62
Clawing Back the Grandfather Clause of the EU-US Wine Agreement Wine Law Rafael Recalde April 26, 2008 1

Rafael Recalde, Esq. on Wine Law

  • Upload
    rafarec

  • View
    108

  • Download
    1

Embed Size (px)

DESCRIPTION

An overview of viticultural geographical indications (GIs) and “semi-generic” names for wine, focusing on the way in which these are treated in the agreements that govern relevant aspects of EU-US wine relations and in US regulations (examples of "semi-generic" names include Chianti, Champagne,Chablis, Sherry). Expounds legal arguments on both sides as to whether the treatment of “semi-generic” names should be reformed in future versions of the EU-US Wine Agreement and from U.S. law. Written by Rafael Recalde, Esq. while a student at the University of Miami, School of Law.

Citation preview

Page 1: Rafael Recalde, Esq. on Wine Law

Clawing Back the Grandfather Clause of the EU-US Wine Agreement

Wine Law

Rafael Recalde

April 26, 2008

1

Page 2: Rafael Recalde, Esq. on Wine Law

TABLE OF CONTENTS

TABLE OF CONTENTS 2

TABLE OF AUTHORITIES 3

I. INTRODUCTION: 6

II. BACKGROUND: 7

A. Geographical Indications 7

B. “Semi-Generic” Names, Generally 9

III. U.S. REGULATIONS ON SEMI-GENERIC NAMES. 11

IV. “SEMI GENERIC” NAMES IN US-EU WINE RELATIONS 12

A. TRIPs 12

B. US-EU Wine Agreement 16

V. CLAWING BACK: THE BILATERAL DEBATE 19

VII. CLAWING BACK: THE INTERNAL DEBATE AND OTHER U.S. IMPLICATIONS 22

A. Bronco Wine Co. v. Jolly 24i. First Amendment 25

a. Inherently Misleading 26ii. Fifth Amendment 30

a. “Property” in COLA: 31b. “Taking” of Brand Equity: 33

A. Character: 34B. Economic Impact 35

VIII. Conclusion and Suggested Solution: 37

2

Page 3: Rafael Recalde, Esq. on Wine Law

Table of Authorities

Cases

American Pelagic Fishing Co. v. United States (Fed.Cir.2004) 379 F.3d 1363.....................................................31, 32

Andrus v. Allard (1979), 444 U.S. 318.................................................................................................32, 34, 35, 36, 37

Armstrong v. United States (1960) 364 U.S. 40...........................................................................................................31

Bronco Wine Co. v. Jolly, 129 Cal.App.4th 988, 29 Cal.Rptr 3d 462, (2005)...7, 24, 25, 26, 27, 28, 30, 31, 32, 33, 34, 35, 36, 37

Bronco Wine Co. v. United States Dept. of Treasury, 997 F.Supp. 1309 (1996).........................................................32

Bronco Wine Company v. Napa Valley Vinters Association, 33 Cal. 4th 943, 95 P.3d 422, 17 Cal.Rptr.3d 180 (2004)...................................................................................................................................................................................25

Central Hudson Gas & Electric Corporation v. Public Service Commission of New York (1980) 447 U.S. 557. 26, 30

Chicago, B. & Q.R. Co. v. Chicago (1897) 166 U.S. 226............................................................................................30

Conti and Conti Corp. v. United States (Fed.Cir.2002) 291 F.3d 1334.................................................................31, 32

Friedman v. Rogers, 440 U.S. 1 (1979)........................................................................................................................27

In Re R.M.J. (1982) 455 U.S. 191, 203, 102 S.Ct. 929, 937, 71 L.Ed.2d 64, 74 at p. 202, 102 S.Ct. at p. 937, 71 L.Ed.2d at p. 73..................................................................................................................................................26, 27

Jacob Siegel Co. v. Federal Trade Commission (1946) 327 U.S. 608.........................................................................32

Keystone Bituminous Coal Assn. v. DeBenedictis (1987) 480 U.S. 470...............................................................32, 33

Klump v. U.S.  38 Fed.Cl. 243, 248 (Fed.Cl.,1997)......................................................................................................35

Lingle v. Chevron, 544 U.S. 528at 538, 125 S.Ct. at p. 2082.......................................................................................33

Loretto v. Teleprompter Manhattan CATV Corp. (1982) 458 U.S. 419.......................................................................32

Lorillard Tobacco Company v. Reilly et al. (2001) 533 U.S. 525, 121 S.Ct. 2404, 150 L.Ed.2d 532.........................30

Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1030-31, 112 S.Ct. 2886, 2901, 120 L.Ed.2d 798 (1992)35

Maritrans Inc. v. United States (Fed.Cir.2003) 342 F.3d 1344, 1359....................................................................34, 35

Penn Central Transportation Company v. New York City (1978) 438 U.S. 104..................................30, 31, 33, 34, 35

Pennsylvania Coal Co. v. Mahon (1922) 260 U.S. 393................................................................................................31

3

Page 4: Rafael Recalde, Esq. on Wine Law

Ruckelshaus v. Monsanto Co. (1984) 467 U.S. 986.........................................................................................31, 32, 34

Statutes

26 U.S.C.A. § 5388; I.R.C. § 5388 (1997).............................................................................................................12, 17

27 C.F.R. § 13.11 (2006)..............................................................................................................................................35

27 C.F.R. § 13.41 (2001)..............................................................................................................................................32

27 C.F.R. § 13.51 (2002)........................................................................................................................................32, 33

27 C.F.R. §4.24.......................................................................................................................................................11, 12

TAX RELIEF AND HEALTH CARE ACT OF 2006 Pub. L. 109-432, Div. A, Title IV, § 422(a) (2006)...............17

Other Authorities

“About Geographical Indications.” World Intellectual Property Organization. Available online on April 8, 2008. http://www.wipo.int/geo_indications/en/about.html..................................................................................................9

“Facts on Global Reform,” Doha Development Agenda Policy Brief. Office of the United States Trade Representative (USTR), 2005. Available online on April 15, 2005 at http://www.ustr.gov/assets/Document_Library/Fact_Sheets/2005/asset_upload_file850_8542.pdf.................20, 24

“Sparkling Wine/Champagne.” Wine Institute. Available online April 8, 2008. http://www.wineinstitute.org/resources/winefactsheets/article92......................................................................10, 11

“United States, European Union Reach Agreement on Wine Trade,” USINFO. September 15, 2005. Available online on April 8, 2008 at http://news.findlaw.com/wash/s/20050915/200509151159281.html............................16

“US-EU Wine Accord: The Consumer (Part 2).” NoBullGrape Wine Politics. Found in Diamond, Stephen Wine Law Seminar Part II, page 1000, Law 644A Course Materials, Spring 2008.........................................................22

“US-EU Wine Trade Issues,” Foreign Agricultural Service U.S. Mission to the European Union. October 11, 2007. Available online on April 10, 2008 at. http://www.useu.be/agri/wine.html........................................................6, 16

“Worldwide Symposium on Geographical Indications,” World Intellectual Property Organization (WIPO) and United States Patent and Trademark Office (USPTO), San Francisco, California. July 9 to 11, 2003.............20, 21

About the Wine Institute.” Wine Institute. Available online on April 7, 2008 at http://www.wineinstitute.org/company....................................................................................................................19

Agreement between Australia and the European Community on Trade in Wine, and Protocol (March 1, 1994).......39

Agreement between the European Community and the United States of America on trade in wine (2006).........17, 18

Agreement on Trade-Related Aspects of Intellectual Property Rights, Apr. 15, 1994..............................12, 13, 14, 15

4

Page 5: Rafael Recalde, Esq. on Wine Law

Blum, Crystal and Mihaella Smith, “The Wine Trade Dispute Between the United States and the European Union: an interview with Richard Mendelson of Dickenson, Peatman & Fogarty.” 4 U.C. Davis Bus. L.J. 14 at p. 14 (2004).........................................................................................................................................................................9

Brody, Peter M. “Protection of Geographical Indications in the Wake of TRIPs: Existing United States Law and the Administration’s Proposed Legislation.” 84 Trademark Rep. 520 (1994)...............................................................15

Brody, Peter M., “SEMI-GENERIC” GEOGRAPHICAL WINE DESIGNATIONS: DID CONGRESS TRIP OVER TRIPS?” 89 Trademark Reporter 979 (1999)....................................................................................................12, 15

Chen, Jim. “A Sober Second Look at Appellations of Origin: How the United States Will Crash France’s Wine and Cheese Party.” 5 Minn. J. Global Trade 29 at p. 52 (1996).......................................................................................9

