Can Employers Require Employees to be Vaccinated Against COVID-19?

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As we have discussed in previous Coronavirus-related blog posts, employers have a general duty to provide a safe and healthy workplace that is free from serious recognized hazards where possible (meaning that such hazards are either nonexistent, eliminated, or reduced to a safe or acceptable level).  While most regions have tiered or priority programs in which newly-released COVID-19 vaccines will only be made available to certain age groups or industry sectors after higher-risk individuals are vaccinated, as the vaccines are made more widely available, “essential” employers and employers who may be planning to resume or increase the scope of their on-premises operations may see vaccination as an important tool to ensure the maximum level of safety within their workplaces.

These employers likely have many questions about COVID-19 vaccines, such as whether they may be able to require employees to be vaccinated against COVID-19 as a condition to being permitted at the workplace, how a vaccination program implicates disability and other related privacy issues and laws, and whether not requiring such vaccinations (or leaving it up to employees) could open them up to potential liability.

Addressing some of these concerns, the federal Equal Employment Opportunity Commission (EEOC) recently released guidance for employers regarding workplace vaccine mandates (see Section K). While the EEOC guidance does not make any blanket rule regarding the permissibility of mandatory vaccinations, it does give recommendations on how an employer should navigate the various concerns that arise in administering a vaccination program.  (But be aware that state health departments may release guidance or rules different from the EEOC and that union workers in particular may have collective bargaining agreements containing particular rules that must be taken into account.)

Vaccines are not Medical Examinations Under the ADA, but Employers Should be Careful with Inquiries Surrounding a Vaccine

The EEOC guidance initially provides that the administration of Coronavirus vaccines is not considered a “medical examination” under the Americans with Disabilities Act (ADA), but that employers should be careful when posing any pre-screening vaccination questions to their employees that might implicate the ADA’s rules regarding inquiries which are likely to elicit information about an employee disability.  Any pre-screening questions (i.e. to determine whether there is a medical reason that would prevent the employee from receiving the vaccine) must be job-related and consistent with business necessity – an employer must have a reasonable belief, based on objective evidence, that an employee that does not answer pre-screening questions and does not receive the vaccine will pose a direct threat to the health or safety of herself or others.  Though the EEOC has previously stated that “based on the guidance of the CDC and public health authorities […] the COVID-19 pandemic meets the direct threat standard,” this assessment may change moving forward, and an employer’s response to the “direct threat” concern will likely differ depending on industry and other workplace contexts.  In workplaces with significant worker density or customer contact, the threat is generally considered greater than in workplaces with limited interpersonal contact or the ability to work from home.  Under the guidance, these concerns apply equally to requests for an employee to show proof of a COVID-19 vaccine – the request by itself is not a disability-related inquiry, but any questions asking for reasons for not obtaining a vaccine may be.

The guidance identifies two circumstances in which disability-related screening questions can be asked of employees without needing to satisfy the “job-related and consistent with business necessity” requirement.  First, if the vaccination program is voluntary rather than mandatory, an employee’s decision to answer screening questions is also voluntary.  In such case, if an employee declines to answer screening questions an employer can decline to administer the vaccine, but the employer cannot retaliate against that employee in any manner for her decision.  The second circumstance is when employees receive an employer-required vaccination from a third party not under contract with the employer, such as a pharmacy.  However, the guidance cautions that any employee medical information obtained in the course of a vaccination program must be kept confidential by the employer, and that employers should advise employees not to provide medical information to the employer when providing proof of vaccination.

If an Employee Cannot Receive the Vaccine due to Disability or Religious Belief, Employers Must Try to Make Accomodations Where Feasible

Per the guidance, if an employee indicates that she is unable to receive a COVID-19 vaccination because of a disability, employers must conduct an individualized assessment of four factors in determining whether there is a direct threat to the health or safety of others in the workplace – the duration of the risk, the nature and severity of the potential harm, the likelihood that the potential harm will occur, and the imminence of the potential harm.  An employer cannot exclude an unvaccinated employee from the workplace unless there is no way to provide a reasonable accommodation to that employee that will eliminate or satisfactorily reduce the threat without undue hardship to the employer.  If such a threat cannot be reduced to an acceptable level, the employer can forbid the employee’s physical presence at the workplace.  However, this does not mean the employer may automatically terminate the employee – in some cases, the employee may be able to work remotely or may be eligible to take leave under various Coronavirus-related legislation, state law, or the employer’s own policies.  Employers should be sensitive to accommodation requests by employees and should engage in an interactive process that takes into account the nature of the industry, the employee’s role, CDC or other health official guidance regarding the current prevalence and severity of Coronavirus outbreaks, and whether an accommodation poses significant expense or difficulty to the employer.

