Regulating Third Party Marketers
NABCA 19th Annual Legal Symposium on
Alcohol Beverage Law & Regulation
March 6, 2012
Lynne Carmichael
Hinman & Carmichael LLP
260 California Street, Suite 1001
San Francisco, CA 94111
TEL: 415-362-1215
Carmichael@beveragelaw.com
www.beveragelaw.com
Jeff Carroll
ShipCompliant
1877 Broadway, Suite 1703
Boulder, CO 80302
TEL: 303-996-2343
jeff@shipcompliant.com
www.shipcompliant.com
Harlan C. Powell
Webster Powell, P.C.
320 West Ohio St., Suite 501
Chicago, IL 60610
TEL: 312-587-8800
hpowell@lawwp.com
www.lawwp.com
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State and Federal Alcoholic Beverage Law: Only
licensees may exercise license privileges.
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Includes:
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Purchasing decisions.
Pricing decisions.
Fulfillment of orders.
Profiting from sale of alcoholic beverages.
Biggest issue tends to be fees for services
provided—if based upon sale of alcoholic
beverages (such as percentage basis) then
problematic.
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State and Federal Alcoholic Beverage Law: Suppliers
cannot supply anything of value to retailers unless
specifically allowed.
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Includes:
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Shelf-stocking.
Point-of-sale materials.
Wine lists – on tablets?
Directing consumer orders to particular retailers with
three-tier interstate retail deliveries?
Biggest issue tends to be suppliers indirectly providing
something of value to retailers—even if there is an
exception for providing the service.
 Distinguishing Characteristic – the
third party controls the customer base, has
invested in the customer experience and
has a stake in the customer experience
being positive.
 Compensation: Licensee pays Wine
Club a royalty or other fee for access to
membership base and right to use Wine
Club trademark and membership list in
different ways.
Defining Characteristic: Use of multiple
media, such as video or TV, to reach
consumer with visual sales message, either
live or taped. Order information often
processed by telephone banks.

Compensation formula: percentage of total revenue produced
through medium.
Potential Problems: order acceptance process and payment protocols
“operators standing by…”
 Customer virtually directed to
retailer or winery.
 Licensee accepts and processes the
sale.
Customer clicks on product.
Compensation: percentage of
revenue based on traffic through site
Potential Problem: Customers want to have one shopping
cart for all their purchases. This will not work with alcoholic
beverages under direct shipment permit regulations.
One-time, limited-offer, purchase.
Customer buys a voucher from flash site for a
specific product (or is directed to seller’s site).
 Customer redeems voucher at retail or producer
licensee location.
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Potential Problem: When the flash site controls the
customer and the transaction.
INDUSTRY ADVISORY
Third Party Providers
In June 2009, the Department issued an Industry Advisory entitled “Unlicensed Third Party Service Providers.” In
that Advisory, the Department expressed concern about activities engaged in by unlicensed providers of certain
services to licensees in connection with the sale of alcoholic beverages, particularly in the context of Internet sales.
A number of regulatory issues and concerns were identified. Since the issuance of that Advisory, the Department has
received numerous inquiries seeking clarification or further guidance in the context of various unlicensed activities
and licensee relationships with unlicensed service providers. In response, in February 2011, the Director of the
Department asked stakeholders to present an evaluation of the different types of services offered and to address
issues posed by existing laws and regulations. The Department was consulted throughout this process and worked
with stakeholders to address the issues presented.
Although the Department remains concerned that certain activities by Third Party Providers may violate California
law, particularly in the areas of sales by a person without a license and the exercise of impermissible control of a
licensee by a person without the privilege of that license (Business and Professions Code section 23300), the
Department believes that licensees and Third Party Providers can form business relationships that facilitate lawful
transactions for sales of alcoholic beverages over the Internet. Accordingly, the Department now issues the following
advisory guidelines to assist licensees and unlicensed Third Party Providers in complying with California law:

For the purposes of this advisory, the term “Third Party Provider” refers to unlicensed entities that are
involved with the promotion, marketing, and facilitation of sales of alcoholic beverages by licensees over the
Internet. Third Party Providers are involved in one or more of the steps in the transfer of title of an alcoholic
beverage from a licensee to a consumer, such as placement of advertising, making recommendations to
consumers, directing consumers to licensees, receiving orders and passing them on to licensees, processing
payments, and assisting with shipping arrangements.
October 2011
Third-Party Merchandisers/
Demo Companies
• 3rd party merchandisers are agents of the
licensee and may perform services that the
licensee may lawfully perform itself…
▫ BUT they may not be involved at all in the sale
transaction or take title (i.e., pay for) the products
being demonstrated/poured for customers.
The TTB is “in the enforcement business”
-John Manfreda, Administrator, at NCSLA, Chicago, IL. June 30, 2008 and Nashville June 18, 2009
HEADLINES FROM TTB.GOV
IN 2011, TTB ACCEPTS offers in compromise totaling $1.9 million from
six industry members alleged to have violated the federal tied house
“slotting fee” provisions with regard to advertising and display items
furnished to Harrah’s Hotels and Casinos in Las Vegas by
a third-
party merchandising company.
In June of 2012, the TTB issued a
circular regarding industry members’
participation in retail programs . . .
Industry Circular
DEPARTMENT OF THE TREASURY
Alcohol and Tobacco Tax and Trade Bureau
Number: 2012-01
Date: January 11, 2012
To: Proprietors of Distilleries, Bonded Wineries, Bonded Wine Cellars and Breweries, Importers and Wholesalers of Distilled Spirits, Wines and
Malt Beverages, and Other Interested Parties.