Cox, James. “What is in a name?” USA Today. September 9, 2003. Available online on April 7, 2008 at http://www.usatoday.com/money/economy/trade/2003-09-09-names_x.htm.........................................................20

Hall, Jenifer and Laura Lightbody, “Poll Shows Majority of U.S. Wine Purchasers Against Misleading Labels: Consumers’ Concern Comes as Second Anniversary of Bilateral Trade Agreement Brings No New Action.” The Center for Wine Origins. March 27, 2008. Available online on April 10, 2008 at http://www.wineorigins.com/uploads/FINAL_POLL_RELEASE.pdf..............................................................29, 38

Hughes, Justin. “Champagne, Feta, and Bourbon: The Spirited Debate About Geographical Indications,” 58 Hastings L.J. 299, 300 (2006)............................................................................................................................12, 21

Lourvellec, Louis, “You’ve Got to Fight for Your Right to Party: A Response to Professor Jim Chen.” 4 Minn. J. Global Trade 65, 74..................................................................................................................................................22

Mercer, Chris, “French Wine Union Rejects EU, US Deal.” Beveragedaily.com. September 28, 2005. Available online on April 8, 2008 at http://www.spittoon.biz/french_wine_union_rejects_euus.html...................................18

Paris Convention for the Protection of Industrial Property, Article 1(1)(1883)...........................................................21

Raustiala, Kal and Chris Sprigman, “Eat, Drink, and be Wary: Why the U.S. Should Oppose the WTO’s Extending Stringent Intellectual Property Protection of Wine and Spirit Names to Other Products.” FindLaw’s Legal Commentary. December 12, 2002. Available online on April 1, 2008 at http://writ.news.findlaw.com/commentary/20021212_sprigman.html......................................................................7

See Haberkorn, Jen, “Grape expectations drive wine group; Terrain, climate stressed.” The Washington Times. October 14, 2005......................................................................................................................................................29

Signing of US-EC Trade Agreement Expands Opportunities for Wine.” Wine Institute. Available online on April 18, 2008. http://www.wineinstitute.org/resources/exports/article61........................................................................20

Sparshott, Jeffrey, “U.S., Europe End Wine-Label Debate,” The Washington Times. September 16, 2005. Available online on Lexis-Nexis Academic on April 18, 2008..........................................................................................11, 19

Tradition: History of Champagne” Office of Champagne, USA. Available online on April 7, 2008. http://www.champagne.us/index.cfm?pageName=tradition_history.......................................................................22

5

Page 6: Rafael Recalde, Esq. on Wine Law

Clawing Back the Grandfather Clause of the EU-US Wine Agreement

I. Introduction:

On September of 2005, the Agreement between the European Community and the United

States of America on trade in wine (referred to in this work as the “Agreement,” the “US-EU

Wine Agreement,” or the “EU-US Wine Agreement”) was signed by both parties, marking the

end of a lengthy first round of negotiations regarding trade in wine1 between these two important

markets. The Agreement addresses wine-making practices; labeling issues; names of origin;

wine certification; and the role of what is known in the US as “semi-generic” names. This paper

will focus on the “semi-generic” names treatment under the US-EU Wine Agreement and under

U.S. law. The analysis will begin with a background explanation of geographical indications

(GIs) and “semi-generic” names. This explanation will be followed by an explanation of the way

in which these “semi-generic” names are treated in the agreements that govern relevant aspects

of EU-US wine relations, namely, the 2005 EU-US Wine Agreement and the WTO’s 1995

Agreement on Trade-Related Aspects of Intellectual Property Rights, Including Trade in

Counterfeit Goods, (“TRIPs”), and of how these agreements are (arguably) reflected in U.S.

regulations covering “semi-generic” names. Finally, I will expound the legal arguments on both

sides of the issue of whether the treatment of these “semi-generic” names should be reformed in

future versions of the EU-US Wine Agreement and from U.S. law. Rather than focusing only on

the international legal aspects involved, this analysis will also discuss the legal, political, and

constitutional2 issues that the U.S. would have to address in order to eliminate permitted use of

1 The Agreement covers “fermented grape beverages with an actual alcohol content of not less than 7 percent and not more than 22 percent by volume. See “US-EU Wine Trade Issues,” Foreign Agricultural Service U.S. Mission to the European Union. October 11, 2007. Available online on April 10, 2008 at http://www.useu.be/agri/wine.html.

2 Namely, First and Fifth Amendment challenges similar to those which were discussed in Bronco Wine Co. v. Jolly, 129 Cal.App.4th 988, 29 Cal.Rptr 3d 462, (2005)(Bronco),

6

Page 7: Rafael Recalde, Esq. on Wine Law

“semi-generic” names should their use come under a TRIPS challenge or should the U.S. cede

this point in future wine negotiations. This work will conclude, based on the analysis of the

relevant legal arguments and on the many policy considerations--the most important of which

being consumer protection--that the “semi-generic” names category should be removed from the

EU-US Treaty and thus from U.S. law.

II. Background:

A. Geographical Indications

A geographical indication “…is similar to a trademark[; however,]… rather than

attaching to a particular product or firm, GI’s attach to products from a particular region.” See

Raustiala, Kal and Chris Sprigman, “Eat, Drink, and be Wary: Why the U.S. Should Oppose the

WTO’s Extending Stringent Intellectual Property Protection of Wine and Spirit Names to Other

Products.” FindLaw’s Legal Commentary. December 12, 2002. Available online on April 1,

2008 at http://writ.news.findlaw.com/commentary/20021212_sprigman.html. Geographical

indications serve the important role of informing consumers the place of origin of the product in

question. For agricultural products, such as wine, cheese, potatoes, and other foodstuffs, the

place of origin is arguably an enormous factor in providing the consumer with information

regarding the quality of the product. Whether or not the geographical indication is, in reality, a

strong factor in determining the product’s quality, the product’s place of origin can have an

impact on the consumer’s perception of the product’s quality—and, thus, on the product’s price.

For instance, a wine labeled Saint-Emilion may be priced at a much higher level than a wine that

is similarly tasting and produced from the same grape varietals (e.g., Cabernet Franc, Merlot,

Cabernet Sauvignon blend) but which comes from a region that is not afforded geographical

7

Page 8: Rafael Recalde, Esq. on Wine Law

indication protection or from one which is afforded such protection but does not have the same

“brand recognition.” This is largely because a Saint-Emilion label brings forth positive

connotations of a particular land, climate, process, tradition—all of which, combined, loosely

make up what is known as “terroir.” A Saint-Emilion label also brings forth connotations of

world famous chateaux such as Cheval Blanc and images of Romanesque churches in a quiet

village that is centuries old. These types of connotations can convince many consumers that a

certain product is worth more money than another even though most people may be unable to

choose between the two products in a blind test. There are, of course, producers who are ready

to mislead the public, whether or not they are permitted to do so by applicable law. As WIPO

explains:

Many…[geographical indications]… have acquired valuable

reputations which, if not adequately protected, may be

misrepresented by dishonest commercial operators. False use of

geographical indications by unauthorized parties is detrimental to

consumers and legitimate producers. Consumers are deceived into

believing that they are buying a genuine product with specific

qualities and characteristics, when they are in fact getting an

imitation. Legitimate producers are deprived of valuable business

and the established reputation of their products is damaged.

See “About Geographical Indications.” World Intellectual

Property Organization. Available online on April 8, 2008.

http://www.wipo.int/geo_indications/en/about.html

8

Page 9: Rafael Recalde, Esq. on Wine Law

The consumer perceptions created by geographical indications, therefore, can be and are turned

into enormous marketing success for producers who enjoy the privilege of being able to display a

certain geographical location on their products’ labels.

B. “Semi-Generic” Names, Generally

In some cases, however, this marketing success has turned against these privileged

producers by having caused certain names of geographical indications to become a common

word of every day usage and to therefore lose legal protection. One geographical indication that

has arguably been a victim of its own success is “champagne.”3 Producers from around the

world have, for many years, labeled their sparkling wines as “champagne” despite having a place

of origin that is far removed from Champagne, France. The significance of this example is

enormous but can be perhaps awkward for us as Americans to understand given that “[t]he U.S.

is a brand-driven economy” and therefore has “…less experience with products tied to a specific

origin.” See Blum, Crystal and Mihaella Smith, “The Wine Trade Dispute Between the United

States and the European Union: an interview with Richard Mendelson of Dickenson, Peatman &

Fogarty.” 4 U.C. Davis Bus. L.J. 14 at p. 14 (2004). From a branding perspective, words like

Xerox”4 and “Kleenex”5 come to mind as helpful explanations of the phenomenon in which

words that are subject to intellectual property become “common usage” and face the danger of

loosing intellectual property protection. In a manner similar to that in which the word

3 See e.g. Chen, Jim. “A Sober Second Look at Appellations of Origin: How the United States Will Crash France’s Wine and Cheese Party.” 5 Minn. J. Global Trade 29 at p. 52 (1996). (Noting that, “[i]ronically, some of the most celebrated AOCs are the likeliest designations to be found generic,” and adding that it “should not be especially surprising [that] the more successful a trade name, the likelier it is to attract imitators and to overwhelm the original producer’s ability to fend off infringers.”).

