The Wine Trade Dispute Between the United States and the European Union
an interview with Richard Mendelson of Dickenson, Peatman & Fogarty
Crystal Blum | University of California, Davis, School of Law
Mihaella Smith | University of California, Davis, School of Law
Posted Saturday, May 1, 2004
4 U.C. Davis Bus. L.J. 14 (2004)

Q: What is wine appellation and what is its importance to the wine industry?

A: An appellation of origin for wine in the U.S. informs consumers of where the grapes are grown that are used to produce a particular wine. Although the U.S. has limited experience with products of place (examples being Indian River navel oranges in my home state of Florida and Maui onions in Hawaii), the influence of grape source on wine is recognized worldwide. Grapes grown in particular sites reflect those natural factors and affect the taste of the wine, otherwise referred to as gout de terroir.

Whereas the Old World wine appellations of Europe control both natural and human factors as part of their appellation systems, U.S. wine appellations indicate only the provenance of the grapes. We don't control the vineyard spacing, clonal selections, grape varieties, harvest date or any other aspect of grape growing or wine production through our appellation system. Moreover, our appellations do not guarantee 100% grape origin from the named appellation. A Lake County Pinot Noir, for example, must be made from only 75% Lake County grapes, and a Sonoma Valley Cabernet Sauvignon must be made from only 85% Sonoma Valley grapes, the difference being that the former is a county appellation and the latter is an "American viticultural area" (AVA) that TTB has established through a public rulemaking process. I should add that there is a new Napa Valley 100% logo that certifies that the wines which carry the logo are produced and bottled wholly inside the Napa Valley from 100% Napa Valley grapes.

In recent years, wineries have relied increasingly on appellations to differentiate their product offerings and to take advantage of the growing reputation of certain wine appellations. This collective value added is what appellations are all about. The best of them - Napa Valley Cabernet Sauvignon, Russian River Pinot Noir, Walla Walla Merlot - are distinctive and highly prized.

Q: Describe the historical backdrop against which the conflict over wine appellations between the United States and European Union has developed.

A: There is no real conflict over the different types of appellation systems in Europe and the U.S. - one controlled, the other not. The controversy stems from the alleged "usurpation" of certain French appellation names in the U.S., most notably, Champagne, Chablis and Burgundy, which can be used in the U.S. to designate a type of wine if the label carries the true appellation of origin in direct conjunction with that name (e.g., California Champagne for a sparkling wine made from California grapes). Lawsuits on this subject in the U.S. date back to the early 1900s and establish that these Old World names have become, at least in part, generic terms for wine types in the U.S. The Europeans want to reclaim these semi-generic names for use only on wines grown and produced in the original appellations.

Q: The Trade Related Intellectual Property agreement (TRIPs), under Articles 22-24, seeks to protect wine appellations more vigorously than any other international commodity currently in the market. What are current guidelines set out in TRIPs for the protection of wine appellations?

A: TRIPs recognizes wine appellations as valuable intellectual property rights and seeks to protect them from misuse. The major thrust of TRIPs is to ensure that consumers are not deceived by misdescriptive geographic references on wine labels. One of the debates in the current round of multilateral trade negotiations is whether to extend special protections for wine to other commodities. The U.S. government opposes such an extension.

Q: How are wine appellations and geographical indications protected in the United States?

A: The U.S. is a brand-driven economy. We guarantee consistency and quality to consumers through our brands, with names like McDonalds, Coca Cola and Gap. We have less experience with products tied to a specific origin, where a multitude of producers share the rights to use a name. We don't have as well-established a legal system for protecting geographic names. The Treasury Department's Alcohol and Tobacco Tax and Trade Bureau (TTB, formerly the Bureau of Alcohol, Tobacco and Firearms or ATF) took the first steps to establish a formal appellation program for wine in the U.S. in 1978. Twenty-six years later, this system still is evolving. Today we have several notable conflicts between appellations and geographic trademarks in the wine sector, including the battle between Santa Rita (the Chilean winery) and Santa Rita Hills (the AVA) and the case of Bronco Wine Co. v. State of California and Napa Valley Vintners Association, 104 Cal. App. 4th 598 (2002), presently pending before the California Supreme Court.

Q: One of the overall goals of TRIPs is to protect consumers from deceptive labeling practices. Are American wine consumers misled by current labeling practice?

A: TTB enforces its wine labeling regulations through the issuance of Certificates of Label Approval for each wine, domestic or foreign, offered for sale in the U.S. As in European countries, there are mandatory labeling requirements, optional information and prohibited practices. Clearly the more sophisticated wine consumers are better able to comprehend wine labels, including what is said and what is not said. For example, a grape variety name such as Chardonnay can be used on a wine label under federal regulations if at least 75% of the grapes in that wine are Chardonnay. The producer might choose to tell the consumer what variety the other 25% of the grapes are, but that is not required. In some instances, producers or appellation groups go out of their way to tell the consumer more, not less, about the wine. Napa Valley's new 100% logo is an example.

Q: Bronco Wine Co. v. State of California and Napa Valley Vintners Association, 104 Cal.App.4th 598 (2002) is a current and controversial case concerning the use of certain Napa wine appellations currently pending before the California Supreme Court. Can you briefly describe the issue and which way you believe the Court will rule and why.

A: The case of Bronco Wine Co. concerns that company's purchase and subsequent use of a number of wine brands which include Napa appellation names like Napa Ridge, Napa Creek and Rutherford Vintners on wines that are not made from Napa grapes. Because the purchased labels are all "grandfathered" under TTB's labeling regulations (27 CFR 4.39(i)), Bronco can use those brand names misdescriptively so long as the true appellation is shown on the label, e.g., Napa Creek North Coast Zinfandel. The Napa Valley Vintners Association, whom our law firm represents, conducted a survey that shows that consumers are deceived by these labels and mistakenly believe that these are Napa wines.

The California legislature came to the same conclusion and passed a state law (Business and Professions Code Sec. 25241) requiring Napa-named wines to be made from at least 75% Napa County grapes. Bronco sued, and the Court of Appeal, Third Appellate District, invalidated the state law on grounds of implied federal preemption. The case is now pending before the California Supreme Court, with a decision expected by the end of 2004.

Q: Will the issue in Bronco Wine Co. ever be heard by the United States Supreme Court?

A: I have no way of knowing if the case will end up before the U.S. Supreme Court. Implied preemption under the Federal Alcohol Administration (FAA) Act is an issue of first impression that could affect future federal and state powers over alcohol. Our hope is that the California Supreme Court will recognize the right of California to prevent consumer deception and preserve the integrity of the Napa name by requiring all wines produced or sold in California that use Napa appellation names to be made from at least 75% Napa grapes. This is consistent with the objectives of both the FAA Act and TRIPs.

Q: As a United States winery owner yourself, do you feel that the current agreement is a fair compromise between the U.S. and EU winery owners or should further protection be granted to wines produced in the EU?

A: Personally, I have sympathy for the European position, although in the case of certain of the 16 semi-generics, U.S. producers have long-established, valuable rights to those names. Presently, Australian wine producers are phasing out their use of these names as part of a comprehensive bilateral wine trade agreement with the European Union. This same subject is being discussed between the EU and U.S. as part of the Wine Accords, which have not been finalized since the initial document was signed in 1983.