ARTICLE

Originally published in Vineyard & Winery Management - Nov/Dec, 1997

A memorable play by Henrik Ibsen dramatizes a small town's conflict involving pressing economic interests versus truth in advertising. The plot revolves around the discovery of a potential health threat in a resort town's hot springs and how residents face the dilemma of whether to publicize the problem, to the detriment of their only livelihood — tourism, or let it remain a hidden issue.

The wine industry currently faces a similar, though less melodramatic, challenge. Rising domestic grape prices and limited supplies have driven many wineries to turn to nontraditional grape sources to keep the shelves stocked with wines at the price-points their customers demand. These "non-traditional" grape sources include swapping imported bulk wines for domestic brands, and California state appellation wines for brands identified with smaller regions.

Every businessperson can sympathize with the economics involved. In most cases the marketing and labeling decisions are understandable and without subtlety or subterfuge. But it behooves the industry to be concerned with broader, longer-term issues: Are consumers being misled, whether inadvertently or intentionally? Are these changes in purchasing and marketing patterns hurting growers, whose net worth inflates or deflates depending on the reputation of their location? Are wineries hurting their own long-term interests by teaching consumers that appellations aren't important, and introducing consumers to the merits of foreign wines?

This real life drama, now playing in federal court, has become the source of an extensive ATF investigation. ATF spotlighted the issue when it took action last year against Bronco Wine Company's sales and promotion of a brand of wine called Rutherford Vineyards, which contains no Rutherford fruit. Federal regulators seized 32,000 cases of wine during the holiday sales season.

In response Bronco promptly filed a lawsuit against the agency. In court, Bronco defended its actions by stating that BATF tacitly condoned the use of the Rutherford Vineyards brand on California appellation wine by approving the company's labels. The winery also pointed to ATF's historically inconsistent and lax enforcement of labeling regulations meant to protect the use of viticulturally-significant brand names, naming other industry members using similar labeling practices. Several other wineries have now been implicated in ATF's continuing investigation, while grape growers organizations and North Coast county district attorneys have spoken out against misleading labels.

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The Regulations Involved

Section 4.39(a)(1) of the labeling regulations makes it illegal to make any statement on a label that is "false or untrue in any particular, or that, irrespective of falsity, tends to create a misleading impression."

This regulation gives ATF broad discretionary powers, and is the source of many of the unwritten label approval policies that currently restrict what can be said on labels-health statements, for example.

Section 4.39(i) of the wine labeling regulations makes it illegal to use a brand name of viticultural significance, unless the wine meets the appellation of origin requirements for the named geographical area. The regulation makes only one exception to this rule, for brand names used by the permittee involved on existing certificates of label approval issued prior to July 7, 1986. For those brands, the label must meet one of the following three conditions:

  1. The wine must meet the appellation of origin requirements for the named geographical area; or
  2. the wine must be labeled with an appellation of origin which is either (i) a county or viticultural area, if the geographic area named in the brand is smaller than a state, or (ii) a state, county or viticultural area, if the geographic area named in the brand is a state; or
  3. the wine is labeled with a statement which dispels the impression that the brand name is indicative of the origin of the wine.

A name has viticultural significance if it is the name of a state, a county, a viticultural area, or if it has been "found to have viticultural significance" by ATF.

Section 4.39(k) prohibits the use on labels of "other statements, designs, devices, or representations which indicate or infer an origin other than the true place of origin of the wine." Section 4.64(g) places a similar restriction on advertising. It makes it illegal to "create the impression that the wine originated in a particular place or region... unless the label bears an appellation of origin and such appellation of origin appears in the advertisement in direct conjunction with the class and type designation."

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The Labeling Involved

Bronco's Rutherford Vineyard label was legal under Section 4.39(i) when that label was first introduced by the winery (which was, by the way, long after July 7, 1986). At that time, the wine met the appellation of origin requirements of the Rutherford area. Subsequently, the appellations of the wines were changed so that they were no longer entitled to the name "Rutherford" but ATF kept approving labels, by mistake.

Other labeling practices currently under scrutiny are not so obviously illegal, but arguably fall within the category of "misleading." For example:

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More Regulation Coming?

Can ATF use existing regulations and its discretion under Section 4.39(a)(1) to prevent appellation abuses, or will more rulemaking be required? Although ATF has liberally wielded its power to interpret labels as misleading in the past, its inconsistent track record in policing geographical terminology on labels may have created precedents that weaken its position. In the pending Bronco case, for example, the judge supported the winery in pursuing its claim that ATF label regulations are 'arbitrary and capricious.'

Several growers' organizations are currently planning to actively work with BATF after crush to help identify place names of viticultural significance and suggest new regulations to protect the names of growing areas.

Suggestions may include:

Surely no one in the industry is anxious for more regulation. But clarity in appellation of origin labeling is a worthwhile goal — it preserves diversity of choice, better educates our consumers, and keeps competition fair. Sounds like a world I'd like to live in!

Let's try to achieve it through discussion and agreement. But if the goal of clear labeling cannot be achieved without more regulation, a little more regulation in this area may be needed to support the industry's long term best interests.