4 Registered Trademark of the Xerox Corporation, Registration No. 525, 717 filed September 20, 1948, issued May 30, 1950.

5 Registered Trademark (TM) of Kimberly-Clark Worldwide.

9

Page 10: Rafael Recalde, Esq. on Wine Law

“champagne” has perhaps become an every day word used to describe sparkling wine, the word

“Xerox” is often used by people to describe a photocopy and the word “Kleenex” to describe

facial tissues.

With regards to words like “Champagne” and “Chablis,” not only have producers from

the European regions protected by these geographical indications been subject to an eroding

legal protection, but certain producers from outside of these regions enjoy full legal protection of

their continued use of such words on their labels. In its website, the [California] Wine Institute,

which claims to be “The Voice for California Wine,” consistently refers to California sparkling

wine as “sparkling wine/champagne.” See e.g. “Sparkling Wine/Champagne.” Wine Institute.

Available online April 8, 2008. http://www.wineinstitute.org/resources/winefactsheets/article92.

The same organization also boasts about the way in which “[s]everal U.S. producers label their

sparkling wines ‘champagne,’ which the U.S. government allows as long as ‘champagne’ is

directly and prominently qualified with the appellation indicating the location where the

winegrapes are grown.” See Id. Eileen Fredrikson, a partner at Gomberg, Fredrikson and

Associates, which is a California wine-consulting firm, goes further than the Wine Institute’s

claim that “several” U.S. producers using “champagne” on their labels, estimating “…that more

than half of California sparking wine production uses the term Champagne, while other semi-

generic labels are declining in use.” See Sparshott, Jeffrey, “U.S., Europe End Wine-Label

Debate,” The Washington Times. September 16, 2005. Available online on Lexis-Nexis

Academic on April 18, 2008. With California sparkling wine producers constituting for 60% of

the share of the U.S. sparkling wine market, it is clear to see why the estimated half of California

sparkling wine producers who use “champagne” on their label possess sufficient political

10

Page 11: Rafael Recalde, Esq. on Wine Law

influence to continue to keep “champagne” as a “semi-generic” name. See “Sparkling

Wine/Champagne.” Wine Institute (supra)

III. U.S. Regulations on Semi-Generic Names.

The BATF (Bureau of Alcohol, Tobacco, Firearms, and Explosives), which regulates

wine in the US, has created a classification mechanism that permits the use of “semi-generic”

names when the true place of origin is included in the label. See 27 C.F.R. §4.24(b)(1) (2006)

(“Semi-generic designations may be used to designate wines of an origin other than that

indicated by such name only if there appears in direct conjunction therewith an appropriate

appellation of origin disclosing the true place of origin of the wine[.]”). Included in these BATF

regulations are examples that include the names for which the US-EU Wine Agreement have

provided exceptions allowing their use by certain American wine producers:

“Examples of semi-generic names which are also type designations for

grape wines are Angelica, Burgundy, Claret, Chablis, Champagne,

Chianti, Malaga, Marsala, Madeira, Moselle, Port, Rhine Wine (syn.

Hock), Sauterne, Haut Sauterne, Sherry, Tokay.”

See 27 C.F.R. 4.24b(2)

The status of the previous list as a list of “examples” has been, through legislation, given

precision as an exhaustive list—rather than simply a list of “examples”--through legislation that

was passed by Congress. See 26 U.S.C.A. § 5388; I.R.C. § 5388 (1997)(Amended in 2006).

Specifically, legislation has been passed including the list in 27 C.F.R. 4.24b(2) which utilizes

the same language but which introduces an important change:

11

Page 12: Rafael Recalde, Esq. on Wine Law

(B) Certain names treated as semi-generic. The following names shall be

treated as semi-generic: Angelica, Burgundy, Claret, Chablis,

Champagne, Chianti, Malaga, Marsala, Madeira, Moselle, Port, Rhine

Wine or Hock, Sauterne, Haut Sauterne, Sherry, Tokay.

See Brody, Peter M., “SEMI-GENERIC” GEOGRAPHICAL

WINE DESIGNATIONS: DID CONGRESS TRIP OVER

TRIPS?” 89 Trademark Reporter 979 (1999). (Citing 26 U.S.C.A.

§ 5388; I.R.C. § 5388)(Italics in Brody’s work, not in text of

statute).

IV. “Semi generic” names in US-EU Wine Relations

A. TRIPs

With the inception of TRIPS, “…geographical indication protection joined the ranks of

copyright, patents, and trademarks as the subject of a broad-based multilateral agreement with

detailed obligations.” See Hughes, Justin. “Champagne, Feta, and Bourbon: The Spirited Debate

About Geographical Indications,” 58 Hastings L.J. 299, 300 (2006). Indeed, TRIPS has an

entire section governing geographical indications. See Agreement on Trade-Related Aspects of

Intellectual Property Rights, Apr. 15, 1994 (hereinafter called TRIPS) at Section 3. TRIPS

defines geographical indications as “indications which identify a good as originating in the

territory of a Member, or a region or locality in that territory, where a given quality, reputation or

other characteristic of the good is essentially attributable to its geographic origin.” See TRIPS,

Article 22(1). The geographical indication protection afforded by TRIPs with regards to wines

provides that “[e]ach Member shall provide the legal means for interested parties to prevent use

12

Page 13: Rafael Recalde, Esq. on Wine Law

of a geographical indication identifying wines for wines not originating in the place indicated by

the geographical indication in question. See TRIPS, Article 23(1). This protection is applicable

“…even where the true origin of the goods is indicated or the geographical indication is used in

translation or accompanied by expressions such as “kind”, “type”, “style”, “imitation” or the

like. See Id.

While TRIPS provides the high levels of protection to geographical indications described

above, the agreement provides several exceptions found in Articles 24.4-24.8. The exception in

Article 24.4 provides that

Nothing in this Section shall require a Member to prevent continued and

similar use of a particular geographical indication of another Member

identifying wines or spirits in connection with goods or services by any of

its nationals or domiciliaries who have used that geographical indication in

a continuous manner with regard to the same or related goods or services

in the territory of that Member either (a) for at least 10 years preceding 15

April 1994 or (b) in good faith preceding that date. See TRIPS, Article

24(4).

The Article 24.5 exception, on the other hand, provides that

Where a trademark has been applied for or registered in good faith, or

where rights to a trademark have been acquired through use in good faith

either:

13

Page 14: Rafael Recalde, Esq. on Wine Law

(a) before the date of application of these provisions in that

Member as defined in Part VI; or

(b) before the geographical indication is protected in its country of

origin;

measures adopted to implement this Section shall not prejudice eligibility

for or the validity of the registration of a trademark, or the right to use a

trademark, on the basis that such a trademark is identical with, or similar

to, a geographical indication. See TRIPS Article 24(5).

Finally, Article 24(6) of TRIPS provides that Members are not required to apply the

TRIPS provisions to

…provide GI protection in respect of a geographical indication of any

other Member with respect to goods or services for which the relevant

indication is identical with the term customary in common language as the

common name for such goods or services in the territory of that Member.”

See TRIPs at Article 24(6).

Together, these exceptions permit the use of “…geographical indications that, while

false, have been in long use, or have been registered as trademarks, or are the ‘common name of

such goods’ in the member country.” See Brody, Peter M. “Protection of Geographical

Indications in the Wake of TRIPs: Existing United States Law and the Administration’s

Proposed Legislation.” 84 Trademark Rep. 520, 529 (1994). These exceptions and, particularly,

Article 24.6, are the legal hooks from which the US’s policy on “semi-generic” names hangs,

14

Page 15: Rafael Recalde, Esq. on Wine Law

providing the flexibility with which the U.S. has classified certain names as “semi-generic” in

order to avoid difficult internal issues related to the strict enforcement of international

geographical indications.6

It is important to note that, while TRIPS provides the exceptions which have made the

U.S.’s “semi-generic” classification possible, TRIPS also contemplates the continued negotiation

of these matters. See TRIPS Article 24(1). Some argue, however, that the legislation which

codified the BATF’s rule on “semi-generic” names may be a contravention to the negotiation

requirements of TRIPS because it “…could plausibly read as embodying a Congressional policy

in favor of preserving ‘semi-generic’ names[,]…motivated precisely by concern over the threat

to “semi-generic” names posed by the TRIPs agreement and other similar accords.” See Brody,

Peter M., “SEMI-GENERIC” GEOGRAPHICAL WINE DESIGNATIONS: DID CONGRESS

TRIP OVER TRIPS?” 89 Trademark Reporter 979, 984 (1999). Indeed, Brody notes, “…the

statute appears decidedly at odds, in letter and spirit, with the broad commitment made by all

TRIPS members to the negotiation process envisioned in Article 24 and thus cannot be regarded

as the considered policy of the United States.” See Id. Thus, while the “semi-generic”

themselves may fall within the exceptions within TRIPS and therefore not violate the agreement,

the U.S.’s stance on “semi-generics” is taking a step away from the negotiations contemplated in

TRIPS and may thus constitute a breach of TRIPS.