The same standards and practices apply if an employee’s sincerely held religious belief prevents the employee from receiving the vaccine – while an employer should assume that a professed belief is sincerely held, if there is an objective basis for questioning the claimed belief, the employer may be justified in requesting additional information.

Further, the guidance refers to FDA literature providing that particularly because the COVID-19 vaccine is available under an Emergency Use Authorization (EUA) instead of traditional FDA approval, any person may opt out of receiving the vaccine.  As such, even if it is unclear whether disability or religious concerns motivate an employee’s decision to decline a vaccine, an employer should still likely make whatever reasonable accommodations are possible based on individualized assessments of the four factors described above.

The Genetic Information Nondiscrimination Act (GINA) is not Implicated by Employer Administration of a Coronavirus Vaccine

The guidance provides that because the COVID-19 vaccines, even though they use mRNA technology, do not involve the use of genetic information to make employment decisions or require the employer’s acquisition or the employee’s disclosure of employees’ genetic information.  However, as with disability concerns, employers should be careful to avoid pre-screening questions that specifically seek to obtain “genetic information” about their employees, which can include information about family medical history.

Practical Impacts for Employers Based on the Guidance

Based on the foregoing, employers, depending on the industry and the threat that unvaccinated workers may pose in a particular workplace, may find it easier to encourage but not necessarily require Coronavirus vaccinations, and, if vaccinations are required, employers may find it easier to have employees obtain the vaccines from third parties rather than the employer administering the vaccines.  Employers who do decide to create a vaccination program should create a thoughtful, formal process that both demonstrates reasonable efforts to maintain a workplace free of “direct threats” given the context of the business and takes the various health and privacy-related laws into account.  Protocols should be well-documented, including pre-screening questions and opt-out situations but, again, documentation must be held confidentially and employee inquiries should be narrow.  In some industries (for example, the California health care industry), employers are required to offer certain vaccines to their employees free of charge (and to provide technical information to employees regarding the vaccine itself), though it is unclear whether that requirement would be expanded to all California employers with respect to the COVID-19 vaccine.

An employer with employees who decline to take the vaccine may wish to have those employees sign a statement acknowledging the risks to that employee in making that decision, similar to the declination statement required in health care workplaces in California, and/or a liability waiver.  The employer may also want to post prominent signage or bulletins in its workplace regarding its Coronavirus protocols (which is already required in many instances) that includes some manner of information about the business’ vaccination policy in order to allow customers and others who enter the premises to be informed.  While such documentation may not eliminate liability, it may help to reduce it.

As always, the law surrounding Coronavirus issues in the workplace is constantly evolving.  The foregoing is not intended to be an exhaustive representation of federal, state, and local laws and directives regarding COVID-19, but is rather general information about some of the EEOC’s latest positions and how employers might be able to utilize those positions in the context of the particulars of their own workplaces.  Employers should always consult with the experienced attorneys before taking steps to implement a vaccination policy.  Conkle, Kremer & Engel attorneys stay up to date and are ready to help employers understand and implement practices regarding the Coronavirus vaccine in their  particular workplace circumstances.

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The Personal Care Product Industry as “Essential Activity” in the Coronavirus Pandemic

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March 20, 2020 Update to Post:

Very Fast-Moving Developments on the Subject of Essential Business Activity

Since Conkle, Kremer & Engel’s first publication of this blog post on March 18, 2020, there have already been significant additional developments, including more government orders. In the early evening of March 19, Los Angeles County and the State of California each issued “stay-at-home” orders that have noteworthy differences from the March 16 San Francisco Bay Area orders. All of these orders appear to be operating in parallel effect, so different requirements may apply depending on your business locations.

With respect to the Los Angeles County order, both establishments selling “personal care products” and “businesses that supply other essential businesses [like grocery stores and pharmacies]” are categorized as “Essential Business” and exempt from the closure effects in Los Angeles County. This “personal care products” exemption is like the Bay Area orders. The Los Angeles County order additionally includes establishments providing “personal grooming services,” like salons and barber shops, emphasizing the importance of personal hygiene to combat the Coronavirus and indicating that, top to bottom, the supply chain of personal care products should continue to operate in Los Angeles County. At least, for now.

The State of California’s order, which applies statewide, appears to be much broader in general application than many county orders, but is quite vague as to what activities are “Essential” and therefore permitted. Instead of listing the specific exempt businesses like the county orders, the California state order refers to the federal Cybersecurity and Infrastructure Security Agency’s (“CISA”) list of 16 “Critical Infrastructure Sectors,” which are somewhat malleable business categories that may cause confusion as to which businesses might be exempt. On March 19, CISA released a guidance memorandum that appears to contemplate the manufacture of personal hygiene and cleaning products as being “critical,” but again is not nearly as specific to personal care products as are the various California county orders. Even though it is possible that the California state order supersedes county, city or other local orders, the state order is somewhat unclear as to what business activity is prohibited or remains permitted. For that reason in particular we have, for now, continued to look to the various more specific county orders to provide advice to clients.

