A violation of the FAA occurs where a producer of alcohol unlawfully induces a retailer to buy its products to the exclusion of products sold by others. In its most straight forward analysis, an example would be a large brewer that refuses to allow a bar owner to have their beer on tap unless they do not carry certain other beers. The difficulty with tied house rules is that there are many ways that a member of the industry, be it a producer, distributor or retailer, may unknowingly violate the provisions and not even realize that a violation has occurred.
Subject to exceptions in the FAA and its regulations, a producer of alcohol may not furnish, give, rent, lend, or sell to the retailer any equipment, fixtures, signs, supplies, money, services or other thing of value. How can that be? We all see signs from producers along with other point of sale advertising and consumer advertising of the producer at the retailer. This is because there is a set of rules designed to be exceptions to this blanket violation. Those exceptions include, for example, that the producer may give or sell to the retailer point of sale advertising designed to be used at the retailer to attract consumer attention. Think of posters, signs, coasters, napkins, clocks, etc. The producer may also sell or give to the retailer equipment or supplies that include glassware (and similar containers), dispensing accessories, carbon dioxide, or ice.
Additionally, a producer may furnish or give samples of distilled spirits, wine, or malt beverages to a retailer who has not purchased the brand from the producer within the last 12 months. Finally, a producer may furnish consumer coupons if all retailers within the market where the coupon is offered may redeem the coupon, and further providing that the retailer is only reimbursed for the face value of the coupon plus usual and customary handling fees.
These key exceptions to the tied house rules are defined in the regulations. Careful monitoring is important. It is critical to note that without proper recordkeeping by the producer, the exception to the tied house rules for the above is lost and the transaction will be deemed to constitute a means to induce another tier of the industry and thus a violation of the tied house rules under the FAA and its regulatory scheme.
Each producer must keep the following records on the production premises for a three year period. Commercial records or invoices may be used to satisfy this requirement if all of the below is referenced on that record:
- The name and address of the retailer receiving the item
- The date furnished
- The item furnished
- The industry member’s cost of the item furnished, and
- The charges to the retailer for any item
If you have question about any of your obligations under the FAA and its tied house provisions as a distiller, brewer, wine producer, importer, wholesaler or bottler, feel free to contact our office.