standards
5. Brand exclusivity
That's a pretty inclusive list, and perhaps the strongest language we've ever seen from a state AG. Most of these are pretty standard provisions in all big brewer/importer distributor contracts, and even in some larger craft brewer contracts. The AG even went so far as to say that any attempts by a supplier to "induce" distributors into signing their agreements is unlawful. That's strong as forty acres of garlic. You can bet that other distributor state association execs are filing this advisory away for a rainy day to show their own AGs as a model.