CK&E’s personal care product industry sources inform us that there will likely be additional official guidance on the California state order sometime next week, and it is anticipated that such guidance should include specific permission for personal care products manufacturers and sellers to continue at least some scope of business activity. Underlying the various orders there continues to be a strong policy argument to keep personal care products businesses running – they make products that can help reduce the risk of spreading and being infected by Coronavirus.

CK&E will continue to monitor events as they develop and provide up-to-date information to its clients in personal care and other industries in order to assist in navigating through these uncertain and fast-changing circumstances.

Original March 18, 2020 Post:

With states and counties temporarily shuttering certain categories of businesses to combat the Coronavirus pandemic, many manufacturers, distributors, and retailers of personal care products and cosmetics may wonder whether their businesses fall under such executive orders and are required to close. If the March 16, 2020 “stay-at-home” orders issued by six of California’s San Francisco Bay Area counties are any indication, it appears that at least some categories of personal care products, and the businesses that deal in them, may be considered “Essential Activities,” allowing such businesses to remain in operation.

Those Bay Area executive orders (used as a model by Orange County, California for a similar March 17 order, subsequently amended and narrowed March 18) have two pertinent “Essential Activities” sections. The first includes “personal care products” and “products necessary to maintain the sanitation of residences,” and the second includes “businesses that supply other essential businesses [like grocery stores and pharmacies] with the supplies necessary to operate.” These two categories certainly should include personal cleaning and protective items like shampoos, soaps, washes, lotions, balms, and creams, as these products are essential elements of the personal hygiene deemed necessary to combat the Coronavirus. The California Health and Safety Code has long required workers to maintain standards of personal cleanliness with respect to hair, hands, and skin, and in the wake of government directives to wash hands frequently, news outlets like the Washington Post and the Boston Globe have recently quoted medical experts for the importance of moisturizing skin to keep a strong barrier against disease.

With respect to “elective” or “non-hygienic” personal case products such as hair treatments, coloring products, makeup, and nail polish, while the Bay Area orders do refer to the continued sale of all “personal care products” without limitation, it is unclear whether manufacturers or sellers of non-hygienic personal care products will be considered “Essential Activities” in practice. Many hair and nail salons have been closed, and governments have already begun issuing warnings and citations to non-essential companies who have remained open in the face of lockdown orders.

For comparison, the U.S. Department of Transportation’s Federal Motor Carrier Safety Administration (FMCSA) issued a national emergency declaration to provide “hours-of-service regulatory relief to commercial vehicle drivers transporting emergency relief in response to the nationwide coronavirus (COVID-19) outbreak.”  Among the transported products that are within emergency FMCSA regulatory exemptions are: “Supplies and equipment, including masks, gloves, hand sanitizer, soap and disinfectants, necessary for healthcare worker, patient and community safety, sanitation, and prevention of COVID-19 spread in communities.” US DOT’s FMCSA reportedly considers its regulatory exemptions applicable to mixed shipments of general consumer goods and some of these types of products that are important to healthcare worker, patient and community safety.

Based on these developments, and to the extent possible, businesses dealing in a variety of personal care or cosmetics products may want to consider pivoting to a larger share of production of hygiene-centric products to remain “essential” until issuance of further guidance.

Conkle, Kremer & Engel has decades of advising clients in the personal care, cosmetics, and beauty industry, including with respect to a wide range of regulatory and employment-related matters. CK&E is working with the Personal Care Products Council and closely monitoring the fast-developing Coronavirus legal landscape in order to assist clients with their immediate business, workplace, and workforce needs in this uncertain time.

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California Air Resources Board Moves to Update Consumer Product VOC Limits

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If you are a manufacturer of Hair Finishing Spray, No Rinse Shampoo, Personal Fragrance Products, Hair Shine or Temporary Hair Color (as well as a number of other consumer products) who sells in California, you might want to start thinking about product reformulation options.

Over the past few months, California’s Air Resources Board (“CARB”), the state agency responsible for investigating, regulating, and enforcing air pollution and emissions standards, has been developing revisions to the regulations relating to volatile organic compounds (“VOCs”) in various consumer products. VOCs are potentially harmful chemical compounds released into the indoor and outdoor environment, including through the manufacture and use of everyday products like cleaning sprays, air fresheners, hair care products, waxes and polishes, insect repellant, and laundry products. CARB consumer product regulations provide definitions for various categories of products and establish limits on the percentages of VOCs for many of the various categories.

