If You Pay-to-Play, You Could Really....Well....PAY!
Eight months ago, we commented on the largest distributor of craft beer in Massachusetts' decision to pay a $2.6 million fine (in lieu of a license suspension) to the Massachusetts Alcoholic Beverages Control Commission for its role in paying retailers tens of thousands of dollars to carry its beers and freeze out competitors. On November 16, 2016, the Alcohol Tobacco and Trade Bureau (TTB) accepted an offer of compromise from the Massachusetts distributor in the amount of $750,000.
According to the offer, the distributor "allegedly paid 'slotting fees' by furnishing things of value to various retailers in order to obtain favorable product placement and shelf space in violation of the tied house and/or exclusive outlet provisions of the Federal Alcohol Administration Act." To add insult to injury, the distributor was recently sued by an importer alleging the pay-to-play activity caused $1.7 million in damages.
Similar laws govern Ohio's breweries and wholesale distributors. Rule 43(A)(2) of the Rules of the Liquor Control Commission prohibits breweries and wholesale distributors from offering or giving to any retailer or wholesaler
"any premiums, gifts, discounts based on quantity of sales or any other reason, cash discount sales, rebates, or kickbacks, either in money, merchandise, or thing of value."
If an Ohio brewery engages in pay-to-play, the State can revoke or suspend their permit, or in lieu of a suspension, issue an order allowing the brewery to elect to pay a fine for each day of the suspension as follows:
- If no violation in the past 2 years, $100-200 fine per day of suspension
- If one violation in the past 2 years, $200-400 fine per day of suspension
- If two violations in the past 2 years, $300-no cap fine per day of suspension
- If more than two violations in the past 2 years, $500-no cap fine per day of suspension (State and not the brewery elects whether a fine will be permitted in lieu of suspension)
According to the TTB, it is "committed to ensuring a level playing field for law-abiding industry members. This sort of pay to play activity is incompatible with fair competition and will be actively investigated by the TTB."
Real consequences, monetary and otherwise, can result from a breweries failure to comply with the law. Breweries can save significant expense by ensuring its actions are in line with Federal and State law.
Contact OBC with questions.