Issue link: http://winesandvines.uberflip.com/i/708909
August 2016 WINES&VINES 71 PRACTICAL WINERY & VINEYARD BUSINESS the franchise law to notify its suppliers of its impending sale and seek their approval. Sup- pliers in turn are usually required by this same law to grant the approval, so long as the successor distributor meets the reason- able requirements of the supplier. While in practice this often means the sup- plier has no choice but to go along with the sale, a new distributor that carries many-fold more brands than the existing distributor— and in particular who carries brands that compete directly with the supplier's brands— may provide the winery with grounds to ob- ject to the sale. This justifies a request to the new distributor to furnish important basic information about its organization, other brands, financial strength and manpower. If nothing else, the impending sale creates a moment in which the supplier has rare leverage as the new distributor seeks to woo all suppliers of the prior distributor and convince them it is dedicated to their suc- cess. We have frequently used this moment to get franchise state distributors to sign written agreements with terms as favorable to the supplier as franchise laws will allow. Wrongful sales outside of territory: One of the few restrictions placed on dis- tributors in many franchise states is the prohibition against selling a product outside of the territory designated to it for that par- ticular product. Despite this, it is not unusual to hear about distributors that are selling products in counties to which they were not appointed—or even selling the product into neighboring states. The latter usually vio- lates more than one state's alcoholic bever- age laws and provides a potential opportunity for the supplier. For practical purposes we often help our suppliers use this opportunity to trade out their brands with another distributor (see below) or negotiate a termination with a modest settle- ment fee rather than use the wrongful sales as grounds for a termination with cause action— the latter is usually costly, protracted and often unsuccessful in these states. Egregious behavior: Sometimes the distributor's actions are so outrageous that even the franchise state's courts are appalled. If you have a distributor that is a really bad actor, it is worth consulting with your coun- sel before concluding it is hopeless because you are in a franchise state. For example, there is a small winery whose wines were being distributed in a particular franchise state. One year, the winery intro- duced some new varieties and brands into the portfolio. But when the winery provided a presentation of the new wines to the distribu- tor in that state, it was informed that the distributor had established its own "tasting panel" that found the winery's new wines did not pass muster under the panel's dubious criteria, and that the distributor was not will- ing to carry the new wines. When the winery humbly (I know, it is galling, isn't it?) asked to take those new wines to another distributor in that state, it was told no. Because the distributor had made it legally impossible for the winery to sell its new wines in that state, the producer terminated for cause under that state's fran- chise law provisions. When the distributor—as we expected— filed a complaint in state court against such termination, the judge threw the distributor out of court. The takeaway? There can be justice, even in a franchise state, although Sometimes the distributor's actions are so outrageous that even the franchise state's courts are appalled. TTB LABEL APPROVALS Low per-label costs Gov't. Liaison Negotiations or Footwork Reasonable Hourly Rates TRADEMARK SEARCHES As Low as $185 Your trade names or designs are searched at the U.S. Patent Office to help establish valuable ownership or avoid costly legal liability. Over 100 years' total staff experience handling every government liaison need for industry. Phone or write for details. 200 N. Glebe Rd., Suite 321 Arlington, Virginia 22203 Phone: (703) 524-8200 Fax: 525-8451 TOLL-FREE 1-800-642-6564 Major Credit Cards Accepted www.trademarkinfo.com Since 1957 GovtLiaison_Dir08 11/29/07 2:00 PM Pag HoytShepston_Monthly09 10/31/08 4:44 PM