From time to time, CARB revisits certain categories and schedules reductions in the permissible VOC limits. The latest round of proposals for VOC limit reductions include the Hair Finishing Spray, No Rinse Shampoo, Personal Fragrance Products, Manual Aerosol Air Freshener, Aerosol Crawling Bug Insecticide, and Charcoal Lighter Material product categories, including substantial reductions of up to 25% of VOCs by product weight. CARB is also considering adding the Hair Shine and Temporary Hair Color product categories to the list of planned reductions. The reductions are proposed to be phased in incrementally, effective 2023 and 2027, to permit manufacturers the time necessary to phase out current product lines and replace them with compliant products.

Final rules have not yet been set, but manufacturers who make and sell such consumer products would be wise to begin preparing to reformulate products to meet the requirements on the anticipated timetable. CARB will be conducting workshops and meetings throughout 2020 to continue to discuss VOC limits and definitions for these categories and others, including working with manufacturers and other industry experts to determine the feasibility of the proposed changes. Conkle, Kremer & Engel will monitor the results of CARB’s work in reducing VOCs and continue to report on the developments.

CK&E routinely assists manufacturers who sell products in California to ensure that their products meet CARB VOC standards and that their product labeling is appropriate, per CARB regulations, for the types of product being sold. CK&E works directly with CARB regarding VOCs and labeling, including representing manufacturers in CARB enforcement actions, in which CARB has the power to levy substantial fines against manufacturers whose products do not comport with VOC limits. With CK&E’s knowledge and assistance, manufacturers can avoid or reduce liability and business disruptions from such potential issues. If your business is facing CARB-related or other regulatory issues, please contact CK&E for a free consultation.

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US Takes New Steps to Combat Counterfeit Products

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On January 31, 2020, the White House issued an executive order outlining several new steps to address the ongoing and growing issue of the sale of counterfeit goods through e-commerce platforms over the internet, which harms both manufacturers and sellers of authentic products and the consumers who purchase the fake (and sometimes physically harmful) products. Estimates show that the annual value of counterfeit goods traded internationally rose from $200 billion in 2005 to $509 billion in 2016. U.S. Customs and Border Protection reports 27,599 shipment seizures stemming from intellectual property violations in fiscal year 2019. Those most commonly affected by the sale of counterfeit goods include the personal care, apparel, electronics, luxury goods, software, entertainment and media, and automotive industries.

Several agencies, including CBP, the Department of Homeland Security, Immigration and Customs Enforcement, and the U.S. Postal Service are involved in the anti-counterfeiting efforts. New steps include (1) the revocation or suspension of Importer of Record numbers for those caught importing counterfeit goods; (2) requirements for consigners, carriers, hub facilities, and customs brokers to notify CBP of any importers known to be dealing in counterfeit goods and to cease transacting with such parties, with increased scrutiny and penalties for noncompliance; (3) the creation of a task force between the CBP, DHS, and USPS in order to determine permissible ways to prevent and deter the transport of counterfeit goods through the postal system, including the targeting of particular international posts (for example, the Chinese postal system) for repeated violations; (4) the periodic publishing by DHS of information relating to seizures and violations; (5) DHS and CBP recommendations of best practices for e-commerce platforms and third-party marketplaces; and (6) the prioritization by Federal prosecutors of offenses involving counterfeiting or piracy.

Importantly, per DHS reports, CBP will “treat domestic warehouses and fulfillment centers,” like ones operated by e-commerce giant Amazon, “as the ultimate consignee for any good that has not been sold to a specific consumer at the time of its importation.” As such, e-commerce platforms that store violative products, even if those products are technically in the possession of third-party sellers while they are being stored, will have a “greater responsibility” to cooperate in the identification and removal of such products, and “greater liability” for failure to cooperate. This could potentially benefit private litigants as well – if e-commerce stores have a greater responsibility to inspect, identify, and address counterfeit products, the threshold for a finding of willful or knowing infringement, which can lead to damage multipliers and attorney fee awards, could be reduced. Even the prospect of such increased penalties can create powerful leverage for settlements beneficial to infringement plaintiffs.

Conkle, Kremer & Engel has extensive experience helping product manufacturers and distributors investigate and enforce their rights to stop and remedy counterfeiting, parallel importation, gray market and other trademark- and intellectual property-infringement claims. CK&E attorneys are well-versed in the careful initial steps that should be taken promptly when sales of illicit products are suspected. CK&E keeps abreast of the latest laws and techniques that permit manufacturers and distributors to identify, prevent, and report counterfeiters and other IP violators. Stay tuned for additional CK&E blog posts as we monitor important developments relating to e-commerce counterfeiting.

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Cosmoprof North America Features Challenging CBD, Natural and Organic Product Lines

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On July 29 and 30, 2018, Conkle, Kremer & Engel continued its annual firm attendance at Cosmoprof North America in Las Vegas, visiting with longtime and new clients and observing new brands and trends in the personal care industry.  This year’s edition of Cosmoprof had over 36,000 attendees with a record-breaking 1,278 exhibitors from 45 countries.  CK&E attorneys attend to connect with clients and others in the cosmetics, personal care, packaging, labeling and professional beauty markets, to help clients secure distribution agreements, and to learn about the newest industry innovations and issues.

