If you have been following the news lately, you are probably aware of the controversy involving AB InBev's Bud Light brand, which has reportedly had a drop in sales following a targeted marketing campaign featuring transgender social media influencer Dylan Mulvaney.
This week, many news outlets have reported that the brewery has been providing free cases of Bud Light beer to employees of its wholesale distributors. As an attorney who practices in alcohol law, this made me curious - is this legal?
Under federal law, there are very strict rules about what a manufacturer of beer can provide to a wholesale distributor of beer. Alcohol is a different animal when it comes to state and federal regulations, especially when it comes to "Trade Practice" enforcement.
27 USC § 205(c)(1) provides that it is unlawful for a brewer (among other industry members) to:
"induce .... any trade buyer engaged in the sale of .....malt beverages, to purchase any such products from such person to the exclusion in whole or in part of .... malt beverages sold or offered for sale by other persons in interstate or foreign commerce, if such inducement is made in the course of interstate or foreign commerce, or if such person engages in the practice of using such means, or any of them, to such an extent as substantially to restrain or prevent transactions in interstate or foreign commerce in any such products, or if the direct effect of such inducement is to prevent, deter, hinder, or restrict other persons from selling or offering for sale any such products to such trade buyer in interstate or foreign commerce: (1) By commercial bribery; or (2) by offering or giving any bonus, premium, or compensation to any officer, or employee, or representative of the trade buyer;"
That paragraph is a slimmed down version of the full clause, and it is still a little tedious to read through, but it essentially provides that a brewery cannot "induce" a wholesaler (aka a "trade buyer") to purchase its beer at the exclusion of competitors, including by offering a wholesaler employee a "bonus, premium, or compensation".
This is not a new issue in the industry; a 7th Circuit case from 1939 addressed this and provided that the practice of an alcohol manufacturer secretly paying money or making gifts to employees of a wholesaler to induce them to promote purchases by their own employers from the alcohol manufacturer offering the secret inducements may be prohibited by the federal trade practice provisions. American Distilling Co. v. Wisconsin Liquors, 104 F.2d 582, 585 (7th Cir. 1939).
Recently TTB issued guidance via Industry Circular 2020-3, which touched on this topic during the COVID-19 pandemic. The Circular addressed what was permissible in light of product returns and various other issues affecting the alcohol industry during that time period.
In the Industry Circular, TTB specifically addressed this topic in the context of gift cards, and although TTB clarified that industry members, such as breweries could donate pre-paid debit cards and encourage consumers to use the gift cards to support retailers or restaurants of the consumer’s choice, the industry member could NOT give those items to wholesaler officers, employees, or representatives. This exclusion is also covered in the regulations under 27 CFR § 6.96(b).
So, this begs the question - how could Bud Light do this legally?
Importantly, the "Penultimate Clause", which is found in 27 USC § 205(f), provides that:
"In the case of malt beverages, the provisions of subsections (a), (b), (c), and (d) shall apply to transactions between a retailer or trade buyer in any State and a brewer, importer, or wholesaler of malt beverages outside such State only to the extent that the law of such State imposes similar requirements with respect to similar transactions between a retailer or trade buyer in such State and a brewer, importer, or wholesaler of malt beverages in such State, as the case may be."
In other words, federal trade practice laws and regulations pertaining to malt beverages frequently require a similar state law for trade practice in order to also be a violation at the federal level.
That could certainly be the case here, as it's possible Bud Light is only doing this in states where it is authorized, and therefore the federal law would not necessarily prohibit the activity in question. Other factors may also come into play and these issues can become quite complex from a legal perspective.
Regardless, breweries should be careful to not assume this is a simple endeavor and copy Bud Light's playbook - trade practice laws can be very messy, so it is advisable to do your due diligence in advance.
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