B. US-EU Wine Agreement

Nearly ten years following TRIPS, the US and the EU completed the first round of

negotiations on the US-EU Wine Agreement. Even though the EU-US Wine Agreement covers

6 These internal issues, including business interest and Constitutional issues, will be described in sections that follow.

15

Page 16: Rafael Recalde, Esq. on Wine Law

many important aspects of trade in wine, it “…does not address the use of ‘geographical

indications[.]’” See “United States, European Union Reach Agreement on Wine Trade,”

USINFO. September 15, 2005. Available online on April 8, 2008 at

http://news.findlaw.com/wash/s/20050915/200509151159281.html. However, while the “…

Agreement does not address the broader issue of geographical indications…,” the Parties do

agree “…to recognize certain of each other’s names of origin in specific ways.” See “EU-US

Wine Agreement,” Foreign Agricultural Service U.S. Mission to the European Union. May 10,

2006. Available online on April 8, 2008. http://useu.usmission.gov/agri/wine.html. Moreover,

“…the US and the EU note that ‘each Party’s competent authorities shall take measures to ensure

that any wine not labeled in conformity with [the] Article is not placed on or is withdrawn from

the market…” See Id. Geographical indications, therefore, are still governed under TRIPS

which, as outlined above, provides the flexibility necessary for the existence of the continued use

of the “semi-generic” names as has been provided for in the US-EU Agreement. One must keep

in mind, however, that “semi-generic” names are actually names of geographical indications that,

according to the U.S., have become words of “common usage.”

In the EU-US Agreement, the use of “semi-generic” names is outlined in Article 6, which

covers the “use of certain terms on wine labels with respect to wines sold in the United States.”

Subsection 2 of Article 6 provides that certain terms that are listed in Annex II of the Agreement

may be used on labels for which the “…applicable COLA [or Certificate of Label Approval] was

issued prior to…[13 December 2005 or the date of signature of the Agreement, whichever is

later].” See Agreement between the European Community and the United States of America on

trade in wine (2006) (hereinafter called US-EU Wine Agreement), Article 2 Section 2. The terms

that are listed in Annex II are “Burgundy, Chablis, Champagne, Chianti, Claret, Haut Sauterne,

16

Page 17: Rafael Recalde, Esq. on Wine Law

Hock, Madeira, Malaga, Marsala, Moselle, Port, Retsina, Rhine, Sauterne, Sherry and Tokay.”

See Id. at Annex II. American legislators have amended the code regarding “semi-generic”

names in a manner consistent with this Agreement. See TAX RELIEF AND HEALTH CARE

ACT OF 2006 Pub. L. 109-432, Div. A, Title IV, § 422(a) (2006). Of particular significance,

language has been added to 26 U.S.C.A. § 5388 which requires non-European wine to meet

certain requirements in order to use “semi-generic” names, one of which contains the “grand-

father clause” that limits the use of semi-generic names but which nevertheless continues to

permits their use:

The requirement of this clause is met if the person, or its successor in

interest, using the semi-generic designation held a Certificate of Label

Approval [COLA] or Certificate of Exemption from Label Approval

issued by the Secretary for a wine label bearing such brand name, or brand

name and fanciful name, before March 10, 20067, on which such semi-

generic designation appeared.

See 26 U.S.C.A. § 5388(C)(3)(B)(iii).

See Pub. L. 109-432, Div. A, Title IV, §

422(a) (2006).

While the EU-US Agreement has limited the use of “semi-generic” names from that

which was permissible under previous BATF Regulations, it has not eliminated their use. The

use of the “semi-generic” names under the EU-US Agreement has been limited only to those

persons/entities whose use of such terms had predated the EU-US Agreement and who had thus

7 The Agreement was signed on March 10, 2006, thus making this the “later date” referred to in Section 2 Article 6 of the Agreement.

17

Page 18: Rafael Recalde, Esq. on Wine Law

“grandfathered-in” their ability to use the “semi-generic” name on their labels.8 Like TRIPS, the

EU-US Agreement contemplates future negotiations. See EU-US Agreement at Article 1(b)

(setting forth as objectives to “lay down the foundation, as the first phase, for broad agreement

on trade in wine between the parties”); See also Article 1(c) (setting forth as objective to

“provide a framework for continued negotiations in the wine sector”); See also Article 10

(setting forward a framework for “FUTURE NEGOTIATIONS”). These negotiations are

expected to “involve: a dialogue on geographical indications, a dialogue on the matter of names

of origin including the future of the semi-generic terms, a dialogue on the use of traditional

expressions, low alcohol wines, certification, wine-making practices, and the creation of a joint

committee on wine issues.” See Mercer, Chris, “French Wine Union Rejects EU, US Deal.”

Beveragedaily.com. September 28, 2005. Available online on April 8, 2008 at

http://www.spittoon.biz/french_wine_union_rejects_euus.html. Perhaps the negotiations may

lead to the phasing out of the “semi-generic” names and even to the protection of geographical

indications in a broader sense. Nevertheless, as this work will discuss below, repealing current

regulations with regards to “semi-generic” names brings forth many difficult issues—legal,

political, and otherwise--from both an international perspective and a local U.S. perspective

which have held back the U.S. from changing its position and which will likely continue to hold

back the U.S. from engaging in serious negotiations with regards to “semi-generic” names.

V. Clawing Back: The Bilateral Debate

As explained above, geographical indications can serve as an important marketing tool

for those who benefit from their use. As such, geographical indications are a valuable

intellectual property asset. This, of course, means that many firms are profiting from being able

8 Subject to the requirements of the U.S. regulation as codified in 26 U.S.C.A. § 5388 and the BATF regulation (27 C.F.R. § 4.24).

18

Page 19: Rafael Recalde, Esq. on Wine Law

to use “semi-generic” names on their labels as a result of the current Agreements and regulations

that are in place. In the Washington Times article cited in Section II B above, Eileen Fredrikson

is quoted as citing Gallo Hearty Burgundy as an example of the premise that “…to a narrow

group of people…with a long-standing brand identity, [the ability to use “semi-generic” names

on their labels] is quite important.” See Sparshott, Jeffrey, “U.S., Europe End Wine-Label

Debate,” The Washington Times. September 16, 2005. Available online on Lexis-Nexis

Academic on April 12, 2008. Through groups like the Wine Institute, such producers make

enormous efforts at maintaining their ability to use “semi-generic” names on their labels.

Indeed, the “Wine Institute brings together the resources of 1000 wineries and affiliated

businesses to support legislative and regulatory advocacy, international market development,

media relations, scientific research, and education programs that benefit the entire California

wine industry.” See “About the Wine Institute.” Wine Institute. Available online on April 7,

2008 at http://www.wineinstitute.org/company.

The arguments on both sides are quite reflective of each other. European negotiators

argue that the use of European geographical indications in the form of “semi-generic” names by

American wine producers misleads consumers by causing them to believe that a wine comes

from a particular geographical indication when, in fact, it does not. The U.S. position, too, is

largely based on consumer confusion: the U.S. argues that clawing back the current “semi-

generic” rules would “…eliminate existing trademarks, [thereby leading]…to global consumer

confusion.” See “Facts on Global Reform,” Doha Development Agenda Policy Brief. Office of

the United States Trade Representative (USTR), 2005. Available online on April 15, 2005 at

http://www.ustr.gov/assets/Document_Library/Fact_Sheets/2005/asset_upload_file850_8542.pdf

. Moreover, the argument continues, these trademark owners have spent billions on promoting

19

Page 20: Rafael Recalde, Esq. on Wine Law

their products and are responsible for their success: “Parmesan cheese is not on the tip of

everyone's tongue because of anything anyone in Parma, Italy, ever did. It's because dairy

processors, led by Kraft, have spent tens of millions of dollars promoting this terminology so that

the vast majority of Americans would put a can in their refrigerator." See Cox, James. “What is

in a name?” USA Today. September 9, 2003. Available online on April 7, 2008 at

http://www.usatoday.com/money/economy/trade/2003-09-09-names_x.htm. Further, the U.S.

argues, the current regulations do not cause consumer confusion because “[t]he regulations

concerning semi-generics require that the true place of origin be stated on the label in direct

conjunction with the semi-generic term being used.” See “Worldwide Symposium on

Geographical Indications,” World Intellectual Property Organization (WIPO) and United States

Patent and Trademark Office (USPTO), San Francisco, California. July 9 to 11, 2003.

