Unfortunately, there are no mulligans when it comes to beer contracts….

Many years ago, Diageo requested that all their U.S. beer distributors for Guinness sign a distributor contract.  At the time, less than half Diageo’s U.S. distributors had signed any document with Diageo.  With the promise from their Distributor Advisory Committee, Diageo set out to construct a contract which could, and would, be agreeable with both parties.  It took two years for both sides to come to acceptable language, but the document was completed and sent to every distributor for execution. Once again, only half agreed to sign the document as written!  This is not news, as we all know.

Recently a large wholesaler, in negotiating a beer agreement, changed the brewer’s QA standards to the wholesaler’s internal standards!  Now just where does a wholesaler start to determine what a brewer’s QA standards should be?  I can see a wholesaler telling a brewer, like AB, MC, Constellation, Boston or Heineken, that the wholesalers QA standards are in play, not theirs.  I am sure the brewers would all go for that.

While there are multiple points of contention in the contract, one major issue is pricing.  In 2007, the U.S. Supreme Court made the following ruling which was the subject of a post in September of 2012:

In the mid 70’s, Coors Brewing Company was reprimanded and placed under a two-year moratorium regarding price discussions when a conversation between the brewery and a wholesaler was recorded by the later. From that point forward, the talks on pricing between wholesalers and vendors always included the words “recommended” or “suggested” in the discussions, and all price letters to wholesalers had the language “we recognize your right as an independent wholesaler” and “businesses to set your prices accordingly.”

Leegin Creative Leather Products, Inc. v. PSKS, Inc. 551 U.S. 877 (2007), is a U.S. antitrust case in which the United States Supreme Court reversed the 96-year-old doctrine that vertical price restraints were illegal per se under Section 1 of the Sherman Act.  The afore mentioned case replaced the older doctrine with the rule of reason. Resale price maintenance (RPM) is the practice whereby a manufacturer and its distributors agree that the distributors will sell the manufacturer’s product at certain prices: at or above a price floor, or, at or below a price ceiling. If a reseller (distributor) refuses to maintain prices, either openly or covertly, the manufacturer may stop doing business with said wholesaler. This marked a dramatic shift on how attorneys and enforcement agencies addressed the legality of contractual minimum pricing, and essentially allowed the reestablishment of resale price maintenance in the US in most commercial situations.

No doubt that beer prices, led by crafts, could be more aggressive in the coming year.  Vendors do have a right to discuss partners’ pricing with their wholesaler.  Even though it has been 10 years since the above Supreme Court ruling, there have been no further rulings which clarify this case.

The industry is changing, but both wholesalers and their attorneys need to be aware that their contractual demands will not work for vendors, or even the courts.  The fact that wholesalers are awarded distribution rights for free, and that they are protected with federal and state statues, written with input from wholesalers, yet the wholesalers still slants contracts.

Unfortunately, there are no mulligans when it comes to beer contracts…..