This year, trends included substantial expansion of the mens’ care and beard care sector, along with CBD-infused cosmetics and hair care products and natural and organic hair regrowth formulas.  Organic products sold in California must meet strict requirements, and Products with “natural” claims can present special challenges and risks, as CK&E has addressed in previous blog posts, such as “What are Natural Products Anyway?”  A new twist has been recent growth (no pun) in “hair regrowth” products labeled as “natural” or “organic” .  Those classes of products face special issues in addition to whether they can fairly be called “natural” or “organic,” in that hair regrowth claims can at times run afoul of federal prohibitions on products that make drug-like claims without FDA approval, as well as federal and state labeling and advertising regulations.  Finally, a new class of beauty and hair care products are based on Cannabidiol (CBD) content, taking advantage of increased acceptance of cannabis-based products.  Yet CBD products continue to pose their own special issues, which will be the subject of an upcoming www.conklelaw.com blog post.  CK&E is well-versed in counseling clients on all such issues, from brand protection, vendor and distribution issues to the latest CBD, natural and organic product concerns.

Lastly, foremost on the minds of many manufacturers and distributors who sell in California were the new requirements for Proposition 65, the well-known California law requiring “Prop 65” warnings for products which contain chemicals known to cause cancer or reproductive harm.  New warning label requirements go into effect on August 30, 2018, which CK&E has already summarized on its blog.  CK&E is actively advising manufacturers about the most efficient and effective ways to address the changes and avoid the risks of inadvertent violations.

CK&E’s attorneys continue to pride themselves on keeping abreast of developments in the personal care market, along with assisting clients of all sizes with growth and protection of their brands and interests.  CK&E is an active member of the Professional Beauty Association, the Personal Care Products Council, and other important industry trade organizations.

 

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2018 Changes to the California Alcoholic Beverage Control Act

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Each year brings changes to the California Alcoholic Beverage Control Act, and 2018 is no exception.  Most of the changes for 2018 are quite esoteric, relating only to the provision of licenses in particular counties or venues, or allowing some additional rights to non-profit corporations who use temporary licenses for events.

However, a chief new feature of the ABC Act that will have state-wide impact is the Responsible Beverage Service (RBS) Training Program Act of 2017 (California Business and Professions Code § 25680 et seq.).  The RBS Act provides that the California ABC will develop a best-practices training program by 2020 that all on-premises servers of alcohol (and their managers) throughout the state will need to complete in order to be certified to serve alcohol.  Servers employed prior to July 1, 2021 must complete the program by August 31, 2021, and all servers hired after July 1, 2021 must complete the program within 60 days of being hired.  ABC advisories indicate that food servers, bartenders, cashiers, doormen, and bouncers all may be considered “servers” for purposes of the RBS Act.

The RBS law appears to encompass a wide manner of licensees that operate on premises – bars, restaurants, brewpubs, tasting rooms, clubs.  For non-profit special events/temporary licenses, the licensee is required to designate one certified server who must remain on site for the entire event.  Covered licensees are required to maintain records of their various certifications, and violators are subject to unspecified “disciplinary action.”

The 2018 ABC Act also permits for the first time beer manufacturers to provide free or discounted ground transportation rides for consumers (i.e. from the brewery taproom to local hotels, etc.) for purposes of public safety.  (California Business and Professions Code § 25600.)  This harmonizes the treatment of beer manufacturers with winegrowers and distillers.  The manufacturer cannot, however, make the transportation contingent on the purchase of an alcoholic beverage, and beer wholesalers cannot have any interest in the transportation arrangement.

In instances where small beer manufacturers (License Type 23) and winegrowers have adjacent production facilities, the 2018 revisions also permit a common-licensed area in which consumers can drink both wine and beer.  (California Business and Professions Code § 25607.)  This is a new exception to the general prohibition of anyone possessing alcoholic beverages on a manufacturer’s premises other than the types that manufacturer is licensed to produce.

Staying up to date on laws and regulations affecting the industry is vital to successfully protecting and growing alcoholic beverage businesses.  For assistance navigating beer-industry specific legal issues, contact Conkle, Kremer & Engel.