1. What is the Purpose of this Circular?
The Alcohol and Tobacco Tax and Trade Bureau (TTB) issues this industry circular to inform all industry members and other interested parties of the Bureau's position regarding
participation in retail promotional programs. In this circular, TTB provides guidance on its views of several permissible and impermissible activities for industry members who
provide promotional support to alcohol beverage retailers. The circular also reminds industry members that furnishing things of value to alcohol beverage retailers for the purpose of
obtaining the retailer's express or implied agreement to place the industry member's products on any particular shelf or in any particular display space may result in Tied-House
violations of the Federal Alcohol Administration Act (FAA Act), 27 U.S.C. 205(b).
2. What is TTB's Authority to Issue this Guidance?
TTB administers the Tied-House provisions of the FAA Act as promulgated under Title 27, Code of Federal Regulations (CFR), part 6 (27 CFR part 6). The part 6 regulations,
among other things, restate the statutorily prohibited means to induce, including but not limited to furnishing, giving, or selling any equipment, fixtures, signs, supplies, money,
services, or other things of value to a retailer, subject to the exceptions listed under Subpart D (27 CFR 6.81 – 6.102), or the "Subpart D" exceptions or items. TTB regulation 27
CFR 6.21(c) deems certain things of value, such as product displays, point of sale advertising materials, equipment and supplies, and outside signs, as limited exceptions to the
general rule that furnishing things of value to retailers constitutes an unlawful inducement.
TTB's regulations deem a promotion wherein an industry member rents display space at a retail establishment (i.e., where the industry member pays "slotting allowances") as both
an interest in the retailer's property, as proscribed by 27 CFR 6.21(b) and a payment to the retailer for rendering a display service, as proscribed by 27 CFR 6.21(d). (See also 27
CFR 6.35 and 27 CFR 6.56.) Further, an industry member that purchases or rents display, shelf, storage, or warehouse space from a retailer places the retailer's independence at risk,
as outlined under 27 CFR 6.152(b).
3. What Action Has TTB Taken?
TTB recently settled a series of trade practice investigations wherein the Bureau alleged violations under § 6.21(b), (c) and (d) that involved several industry members' participation
in a retailer-initiated alcohol beverage promotional program. TTB alleged that through this promotional program, industry members directly or indirectly furnished retailers with
things of value that were subject to the Subpart D exceptions, as well as things of value that were not subject to such exceptions. TTB further alleged that the specific purpose for
furnishing these things of value was to assure preferential shelf and display space for the participating industry members' alcohol beverage products. Specifically, the retailer and the
industry members mutually agreed that the retailer would place the participating industry members' products in specific locations within the retailer's premises.
It is the industry member's responsibility to review, evaluate, and provide guidance to the
third-party promotional company to ensure that the funds provided to the third-party
promotional company are used in compliance with all Subpart D requirements. The
industry member should be especially mindful if the selected third-party promotional
company is owned, created, operated, or controlled by the retailer or is in any way acting
on behalf of the retailer. In such cases, TTB may consider the industry member's
furnishing of funds to the third-party promotional company as an indirect means to induce
to the retailer.
Best Practices for Industry Members
• The supplier shall make NO fees or other payments
for participating in merchandising activities to the
retailer or anyone acting on the retailer’s behalf.
• The retailer shall make ALL decisions concerning the
purchase, placement, promotion, pricing, inventory
and stock management of all alcoholic beverage
products.
• A supplier or its agent shall make only
recommendations to the retailer – identify them as
recommendations only.
• A supplier or its agent shall not touch any
competitor’s product in any retail store. Avoid
involvement with any aspect of a competitor’s
activities with the retailer.
• Educate agents with respect to these practices.
• Use a Certificate of Compliance!
Jeff Carroll
3/6/2012
(888) 449-5285
Ensuring Licensee Control
info@shipcompli
ant.com
(888) 449-5285
info@shipcompli
ant.com
Product Availability
Licensee controls which
products are available, and
the inventory quantities.
Fulfillment
Licensee controls fulfillment
and delivery times.
State Availability
Only list products that are
available in the
consumer’s state
(888) 449-5285
info@shipcompli
ant.com
Sales Tax
Collect accurate destinationbased sales tax based on
licensee’s preferences. Tax
collected is passed to the
licensee.
Licensee Display
Make sure licensee is
presented clearly to
the consumer at
checkout and on any
consumer invoices.
Address Validation
Thorough address
validation performed prior
to compliance checking.
Compliance at Time of Transaction
• Address validation
• Accurate sales tax collection (based on licensed seller’s
tax policies, which will differ from licensee to licensee)
• Age verification (use a third party like Lexis Nexis or
IDology
• Compliance check (against licensed seller’s permit)
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License verification
Dry areas
Volume limits
Product registration
State-specific rules
• Payment authorization (do not capture funds)
Licensee Acceptance
• Important to give the licensee an opportunity to reject or
accept the request
Payment Capture
• Capture funds after licensee acceptance and
shipment notification
• Payment Processing Examples:
▫ Single merchant account that settles into a trust
account, which is then disbursed to licensee and
service providers
▫ Dynamic gateway – merchant account of licensee
used, funds settle directly into licensee’s bank
account
Funds Disbursement
• Happens on a periodic basis (weekly, for
example)
• Licensed seller pays advertiser for services
• Licensed seller pays for shipping and fulfillment
services