Supporters of this “consumer confusion” position taken by the U.S. note that “[n]ames…

such as chablis, burgundy, port and champagne, called semi-generics, have been in use on wine

labels in the U.S. since the 1800s.” See “Signing of US-EC Trade Agreement Expands

Opportunities for Wine.” Wine Institute. Available online on April 18, 2008.

http://www.wineinstitute.org/resources/exports/article61. This argument has several levels that

follow, in a sense, a chronological timeline. It starts from the premise that the use of what are

now “semi-generic” names in the U.S. was initiated by Europeans themselves, who, after having

emigrated to the United States, “…wanted to make wine in the style of their homeland,” and “…

the use of words like Champagne, Chablis and Burgundy, naturally followed from this.” See

“Worldwide Symposium on Geographical Indications,” (supra).9 The use of these names 9 As discussed in Professor Stephen Diamond’s Wine Law Seminar at the University of Miami School of Law on April 9, 2008, one must also query whether, in fact, Portuguese immigrants came to the United States in the early 1900’s to produce a fortified wine and called it “Port.” Given generally known U.S. immigration and demographic history, I submit that it is doubtful that Portuguese immigrants caused “Port” to become a “semi-generic” term in the U.S.

20

Page 21: Rafael Recalde, Esq. on Wine Law

continued for “over a century,” and, ostensibly, because of “European acknowledgments of the

propriety of [American wineries] using those names before the turn of the century,” the concepts

of laches and waiver were triggered, causing Europeans to lose their right to claim their

exclusive use of the implicated geographical indications. See Id.

The latter argument, however, fails to take into considerations efforts such as the Paris

Convention for the Protection of Industrial Property which, as early as in 1883, covered wine as

well as “statements of place of origin”(See Paris Convention for the Protection of Industrial

Property, Article 1(1)(1883);(US party to 1913 version: 1913 WL 17852 (U.S. Treaty), 38 Stat

1645)(last amendment, 1979); see also Hughes, Justin. “Champagne, Feta, and Bourbon: The

Spirited Debate About Geographical Indications.” 58 Hastings L.J. 299, 311, 312(2006) ),

whereas semi-generic name regulations in the U.S. did not enter into effect until 1935. See

“Worldwide Symposium on Geographical Indications,” World Intellectual Property Organization

(WIPO) and United States Patent and Trademark Office (USPTO), San Francisco, California.

July 9 to 11, 2003. By then, many of the geographical indications affected by semi-generic

names had already obtained legal recognition and protection in their respective countries. The

appellation of Champagne, for instance, was created in 1908, and the Method Champenoise had

been in place since the 17th Century. See “Tradition: History of Champagne” Office of

Champagne, USA. Available online on April 7, 2008. http://www.champagne.us/index.cfm?

pageName=tradition_history. Further, some argue that the fact that many producers have used

“semi-generic” names for centuries does not take away any fraudulent implications. As

Professor Lourvellec notes, “[t]he sin of dishonesty does not become excusable just because

multiple competitors committed the same fraud, nor does the act ever cease to be wrong.” See

Lourvellec, Louis, “You’ve Got to Fight for Your Right to Party: A Response to Professor Jim

21

Page 22: Rafael Recalde, Esq. on Wine Law

Chen.” 4 Minn. J. Global Trade 65, 74. On “semi-generics,” Professor Lorvellec argues that “…

justice should not become an accomplice to a few unscrupulous manufacturers who have

rendered a geographical indication generic by, for example, starting to manufacture sparkling

wine in California as “Californian Champagne.” See Id. Finally, with regard to the argument

that consumers are not misled because the label also contains the true place of origin, there is an

argument that this “solution” is flawed because it causes the (unreasonable) burden to be

accurately informed to rest with the consumer, who is forced to “…seek out information on

where their wine comes from to ensure they are not being misled by wine producers who choose

to include names of winegrowing regions that are not their own.” See “US-EU Wine Accord:

The Consumer (Part 2).” NoBullGrape Wine Politics. Found in Diamond, Stephen Wine Law

Seminar Part II, page 1000, Law 644A Course Materials, Spring 2008.

VII. Clawing Back: The Internal Debate and other U.S. Implications

In addition to the arguments set forth above as shaping the U.S.’s refusal to “claw back”

the permitted use of “semi-generic” names, there are some important legal and Constitutional

implications which further encourage the current U.S. position but which are nevertheless

surmountable. The first implication, as was briefly discussed previously, is a matter which only

involves legal traditions with regards to the American approach at brands, trademarks, and

intellectual property. Namely, giving increased protection to geographical indications at the

expense of certain existing trademarks would be going against the U.S.’s traditional intellectual

property approach which affords greater protection to individual private interests over that which

is afforded to “collective” interests. Thus, some argue that, “…unlike trademarks, GIs apply to

large collectivities of firms, such as the Cognac region…[and, a]s a result, the incentives to

invest in maintaining reputation are…diluted.” Raustiala, Kal and Chris Sprigman, “Eat, Drink,

22

Page 23: Rafael Recalde, Esq. on Wine Law

and be Wary: Why the U.S. Should Oppose the WTO’s Extending Stringent Intellectual Property

Protection of Wine and Spirit Names to Other Products.” FindLaw’s Legal Commentary.

December 12, 2002. Available online on April 1, 2008 at

http://writ.news.findlaw.com/commentary/20021212_sprigman.html. This argument stems from

the notion that “[g]eographical indications are different from other intellectual property rights in

so far as they do not involve any acts of creation like those in patents, copyrights, and

trademarks,” and that, as such, geographical indications do not have a similar effect of promoting

acts of creation. See Zylberg, Philippe, “Geographical Indications v. Trademarks: The Lisbon

Agreement: A Violation of TRIPS?” 11 U. Balt. Intell. Prop. L.J. 1, 27 (2005). Nevertheless,

while argument about the traditional role of trademarks to the exclusion of geographical

indications is an argument that defenders of the U.S. position put forward, it is not the official

U.S. approach since the U.S. itself affords protection to its own American Viticultural Areas

(AVAs). Instead, the U.S. argument grounds itself on the premise that the terms in question have

become “semi-generic” through common usage and that the U.S. and “…other countries around

the world [therefore] have a legitimate right to use” these terms. See “Facts on Global Reform,”

Doha Development Agenda Policy Brief. Office of the United States Trade Representative

(USTR), 2005. (supra).

The Constitutional implications of a “clawing back” of the current regulations which

permit the use of “semi-generic” names by certain U.S. producers present a strong--yet

surmountable—challenge. The landmark wine case of Bronco Wine Co. v. Jolly, 129 Cal.App.4th

988, 29 Cal.Rptr 3d 462, (2005)(hereinafter “Bronco”) raises issues which would likely resurface

if the U.S. were to “claw back” current regulations regarding “semi-generic” names.

A. Bronco Wine Co. v. Jolly

23

Page 24: Rafael Recalde, Esq. on Wine Law

In Bronco a federal “grandfather clause” exempted from certain requirements regarding

geographical indications brands which had been, with the appropriate COLA, using an affected

geographical indication in their name prior to July 7, 1986. In an attempt to provide full

protection to its increasingly important viticultural regions, the California legislature passed a

law which in effect required that all California producers using geographical indications on their

labels complied strictly with the origin requirements, thus eliminating the federal “grandfather

clause.” The Bronco Wine Company and Barrel Ten Quarter Circle, Inc. had been using three

names on some of their brand labels (Napa Ridge, Napa Creek Winery, and Rutherford Vintners)

prior to the above mentioned date. The use of these names was permissible under the federal

grandfather clause but became illegal under the newly promulgated state law because of the

increased protection afforded to the use of the terms “Napa” and “Rutherford.” See generally,

Bronco (supra).

Bronco challenged the California law—which required that at least 75% of the grapes in

a wine come from a given viticultural region in order for the producer to be able to use the name

of the region in its label—under several different theories, including Federal Preemption,

Dormant Commerce Clause, First Amendment, and Fifth Amendment. See Bronco Wine

Company v. Napa Valley Vinters Association, 33 Cal. 4th 943, 95 P.3d 422, 17 Cal.Rptr.3d 180

(2004). The California Supreme Court ruled against Bronco, basing its opinion on the Federal

Preemption issue and holding that the California law was not preempted by Federal regulations.