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Big Beer, Craft Beer, and Trademark Infringement: Harm to Premium Brands

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As the craft beer market continues to expand in popularity and threaten the market share of older “macrobrewery” giants like Molson Coors and Anheuser Busch, courts have seen increased legal disputes in the beer industry as brands fight for both their independence and the attention of consumers.  Most recently, Molson Coors has been sued in federal court in San Diego by Stone Brewing Co., one of the oldest and largest independent craft brewers in the United States.  In its complaint, Stone Brewing claims that Coors is infringing the “STONE” trademark by rebranding Coors’ sub-premium, low cost “Keystone” brand as “KeySTONE,” with a particular emphasis on the single word “STONE” in packaging and marketing materials.  Because of this, Stone Brewing alleges, Coors is sowing consumer confusion between the two brands.

Keystone Rebranding Comparison from Stone Complaint

Unless there is a swift settlement, one can assume that Stone Brewing will make good on the threat in its complaint that it will move for a preliminary injunction in order to stop the sale of Coors’ “KeySTONE” branded products during the pendency of the lawsuit.  A motion for a preliminary injunction is often a critical juncture in such trademark infringement lawsuits, and Stone Brewing will need to show that it will be “irreparably harmed” if the injunction is not granted.  This showing has in recent years become more difficult, as courts no longer presume irreparable harm when the plaintiff shows that consumers are likely to be confused by trademark infringement, but rather require an additional showing of likely irreparable harm.  “Irreparable harm” (also known as “irreparable injury”) generally means injuries that cannot be readily compensated by money damages, and since money damages are usually available for trademark infringement this standard presents special hurdles for infringement plaintiffs that can be difficult to overcome early in a case.

To show irreparable harm, one argument Stone Brewing will likely make is that its “premium brand” is being tarnished by confusion with Coors’ “value brand.”  This argument is presaged throughout Stone Brewing’s complaint (referring to Keystone’s beers as “watered down” and “fizzy yellow offerings,” as opposed to Stone Brewing’s “bold” and “artisanal” products).  The argument, which has been judicially adopted in relatively few cases, is essentially that the premium or niche brand is irreparably harmed by the association with the value, mass-market brand, which usually is of lesser quality.

Conkle, Kremer & Engel, which has experience in both trademark litigation and issues specific to beer production, distribution, and marketing, has succeeded in making this premium-vs.-value argument in federal courts in California.  For example, in Moroccanoil, Inc. v. Zotos International, Inc. (230 F. Supp. 3d 1161 (USDC C.D. Cal. 2017)), a 2017 trademark infringement case with similarities to the dispute between Coors and Stone Brewing, CK&E represented the manufacturer of Moroccanoil Treatment, a luxury oil-infused hair care product sold in distinctive packaging.  The defendant Zotos, part of a large personal care products conglomerate, had created a low-cost “value” hair oil product called “Majestic Oil” that, in addition to its similar name, used packaging that was a close likeness of Moroccanoil’s trade dress.

CK&E, in its successful motion for preliminary injunction, argued that sales of low-cost “value” Majestic Oil products would erode Moroccanoil’s carefully-built premium image.  The presentation included evidence establishing that once a product is no longer perceived by consumers as “premium,” it is difficult or even impossible for the seller to regain that perception.  The court agreed with CK&E and Moroccanoil, finding a likelihood of irreparable harm and granting a preliminary injunction against further sale of the Majestic Oil products.

Preliminary injunctions can be dramatic turning points in infringement cases.  In Moroccanoil’s case, the court’s preliminary injunction prevented Zotos from any further sales, advertisement or distribution of its infringing products, and required Zotos to recall all of its infringing products already in the market.  As could be predicted, the case settled swiftly thereafter and Zotos made permanent substantial changes to its product name and packaging to avoid infringing Moroccanoil’s intellectual property rights.

Click here to learn more about CK&E’s Moroccanoil v. Zotos matter or contact CK&E attorneys who work on beer industry matters, such as the brand protection that can make or break participants in the crowded craft beer market, including John Conkle, Evan Pitchford and Zachary Page.

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The “Fourth Tier” of Beer: Internet Sales and Direct-to-Consumer Delivery

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In previous posts, we discussed the background of the three-tier system of alcohol sales in the United States – manufacturer (or importer), distributor, and retailer.  For the beer consumer, historically this has meant purchasing beer immediately, in person, at a restaurant, bar or liquor store.  Each state has its own licensing requirements and operational rules for such brick-and-mortar sites selling beer.  But with the ubiquity and borderless nature of the internet, what some call the “fourth tier” of craft beer sales is rapidly taking root.  Following models previously used in the wine industry, several beer delivery websites and cell phone apps are now available, with the proprietors often providing “services” to otherwise licensed beer sellers (i.e. not taking legal possession of or selling the products themselves, but instead acting as service-providers to the licensed sellers).  For regional brands without an expansive distribution footprint, and for the craft beer lovers who seek out those regional beers, this is a promising development.

