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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
Clawing Back the Grandfather Clause of the EU-US Wine Agreement
Wine Law
Rafael Recalde
April 26, 2008
1
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
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
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
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
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
“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
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
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
“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
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
(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
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
(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
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
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
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
“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
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
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
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
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
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
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
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
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
…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
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
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
(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
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
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
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
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“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
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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
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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:
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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
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“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.
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