See Id. Because this work deals with an international agreement and thus with the prospect of a

change in federal, rather than state, regulations, the Federal Preemption and Dormant Commerce

Clause issues would be irrelevant if the U.S. would “claw back” the use of “semi-generic”

24

Page 25: Rafael Recalde, Esq. on Wine Law

names. However, the First and Fifth Amendment challenges that Bronco brought forth would

become relevant.

i. First Amendment

Bronco challenged the California law under the First Amendment, alleging that its free

speech rights were being violated by the labeling restrictions that were being imposed by the

California regulation. The California Supreme Court did not address this issue, remanding it,

instead, to be decided by the appellate court below. See Bronco Wine Company v. Napa Valley

Vinters Association, 33 Cal. 4th 943, at 997 . On remand, the court denied Bronco’s First

Amendment argument on the grounds that speech is not protected when such speech constitutes

“inherently misleading” commercial speech. See Bronco Wine Co. v. Jolly (2005), 129

Cal.App.4th 988 at p. 1003(“Bronco”). The court used a four-prong test used for “…evaluating

the constitutionality of restrictions on commercial speech,” which was derived from Central

Hudson Gas & Electric Corporation v. Public Service Commission of New York (1980) 447 U.S.

557, a U.S. Supreme Court case. See Id. The test is laid out as follows:

The first inquiry is “whether the expression is protected by the First

Amendment. For commercial speech to come within that provision, it at

least must concern lawful activity and not be misleading. Next, we ask

whether the asserted governmental interest is substantial. If both inquiries

yield positive answers, we must determine whether the regulation directly

advances the governmental interest asserted, and whether it is not more

extensive than is necessary to serve that interest.”

25

Page 26: Rafael Recalde, Esq. on Wine Law

See Id. at 1003. (citing Central Hudson, supra, 447 U.S. at p. 566,

100 S.Ct. at p. 2351, 65 L.Ed.2d at p. 351).

a. Inherently Misleading

With regards to the first prong of the test, the court based its analysis on Supreme Court

cases which make a distinction between speech that is “inherently misleading” and speech that is

only “potentially misleading.” See Id at p. 1004-1005. Speech that is “inherently misleading”

because it is “…inherently likely to deceive or where the record indicates that a particular form

or method of advertising has in fact been deceptive” is unprotected speech and the analysis thus

ends because there is no First Amendment violation. See Id. at 1005, (quoting In Re R.M.J.

(1982) 455 U.S. 191, 203, 102 S.Ct. 929, 937, 71 L.Ed.2d 64, 74 at p. 202, 102 S.Ct. at p. 937,

71 L.Ed.2d at p. 73). However, “[i]f the speech is only ‘potentially misleading,’ because ‘the

information also may be presented in a way that is not deceptive,’ the regulation must satisfy the

remaining three factors….” See Id. (quoting In Re R.M.J. at p. 203, 102 S.Ct. at p. 937, 71

L.Ed.2d at p. 74.).

Based on the findings of fact that were made by the Legislature prior to enacting the

California regulation with regards to consumer perceptions of labels bearing the appellation of

“Napa,” the court in Bronco found that the California law was regulating speech which was

“inherently misleading” and that such regulation was therefore within the Legislature’s power.

See Bronco at 1006, 1014. Bronco brought forth a challenge to the Legislature’s findings that

the speech was “inherently misleading,” and the court, based on the analysis undertaken by the

US Supreme Court in Friedman v. Rogers, (440 U.S. 1 (1979))), put the Legislature’s findings to

a rational basis analysis. Namely, the court set to determine

26

Page 27: Rafael Recalde, Esq. on Wine Law

…whether the Legislature could reasonably conclude, on the basis of the

record before it, that the particular brand names of geographic or

viticultural significance concerning Napa County ‘are more likely to

deceive the public than inform it’ about the origin of the grapes used to

produce the wine when the grapes are not grown in the area signified.”

See Bronco at 1006 (applying level of legislative scrutiny set forth in

Friedman v. Rogers 440 U.S. 1, 9 (1979)) .

The court analyzed the legislative record and concluded, based on the testimony, surveys, and

other evidence that was put forth before the Legislature, that:

…federal and state regulators, the wine industry, and the general public

view the origin of the wine as a significant factor affecting its quality and

consider the use of a geographic brand name misleading where the wine is

not made with grapes grown in the named geographic area. Accordingly,

the Legislature was standing on firm ground when it concluded the name

Napa in a brand name is inherently likely to mislead consumers when the

grapes used to make the wine are not grown in the Napa Valley.

See Bronco at 1014.

It is likely that a challenge to a Federal regulation banning the use of “semi-generic”

names would be subject to a similar analysis. And while Bronco is not a Supreme Court

decision, its First Amendment analysis is founded on Supreme Court rulings that would be

similarly applicable in such a challenge. Because similar and perhaps even more extensive data

would be presented to regulators with regards to the misleading effects of using “semi-generic”

27

Page 28: Rafael Recalde, Esq. on Wine Law

names such as “Champagne” and “Chablis” on labels, a facial challenge to the statute would

likely fail as it did in Bronco. For example, a poll that was reviewed by the California

Legislature and which the court in Bronco found significant found as follows:

99 percent of those polled thought a wine with the brand name “Napa

Valley Caves” was from Napa Valley; 81 percent believed it was

confusing if the brand name included the word “Napa” but the grapes did

not come from Napa Valley; 91 percent felt it was deceptive to use a

geographic region known for wine in a brand name even if the grapes

came from another region…

See Bronco at 1009.

The results of the polls used by the California Legislature with regards to the use of

“deceptive” use of “geographic regions” are perhaps different from results that would be

obtained from national polls. For instance, a 2005 poll found that only “…53 percent of

Americans say region is very important when choosing a wine and another 30 percent said it was

somewhat important.” See Haberkorn, Jen, “Grape expectations drive wine group; Terrain,

climate stressed.” The Washington Times. October 14, 2005. Nevertheless, efforts are being

made to change these consumer attitudes and the results are starting to become evident. As

recently as March 27, 2008, the Center for Wine Origins10 released a poll which finds that “…

63% [of U.S. wine consumers] support a law prohibiting misleading labels because they believe

it is the best way to protect the names of wine regions around the world, including domestic

names such as Napa Valley and Sonoma County.” See Hall, Jenifer and Laura Lightbody, “Poll 10 Based in Washington, D.C., “[t]he Center for Wine Origins was established in 2005 to promote the importance of location and better protect geographic names in the U.S. market.” See “Poll Shows Majority of U.S. Wine Purchasers Against Misleading Labels” (supra).

28

Page 29: Rafael Recalde, Esq. on Wine Law

Shows Majority of U.S. Wine Purchasers Against Misleading Labels: Consumers’ Concern Comes

as Second Anniversary of Bilateral Trade Agreement Brings No New Action.” The Center for Wine

Origins. March 27, 2008. Available online on April 10, 2008 at

http://www.wineorigins.com/uploads/FINAL_POLL_RELEASE.pdf

Based on such polls and on testimony similar to that which was presented before the

California Legislature showing that the use of geographical indications on labels is “inherently

misleading” when these do not reflect the true origin of the product, U.S. lawmakers could have

a rational basis under which to repeal current regulations regarding the use of “semi-generic”

names and survive a challenge similar to that which Bronco brought forth. In Bronco, the court

noted that “[t]o the extent a brand name of geographic significance is more likely to deceive the

public than to inform it because it is suggestive of a false or misleading source of the grapes used

in making the wine, it is inherently misleading and its use may be prohibited.” See Bronco at

1006. (citing Central Hudson , supra, 447 U.S. at p. 563, 100 S.Ct. at p. 2350, 65 L.Ed.2d at p.

349; Lorillard Tobacco Company v. Reilly et al. (2001) 533 U.S. 525, 121 S.Ct. 2404, 150

L.Ed.2d 532 at pp. 554-555, 121 S.Ct. at pp. 2421-2422, 150 L.Ed.2d at p. 559.) . I submit that

the Courts would likely come to the same conclusion with regards to a “claw back” of the

grandfather clause which permits the use of “semi-generic” names.

ii. Fifth Amendment

The other challenge from Bronco which would likely also be applicable if the

U.S. mandates a “claw back” with regards to the current use of “semi-generic” names is

Bronco’s Fifth Amendment “takings” challenge. Like the First Amendment challenge, this Fifth

Amendment challenge, too, will likely fail as it did in Bronco. The Bronco Court denied

Bronco’s argument that the California law constitutes a “taking” of Bronco’s applicable COLAs

29

Page 30: Rafael Recalde, Esq. on Wine Law

(Certificates of Origin) because, according to the Court, “…standing alone, COLAs are not

property subject to Fifth Amendment protection and the statute does not effect a taking of

Bronco's brand equity under…Penn Central Transportation Company v. New York City (1978)

438 U.S. 104, 122, 98 S.Ct. 2646, 2658, 57 L.Ed.2d 631, 647 ( Penn Central )... ” See Bronco at

1029. It is important to note that, as a result of the above holding, the Court did “…not address

Bronco's claim that the statute does not advance a legitimate state interest within the meaning of

the public purpose requirement of the takings clause.” See Id. The Fifth Amendment’s takings

clause “…prohibits the taking of ‘private property ... for public use, without just compensation.’

