Indie Vinos

One of the ABC's requirements is that the winery control the money resulting from the sale of wine.

Last October, the California Alcohol Board Control issued an industry advisory on third party providers. I suspect this latest industry advisory is a direct result of the confusion and controversy caused by the June 2009 industry advisory in which the ABC “expressed concern about activities engaged in by unlicensed providers of certain services to licensees in connection with the sale of alcoholic beverages….”

I’m somewhat surprised it required more than two years of what was likely a deluge of phone calls to the ABC by wineries and entrepreneurs (I know I called them multiple times!) before the ABC deemed the matter worthy of further investigation and industry input.

Nonetheless, props to the ABC for finally delivering some clarity on “unlicensed third-party providers” who provide services commonly referred to as “marketing agent” to “licensees.” Just so we’re clear, for purposes of this post, “licensees” are wineries, and an “unlicensed third-party provider” is an entity, such as Indie Vinos Online Marketplace, providing marketing, promotion and facilitation of wine sales via the internet.

Wineries — not the marketing agents — risk the good standing of their licenses if they work with noncompliant marketing agents. As I’ve had the good fortune (yes, that’s tongue-in-cheek) of having practiced law for more than a decade and have mastered the interpretation of double-speak legalese, I hope what follows is an easier to understand summary of the ABC’s requirements:

1. Business Control. The winery decides which of their wines are offered on the marketing agent’s website and at what price they’re offered.
2. Fulfillment Control. The winery decides whether to accept or reject an order and assumes responsibility for fulfilling an order. The winery must fulfill and ship an order either from the winery’s licensed premises or from a licensed shipper authorized by the winery to fulfill and ship orders.
3. Control of Wine Sales Revenues. A marketing agent may collect funds for the sale of wines, but must distribute all revenues earned from the sale of wines to the winery. Only after the winery has received the wine sales revenues can the winery pay the marketing agent. The parties may use an escrow account in which the revenues are deposited and the marketing agent’s fees are distributed, but only if the winery has ultimate control over the account. Funds distributed electronically via the internet are OK, provided they meet the other requirements.
   
4. Advertising. A marketing agent may engage only in advertising and promotional activities that would be permissible if they were performed by the winery.
5. Reasonable Compensation. Any fees the marketing agent charges must be “reasonable.” Our attorneys have confirmed that “reasonable” can be up to 20%.

The advisory makes some distinctions about advertising-only sites vs. marketing agents and offers an explanation about trademark licensing, but we felt these weren’t relevant for purposes of understanding the ABC’s stance on the marketing-agent model whereby wine ownership passes from winery to consumer.

Even though this industry advisory technically applies only to California, we believe it will have significant influence on other states. Interestingly, as an Oregon-headquartered company, we first vetted our business model with the Oregon Liquor Control Commission, who blessed our model with the caveat that we follow exactly these requirements.

The only change we’ve made for the Indie Vinos Online Marketplace in response to the ABC industry advisory has been to implement a percentage-based service fee (15%) and scrap the flat per-bottle fee.

If you have any questions about our services, the Indie Vinos Online Marketplace or the industry advisory, please feel free to email me (karin at indievinos (dot) com or leave your question as a comment.

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