States have begun to reshape their policies and laws to accommodate this relatively new direct-to-consumer beer delivery conduit.  As can be expected in this early developmental stage, there is a wide range of permitted activity among the different states.  The most permissive regulations in a small number of states allow suppliers, both in-state and out-of-state, to make unlimited shipments for consumers’ personal use.  Other states require suppliers to obtain a simple permit in order to ship beer direct to consumers.  Certain states only permit direct-to-consumer shipments from in-state breweries, along with outbound shipments to out-of-state consumers.  Some states allow outbound shipments to other states but no in-state shipments whatsoever.  Several states prohibit direct-to-consumer shipments of beer altogether.  Perhaps needless to say, potential international sales present an entirely different set of complications.

In California, beer (not wine, which is treated differently) can be sold directly to consumers via the internet with certain restrictions.  These restrictions are not directed at the internet as a sales medium per se – instead, the restrictions stem more from the historical requirements placed on importation and off-premises alcohol retailers.  (See, e.g., California Business and Professions Code §§ 23661 and 23671.)  With respect to retail sales, the seller must already be licensed to sell beer in California by “traditional” means.  First, the seller must have a licensed brick-and-mortar location in California.  Second, the seller must keep their inventory at that particular location (i.e. no shipments directly from the seller’s suppliers).  Third, the seller has to sell (or at least be able to sell) products at that location itself and not solely online – in other words, the seller must have a real in-person sales facility, not just a warehouse to service internet sales.  (See 4 California Code of Regulations § 27.)  With respect to sales directly from California-based beer manufacturers, the California ABC has determined that “as a matter of policy,” beer manufacturers are permitted to make online sales of beer to consumers.  (See Form ABC-409.)  It remains to be seen, however, if California will continue to allow beer delivery websites and apps to operate under the auspices of “services” or if additional requirements will be imposed on such providers.  (It’s also worth noting that the U.S. Postal Service will not transport alcohol – that must be done through a private carrier.)

It is easy to see that anyone wishing to distribute beer by online sales, especially across state lines, can quickly put themselves at risk of regulatory or legal issues.  If you are a brewery, retailer, or beer delivery service that wishes to engage in internet or other direct-to-consumer sales, it is advisable to contact qualified counsel for assistance before beginning or expanding such service.

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Counterfeits Can Take the Joy Out of the Holidays

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As the holiday shopping season reaches peak fervor and consumers seek out the best deals available on hot products, gift-givers are more at risk of purchasing counterfeit products of all kinds.  Recently, news articles have warned of counterfeit Fingerlings – the latest “it” toy – along with fake versions of popular electronics, clothing, personal care products, and many other types of goods.  Government bureaus like the U.S. Customs and Border Patrol regularly release holiday bulletins advising of the escalating volume of phony products entering the United States (for example, https://www.ice.gov/news/releases/buyer-beware-counterfeit-goods-and-holiday-shopping-season).  Counterfeits are far from harmless.  Not only are these counterfeit goods generally inferior to authentic products in both quality and safety, fake products are fraud, theft, and infringements of valuable trademarks and other intellectual property.  Sales of counterfeit products can even be criminal.

As a consumer, what can you do to help ensure you’re receiving the genuine article?  The most obvious method is to avoid unfamiliar sources and to buy directly from the manufacturer’s website or from an authorized retailer whenever possible.  If buying on websites like Amazon and eBay (where products are often actually sold by unrelated third parties), it helps to make sure that the seller of the product is the manufacturer or Amazon itself, not an unknown third party.  Often times, third party sellers do not have the ability or desire to properly perform checks on the goods they are selling, and in many cases the third party sellers never actually possess the products – when they receive your order they simply forward the product from a warehouse they have never even seen.  While outlets like Amazon and eBay have some anti-counterfeiting policies and procedures, experience has shown that not every fake product will be screened out.  Consumers should also check the price of the goods to ensure that it is not abnormally low, and examine the packaging and presentation of the product as depicted on the website to help determine whether the product might be fake or foreign-labeled goods.  Compare the look of the product offered with the same product on the manufacturer’s website – if it’s different, that’s a red flag.  Consumers should also not hesitate to contact the manufacturer if they suspect that they have received counterfeit or foreign-labeled goods – in addition to being the primary victims, consumers are often the first line of defense in the fight against counterfeiting.

As a manufacturer or trademark owner, what can you do when you discover your products being sold in an unauthorized channel, with risk of counterfeiting?  Conkle, Kremer & Engel has extensive experience helping manufacturers and distributors to investigate and, when necessary, litigate counterfeit and other trademark- and intellectual property-infringement claims.  CK&E attorneys are well-versed in the careful initial steps that should promptly be taken when sales of illicit products are suspected.  If the seller is cooperative, litigation can often be avoided.  But if the seller is not, that is a strong indicator that the seller has been selling, and will continue to sell, infringing products unless stopped through litigation.  Whatever you choose to do, consult experienced counsel and decide on your course of action promptly – unreasonable delays can seriously harm your ability to protect your rights.

