Issue link: http://winesandvines.uberflip.com/i/131907
wine marketing those orders to licensees and process payments from credit or debit cards, the relationship must be structured so that the licensee—not the TPP—controls the actual sales transaction. Accordingly, the licensee must control what wine is to be offered, select the sales price and be free to accept or reject orders. Furthermore, the licensee, not the TPP, must be in charge of shipping and fulfillment of accepted orders. Second, the flow of funds resulting from a TPP-facilitated sale must be structured so that any payments received by TPPs from purchasers are deposited into an "escrow account, or similar instrument" controlled by the licensee. If the licensee accepts the order, the licensee can either pay—or direct the account holder to pay—the TPP for services rendered. Third, licensees can compensate TPPs for their services, but compensation must be "reasonable" and should not result in "actual or de facto control" by the TPP over the licensee. Today, these guidelines serve as the primary playbook that any licensed winery should follow in working with TPPs. Although the advisory allowed TPPfacilitated transactions to go forward, the ABC reiterated its concern that "certain activities by (TPPs) may violate California law, particularly in the areas for online sales—including the recent California Department of Alcoholic Beverage Control (ABC) advisory…."4 Later in 2012, ShipCompliant submitted a petition to the NYSLA describing the MarketPlace platform and requesting a declaratory ruling that MarketPlace complied with the state's alcoholic beverage laws. In response to ShipCompliant's petition, the NYSLA called a special full board meeting to consider "the extent to which an unlicensed entity can participate in, and receive compensation from, the sale of alcoholic beverages…."4 By describing the meeting in this way, the NYSLA suggested that it would not limit the meeting to an examination of ShipCompliant's software but would also take the opportunity to review the relationship between TPPs, suppliers and wholesalers. Indeed, prior to receiving ShipCompliant's petition, the NYSLA had launched its own inquiry and investigation of TPP-facilitated transactions in New York. The meeting occurred Jan. 17, 2013, and lasted approximately 3.5 hours. The overwhelming majority of the NYSLA questions had nothing to do with ShipCompliant's "Producer Direct" program, whereby wineries holding New York direct-shipping permits ship and Third-party providers allow consumers to submit an order through their websites, but instead of processing, fulfilling and shipping the wine to the consumer, the TPP forwards those orders to licensees, has the licensee accept or reject orders and fulfill any accepted orders before it collects a fee based on sales facilitated through the TPP's website. of sales by a person without a license and the exercise of impermissible control of a licensee by a person without the privilege of a license." While there is no indication that the ABC will revisit these guidelines anytime soon, wineries should closely adhere to these guidelines in engaging TPPs. New York In January 2012, shortly after the Cali fornia ABC announced its TPP guidelines, software company ShipCompliant 3 introduced a new product called MarketPlace to facilitate TPP-winery communications and transactions. According to the company, MarketPlace "gives online wine marketers and wineries a transactional environment to meet the states' regulatory requirements 56 p r acti c al w i ne ry & v i ne yard J U NE 20 13 fulfill orders sent to New York residents. Instead, the board's questions primarily focused on TPP-facilitated sales that passed through New York's three-tier system and which involved ShipCompliant, a TPP, and an instate licensed wholesaler and retailer (referred to as "3T sales"). On April 9, 2013, the NYSLA issued a declaratory ruling 5 denying ShipCompliant's petition and concluding that certain 3T sales through the MarketPlace Platform violated ABCL §111, which states: "A license issued to any person…shall not be transferable to any other person…. It shall be available only to the person therein specified, and only for the premises licensed and no other…." In other words, the licensed wholesaler and retailer that participated in the 3T sales arrangement violated the law by allowing an unlicensed TPP to use their alcohol beverage license privileges. The NYSLA expressed concern that the TPP—an unlicensed entity—was exerting a "high degree of control over the business operations" of the participating licensees in the 3T sales relationship, and that licensees were playing a passive role. The NYSLA reached this conclusion based in part on the following findings: • The TPP—not the licensees—selected the wine to be sold and the prices. • Both the wholesaler and reseller received a flat fee per bottle sold. • All wine sold through this arrangement was sold directly from the warehouse, not through the retailer's licensed store premises. In addition, the NYSLA had reservations about the escrow-type account that was part of the retailer's agreement with ShipCompliant, stating that the arrangement "call(ed) into question what, if any, control the participating retailer exercised over funds paid for the alcoholic beverages." Despite the lengthy hearing in January and the detailed ruling by the NYSLA, there are still no comprehensive guidelines for licensees wishing to work with TPPs to improve sales to New York consumers. The NYSLA has stated that it would conduct public meetings and gather additional information to explore third party marketing further, but no timeline has been set for those hearings. In the meantime, however, the NYSLA warned licensees that they should avoid TPP arrangements where: (a) licensees are playing a passive role in the transaction and/or incur no business risk in the arrangement; (b) an unlicensed party performs "retail functions" such as control over product selection, pricing, fund distribution and licensee's profit margin and (c) an unlicensed party derives "a substantial portion of the sale or sales made." Conclusion Almost four years have passed since the California ABC issued its initial industry advisory about TPPs. A lot has changed since then, and TPPs and licensees have been able to work out relationships that appear to comply with California's 2011 advisory. Amazon, which previously had abandoned its foray into facilitating wine sales, has now launched a wine division. But states such as New York have yet to weigh in on where they stand on TPPfacilitated transactions, and they may not