See Id. (citing Chicago, B. & Q.R. Co. v. Chicago (1897) 166 U.S. 226, 239, 17 S.Ct. 581, 585,

41 L.Ed. 979, 986; Penn Central, supra, 438 U.S. at p. 122, 98 S.Ct. at p. 2658, 57 L.Ed.2d at p.

647.)

The purpose of the takings clause of the Fifth Amendment is to “to prohibit

‘‘[g]overnment from forcing some people alone to bear public burdens which, in all fairness and

justice, should be borne by the public as a whole....’’ See Id. at 1029-1030. (Citing Penn

Central, supra, at p. 123, 98 S.Ct. at p. 2659, 57 L.Ed.2d at p. 648, quoting Armstrong v. United

States (1960) 364 U.S. 40, 49, 80 S.Ct. 1563, 1569, 4 L.Ed.2d 1554, 1561.) While governmental

takings often involve the physical invasion or confiscation of property, “economic regulation[,

too,] may constitute a taking if it ‘goes too far.’” See Id. at 1030, quoting Pennsylvania Coal Co.

v. Mahon (1922) 260 U.S. 393, 415, 43 S.Ct. 158, 160, 67 L.Ed. 322, 326.). In order to

successfully establish a “taking” under the Fifth Amendment, “[t]he claimant must establish (1)

it has a protectable property interest, (2) there has been a taking of the property, and (3) the

taking was for a public purpose. See Id., citing Ruckelshaus v. Monsanto Co. (1984) 467 U.S.

986, 1000-1001, 104 S.Ct. 2862, 2871-2872, 81 L.Ed.2d 815, 831; American Pelagic Fishing

30

Page 31: Rafael Recalde, Esq. on Wine Law

Co. v. United States (Fed.Cir.2004) 379 F.3d 1363, 1372 ; Conti and Conti Corp. v. United States

(Fed.Cir.2002) 291 F.3d 1334, 1339.

a. “Property” in COLA:

With regards to whether or not Bronco had a protectable property interest, the Court

sought to determine, pursuant to the first prong described above, whether a COLA constitutes a

protectable property interest by undertaking an analysis of the applicable rules from which the

rights that are protected by COLAs derive, answering this question in the negative. The Court

first noted that “[t]he right to exclude others, and to sell, assign or otherwise transfer ownership

are traditional hallmarks of property.” See Bronco at 1030, citing Ruckelshaus v. Monsanto Co .,

supra, 467 U.S. at p. 1002, 104 S.Ct. at p. 2872, 81 L.Ed.2d at p. 832; Loretto v. Teleprompter

Manhattan CATV Corp. (1982) 458 U.S. 419, 435-36, 102 S.Ct. 3164, 3175-3176, 73 L.Ed.2d

868, 882. For permits and licenses, such as COLAs, the factors that “…the courts consider…” in

determining whether the license or permit constitutes a protectable property interest are “…

whether the permit or license is transferable, the extent to which the government has the right to

regulate the underlying activity, or to revoke, suspend, or modify the permit or license, and

whether there has been a legislative or regulatory expression that issuance of the permit does not

create a property right.” See Bronco at 1031, citing American Pelagic , supra at p. 1374; Conti ,

supra at pp. 1341-1342) .

While Bronco successfully argued that COLAs are alienable and assignable, the Court

noted that “[a] COLA is but one specific use a brand name…” and that, even if “…a brand name

has long been considered protected property within the meaning of the takings clause…a COLA

is merely one ‘part of the entire bundle of rights possessed by the owner’ of the brand name.”

31

Page 32: Rafael Recalde, Esq. on Wine Law

See Bronco at 1033, citing Jacob Siegel Co. v. Federal Trade Commission (1946) 327 U.S. 608,

612, 66 S.Ct. 758, 760, 90 L.Ed. 888, 892); Keystone Bituminous Coal Assn. v. DeBenedictis

(1987) 480 U.S. 470, 501, 107 S.Ct. 1232, 1250, 94 L.Ed.2d 472, 498; Andrus v. Allard (1979),

444 U.S. 318 at p. 327, (internal citations moved to end of passage). Moreover, the remaining

relevant factors further pointed towards the decision that COLAs are not protectable property

interests. Of particular significance, the Court noted that a COLA “…may be revoked upon a

finding the label or bottle is not in compliance with the applicable laws and regulations…or by

operation of law or regulation.” See Bronco at 1032, citing 27 C.F.R. § 13.41 (2001); Bronco

Wine Co. v. United States Dept. of Treasury , 997 F.Supp. 1309 (1996); 27 C.F.R. § 13.51 (2002).

Further, the court continued, “[i]f a COLA is revoked by operation of law or regulation, no

notice or hearing is required[; and, t]he holder must voluntarily surrender its COLA.” See

Bronco at 1032, citing 27 C.F.R. § 13.51 (2002) . Finally, with regards to the

legislative/regulatory “expression” factor, the court noted that the BATF has expressed that ‘a

COLA ‘was never intended to convey any type of proprietary interest to the certificate holder.’

See Id. at 1032. With its analysis of the relevant factors related to the amount of regulation to

which COLAs are subject, the Court concluded that “…a COLA does not constitute property

under the takings clause because wine labels are highly regulated, must be approved before wine

is shipped in interstate or foreign commerce and serves only as an enforcement tool that may be

revoked by BATF officials upon modification of BATF regulations.” See Bronco at 1032.

b. “Taking” of Brand Equity:

Bronco argued that, even if the COLA did not constitute a protected property interest,

Bronco suffered an unconstitutional taking because it was deprived of its brand equity value. See

Bronco at 1033. Unlike with the COLA analysis, which was concluded after a finding that the

32

Page 33: Rafael Recalde, Esq. on Wine Law

COLAS did not constitute a protectable “property interest,” the brand equity analysis focused on

whether or not there was a “taking” of the protected property interest. For this analysis, the court

applied a test that analyzed the following three factors: 1) “…‘the economic impact of the

regulation on the claimant…[;]” 2) “…the extent to which the regulation has interfered with

direct investment-backed expectations…[;]” and, 3) “…the ‘ character of the governmental

action’-for instance, whether it amounts to a physical invasion or instead merely affects property

interests….” See Bronco at 1035, citing ( Lingle v. Chevron , 544 U.S. 528at 538, 125 S.Ct. at p.

2082); (Penn Central, supra, 438 U.S. at p. 124, 98 S.Ct. at p. 2659, 57 L.Ed.2d at p. 648;

Keystone, supra, 480 U.S. at p. 495, 107 S.Ct. at p. 1247, 94 L.Ed.2d at p. 494.) The court noted

that it “…may dispose of a takings claim on the basis of one or two of these factors. See Bronco

at 1035, citing Maritrans Inc. v. United States (Fed.Cir.2003) 342 F.3d 1344, 1359; Ruckelshaus

v. Monsanto Co., supra, 467 U.S. at p. 1005, 104 S.Ct. at p. 2874, 81 L.Ed.2d at p. 834; Andrus,

supra, 444 U.S. 51 at pp. 65-68, 100 S.Ct. 318 at pp. 326-328, 62 L.Ed.2d at pp. 222-224.)

A. Character:

The court thus first reviewed the character of the governmental action. It t noted that,

“[i]n considering the character of the governmental action, the court has said that a taking more

readily may be found when the interference with property is characterized as a physical invasion

by the government rather than when it arises ‘from some public program adjusting the benefits

and burdens of economic life to promote the common good.’” See Bronco at 1035, citing Penn

Central, supra, 438 U.S. at p. 124, 98 S.Ct. at p. 2659, 57 L.Ed.2d at p. 648. Where takings

legislation “…promotes ‘the health, safety, morals, or general welfare..’” it will be “…upheld as

a valid exercise of the police power.” See Bronco at 1036, citing Penn Central, supra, 438 U.S.

at p. 125, 98 S.Ct. at p. 2659, 57 L.Ed.2d at p. 649. Because the California statute was not a

33

Page 34: Rafael Recalde, Esq. on Wine Law

“physical taking” and was enacted in exercise of the State Legislature’s police power “…to

prohibit the use of a brand name that is misleading to consumers and threatens to undermine the

valuable reputation of California's premier wine growing region,” the court found that the nature

and character of the state action did not constitute a taking. See Bronco at 1036.