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Relationships Between Producers, Wholesalers, and Retailers: Beer Distribution and Franchise Laws in California (Part 2)

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In a recent blog post, we discussed beer self-distribution rules in California.  While the self-distribution laws in California are generally quite accommodating, and self-distribution works for a start-up craft brewery with limited funds, on a practical level it can only serve a relatively small geographical area.  As a brand increases in local popularity and the beer producer wants to expand its footprint and accelerate its competition with brands and beers outside its home region, usually the producer will choose to enter into a distribution agreement with an established third-party wholesaler.  When a beer producer chooses to contract with a distributor, then it is important to be aware of the applicable beer franchise laws (which also vary from state to state).  Beer franchise laws control the relationship between the brewer and the wholesaler and will generally trump contract terms that do not comport with such laws.

Beer franchise laws stem from a decades-old period when relatively few national-level breweries (like Budweiser and Miller) were able to exert significant power over the beer distribution industry, which at the time was chiefly comprised of numerous small mom-and-pop outlets.  As an example, the macrobreweries would impose stringent requirements for their distributors that necessitated significant investment (such as construction and maintenance of a sophisticated refrigerated warehouse), but there was nothing to protect the distributor when the macrobreweries decided to switch to a competitor, leaving the distributors with little recourse to recoup their investment.  To protect the distributors from this predicament, strong state franchise laws were enacted that made it difficult for the breweries to terminate contracts with distributors.

At their most draconian, beer franchise laws can marry a brewer to a distributor even if the brewer only sends a small initial amount of beer to the distributor for resale without any written agreement whatsoever.  In some cases distributors can even have the power to transfer the distribution rights to successors-in-interest without the brewer’s consent.  In many states, a brewer can only cancel a distribution contract for “good cause,” which may not include failure to reach sales quotas.  Further, many states require a brewer, in order to break a distribution contract, to pay the wholesaler Fair Market Value (“FMV”) for the lost business.  Of course, these rules have shifted a significant share of power to the distributors.

As the franchise laws weren’t enacted with the microbrewing phenomenon in mind, they can make distribution difficult for craft brewers that don’t have the clout of a national macrobrew and who don’t impose stringent requirements on their distributors.  In certain situations, a small brand may feel that a distributor is paying attention to other more established brands and that it is not getting the benefit of its bargain with the distributor.  However, many beer franchise laws have been softened over the past several years, allowing for more competition in the wholesale market and giving fledgling breweries more choice and control over the terms of their third-party distribution.  For example, some states exempt breweries that produce less than certain annual volumes from the franchise laws.  Of course, exemptions like this mean that brewers need to be conscious of their plans to grow and potentially exceed those volume limitations, and consider how it will affect their distribution agreements.

California’s beer franchise laws are some of the most accommodating in the country, because California allows the distribution agreement itself to control most of the important terms and dealings between the brewer and the wholesaler.  In California, a brewer must enter into exclusive written territorial agreements with distributors that are filed with the ABC (Cal. Bus. & Prof. Code § 25000.5).  California’s franchise laws do not restrict brewers to only “good cause” terminations (though the distributors themselves may very well fight for some type of good-cause requirement in contract negotiations).  Further, a brewer can terminate a distribution agreement if the wholesaler fails to meet a “commercially reasonable” sales goal or quota (Cal. Bus. & Prof. Code § 25000.7), and many beer distribution agreements call for the distributor itself to come up with an annual business plan that establishes sales goals based on certain data.  Except in certain situations, a brewer does not need to pay FMV to terminate the relationship (though again, a distributor may insist on a termination payment as a contract term).  While a brewer is not automatically bound by contract to a purchaser or transferee of its distributor, the brewer cannot unreasonably withhold consent or deny approval of such a transfer without incurring certain charges (Cal. Bus. & Prof. Code § 25000.9).

In California, the parties must be attuned to several important issues in creating the agreement, such as territory, term, change in ownership and transfer rights, termination rights, terms of sale, commercially reasonable sales goals, post-termination provisions, intellectual property licensing and advertising issues, dispute resolution, and other rights and duties of the parties.  Such contract terms are just as important for a brewer as finding a distribution team that is the right “fit” for a growing brand.

Overall, it is no surprise that the states with the most friendly self-distribution and franchise laws are the states with the most active and diverse beer business communities.  For example, California now has around 900 active breweries, far more than any other state, adding over 500 breweries in the last two years alone.

Conkle, Kremer & Engel has experience representing both breweries and distributors.  If you are launching a brewery in California, looking to expand your brand’s sales through self-distribution or with a third-party distributor, or have found yourself in a distribution-related dispute, contact Conkle, Kremer & Engel for assistance with those and other beer industry-related issues.

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