Clearly, a Federal regulation “clawing back” the use of “semi-generic” names would not

be an exercise of “police power” because such powers are reserved to the states by the Tenth

Amendment of the U.S. Constitution. See U.S. Const. Amend. X. Federal action to “claw back”

the use of “semi-generic” names would, in effect, result in revoked COLAs and would thus be a

valid exercise of Federal’s power to regulate of interstate commerce. See 27 C.F.R. § 13.11

(2006)(describing COLAs and Certificates of Exemption from Label Approvals as regulations

which govern labels for wine that is being introduced into interstate commerce). The same

analysis would apply, however, even though the action would be taken by a federal, rather than

state, governmental body. “Courts generally evaluate allegations that actions taken by the

federal government pursuant to federal regulations constitute a Fifth Amendment takings on an

ad hoc basis and consider a variety of pertinent factors, including the character of the

government action, the economic impact of the regulation on the property owner and on public

land and resources, and the extent to which the regulations interfere with reasonable investment-

backed expectations. See Klump v. U.S.  38 Fed.Cl. 243, 248 (Fed.Cl.,1997)(cited in Bronco),

citing, Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1030-31, 112 S.Ct. 2886, 2901,

120 L.Ed.2d 798 (1992) (describing the factors to be considered in a “total taking” inquiry);

Penn Central Transp. Co. v. New York, 438 U.S. 104, 124, 98 S.Ct. 2646, 2659, 57 L.Ed.2d 631

(1978). Thus, because there would be no “physical” taking involved and because the action

34

Page 35: Rafael Recalde, Esq. on Wine Law

would be a valid exercise of federal powers under the Commerce Clause, the character of the

action would likely be found not to amount to a “taking.”

B. Economic Impact

With regards to the economic impact of the regulatory action in Bronco, the court applied

the rule that a regulation “…does not constitute a taking when the regulation only diminishes

rather than eliminates property value…or prohibits the property's most beneficial use.” See

Bronco at 1036, citing Penn Central , supra, 438 U.S. at p. 131, 98 S.Ct. at pp. 2662-2663, 57

L.Ed.2d at pp. 652-653; Andrus , supra, 444 U.S. at 65-66, 100 S.Ct. at 326-327, 62 L.Ed.2d at p.

223), Maritrans Inc. v. United States, supra, 342 F.3d at pp. 1356-1359. (Internal citations

moved to end of passage). In holding that the value of Bronco’s property was diminished, rather

than deprived, the Court in Bronco applied the Supreme Court’s ruling in Andrus (supra) that

“…where an owner possesses a full ‘bundle’ of property rights, the destruction of one ‘strand’ of

the bundle is not a taking, because the aggregate must be viewed in its entirety.” See Bronco at

1037, citing Andrus at pp. 65-66, 100 S.Ct. at pp. 326-327, 62 L.Ed.2d at pp. 222-223. With this

regard, the Court found significant that Bronco is still able to “use its Brands for wine made with

grapes grown in the geographic area named and may continue to sell its value wine under brand

names that are not geographically misleading.” See Bronco at 1037.

In a challenge to federal regulations repealing the permitted use of “semi-generic” names,

American growers with brands containing “semi-generic” names will have a powerful argument

that they are no longer able to use these brands because it would be impossible for these

companies to grow grapes within the “geographic area named” if these companies are to limit

their business activity to United States territory. However, these companies would not be

35

Page 36: Rafael Recalde, Esq. on Wine Law

deprived of their ability to continue selling its wine “…under brand names that are not

geographically misleading.” See Bronco at 1037. Moreover, they will still be able to use their

brands, even with the geographical origins, if these companies venture to invest in overseas

production in the named geographical areas. A counter-argument that having to grow grapes in

these areas would prove prohibitively expensive would likely fail because there are many

companies who engage in the described activity and because in Bronco, too, the court suggested

alternative of growing grapes within the named geographic area presents a much more costly

alternative to continuing to mislead consumers and was nevertheless found to be an available

alternative by the court. See Bronco at 1037 (holding that “[t]he possibility that Bronco's future

profits may be diminished does not entitle it to ‘just compensation’ under the Fifth Amendment”)

(citing Andrus, supra, 444 U.S. at p. 66, 100 S.Ct. at p. 327, 62 L.Ed.2d at p. 223) .

Based on similar rationale, the court in Bronco rejected the argument that a regulation

which prevents the most profitable use of a property constitutes a taking. See Bronco at 1037,

(citing Andrus, 444 U.S. at p. 66, 100 S.Ct. at p. 327, 62 L.Ed.2d at p. 223 for the proposition

that “[p]rediction of profitability is essentially a matter of reasoned speculation that courts are

not especially competent to perform. Further, perhaps because of its very uncertainty, the interest

in anticipated gains has traditionally been viewed as less compelling than other property-related

interests.”). The court thus concluded that there was no taking because California law did “…

not bar Bronco from using its Brands under all circumstances” and that Bronco therefore did not

establish that “…the statute…destroyed the substantial economic value of its Brands.” See

Bronco at 1037. A similar result would likely be reached in a federal challenge to a law

“clawing back” the permitted use of “semi-generic” names.

VIII. Conclusion and Suggested Solution:

36

Page 37: Rafael Recalde, Esq. on Wine Law

To summarize, the reasons for which current policies regarding “semi-generic” names

must be repealed from current US-EU wine relationships are compelling. Geographical

indications serve an important role in informing consumers about the source of origin of the wine

that they purchase and, as polls show, consumers are increasingly becoming concerned with the

source of origin of their wine. See Hall, Jenifer and Laura Lightbody, “Poll Shows Majority of

U.S. Wine Purchasers Against Misleading Labels: Consumers’ Concern Comes as Second

Anniversary of Bilateral Trade Agreement Brings No New Action.” The Center for Wine

Origins, supra. As a result, the majority of American consumers are demanding that deceptive

and misleading labels no longer be utilized by American wine producers. See Id.

There are, however, legal, political, and economical barriers. As I have discussed above,

the legal and Constitutional implications are surmountable and therefore not barriers for the

changes that would be necessary in order to repeal the permitted use of “semi-generic” names

from U.S. laws and from wine relations between the U.S. and the E.U. Political and economic

matters, however, do present some barriers. But while the political pressures preventing the

necessary changes, and the producers that would be affected by such a changes are real, the

deceiving nature of the use of names of geographical indications by producers who are not

growing grapes in the named areas is real as well, and the changes must therefore be made

despite these challenges. To make the repeal of “semi-generic” names politically and

economically possible, it should be undertaken over time as a “claw back,” rather than through a

rule that would be effective immediately. Indeed, both the EU-US Wine Agreement and TRIPS

take into considerations the difficulties that are involved in implementing such changes and call

for future negotiations. The possible solution is for subsequent agreements to provide

“transitional periods” during which the U.S. would be obligated to prohibit the use of the various

37

Page 38: Rafael Recalde, Esq. on Wine Law

“semi-generic” names. The wine agreement between the EU and Australia, for instance,

provides for such transitional periods as follows:

As from the date of entry into force of this Agreement, every endeavour

shall be made by the Contracting Parties to agree, by 31 December 1997 at

the latest, on transitional periods for the [semi-generic] names referred to

in Articles 8 and 11. The length of the transitional periods may differ to

take account of the commercial significance to both Contracting Parties

and the number of names used by Australia.

See Agreement between Australia and the European Community on Trade

in Wine (March 1, 1994), Article 9.

Europe has, for centuries, used geographical indications as a means of providing

information to consumers regarding specific products and has utilized stringent methods to

ensure that the quality of the products that come from these geographical regions retain the

consistency and credibility that is necessary for many European geographical indications to

maintain their global status. Similarly, it is in the best interest of the United States to continue to

protect and promote its own AVAs, such as Napa Valley, and the geographical indications of

products such as Florida Oranges and Idaho Potatoes through international treaties, internal

regulations, and through the use of selective and strict labeling mechanisms similar to those

which have, for so long, been used by Europe. In order to promote such protection, the U.S.

must respect international geographical indications, including those which the U.S. has long

denied through the “semi-generic” classification that currently exists in U.S. law and that is

currently permitted through the agreements that govern U.S.-E.U. wine relations.

38

Page 39: Rafael Recalde, Esq. on Wine Law

39